{"id":4355,"date":"2016-04-04T10:47:27","date_gmt":"2016-04-04T15:47:27","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/business-contracts-forms\/lessons-learned-the-hard-way-business-contracts.html"},"modified":"2024-06-06T01:02:12","modified_gmt":"2024-06-06T06:02:12","slug":"lessons-learned-the-hard-way-business-contracts","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/business-contracts-forms\/lessons-learned-the-hard-way-business-contracts.html","title":{"rendered":"Lessons Learned the Hard Way: Small Business Contracts"},"content":{"rendered":"\n
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Lessons Learned the Hard Way: Small Business Contracts<\/h1>\n
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\n By Amber Sheppard, Esq.<\/a> | Legally reviewed by Amber Sheppard, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

As small business owners, you’ve got a lot on your plate without worrying about legal pitfalls. You probably don’t have time to get a business law degree or look for a business attorney<\/a>. You’re busy trying to collect late payments, making sure you have cash flow, and taking care of the day-to-day business needs.<\/p>\r\n

Getting your agreements in writing (contracts<\/a>) is usually the last thing on your mind. Yet these contracts can make or break a small business. Even the most seasoned entrepreneurs have war stories of legal actions based on contracts, whether for vendors, partners, or independent contractors.<\/p>\r\n

Learn from these small business owners’ contract mistakes<\/a> to lessen the chances of having to take or defend legal actions.<\/p>\r\n

Types of Contract Mistakes<\/h2>\r\n

Most contract disputes could be avoided if the parties took the time to make their intentions and expectations clear to each other from the start.<\/p>\r\n

The best way to avoid the time-consuming and money-draining headache known as litigation<\/a>? Before signing on the dotted line, ensure you both have a contract and understand it.<\/p>\r\n

Contract mistakes<\/a> come in two forms: mistakes of law and mistakes of fact.<\/p>\r\n

Mistakes of Law<\/h3>\r\n

Mistakes of law are when you sign a contract not knowing a law governing it exists. This is a rare defense in contract law. It is used as a defense if the law was not yet published when you signed the contract.<\/p>\r\n

For example, you sign a contract to sell medical marijuana<\/a> in a state where it is legal. However, unbeknownst to you and the other company, that state outlawed medical marijuana earlier that day. No state allows contracts for illegal activity.<\/p>\r\n

Mistakes of Fact<\/h3>\r\n

Mistakes of fact are the most common. This is when one or both parties have a different understanding of the facts of a contract. This includes the meanings of words in the contract or the facts behind you signing it.<\/p>\r\n

Mutual Mistake<\/b><\/p>\r\n

A mutual mistake is when both parties have a mistaken understanding of the terms of the contract. For example, you enter into a contract for 700 Barbies. You think you’re getting dolls, but the other side thinks you want barbeque grills.<\/p>\r\n

Another example is a pastry chef ordering flour from a wholesale distributor. The pastry chef expected bleached flour for baking, but the wholesale distributor sent unbleached flour since it was not specified.<\/p>\r\n

These are mutual mistakes of fact. Both parties were confused about the terms. You can void (cancel) the contract and redraft it.<\/p>\r\n

Unilateral Mistake<\/b><\/p>\r\n

Unilateral mistakes are mistakes where only one party has a mistaken belief about the contract. Unilateral mistakes can force the contract to be reworded or canceled.<\/p>\r\n

An example would be a one-party misunderstanding of an industry term like EOD, meaning End of Day, and other words, quantities, and products.<\/p>\r\n

Common Business Contract Mistakes<\/h2>\r\n

Failing to think through your business practices before startup can cost you a lot of trade secrets and ruin business relationships if you’re not careful.<\/p>\r\n

Here are some common general mistakes business attorneys often see:<\/p>\r\n