A contract is more than just a document – it is a plan of obligations, a division of responsibilities, and a risk management mechanism. When properly prepared, the balance of rights and obligations of the parties becomes clear, and any disputes are a matter of pre-managed risk. However, when a contract is prepared irresponsibly, the consequences can be extremely severe: financial losses, loss of reputation, forced litigation.
Most Common Contract Formation Errors
The first major mistake – choosing the wrong form. The law establishes clear rules regarding which contracts require a written or even notarized form. For example, real estate purchase and sale contracts must be notarized and registered in the public register. If this formality is not observed, the transaction is considered invalid, and the parties may lose both property and money.
Another common mistake – insufficiently clear or incomplete terms. When the scope of services or goods, price, deadlines, or payment methods are not specified in the contract, there is room for interpretation. Later, in the event of a dispute, each party interprets the terms in its favor, which inevitably leads to conflicts.
Equally dangerous is the vaguely defined subject of the contract. If the contract only states "repair work to be performed" without defining the scope, quality criteria, or deadlines, the client and contractor may have completely different expectations. In such cases, the court often recognizes that the client cannot demand more than what has actually been performed.
Another serious mistake – the absence of liability provisions. Often, parties avoid including penalties or fines, thinking that "if anything, we will agree." However, during a dispute, such a position becomes very weak. Penalties, late fees, or damage compensation procedures are preventive measures that ensure discipline and encourage the party to fulfill its obligations.
The absence of a dispute resolution mechanism also poses a risk. If the parties do not specify whether conflicts will be resolved in court, arbitration, or through mediation, the resulting dispute can drag on for years. Moreover, each party may try to bring the dispute in the jurisdiction most favorable to it, which means additional costs.
It is also worth mentioning one-sided or unfair terms. Often, one party tries to establish overly favorable provisions for itself, leaving the other with only obligations. Such terms not only violate the balance of the parties but can also be declared invalid according to court practice.
Minor but very significant details – incorrectly specified party or data. Even the slightest mistake in the name of a legal entity, company code, or address can cause problems in executing the contract or prevent a dispute in court.
Types of Risks
Contract errors create various types of risks:
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Financial risk. Improperly defined payment terms or guarantees can lead to loss of money.
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Legal risk. A contract may be declared invalid if it does not comply with the legal form requirements.
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Reputational risk. An unfair or improperly drafted contract can harm relationships with partners and clients.
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Procedural risk. Litigation can last for many years, require significant expenses, and the outcome may be unfavorable.
How to Avoid Contract Formation Errors?
First, it is necessary to analyze the legal acts and check what form is mandatory for the specific contract. In some cases, a simple written form is sufficient, but for other transactions, a notarization procedure or registration is necessary.
Second – clearly and accurately formulate the terms. All essential elements – the subject of the contract, price, payment method, deadlines – must be stated specifically, without ambiguities. Abstract phrases such as "within a reasonable time" or "ensure quality" must be replaced with numbers, dates, and defined standards.