Three Contract Pitfalls Every Business Owner Should Know

By the time clients reach me, they're already in trouble. That's the nature of my job as a litigator. Over my years of resolving contractual disputes, I've noticed common pitfalls. Below I break down three important principles every business owner should know when negotiating contracts.

"Boilerplate" Provisions May Be Doing More Work Than You Think

I hear it constantly: "It's just boilerplate." Certain clauses do appear from contract to contract with little to no variation, like choice-of-law, choice-of-venue, and prevailing party attorney fee provisions, among others. Their familiarity is precisely what makes them easy to overlook. But familiarity is not the same as insignificance. Courts routinely enforce these provisions exactly as written.

In practice, this means that before signing a contract you should read everything. Even if a clause contains routine language, it is still enforceable.

If a Term Matters to You, Put It in Writing

California courts, like those in many other jurisdictions, start from the foundational principle that a contract is first construed according to its plain language. Extrinsic evidence, including prior correspondence and drafts, is only admissible in certain circumstances, like when contractual language is ambiguous. Interpreting a contract by analyzing evidence beyond the contract itself is the exception, not the rule.

If you are negotiating a contract and a term is important to you, make sure it is in writing. If it's not in the contract, then it may not exist, even if you previously discussed the term with the other party. You should never depend on a term being understood or implied—make it explicit.

Assume You Will Not Be Friends with the Other Party in the Future

A majority of the disputes I litigate are between parties who used to be friends. That relationship is often precisely why certain contractual terms are left vague or simply implied between the parties. Parties with a good existing relationship may assume that they'll never have to enforce the contract. That is a mistake. Contracts exist for precisely the scenario when things fall apart.

When negotiating a proposed contract, analyze the contract as though a disagreement is inevitable. If the other party doesn't perform, do you have recourse? Does the contract bind the other party to perform in exactly the way you need? Counterintuitively, it's often the parties who negotiate the clearest, most enforceable terms that are able to avoid costly disputes.

The Bigger Picture

Never treat contract negotiations as a mere formality. By the time a disagreement reaches me, the contract's language is already solidified — there is little room left to argue over what the parties "really meant." The work that prevents a dispute happens months or years earlier, at the negotiating table, not in a courtroom after the fact.

Disclaimer: This post is for informational purposes only and does not constitute legal advice. Reading this post does not create an attorney-client relationship.