Common Mistakes in Contract Drafting

Common mistakes in contract drafting can lead to serious consequences in business. During the drafting process, errors in clauses often result in disputes and financial losses. Recognizing these mistakes will help you avoid potential legal issues. The following article by Long Phan will discuss common contract mistakes and effective ways to remedy them at this stage.

Common Mistakes in Contract Drafting

The Importance of Contract Drafting

Contract drafting is a crucial preliminary step in agreements between parties. Contracts govern the agreements, establishing the rights and obligations of the involved parties. In business activities, contracts play a pivotal role in protecting the interests of the parties and minimizing legal risks.

Drafting a professional contract with minimal errors helps the parties avoid disputes and losses. A thorough review of the contract terms before signing is necessary to ensure the legality and effectiveness of the agreement.

Accurate contract drafting lays a solid foundation for long-term business relationships. Conversely, common errors in contract drafting can lead to severe consequences, affecting the business operations of the involved parties. Therefore, mastering the principles and avoiding common mistakes in contract drafting is an essential requirement for all parties involved in transactions.

Common Mistakes in Contract Drafting

Form of Contract

A contract is a type of civil transaction that details the agreement between the parties involved. According to Article 119 of the Civil Code 2015, the form of a contract can be expressed verbally, in writing, or through specific actions. Thus, in principle, the parties are free to choose the form of the contract. However, in certain special cases, the law requires that the contract be expressed in a specific form.

Compliance with the form of the contract in such cases is a fundamental condition for the contract to be valid. For example, some types of contracts, according to legal regulations, must be notarized or authenticated. Additionally, in some transactions, the law provides specific templates that must be used. Failure to comply with these regulations could render the contract invalid according to Article 129 of the Civil Code 2015.

Therefore, to avoid formal mistakes, the drafter must thoroughly understand the legal regulations concerning the specific type of contract. Additionally, they should establish a thorough process for checking and reviewing before execution.

Using Expired Legal Documents

Using expired legal documents is an extremely serious error in the process of drafting contracts. This can lead to provisions that are no longer compliant with current regulations, causing disputes and legal risks.

In practice, the Vietnamese legal system frequently changes, with many new laws being issued or amended. Using outdated regulations that have expired can render a contract obsolete and fail to meet current requirements. This not only affects the legality of the contract but can also put the involved parties at a disadvantage.

This error often occurs due to the drafter’s lack of close monitoring of changes in the legal system. For example, applying the working hours regulations in a labor contract according to the  Labor Code 2012 instead of the Labor Code 2019 can lead to violations of workers’ rights. Similarly, in the investment sector, using outdated regulations on conditions and administrative procedures can cause difficulties in project implementation.

Confusion Regarding the Legal Representative Signing the Contract

This issue may arise due to a lack of information, insufficient verification, or misunderstandings during the transaction process. When drafting contracts, many people assume that the Director is the automatic representative and that their signature guarantees the legal standing of the entity. However, this misunderstanding can lead to serious consequences. According to the  Law on Enterprise 2020, the legal representative of a company, besides the Director, can also hold other titles. This depends on the organizational structure of the company.

If it is a Joint Stock Company, the legal representative could be the Chairman of the Board of Directors or the company’s Director. Conversely, in a private enterprise, the owner of the business is the legal representative instead of a hired Director.

In cases where the legal representative authorizes someone else to sign the contract, the contract must include the content of that authorization. Failure to accurately identify this detail in the contract drafting process can lead to unnecessary disputes.

Representative signing the contract

Incomplete Contract Terms

In certain special cases, the law requires specific mandatory clauses that must be included in a contract. If these clauses are not met, the contract cannot be executed. For example, in a sales contract, mandatory clauses typically include:

• Information about the parties involved in the contract;
• General terms: definitions, explanations of terminology, etc.;
• Information about the goods in the contract;
• The price of the goods;
• The quality of the goods;
• Method, time, and place of delivery;
• Payment methods;
• Penalties for contract violations, compensation for damages;
• Rights and obligations of the parties;
• Force majeure situations;
• Dispute resolution regulations;
• The term of the contract’s validity.

Using Ambiguous and Inaccurate Language

One of the common errors in drafting contracts is the failure to ensure clarity and consistency in the contract’s language. If ambiguous or inaccurate language is used, it can lead to multiple interpretations, making it difficult to enforce the contract.

Some common manifestations of this error include: using words with multiple meanings, drafting lengthy and complex sentences, lacking clear definitions for technical terms, or using vague phrases like “reasonable,” “timely,” without specific explanations. These errors can create legal loopholes, disadvantageous to one or more parties involved in the contract.

Legal Risks When Contracts Contain Errors

Common Mistakes in Contract Drafting can pose serious legal risks, including:

• Contracts being declared void due to non-compliance with validity conditions.
• Disputes over the interpretation and execution of contract terms.
• Difficulties in enforcing rights and obligations.
• Financial losses due to unforeseen circumstances.

In severe cases, common drafting errors can lead to prolonged litigation, affecting business operations and partnerships. To mitigate risks, it is crucial to establish a rigorous process for drafting and reviewing contracts. Seeking expert advice, especially for high-value or complex contracts, is an effective measure.

Professional contract drafting consultation

Professional Contract Drafting Consultation Services

At Long Phan, we provide professional contract drafting consultation services to minimize risks for our clients during transactions. We are committed to delivering comprehensive solutions that ensure optimal safety and benefits for our clients. With extensive experience across various fields, we are confident in our ability to meet all your contract drafting needs. Our contract drafting consultation services typically include:

• Analyzing client needs and objectives
• Researching relevant legal regulations
• Drafting and editing contract content
• Reviewing and verifying the legality of transactions
• Assessing the risk level and client benefits in each transaction
• Proposing protective clauses to minimize risks and enhance contract enforceability
• Supporting the development of negotiation, bargaining, and contract execution protocols

Common Mistakes in Contract Drafting these contracts can lead to legal risks, disputes, and significant losses. To ensure validity and protect your interests, it is advisable for clients to consider professional support options. With a team of experienced professionals, Long Phan offers consultation services to help clients avoid these errors. Contact us immediately at Hotline 0906.735.386 to ensure your contracts are always legal and secure.