Stop Thinking of Contracts as Documents

If you think of a contract as a document that gets printed, signed, and filed away, you’re missing the point—and setting yourself up for problems. A contract is really just both parties getting their expectations in writing to avoid frustrations down the road. The document is evidence of the deal, not the deal itself.

The Questions You Should Ask Before Reviewing Any Contract

Before anyone analyzes the legal language, the CEO or project lead should answer these questions: What are you expecting to get? What is the other side expecting? What happens if either side doesn’t deliver? How will disputes be resolved, and who pays the legal costs?

Too many companies skip this step. They hand a contract to someone to review and tweak, sign it, and then discover their expectations were never actually captured. That’s how you end up paying for something you never receive—or delivering work and never getting paid.

Make the Contract Enforceable in Practice

Having legal rights on paper means nothing if you can’t practically enforce them. If the other party is in another country, or the dispute amount doesn’t justify legal fees, your rights are worthless. A good contract anticipates this: it includes attorney’s fees provisions, specifies jurisdiction, and builds in practical enforcement mechanisms like milestone payments or escrow.

The Real Cost of a Bad Contract

Every breach of contract lawsuit I see traces back to the same root cause: expectations that were never clearly documented. The contract might have dense legal language, but it missed the business fundamentals—what each side actually expected to give and receive. Get the expectations right first, and the legal language follows naturally.

Video Transcript

Why Traditional Views Fall Short

You need to stop thinking about contracts as documents, because if you do think of them as documents, you are missing the point. We are going to talk about what contracts really are and why thinking about contracts as documents or a page that gets signed is a total distraction from the underlying purpose.

Avoiding Common Pitfalls

And when you have the right perspective on what a contract really is, it will help you avoid 90% of the problems that come from bad contracts. Sure, at the end of the day, a contract is going to be a legal document that is signed by both parties, and it has a bunch of legal terms in it.

The Wrong Approach

But here is the problem.
Those contracts are boring and nobody really wants to be dealing with them. And so what often happens is somebody is tasked with the assignment of reading through a legal document provided by another party, maybe negotiating a couple things or tweaking them, and then there is a signature. And that is the wrong approach to putting together a contract.

Questions to Ask Before Reviewing a Contract

I am gonna walk you through the right approach here as far as if you are the CEO or you are the lead on a project, you are the business owner, let’s say before you have anybody analyze the language of the contract, there are certain questions that you want to think through, and when you do that, it informs every aspect of what should be on that page.

Why Contract Problems Arise

So here is the problem. Too many companies are stuck in breach of contract lawsuits or they have other contract problems. For example, has this ever happened to you? You pay for something but you don’t get it. Or you already provided a product or service, but you don’t get paid for it.

Or you have some disagreement in a contract and all of a sudden you find out your legal rights were not protected or practically speaking, maybe your rights were protected in that contract, but there is no real way to recover the money that you are owed. Maybe the other party is in another country. Maybe it is not worth the legal fees to pursue, but there isn’t a practical option to recover what you are owed, and that is why each one of these problems is why we want to step back before even dealing with a document that says contract or agreement on the top. And we want to ask a few initial questions.

Setting Clear Expectations

The questions are based on the purpose of a contract. What is the purpose of a contract? It is quite simply this: both parties getting their expectations in writing to avoid frustrations down the road. And second, if the other side violates the expectations, giving you the ability to recover your losses, that is really at the heart of what a contract is.

What to Clarify

So what questions do we need to ask before working on the document itself? What are your expectations? In other words, what are you hoping to get out of this relationship? Are you getting a product, a service? Are you getting paid for providing a product or service? Maybe it is a partnership where you are both contributing labor and ideas and time, but identifying what is it you hope to get out of this relationship?

From a non-legal standpoint. Don’t get into the legal terminology because that distracts from the business mindset of here is what we want out of the deal. And then also what is the other party expecting out of the deal? And when you get real clarity on what you want out of the deal and what they want out of the deal, that allows then a lawyer or whoever’s working on the document to make sure those expectations are in the document. So that is really step one. What are the expectations both parties have and then if those expectations are violated, how can you recover your losses?

Assessing Risks and Recovery Options

So that is a practical analysis because it is easy to say, well, you breached the contract. Yeah. But then what? Then what does a person do if they are a victim of breach of contract? Do they now have to file in court and spend a year and a half trying to prove that the other side breached a contract, and in the meantime spend five, $10, or $15,000 a month on legal fees? That is not a great situation. So making sure that you have leverage beyond just “breach of contract” is going to be an important practical consideration.

Retaining Leverage

You might be saying, “Well, what does that look like?” Well, a lot of times it is getting paid in advance or saying, “We are not going to pay until a certain milestone is met.” There may be agreement on payments over time based on performance over time. So that one party isn’t taking all of the risk of paying in advance and the other party isn’t taking all of the risk of producing work or labor in advance prior to getting paid.

There are other options like collateral or security interest. That is where you put up something in exchange for the promise to make payments. The thing you put up might be real estate. We call that a mortgage on real estate, or it might be a lien on something, but that is one option. You can also use an escrow service where there is money set aside with a third party. They are holding it in escrow until both sides have performed. That way, you at least know the money is there and you are not having to sue a company for it. Because let’s face it, many times at the end of a lawsuit, companies don’t have any money. Many small businesses go out of business just paying their legal fees.

So even if you win a lawsuit against a small business, it may turn out they have no money to actually pay you for the judgment you won in the lawsuit. So an escrow service might be a way to at least make sure that money is set aside in advance for the payments that you are owed.

Using Confession of Judgment

Another option is a confession of judgment. And a confession of judgment is often used with a promissory note. This is an advance technique, but the general idea is if a person owes a set amount of money and that amount of money isn’t paid, you don’t actually have to go sue for that money. You just file a confession of judgment. Now, there are restrictions on when this can be used, but the gist of this is we are thinking ahead of time before even talking about the legal document that we are drafting up the contract or the agreement.

And we are thinking about what are the expectations of both sides? What is both side or what are both sides getting out of the deal? And if one side doesn’t do their part, how do at least you have leverage so that you are not stuck without the money or whatever else you were promised. Those are the considerations that go in advance of ever putting together the legal document.

Business-First Questions

When I talk with my clients about drafting a contract, I have a non-legal conversation with them about these topics. I say, “Setting aside all the legal stuff, just tell me in your own words, what is the benefit to you of this relationship? Why are you going into this deal? What are you hoping to get out of it?”

Preparing for All Scenarios

And here is another little trick. Ask yourself, if all goes well, what does that look like? And then if all goes bad, what does that look like? And then you think about both scenarios, making sure that you have protected yourself in either extreme, hypothetical, whether it all goes bad or it all goes good. You want to make sure you are protected. Once these pieces are known, then a lawyer or AI can start drafting up a pretty good contract.

A lawyer is also going to then think, what are the terms, the standard terms that should be in place in order to protect you in these circumstances? So as you can see, the foundation of a great contract is answering some big picture questions before you actually go and start drafting anything in the contract.

Drafting Isn’t the Hard Part

Now, of course, there are all sorts of templates out there. I have tens of thousands of templates. The trick is not drafting. AI can draft, templates are a dime a dozen. You can get them on the internet for free. The key is figuring out which template works for your scenario.

Choosing the Right Template

In other words, which language is needed to cover the risks and expectations that you have.

Omissions in the Agreement

Now, what are some common problems that I see in contracts?
One big one is When a business doesn’t use a good lawyer, so they use AI or a template. Or a lawyer who makes a mistake. The mistake is not what is written in the agreement, it is what is missing from the agreement. In other words, no effort has been made to think about the potential problems or risks and make sure those are covered.

Ambiguity in Language

That is why it is so important to start with thinking about from a business standpoint, what are those risks? Once you know the risks, then you can mitigate those risks with appropriate contract language that addresses those scenarios.

The next most common mistake is language in a contract that isn’t clear. In other words, it could be interpreted two different ways. The legal term for that is ambiguity. In other words, reasonable minds can differ on what a sentence or a term or a paragraph means. That might be because the actual language is just not clear.

It may be that a word is susceptible to two different definitions or interpretations, but it also might be that there are conflicting provisions and judges when they look at contracts, they need to look at it as a whole with an assumption that those apparently conflicting provisions should somehow be synthesized so that they can both be given meaning.

Well, what does that mean? How does that look? Frankly, that is what lawyers argue about in court, and so avoiding unclear language is a common mistake. Now, often, AI doesn’t make that mistake. It is often made by humans who go in there and either they add new language to a template, which now causes a conflict with some other section or misinterprets, or raises issues with another section, or it just simply isn’t clear enough.

Lawyers are trained to be very clear in their language, and often that is why lawyers are using terms that have already been argued about in court, so those terms have very clear meanings under the law, and those terms are used rather than an unclear term.

What is an example? Well, you will often find people saying, “If it is a written agreement, it is handled this way. But if it is a verbal agreement, it is handled a different way.” Why? Because many people assume verbal means spoken and written is the opposite, but that is actually not true. Oral means spoken. Written means in writing. Verbal can be oral or written. So that is a perfect example of where normal, average people who are intelligent, who are educated might use a word like verbal, not realizing that courts have interpreted that to mean both oral and written. So if you really want to talk about what is spoken, you need to use the word oral. And again, that is just one of many examples on how words can be unclear.

The Cost of Enforcement

The next biggest mistake I see is there is no practical way for a party to enforce their rights. For example, they might be able to prove there is a breach of contract. They might have the ability to recover attorney’s fees according to the contract, but practically speaking, if you sue the other side and they pay $150,000 in legal fees, will they even be around? A lot of small businesses won’t be. And so practically thinking about what are we gonna do if the other side breaches this agreement?

Maintaining Leverage

Many times, that means you don’t put a whole lot of weight in the language of the agreement. You put weight in holding off payment until you get what you are entitled to under the agreement.

Now you still want the written language of the agreement to protect you in case there is a lawsuit later, but we are trying to make sure that you have the ability to enforce the contract by keeping leverage. You are not giving up all that leverage and then hoping the legal systems somehow will come save the day for you. You need to keep leverage and money is often that leverage.

Recap of Key Questions

So let’s recap. What are the big questions to ask yourself? What are the expectations you have as far as what you are getting for this relationship and what is the other side getting from this relationship? If all goes great, what are you getting and what are they getting? If all goes bad, what are you getting and what are they getting?

And how are you protected if things do go bad, are you out money? Are you out time? Because in many cases assume the legal system will not save you. Do you have some sort of practical leverage in the arrangement?

When to Use a Template

Once you have clarity, at least on those pieces, that is then when it makes sense to use some templates selected for these similar scenarios with language that addresses these risks, these expectations, the pieces that you expect to get from the deal and what you are giving up as part of the deal, because the other side is getting it. These are the pieces that make a great contract.

Framing the Contract

So instead of thinking about a contract as a legal document, think about it as what are you getting? What is the other side getting? And if you don’t get what you think you are supposed to get, what are the rights that you will have and the protections in place practically so that you are protected?

The Attorney’s Role

That is the way that great attorneys think about contracts when writing it. That is what an exchange looks like with an attorney when you go to draft a contract, and so now you, ahead of time can be thinking about, what am I getting out of this agreement? What am I giving up? What is the other side getting, what are the risks associated with this? What are the expectations that we have?

And then phase two is where an attorney or someone else make sure that all of those terms that are standard in a similar scenario are incorporated into the legal document that you then sign.

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I am Aaron Hall. I am an attorney for business owners and entrepreneurial companies.

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