Although a popular practice, business owners should take care when using “Frankenforms”–documents either cobbled together from multiple sources or heavily altered commercial forms.
Although cobbling together clauses from multiple forms or starting with a commercial form and tailoring it to your needs save time, it also increases the risk of unintended liabilities or consequences. Whether you’re drafting the contract, or preparing to sign a contract provided to you by another party, it’s important that you read the compiled document carefully.
Dead Give-aways: How to Recognize When You’re Dealing With a Frankenform
1. Unexplainable changes in font or font sizes;
2. Changes in terms referring to the same item (e.g. referring to a party as both “client” and “customer”);
3. Form language that has not been filled in;
4. Number schemes that are out of order, out of sequence, or change numbering style (e.g. switch from roman numerals to alphabetical sequencing);
5. Multiple definitions for the same word; and
6. Conflicting clauses and terms.
Here are four key things to look for:
1. Ambiguous clauses or phrases – do the words really say what you think they do?
• Keep in mind that the court’s going to review any ambiguous language from an objective-third-person perspective. The court will not try to figure out what you and the other party meant at the time you signed the document.
2. Contradictory terms – are all clauses and terms in sync?
• TIP: Cobbled-together documents frequently contain conflicting termination clauses.
3. Do the party references change throughout the document?
• In example: does your document begin by naming a party “Client” but in several sections refer to the party as “Customer”?
4. Extraneous clauses and terms – critically read all clauses and terms, is each one absolutely necessary for your business purpose?
• TIP: If you’re reading a document that another party drafted, extraneous clauses may contain hidden costs, make sure that you look at these carefully!
Taking a few minutes to read the document carefully and looking out for at least the four items mentioned above will help you to minimize business risk and reduce exposure to liability.