IP & Litigation

Famous Errors in Contracts that Cost Big Money

/ / Famous Errors in Contracts that Cost Big Money

As Alexander Pope has rightly said, “To Err is Human”. Humans are prone to errors. However, these errors can be reduced by adopting technology and automating day-to-day mundane activities to an extent. If errors are made in important documents such as contracts it may lead to major embarrassment or even multi-million loss in the future. 

Introduction 

A contract is a basic legal document in which two or more parties enlist their terms and conditions along with obligations., Despite it being a legal document, a contract is not always free of errors. Poor contract drafting or lack of attention to detail, exhaustion, burnout, multi-tasking, tight deadlines, proofreading blindness, etc are often the causes of erroneous contracts. Regardless of the cause, the impact on the client is severe of such contracts. Lawyers should learn from notable contract blunders and reassess their contract drafting abilities to construct watertight contracts with the best chance of avoiding any loss to the client. 

Errors Found in Contracts to Avoid

Contractual errors include poor drafting, typos, translation issues, and nonsensical clauses. It is critical to create precise and watertight contracts in order to provide adequate safeguard to the client, but proofreading is just as critical because a minor error might alter the original intent of a sentence. For instance, in a contract that was concerned with hiring a builder for construction, a clause mentioned that, “the main contractor must not put its ‘prophets’ over employee health and safety”. This is a comical contract error, but not all mistakes can be laughed at. Here are some examples of blunders that resulted in significant losses:

Punctuation Error

Two major Canadian telecom companies entered into a contract with one of the parties believing that they could terminate the contract before its decided time due to a punctuation error ended the contract. This minor error was valued at $2.3 million.

McDonald’s case

The original owners of McDonald’s sold the franchising rights to another, Roy Krock. The two disagreed on their respective business models and the owners decided to sell all the rights to Krock. As per their contract of sale, they kept their original store and the entire business was sold to Krock. They also demanded 1 percent royalties be paid to them in perpetuity. However, due to some issues, the royalty clause could not be added to the contract which led to them losing out on big money from the highly successful fast-food franchise

Tokyo Stock Exchange Fiasco

In 2005, Mizuho Securities Co. offered to sell 610,000 shares of J-Com for 1 yen when they meant to sell a single share for 610,000 yen. This was a typo that led to a loss of $345 million. 

 

 

 

George Lucas’ Contract with 20th Century Fox

When the original Star Wars film was in the making, Fox Studios entered into a deal with Lucas where they reduced his fee but, surrendered all merchandising and licensing rights of the Star Wars films to him. Unknowingly they made a drastic mistake that cost them billions of dollars in revenue.

 

 

 

Concluding Remarks

These examples demonstrate the significant financial losses suffered as a result of a minor yet significant error at the time of drafting. When attorneys miss these mistakes, their clients lose a lot of money along with their reputation in the industry which takes a major hit and, in the worst-case scenario, their market share or the business itself. A lawyer’s contract drafting abilities should be honed to avoid such scenarios. Even a minor legal mistake like missing out on a zero or misspelled name can affect a client’s trust and confidence in a lawyer and a law firm negatively. Companies and law firms who do not wish to succumb to such errors can use Mike DocuSieve to automate the contract proofreading. Using AI to automate proofreading can not only eliminate errors with the Microsoft Word add-in but allows them to spend less time on non-billable mandates. 

Authored by Pearl Yadav, intern MikeLegal

Read more:

How an AI assistant can help you save hours in your work day

 

Image sources – 

  1. Punctuation Error – http://www.duhaime.org/LawFun/LawArticle-151/Famous-Attorney-Errors-Lawyer-Bloopers.aspx
  2. McDonald’s case – https://cdn.britannica.com/64/19464-050-EE63E306/restaurant-McDonalds-museum-Ray-Kroc-Illinois-Des.jpg
  3. Tokyo Stock Exchange Fiasco – https://s.wsj.net/public/resources/images/MI-AG218A_WSTOX_20051212200813.gif
  4. George Lucas’ Contract with 20th Century Fox – https://i.pinimg.com/564x/6a/21/18/6a2118752c82cd517ee77355698a0626.jpg 

References-

  1. https://www.inc.com/jeff-haden/43-years-ago-star-wars-creator-george-lucas-made-a-4-billion-decision-even-though-it-had-nothing-to-do-with-money.html
  2. https://www.linkedin.com/pulse/entertaining-mistakes-commercial-contracts-jane-schorah/
  3. https://economictimes.indiatimes.com/markets/stocks/news/oops-a-brief-history-of-some-of-the-markets-worst-fat-fingers/mizuhos-345-million-typo/slideshow/67683875.cms
  4. https://www.thomasnet.com/insights/procurement/2013/06/21/bad-contracts-cost-companies-good-money/ 
  5. https://blog.ipleaders.in/mcdonalds-founders-contracts-disaster/

http://www.duhaime.org/LawFun/LawArticle-151/Famous-Attorney-Errors-Lawyer-Bloopers.aspx

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