Transactional attorneys often face clauses that appear routine but can cause significant legal or financial issues later. Watch the Lawline course "Danger Clauses: Drafting Defensively in Business Contracts," presented by Ryen Rasmus of The Lipp Law Firm, PC, for more on how to spot and handle these red flags.
A danger clause is a contractual provision that appears innocuous but can evolve into a serious problem if left unchecked. These clauses are often standard, overlooked, or misunderstood—until they become a point of contention or litigation.
Examples include:
These clauses act like legal "mushrooms" or landmines: small and easily missed, but with the potential to explode if triggered. Defensive drafting means identifying and resolving these risks before they can cause damage.
Many transactional attorneys treat boilerplate language as safe, but that mindset invites trouble. The false assumption that boilerplate is always harmless leads to contracts riddled with vague, one-sided, or outdated terms.
Three Key Questions to Ask About Boilerplate:
Avoid relying on templates without scrutiny. Every contract should be tailored to its real-world context.
Seemingly straightforward, attorney’s fees clauses have ripple effects that can tilt litigation outcomes. Ask:
Example: A party who wins six out of ten claims may still not be considered the "prevailing party" unless clearly defined. Similarly, ADR contexts may alter recoverability.
Net profits are accounting concepts, not legal ones. If undefined or poorly defined, courts will impose a generic interpretation, often unfavorable to one party.
Red flags include:
A simple phrase can carry massive financial implications. Always define it explicitly.
Even a well-drafted clause may not survive judicial scrutiny if it conflicts with public policy or lacks essential legal foundations. While the language may look clean and consistent, attorneys must always ask: Is this clause enforceable? This question is critical when reviewing standard provisions like confidentiality terms, restrictive covenants, and liquidated damages clauses.
Confidentiality provisions are often overbroad, defining confidential information as “anything shared between the parties.” Courts increasingly reject these sweeping definitions, reasoning that if everything is confidential, then nothing is confidential. To be enforceable, such clauses should limit protection to information that is not public, has value to the disclosing party, and is marked or understood as confidential based on context.
Restrictive covenants—such as non-competes and non-solicits—face growing legal limits. For a restriction to stand, it must be reasonable in scope, geography, and duration. A clause that attempts to block someone from working “anywhere, forever” is unlikely to hold up. Courts want to see a legitimate business interest and a proportionate limitation.
Liquidated damages clauses also present enforceability risks. If a contract assigns a flat penalty (e.g., "$5,000 per breach") without linking it to anticipated harm, it may be struck down as a penalty rather than a reasonable estimate of loss. Courts favor clauses that reflect an effort to approximate damages at the time of contract formation—not those designed to punish.
Ultimately, enforceability turns on fairness and clarity. A clause can be well-written and still fail if it’s legally flawed. The best practice is to review each provision and ask: Would this stand up in court? If the answer is uncertain, the clause needs attention before it becomes a liability.
Accurate representation in contracts is more than honesty—it's enforceability.
Use Licensing as a Case Study
Licenses appear in many contracts, not just IP or SaaS agreements. A few vague lines can control how, where, and when a party may use valuable assets.
Watch for:
When real-world expectations clash with contract language, disputes are inevitable.
Experienced drafters instinctively expect to see certain clauses—like assignment, choice of law, or indemnity. Newer attorneys can train this instinct by comparing similar contracts filed with the SEC or available through public filings.
Use Comparator Contracts:
This method helps you hear the “silences”—the missing elements that should raise flags.
These are not inherently complex clauses but are often skimmed due to human nature ("T-reading") or assumed simplicity.
Indemnification
Term and Termination
Representations and Warranties
Failing to read these carefully invites immediate breaches.
Old contracts drafted years ago—often by a different attorney or the client themselves—can be riddled with outdated, missing, or unenforceable terms.
When Reviewing Stale Contracts:
Clients often resist change due to inertia or longstanding relationships (“We’ve always done it this way”). Use specific examples to explain potential financial exposure.
Even when a danger clause is clearly problematic, clients or opposing parties may resist edits.
Strategies to Persuade
Use Amendments Instead of Full Redlines
It’s common for clients or opposing counsel to resist proposed edits, even when well-intentioned.
Expect:
Prepare to Answer:
Encourage collaboration. The clause you fix may alter the other side’s calculus—and that’s fair. Expect seesaws, not unilateral wins.
Identifying and resolving danger clauses protects not only your client’s interests but also your professional integrity. For a deeper dive into these strategies, watch the full Lawline course "Danger Clauses: Drafting Defensively in Business Contracts," presented by Ryen Rasmus of The Lipp Law Firm, PC.
The content of this article is provided for informational purposes only and does not constitute legal advice.
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