(The Last) Three Contract Drafting Lessons You Probably Learned the Hard Way (Or Haven’t Yet)

by Tracy Work

This is the final installment in a series exploring contract drafting lessons backed by landmark cases and leading legal scholarship. The first article covered ambiguity, undefined terms, and efforts clauses. The second tackled conditions precedent, merger clauses, and exclusive remedies. This time, we close with three lessons that tend to catch even experienced drafters off guard: the surprising fragility of inconspicuous disclaimers, the high cost of late notice in indemnification claims, and the financial whiplash that follows a botched termination.

If there’s a common thread across these three, it’s that the details nobody wants to negotiate are often the details that decide the outcome.

Buried Disclaimers Can Be Struck Down, Even Between Sophisticated Parties

Most people assume that liability caps and consequential damages waivers are bulletproof as long as both parties signed the contract. After all, if two businesses agreed to the terms, what’s the problem?

The problem, as the Washington Supreme Court explained in Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 544 P.2d 20 (1975), is that agreement requires awareness. In Schroeder, a consequential damages exclusion was buried in normal-sized print inside a truck warranty booklet. The court struck it down, holding that the limitation was neither conspicuous nor set forth with sufficient particularity.

What makes this case especially notable is what the court said next. The seller argued that conspicuousness requirements should apply only in consumer transactions, not between merchants. The court rejected that argument outright, reasoning that the mere fact that both parties are businesspeople does not justify the use of unfair surprise to the detriment of one of them. In other words, sophistication doesn’t cure invisibility.

This matters more than most drafters realize. UCC § 2-719(3) allows courts to strike consequential damages exclusions that are unconscionable, and a key factor in that analysis is whether the limitation was conspicuous. If the clause is formatted identically to every other paragraph in the agreement, a court may conclude that it wasn’t meaningfully brought to the other party’s attention, regardless of how carefully the other party should have read the contract.

Why this matters for technology and procurement contracts. Software license agreements and SaaS contracts routinely include liability caps, consequential damages waivers, and warranty disclaimers. These provisions are often the most commercially significant clauses in the entire agreement. Yet they frequently appear in the same font, size, and formatting as everything else, tucked into a “Limitation of Liability” section that blends into the surrounding boilerplate.

If those clauses end up in litigation, the question won’t be whether they were included. The question will be whether they were conspicuous enough to be enforceable.

The practical takeaway: Treat your most important protective provisions as if they need to earn the reader’s attention, because they do. Set liability caps and consequential damages waivers apart typographically using bold text, uppercase lettering, or a separate acknowledgment block. Some practitioners go further and require a separate initial or signature line next to these provisions. The goal is to make it impossible for anyone to credibly claim they didn’t notice the clause. The more a provision limits a party’s rights, the more visually prominent it should be.

Late Notice Can Kill an Indemnification Claim, Even Without Obvious Harm

Indemnification provisions are among the most heavily negotiated clauses in commercial agreements. Parties spend considerable time defining the scope of covered claims, allocating defense costs, and setting liability caps. But the notice mechanics that activate those provisions often get far less attention. That’s a mistake, and Conergics Corp. v. Dearborn Mid-West Conveyor Co., 144 A.D.3d 516 (N.Y. App. Div. 1st Dep’t 2016), shows why.

In Conergics, the buyer waited 21 months to notify the seller of a reopened Mexican tax audit. During that time, the buyer unilaterally defended the claim, including filing court proceedings, without any involvement from the seller. The contract contained a common “actual prejudice” standard, meaning late notice wouldn’t automatically void the indemnification obligation unless the indemnitor was actually harmed by the delay.

The buyer assumed this standard protected it. After all, the tax liability was the tax liability regardless of when notice was given. But the court saw it differently. The Appellate Division held that prejudice doesn’t require tangible economic injury. Being deprived of the contractual right to control the defense for a material portion of the proceedings is itself sufficient prejudice. The buyer’s 21-month delay, during which the seller had no opportunity to direct strategy, select counsel, or make settlement decisions, was fatal to the indemnification claim.

Why this matters beyond the courtroom. The Conergics decision highlights a gap between how parties think about indemnification and how courts enforce it. Business teams often focus on the substantive question (who pays for what kind of claim) and treat the procedural mechanics (how and when to give notice, who controls the defense) as administrative details. But those procedural details can be dispositive.

Consider a typical technology agreement where the vendor indemnifies the buyer against IP infringement claims. If the buyer receives a cease-and-desist letter and spends six months consulting its own counsel, exploring workarounds, and negotiating with the claimant before notifying the vendor, the vendor may have a strong argument that its right to control the defense was materially impaired, even if the underlying claim hasn’t changed.

The practical takeaway: Draft notice provisions with the same care you give to the substantive indemnification obligations. Specify the form of notice (written, to a designated individual or role), the timing (a defined number of days after the indemnified party becomes aware of the claim), and the consequences of late notice. If you include an “actual prejudice” standard, understand that courts may interpret prejudice more broadly than you expect. And on the operational side, build internal processes to ensure that the people who receive demand letters and legal threats know to escalate them promptly. The best-drafted notice provision in the world won’t help if nobody follows it.

A Botched Termination Can Cost More Than the Contract Was Worth

Termination clauses don’t get the attention they deserve. Parties negotiate vigorously over pricing, scope, and liability, but the provisions governing how the relationship ends often get passed over as boilerplate. The Washington Supreme Court’s decision in Conway Construction Co. v. City of Puyallup, 197 Wn.2d 825, 490 P.3d 221 (2021), illustrates what can happen when that inattention meets a real dispute.

The City of Puyallup terminated its contract with Conway Construction for cause, citing a “loss of confidence” in the contractor. There were two problems. First, “loss of confidence” wasn’t among the contractually defined termination triggers. Second, the contract required 15 days’ notice and an opportunity to cure, which the city refused to provide.

The court held that the termination was wrongful. But the consequences went well beyond a simple declaration. Because the city had attempted a for-cause termination without proper grounds, the court converted it into a termination for convenience. That conversion dramatically shifted the financial picture: the city owed Conway for all completed work and, critically, lost the right to claim offsets for any defective work discovered after termination.

The court emphasized that termination provisions are subject to strict construction and therefore strict adherence. The city’s contract contained overlapping and vague termination clauses, including a general “good cause” provision alongside more detailed standard specifications. That ambiguity created the opening for the dispute.

Why this matters for technology and procurement agreements. Termination disputes in software and services contracts follow the same pattern. A customer becomes dissatisfied with a vendor’s performance and decides to terminate for cause, citing general dissatisfaction rather than a specific, contractually defined trigger. The vendor challenges the termination. A court or arbitrator examines the contract, finds that the stated reason doesn’t match any of the enumerated grounds, and either voids the termination or converts it into a termination for convenience, often with significant financial consequences for the terminating party.

The difference between a for-cause termination and a convenience termination is substantial. For-cause termination typically allows the terminating party to stop payment, recover damages, and potentially claw back fees. Convenience termination usually requires payment for work performed and may trigger early termination fees. Getting the characterization wrong can turn a cost-saving decision into an expensive liability.

The practical takeaway: Build termination clauses with precision. Define every termination trigger explicitly and avoid catch-all phrases like “good cause” or “loss of confidence” unless you define exactly what those terms mean. Include cure periods that specify what the breaching party must do, how long it has, and what happens if the cure is inadequate. Address post-termination obligations clearly: what happens to data, work product, prepaid fees, and ongoing support. And before pulling the trigger on a for-cause termination, pressure-test your stated grounds against the contract language. If your reason doesn’t map to a specific, enumerated trigger, you may be better off exercising a termination for convenience, if the contract provides one, rather than risking a wrongful termination finding.

Closing the Series

Across all three articles, the same principle has surfaced: courts enforce what is explicit and decline to fill gaps the drafter left open. Whether the issue is an ambiguous clause, an undefined term, a buried disclaimer, a missed notice deadline, or a vague termination trigger, the judicial response is consistent. Precision is rewarded. Ambiguity is penalized. And the party that drafted the language almost always bears the cost of its shortcomings.

These lessons aren’t theoretical. They’re drawn from real disputes, decided by real courts, involving the same kinds of provisions that appear in the contracts sitting on your desk right now. The good news is that every one of these problems is preventable. It takes a little more time at the drafting stage, a willingness to negotiate the provisions that feel routine, and the discipline to ask whether each clause would hold up if it were read by someone with no knowledge of the parties’ intentions.

That’s the standard. Not what you meant to say. It’s what you put in writing.