Common Contractual Pitfalls and How to Avoid Them under Nigerian Law 

Contracts lay the foundation of every commercial transaction as the terms become the playbook that guides the conduct of parties throughout the lifetime of the transaction. A well drafted contract secures a business relationship while a poorly drafted one is a roadmap of conflicts, financial loss, and legal heartaches. Understanding the common pitfalls is the first step to avoiding them.
When many people hear contracts, it seems what they see is two parties sit over a table and Party A says what he expects of Party B then both of them exchange handshakes and everyone goes to work. Apart from the general rules that apply to contractual transactions, there are nuances that are sector specific and it would take the expertise of a legal practitioner in that field to fish them out and provide clauses that would have circumstances that would cause conflicts.

Imagine spending sleepless nights building an idea, all the pieces will fit perfectly with a rewarding ROI by your estimation if everyone plays their part. You reach out to a friend or anyone who believes in this idea and seal the deal with a handshake. No written agreement or if there is any, it is a template from the internet.  While this is very easy, what the parties involved in this agreement do not know is they are walking on a landmine. This is the mistake most founders make the mistake of throwing caution to the wind in a bit to avoid the seeming bureaucratic hurdle of getting a legal practitioner involved. In this instance, the parties try to prioritize speed over precision and only remember to get a lawyer involved only when the landmine explodes.

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This article examines common contractual pitfalls and how to address them under the Nigerian Law

1. Oral Contracts or “The Handshake Deal”: Concluding agreements over a table with just a handshake to signify that parties have agreed with the terms of the contracts is almost like not having agreement at all. 

Remedy

•  Make sure every agreement is written down and signed by the parties involved no matter how simple it may sound and no matter who is involved. Get the key terms like the scope of work, payment plan, and timeline of the contract written down as this will save you from troubles in future.
• Avoid ambiguous and vague phrases and use simple terms that do not need any explanation and leave no room. 

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2. Copy and Paste/DIY:  Relying on copy and paste from  the internet or using a general template  to cut cost on hiring a legal practitioner 

Remedy:

• Hire a legal practitioner to draft or review contracts.
• Visit legal sites like Ramen Legal for customized templates

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3. Properly Define Scope (Scope Creep): It is also not enough to have terms of the contracts written down. The terms must be well defined to reflect the intention of the parties. What is this contract generally about? What are the payment terms?  What is the extent of obligation expected of each party? The scope of the contract should be properly and clearly stated in a way that any party who picks up the contract will understand what is involved. 

Remedy: 

• Use plain language: avoid legal jargon as much as possible. Technical terms should be defined in the inter
• Specify details to include precise timelines.

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4. Poorly Defined Payment Terms: It is also not enough to just state the amount of money to be paid to get the job done.

Remedy:

• The total amount to be paid should be stated including taxes
• A payment schedule: is it a one time payment? Or 50% upfront, 25%upon delivery of draft, and 25% upon completion.  

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5. Intellectual Property (IP) Ownership: you cannot just assume IP Ownership simply because you paid for it. This pitfall is mostly common in contractors and developers, service contracts, and software development. Who owns the final product?  Does the client own the final product or do they just have a license to use it?

Remedy: explicitly state whether all rights, titles and interest will be assigned to the client  or if the client will be granted license and the extent to which the license is granted

• Clarify that pre-existing remains the property of its original owner.

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6. Inadequate Confidentiality and Non-Disclosure (NDA) Terms: many people use generic NDAs. What they don’t know is that an NDA must align with the uniqueness of the contract. You cannot protect your business if you do not know specific details that are not open to the public but only to parties involved in the transaction.

Remedy: Define confidential information with examples (e.g., “including but not limited to customer lists, software code, financial projections, marketing plans”).

• Make exceptions for information that is known to the general public
• Specify if the obligation of confidentiality still binds parties post termination and the length of time.

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7. Poorly Drafted Termination Clauses: Apart from when you fulfill your obligations, under what circumstances can the contract be terminated? You also need to consider what happens post-termination. This provision ensures that no contractual transaction is terminated without just cause.

Remedy: clearly outline conditions and circumstances that could lead to termination of the contract whether it is for a breach by one party or for convenience i.e where one party decides to terminate it upon giving prior notice. 

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8. Inadequate Boilerplate Clauses (“Miscellaneous” Sections):  These sections particularly take care of conflicts that may arise during the course of the contract.

a. Governing law and Jurisdiction: You will be at a great risk when you sign a contract without having knowledge of the laws governing the transaction and the jurisdiction because when there are disputes which law will govern the contract? Remedy:  Include the type of law and jurisdiction of the court

b. Dispute Resolution: Nobody goes into a contract with the intention to sue but a mandatory alternative means of dispute resolution should be explored before approaching the court or resorting to litigation.

Remedy: Including a fee-shifting provision which enables the prevailing party to recover cost of litigation would deter parties from unnecessary legal battles.

c. Force Majeure: This clause sets out to protect you from liability during disasters like a fire outbreak or unforeseen circumstances like covid. What constitutes a force majeure event should be properly defined.

d. Entire Agreement Clause (Merger Clause): States that the written contract represents the entire agreement, superseding all prior oral or written discussions. This prevents “they said, they promised” arguments later. Ensure all important verbal promises are included in the final written document.

e. Severability: If a court finds one part of the contract unenforceable, this clause allows the rest of the contract to remain in effect.

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9. Limitation of Liability and Indemnification Oversight: This clause ensures that you don’t bear excessive  financial responsibility when something goes wrong or bear responsibility for someone else’s action. It also limits the amount of indemnification to be required

• Remedy: Make sure indemnification clause is mutual and fair

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10. Ignoring Capacity and Authority Issues: Contracts signed by unauthorized persons (e.g., employees without board approval) or with legally incapacitated parties (e.g., minors) are voidable. This is common in corporate transactions where signatories lack actual authority.

Remedy:

• Verify Authority: Request board resolutions or power of attorney documents before signing.
• Confirm Corporate Status: Check the Corporate Affairs Commission (CAC) portal to ensure companies are duly registered.
• Include Representations: Add clauses like “Each party represents it has the authority to enter this contract”.

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11. Inadequate Business Registration and Structuring: Many businesses operate without proper registration with the Corporate Affairs Commission (CAC), leaving them unable to enforce contracts in court  This also affects credibility with investors and partners.

Remedy:

• Register your business early as a limited liability company to protect personal assets and ensure legal recognition.
• Define ownership structures clearly in the articles of association to prevent founder disputes, which are a leading cause of startup failure
  

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12. Underestimating the Need for Legal Counsel:  delaying engaging legal experts due to cost concerns, or speed will lead to preventable legal issues 
Remedy:

• Invest in specialized legal counsel early for contract drafting, compliance, and risk management.
• Use legal tech platforms like Ramen Legal for affordable access to templates and compliance tools

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Conclusion

Contractual pitfalls in Nigeria often stem from poor drafting, inadequate risk allocation, and non-compliance with laws. By prioritizing clarity, due diligence, and legal review, businesses can reduce and avoid these risks. As the Nigerian legal ecosystem evolves especially in sectors like technology and infrastructure, staying updated on regulations is crucial because a well drafted contract is not just a legal document but a strategic tool for business success.

Disclaimer- This article is for informational purposes only and does not constitute legal advice. Reading this post does not create an attorney-client relationship between you and the author. For advice tailored to your situation, please consult a qualified legal professional.