Legalese: August 2014

Whether you are renting equipment to a client, entering into an employment agreement with one of your staff or agreeing to a new arrangement with one of your suppliers, you will be involved with a contract. Contracts are relied upon greatly by all parties to an agreement, and if they are written concisely can prevent disputes altogether. Most certainly, when disputes arise between parties, the contract between them is analyzed with a view to resolving the dispute. Any contract which has significance to you or your company, therefore, should at least be reviewed by a lawyer entitled to practice in your province.

Believe it or not, I am not trying to drum up business for lawyers. In fact, I am doing quite the opposite by recommending that you seek out and retain good advice from your lawyer at the inception of the contract.  Think of it like your car – you can avoid all the oil changes and regular maintenance and save a few hundred dollars, but eventually your engine will break and it will cost you thousands to repair. The only difference with contracts and the law, is that a breakdown can affect your entire livelihood.

For example, I had a client recently who owned her own business. She had workers. She wanted them to be independent contractors rather than employees. In order to save money, she drafted her own independent contractor agreement and did not retain legal counsel. The workers signed them. When she later fired one of the workers, he went to the provincial labour standards office. The labour officer disregarded the agreement because it failed to contain key clauses. The client ended up having to pay overtime pay, vacation pay, severance pay and other fees, on top of a lawyers’ bill which was five times higher than that which would have been charged to draft an appropriate Independent Contractor Agreement!

Common mistakes committed by individuals doing their own contracts can be as basic as failing to clearly describe what exactly the parties are agreeing to. The use of vague language such as “The parties agree to do business with one another in the future” can fail for lack of certainty of terms.

BASIC CONTRACT NEEDS
At minimum, any contract should outline exactly what is being agreed to. This can include but is not limited to:

• The actions which are being performed by each party to the contract;
• The period of time relevant the contract;
• The location where the contract is being performed, and the jurisdiction governing disputes arising under the contract;
• The legal names of the parties entering into the contract; and
• The consideration (payment or something in lieu of payment) which is being exchanged.

Essentially, you want your contract to accurately describe your agreement. You should ask yourself whom you are contracting with, what the contract is about, why you are entering into the contract, where the contract is to be performed and how it is to be performed. Once you have answered the “who, what, when, where, why and how” questions and incorporated them into a written contract, you will be well on your way toward having a concise and binding contract.

On a business level, it makes great sense for you to have well-defined business terms with other parties. When everyone knows their roles and responsibilities, there is less room for interpretation and therefore less opportunity for disputes to arise.

Sometimes parties will draw up a contract to exchange property or service in exchange for something that happened previously. It is a rule of common law that past consideration is actually no consideration at all. So, if you want to have an enforceable contract there must be new consideration. It can be anything, but it just has to be new.

Another tip for individuals wishing to better define their agreements is to send confirmatory written communications. You may be out in the field, and agree with a client that a certain thing will happen or agree on a certain price for a piece of equipment. As soon as you get back to the office, send an e-mail to the person or write a letter confirming your discussion and the terms as you understand them. That way, if the terms of the contract are later contested and are vague in any way, your timely communication will likely be helpful in determining the true intentions of the parties.

EXCLUSION CLAUSES
Many contracts include exclusion clauses to help people or companies avoid liability in certain situations. People can often suffer if their property is damaged or services are inadequately provided, as there will be no compensation due to an operative exclusion clause. It is imperative for both parties to a contract to be aware of what they are signing or agreeing to. If you are the party intending to rely upon an exclusion clause in one of your contracts, make sure the other party has specific notice of the clause and what it means, or you may not be able to rely on it down the road.

Another common pitfall is that occasionally courts will decline to uphold a contract because the person who signed the contract on behalf of a company was not authorized to do so. For example, the secretary of a company might sign for receiving a package delivery without any problems, as it is part of the normal duties of a secretary. But surely that secretary cannot sign an employment contract to hire a new salesperson! Those contracts would typically fall outside the role of a secretary. Some transactions require that an executive sign on behalf of the company, and some don’t. Make sure that you have the right person signing for the contract. If you are in doubt as to who is authorized to sign on behalf of a particular company, and the company itself cannot fill you in, you can also perform a search of the company at your Provincial Corporations Branch. You could also seek the input of your legal counsel, to determine whether the person you are dealing with enjoys the authority to bind their company.

This article is not intended as legal advice for you, for any particular fact situation you may face. You should consult with a lawyer entitled to practice in your jurisdiction for any questions you have about contracts entered into by you and/or your company.