Business Contracts

There are many different kinds of business contracts. Standard form contracts such as policies of insurance, are one example. Two business persons exchanging emails is another example. Although you may enter into “oral agreements”, some contracts have to be in writing (when dealing with land) and others have certain statutory requirements (such as franchise agreements).

The following are some general comments on business agreement. It is important to make sure that there is, in fact, an agreement between people. There must be an offer which is sufficiently clear that it can be accepted by the other person. Many disputes arise as to whether or not there was ever any binding agreement. Think of it this way. If someone makes an offer to you that you want to make into a binding contract, then simply communicate to them that you “accept” their offer.

Many times the terms of the contact are so vague as to be unenforceable. So too, an
“agreement to agree” is not enforceable. If someone else reads the agreement, is it clear who is to do what and when?

When looking at an agreement, have a clear starting date and a date when obligations are to be completed and monies paid. Consider putting in the contract a specific right to terminate the agreement for non-performance, after written notice and a failure to perform.

Know who you are contracting with. Are you dealing with a corporation? If so, then you should consider getting personal guarantees, or else contracting directly with the individual.

When looking at the proposed agreement, ask yourself the following question. “What are we about?” Write down in point form what it is in the agreement that is important to you. Then look at the proposed agreement and see whether or not all of those are put into the contract.

Disputes often arise under contracts when one side says there is more to the agreement than in writing. Everything that is important needs to get into the agreement. Put in a sentence saying that the agreement is the entire agreement and there are no other collateral agreements, conditions or promises other than what is contained in the agreement.

Many agreements written by lawyers have the words: “time is of the essence”. This really means that if there are times specified for events to happen, then the time lines must be met and they are not just approximate.

Does the person you are contracting have the legal capacity to contract? A person under the age of eighteen years does not have legal capacity. Is the other person under duress, undue influence or some unconscionable conduct that forces them to sign the agreement? Having an independent witness sign the contract will help prove the person’s signature and they may be able to help given evidence on the issuer or duress or undue influence should the need arise.

Often people try and get out of an agreement, saying that there was misrepresentation of relevant information or mistakes. Try and set out in your agreement the reason for the agreement and the factual basis for the contract. These are often called warranties and representations, where one person sets of the factual basis that the other person is relying on for entering into the agreement.

Often there are conditions to an agreement. The conditions are clear. Specify who has to do what within what time period, and indicate if the conditions can be waived by the other side.

Know what your obligations are. If completion of your obligations require some other person to do something, then make it clear in the agreement that this is the case.

There are many common kinds of contracts. These can include employment contracts, purchase and sale of goods, equipment leases, real estate agreements for the purchase of land, credit agreements, etc. Understand the main points of the agreements  before you sign them.

Doug Shanks is a partner in the law firm of Cheadles LLP. Doug devotes a substantial portion of his practice to business law, including preparation of commercial agreements relating to the purchase and sale of businesses, shareholders agreements, commercial leases and other business contracts.

For 28 years, Doug has represented franchise corporations, multinational mining corporations and chartered banks in Northwestern Ontario and Central Canada.