Ensure Confidence in Your Contracts

Before you sign a contract on behalf of your business, read it and ensure you understand it. Not following this rule can lead to missed opportunities to protect your business, among other avoidable negative consequences.

To assist with understanding your contract, below are broad comments about a number of contract clauses and considerations.

Depending on the nature of your contract, the following, among other factors, may be considered by your legal counsel when reviewing a contract offered to your business or while preparing a contract that you will offer to another party.

With an understanding of your business, industry, and the deal being considered, your legal counsel will write and / or negotiate your contract to ensure your priorities are met and your business is protected.

Duties: If you want the power to hold the other party accountable to what they agreed to do for your business, ensure their responsibilities are clearly detailed.

Terms of Payment: If one party is paying another, what amounts are being paid? When are the payments due? What penalties, if any, will there be for late payments? If your business is paying another, should some money be held back until milestones are successfully reached to reduce the risk that you are overpaying?

Costs: Your business might be responsible for none, some, or all of the expenses related to the contract. Regardless of the arrangement, it should clearly be provided in writing to help avoid confusion.

Definitions: Key terms used in the contract should be clearly defined. If your business must deliver a product or service within 10 days of when the other business orders it, does the 10 days include weekends and holidays? Clarify how days should be counted by defining what “Day” means within the context of the contract.

Duration: When does the contract’s term start and finish? Do the parties have the ability to renew, and, if so, under what conditions? You may want to try to obtain the option for your business to either renew or pull the plug.

Notices: Define when official notices must be made between the parties, for example when one party informs the other that they want to renew the contract. Also, define how notices must be made. While calling the other party might be convenient, requiring notices be in writing creates a paper trail. You can more easily rely on a paper trail compared to what was said over the phone.

Insurance: Is there any aspect of your deal that involves insurance? If so, what kind(s) should be purchased? Who is responsible to pay? What must the insurance cover? What is the required policy limit?

Assignment: Can either party hand over some or all of their contractual rights and responsibilities to someone else? Think about what you would want this clause to provide if you should ever sell your business. Your business’ future buyer might want to take over this contract without complication. The other party to your contract may ask for the right to assign the contract. Ways to protect your business may include a requirement that your business consents to any assignment and / or that the original party remains on the hook for their original obligations.

Termination: What if you want to get out of the contract? Who can terminate the contract before it would otherwise end, and, if so, under what conditions? If one of the businesses breaches the contract, will there be a reasonable opportunity to fix the problem?

Forum and Governing Law: This refers to the jurisdiction of where a dispute will be settled and the law governing the contract. If a dispute arises and the other party is based in a different province, country, and / or continent, it would be helpful if the rules governing dispute resolution are those you are familiar with. Also, there will usually be fewer travel costs for you in a legal battle involving your local court.

Amendments: Once a contract is in place, changes may be required as the business arrangement evolves. The original contract should clearly define the process of how amendments are to be made. It is usually wise to ensure that changes are made in writing and signed by all parties.

It is exciting when all of the details are finalized, and the contract gets signed. However, the contract’s true success will likely be determined by how effective a tool it becomes in solving problems as they arise.

People rarely go into a contract thinking there will be problems, however, it is important to prepare for the worst in advance, rather than at a time of stress and frustration.

Good legal counsel will ensure your contract clearly outlines a roadmap for both contract compliance and detours if caused by contract breaches. The other step, not to forget, to ensure confidence, is to read and understand your contract prior to signing on the dotted line.

Byron Pascoe is an Associate with the law firm of Brazeau Seller LLP. He practices in the areas of corporate & commercial law, technology law, Intellectual Property, litigation and entertainment law. Byron can be reached at 613-237-4000 ext. 261 or bpascoe@brazeauseller.com. For more information about Byron, please visit www.brazeauseller.com.