How to Make Solid Business contracts in Canada

Business runs on interconnectivity with suppliers or distribution and having a well-formed contract enables each party to have recourse if things ever get ugly. A solid business contract should contain certain elements that ensure each party knows who, what, when, where, and how and what happens if the contract is breached.  As always it is not a bad idea to consult a lawyer to review the contract.

Identify parties. Specifically identifying whom the contract is between is a necessary part of solid contracts. It eliminates any confusion over who will deliver what goods or services and exactly who is benefiting from these goods or services. This could help later if one party switches suppliers. For instance, if Acme manufacturing and Bob’s deli have a contract where Acme manufactures and delivers 40 hams per week to Bob. After 3 months Bob notices the hams being delivered have decreased in quality. He finds out that Acme is no longer making hams, but slapping Acme labels on Meat Inc hams. Bob may have standing to sue if Acme was specifically named as manufacturer in the purchasing agreement.

Specific conduct. Detailing what exactly is being exchanged is another vital part of a solid contract. Being specific as to what service or good and quantity of each is necessary and a realistic timeframe for the act/good to be performed/delivered. If performance is time sensitive, it should be expressed in the contract as well. This would include ticket sales, advertisements and the like.  See example of another case here.

Nondisclosure. Some arrangements may require others to know sensitive information about a business, nondisclosure clauses or the like ensure secrets stay secret. Adding penalties for information leaks or corporate espionage reinforces legal parameters already in place and establishes what will happen in writing if either party breaches the other’s trust.

Indemnity. Briefly, an indemnity clause allows a party to seek reimbursement from the indemnitor (person responsible) for monies the indemnitee is forced to pay to a third party. For example, a vendor’s DVD display falls on a customer and injures them. The store owner is liable because the incident occurred at their store, but if they have an indemnity clause in their contract with the vendor, they may be able to recover whatever monies were paid out to that customer because the vendor was at fault (they improperly put the display together).

Timeframe. Arrangements or pricing eventually become a factor and being able to “move on” to another supplier or renegotiate with the same parties is important. Contracts should stipulate how long the arrangement is to be honored. A set number of deliveries (not time dependant) or combination of both time and performance limits also works. For example, a car dealership contracts with GM to buy/sell only their cars for 5 years or until they have bought 5,000 vehicles whichever comes soonest.

Termination. Termination clauses are important to ensure that surrounding events that may compromise the other party in the event they happen allow that party to escape the agreement. One case if Acme files for bankruptcy before the expiration of their contract with Bob’s deli. With a termination clause stating that filing for bankruptcy is a breach of contract, Bob may end the relationship even if Acme continues to perform as they did before the bankruptcy.

As always, it is best to have a Canadian lawyer review any contract before entering into an agreement.