Adding Certainty To Your Contracts

Crafting Corporate Agreements

As a corporate/commercial lawyer, my practice centres on drafting documents to give effect to clients’ arrangements that they want reduced to writing, so all parties are certain as to the terms of their arrangement. However, a significant component of my practice relates to assisting clients wrestling with the details of agreements that they have entered into, but have not reduced to writing, once a dispute arises.

Whether it is documenting the relationship between shareholders, partners or contractors, an agreement can provide certainty regarding the rights, obligations and benefits of each party during said relationship. However, in its most basic form, a contract can be reduced to a formula: ((Offer + Acceptance) + Consideration = Contract). Broken down: one party makes an offer that must be accepted by the other party and that offer must be packaged together with an exchange of value, in order to create a contract.

A contract can be formed orally. That being said, there is an age-old saying in law that: “an oral contract is generally worth the paper on which it is written.” Reducing contracts to writing helps avoid misunderstandings and assists with the dispute resolution process, whether privately between the parties, or as part of formal court proceedings.

When drafting a contract the following are some key issues to be considered:

❑ Consideration: As mentioned above, consideration must be packaged together with an offer. Consideration may be in the form of money, shares, goods or services. Language in the contract should acknowledge receipt of the consideration by each party and acknowledge that the consideration received is valuable and sufficient.

❑ Know Your Parties: Knowing the parties to a contract is essential to ensuring that the correct entities or individuals are bound by the terms of the contract. Ensuring that the correct party is named in the contract and that the contract contains provisions to ensure that other relevant parties are covered (such as confidentiality or personal guarantee provisions) can help lay out the rights and obligations of the parties, upfront, rather than after the fact during litigation.

❑ Scope: The scope provisions of a contract help to lay out the parameters of the relationship between the parties. What is the nature of the service being provided? What services are included and what services are excluded from the contract? What are the costs of additional services? Said provisions add certainty to arrangement that is the basis of the contract.

❑ Limitation of Liability / Indemnity for Loss: Should a dispute arise, how much will the parties be liable for regarding damages or losses? Will a claim for damages be limited to the money received by the party providing services? Who will be responsible for maintaining insurance? Will that party be required to protect and cover the legal costs (indemnify) the other party from losses?

❑ Term / Termination: Including an exit strategy for the contract, ahead of the relationship breaking down is a strong mechanism to help deal with potential uncertainty in the future. For how long will the service be provided? How can the contract be terminated? What amount of prior notice is required for termination of the contract and in what method can notice be communicated?

The above list is not exhaustive. It is meant however to be illustrative of the following point: drafting a contract is a forward-thinking process which involves conscious planning about the key terms of the relationship being entered into and what issues likely to be in dispute later on.

We at Keyser Mason Ball, LLP would be happy to assist you to put to paper the nuts and bolts of your agreements, and to help drive greater certainty into your contracts.