Presentation materials for my talk on the basics of contract law given to the Canadian-Chinese Professional Accountants Association. It covers some of the basic concepts, and some common terms. I discussed common errors and misunderstandings, and elaborated on different negotiation strategies as well.
3. Typical parts of your agreements
Definitions
Description of products or services
Payment and taxes
Rights and licenses
Warranties and indemnities
Remedies and termination rights
Legal “stuff”
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4. How to get to a deal
What is the deal story?
Be clear on the details
Ask questions
What do you need?
What must you get?
What does the other side
need? Can you give it?
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5. How to get to a deal
Listen, don’t just
negotiate
Negotiate ‘needs’
- not ‘positions’
Put it in writing in
plain English
Know your drop
dead position
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6. Different Types of Agreements
Agreement to purchase or lease goods
Cars, equipment, bulk goods
Real estate
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7. Different Types of Agreements
Agreement for services
Consulting services
Development of custom deliverables
Managed services
Subscription services
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8. Different Types of Agreements
Licensing agreements
Software, movies, music, television
Web-wrap / browser-wrap agreements
“EULA”s
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9. Different Types of Agreements
Corporate and financial agreements
Shareholder agreements
Financial instruments
Mergers and acquisitions
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10. Words matter
Understand the difference between
“assignment” and “license”
“exclusive”, “non-exclusive” and “sole” license
“indemnify” and “defend or settle”
“best efforts” and “commercially reasonable efforts”
“warranties” and “conditions”
an employee creating content and a contractor creating
content
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11. Words Matter
Understand the agreement definitions and use
them properly. If they are capitalized, use in that
form. Use them exactly as written. Even a small
change could be judged to mean something
completely different.
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12. Implied Terms
Some contractual terms can be implied, but ...
The term must be reasonable and fair;
The term must be necessary in order for the rest of the
business agreement to make sense;
The term must be obvious;
The term should be straightforward to express; and
The term cannot contradict the express terms of the
contract.
If the agreement is clear as written, terms will not
be implied. So put it in writing!
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14. Good faith
There is now an obligation in Ontario to
negotiate in “good faith”
No lying;
Do not deliberately mislead another party;
Do not rely on mistakes of another party
(especially if they are inexperienced or not
represented by a lawyer);
Do not abuse a power imbalance (like
landlord/tenant, franchisor/franchisee,
employer/employee, etc.)
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15. Good faith
You can:
refuse to negotiate,
decline to reach an agreement,
act in your own self-interest, and
refrain from disclosing what you know.
You must also carry out the terms of an
agreement in good faith
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16. Oral Agreements
Valid? Sure.
We use them all the time. For small things.
They can be efficient when the terms are
simple and well understood.
But often they break down in practice.
Enforceable? Depends. Can you prove you
have a deal?
Good idea? Not if you want to rely on it.
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17. Collateral Agreements
When you have a written agreement and
modify it using an oral agreement
Very hard to enforce, because they are hard to
prove!
But may be enforceable if they do not contract
the existing agreement
Put them in writing
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19. “Sneaky” Tricks to Watch For
Fine print – enforceable if you have the
opportunity to review it
web-wrap and shrinkwrap terms are often
enforceable for the same reasons
But do you have a choice?
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20. “Sneaky” Tricks to Watch For
Other Tactics
Rushing the deal
Using multiple lines of negotiation
Just being better
• More organised, more knowledgeable, more
flexible
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21. “Sneaky” Tricks to Watch For
Bad Behaviour
Fraud and negligent misrepresentation
So what if its illegal? Enforcement is the
problem.
Ways to help yourself
Use common sense
Leave yourself with options at each stage
Be prepared to walk away
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22. Vital Protections
Understand what you are buying/selling, and
explain it properly!
Most of the problems and the risk come from not
getting the scope right.
It’s not just about the price.
Limitation of liability
The sky should not be the limit (with a few
exceptions)
Disclaimers
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23. Vital Protections
Indemnities
IP, death and injury, bad behaviour
But don’t go too far – you are not each others
insurance companies
Insurance
Cost compliance into your deal
Add cost above the contract cost to account for
management, governance, disputes, etc.
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24. Vital Protections
“Force Majeure”
What happens when it all goes wrong and its
not your fault?
But watch that they are fair, and not abusive
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25. Vital Protections
“Proper Termination Clauses
Think of the reasons why you would need to
walk away, and contract now for them
It’s like a prenup!
Termination Assistance
If you need help from the other party, figure
that out now, not when you are getting
divorced
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26. Making a Binding Agreement
Understand want you are contracting for
Make sure there is an exchange of promises
A one sided deal is no deal at all
There must be an offer and an acceptance
Put it in writing
Everyone forgets what was discussed
It makes hard decisions easier if there is a
process already thought out
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27. Common Errors
Not thinking it through
Did you get the math right?
Failing to capping your risk
All deals have risk, so limit yours to a
reasonable amount.
Assuming you understand
When you are unsure, ask someone.
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28. Common Errors
Sweating the small stuff
Spend your time on the material issues
Trying to “win”
If the agreement doesn’t benefit both parties, it
will always fail
You do not want to be your supplier’s cheapest
customer
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29. Reality Check
Contracting is not a perfect process
Mistakes will be made – reduce the chances
by:
Following a process which includes independent
review and accountability
Getting advice from a trusted advisor
Including some contingency in your plans
If the mistake is genuine, consider approaching
the other party early to address it
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