Contracts - A Primer 20150421
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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.
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Contracts - A Primer 20150421
- 1. Contracts – A Primer James G. Kosa Junyi Chen April 20, 2015
- 2. Contract requirements Offer Acceptance Consideration A ‘meeting of the minds’ as to the terms The contract should tell the story of the deal. 2
- 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” 3
- 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? 4
- 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 5
- 6. Different Types of Agreements Agreement to purchase or lease goods Cars, equipment, bulk goods Real estate 6
- 7. Different Types of Agreements Agreement for services Consulting services Development of custom deliverables Managed services Subscription services 7
- 8. Different Types of Agreements Licensing agreements Software, movies, music, television Web-wrap / browser-wrap agreements “EULA”s 8
- 9. Different Types of Agreements Corporate and financial agreements Shareholder agreements Financial instruments Mergers and acquisitions 9
- 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 10
- 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. 11
- 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! 12
- 13. Good faith 13
- 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.) 14
- 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 15
- 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. 16
- 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 17
- 18. “Sneaky” Tricks to Watch For 18
- 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? 19
- 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 20
- 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 21
- 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 22
- 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. 23
- 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 24
- 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 25
- 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 26
- 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. 27
- 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 28
- 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 29
- 30. Questions? 30