What's the Deal? A Litigator's Perspective on Avoiding Pitfalls in Contract Formation

Most people intuitively know the key elements that must exist to form any contract - an offer by one party, an acceptance of that offer by another party, and an exchange of value. Unfortunately, when contractual disputes arise, litigators often look beyond those elements and to the fine print of the contract to figure out whether their client's position is supported by the wording of the contract. Of course, not all deals have fine print, with many valid agreements concluding with a handshake or a few scribbled words on the back of a napkin.

Whether the contract is complex or simple, contracting parties should be careful that the contract is drafted carefully and accurately captures all of the key expectations of the parties. This may sound trite, but many litigators spend their entire days dealing with disputes regarding contracting parties' respective rights and obligations. Having acted for clients in many such disputes myself, I cannot help but think of the old adage: "an ounce of prevention is worth a pound of cure". Having a corporate lawyer review the contract can usually help the parties to avoid many drafting pitfalls, turn their minds to potential issues and address them in advance, articulate precisely what they want to get out of the deal and, in many cases, avoid the costs and stress of breached agreements and litigation.

Further, review by a corporate lawyer can help parties to understand the legal nature of the contract they are signing and the legal rights and obligations that may unknowingly be triggered. Examples range widely, from construction contracts that trigger obligations under the Building Code and the Construction Lien Act and sales contracts that trigger implied warranties under the Sale of Goods Act and Consumer Protection Act, to shareholder agreements in corporations which affect how the shareholders can be treated.

However, while review by a corporate lawyer is often the most prudent option, we understand that in various circumstances, it may not always be the most realistic. So for those who dare to go it alone, here is some insight into some issues that we see regularly:

  • litigation arises regularly between friends, family members and those with longstanding business relationships who assume that a good relationship today will still be good tomorrow and that a contractual dispute will never arise between them;
  • many contracts include terms that are overly vague or open to unfavourable interpretations;
  • many contracts omit key terms that may have been agreed to but not reduced to writing, or which one of the parties just assumed would form part of the contract; and
  • many standard-form contracts used by larger companies - whether it's a sales or service contract, credit application, guarantee, or any other contract - include terms that are not appropriate for that deal, but which are left in simply because they are part of the "contract we always use".

In litigation, parties must be able to prove their allegations, such as whether a contract was ever formed and, if so, what the terms of the contract were. In some cases, the contract itself will provide sufficient information for the court to interpret it. In other cases, additional information may be important to prove those allegations. This can come from testimony of people who witnessed or participated in the negotiations. Further, since memories fade with time, detailed notes of the negotiations can also be helpful to establish the credibility of a witness, especially if the witness' notes are made during or immediately after the negotiations. Whether you're retaining a lawyer to review or draft a contract or you're doing it yourself, a key element to avoiding or succeeding in litigation is to clearly identify and address any potential issues that may arise. Further, whether you're looking to prevent a dispute in the future or need to cure an existing dispute, KRMC can help.

The information you obtain at this site (including this blog) is not, nor is it intended to be, legal advice. You should consult a lawyer for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create a lawyer-client relationship. Please do not send any confidential information to us until such time as a lawyer-client relationship has been established.

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