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What Makes a Contract Enforceable?

 

By: Samita Pachai, Articling Student at Cobalt Lawyers, and Farrah Rahman, Knowledge Content Manager at Clausehound.com

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jarmoluk / Pixabay 

It’s your average Saturday night in the big city. A woman meets a man at a bar. He offers to buy her a drink. She happily accepts and they exchange phone numbers. The next morning, the woman receives an unexpected text message from the man: he is asking her to e-transfer him the money he spent on her drink.

She quickly agrees and transfers the money, but takes the question to social media—should she have repaid him? The responses come flooding in, with 17% of people saying she should have paid him and 83% saying she should not have.

This is not the first time people have reported such incidents. There are numerous stories that can be found on the Internet about people requesting to be reimbursed for coffee or a drink upon being turned down for a second date.

While these are light-hearted examples of slightly eccentric dating behaviour, the stories are actually a real-world manifestation of a legal issue—namely, when is a contract valid and enforceable? The short answer to the above scenario is that no, there was no obligation to reimburse those stingy daters because there was no valid and enforceable contract between the parties. In order to understand why, we need to look at the purpose of contract law and the core elements that make a contract valid and therefore enforceable against a breaching party.

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Peggy_Marco / Pixabay

Why do we enter into contracts?

There are a number of reasons for which we voluntarily choose to enter into contracts that, in effect, act as constraints on the choices we can make. Broadly stated, we enter into contracts in order to enforce promises. More specifically, we enter into contracts to bring clarity to the terms of an agreement, to set up a framework for an agreement, and to both fulfill and protect our reasonable expectations. This is certainly not an exhaustive list of the functions of contract law, but rather is a list of some basic things to consider when entering into a contract.

What are the elements of a valid and enforceable contract?

There are six elements to a valid contract:

  • There must be an intention to form a legal relationship. The question to be asked here is whether a reasonable person in the circumstances would have intended to form a legal relationship.
  • There must be consideration provided by both parties. This requires that each party provide something of value.
  • There must be an offer made and a corresponding acceptance of that offer.

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Catkin / Pixabay

  • There must be a meeting of the minds. In making an offer and accepting the offer, the parties must be “of one mind” when it comes to understanding the agreement. The terms of the agreement (namely the parties, price, property, and particulars—also known as the “Four P’s”) must be certain.
  • The contract should be evidenced in writing and executed. As the great Stevie Wonder has forever engrained in our minds, the contract should be “signed, sealed, delivered.” It is important to note that only a limited number of agreements are actually required, by law, to be drafted in writing. It is, however, prudent to do so whenever possible.
  • As an overarching requirement, the parties to the contract must have capacity to enter into the contract. This means that they must not be (i) mentally impaired, (ii) intoxicated or under the influence of any substance, or (iii) a minor.

So, take our daters from the scenarios outlined above. There was no intention to form a legal relationship, consideration was provided by only one party, there was no meeting of the minds, there is no evidence of the agreement in writing, and, depending on the intoxication level of the parties, there may be questions regarding capacity. All in all, unlikely to be a valid and enforceable arrangement.

Helpful contractual clauses

In order to help ensure that your contracts are upheld as valid and enforceable, there are certain clauses that can be included in any agreement. A Validity Clause, for example, states that the parties agree that the contract is valid. A Capacity Clause states that the parties have the capacity to enter into the contract. Other standard contractual language can be included, such as an explanation of the purpose of the agreement, recital language about the consideration to be provided, and detailed clauses outlining the Four P’s.

To see examples of a variety of standard contracts, visit our Small Business Law Library!

This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. This post was originally posted by our partner, Clausehound.com, which is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Find Clausehound.com where you see this logo.

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Are volunteers unpaid interns or employees?

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Are Volunteers Unpaid Interns or Employees?

The job market in a number of professions such as marketing, legal and non-profit has become increasingly competitive in recent years. It is not unusual for young professionals entering the job market to enhance their résumés by volunteering or completing internships. Clausehound had a recent discussion on this topic with Pillar Nonprofit Network, a fantastic organization that has a long history of volunteerism throughout its member community. We wrote this article specifically for the good folks at Pillar.

Volunteering seems like an excellent way to gain experience. The problem is that some volunteer positions carry with them the types of responsibilities and demands which would normally be expected from an employee. Based on the increase in unpaid positions in various industries, the Ministry of Labour (the “MOL”) has begun to ask the question: Are unpaid internships or volunteer positions legal?

The answer has proven to be surprisingly complex. Although an employer may call an individual an intern, by itself that is not enough to prevent a court from finding that the intern must actually be considered to be an employee who is protected under the Employment Standards Act (“ESA”).

The MOL has taken action to determine whether interns are being treated properly by employers. In a 2014 Blitz report, out of 56 well-known employers inspected for their internship practices, 13 employers had internship programs with ESA contraventions. These employers were handed compliance orders.

How these rules affect non-profit and charity organizations that engage volunteers is yet to be confirmed by the MOL. However, so long as a volunteer’s responsibilities do not mirror the responsibilities of an employee, a volunteer will not likely be found to be an employee. In the event an unpaid internship issue is brought forward in a tribunal or court, the judge would consider a number of factors on a case-by-case basis to determine whether the individual was actually functioning as an employee.

This topic is still being hotly debated between proponents and opponents of unpaid internships, so keep an eye out for possible amendments to employment legislation.

The Ontario government has provided strict conditions for having an unpaid intern. Such conditions include:

  • The training received by the intern is similar to training received in a vocational school;
  • The training benefits the intern more than it benefits the employee;
  • The internship is not a prerequisite for an employee position; and
  • The intern is informed and consents to an unpaid internship.

To assist you in drafting an intern agreement we have supplied a sample intern agreement here. As noted, we wrote this agreement for our friends at Pillar. Login with the discount code PILLAR12, for a free trial period of one month, and access the agreements in our Small Business Law Library for free! This offer is valid until the end of December 2016!

This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. This post was originally posted by our partner, Clausehound.com, which is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Find Clausehound.com where you see this logo.

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Software Development Master Services Agreements Part VII: The Term of an MSA

TERM OF A MASTER SERVICES AGREEMENT

The term of a consulting agreement that is a Master Services Agreement (MSA) may be for an extended period, because the scope of work may, in fact, be a series of scopes of work that are defined at different points in time over the course of several years. An MSA allows for the two parties to quickly renegotiate future transactions or agreements since they can rely on the terms of the existing master agreement.

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RESUMING A MASTER SERVICES AGREEMENT

Once the much lengthier master agreement has been finalized, the consulting engagement may start and stop several times but the parties are able to negotiate the “scope of work”, which is usually in the form of a schedule that is attached to the agreement, fairly quickly. Since an MSA lasts quite a long time, conditions for revision or amendments to the MSA (as opposed to changes in scope) will, of course, be useful. These amendment clauses usually require the approval of both parties in order to take effect. There may also be a provision for certain terms to change on a periodic basis. For example, an MSA contract might have a five-year term, but a provision that allows for the contractor’s hourly rate to be changed at a certain point in time each year to account for inflation.

To continue reading additional articles within this series, click here.

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What is the maximum term of an NDA if it is not mentioned in the contract?

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Casey Marshall / Flickr 

When signing a non-disclosure agreement, the benefits of including a term clause (i.e., end of the contractual obligations) depend on whether you are more likely to be disclosing or receiving confidential information.

If you are the disclosing party, you want to ensure that your confidential information is kept confidential and there are no potential unauthorized disclosures. This means you want to protect the confidentiality of that information for as long as possible.

If you are the receiving party, you want to limit your obligations in the agreement, which includes what information you have to keep confidential and for how long you have to keep it confidential.

Term of a Confidentiality Agreement

If a term clause is not included in an NDA, the parties can imply that the NDA will be in effect indefinitely. An NDA with no term clause is more common in an agreement where an ongoing relationship is taking place.

Assuming that the NDA contains a termination clause, once a party gives notice to terminate the contract, all of the obligations under the contract will terminate on the termination date unless the NDA includes a survival clause. However, circumstances may vary depending on whether the information is considered a trade secret, where the Ontario Court of Appeal held that disclosing a company’s trade secrets can be considered a restraint on trade.  

Note that after the termination date, the receiving party will no longer be under an obligation of confidentiality for information received after the termination date. This will be true whether or not the confidentiality clause continues to apply to confidential information received before the termination date.

Survival Clause

The exception to all the obligations being terminated on the termination date is where a survival clause has been included. A survival clause explicitly states which obligations will ‘survive’ the life of the agreement. Clauses that survive an agreement usually include the confidentiality clause.

Although a confidentiality clause can ‘survive’ the term of the agreement, the standard term of survival for a confidentiality clause is generally  two to four years after the termination date. Companies that are receiving confidential information will be reluctant to agree to an unlimited term for the confidentiality clause.

To see a standard non-disclosure agreements, visit our Small Business Law Library!

This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. This post was originally posted by our partner, Clausehound.com, which is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Find Clausehound.com where you see this logo.

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