Click here to bookmark Clausehound and search for clause/contract language

Choose from our expert-compiled document frameworks and customize from a vast library of clauses.

What if I Can’t Deliver on my Contract?

When you sign a contract, one of the most worrisome questions is “What if I simply can’t deliver? What happens if I physically cannot perform my contractual obligations through no fault of my own?”

Although they apply in only the most strictly interpreted, limited situations, the doctrine of frustration and force majeure clauses can come to the rescue. The first relies primarily on the courts, while the second relies on careful contract drafting.

But what exactly are the doctrine of frustration and force majeure clauses?

1. The Doctrine of Frustration

As a general rule, contracts require “perfect performance”. In other words, performance must conform fully to the obligations as they are stated in the contract. But what about situations that you either did not or could not anticipate? Under such circumstances, the doctrine of frustration might apply. This doctrine states that an (i) unforeseen, supervening event that (ii) renders performance of the contract impossible will set the contract aside, so long as (iii) neither party is responsible for the event.

Let’s break this down:

  • The event must be unforeseen and supervening. This means that the event must occur after the agreement has been entered into and must not have been known or knowable.
  • The event must render performance impossible. This requires actual impossibility – expense, inconvenience, etc. are insufficient.
  • Neither party may be responsible for the event. This includes indirect responsibility.

For this doctrine to apply, the frustrating event must defeat the purpose of the contract. To determine whether the purpose has been frustrated, the purpose must first be identified. As such, it is important to include a statement outlining the purpose of the agreement, or else risk the court coming to its own conclusion. This is often found in the background or recitals of an agreement.

What’s the result?

Under Ontario’s Frustrated Contracts Act, if you can establish frustration, you’re (a) entitled to recover any payments made and (b) cleared from any existing debt under the contract. This is applicable to most commercial contexts.

It is important to remember that the common law holds that this doctrine will not be easily invoked and will require truly exceptional circumstances in order to apply. As well, this will only help if you are already in court and the court agrees with you that the contract has been frustrated. It is important to add the protection of a force majeure clause to your contract.



2. Force Majeure Clause

A Force Majeure Clause, may be easier to invoke than the doctrine of frustration. For a force majeure clause to be applicable, the party must typically show that:

  • the event is within the scope of the clause, and the event occurred;
  • the event was outside the control of the party;
  • the event prevented or delayed the party’s performance of its contractual obligations;
  • the party did its best to mitigate (i.e. minimize) the effects of the event; and
  • the affected party gave timely notice according to the terms of the contract.


It is important to include a force majeure clause in any agreement, as it can demonstrate concrete evidence of an intention for a party to be relieved of its contractual obligations under a listed set of circumstances. A legal document service, such as Clausehound, can provide you with examples of  force majeure clauses. It is important to include the types of events that will most likely affect your contract, and to understand how these clauses work.

This article describes how a force majeure clause functions and provides some further elaboration on the types of events often listed in such a clause. The effect of invoking a force majeure clause can be described in the clause itself.

 

3. Conclusion

“What if I simply can’t deliver? What happens if I physically cannot perform my contractual obligations?” The answer may depend on why you can’t perform your obligations.

If the purpose of the contract has been frustrated, a judge may side with you and find that you can’t deliver. Alternatively, a force majeure clause can help if a superseding, catastrophic event occurs that prevents you from fulfilling your contractual promises.


Key Takeaways: Try to come to an agreed upon contract “purpose” and negotiate the inclusion of a force majeure clause. It’s critical that you consider the promises you’re making and all potential events that could occur. In most situations, the law will hold you to your promises because, as they say, “your word is your bond!”

 

This blog was co-written by Samita Pachai.

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Legal Tips and Tricks: Deal Negotiations Using an LOI/MOU

Often, companies will try to secure a Letter of Intent or Memorandum of Understanding (“LOI/MOU”; the two expressions are used interchangeably) from a potential contracting counterparty, for the purpose of outlining the high-level terms of a contractual relationship and to help demonstrate the viability of a project. An LOI/MOU can be used for many purposes, including outlining broad terms of an asset purchase or acquisition agreement.

 

Such high-level outlining is helpful in many circumstances:

1. When securing financing:  it is useful to demonstrate to potential financiers your potential for orders.  Programs like Kickstarter are ideal for that purpose, as, not only are you able to demonstrate orders, paying customers are waiting to receive the finished product.  Use an LOI/MOU to build an order pipeline.

2.  When entering into merger/acquisition discussions:  to set the terms of the future agreement in advance before opening the financial and legal books and records of the company – so that, at a high level, the merger/acquisition value and terms are negotiated in advance.

After the LOI/MOU is settled and the formal agreement is being entered into, certain closing conditions are usually set out, including the statement that nothing has adversely affected the business in a material way since the time of the initial deal negotiation (this is referred to as a “MAC” or Material Adverse Clause).  This is important, to ensure that you are getting what you paid for.

 

3.  When developing the framework for any future agreement: an LOI/MOU can set “guiding principles”, to further the negotiations and discussion to ensure that the parties agree with the spirit of the proposed agreement.

 

Binding vs. Non-Binding Nature of the LOI/MOU

An LOI/MOU is often structured as an “agreement to agree” and not binding.  However, it is useful to include certain binding provisions.  Some consideration must be given to make the LOI/MOU binding, and perhaps this is the opportunity to explore a future business relationship, or something more tangible, such as $500 in cash.

Typically, the binding provisions to include in an LOI/MOU are:

  • Confidentiality: of the deal negotiations, and of information shared between the parties.
  • No-shop“: an agreement not to shop the proposed deal around to other suitors, which adversely affects the party that is disbursing, oftentimes, significant resources into legal and financial due diligence.
  • A “break-fee“: a dollar value penalty, often used to cover legal fees, in the event that a deal – usually an M&A deal – fails for any reason.
  • Termination date: this is useful to prevent the other party from taking the potential deal off the table from other buyers indefinitely.  A “time is of the essence clause” is good to include as well, for this reason.
  • Dispute Resolution provisions:  To plan for the worst, a good dispute resolution process sets out the forum (location) and rules for litigating/arbitrating the LOI/MOU.
  • Duty of good faith:  This places a general duty on the other party to ensure that they are not wasting your time and money through the exploratory process, which is useful to establish if you are forced to go to court to make a claim for expenditures wasted trying to close a potential transaction.
  • Costs:  It’s important to specify who is paying the legal bill up front, especially if you are concerned that the other party is going to try to charge you for it.  A limitation of liability clause is also good to include for this reason.

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Propel Entrepreneurship Accepts 11 Startups Into Its Summer Incubator!

Clausehound’s partner organisation, Propel Entrepreneurship, has officially announced their cohort of startups for their Summer Incubator program – PSI! After receiving applications from over 90 entrepreneurs in Ontario, Propel has selected 11 startups comprising of 17 entrepreneurs to participate in PSI. Propel’s PSI program provides both office space and a cash stipend to support the development of their startup cohort. Propel has one of the top incubator programs in the country so keep an eye out for these up-and-coming ventures!


To learn more about Propel Entrepreneurship’s incubator programs and the businesses participating, check out this link!

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Meet Propel Entrepreneurship’s Startup of the week – North In Focus

Clausehound’s partner organization, Propel Entrepreneurship, has shared a feature on one of their fantastic student-run startups based at Western University. North In Focus, a startup founded by students Gabrielle Foss and Patrick Hickey, is a completely student-run organization that aims to promote mental health in Canada’s North through youth-oriented workshops. The initiative taken by these students is a prime illustration of  the positive impacts that a startup can have on Canadians. If have a cause which you’re passionate about, it’s never too early to start a business!

 

To learn more about North In Focus, please watch Gabrielle and Patrick’s short video on their venture!

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

The American Bar Association is hosting its Spring Conference in Montreal from May 4-6, 2017

From May 4-6, 2017, the American Bar Association’s Young Lawyers Division will be hosting its Spring Conference in Montreal, Quebec. This three-day event is designed to help young lawyers grow their practices, while also making a difference in their communities and the legal profession at large! Clausehound’s CEO, Rajah Lehal, will be sharing his experiences as a featured panelist at this year’s Spring Conference. If you are a lawyer looking for innovative ways to improve your practice, this is a ‘can’t miss’ event!


For more information on the YLD Spring Conference, please check out this link!

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Is it a mistake to ask about compensation too early in an interview process?

Clausehound’s partner organisation, Collage HR, has shared an insightful article on how employers should react when job applicants inquire about salary early in the recruiting process. This article analyzes the mistakes of a Canadian-based company and provides thoughtful advice for employers and human resources professionals alike.

 

To read the whole article by Collage HR, check out this link!

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Are All Arbitration Provisions in an Employment Agreement Enforceable?

Whether a particular arbitration clause will be enforceable depends on the way in which the clause is drafted. Generally speaking, if (i) the clause is clear, (ii) arbitration is made mandatory, and (iii) the contract can otherwise be enforced, the arbitration clause will be enforceable.

 

Source

 

Arbitration Provisions

It’s best to start with a brief rundown of what arbitration provisions should include. A basic arbitration clause will be an agreement between the parties to use arbitration instead of the courts in the event of a dispute. The clause should be broad enough to cover all types of disputes and questions of interpretation of the contract. If the clause is not broadly worded, one of the parties could argue that the particular dispute was not within the scope of the arbitration clause.

 

The clause should either specify the following details, or incorporate a set of arbitration rules that provide for such details as:

  • how many arbitrators will be chosen to decide the matter;
  • how an arbitrator is to be chosen (both parties must agree upon someone, and if they are unable to reach a decision within a specified time frame, a mechanism must be in place for the choice of an arbitrator);
  • the rules of the arbitration process (there are many standard sets that can be referenced—for example, see the ADR Institute of Canada’s Arbitration Rules);
  • the seat or location where the arbitration will take place;
  • the language to be used during the arbitration process; and
  • the applicable governing law and jurisdiction.

 

Check out Clausehound.com for sample arbitration clause language!

 

Unenforceable Arbitration Clauses

There are two main reasons why courts have held arbitration clause to be unenforceable – bad drafting and matters of public policy.

 

 

Bad drafting

If the arbitration clause creates too many ambiguities, or if arbitration is not clearly mandatory, the  bad drafting of provisions may cause the clause to be unenforceable.

There are a few main areas of concern that have been identified by the courts:

  • The arbitration process and procedure should either be written with great detail to avoid the possibility of either party claiming their obligations were unclear, or reference should be made to a recognised set of arbitration rules which themselves contain this detail.
  • To convey obligation and enforceability, mandatory language should be used in the provisions instead of optional language (for example, using “shall” or “must” instead of “may”).
  • Time periods need to be specified (in the contract or in a set of arbitration rules) for when notice of arbitration should be given, how much time is to be given at each step of the arbitration process, and by when the process should be completed and a decision given.

 

 

Public policy

Sometimes an arbitration clause can run afoul of public policy. This has been especially true in the United States, notably in situations where there is a great inequality of bargaining power between the parties to the contract.

 

One concern expressed by American commentators relates to the cost-effectiveness of arbitration. An examination of case law by Wigdor LLP in New York discussed how arbitration provisions can be invalidated if the costs involved are excessive in a way that “could preclude a litigant from effectively vindicating [his or her] federal statutory rights in the arbitral forum.”

 

Another point of growing concern relates to how arbitration can create, as National magazine puts it, “an alternate system of justice” that more often than not rules in the company’s favor and leaves litigants feeling like they have not rightfully received their day in court.

 

To see standard employment agreements and arbitration provisions, visit our Small Business Law Library!

 

This article was co-authored by Alina Butt.

 

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Meet Propel Entrepreneurship’s Startup of the Week – The Double Jay Collective

Clausehound’s partner organisation, Propel Entrepreneurship, has shared an interesting entrepreneurship story of one of their community members, Jenny Jay. The Double Jay Collective is the accumulation of Jenny’s works as an artist. It is an inspirational story demonstrating that new ventures come in many forms and are oftentimes truly representative of the business’ creator.


To see The Double Jay Collective’s full video, please follow this link.

 

–  –  –

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. Clausehound.com 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 commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Additional Rent Announcements API Approval of Terms Asset Purchase Agreement Background Intellectual Property Board of Directors Business Case Law CASL Clausehound Collaboration Commercial Lease Confidential Information Confidentiality Consulting Agreement Contract Drafting Contract Negotiations Corporation Costs and Expenses CPD Definition of Intellectual Property Dispute Resolution Distribution Agreement Employee Employment Employment Agreement ESOP Events Farming Law Generally Used Clauses Grant of Licence Handling of Confidential Information Indemnity Independent Contractor Independent Legal Advice Informal Discussions Intellectual Property Investor Journey Licence Restrictions Limitation of Liability Long Form Marriage Contract Master Services Agreement NDA Non-competition Not for Profit Articles of Incorporation Notice of Arbitration No Waiver Obligations Ownership of Intellectual Property Ownership of Work Product Parties Partnership Prenuptial Agreements Privacy Policy Product Sales Agreement Purpose Representations and Warranties Restrictive Covenants Safeguarding Requirements Settlement Agreement Shareholder Agreement Software Development Start-up Subscription Agreement Technology Termination Term Sheet Terms of Use Trademark Registration Transfer of Intellectual Property Waivers and Releases Website Terms of Use
Show All Tags