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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.

 

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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.

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Overview of Consulting Agreement

Overview of Consulting Agreement

 

What is this document?

A Consulting Agreement (also known as a Contractor Agreement) is used to establish the terms and conditions of the service relationship between a company and an individual or another company.  A Consulting Agreement will describe the services the consultant will provide and the specific nature of the relationship between the consultant and the company. A consultant or contractor is often treated differently in terms of hours and benefits than an employee of the company.

 

When would I use this document?

This document can be used when a business wants to use the services of another person or company, but does not want to formally hire the person as an employee. This document can make it clear what services and obligations exist between the company and the contractor.

 

Who signs this document?

Consulting Agreements are signed by the prospective or existing contractor and an authorized representative of the company (usually an officer or director of the corporation).

 

More details about this document

Consultant Agreements can range in length depending on the complexity of the relationship and the services that are being provided. Some Consultant Agreements last for a short period of time or until a specific task or project is completed, but they can be used for full-time or part-time purposes.

Consulting Agreements are used when the company wants services but does not want to have the obligations of hiring an employee (eg. payroll deductions, benefits etc.). It is important to understand the differences between an employee and consultant.

The Canada Revenue Agency looks at several factors when determining the true nature of the relationship and whether the company or individual is properly classified as an employee or a consultant/independent contractor. If the consulting relationship has the features of an employment relationship the CRA can classify the service provider as an ‘employee’ even if they were hired under a Consulting Agreement.

 

What are the core elements of this document?

The core elements include: parties, duties and responsibilities, reporting obligations (who the consultant reports to), compensation, reimbursements and allowances, work hours/schedule, independent contractor status, settlement of disagreements, termination clause, and intellectual property and confidentiality clauses.

Some examples of additional clauses include terms of departure, non-solicitation, non-competition, limitation of liability, stock option plan, and indemnification.

 

Related Documents

Nondisclosure/Confidentiality Agreement – an agreement that protects confidential information

Intellectual Property Transfer, Assignment and Release – an agreement that transfers the intellectual property from one person to another eg. from a consultant/contractor or employee to the person who ‘hired’ the consultant/contractor or employee

Employment Agreement – an agreement that sets out the terms of an employment relationship

Workplace Harassment Policy – this policy deals with harassment in the workplace

Romantic Relations in the Workplace Policy – this policy deals with romantic relations in the workplace

Drug and Alcohol Policy – this policy deals with drug and alcohol use in the workplace and the procedures to follow if unauthorized use is suspected

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Santa's Got A Brand New Brand

Toronto’s Yorkdale Shopping Centre (“Yorkdale”) has forever changed the way we will visualize Santa Claus. Paul Mason, aka “Hot Santa”, was hired by Yorkdale to portray a modern Santa Claus. Through the gift of social media, Hot Santa went viral, with many oogling over the transformation of how we view Santa Claus. And, Paul Mason received instant stardom.

Source

This year, Yorkdale was not successful in re-hiring Paul Mason for the role of Santa Claus, so hired an equally handsome and modern Santa Claus, Adam Martin.

Now, Yorkdale Shopping Centre and Paul Mason are fighting over the ‘Fashion Santa’ brand that both parties took part in making a success.

A question I never thought I would ask: who has the legal rights to the “Fashion Santa”?

Both parties have filed for trademarks to ‘Fashion Santa’, and Hot Santa started registering the copyright for Fashion Santa long before he was featured at Yorkdale Shopping Centre. However there are other legal issues that need to be taken into consideration, including:

  • Whether an employment/consulting agreement was entered into between Yorkdale and ‘Fashion Santa’ and who retained ownership of the brand;
  • The similarities between the ‘Fashion Santa’ character and the new Yorkdale character.

The latter will be a complex issue, since both parties have applied for trademark registration of ‘Fashion Santa’. Since Yorkdale filed their trademark application first, it is likely that they will get priority for the trademark.

This is not the first time a character has been disputed between an employer/company and the person actually playing the character. Recently, Stephen Colbert reincarnated his famous Colbert character from The Colbert Report on his new night show.

He publicly stated his limitations due to copyright, but instead introduced his old character’s ‘twin’.

Including the following sort of clause can help protect an employer from having a person hired to play a character from taking the character with him:

“The employee/consultant understands that all proprietary information and work product is the property of the company. In addition, the employee/consultant hereby agrees to assign to the company, without further consideration, all existing and future rights that the employee/consultant may presently have or may acquire, free and clear of all liens and encumbrances, in and to the proprietary information and work product, which shall be the sole property of the company, whether or not it is registrable intellectual property.”

The contract drafter can also define ‘proprietary information’ and ‘work product’ based on the specific circumstances the contract is being drafted for. This will help to create greater certainty.

You never know what idea is going to attract instant fame, so it is always a good idea to protect yourself with the right legal document. Make sure Santa Claus has the right clause!

 

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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.

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Clausehound CEO Rajah Lehal is hosting a CPD Webinar on the Top 10 Things You Should Know about Hiring a Contract Employee

Links from this article:
here

Toronto, ON
November 8, 2016

On November 14, 2016, Rajah Lehal, Founder and CEO of Clausehound, will be hosting a legal Webinar on the topic of hiring contract employees in the context of operating a social enterprise. Rajah will also be discussing his journey as an entrepreneur, and how his experience training lawyers led to his founding of Clausehound. The Webinar session will be accredited for 1 hour towards your yearly substantive CPD requirements.

For further details on this Webinar, please click here.

About Clausehound.com: Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses and lawyers more productive.

Our $10 per month DIY Legal Library hosts tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Our professional version offers a concierge service that will assist you to should you have any questions while trying to source an agreement.

 

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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.

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Contractors need to specify payments for incomplete tasks

When drafting a work related contract, ensure that payment due for the completion of the task, as well as payment due for partial completion of the task is included and specify the degree of completion for each respective payment amount.

Generally, in a lump sum contract, there is no right to partial payment if the task specified within the contract is not completed. If a contract indicates that a contractor will charge a certain amount for the completion of a task, then the contractor cannot sue for payment resulting from partially completing a task.

Quantum merit, the reasonable value of one’s services, also will not apply unless there is a contract that specifies that payment will be required for partial completion of the task.

Sumpter v Hedges [1898] 1 QB 673 stands as precedence for this rule. In this case, Mr. Sumpter (Sumpter) was a builder, who had entered into a contract with Mr. Hedges (Hedges) to build two houses and stables for £565. Sumpter completed work valued at £333 but did not have enough money to complete the task. Hedges finished the remainder of the task, using material that Sumpter had left behind. Sumpter had already been paid part of the £565, but sued for the outstanding amount. The Court of Appeal found that Sumpter was not owed the outstanding amount because he had abandoned the contract.

Hedges did not need to reimburse Sumpter for partially completing the task. Sumpter was entitled to compensation for the value of the materials that Hedges had used to complete the task. The Court of Appeal found that where there is a contract to do work for a lump sum, payment for the work cannot be recovered until the work is completed.

Furthermore, it was found that Sumpter was not entitled to recover for the work he did on a quantum merit. For quantum merit to exist there must be evidence of a new contract that specifies payment for the work previously completed. Quantum merit can also exist where there is evidence that the defendant had the option to take benefit of the work done. Had

Hedges been given the option of benefitting from partially completed buildings, then Sumpter may be entitled to quantum merit, however; as in the case of work done on buildings, the defendant is given not given an option to take benefit of the work done or not. As a result, Sumpter is not entitled to quantum merit. Duty of Good Faith

As a side note, it is also useful to include a duty of good faith as a provision within the contract, as this duty will obligate the party receiving the goods/services to honour an equitable or fairness obligation to provide payment for useful services received.

 

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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.

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Wood v. Enbridge Gas Distribution Inc., 2011 ONSC

Discussion: This case deals primarily with the distinction between an employee and an independent contractor. Although the parties in this case intended to structure their relationship so that the applicant would be regarded as an independent contractor, the parties conduct indicated otherwise. The main difference between an employee and an independent contractor lies with the element of CONTROL that the employer has over the worker. Factors to consider when assessing whether a worker is an employee or an independent contractor include:

  • The level of control the employer has over the worker’s activities
  • Whether the worker provides his or her own equipment
  • Whether the worker hires his or her own helpers
  • The degree of financial risk taken by the worker
  • The degree of responsibility for investment and management held by the worker
  • The worker’s opportunity for profit in the performance of his or her tasks

Facts:

  • Applicant worked for the defendant as a pipe fitter.

    He was seriously injured while removing a decommissioned gas standpipe.

  • The applicant started an action for damages, alleging that he was working as an independent contractor for the employer at the time of the injury.
  • The respondents commenced a right to sue application under s. 31 of the Workplace Safety and Insurance Act (the Act), which authorizes the tribunal to determine whether, because of this Act the right to commence an action is taken. S. 27 and 28 of the Act prohibit a worker injured in the course of employment from suing his or her employer if he was injured while acting in the capacity of an employee or worker at the relevant time and is not an independent contractor
  • The tribunal allowed the application of the respondents and held that the applicant was not entitled to sue. The applicant seeks judicial review of this decision.

Issue:

  • Was the tribunal accurate in its conclusion that the applicant was an employee of the defendant and therefore not allowed to sue.

Rule:

  • The Workplace Safety and Insurance Appeals Tribunal is entitled to judicial deference on the reasonableness standard.

  • Contractual arrangements can be used to supplement viva voce evidence, provided that the written word corresponds with the manner in which the parties actually conduct themselves. In these cases, the law is concerned with what people actually do and not what they agreed to do. More importantly, the law will not blindly accept the classification label the parties have placed on their relationship (Joey’s Delivery Service v. New Brunswick (Workplace Health, Safety and Compensation Commission)

Analysis:

  • Although the parties intended to structure their relationship so that the applicant would be regarded as an independent contractor, the parties’ conduct indicates otherwise. The Tribunal noted that the respondent continued to pay a salary to the applicant when he was off work and after he returned to work on modified duties; the applicant’s earnings were reported to the Workplace Safety and Insurance Board; the respondent exercised a high degree of control over the applicant’s work; the applicant did not hire his own helpers; the applicant had marginal financial risk; the applicant had no meaningful opportunity for profit. The Tribunal’s decision fell within the range of possible and acceptable outcomes that were defensible with regard to the facts and the law. It was not unreasonable.

Conclusion:

  • Application dismissed.

 

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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.

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

Read more...

Contractors need to specify payments for incomplete tasks

When drafting a work related contract, ensure that payment due for the completion of the task, as well as payment due for partial completion of the task is included and specify the degree of completion for each respective payment amount.

Generally, in a lump sum contract, there is no right to partial payment if the task specified within the contract is not completed. If a contract indicates that a contractor will charge a certain amount for the completion of a task, then the contractor cannot sue for payment resulting from partially completing a task. Quantum merit, the reasonable value of one’s services, also will not apply unless there is a contract that specifies that payment will be required for partial completion of the task.

Sumpter v Hedges [1898] 1 QB 673 stands as precedence for this rule.

In this case, Mr. Sumpter (“Sumpter”) was a builder, who had entered into a contract with Mr. Hedges (“Hedges”) to build two houses and stables for £565. Sumpter completed work valued at £333 but did not have enough money to complete the task. Hedges finished the remainder of the task, using material that Sumpter had left behind. Sumpter had already been paid part of the £565, but sued for the outstanding amount.

The Court of Appeal found that Sumpter was not owed the outstanding amount because he had abandoned the contract. Hedges did not need to reimburse Sumpter for partially completing the task. Sumpter was entitled to compensation for the value of the materials that Hedges had used to complete the task. The Court of Appeal found that where there is a contract to do work for a lump sum, payment for the work cannot be recovered until the work is completed.

Furthermore, it was found that Sumpter was not entitled to recover for the work he did on a quantum merit.

For quantum merit to exist there must be evidence of a new contract that specifies payment for the work previously completed. Quantum merit can also exist where there is evidence that the defendant had the option to take benefit of the work done. Had Hedges been given the option of benefitting from partially completed buildings, then Sumpter may be entitled to quantum merit, however; as in the case of work done on buildings, the defendant is given not given an option to take benefit of the work done or not. As a result, Sumpter is not entitled to quantum merit.

Duty of Good Faith

As a side note, it is also useful to include a duty of good faith as a provision within the contract, as this duty will obligate the party receiving the goods/services to honour an “equitable” or “fairness” obligation to provide payment for useful services received.

 

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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.

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Non-competition Clauses: Is 5 Years Too Long to Promise not to Compete?

 

Employment Contracts

Non-competition clauses are often found in employment and consulting contracts. Generally speaking, these clauses have to be as narrow as possible, covering only the geographic area, time period, and type of work needed to protect the legitimate interests of the employer. Courts will usually not enforce clauses that make it difficult for the employee to earn a living when they leave the job. Five years would likely be too long in most cases.

Sale of a Business

But non-competition clauses are also found in contracts for the sale of a business. Once you have sold your business, how long can you be required to wait before you can open another business to compete with the one you sold? This question was considered by the Supreme Court of Canada, in a situation where the former owner also became an employee of the new business owner. (Payette v. Guay Inc., 2013 SCC 45)

Guay was a crane rental company which purchased assets from another crane rental business owned by Payette. As part of the agreement the parties agreed that Payette would work for Guay for six months and was, thereafter, to be bound within the province of Quebec by a non-solicitation and non-competition clause for 5 years. Payette worked for the Guay for over four years until being fired and then began to work for a competitor. Shortly after, several of Guay’s most experienced employees followed and began working for the competitor as well.

The Court considered several factors, including the sale price of the business, the access to legal guidance and the parties’ expertise and experience. The Court found that the parties had negotiated on an equal footing as informed businesses and the sale was of substantial value. The Court held the 5 year restrictive clause was reasonable because of the specialized nature of the crane business, and that the large geographic location was reasonable because of the mobility of the crane rental business.

 

Conclusion

As the owner of a business, you are unlikely to be able to require your employees not to compete for 5 years after they leave the job, but if you sell your business and then work for that business, it is much more likely that 5 years would be an enforceable time period, depending on the nature of the business. This is because the courts recognize that when you sell your business, the purchaser is paying for the goodwill of that business, and for the right to carry on that business without competition from you.

Takeaways:

  • non-competition clauses in sale of business agreements are likely to be enforceable if the businesses negotiated on an equal footing
  • non-competition clauses in employment contracts must be limited to only what is needed to protect the legitimate business interests of the employer
  • the reasonableness of the time, geographic, and work restrictions on competition will depend on the circumstances of each contract

 

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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.

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