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What legal agreements should be signed before giving a project to a software developer?

You had a brilliant idea, set up your company, and now it’s finally time to make your dreams a reality and bring your product to life! When hiring a developer to help build your software or mobile application, it is important to take the time to agree on points such as:

  • The scope of the project;
  • The relationship between the parties;
  • Confidentiality obligations; and
  • Ownership of intellectual property.

 

A long-form software development agreement can cover all of these points, but if you’re looking for customized and specific terms, you may decide to draft agreements specific to your needs and retain them as schedules.

 

Software Development Agreement

A software development agreement is a standard agreement stating a developer’s intent to develop a software product, or “work”, for a company. Boilerplate terms that a standard software development agreement will cover include:

  • The scope of work to be provided, including project milestones, testing procedures, and pricing;
  • The transfer of intellectual property from the developer to the company; and
  • The parties’ liability and indemnification obligations.

Often, parties will include or negotiate additional clauses based on their needs, like:

  • Subcontracting rights;
  • Warranty provisions; and  
  • Insurance obligations.

Consulting Agreement

Typically, a software developer may not be considered an employee of the company, so covering the contractual nature of the developer’s work can serve to clearly assert this boundary. For example, a company entering into a consulting relationship with a developer will often include the following terms:

  • Compliance with the company’s policies;
  • Limitations on the consulting relationship (i.e., the consultant is not an employee); and
  • Non-competition and non-solicitation obligations.

Confidentiality Agreement

When a developer has access to a company’s customer data and records, it is understandable the company will want to prevent this information from being disclosed to its competitors.

You can view and customize a sample consulting agreement on Clausehound:

All employees, developers, and even subcontractors should be bound by confidentiality provisions. Depending on how comprehensive a company wants the confidentiality obligations to be, it can either include a standard confidentiality clause in a software development agreement or include a specific confidentiality agreement in a schedule to the agreement. A confidentiality agreement will generally include the following terms:

  • The inclusions of confidential information;
  • The purpose the information may be used for; and
  • The handling of the confidential information and return of the confidential information.

 

Intellectual Property Transfer Agreement

The developer is developing a work product that is based partly on the work of the company, but mostly on the work of the developer. The developer may have other employees or subcontractors working on the final deliverable for the company.

To protect its rights to the fullest, many companies will ask the developers to and have their employees/subcontractors sign separate intellectual property transfer agreements. Such an agreement could include clauses such as:

  • A transfer of the intellectual property and a license to the developer’s’ background intellectual property;
  • A transfer of moral rights; and
  • A representation of no third party infringement in developing the “work”.

 

To see a standard software development agreement, visit our Small Business Law Library!

 

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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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What Makes a Contract Enforceable?

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.

jarmoluk / Pixabay 

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.

 

To see all of the contracts offered by Clausehound.com, click here!

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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.

 

Legal Tender-logo-high-res-3-02 (1)

 

  • 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.

 

Catkin - Pixbay - agree-1728448_640

Catkin / Pixabay

 

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!

 

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

 

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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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Breitbart vs. Kellogg’s: When business gets politicized, terms get forgotten

Breakfast is the most important meal of the day, but you’ve probably never heard of your morning bowl of cereal “serving up bigotry at your breakfast table.” That’s what conservative news source Breitbart said about Kellogg’s just this past week.

Kellogg’s was scrutinized on social media for advertising with Breitbart, and as a result pulled its ads from the website citing the website’s values “aren’t aligned with the values of the company.” In quick succession, many other companies pulled their advertisements from Breitbart, including names like Allstate and Warby Parker.

Source

Breitbart has responded with swift and uncalculated retaliation, calling for people to #DumpKelloggs by boycotting the food company’s products. The news website has also been publishing a series of articles that stir up old negative publicity about Kellogg’s, including headlines like SHOCK: Amnesty International Blasts Kellogg’s for Using Child Labor-Produced Ingredients” and “Criminal Investigation Opened After Man Appears to Urinate on Kellogg’s Cereal Assembly Line.”

First things first, none of these companies had any idea who they were advertising with—they all work through third-party agencies that target and make deals for them. As a result, Breitbart isn’t exactly justified in saying Kellogg’s is a hypocrite for backing out when they never directly committed to them anyways.

The politicization of this point is what has left the issue much more complex than the business of it. Breitbart is a right-wing news source—some might even say alt-right. The public pressure companies face is often more left, making the waters of corporate social responsibility murky.

It is useful to look at the situation objectively. Breitbart did not have a contract with Kellogg’s, and Kellogg’s did not have one with Breitbart. Instead, their dealings were mediated by a third party marketing or advertising agreement. Inside of this agreement, the contractual language related to termination is key.

The agreement would have, ideally, well-constructed and fair termination clauses. Termination for Convenience allows a party to, unilaterally, end an agreement upon notifying the other party, with reason or not. More restrictive would be Termination for Cause, where a reason is required and often comes from a predetermined list of reasons.

Keeping that in mind, and whatever termination language is in the Breitbart-Kellogg’s contract, there probably isn’t any sort of breach of contract. Breitbart isn’t pursuing action for them leaving the agreement for any contractual reason. They’re just sore about it, and that’s where real action could be taken—by Kellogg’s.

libel

Source: NY Photographic

Kellogg’s may choose to bring a  libel claim against Breitbart.

Libel is defined as “a written or oral defamatory statement or representation that conveys an unjustly unfavorable impression.” This is where more specific termination language related to defamation, non-disparagement, and libel and slander would have been useful for Kellogg’s to push for inclusion in their contracts. It would give them the footing to hold Breitbart to civil liability and make up for losses caused by this whole controversy. However, at this time Kellogg’s doesn’t look like it’s going to diverge from its aim to disengage, even as Breitbart continues to instigate.

Libel can be difficult to prove, but it is not impossible. For example, in Leenen v. Canadian Broadcasting Corp. (2001) (ONCA), the CBC aired a television special on the questionable use of potentially harmful heart medication by cardiologists that was found to have been defamatory. To prove the cardiologist’s claim of libel, the statement had to be made to a third party, be identifiably about the cardiologist, and considered defamatory by the judge.

In deciding if what a party has done is libelous or not, the courts often have to consider if what was said can be considered a fair commentary on the situation, or if it was justified as per public interest. Of course, the politics of the issue would become relevant at this point. However, it can be difficult for the law to offer an opinion, because the question here would essentially be who is speaking the truth, the right or the left? That’s a scary question to have the law decide upon, so perhaps it’s for the best that that question isn’t being brought up.

To see a standard software development agreement, visit our Small Business Law Library!

 

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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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Knowledge is treated differently than action for public policy

Generally, the courts have stated that they will not lend their aid to a person whose claim is based upon an immoral or illegal act.

However, the courts may lend aid to a person whose contract has some immoral/illegal aspect where such person is not themselves involved in the immoral/illegal act. For example, in Holman v Johnson (1775 ), the Plaintiff contracted and delivered tea to the Defendant knowing that it was being bought for the purposes of smuggling. The Plaintiff sues for the breach of contract after the Defendant failed to pay for the tea. The Defendant argued that this contract was void as against public policy. The court held in favor for the Plaintiff who was entitled to recover. The plaintiff had not committed an offense as delivery and sale of the tea were legal activities that occurred prior to the proposed smuggling plan, and the plaintiff’s contract was complete once the goods had been delivered. The Plaintiff was not involved in the smuggling operation post-deliver, and therefore had not entered into a contract for an illegal/immoral purpose.

 

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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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Contracts contrary to personal interests can be voided

Contracts contrary to personal interests may be found to be contrary to public policy, and voided by the court. For example, in an American case called.

In the Matter of Baby M [1988 NJ SC], a woman voluntarily entered into a contract with another couple in which she agreed to be a surrogate mother for the couple for monetary compensation.

After the baby was born, she refused to give the couple the baby. The couple tried to sue for specific performance but failed. The court held that the contract was void as it was against public policy. In a civilized society, there are some things which money cannot buy i.e. taking a baby away from its mother, and thus, against public policy. In certain jurisdiction, it is currently illegal to charge to hire a surrogate mother.

Consider the Assisted Human Reproduction Act, SC 2004, c 2 RSS s.6 (section not yet in force) which reads: (1) No person shall pay consideration to a female person to be a surrogate mother, offer to pay such consideration or advertise that it will be paid.

(2) No person shall accept consideration for arranging for the services of a surrogate mother, offer to make such an arrangement for consideration or advertise the arranging of such services. (3) No person shall pay consideration to another person to arrange for the services of a surrogate mother, offer to pay such consideration or advertise the payment of it. Parallel language is found in the statutes of other jurisdictions.

 

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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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Contracts contrary to public policy from a statue

Ensure that you have understood all the rules, regulations, statues, and law that apply to your business before entering into any contracts. Hire counsel if necessary.

Historically, courts have refused to intervene in cases where a contract has been found to be unenforceable on the grounds of illegality (because it is contrary to a statue or regulation) even if the non-intervention resulted in unjust enrichment for either party.

For example, in Kingshot v Brunskill [1953], the Defendant entered into a contract with the Plaintiff to purchase non-graded apples. The contract contravened The Farm Products Grade and Sales Act Regulation 3, which provided that no person could sell or offer for sale any produce unless it had been graded. The Defendant owed the Plaintiff over $700 for apples which he had received but had not paid for. The Plaintiff sued to recover this amount. The court, reluctantly, held that because the contract contravened the above regulation, it was unenforceable.

The action was dismissed and the Plaintiff could not recover the money he was owed.

However, since Kingshot v Brunskill, courts have developed three exceptions to the general rule that the Court will not order the return of property transferred under any illegal contract. The exceptions are: (1) where the party claiming is less at fault; (2) where the party claiming repents before the contract is performed; and (3) where the party claiming has an independent right to recover (source: Berne Development Ltd. v. Haviland, 1983 CarswellOnt 629, para 37).

 

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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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Mineral rights may not come along with a land purchase transaction

When entering into an agreement, ensure that your understanding of the agreement is in line with the understanding that a reasonable person would have.

If there is a mistake of terms in an agreement, the court will use an objective test that asks what would the reasonable person think the terms meant? Unless an unusual description of the terms of the agreement is clearly worded in a contract, an agreement between parties will be based on a reasonable individual’s point of view. Hobbs v. Esquimalt and Nanaimo Railway Co. stands as precedent for this. In this case, E. & N. Ry. Co. (sales agent) executed an agreement to sell land to Frank Hobbs (Hobbs). Hobbs had thought that the sale of the land included mineral rights.

However, The Esquimalt and Nanaimo Railway Company (Railway Companyâ) stated that the sales agent was not given permission to sell the mineral rights for the land, and that the Railway Company used the word land to mean land minus any mineral rights.

Furthermore, the contract drafted between the two parties did not make any mention to the minerals rights of the land, and simply sought out to sell the land itself. Hobbs sued the Railway Company for mispresentation.

The court found that a misunderstanding by one party of an agreement is insufficient to invalidate a contract. Rather, the court decided to determine how a reasonable person would interpret the terms of the contract, for example, would a reasonable contracting party interpret the words to mean that the land and the minerals were sold? The court ultimately decided that neither the Railway Company nor the sales agent had made any mention to the mineral rights of the land. Therefore, the mistake of assuming that the sale of the land included the sale of mineral rights was unreasonable and careless.

CONFIRM THE TERMS OF THE AGREEMENT

An interesting case that predates Hobbs v. Esquimalt and Nanaimo Railway Co. rejected the use of an objective test and overlooked the view of a reasonable person.

In Henkel v. Pape [1870], the claimant, a gun manufacturer, was in contact with the defendant, a gun maker. The defendant asked the claimant for a sample of the claimant’s rifles that, if they were acceptable to the defendant, could potentially lead to an order of 50 rifles by the defendant from the claimant. The defendant also stated the price that he/she would be willing to pay. The defendant later told an independent telegrapher to send a message to the claimant to send three rifles. However, the telegrapher misheard and sent a message saying “send the rifles. As a result, the claimant sent all 50 rifles, which the defendant subsequently refused to accept. The claimant later sued for breach of representation and warranty on the failure to honour the ordered quantity.

The court found that the defendant was not responsible for the telegraph operator’s mistake, because the telegraph operator was a third party to the agreement. Moreover, the court used a subjective test to come to this conclusion, in that they analyzed the intention of the buyer rather than a reasonable person’s interpretation of the situation. This case contradicts the court ruling within Hobbs v. Esquimalt and Nanaimo Railway Co. which applied a reasonable person test.Ultimately, careful drafting and clarity of contract terms will assist you to avoid issues of this nature altogether.

 

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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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No contract without a meeting of the minds

A contract only exists with consensus ad idem, a common understanding between parties during the formation of the contract.

This condition is a necessary requirement to the formation of a contract. If there is a misunderstanding between parties, which subsequently results in the parties coming to an agreement with different subject matters in mind, then there is no meeting of the minds, and thus there cannot be a binding contract.

Raffles v Wichelhaus [1864] stands as precedent for this rule. In this case, the claimant entered into a contract to sell cotton from India to the defendant.

The contract specified that the cotton would arrive in Liverpool on the ship Peerless. Coincidentally, there happened to be two British ships named Peerless arriving from India, one in October and the other in December. The defendant had though the ship would arrive in October, and the claimant had understood that the ship would arrive in December.

As a result, the defendant refused to accept the cotton in December and renounced the contract, stating that the contract was for cotton that was to arrive in October.

The court first attempted to find a reasonable interpretation of the situation in order to preserve the agreement.

However, in this instance, the court could not determine which ship named Peerless was intended in the contract. As a result, the court determined that there was no meeting of the minds within the agreement because the two parties did not agree on the same thing. There was no binding contract and the court held that the defendant was not responsible for paying for the cotton.

 

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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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