One of most common aspects of our every lives are contracts. They are an integral component of commerce activities. They come in various forms and encompass everything from home newspaper deliveries to real estate transactions and more. In basic terms a contract is essentially a written or spoken agreement which is intended to be legally enforceable.
As with any transaction between two or more parties, the opportunity for disputes is high, especially if they were preceded by a verbal agreement or a personal relationship. Contract disputes can arise from many different elements of the contract itself and it would be impossible to cover all the nuances and expectations that can be coded into them, especially when you consider different industries.
The key elements of a contract consist of an offer, acceptance and exchange of consideration. The concept seems simple enough and it usually is provided that all parties to the contract comply with their respective obligations under the contract.
Unfortunately, it is very common for disputes to arise over contracts which often lead to litigation. For some people, a contract dispute could have one party walking away from the deal. For many, it can involve court appearances costing time, energy, and money. Depending on the size of the contract, it could threaten the future of your business or at least its financial stability.
The Nature of the disputes are wide ranging and include everything from payment to performance. Below are some scenarios which illustrate complexities involved with such disputes, all using the single example of a contractor.
- A home owner hires a contractor to paint his house and pays an upfront deposit for the services, but the contractor never shows up to do work.
- If the above painter in the above example performed the work but there is a disagreement of the paint colour.
- If the painter took a longer period of time to finish the job than what was agreed to and the home owner wants a reduction on price.
- If the painter finished the job on time but is charging the homeowner more than the amount that was agreed to.
- If the painter finished the job but is denying ever receiving the upfront payment by the home owner.
The first example is straight forward. The home owner is entitled to have his/her deposit returned and may have to sue the contractor to get it. However, the other examples are not as black and white and will most likely involve an in-depth inquiry into the contract and expectations of the parties which in turn leads to costly litigation.
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Rather than going into a lengthy discussion of the litigation process I am going to focus on what steps one can take to avoid such disputes and/or bolster his or position should the matter proceed to litigation. To that end, I have set out some helpful guidelines in dealing with contracts. These can be broadly applied to all contracts and are a good place to start, whether you’re a freelancer working with a small business or a corporation employing an agency.
- Have the contract reduced to writing. Verbal contracts are highly susceptible to misunderstandings which often lead to disputes;
- Ensure that the correct parties are named within the contract;
- Ensure that the contract sets out the essential terms (ie services to be provided, payment terms, timing);
- Ensure that any changes to the contract and written down and added as an addendum to the contract itself;
- Have the contract set out any consequences in the event there is a breach of a term (ie reduction of payment for delay, option to terminate, etc.);
- Keep a record of all payments made and have receipts issued; and
- Ensure all parties sign the contract.
You will note that the common theme amongst the above guidelines is to essentially ensure that all parties to the contract are on the same page with respect to understanding the nature of the contract and their respective obligations.
The best way to deal with disputes is to avoid them before they happen, and sometimes the only way to do this is through experience. Your ability to predict issues and examine negative outcomes with an extremely critical mind could end up saving you time and money down the road. Taking such proactive steps will assist in avoiding contractual disputes as well as the costly and time consuming litigation process.
In essence, contract disputes can be avoided if both parties remove all subjective expectations and emotional ties before sitting together, and practicing mutual self-interest to make sure that everything is covered.Have the contract reduced to writing. Verbal contracts often lead to disputes. Click To Tweet
Gurlal Kler is an associate lawyer with Samfiru Tumarkin’s Labour and Employment Law Practice Group in Toronto, Ontario.