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Contracts – A Primer
James G. Kosa
Junyi Chen
April 20, 2015
Contract requirements
Offer
Acceptance
Consideration
A ‘meeting of the
minds’ as to the terms
The contract should tell
the story of the deal.
2
Typical parts of your agreements
Definitions
Description of products or services
Payment and taxes
Rights and licenses
Warranties and indemnities
Remedies and termination rights
Legal “stuff”
3
How to get to a deal
What is the deal story?
Be clear on the details
Ask questions
What do you need?
What must you get?
What does the other side
need? Can you give it?
4
How to get to a deal
Listen, don’t just
negotiate
Negotiate ‘needs’
- not ‘positions’
Put it in writing in
plain English
Know your drop
dead position
5
Different Types of Agreements
Agreement to purchase or lease goods
 Cars, equipment, bulk goods
 Real estate
6
Different Types of Agreements
Agreement for services
 Consulting services
 Development of custom deliverables
 Managed services
 Subscription services
7
Different Types of Agreements
Licensing agreements
 Software, movies, music, television
 Web-wrap / browser-wrap agreements
 “EULA”s
8
Different Types of Agreements
Corporate and financial agreements
 Shareholder agreements
 Financial instruments
 Mergers and acquisitions
9
Words matter
Understand the difference between
 “assignment” and “license”
 “exclusive”, “non-exclusive” and “sole” license
 “indemnify” and “defend or settle”
 “best efforts” and “commercially reasonable efforts”
 “warranties” and “conditions”
 an employee creating content and a contractor creating
content
10
Words Matter
Understand the agreement definitions and use
them properly. If they are capitalized, use in that
form. Use them exactly as written. Even a small
change could be judged to mean something
completely different.
11
Implied Terms
Some contractual terms can be implied, but ...
 The term must be reasonable and fair;
 The term must be necessary in order for the rest of the
business agreement to make sense;
 The term must be obvious;
 The term should be straightforward to express; and
 The term cannot contradict the express terms of the
contract.
If the agreement is clear as written, terms will not
be implied. So put it in writing!
12
Good faith
13
Good faith
There is now an obligation in Ontario to
negotiate in “good faith”
 No lying;
 Do not deliberately mislead another party;
 Do not rely on mistakes of another party
(especially if they are inexperienced or not
represented by a lawyer);
 Do not abuse a power imbalance (like
landlord/tenant, franchisor/franchisee,
employer/employee, etc.)
14
Good faith
You can:
 refuse to negotiate,
 decline to reach an agreement,
 act in your own self-interest, and
 refrain from disclosing what you know.
You must also carry out the terms of an
agreement in good faith
15
Oral Agreements
Valid? Sure.
 We use them all the time. For small things.
 They can be efficient when the terms are
simple and well understood.
 But often they break down in practice.
Enforceable? Depends. Can you prove you
have a deal?
Good idea? Not if you want to rely on it.
16
Collateral Agreements
When you have a written agreement and
modify it using an oral agreement
 Very hard to enforce, because they are hard to
prove!
 But may be enforceable if they do not contract
the existing agreement
Put them in writing
17
“Sneaky” Tricks to Watch For
18
“Sneaky” Tricks to Watch For
Fine print – enforceable if you have the
opportunity to review it
 web-wrap and shrinkwrap terms are often
enforceable for the same reasons
 But do you have a choice?
19
“Sneaky” Tricks to Watch For
Other Tactics
 Rushing the deal
 Using multiple lines of negotiation
 Just being better
• More organised, more knowledgeable, more
flexible
20
“Sneaky” Tricks to Watch For
Bad Behaviour
 Fraud and negligent misrepresentation
 So what if its illegal? Enforcement is the
problem.
Ways to help yourself
 Use common sense
 Leave yourself with options at each stage
 Be prepared to walk away
21
Vital Protections
Understand what you are buying/selling, and
explain it properly!
 Most of the problems and the risk come from not
getting the scope right.
 It’s not just about the price.
Limitation of liability
 The sky should not be the limit (with a few
exceptions)
Disclaimers
22
Vital Protections
Indemnities
 IP, death and injury, bad behaviour
 But don’t go too far – you are not each others
insurance companies
Insurance
Cost compliance into your deal
 Add cost above the contract cost to account for
management, governance, disputes, etc.
23
Vital Protections
“Force Majeure”
 What happens when it all goes wrong and its
not your fault?
 But watch that they are fair, and not abusive
24
Vital Protections
“Proper Termination Clauses
 Think of the reasons why you would need to
walk away, and contract now for them
 It’s like a prenup!
Termination Assistance
 If you need help from the other party, figure
that out now, not when you are getting
divorced
25
Making a Binding Agreement
Understand want you are contracting for
Make sure there is an exchange of promises
 A one sided deal is no deal at all
 There must be an offer and an acceptance
Put it in writing
 Everyone forgets what was discussed
 It makes hard decisions easier if there is a
process already thought out
26
Common Errors
Not thinking it through
Did you get the math right?
Failing to capping your risk
 All deals have risk, so limit yours to a
reasonable amount.
Assuming you understand
 When you are unsure, ask someone.
27
Common Errors
Sweating the small stuff
 Spend your time on the material issues
Trying to “win”
 If the agreement doesn’t benefit both parties, it
will always fail
 You do not want to be your supplier’s cheapest
customer
28
Reality Check
Contracting is not a perfect process
Mistakes will be made – reduce the chances
by:
 Following a process which includes independent
review and accountability
 Getting advice from a trusted advisor
 Including some contingency in your plans
If the mistake is genuine, consider approaching
the other party early to address it
29
Questions?
30

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Contracts - A Primer 20150421

  • 1. Contracts – A Primer James G. Kosa Junyi Chen April 20, 2015
  • 2. Contract requirements Offer Acceptance Consideration A ‘meeting of the minds’ as to the terms The contract should tell the story of the deal. 2
  • 3. Typical parts of your agreements Definitions Description of products or services Payment and taxes Rights and licenses Warranties and indemnities Remedies and termination rights Legal “stuff” 3
  • 4. How to get to a deal What is the deal story? Be clear on the details Ask questions What do you need? What must you get? What does the other side need? Can you give it? 4
  • 5. How to get to a deal Listen, don’t just negotiate Negotiate ‘needs’ - not ‘positions’ Put it in writing in plain English Know your drop dead position 5
  • 6. Different Types of Agreements Agreement to purchase or lease goods  Cars, equipment, bulk goods  Real estate 6
  • 7. Different Types of Agreements Agreement for services  Consulting services  Development of custom deliverables  Managed services  Subscription services 7
  • 8. Different Types of Agreements Licensing agreements  Software, movies, music, television  Web-wrap / browser-wrap agreements  “EULA”s 8
  • 9. Different Types of Agreements Corporate and financial agreements  Shareholder agreements  Financial instruments  Mergers and acquisitions 9
  • 10. Words matter Understand the difference between  “assignment” and “license”  “exclusive”, “non-exclusive” and “sole” license  “indemnify” and “defend or settle”  “best efforts” and “commercially reasonable efforts”  “warranties” and “conditions”  an employee creating content and a contractor creating content 10
  • 11. Words Matter Understand the agreement definitions and use them properly. If they are capitalized, use in that form. Use them exactly as written. Even a small change could be judged to mean something completely different. 11
  • 12. Implied Terms Some contractual terms can be implied, but ...  The term must be reasonable and fair;  The term must be necessary in order for the rest of the business agreement to make sense;  The term must be obvious;  The term should be straightforward to express; and  The term cannot contradict the express terms of the contract. If the agreement is clear as written, terms will not be implied. So put it in writing! 12
  • 14. Good faith There is now an obligation in Ontario to negotiate in “good faith”  No lying;  Do not deliberately mislead another party;  Do not rely on mistakes of another party (especially if they are inexperienced or not represented by a lawyer);  Do not abuse a power imbalance (like landlord/tenant, franchisor/franchisee, employer/employee, etc.) 14
  • 15. Good faith You can:  refuse to negotiate,  decline to reach an agreement,  act in your own self-interest, and  refrain from disclosing what you know. You must also carry out the terms of an agreement in good faith 15
  • 16. Oral Agreements Valid? Sure.  We use them all the time. For small things.  They can be efficient when the terms are simple and well understood.  But often they break down in practice. Enforceable? Depends. Can you prove you have a deal? Good idea? Not if you want to rely on it. 16
  • 17. Collateral Agreements When you have a written agreement and modify it using an oral agreement  Very hard to enforce, because they are hard to prove!  But may be enforceable if they do not contract the existing agreement Put them in writing 17
  • 18. “Sneaky” Tricks to Watch For 18
  • 19. “Sneaky” Tricks to Watch For Fine print – enforceable if you have the opportunity to review it  web-wrap and shrinkwrap terms are often enforceable for the same reasons  But do you have a choice? 19
  • 20. “Sneaky” Tricks to Watch For Other Tactics  Rushing the deal  Using multiple lines of negotiation  Just being better • More organised, more knowledgeable, more flexible 20
  • 21. “Sneaky” Tricks to Watch For Bad Behaviour  Fraud and negligent misrepresentation  So what if its illegal? Enforcement is the problem. Ways to help yourself  Use common sense  Leave yourself with options at each stage  Be prepared to walk away 21
  • 22. Vital Protections Understand what you are buying/selling, and explain it properly!  Most of the problems and the risk come from not getting the scope right.  It’s not just about the price. Limitation of liability  The sky should not be the limit (with a few exceptions) Disclaimers 22
  • 23. Vital Protections Indemnities  IP, death and injury, bad behaviour  But don’t go too far – you are not each others insurance companies Insurance Cost compliance into your deal  Add cost above the contract cost to account for management, governance, disputes, etc. 23
  • 24. Vital Protections “Force Majeure”  What happens when it all goes wrong and its not your fault?  But watch that they are fair, and not abusive 24
  • 25. Vital Protections “Proper Termination Clauses  Think of the reasons why you would need to walk away, and contract now for them  It’s like a prenup! Termination Assistance  If you need help from the other party, figure that out now, not when you are getting divorced 25
  • 26. Making a Binding Agreement Understand want you are contracting for Make sure there is an exchange of promises  A one sided deal is no deal at all  There must be an offer and an acceptance Put it in writing  Everyone forgets what was discussed  It makes hard decisions easier if there is a process already thought out 26
  • 27. Common Errors Not thinking it through Did you get the math right? Failing to capping your risk  All deals have risk, so limit yours to a reasonable amount. Assuming you understand  When you are unsure, ask someone. 27
  • 28. Common Errors Sweating the small stuff  Spend your time on the material issues Trying to “win”  If the agreement doesn’t benefit both parties, it will always fail  You do not want to be your supplier’s cheapest customer 28
  • 29. Reality Check Contracting is not a perfect process Mistakes will be made – reduce the chances by:  Following a process which includes independent review and accountability  Getting advice from a trusted advisor  Including some contingency in your plans If the mistake is genuine, consider approaching the other party early to address it 29