Proper Signing of Contracts -- Tips from a Lawyer

Proper Signing of Agreements

By: Courtney Aarbo, Barristers and Solicitors

Providing Information to Assist in Business

a)         Sole Proprietor, Partnership, or Corporation

There are basically three types of business entity:

·        a sole proprietorship;

·        a partnership;

·        a corporation.

The sole proprietor is a business entity owned by a person who as the owner has personal liability for all that that business does.  The sole proprietorship may be operating under a registered business name, for “Quick and Cheap Computing”, but the owner “Phil Jones” is the business.  If you had to sue on an agreement, you would sue “Phil Jones” personally.

A partnership is a business entity owned by two or more separate legal entities who generally have joint liability for all that the business does.  The business may operate under a registered business name for example “Quick and Cheap Computing”, but be owned by the two partners “Phil Jones” and “John Cheap”, who each have personal liability for the business debt.  Usually the partners will have a written (or verbal) agreement relating to the establishment of the partnership.

A Corporation is a separate legal entity from its owners, who are the stockholders.  Debt of the corporation is not normally a personal liability of the individual stockholders.  If “Quick and Cheap Computing Inc.” runs up $100,000.00 of debts, the stockholders are not personally liable.  The Corporation should be looked upon as if it is a separate legal person, which needs the help of other persons to enter legal relations, which other persons have the corporate signing authority.

It is essential that you know, and properly describe the parties to a contract.  Always make sure that the other side to a contract knows you act on behalf of a corporation if that is the case.  Always find out who or what you are contracting with.  If you don’t know, or wish to check, any registry shop will be able to search a business name to determine if it is a corporation, or simply a registered name, or neither.  Failure to properly indicate one is acting on behalf of a corporation will likely result in personal liability under the contract for the person signing it.

b)         Signing of Contract

In order for contracts to be binding upon all parties, it is in their best interest that they be signed properly.  As most documents are not prepared by lawyers, it is necessary for people in business to make sure proper signing occurs.

If you are dealing with a corporate entity, it will always end its name with one of the words or suffixes Company, Co., Limited, Ltd., Corporation, Corp., or Incorporated, Inc.

What follows is a reference table for proper description and execution of documents:

Type of Business	Name Description	Execution
Sole Proprietor	Phil Jones carrying on business under the name “Quick and Cheap Computing”	_______     ________________ Witness      Phil Jones
Partnership	Phil Jones and John Cheap carrying on business in Partnership under the name “Quick and Cheap Computing”	_______     ________________ Witness      Phil Jones _______     ________________ Witness      John Cheap
Corporation	“Quick and Cheap Computing Inc.”	“Quick and Cheap Computing” Inc. Per: ___________________         Phil Jones (President) Per:  __________________         John Cheap (Treasurer)

It is always good practice to check identification of the person signing an agreement especially if one is witnessing his or her signature.  Corporate seals are not essential when a corporation is signing, but if a seal is not being used one should make sure the persons signing for the corporation has proper signing authority.  One is usually safe if the signing person is an officer or director of the corporation (although not always).  A registry shop corporate search should indicate directors and officers.  If in doubt verify corporate signing authority.

It is also a good practice for the parties to initial each page of the contract.

c)         Alteration of Contracts

It is essential that any alterations to contracts be done in writing.  All too often the parties agree to an amendment of their agreement, but fail to properly document it.

Properly documenting an alteration may involve making a simple change to the original agreement by crossing a few words out and then having the signing parties initial the change and date it.  In a more complex alteration, a separate written document or an “Addendum” will need to be prepared.  An addendum is attached to the original agreement and initialed by all parties.

A verbal agreement may cause great difficulty.  Similarly a verbal alteration or amendment to a written agreement may be unenforceable.  Remember that the written agreement likely contains the term that it contains the whole agreement.  Under the Parol Evidence Rule, verbal contract terms should not be allowed to contradict written terms.

A review of the original agreement may reveal a term that states how amendments or alterations are made.  If there is such a term make sure it is followed precisely.

For more information contact Courtney Aarbo Barristers and Solicitors at www.courtneyaarbo.ca or info@courtneyaarbo.ca  or phone 403 571-5120.

Restrictive Covenants and Fiduciary Duites -- Employment Law Update

EMPLOYMANT LAW UPDATE

RESTRICTIVE CONVENANTS AND FIDUCIARY DUTIES

by DARRYL AARBO, BARRISTER AND SOLICITOR

In the recent Alberta Court of Appeal decision of Evans v The Sports Corporation, 2013 ABCA 14 (CanLII) the Court clarified and revisited restrictive covenants and fiduciary duties.  There is nothing new in this decision, but it is always extremely helpful to revisit these areas in a specific fact scenario to better understand these concepts.

No surprises on the restrictive covenant issue.  The Court confirms that the enforceability of these agreements are tough, to say the least.  In this case the Court of Appeal overturned the trail decision that was going to enforce it.  The Court of Appeal went back to its decision in Globex Foreign Exchange Corp. v. Kelcher, 2011 ABCA 240 to support its position.  When considering whether the agreement is reasonable and enforceable the clause, among many other things, must be unambiguous.  Again, being unambiguous is really one of many harsh tests that these clauses must pass.

The agreement in this case failed on this basis.  It found its plain meaning to be “ambiguous and reach undeterminable.”  It could not determine with certainty which clients were covered by the clause.

This ruling is consistent with a long line of cases that make the enforcement of restrictive covenants unenforceable.  Makes one wonder why employers even bother anymore, except in the rarest of cases.

The next issue was fiduciary duties.  This case is again consistent with former rulings out of this Court, but again it is always good to revisit the concepts in particular instances.  The key principle in play here is that one does not need to be an executive or high ranking officer of a company, or a director or a shareholder.  It found that: “…the status of a fiduciary does not emanate from holding corporate office. Rather, it relates to the responsibilities entrusted to an employee, including any attendant power to affect the economic interests of the company.” 

A final issue the Court deals with is whether the employee was relieved of his fiduciary duties when he was “wrongfully dismissed”.  The Court, without much discussion at all, distinguished the Alberta trial decision of ADM Measurements Ltd v Bullet Electric Ltd, by simply stating that this situation “is much different”.  It then goes on to state: “…we (do not) subscribe to the view that a termination of employment will automatically relieve a former employee of ongoing fiduciary obligations.”

The above quotes are given in more details below.  All citations form Canlii.

Background

[7] In 1999, Evans approached TSC about the possibility of becoming a sports agent. Trained as a lawyer, Evans had been working for six years as the director of legal and business affairs for the Professional Hockey Players’ Association. At a meeting during the NHL All-Star game in 2000, Evans was invited to join TSC. He was seen as someone who could take over the recruitment and management of the Czech and Slovak hockey players from Kotlowitz.

[8] Evans moved from Toronto to Edmonton and took over the Czech-Slovak Pipeline. The parties then, with the help of lawyers, negotiated an employment agreement with a three-year term. The contract contained the following restrictive covenant:

7.Non-Disclosure, Developments, and Unfair Competition

Evans acknowledges that he is a key employee of the Company and that in the course of his employment with the Company, he has been and will be entrusted with, has developed and will develop, and has obtained and will obtain confidential information and trade secrets concerning the business of the Company, the disclosure of any of which to the Company’s competitors or the general public would be highly detrimental to the best interests of the Company. Evans further acknowledges and agrees that the right to maintain confidential all of such confidential information and trade secrets constitutes a proprietary right which the Company is entitled to protect. Accordingly, Evans covenants and agrees with the Company that:

(b) he will not, either during the continuance of his employment under this agreement or for a period of 24 months thereafter, obtain or attempt to obtain the withdrawal from the Company of any employees of the Company.

(c) he will not, either during the continuance of his employment or for a period of 24 months thereafter, directly or indirectly through others, call on, solicit, divert or take away or attempts to call on, solicit, divert or take away any client of the Company which has been a client of the Company or any other company to whom Evans provided any services related to the Company’s business. This provision shall not apply to those clients of the Company from whom Evans has received or is owed payments under section 4 of this agreement.

(j) Evans acknowledges and agrees that any revenue generated by Evans’ activities which contravene paragraphs 7(a), (b), (c) (d) and (e) of this agreement will unjustly enrich Evans or another third party and will thereby create a trust in favour of the Company in relation to the revenue referenced in this paragraph.

Evans left his employer and continued to work with his clients and in particular, client sourced before his emplyment.

Restrictive Covenant

[27] … The majority judgment in Globex emphasized the requirement that a restrictive covenant be unambiguous when considering its reasonableness. The majority stated, at paras 19-20:

If it is impossible to predict when you are breaching a restrictive covenant, it is in essence unreasonable.

Second, the clause is ambiguous in another way. Read literally, all it prohibited was soliciting customers “for” any client of the appellant. There is no suggestion that the respondents’ new employer was a client of the appellant. It seems unlikely this is what the clause was meant to prohibit. But the example demonstrates the difficulty in ascertaining the reach of the clause.

[28] In this case, the non-solicitation clause in 7(c) is directed at “any client of the Company which has been a client of the Company or any other company to whom Evans provided any services related to the Company’s business”. It seems likely that this provision is aimed at prohibiting solicitation of other people previously given services by Evans while they were clients of this or a related company. However, the clause can also be read as prohibiting solicitation of past clients of TSC. It is difficult to understand why it would be reasonable to restrain Evans from soliciting past clients which have already left the company.

[29] In short, we are not satisfied that the restrictive covenant in clause 7(c) is plain or readily interpretable. Rather, its meaning is ambiguous and its reach undeterminable. As observed by the Supreme Court in Shafron v KRG Insurance Brokers (Western) Inc, 2009 SCC 6 (CanLII), 2009 SCC 6, [2009] 1 SCR 157, “a restrictive covenant is prima facie unenforceable unless it is shown to be reasonable. However, if the covenant is ambiguous, in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable” (para 43).

 Fiduciary Duties

[34] Evans correctly points out that he was neither a director nor shareholder of TSC, and that he could not hire or promote any employee. As this court pointed out, however, in Anderson, Smyth & Kelly Custom Brokers Ltd v World Wide custom Brokers Ltd, 1996 ABCA 169 (CanLII), 1996 ABCA 169 at para 15, 39 Alta LR (3d) 411, the status of a fiduciary does not emanate from holding corporate office. Rather, it relates to the responsibilities entrusted to an employee, including any attendant power to affect the economic interests of the company. In this case, while the Eastern European market was merely a segment of the overall business operations of TSC, Evans was entrusted with primary responsibility for its successful operation. TSC paid Henys and Kadlecek to find and recruit players who were then turned over to Evans. Evans could then use the power and influence arising from the personal relationship developed with these players, either for the benefit of TSC, or for himself. The great majority of the revenues flowing to Evans and his company, after he left TSC, were from the players originally entrusted to his care by TSC.

[35] While the trial judge did not frame it this way, the situation is akin to the appropriation of a corporate opportunity; namely, players entrusted to Evans to develop on behalf of TSC were diverted to his own benefit. We are satisfied, therefore, that the trial judge did not err in finding Evans a fiduciary in the circumstances of this case.

[36] Evans submits that even if he had fiduciary obligations, they were relieved when he was “wrongfully dismissed” on April 12, 2006. He cites ADM Measurements Ltd v Bullet Electric Ltd, 2012 ABQB 150 (CanLII), 2012 ABQB 150, 9 Alta LR (5th) 278, wherein the court concluded that, even if an employee is a fiduciary, any fiduciary obligation would end when the employee “was constructively dismissed without cause”(para 117).

 [37] In our view, Evans’situation is much different than that of the employee in ADM, nor do we subscribe to the view that a termination of employment will automatically relieve a former employee of ongoing fiduciary obligations. here, it was only after Evans gave notice that he would be departing on April 17 that TSC required that he immediately leave his office and asserted that it had no further need for his services. While we do not condone the failure of TSC to make payment for the five-day balance of the term, it is doubtful that the breach to make payment constituted a “wrongful dismissal” and, in any event, involved no repudiation of the employment contract. In these circumstances, TSC’s relatively minor breach of contract is irrelevant to Evans’ongoing fiduciary obligations, and does not serve to relieve him of them.

Courtney Aarbo Barristers and Solicitors

Providing Information to Assist in Business

Written versus Verbal Contracts

Subject to the terms of the Statute of Frauds which is outline below, both written and verbal agreements are valid and enforceable.

The difficulty with a verbal agreement is that the terms of it may be very difficult to determine, as opposed to a written agreement.  It is therefore always preferable to put an agreement in writing.

An agreement may be partially in writing, and partially verbal.  There is great difficulty in this type of agreement however, in that the “Parol Evidence Rule” states that evidence of a verbal term that contradicts a written term of an agreement should be rejected.

Most written commercial agreements contain a term stating that the written agreement contains the whole of the agreement between the parties, and there have been no verbal representations.  Obviously arguing for a verbal term in the face of such a provision is a difficult proposition.

If one bought  a photocopier and there was a written term of the agreement that the Vendor would supply one box of photocopier paper, but the salesman promises two boxes, this promise would probably not be enforceable as the verbal two box promise contradicted the one box written provision.  In addition the written contract probably has a term that it contains the entire agreement, thereby further frustrating the buyer’s argument that he or she was verbally promised two boxes.

The lesson to be learned is that while a verbal agreement may be enforceable, the far better practice is to prepare a written record of the agreement.  Make sure that all terms of the agreement are accurately written into the document.  Never rely on a verbal promise that is not incorporated into the written agreement.  If the written agreement contains a term that it is the entire agreement with no verbal representations (which is a good practice to include), make doubly sure everything is included.

In the event that you have entered into a verbal agreement, you should prepare a letter/memo setting out in detail all the terms that were agreed to, and place it on your file.  It is also a good practice to forward a copy of the letter/memo to the other contracting party “confirming” what was agreed.  If the other contracting party does not contact you contradicting your letter/memo, it is likely that a Court will place great reliance on it as accurately embodying the deal.

Sometimes your written contract will be formed by a series of letters, faxes and or emails.  In other words the contract is not incorporated into a nice 2 or 3 document. Make certain  that the pieces of paper that form your “less formal” agreement are all put together and kept in a secure location.

The Statute of Frauds enacted in 1677 is still in force in Alberta and it sets out which contract MUST be in writing. Traditionally, the Statute of Frauds requires a signed writing in the following circumstances:

• Contracts in consideration of marriage. This provision covers prenuptial agreements.
• Contracts that cannot be performed within one year. However, contracts of indefinite duration do not fall under the statute of frauds regardless of how long the performance actually takes.
• Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement.
• Contracts by the executor of a will to pay a debt of the estate with his own money.
• Contracts for the sale of goods involving a purchase price of $50 or more in Alberta.
• Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation.

 For more information contact Courtney Aarbo Barristers and Solicitors at www.courtneyaarbo.ca or info@courtneyaarbo.ca or phone 403 571-5120. .

 

Courtney Aarbo Barristers and Solicitors

Providing Information to Assist in Business

Contract Terms

Contracts contain terms, which really embody what the agreement is.  Some terms of agreements are characterized as “conditions” others are called “warranties”.  Some terms in contracts are expressed, some are implied.

a)         Conditions versus Warranties

Essential terms of agreements are called conditions, a breach of which entitles the innocent party to an option not completing his or her side of the deal and sue for damages, or complete the deal and sue for damages.  Terms that are not essential, but are “subsidiary” or “collateral” are called warranties, which if broken only entitle the innocent party to receive damages, but does not give the right to not complete his or her side of the deal.

To illustrate what might be a condition versus warranty, your company has entered into an agreement to purchase a photocopier for $10,000.00 with a capacity to copy 10 pages per minute, and with a term that service would be provided within three hours of being called.  The supplying of a photocopier would be a condition of the agreement.  The provision regarding service within three hours, would probably be a warranty such that if it took four hours to service, the contract could not be repudiated.  In the event the copier could only copy eight pages per minute, that term might or might not be a condition.

Parties may agree that a contract term that one would thinkwould  normally be a warranty be given the characteristic of a condition, by calling it a condition in the agreement.  When entering into an agreement, you should be careful to describe essential matters as conditions, especially if without such a designation a judge might have trouble thinking of it as a condition.  You should be particularly careful of terms that the other side is calling a condition.

If you are unsure if the breach of contract is a breach of condition or warranty, you may have to consult a lawyer.  It you wrongly cancel a contract for a breach of warranty, the other side may sue you for damages.

 

b)         Express versus Implied Terms

An express term is a term verbally or in writing set into the agreement.  An implied term is a contract term that the parties have not expressly inserted, but the law will imply.

Implied terms are ones that need not be expressed, but are so obvious that it goes without saying, for example in the case of the photocopier purchase referred to above, an implied term might be that the machine could be plugged into the regular electrical system, or that it photocopied onto normal 11” x 14” paper.

Other implied terms may not be as obvious, but are implied by law.

For example in the Sale of Goods Act, R.S.A. 2000 C. S-2 it is implied by law into a contract for the sale of goods that:

i)          the vendor has the right to sell the goods;

ii)         the buyer shall have the goods free from claim by anyone else;

iii)        if the sale is by description or sample that the goods will correspond with the description or sample;

iv)        if the buyer lets the seller know he relies on the seller to give him goods fit for a particular purpose, that the goods will be fit for that purpose;

v)         goods bought by description will be of “merchantable” quality.

 

For more information contact Courtney Aarbo Barristers and Solicitors at www.courtneyaarbo.ca or info@courtneyaarbo.ca or phone 403 571-5120. .