Common Contract Format
Most commercial agreements prepared by
lawyers, or prepared from a lawyer’s precedent, have six parts, each with their
own purpose:
a) Date
Generally the date of the agreement will be
the first thing found in any agreement.
It should be the date the agreement is signed. It is usually the date the agreement is effective.
From time to time one may find the
following term:
“This Agreement
dated the 5th day of May, 2012 to be effective from the 1st
day of January, 2012.”
In other words the term is backdating the
agreement. The above term is much
preferred to simply dating the Agreement for January 1st, 2012 , when in fact
it is not signed until May 5th.
There is nothing wrong with the above
wording having the effect of backdating an agreement, as long as the agreement
was in fact in place on January 1,
2012 , but simply took about four months to properly document.
The second part of the contract should
accurately set out the parties to the agreement. Make sure the name of a
corporate party is accurately set out.
c) Preamble
Most contracts, especially if the document
is a lengthy one, will set out a preamble.
The preamble is meant to set out the
background for the parties entering into an agreement. Its purpose is to assist in explaining what
will be coming next, i.e., what has been agreed. It also often contains a standard clause
acknowledging the flow of consideration necessary to form a binding agreement.
In addition to the Preamble’s position in
the contract document, following the listing of the “Parties”, one can often
recognize the preamble by the use of the word “Whereas”.
A typical example is as follows:
1. Sally Smith is the
owner of 50 shares of A.B.C. Investments Ltd. which she wishes to sell;
2. John Jones wishes to
purchase 50 shares of A.B.C. Investments Ltd.
Now Therefore
in return for the sum of $1.00 paid by John Jones to Sally Smith and other good
and valuable consideration contained herein the payment and receipt of which is
acknowledged:
IT IS AGREED”
d) What
is Agreed
The next part of the typical agreement will
generally be the setting out of the main points of the agreement. If the contracting parties were asked what
has been agreed, most or all would be incorporated into this part of the
agreement.
Usually this part of the contract will
state what is to be done, when it is to be done, and how it is to be done.
This part might state the following:
1. Sally Smith agrees
to sell and transfer to John Jones all her interest and title to 50 shares of
A.B.C. Investments Ltd. for a price of $1,000.00, or $20.00 per share.
2. John Jones will pay
to Sally Smith the sum of $1,000.00 or $20.00 per share for the 50 shares of
A.B.C. Investments Ltd., which sum will be paid on or before May 31, 2000,
by certified cheque payable in trust for Sally Smith to Courtney Aarbo,
Barristers and Solicitors, 1131 Kensington Road N.W. (3rd Floor),
Calgary, Alberta, T2P 3P4.
3. On
receipt of payment for the shares Sally Smith will forthwith effect the share transfer by causing a transfer of the share
certificate to John Jones to be effected and
registered on the share register of A.B.C. Investments Ltd.
e) Standard
Clauses
The next parts of a standard agreement are
the standard clauses, sometimes referred to as “the fine print”. The section is typically thought of as the
part of the agreement that the parties’ lawyers would likely put into an
agreement. It may be much longer than
the rest of the agreement. The terms are
difficult to understand. Unfortunately
the parties often do not read these sections of the agreement prior to signing
it.
In the share transfer agreement that we
have been using as an example this area of the agreement would likely contain
terms covering the following areas:
·
Extensive provisions regarding
representations and warranties that
Sally Smith would give to John Jones concerning her having good and clear title
to the shares, her having the right to transfer the shares, and even the
financial position of the company itself.
·
Detailed particulars of further
acts which must be done to effect the share transfer.
·
Conditions precedent to the
share transfer.
·
Termination of the agreement.
·
Amendment of the agreement.
·
Interest for late payment.
·
Where notices can be sent.
·
Arbitration of dispute clause.
·
“Standard” closing clauses such
as the clause that the written agreement contains the whole agreement.
A further example that most persons can
relate to is a mortgage. Most
individuals will review their mortgage, to the extent of the first few clauses
setting out the amount borrowed, the interest rate, and the payment terms. A particularly studious person may review
their early payment provision. With
respect to the other 80% of the mortgage, few take the time to review it.
If people did review their whole mortgage,
they would find shocking terms, such as that they were supposed to get
permission of the mortgage company for renovations, and provide copies of their
insurance policies.
Persons in business should be aware that
the “Fine Print” generally contains crucial terms which should be reviewed and
understood before signing. In the event
the agreement is signed, and one of the “Fine Print” terms comes back to haunt
the signatory, there is no defense to a claim based on not having read the
contract.
In the real world of business it is
difficult to find the time, or have the patience to review all the “Fine
Print”. If the contract is of great
importance then likely it will be reviewed by the business’ lawyer, in which
case one can often rely on the lawyer to bring any problem to your
attention. Due to cost concerns, it is
not always possible to hire a lawyer, but if that decision is made, it will be
even more critical for the business person to take the time to review the
agreement thoroughly.
f) Execution
The last part of any agreement is the
portion where the parties sign.
For more information contact Courtney Aarbo
Barristers and Solicitors at www.courtneyaarbo.ca
or info@courtneyaarbo.ca or phone 403 571-5120.
No comments:
Post a Comment