The short answer is yes, if you’re asking whether your agreement will be legally binding. But the real question is, should I be downloading my contracts from the internet? The answer to that question is almost always no. This post will explain why.
If you need legal advice from a small business lawyer, book your free legal consultation with Supply Law today.
*Disclaimer: this guide is for informational purposes only. It does not constitute legal advice nor create a solicitor-client relationship between the author and reader. As with all legal matters, a lawyer should be properly retained and consulted where legal advice may reasonably be considered necessary.
The Standard Process
Typically, when you download a contract you found online, the process will go something like this:
- You select the type of agreement you want to create.
- You answer a few generic questions about the basic terms and may be asked to insert any additional details you want to include.
- The website will plug that information into a pre-existing template and generate a contract for you.
- You download your finished agreement, print, and have the other party sign.
While downloading a contract is certainly a cheap and fast way of creating a binding agreement, a contract dispute will always be more expensive than paying for a properly drafted agreement at the onset. Unfortunately, this is a lesson many business owners will learn the hard way and often with disastrous consequences.
The Problem With This Approach to Contract Drafting
The problem with downloading contracts from the internet is that it tends to create problems that fall into one (or several) of these categories:
- Non-Compliance With Statute
- Not Up-To-Date With the Common Law
- Failure to Anticipate the Effects of Unwritten Contractual Rules
- Including Legalese Without Understanding What It Means
These problems will each be explained below along with some examples of actual instances where these problems have arisen.
Ready? Here we go!
1. Non-Compliance With Statute
The provinces have jurisdiction to regulate most contractual agreements between private parties. As a result, countless statutes have been enacted over the years that can directly or indirectly impact your contract. Some examples of Ontario’s legislation you may have to comply with (depending on what you are contracting for) include:
- the Apportionment Act;
- the Conveyancing and Law of Property Act;
- the Courts of Justice Act;
- the Frustrated Contracts Act;
- the Insurance Act;
- the Ontario New Home Warranties Plan Act;
- the Age of Majority and Accountability Act;
- the Sale of Goods Act;
- the Statute of Frauds;
- the Unconscionable Transactions Relief Act;
- the Consumer Protection Act; and
- the Employment Standards Act.
This list is just a small fraction of the many pieces of legislation your contract could be governed by and does not include areas where the federal government has jurisdiction to regulate or even where international law could be at play (regardless of where you are doing business). So, even if the website you are using asks what province you’ll be doing business in, most often it will not be properly drafted to account for the various statutes that could impact your business relationships. This can have the effect of making certain key provisions in your agreement void for illegality (as they are contrary to law) or your entire agreement “void ab initio” meaning unenforceable from the start.
2. Not Up-To-Date With the Common Law
Because Canada is a common law legal system, the law made by judges in the form of binding legal decisions (called precedent) can also impact your contracts. If you’re using a contract you found online there is no guarantee that your agreement is up to date with the most recent judicial rulings leaving you exposed to potential liability.
As an example, the Ontario Court of Appeal recently released a decision that some lawyers estimate had the effect of rendering 90% of employment contracts non-compliant with Ontario’s Employment Standards Act. As a result, any employers that have not updated their contracts could be liable to pay significantly larger damages to employees that are terminated without proper notice. Employment lawyers are now scrambling to respond to this decision by drafting new employment contracts that will help protect employers from wrongful dismissal claims.
Another common example of where the common law will heavily influence how you need draft your agreements is with independent contractors. This is because, regardless of how you characterize your agreement, if you find yourself in a contract dispute it is highly likely that your contractor will claim they were an employee after you terminate the agreement. If this happens you could face a claim for wrongful termination and could be liable for income tax your independent contractor failed to pay throughout their “employ”. When determining whether someone is contractor or an employee, the courts will look at the agreement itself and the nature of the relationship between the parties. If your agreement is not properly drafted it is more likely that the courts will rule that your contractor was actually an employee leaving you on the hook for huge financial costs.
3. Failure to Anticipate the Effects of Unwritten Contractual Rules
In addition to the common law and statutes, there are numerous other contractual rules or “principles” that will govern your contract despite not being written into the agreement. You need to be aware of these rules so you can draft your contracts accordingly.
For instance, the principle of contra-preferentum holds that where there is ambiguity in a contract the ambiguity should be construed against the contract drafter. So, if certain clauses in your contract happen to conflict with each other, contra-preferentum holds that the interpretation which is more favourable to the opposing party will govern. As downloaded contracts often allow for the drafter to insert additional terms or details, it is very likely that your new terms will conflict with the generic terms of the contract (particularly if you don’t understand the legalese in the rest of the agreement).
Another principle which tends to get amateur contract drafters into hot water is the principal of expressio unius est exclusio alterius. Expressio unius est exclusio alterius means to exclude those things not included and applies most often where the contract includes a list of things. As an example, say an independent contractor includes the following term in their contract:
The Client shall reimburse the Contractor for all expenses incurred as a result of its performance under this agreement including travel fare, meals, and accommodation.
In the event the Contractor forgot to include an expense not listed here, the principal of expressio unius est exclusio alterius could hold that the Contractor would not be able to rely on this provision to cover the expense because it was not specifically included in the list. This could lead to a dispute between the parties over the actual contract price, cutting into the contractor’s profits or leading to a dispute that harms their relationship with this client. The better strategy in this scenario is to draft the contract more generically such as:
The Client shall reimburse the Contractor for all reasonable expenses incurred as a result of its performance under this agreement.
Although the above clause is more generic, it actually provides greater protection through its breadth. Having the knowledge of where to be specific and where to be more general is where having a contract lawyer will benefit you.
4. Including Legalese Without Understanding What it Means
Perhaps the most common problem from downloading contracts off the internet is that these generic agreements will include standard terms written in legalese that the people using them do not understand. The following is an example of a term from a generic service contracted download from the internet:
27. Except to the extent paid in settlement from any applicable insurance policies, and to the extent permitted by applicable law, each Party agrees to indemnify and hold harmless the other Party, against any and all claims, losses, damages, liabilities, penalties, punitive damages, expenses, reasonable legal fees and costs of any kind or amount whatsoever, which result from or arise out of any act or omission of the indemnifying party that occurs in connection with this Agreement.
There are two main problems with including this clause but to understand the problems you first need to know what “indemnify and hold harmless” means. In essence, when one party agrees to indemnify and hold harmless the other, what they are agreeing to do is compensate the other for any damages the other party may be liable to pay if a third party were to sue them in connection with this agreement. So, if you hire an independent contractor using this agreement and your contractor performs their services so badly a totally unrelated party sues them, the contractor could decide to pull you into that lawsuit through a cross-claim. If this happens, you could be found liable for any judgment awarded against the contractor and any legal fees they incurred in defending against the lawsuit. This is a massive source of liability and depending on the size of the lawsuit could potentially mean the end of your business.
The two main problems with this clause is that first, this provision was included automatically as part of the generic downloaded contract. There is no option to include this clause and no explanation offered about what it means or when it should be included. As a result, you are unnecessarily agreeing to take on additional risk because you don’t know what you’re agreeing to.
The second problem with including this clause is that the party drafting the contract should be the one dictating the terms to the other side. If you’re the Client in the example above, and you are preparing the contract that will govern your independent contractor agreement, you should include an indemnification clause. However, the indemnification clause should only flow one way, meaning the Contractor (the other party) will agree to indemnify the Client (you) but the Client will not be assuming the same obligation in return.
In larger commercial contracts the specific terms of the deal will be heavily negotiated, but in most small-scale contracts there is a take it or leave it mentality. This means you can (and should) enhance your own protections and limit any potential liability by omitting terms that benefit the other party. Again, the knowledge of what to include and what to cut from your contract will be specific to your business and better left to a contract lawyer.
Many small business owners download their contracts because its simply too expensive to hire a lawyer to do this for them. Supply Law makes it affordable to have a lawyer draft your contracts and with flat-fee billing on basic business contracts there wont be any surprises when its time to pay your invoice.
If you need legal advice from a small business lawyer, book your free legal consultation with Supply Law today.