Contracts come in all shapes and sizes and will vary greatly based on the industry the agreement is taking place within, the types of parties involved (such as between corporations or individuals, employees and employers, a business and the general public) and ultimately the amount of money at stake. This blog post will highlight five of the most popular contracts and the circumstances when they should be used.
1. Business to Business Agreement
The first type of contract known as a business-to-business agreement or B-2-B contract is (as the name suggests) an agreement entered into between two commercial entities. The most common type of business-to-business agreement comes in the form of a service contract where one business contracts with the other to provide services in exchange for a set fee. Other forms of business-to-business contracts include where the parties are acting together towards the common pursuit of profit such as a joint venture agreement or a partnership agreement. In the context of a business-to-business agreement the principle of “freedom of contract” is heavily emphasized and the parties can agree to (nearly) whatever terms they see fit. This is because the parties are presumed to be of equal bargaining power in contrast to a business-to-consumer agreement as explained below.
2. Business to Consumer Agreement
The second type of contract, known as business to consumer agreements or B-2-C contract is used when a business is providing a service to the general public as opposed to contracting with another business. Again, the most common form is usually a service agreement regardless of whether the business is a construction company providing home renovations or a photography company hired to capture candid shots at a wedding venue. Unlike with business-to-business agreements described above, with B-2-C contracts, the parties are not presumed to be of equal bargaining power. This means businesses that provide their services to the general public need to be much more careful about the terms they include and (in Canada) need to be particularly mindful of provincial legislation designed to protect consumers from unfair, misleading, or onerous terms such as Ontario’s Consumer Protection Act. In fact, in the context of consumer transactions there may be mandatory terms for businesses to include such as a 10-day cooling off period if the business is supplying a service or good at a later date (under Ontario’s Consumer Protection Act this is referred to as a future performance agreement). Regardless of what industry you are in, there may be an abundance of rules designed to protect consumers that contract with a business for services.
3. Loan Agreement
Another very common type of legal contract is a loan agreement. In their most simple form, loan agreements evidence an obligation of one party (the borrower) to repay an amount of money to the other party (the lender) after a predetermined amount of time (the term) most often in exchange for interest. Loan agreements can be simple one- or two-page documents such as a promissory note or pages and pages of terms in the case of a much larger transaction. Often loan agreements are backed up by collateral (property the lender may legally seize or sell in the case the borrower defaults on their obligations under the loan). This is referred to in Canada as a “security interest”. A security interest can take the form of a mortgage on a building such as a home or a non-real estate related asset such as a piece of equipment or company vehicle. Depending on the type of property used as collateral (real or personal property), the lender will have different avenues to protect themselves from a borrower’s failure to repay.
4. Employment Agreement
Employment agreements are one of the most common agreements people will encounter in their day to day lives and we often take for granted that the relationship between a business owner and their staff is one governed by contract. This is true regardless of whether there is a signed contract between an employer and employee which is why it is especially important to have a written agreement in place. In Canada, employers must be careful to have a properly drafted employment agreement that abides by provincial employment legislation such as Ontario’s Employment Standards Act. In fact, in Canada, there can be harsh consequences for employers who fail to sign a written contract with their employees or otherwise fail to include terms that comply with provincial legislation. This is because of the concept of common law (or judge made law) which will be deemed to govern the relationship in the absence of a written employment contract or where the contract does not comply with the provincial employment legislation minimums. This often results in employers being required to pay their employees months of compensation on termination of the employment relationship.
5. Confidentiality Agreement/Non-disclosure Agreement
The last type of agreement is a confidentiality and non-disclosure agreement or what many people commonly refer to simply as a non-disclosure agreement or NDA for short. The purpose of an NDA or confidentiality agreement (however it is being referred to) is usually the same, to protect sensitive private information from entering the market. Confidentiality agreements can be used in many different contexts and between many different parties. Some examples of uses for confidentiality and non-disclosure agreements include between an employer and employee to help reduce the chances that the employer’s or even a client’s sensitive information will be leaked. Such information can include the employer’s fees and marketing strategies or clients’ account information and passwords. Other circumstances where parties may wish to keep information a secret include in business-to-business transactions where one party proposes a potential business opportunity to another and wants to prevent the other business from taking advantage of that opportunity on their own. In these cases, such NDA’s frequently include terms that the party receiving the sensitive information agrees not to take advantage of the confidential information on its own or otherwise agrees not to compete in that field for a certain length of time after receiving the sensitive information. NDA’s are especially important in the digital age where information travels quickly and to potentially large audiences.
There are a variety of different types of contracts and circumstances in which they may be used. Contracts are not a one size fits all solution which is why it is important to consult with a licensed contract attorney to determine what type of contract is best suited for your needs. If you need a contract for your small business, Supply Law offers flat fee transparent billing and no upfront fees.
If you need a contract, or contract review from a Licensed Ontario Contract Lawyer, contact Supply Law today.