Your Guide to Signing and Managing Contracts

Last updated May 19, 2023

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It doesn't matter if you're a lawyer representing a corporation or a teenager buying your first car; using written contracts is the best way to ensure your interests are protected while conducting business.

Contracts can sometimes be overwhelming because they tend to come with a lot of confusing jargon that’s hard to follow when you aren’t a legal expert. That’s why this guide will help you understand how contracts work. When you’re done, you’ll feel confident creating, reviewing, amending, and signing contracts. 

There are many advantages to having a written contract, especially compared to a verbal contract. Even if you trust the person you're doing business with wholeheartedly, a verbal agreement will never provide you with the same level of protection you get from having a contract in writing.

A written contract outlines every party's obligations and responsibilities. You might consider it an unnecessary formality when you initially sign the contract, but having as many details on paper as possible lowers the chances of disputes in the future.

No one's memory is perfect. It's entirely possible that one of the parties will innocently misremember a minor detail that they agreed to when making a verbal contract. A written agreement gives you a document to reference, so there's no confusion or preventable conflicts.

According to Canadian common law (i.e. law that is based on judicial decisions rather than written legislation), verbal contracts can be legally binding. However, just because they're legally binding, that doesn't mean their existence is easy to prove in court. It might not hold up if you can't prove that the agreement involves an offer, acceptance, and consideration. A legally valid written contract is binding and makes it significantly easier to prove an agreement's terms.

Also, drafting a written contract can act as a template for making a thorough agreement. It allows you to sit down and think about all the elements of a deal before making it official. There might be legal details you don't consider or problems you don't anticipate because you didn't take the time to outline everything involved.

When should I have a written contract?

The short answer is that you should have a written contract any time parties exchange goods, services, or money, so there's a record of the transaction's terms and conditions.

More specifically, written contracts are valuable for:

• Transactions involving purchases, rentals, or leases of goods
• Business hirings (i.e., new employees and partnerships)
• Exchanging intellectual property
• Exchanging services

A binding contract is essentially an enforceable promise or set of promises that all the parties involved in an agreement are obligated to fulfil. 

The key elements that you need to address when creating a binding contract are:

• Offer and acceptance
• Consideration
• Intention to create legal relations
• Legality
• Capacity

Offer and acceptance

"Offer and acceptance” is precisely as it sounds. To create a binding contract, one party must accept another party's offer. The offer is usually the terms that make up the contract.

An offer represents the negotiating stage of an agreement. It occurs when one party makes a conditional promise to a second party that they’ll do (or won’t do) something in exchange for something else.

The second party then has the option to either accept, decline or make their own counter offer. If they accept it, a binding contract's "offer and acceptance" element has been achieved. Assuming the agreement is recorded with a written contract, the two parties can provide their signatures on the contract to show that they both accept the terms of the offer.

For example, a company wanting to hire a new employee will send an Employment Offer Letter to a candidate. The letter will outline the terms of the employment (e.g., salary, benefits, vacation time, etc.). If the candidate accepts the offer, they will sign an Employment Contract to provide a record of their agreement.

Consideration

In a binding contract, consideration is what each party exchanges and benefits from in the agreement. Each party needs to exchange something of value for a contract to be legally binding.

Consideration can come in the form of:

• Objects
• Promises to do something
• Promises not to do something
• Services
• Sums of money
• Anything else of value

For example, if you create a Real Estate Purchase Agreement to buy a house, the consideration in the deal is the house and the money exchanged between you and the seller.

With consideration, remember that past consideration (i.e., money, services, or something else that was provided before the offer was made between the parties) typically isn't valid when forming a contract. Insufficient consideration includes: 

• Money
• Services
• Pre-existing legal duties
• Illusory promises
• Moral duties 

Intention to create legal relations

Intention (or mutuality) refers to the parties’ intention to create a legally valid and enforceable contract. In other words, all the parties must agree to the same terms while also planning to follow through on their end to create a binding contract. This mutual understanding is also called the "meeting of the minds."

An example of an agreement with a lack of intention is when you agree to meet a friend for coffee at 11 a.m. on Saturday. Neither of you intends to enter a legally binding contract. 

Legality

Legality essentially means that every aspect of a contract must be legal and can’t contain any illegal promises or considerations. A straightforward example is that you can’t hire someone to commit a crime on your behalf.

A less obvious example would be an employer asking you to sign a contract that waives your right to worker's injury protection. Ontario’s Workplace Safety and Insurance Act (most provinces declare that every worker is entitled to such protection. Therefore, that contract, or at least the waiver clause, would be unlawful and not binding.

Capacity

Capacity refers to a person's legal ability to sign a contract. It generally depends on their age, sobriety, and mental health, giving them legal competence. It's a key element in contract law because it protects some people from committing to a contract when they don't understand the agreement or the consequences of signing it.

A person might not have the capacity to enter into a contract if they’re:

• A minor
• Not of sound mind
• Intoxicated by drugs or alcohol

Capacity doesn't include individuals who fail to understand the document for no legitimate reason. For example, you can't claim you didn't have the capacity to sign a contract simply because you didn't understand a word used in the document.

Remember that capacity also isn't something that should be taken for granted or viewed as a loophole for exiting a contract you regret signing. 

Equality before and under the law is a right guaranteed by the Canadian Charter of Rights and Freedoms. Part of this right is the right to make your own decisions. There are many citizens with cognitive disabilities who have to fight to maintain their right to make their own decisions (e.g. people with early-stage Alzheimer's disease).

A contract is non-blinding when the parties aren’t legally required to uphold the obligations and responsibilities set in its terms. For instance, a contract is invalid if one of the key elements mentioned above is violated or is missing (e.g. if there is no consideration).

Non-binding contracts often fall into two categories: Void and voidable. 

Void contracts

A void contract is one that was never valid from the beginning. If a court rules that a contract is void, it has no force or effect. Therefore, neither party is bound by it or can rely on it.

A contract is usually void when:

• The object of the agreement is illegal or against public policy (unlawful consideration or subject matter) 
• The terms of the agreement are impossible to fulfil or too vague to understand
• There is a lack of consideration
• It restricts an individual's right (e.g. right to choose who to marry)

Voidable contracts

Voidable contracts are valid contracts that any party may choose to enforce or void.

A contract is potentially voidable if:

• One party was threatened or coerced into signing the agreement under duress
• One party put another party under undue influence (i.e., one party dominated the will of another)
• One or both parties are unable to carry out their obligations because of mistakes present in the contract
• A party breaches the terms of the contract
• Fraud (i.e., false representation of facts) has been committed
• One party was incapacitated or intoxicated when signing the agreement
• Facts or information was misrepresented or omitted

Undue influence means a party with power over another party used their position to force or influence the second party into signing a contract. 

If a court rules that a contract is voidable, the party affected by the particular circumstance can choose to either set aside the contract or continue with it.

For example, let's say you've just bought a brand-new vehicle from a car dealer and have signed a  Sales Agreement detailing the payment plan and warranties. However, you later discover that the dealer actually sold you a used car instead. In this case, you are the party affected by fraud, and you can elect to either void the contract or proceed with the agreement anyway.

When some people think of the moment a contract comes into effect, they imagine putting pen to paper and signing the contract. In reality, many contracts don't go into effect the moment they're signed but rather at a later date.

That’s because there is a difference between the execution date and the effective date.

The execution date is when all the parties formally agree to a contract's terms and conditions and sign it.

The effective date is when the contract actually comes into effect, and the terms are enforceable. You can choose a fixed date for your agreement to go into effect, or you can base the effective date on certain conditions first being met.

However, remember that a contract isn’t valid until all parties have signed the document, regardless of the effective date.

The boilerplate clause refers to the clauses typically found at the end of a contract. They tend to contain legal jargon and can be reused repeatedly in different arrangements without making significant changes each time.

Despite being considered "secondary clauses" because they use standardized language and are buried near the end of an agreement, boilerplate clauses are essential and should be reviewed carefully.

Common types of boilerplate clauses include:

• Severability: This allows a contract to maintain its validity even if part of it is considered illegal or unenforceable.
• Jurisdiction or Governing Law: States which jurisdiction’s laws the contract adheres to and where the lawsuit will be filed if disputes arise.
• Dispute Resolution: How the parties in a contract will resolve a conflict, such as negotiation, mediation, or arbitration.
• Force Majeure: Allows a party to temporarily suspend or completely excuse their obligations if circumstances out of their control make them unable to perform their contractual duties. 
• Waiver: Protects a party's rights if they fail to take action in respect of a breach of contract immediately 
• Amendment: Describes how the parties can make changes to their agreement. It typically states that both parties must sign the contract to indicate they accept the changes.
• Time is of the Essence: States that the contract's timeline is crucial. One party can usually rescind the contract if the other party fails to meet the timeline. 
• Assignment: States the terms for one party giving their contractual rights or obligations to another party.
• Headings: States that the bold headings within the document were placed there for organizational purposes. Headings are usually an over-simplified summary of the content within a clause. They shouldn't affect the clause they're summarising. 
• Counterparts: Included when the parties sign separate copies of the same document. This usually occurs when the parties can't be in the same place at the same time. 
• Notice: States how each party will deliver notice to each other, such as the form of notice (written), how to deliver it (by person or mail), and when it is deemed received.
• Entire Agreement: States that any prior oral or written agreements aren't assumed to be included in the contract. If the parties want terms from previous agreements carried over to a new contract, they need to write the terms into the contract as if the previous one never existed.

It's important to always review a contract before committing to it. Doing so increases your chances of fully understanding what's in the contract. It also decreases the odds of agreeing to something in the fine print that you might regret later.

Follow these tips when you’re reviewing a contract:

• Read the entire contract: Taking the time to review its contents thoroughly can help you avoid missing any critical information.
• Be clear with descriptions: Make sure all the contract’s terms are clear and specific. You shouldn’t need to guess or make assumptions about anything described in the contract.
• Understand and clarify: Ask questions if there are any phrases, definitions, or terms that you don’t fully understand. There should never be an instance where you’re even slightly unsure what a clause means or requires of you.
• Note important dates: Be aware of any tasks or obligations that need to be dealt with before a specific date and ensure that you can realistically meet the deadlines.
• Know who you are dealing with: You should always confirm the other party’s identity before signing anything. If doing business with a company, you can check its reputation at the Better Business Bureau.

If a contract is long, complex, or relates to matters of great importance, it's probably a good idea to also have a lawyer take a look at it before signing.

Believe it or not, there is a right and wrong way to sign a contract. It might seem straightforward, but there are a few things that you need to take into consideration. That way, when you and the other parties put your signatures on the dotted line, you'll know that you've just created a binding contract.

Using the correct ink to sign a contract

For starters, don't use a pencil. You should always sign a contract with a pen so someone can't easily remove your signature. Blue and black ink are the best options because they appear clearly when a document is copied.

You should avoid using red ink because some scanners have trouble picking it up, and your signature could be faded or not appear at all on a copy. There's also a general perception that "fun" colours like green, purple, and yellow are unprofessional.

Writing your signature

In a legal context, a signature is your name written in a distinct, personalized form to identify yourself while authorizing a document.

There are generally two main purposes for writing a signature on a contract:

1. To identify the person who is a party to the contract.
2. To show that the signing party has read the contents of the document, understands the contents, and consents to the stipulations of the contract

Although it can depend on your situation, you typically aren't required to write a signature in cursive for it to be legal. Technically, you can print your name.

However, there’s a strong case for writing your signature in cursive just as a way of protecting your own interests.

You likely have your own unique style of cursive writing. A unique signature only you can easily create can help show your identity on the document and makes proving its authenticity easier. It also makes it difficult for others to forge your signature on documents.

The most important aspect is that you meet the signing requirements of the contract, so it's actually enforceable. For example, it's usually much more critical that a person has the authority to sign the contract than how they write their signature. Other factors like whether the agreement needs to be witnessed or notarized should also be kept in mind.

Providing e-signatures

Another option is signing contracts electronically online. E-signatures are acceptable in Canada as long as they meet the proper security conditions. 

E-signatures are becoming increasingly more popular because they:

• Are time efficient
• Allow multiple parties to sign the same document without being in the same room
• Reduce the use of paper
• Reduce stationery costs

There are instances where a witness needs to be present for a contract's signing. That's because a witness reduces the risk of fraud or a party denying that they signed the contract later. They can confirm who signed a document and the date it occurred. Additionally, they can ensure that a party didn't sign through coercion, duress, or undue influence.

Although witnesses aren’t always required by law, there are some exceptions:

• Estate planning documents (e.g., Last Wills and Power of Attorneys)
• Domestic agreements, like marriage certificates and Separation Agreements (Alberta’s Family Law Act. Other provinces have similar acts)
• Transfers of land (some provinces and territories require witnesses for these documents, such as Alberta)

Who can be a witness?

Almost anyone can be a witness. You can ask a friend, neighbour, or extended family member to witness the signing of a contract. The key is that whoever you use needs to have nothing to gain from the contract’s existence. 

Generally, a witness needs to be:

• A neutral third-party
• Capable of confirming the identities of the people signing the contract
• Of sound mind
• Over the age of the majority

If you don't have someone you know who is available to act as a witness, you can also have a lawyer or notary public do it. However, keep in mind that if your document needs to be notarized, the notary you're using as a witness may not also be able to notarize the contract.

Amending a contract is another way of saying you're making changes to it. An amendment can be an addition, deletion, or correction and can apply to the contract's terms, clauses, sections, or definitions.

Whatever you're changing, it's important to make it as clear and specific as possible. If possible, it's a good idea to rewrite the entire section or paragraph you're amending.

Once an amendment has been made, the parties can initial and date the parts of the contract that were changed to show they accept them. Ensure the initials are added in the margin next to the updated information.

If you're making changes that involve more than crossing out a word or two, it's likely more appropriate to use an Amending Agreement. That way, your amendments will be organized and easier for anyone reading the contract to follow. Sometimes, it might even be better to make a new contract.

Whether you’re using an Amending Agreement or creating a new contract, you need to attach a copy of the amendments to the original contract.

For agreements that are based on ongoing projects or relationships, such as Service Agreements, Residential Lease Agreements, and Employment Contracts, it's a good idea to include terms that will terminate the contract if certain conditions are met.

Some reasons for terminating a contract include:

• The contract comes to its end date: The parties agree to end the obligations associated with the contract on a specific date.
• Breach of contract: One or both parties intentionally don't hold up their end of the agreement or break its rules.
• Termination for convenience: One or both parties can end the contract without cause and face no consequences.
• Impossibility of Performance: One or both parties cannot fulfil their obligations because of circumstances out of their control. It's sometimes also called "frustration."

What to do if you need to terminate a contract

If you believe you're within your right to terminate a contract, you should proceed carefully. Terminating a contract without a legitimate reason can cause you some legal issues, like being sued by the other parties involved in the agreement.

Review the contract's termination clause to know your actions are legal and justified. You’ll also want to ensure you adhere to the proper methods and time periods required to give notice to the other parties. Talking to a contract attorney is likely in your best interest if the matter is complicated.

If you decide to follow through with cancelling the contract, you should deliver a notice of termination in writing to the other parties. The notice creates a record of the cancellation and allows you to detail why you're ending the contract.

Once the contract is terminated, you and the other parties usually no longer have any obligations to each other. 

What happens after the contract is terminated

• Monetary damages: The innocent party is awarded a sum of money to compensate them for earnings they didn’t receive because the contract wasn't performed or for losses suffered due to relying on the contract.
• Restitution: The breaching party needs to return the benefit they received from the innocent party to the innocent party.
• Specific performance: The breaching party needs to perform a particular act, such as fulfilling their contractual obligations if they can't monetarily compensate the innocent party.

Keep your contracts organized and in a secure location.

Misplacing a contract can lead to miscommunication between parties or even breaching the terms of an agreement. You want to always be able to easily reference the contract so you don't miss important deadlines or forget about your specific obligations to the other party.

You also don’t want a misplaced contract to end up in the hands of someone uninvolved with the agreement. Contracts tend to contain confidential details about the parties and may contain sensitive business details.

When storing contracts, you should either:

• Keep physical copies in a fireproof cabinet. 
• Store digital copies on a computer protected by a password and documents on hard drives.
• Store contracts online using cloud platforms like Google Drive, Dropbox, or OneDrive.