Getting paid for services rendered remains a challenge in the business world. Payment defaults are numerous and many businesses choose to finance their activities on the back of their suppliers, necessitating exhaustive account collection efforts and disadvantageous payment agreements.
What if we told you that your commercial contracts could offer you additional payment guarantees? Indeed, too few entrepreneurs are aware of the contractual clauses that can be added to their business partnerships to ensure the payment of their receivables! Yet, significant sums slip through your rights because of your debtors' excuses.
What are these guarantees? JuriGo explains them to you in detail and even refers you to qualified lawyers in drafting commercial contracts in your region of Quebec!
How is a valid commercial contract formed in Quebec?
Let's put the cart before the horse; before learning to enforce a commercial contract, it's necessary to understand how it is formed. And above all , what is a commercial contract and why is it important to distinguish it from other forms of contracts?
The commercial contract is nothing other than an agreement between two companies in the normal course of their operations. It is therefore a contract entered into between two companies, regardless of their form, with the aim of agreeing on a reciprocal exchange of services. The distinction of the commercial contract from other types of contracts is important in order to identify the laws that apply to it.
For example, be careful not to confuse it with the consumer contract! A common mistake in the business field, some confuse the commercial agreement with the consumer contract. Such confusion could however be costly, since the latter is specifically regulated by the Consumer Protection Act, which offers additional protections to the consumer who contracts with a company.
How to distinguish between the consumer contract and the commercial contract? In the latter, both parties to the contract are entrepreneurs acting in the normal course of their business activities. Conversely, in the consumer contract, there is an imbalance of power between a merchant and a consumer, justifying the protections conferred by the CPA. The distinction can sometimes seem thin, so it's better to consult a consumer law lawyer in case of doubt !
Once this distinction is drawn, the commercial contract, like any other contract, is formed by the simple exchange of consents! Indeed, Quebec civil law adheres to the theory of consensualism, implying that the exchange of consents, or the valid acceptance of a complete offer, is sufficient in itself to form a contract.
In business, this theory is just as true! Moreover, in practice, many entrepreneurs conclude verbal contracts with their suppliers or other customers, which does not simplify the resolution of disputes when they occur.
Is it a good idea to conclude a verbal contract? Never! Even if it must be admitted that the fast pace of the business world sometimes requires the conclusion of hasty agreements, the conclusion of a verbal agreement is never advised, since in case of non-payment or ambiguity, only the word of the parties to the contract will serve as proof. Difficult to decide in such cases!
Thus, the conclusion of a valid commercial contract follows the usual mode of contract formation in Quebec law. That being said, several peculiarities exist to adapt the contract to the uses of the business world!
What are the causes that can justify the cancellation or termination of a contract?
It happens that business partnerships turn sour; in such situations, the cancellation or termination of the contract often becomes the only solution! That said, not every disagreement will justify ending the contract at the discretion of the contracting parties. It is still necessary that the reasons raised are valid, so here they are!
First distinguish between cancellation, termination and resolution! This first distinction is imperative, as the resulting consequences are very different. Regarding cancellation, it will be the appropriate recourse to sanction the validity of the contract formation. Indeed, a cancelled contract is deemed to have never existed; this implies that a restitution of benefits is necessary, since the parties will have to try to restore the pre-contractual situation.
What justifies the cancellation of a commercial contract? Defects in consent, either error, fear, or fraud will all justify the cancellation of the contract entered into between two companies. Let's take the example of a contractor who lies to the other about the quality of the product sold to convince him to conclude the sale; this is a fraudulent maneuver justifying the cancellation of the contract and the restitution of services.
At what time will it be more appropriate to request the resolution or termination? Unlike cancellation, these two processes do not have the effect of "annihilating the existence of the contract" to act as if it had never existed. Rather, the termination of the contract has the effect of ending it during execution due to the non-performance of the co-contractor's obligations ; the same applies to the resolution.
By the way, what is the difference between termination and resolution of the contract? Termination implies ending, along the way, a successive performance contract, that is, one that is executed several times. Let's take the example of a lease or work contract for instance; to end these agreements in the absence of a formation defect (which would justify the cancellation), you will need to use the termination of the contract. Once again, you will need a valid reason!
As for the resolution of the contract, this will apply to commercial contracts with instant execution, that is, those that are executed in one single time. Let's take the example of a contract for the delivery of specialized equipment; if the supplier responsible for delivering the goods is late in delivering the goods to you or otherwise fails to meet his commitment, the resolution of the contract can be demanded.
Explained like this, one might swear that everything is black or white in commercial matters and that execution faults are always unambiguous. Do not be fooled, as there are often ambiguities in commercial matters, and these can be a source of disputes! Here's how to shed some light on these same business contracts!
Ambiguous business contract, how to interpret each party's obligations?
The Civil Code provides several rules for interpreting contracts! In commercial matters as in many other areas, agreements are not always perfectly drafted, and ambiguous clauses or those with several meanings are frequently encountered.
When this happens, the parties have the choice to agree amicably or to resort to the rules of interpretation provided in the Civil Code of Quebec , which will take into account the following principles!
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We must first and foremost seek the intention of the parties!
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The circumstances surrounding the drafting of the contract must be considered.
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The clauses of the contract are interpreted together as a whole.
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An ambiguous clause is interpreted in the sense that gives it legal effects.
What happens if, despite everything, there is still doubt about the interpretation of the contract? The contract is interpreted against the one who stipulated it and in favor of the one who adhered to it. In a commercial contract, for example, if the contract results from the offer of only one of the parties having stipulated all the conditions, the contract will be interpreted against it in case of interpretation.
All the remedies of your company in case of default of payment or non-performance!
Finally, we are at the moment you were waiting for; the remedies to force your debtors to pay you what they owe! Know that there are several ways to recover the sums owed to you under a contract, which are provided by law and in the Civil Code!
The exception of non-performance is the first way to put pressure on your co-contractor to force them to pay you. Such a mechanism is also provided in the Civil Code and is set in motion when you and your debtor have committed to reciprocal obligations known as synallagmatic. In such a case, if the latter fails to perform its obligation, the law allows you not to perform yours as long as they do not remedy their default.
Let's take a simple example of a delivery contract for goods with successive execution. You deliver the goods as planned and at the agreed time, but your co-contractor is several months late on his payments.
The law allows you to put your service on hold as long as the payment default in question has not been settled, but be careful! Not all defaults will allow you to "freeze" your own complete service, the response must still be proportionate.
Then, the execution in kind of the service is also a right conferred by the Civil Code, which stipulates that the parties to a contract are entitled to demand its correct, full and complete execution, all without delay. To do this, sending a notice is obviously appropriate!
The formal notice is an essential component of all your remedies! Indeed, before exercising any of the remedies mentioned above, it is better to put your co-contractor on notice to perform correctly, as this will have the effect of "constituting" them in default.
Consult a lawyer to send a complete formal notice that will produce its full legal effects!
Is the formal notice mandatory to enforce a commercial contract?
There are several ways to put someone on notice. Simply explained, the formal notice is the way a creditor warns their debtor that they are in default of performance, by reproaching them the exact default and giving them a specific period of time to remedy it. At least, this is how the extrajudicial formal notice works, also known as the "lawyer's letter".
However, in Quebec law, there is the concept of default by operation of law that allows you to avoid sending such a letter. Indeed, such a state of default occurs either by the effect of the law, by the debtor's inability to remedy the default or through a contractual clause to that effect.
In a commercial context, you have everything to insert a clause of default by operation of law in your commercial contract! By doing so, as soon as your debtor defaults in paying you, he will automatically be in default by operation of law, thus saving you from having to send him the warning letter to this effect.
All rights resulting from the state of default will therefore occur from this default, so insert such a clause in your commercial contracts to protect yourself!
The personal guarantee, an effective way to protect your business interests
Do you want to be sure that your business will be paid no matter what happens? Do you want to rule out any excuse for insolvency on the part of your debtor? In this case, the personal guarantee is the ancillary contract that you must conclude on the occasion of your personal agreements!
What is a personal guarantee? The guarantee is a contract that is said to be "ancillary" to another, in the sense that it is used to designate a third party as responsible for the obligations contracted by another in the event of default by the latter. In the event of such a default, the beneficiary of the guarantee can go directly to the guarantor to demand full execution of the contract.
How can a guarantee be useful in commercial contracts? First, you are certainly aware that most entrepreneurs in Quebec operate joint-stock companies, which have their own legal personality.
As a result, directors acting on behalf of their company are not personally liable for debts and in case of insolvency of the company in question, you will enter into the order of collocation of the Bankruptcy and Insolvency Act . An undesirable scenario, you will agree!
However, it is possible to waive this limited liability of shareholders and directors through a personal guarantee! Indeed, the law allows shareholders of a joint-stock company to be personally liable for the obligations and debts of the latter.
So you see the interest? In the event that the incorporated company with whom you had contracted defaults on paying you, you can turn to the guarantor to demand payment from an administrator who has personally guaranteed it.
Remember the maxim: the one who guarantees, pays! Often described as the most dangerous contract in civil law, the guarantee remains a risky agreement for the one who personally takes responsibility, but its effectiveness is undeniable!
Does installment selling ensure the payment of your receivables?
Does your company work in the sale of products, goods, or merchandise of a certain value? If so, you have every interest in understanding how installment selling works, as it is the most solid payment guarantee you can hope to obtain in a sales contract.
Installment selling is the contract under which the seller retains ownership of the good until full payment of it. Thus, the good is physically transferred to the buyer, who also assumes all the related risks, but the right of ownership remains in the hands of the seller, which is yours.
What are the advantages of concluding such a contract for your company? Installment sales, as it leaves you with the right of ownership as long as the price has not been paid, allows you to take back the item in case of default of payment by your co-contractor. In addition, if the contract contains a clause of forfeiture of the term, you will be entitled to demand the entire balance due in case of default.
What happens if the installment buyer sells the goods? Should the buyer sell the goods to a third party before having fully paid for them (which he cannot do since the transfer of ownership has not yet taken place), the total balance of the obligation becomes immediately due.
Does the interest of selling by installment become clear to you? It is a way to keep a grip on the ownership of a good to ensure its full payment. A great reason to consider concluding your commercial contracts in this way, isn't it?
Debt collection, a skill of business law attorneys!
**Why choose a lawyer over a collection agency?**A very valid question, as many companies turn to such agencies to recover their dues. However, lawyers offer more efficient resolution options and in a few steps, as they are authorized to represent you in court.
Here are the steps of debt collection with a lawyer.
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The formal notice
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Requirement of determined payment
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Negotiation of an agreement if possible
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Filing of an introductory application before the court
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Obtaining the amounts due
The type of lawyer's remuneration can vary in terms of debt collection! Indeed, while some charge an hourly or flat rate, others prefer a percentage remuneration of the amounts recovered during debt collection.
No one wants to get to the debt collection stage, but it must be admitted that it is an integral part of commercial reality. Might as well ally with good lawyers!
Why should you entrust the negotiation of your commercial contracts to a lawyer?
Does having a legal and business professional in your corner seem like a good idea? In that case, the business law attorney is the professional you need to draft commercial contracts that will be respected.
The lawyer ensures that all warranty clauses are included in your contract! From personal guarantees to account collection, to installment sales, your lawyer ensures to thoroughly analyze your own business reality before drafting a contract in a personalized way. Therefore, your business agreements are custom-made.
Lawyers are partial jurists, they are there to represent YOUR interests! Obviously, as contracts are mutual agreements, it is not only up to you to stipulate the clauses they will contain. It is also necessary that your co-contractor agrees to grant payment guarantees during negotiations.
This is precisely where the lawyer intervenes, as he will assert your interests above all in the drafting of commercial agreements, which will maximize your chances of concluding a contract containing the necessary payment guarantees.
To find the professional who will be able to draft such a contract, contact JuriGo through the form at the bottom of the page, a qualified lawyer is just a few clicks away!
JuriGo refers you to lawyers specializing in drafting commercial contracts!
The world of business law has its own language and customs. To ensure that your commercial agreements are clear to all parties to commercial contracts, make sure to conclude them in the presence of a lawyer specializing in business and commercial law and in drafting commercial contracts!
With a long experience in the field and cutting-edge legal training, these lawyers will be able to draft your contracts in a way that protects the financial interests of your business above all. No more payment defaults!
Interested in such expertise? In this case, entrust your search for business law lawyers to JuriGo, a platform specialized in referencing jurists throughout the province.
Indeed, all you have to do is fill out the form at the bottom of the page to be put in contact for free with a lawyer in your region of Quebec! What are you waiting for to get advice from specialists, they are just a few clicks away!