Most business owners read the price, the scope and the delivery date, then skim everything after that. It is an understandable habit. The early pages describe the deal you came to make, and the later pages seem to be written by and for lawyers. Then a shipment arrives damaged or a customer stops paying, and those later pages suddenly control everything.
Boilerplate is a misleading word for such clauses. They allocate risk: who pays, how much, by when, and where any fight takes place. A small Brampton manufacturer signing a supply agreement with a large customer can accept real exposure in a few lines near the end of the document.
What follows is general information on Ontario commercial contracts rather than legal advice. Exact wording matters a great deal, so your own agreement should be reviewed by a lawyer when the stakes justify it.
Limitation of Liability
If you read only one clause closely, make it this one. A limitation of liability clause caps what one party can recover from another. It may set a dollar figure, tie the cap to fees paid, or rule out categories of loss altogether, such as lost profits and other indirect or consequential damages.
Think about what this means in practice. Suppose, hypothetically, a Brampton software vendor charges a retailer $8,000 for a system, the contract caps liability at fees paid, and an error costs the retailer $90,000 in lost sales. Unless the clause is unenforceable or doesn’t apply, the retailer may be limited to $8,000 or less.
Canadian courts generally enforce these clauses between businesses. In Tercon Contractors Ltd. v. British Columbia, 2010 SCC 4, the Supreme Court of Canada set out the analysis: does the clause apply on its wording, was it unconscionable when made, and is there an overriding public policy reason to refuse enforcement? That leaves a narrow path for a business hoping to escape a term it signed, so “a judge would never enforce that” is a poor plan.
Check the following before you sign. Is the cap mutual, or does it protect only the other side? Does it carve out things such as confidentiality breaches, fraud or personal injury? Is your insurance coverage in line with what you could owe?
Indemnity
An indemnity is a promise to cover someone else’s losses, often including losses caused by third-party claims. It can reach much further than ordinary damages, sometimes taking in legal fees and costs that a court would not otherwise award.
Watch for three things. First, breadth: “any and all claims arising from or related to” the work can catch claims you did little to cause. Second, whether the indemnity sits outside the liability cap, which would mean a carefully negotiated limit doesn’t protect you where you most need it. Third, whether you control the defence of any claim you’re paying for.
Reasonable positions include limiting the indemnity to losses caused by your own negligence or breach, requiring prompt notice, and capping it. A one-sided indemnity is often a drafting default and not a firm demand, so asking is usually worthwhile.
Payment Terms and Interest
This clause seems simple, and businesses still lose money on it. A good one states when payment is due, whether the clock runs from delivery or from invoice, what happens with disputed amounts, and whether you may suspend work for non-payment.
Interest deserves particular care. Under section 4 of the federal Interest Act, when a written contract (other than a mortgage on real property) expresses interest by the day, week or month, and doesn’t state the yearly equivalent, the rate recoverable is limited to five per cent a year. So an invoice term saying “2% per month” with no annual figure may not deliver what the supplier expects. A simple fix is to state both, for instance “2% per month (24% per year),” after confirming the rate you choose is lawful and the calculation is correct for the way interest is applied.
Termination and Force Majeure
Ask two questions. How can each side get out, and what is owed when it happens?
Termination for cause usually needs a defined breach and may require written notice and a chance to fix the problem. Termination for convenience lets a party leave without any reason, typically on notice. If only your customer has that right, you may invest in staff, stock or equipment for work that vanishes after thirty days. Consider negotiating a minimum term, or payment for committed costs.
Also look for automatic renewal. Many service and equipment agreements roll over for another full term unless notice is given within a narrow window, sometimes 60 or 90 days before expiry. Put those dates in a calendar on the day you sign.
Then check what survives termination. Confidentiality, indemnities, payment obligations and dispute resolution terms commonly continue, and they can matter more after the relationship ends than they did during it.
Force majeure clauses address a different way out. They excuse performance when specified events beyond a party’s control get in the way. Courts tend to read them narrowly, and generally you can rely only on what the clause covers. A party that wants protection from pandemics, port congestion, cyberattacks or a supplier’s collapse should check they are actually covered, since a list of fire, flood and war may not reach them.
A typical clause requires prompt notice and reasonable efforts to reduce the impact. Higher cost alone is usually not enough. Many businesses learn this at the worst time, so read the clause again before a disruption occurs and not after. If your clause is silent, the common law doctrine of frustration offers only a narrow alternative.
Entire Agreement and Amendments
An entire agreement clause says the written contract is the whole deal, replacing earlier promises, emails and sales conversations. If a sales rep promised a particular feature or delivery schedule and that promise isn’t in the signed document, the clause may stop you from relying on it. Any term you care about belongs inside the contract.
Amendment clauses often add that changes must be in writing and signed. Businesses regularly ignore this, agreeing on changes by text or email. Doing so creates arguments about whether the change was ever binding, and about whether the parties waived the written requirement by their conduct. Keep a short signed change order for anything that affects price, scope or timing.
Dispute Resolution and Governing Law
Where and how you fight is decided long before any fight begins. Common terms include:
- Governing law. An Ontario business signing a contract governed by another jurisdiction’s law may need outside advice to enforce it.
- Forum selection. A clause naming a distant court can make a modest claim uneconomical. Small Claims Court in Ontario handles claims up to $50,000, but a mandatory forum clause or an arbitration clause may keep you from using it.
- Arbitration. Private, potentially faster, and final in many cases, with limited appeal rights. Arbitrators and venues must be paid for, which can surprise a party with a small claim. Ontario courts will generally stay a lawsuit brought in the face of a valid arbitration clause under section 7 of the Arbitration Act, 1991.
- Stepped escalation. Requirements to negotiate, then mediate, then arbitrate or sue. Follow these steps, because skipping one can give the other side an objection.
Business agreements can also shorten or alter limitation periods. Ontario’s basic period is generally two years from discovery of a claim, and the Limitations Act, 2002 permits business agreements to vary it, within limits. If your contract gives you only six months to bring a claim, you need to know that early.
Assignment, Change of Control and Guarantees
Can the other side hand your contract to a stranger? Can you assign it if you sell your business? Anti-assignment clauses are common, and some go further by treating a change in share ownership as an assignment. This matters most when a business is being sold, since a buyer will read those clauses and may need consents. If you foresee a sale, ask for flexibility up front.
Guarantees can also hide near the signature block. Many owners incorporate so that they will not personally bear the company’s debts. A personal guarantee reverses that protection for the contract concerned. Sometimes it appears as a separate document. In other cases it is a short paragraph in a credit application or the fine print above a signature line.
Look closely at how you sign. Using your own name with no corporate title or company name can raise an argument that you are personally bound. Sign with the full legal corporate name and your title, and read any credit application as carefully as the main agreement. If a guarantee is unavoidable, try to cap it, limit it in time, and restrict it to the specific contract.
Good Faith Cannot Do All the Work
Some owners assume a court will step in if the other side behaves unreasonably. Ontario law gives limited help here. In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada recognized a duty of honest performance: parties must not lie to or knowingly mislead each other about matters directly connected to performance. That’s valuable, yet it doesn’t require a party to put your interests first or rescue you from a bad bargain. A hard, one-sided clause is usually still a binding clause.
A Short Review Routine
You won’t hire a lawyer for every purchase order, and that is reasonable. A workable routine for a small business might be:
- Decide in advance what size of contract gets legal review, considering both its value and its risk.
- On every contract, read the liability cap, indemnity, termination, renewal and dispute clauses, in that order.
- Compare any insurance requirements with your actual policy.
- Calendar renewal dates and notice windows.
- Keep a signed final copy somewhere the next person can find it.
If you sell on your own standard terms, a well-prepared template often pays for itself, because every deal then starts from a position you have thought about. Our contracts page explains the drafting and review services available, and disputes that have already started fall under business litigation.
None of these clauses are exotic, and most can be understood by a careful reader in a few minutes. The time to read them is before the signature, when you can still ask for a change.