Today I want to talk about certain red flags that should alert you when signing a contract. If you encounter one of the following scenarios, you should seriously consider obtaining legal advice from a properly licensed lawyer in your jurisdiction.

• The other party is a foreign resident.

Implication:

There are several risks when dealing with foreign residents.

First, the individuals in question may not have any assets in Ontario, making them judgment-proof in Ontario. Enforcement of an Ontario judgment in a foreign jurisdiction may be difficult in law or prohibitively expensive in cost.

Second, if you decide to sue in another jurisdiction, e.g., the  defendant’s home court, there are numerous considerations that must be taken into account, including costs and the choice of law. Private international law rules may prevent your chosen court from taking jurisdiction.

• You negotiated with an individual, but the name on the contract is a numbered corporation.

Implication:

Be aware that a corporation can be used as shell to shield the defendant’s liability. A corporation is separate and distinct from an individual in law; generally the individual who signed the contract cannot be held responsible for the corporation’s contractual liabilities.

When the contract goes sour, you will likely discover that the corporation does not have any assets and is effectively judgment-proof.

• Lucrative returns on your investment, or too good a deal to pass on.

Implication:

Lucrative returns themselves may be illegal, or fruits of illegal activities. Many seemingly innocent transactions may be illegal because the interest rates exceeded the legal limit. Transactions that are fruits of criminal activities may be subject to seizure under proceeds-of-crime legislations.

There you have it. If you think something is not right about the contract, talk to a lawyer before you agree to anything. It’s better to be safe than sorry.