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Class Notes 02.docx

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Commerce
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COMM 393
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A L L

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February 28, 2013 Blackcomb Skiing v. Schneider (124) Schneider  2,290,000  Blackcomb Blackcomb  condo unit  Schneider First payment is payable to Blackcomb’s lawyer, in trust, within 24 hours after acceptance. This parties are agreeing that, if the purchaser cannot complete the contract, then it would be up to Blackcomb to decide to discharge the contract and retain the deposit as liquidated damages. If everything goes through as planned, the deposit becomes part of the payment. It is important to notice that the deposit has to be a genuine PRE- ESTIMATE of the damages. In real estate 10-20% of the purchase price are usually considered as a genuine pre-estimate of the damage The 2,290,000 is due on completion day March 1. Schneider notify Blackcomb that he is won’t have the money by then. This is an anticipatory breach of condition. Blackcomb gave Schneider an extension to March 10. Schneider was not able to come up with the money. Several extensions: March 19, March 30, May 14, June 4, and, finally, June 16. Blackcomb consider the K as discharged on June 16, and demanded the deposit to be released from TRUST. Schneider did not allow the money to be released. Later, Blackcomb sold the property for $2,450,000. Schneider argue that Blackcomb did not suffer any losses and, consequently, should not retain the deposit. Issue: Can Blackcomb retain the deposit even though they did not suffer any losses? Law: a liquidated damages clause is enforceable if it is a “genuine pre-estimate of the losses”. Factors considered (page 130): 1. Court looks at the contract itself. The K calls the deposit a genuine pre- estimate 2. Court looks at the sophistication of the parties (check with they signed a unfair contract). The court determines that the parties are equally sophisticated. 3. Industry standards, if there are any. In real estate only a deposit of 10- 20% of the purchase price is considered to be genuine pre-estimate. 4. The fact that the plaintiff suffers no loss is irrelevant if the above factors are met. Court will declare as such a liquidated damages clause to be a PENALTY (unenforceable) if it is grossly unfair. Conclusion: Blackcomb won the right to keep the deposit and the cost of the trial. Parol Evidence Rule Any terms of a contract NOT included in the final WRITTEN contract. (terms must be oral/written – notes of the meeting) Where the rules applies 1) The parties have a clear, unambiguous WRITTEN contract 2) Later, one party alleges there were terms NOT included in the contract 3) If these extraneous terms add to, vary, contradict, subtract from, alter, or in any manner qualify the written contract (page 137) is enforced. There are 3 exceptions; the Parol Evidence Rule is admitted to prove: 1) A misrepresentation 2) A condition precedent or subject to clause that was meant to be in the contract 3) Collateral contract exists. If there is an oral/written collateral agreement related to the main existing contract, it will be enforceable if this contract has its own consideration. General Tire v. Aylwards Ltd. (page 135) General Tire will supply goods on credit and the “Principal Debter” provides unconditional promise to repay. “Principal Debter” shares the same president and majority of share holders with Aylwards. Aylwards provides written guarantee with an unconditional promise to pay, if the “principal debter” fails to pay. Principal Debter goes bankrupt and, consequently, fails to pay General Tire. General Tire sues Aylwards, which claims no to be liable because they relied on Oral promise made at the time of the contract. Only the written guarantee is considered to be enforced, because there are no exceptions. Aylwards has to pay General Tire. Misrepresentation, undue influence (mental domination), duress (physical domination) and unconscionability (power imbalance and GROSSLY unfair)  all have the same remedy: RECISSION March 5, 2013 A misrepresentation occurs where: 1. There is a false statement made either • Innocently – this is where the maker of the statement honestly believes the statement is true, nevertheless it is false • Negligently – this is where the maker of the statement is negligent in making the statement • Fraudulently – where the maker of the statement deliberately tries to mislead the other party. A fraudulent misrepresentation can occur by commission or by omission. A fraudulent omission is where the maker of the statement is aware of a hidden defect and fails to disclose it at the time of the contract 2. Of a material fact 3. Which induces the plaintiff to enter into the contract The remedy for innocent misrepresentation is rescission only. The right to rescission is lost once title to land has passed to an innocent purchaser for value. If the remedy of rescission is not available there is no remedy for the plaintiff The remedy for negligent misrepresentation is either rescission or damages. The remedy for fraudulent misrepresentation is either rescission or damages. Evidence of a fraudulent misrepresentation will nullify an exclusion clause. Collins v. Dodge City East Ltd. (page 139) – NEGLIGENT MISREP She wanted a car with an air conditioning. However, the car has no air conditioning system. She claims for $1000 dollars to install an air conditioning system in the car. Her situation fulfills the 3 requirements: false statement, material fact, induces the plaintiff to enter the contract. She could easily prove negligence misrepresentation since the car dealer should know better. Weinman v. Brinkman (page 142) – FRADULENT MISREP Brinkman (seller)/ Wienman (buyer) Contract for purchase and sale of a house. The tittle of the property passed on July 4, 2006. Exclusion Clause: sellers are not liable for a misrepresentation – protect from liability linked to innocent and negligent misrepresentation. 8 days after closing Wienman discover water leaking into the basement. Wienman says Brinkman knew about the hidden/latent defect at the time the contract was made and failed to disclosure the information. Wienman accuse the Brinkman of FRADULENT MISREPRESENTATION (omission) and sue them for damages ($10,400). They have to prove a fraudulent misrepresentation, so that the can nullify the exclusion clause that is in the contract. Seller does not have to disclose PATENT/OBVIOUS defects at time of contract. As a result, for obvious defects the principle of CAVEAT EMPTOR (BUYER BEWARE) applies. In this case, the principle of CAVEAT EMPTOR applies because the defect was obvious. The judge decide that the misrepresentation in this case is a innocent misrepresentation not a fraudulent one. Consequently, there are no remedies. Taylor Roses v. Syskes The house was a the stage of a murder. The Syskes new it and bought it. Later they sold it to the Taylor Roses. When they found out they sue the Syskes for fraudulent misrepresentation by failing to disclosure latent “defect”. The court considers the Syskes not to be liable to disclose “psychological defects”. Undue Influence, Duress, and Unconscionability Undue Influence is a mental domination that one party has over another to the extent that the weaker party is robber of his/her free will went entering a contract. In the Buckwold case it was found that the plaintiff was not a victim of undue influence because she had the contract in her possession for some time before signing it. In that time the court said that she could have actually read it and consulted a lawyer who could have explained the terms to her. The only "pressure" she felt in this case was "standard commercial pressure" and not undue influence as she was not robbed of her free will. In some cases undue influence is presumed to exist and then the burden shift to the stronger party to prove there was NO undue influence! The relationships that fall into this category are doctor/patient, lawyer/client, financial advisor/client, principal/agent (realtors and brokers etc), trustee/beneficiary and religious advisor/ members of the congregation. YOU will be in one of these categories! To avoid the presumption you must slow the process down -send the parties home with a copy of the contract and suggest that they seek independent advice before they sign. Duress is a physical domination by one party over another to the extent that he/she is robbed of his/her free will when entering a contract. This would include the threat of physical violence or imprisonment against the weaker party or a close family member of the weaker party. Unconscionability starts out with undue influence but here the stronger party abuses that position of power and preys on the weaker party to sign a contract. The second aspect of unconscionability is that the contract signed is grossly unfair to the weaker party. (With undue influence the contract entered into is likely "fair" it's just that the weaker party was robbed of his/her free will in signing it) Buckwold Western Ltd. v. Sager (page 147) Buckwold – supply carpet on credit. Landon Carpets Ltd (Mr. Sager and Mrs. Sager) – promise to pay Mr. Sager and Mrs. Sager provide a personal guarantee to Buckwold. Landon Carpet goes bankrupt Buckwold sue Mrs. Sager Mrs. Sager says the contract should be rescinded for undue influence. She didn’t meet with Buckwold, she did not understand the terms. Buckwold claims that Mrs. Sager had documents in her possession for “sometime”. Court decides that Mrs. Sager was not under undue influence; she was not ROBBED of her free will. She just faced standard commercial pressure. Contract Formation: intent, offer, acceptance, consideration, capacity, legality. Legality – contract must be legal to be enforced. If a contract is illegal, it is void and court provides NO remedy. Maksymetz v. Kostyk – applied for a permit to operate a bar in a hotel. Permit was denied by they continued with the plan and operated the bar illegally. The partners did not share the profits of the illegal operation. Judge - an agreement for an illegal partnership will not be specifically enforced, even though partly formed, nor can damages be recovered for breach of it, and, if the whole purpose of the partnership is illegal, the court will not recognize it, or enforce any rights which the supposed partners would otherwise have. March 7, 2013 Comment on midterm: seeal = consideration substitute! Does not make the whole contract binding If a contract is illegal  it is VOID  NO remedy Legality: 2 types of illegal contracts 1. Statutory Illegalities (Maksymetz v. Kostyk) 2. Contract that are illegal because they offend public policy A contract that attempts restrict competition unduly is PRIMA FACIE void and illegal. Burden shifts to the defendant to prove the contract is legal (this goes under the second point). A very common example is the non-competition clause in employment contracts. The general rule is that ALL contracts in restraint of trade are “prima facie” void and illegal. The exception to this general rule is that a court may find a contract in restraint of trade to be enforceable if the party seeking to uphold the contract can prove that it is “reasonable”. Failing any of these tests results in the clause being voided. All the tests must be passed for the clause to be considered “reasonable”! To prove that a contract in restraint of trade is “reasonable” the following questions will be asked by the court: A. Is the restrictive covenant reasonable with respect to the PUBLIC INTEREST? • Is the restrictive covenant a restraint on competition looking at the nature and location of the business? • Would the enforcement of the restrictive covenant deprive the public of some special service? B. Is the restrictive covenant reasonable and necessary to protect the PARTIES to the contract? • Is there a proprietary interest entitled to be protected? (client base, confidential) • Is the size of the restricted geographical area reasonable in light of the nature and location of the business? (where are the clients coming from) • Is the length of time the individual is restricted fro carrying on business reasonable in light of the nature and location of the business? Phoenix Restorations Ltd. V. Brownlee (page 153) Brownlee signed an employment contract with Phoenix Restorations Ltd. And the contract had a restrictive covenant: NON-COMPETITION CLAUSE that defined: 24 months following the termination, not to be involved in a competitive activities in the lower mainland encompassing the area of Whistler to Hope as well as sought prospective client or customers. Terminated and started working for Phoenix biggest competitors and soliciting Phoenix clients. The Test for an Injunction – Equity Court – court order to stop competing/soliciting clients. The competition clause was striped down because the court found it to be too broad and, consequently, cannot be enforceable. Privity of Contract Tweddle v. Atkinson 1861 F1– father of the groom – promise to give 100 pounds to the couple F2– father of the bride – promise to give 200 pounds to the couple F2– dies before paying Groon’s name is Tweddle Atkinson is the executor of F 2 estate – he denies to pay the 200 pounds Tweddle sues Atkinson to enforce the contract between F and F 1 2 Tweddle is a stranger to the contract – a person who is NOT a party f the contract and has not provided any consideration. Issue: can a stranger to a K sue to enforce it? A: NO, based on the RULE OF PRIVITY Peacock v. Esquimalt & Nanaiome Railway Co. (page 163) Wessex Management Ltd. West Steel Corp Darell Brown Allan Parking Contract to purchase land (title hasn’t passed yet) from Esquimalt & Nanaimo Railway. West Steel had a lease contract: if property not sold West Steel must stay at the land for 3 months and leave it neat and clean. Peacock  $85,000 Darell Brown and receives shares. The contract to sell the land was frustrated by fire. West Steel left the land and did not clean up because of the fire. Esquimalt cleans it up and it costs $34,000. When returning the deposit (85,000) they discounted the 34,000 costs of the clean up. He is outside the contract and cannot sue. March 12, 2013 Equitable Assignments Assignment of debt Illustration 11.6 (page 249) A Ltd., a building contractor, has erected a building for B. Under tehe terms of their contract, B still owes A Ltd. $10,000 to be paid one month after the completion of the building. A Ltd. Has purchased $12,000 worth of materials from X Corp. In settlement of its debt to X corp., A Ltd. Pays $2000 in cash and assigns in writing its rights to the $10,000 still owing by B. X Corp then notifies B that she should pay the money to it rather then to A Ltd. When the debt falls due. A Ltd became an assignor and X Corp became an assignee. Assignee of the debt (X) gets a “right to sue” B. If B does not pay, X Corp can sue B. Illustration 11.7 (page 250) B Inc – is supposed to receive $100,000 from A in 12 months B inc makes a loan of $80,000 with Bank X B Inc signed a conditional assignment as Security to the loan. Notice: the assignment of the debt is conditional on B’s default Once A gets notice, it should never pay the money to B Inc. Illustration11.8 (page 250) Fribble Corp receives a loan of $160,000 from Tower Bank. Fribble was facing financial problems and the bank requested more security , otherwise it would call the loan Fribble gave the bank a conditional assignment of accounts receivable as security (Notice is conditional on Fribble’s default) CP – want to receive outstanding debts of a total of $5,000 – Assignor Assignor offered to assign all of his receiving debts on a total of $25,000 Assignor assigned all debts to CP on the condition they release Assignor from $5,000 debt. Assignee’s PRIORITIES to the debt Ellen $5,000 payable in a month form UBC Ellen gets a short-term loan with BMO. She gets $3,000 and, if she defaults on payment, they can collect the $5,000 she is supposed to receive from UBC Ellen conditionally assign debt of $5,000 as security Then Ellen does the something at CIBC and TD – conditional assignment of the debt. 10 years ago and many countries, whoever gives the notice first, gets the money. Today: we have the Personal Property Security Act – Registry in Victoria Rules: Registered takes priority over unregistered The first to register prevails over the others who have registered If no one is registered, the first to give NOTICE receives the money It is possible to register several times, if the amounts are smaller then the total debt being con
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