Knowledge of Law as a Business Asset: 05/10/2012 7:54:00 AM
Business Law: a set of established rules governing commercial
relationships, including the enforcement of rights
Law: the set of rules and principles guiding conduct in society
Breach of contract: failure to comply with a contractual promise
Contract law: rules that make agreements binding and therefore
facilitate planning and the enforcement of expectations
Litigation: the process involved when one person sues another
Mediation: a process through which the parties to a dispute endeavour
to reach a resolution with the assistance of a neutral person.
Arbitration: a process through which a neutral party makes a decision
(usually binding) that resolves a dispute
Liability: legal responsibility for the event or loss that has occurred.
Legal risk management plan: a comprehensive action plan for dealing
with the legal risks involved in operating a business
Business ethics: moral principles and values that seek to determine
right and wrong in the business world.
Law is involved in all aspects of business, whether the entrepreneur is
aware of it or not.
The law protects persons and their property; facilitates commercial
interactions, particularly through contract law; and provide mechanisms
for dispute resolution
Thought not perfect, the Canadian legal system has much to recommend
The system strives for just outcomes by demanding that both the process
for determining liability and the rules or laws that are applied in that
process are fair, objective, and free from bias.
No justice system, of course, can consistently accomplish all these goals. Indeed, there are serious limitations to what the law can realistically
achieve when a legal problem arises; thus, it is imperative that a business
adopt a proactive approach in managing the legal aspects of its
environment through a legal risk management plan
This chapter has emphasized the idea that knowledge of the law is an
essential business asset
Informed owners and managers can protect their businesses by ensuring
compliance with legal requirements.
They can capitalize on the planning function of law to ensure the future of
their business by entering into contracts
They also can seek enforcement of legal rules against those who do
business or have other interactions with the enterprise.
In this way, the property, contractual expectations, and profitability of
the business are made more secure
Business ethics – while sometimes but not always coextensive with legal
requirements – are also increasingly important to running a successful
business. The Canadian Legal System: 05/10/2012 7:54:00 AM
Government policy: the central ideas or principles that guide
government in its work, including the kind of laws it passes
Constitutional law: the supreme law of Canada that constrains and
controls how the branches of government exercise power.
Liberalism: a political philosophy that elevates individual freedom and
autonomy as its key organizing value.
Canadian Legal System: The machinery that comprises and governs
the legislative, executive, and judicial branches of government
Constitutional conventions: Important rules that are not enforceable
by a court of law but that practically determine or constrain how a given
power is exercised.
Legislative branch: the branch of government that creates statute law
Statute Law: formal, written laws created or enacted by the legislative
branch of government
Jurisdiction: the power that a given level of government has to enact
Exclusive jurisdiction: jurisdiction that one level of government holds
entirely on its own and not on a shared basis with another level.
Concurrent jurisdiction: jurisdiction that is shared between levels of
Paramountcy: a doctrine that provides that federal laws prevail when
there are conflicting or inconsistent federal and provincial laws.
Bylaws: laws made by the municipal level of government
Ratify: To authorize or approve
Treaty: an agreement between two or more states that is governed by
Formal executive: the branch of government responsible for the
ceremonial features of government
Political executive: the branch of government responsible for day-to-
day operations, including formulating and executing government policy,
as well as administering all departments of government
Cabinet: a body composed of all ministers heading government
departments, as well as the prime minister or premier. Regulations: rules created by the political executive that have the force of
Judiciary: a collective reference to judges
Judges: those appointed by federal and provincial governments to
adjudicate on a variety of disputes, as well as to preside over criminal
Inferior court: a court with limited financial jurisdiction whose judges
are appointed by the provincial government
Small claims court: a court that deals with claims up to a specified
Superior court: a court with unlimited financial jurisdiction whose judges
are appointed by the federal government
Supreme court of Canada: the final court for appeals in the country
Federal court of Canada: the court that deals with some types of
litigation involving the federal government
Canadian Charter of Rights & Freedoms: a guarantee of specific
rights and freedoms enshrined in the Constitution and enforceable by the
Bill: proposed legislation
Royal prerogative: Historical rights and privileges of the Crown,
including the right to conduct foreign affairs and to declare war.
Common law: rules that are formulated in judgements
Precedent: an earlier case used to resolve a current case because of its
Equity: rules that focus on what would be fair given the specific
circumstances of the case, as opposed to what the strict rules of common
law might dictate.
Domestic Law: the internal law of a given country, which includes both
statute and case law
International Law: law that governs relations between states and other
entities with international legal status.
Substantive law: law that defines rights, duties, and liabilities
Procedural law: the law governing the procedure to enforce rights,
duties, and liabilities
Public law: areas of the law that relate to or regulate the relationship
between persons and government at all levels. Private law: areas of law that concern dealings between persons.
Civil code of Quebec: the rules of private law that govern Quebec.
Administrative law: rules created and applied by those having
Canadian society is bound by a set of constitutional values, many of
which insist on the importance of the individual and the right to freedom
from unreasonable government interference.
These values restrain how government operates at all levels – federally,
provincially, and municipally.
Constitutional law plays an important role in how government does its job
by constraining how the three branches of government exercise power.
Each branch of government has its own work to do.
The legislative branch creates statutes, the executive branch is
responsible for the ceremonial features of government and for day-to-day
operations, including formulating and executing government policy, as
well as administering all departments of government.
The judiciary has a significant role in scrutinizing the legislative and
executive branches of government and can be an important resource for
those who believe they have been unreasonably limited, such as in how
they are permitted to carry out business, or unfairly treated by a
governmental officer, board, or tribunal
The judiciary also adjudicates on private disputes
The constitution places mandatory limits on the power of the legislature
to pass any law it sees fit. The court, as required by the constitution, insists that the power of
government be exercised in a manner that is:
o Within the body’s “jurisdiction”
o Consistent with the values and principles contained within the
The judiciary itself is bound by the rules of precedent to help ensure that
any given legal dispute is resolved in a manner that is consistent with
decisions in previous similar disputes
An important part of precedent involves the court system since only a
higher court can bind a lower court
Judges also have discretion, accorded to them by the rules of equity, to
ensure that each matter before them is justly resolved.
Canadian law is organized according to classifications reflecting the
nature of the legal problem at issue:
Domestic / international
Substantive / procedural
Public / private
Common law / civil law
Administrative law provides protection by ensuring that a fair process
accompanies any regulatory decisions that affect a business or any other
activity. Managing Legal Risks: 05/10/2012 7:54:00 AM
Legal Risk: a business risk with legal implications
Legal risk management plan: a comprehensive action plan for dealing
with the legal risks involved in operating a business.
Risk avoidance: the decision to cease a business activity because the
legal risk is too great
Risk reduction: implementation of practices in a business to lower the
probability of a loss and its severity.
Risk transference: the decision to shift the risk to someone else
through a contract
Risk retention: the decision to absorb the loss if a legal risk materializes
Lawyer: a person who is legally qualified to practice law
Law firm: a partnership formed by lawyers
A business can manage its legal environment by assessing that
environment, developing a risk management plan, reacting to changes in
the legal environment, and managing its legal services.
It is crucial for a business to actively manage the legal risks from its
activities in order to avoid and minimize legal claims and expenses.
Legal risk management involves a four-step process:
1. Identifying legal risks
2. Assessing those risks
3. Devising a risk management plan
4. Implementing the plan
Risks can be identified through assessment of the functional areas of the
business, the decisions made within the organization, and the internal
and external relationships maintained in the business.
The risks are then assessed in terms of how likely they are to occur and
how severe the losses may be. There must be an action plan for dealing with each risk.
Should the risk be avoided? If not, how can it be reduced or transferred
to someone else? To what extent must the risk be retained?
Management must assemble a knowledgeable team of employees and
experts in order to make the plan work.
A business must also monitor and revise its plan to ensure that it is
current and effective
No risk management plan can anticipate and deal with all possible
A business must be prepared to react in a coordinated and timely fashion
to unexpected events.
A business also needs to actively manage its legal services, whether it is
employing outside lawyers or in-house counsel.
This management involves identifying the legal services that are needed
and carefully searching out an appropriate lawyer or firm.
Every business needs a stable relationship with its legal advisors, whether
they are external or internal, and must be prepared to seek specialized
advice as needed. Dispute Resolution: 05/10/2012 7:54:00 AM
Negotiation: a process of deliberation and discussion used to reach a
mutually acceptable resolution to a dispute
Alternative dispute resolution: a range of options for resolving
disputes as an alternative to litigation
Mediator: a person who helps the parties to a dispute reach a
Arbitrator: a person who listens to both sides of a dispute and makes a
ruling that is usually binding on the parties.
Binding: final and enforceable in the courts
Class action: a lawsuit launched by one person who represents a larger
group whose members have similar claims against the same defendant.
Limitation period: the time period specified by legislation for
commencing legal action
Plaintiff: the party that initiates a lawsuit against another party
Defendant: the party being sued
Pleadings: the formal documents concerning the basis for a lawsuit
Claim: the formal document that initiates litigation by setting out the
plaintiff’s allegations against the defendant
Defence: the defendant’s formal response to the plaintiff’s allegations
Counterclaim: a claim by the defendant against the plaintiff
Discovery: the process of disclosing evidence to support the claims in a
Trial: a formal hearing before a judge that results in a binding decision
Burden of proof: the obligation of the plaintiff to prove its case
Evidence: proof presented in court to support a claim
Decision: the judgement of the court that specifies which party is
successful and why
Costs: legal expenses that a judge orders the loser to pay the winner.
Judgement debtor: the party ordered by the court to pay a specified
amount to the winner of a lawsuit
Appeal: the process of arguing to a higher court that a court decision is
Appellant: the party who begins or files an appeal
Respondent: the party against whom an appeal is filed Contingency fee: a fee based on a percentage of the judgment
awarded, and paid by the client to the lawyer only if the action is
This chapter has explored a range of disputes in which a business such as
COS might become involved
A risk management plan that is well developed and carefully implemented
can minimize the number of disputes that arise and provide guidance for
dealing with those that do
Legal disputes should be approached with a view to achieving an
acceptable resolution, rather than winning at all costs
There are a wide variety of techniques for resolving disputes that avoid
litigation altogether or enable the parties to minimize damage to the
businesses and their commercial relationships.
The parties can negotiate their own resolution, or, if that is not possible,
they can involve another person as a mediator to assist them or as an
arbitrator to make a decision for them
If the parties resort to litigation, they are involving themselves in a
lengthy, costly, public, and risky process with strict procedural rules.
The process has four stages:
The winner must collect the amount awarded by the court That amount usually does not include full recovery of the legal expenses
incurred to win the lawsuit. Chapter 5: An Introduction to Contracts 05/10/2012 7:54:00 AM
Contract: An agreement between two parties that is enforceable in a
court of law
Objective Standard Test: the test based on how a “reasonable person”
would view the matter.
Equal bargaining power: the legal assumption that parties to a contract
are able to look out for their own interests.
Through an awareness of contract law, business organizations are
better able to protect themselves when forming and enforcing
Contracts generally are not required to be in a particular form, but
clear agreement on all essential terms is necessary.
Those involved in negotiating contracts should be aware of the legal
impact of their communication with each other, and they should
realize that they are largely responsible for protecting their own
interests before agreeing to terms.
Contract rules are understood best when assessed in the broader
business context, which includes the impact that any given legal
decision by a business may have on its reputation with other
businesses, with its customers, and in the community at large.
A business must also assess its legal options in light of the business
relationship at issue, the need to generate a profit, the uncertainty
of the marketplace, and the importance of conducting operations
with a sense of commercial morality, honesty, and good faith. Chapter 6: Forming Contractual Relationships: 05/10/2012 7:54:00 AM
Offer: a promise to perform specified acts on certain terms
Invitation to treat: an expression of willingness to do business
Standard form contract: a “take it or leave it” contract, where
the customer agrees to a standard set of terms that favours the
Offeror: the person who makes an offer
Offeree: the person to whom an offer is made.
Revocation: the withdrawal of an offer
Option Agreement: an agreement where, in exchange for
payment, an offeror is obligated to keep an offer open for a
Lapse: the expiration of an offer after a specified or reasonable
Rejection: the refusal to accept an offer
Counteroffer: the rejection of an offer and proposal of a new one.
Acceptance: an unqualified willingness to enter into a contract on
the terms in the offer.
Consideration: the price paid for a promise.
Gratuitous promise: a promise for which no consideration is given
Pre-existing legal duty: a legal obligation that a person already
owes. Promissory estoppel: a doctrine whereby someone who relies on
a gratuitous promise may be able to enforce it.
Rebuttable presumption: a legal presumption in favour of one
party that the other side can seek to rebut or dislodge by leading
evidence to the contrary.
A contract comprises four essential elements: an offer, an
acceptance, consideration, and an intention to contract.
Before a contract can be formed, one party must make an offer on
a complete set of certain terms
An offer can be terminated in a number of ways, including by
revocation, lapse, rejection, counteroffer, death, or insanity.
Assuming that an offer is on the table, the other party must
unconditionally accept all the terms of the the offer for the offer to
be considered accepted.
Each party must give something (called consideration) in exchange
for the promise or performance of the other.
The parties must intend their bargain to be a contractual one.
If any one of these elements is missing, the relationship is non-
contractual by definition.
There are occasions, however, when the law will enforce a promise
that is not supported by consideration. In short, if the promise is under sea, meets the requirements of
promissory estoppel, or is subject to a specialized statutory
scheme, such as the partial payment of debt, it will be enforceable.
As well, the New Brunswick Court of Appeal is willing to enforce
gratuitous contractual variations provided there is no economic
Aside from these exceptions, a gratuitous promise is not binding, no
matter how seriously it was intended and no matter how much the
other party may have relied on it.
This legal reality is particularly important when varying a term in
an existing contract.
While the conditions for creating a legal agreement may seem
stringent, they serve an important purpose.
Contract law is about creating voluntary agreements and is
In sum, it helps those in the marketplace to determine – in advance
of litigation – the legal enforceability of commitments they have
received, and thereby lets them do business more effectively. Chapter 7: The Terms of a Contract 05/10/2012 7:54:00 AM
Express term: a provision of a contract that states a promise
Rules of construction: guiding principles for interpreting or
“constructing” the terms of a contract.
Implied term: a provision that is not expressly included in a
contract but that is necessary to give effect to the parties’ intention.
Entire contract clause: a term in the contract in which the parties
agree that their contract is complete as written.
Contractual quantum meruit: awarding one party a reasonable
sum for the goods or services provided under a contract.
Parol evidence rule: a rule that limits the evidence a party can
introduce concerning the contents of the contract
Condition subsequent: an event or circumstance that, when it
occurs, brings an existing contract to an end.
Condition precedent: an event or circumstance that, until it
occurs, suspends the parties’ obligation to perform their contractual
Limitation of liability clause: a term of a contract that limits
liability for breach to something less than would otherwise be
Exemption clause: a term of a contract that identifies events
causing loss for which there is no liability.
Liquidated damages clause: a term of a contract that specifies
how much one party must pay to the other in the event of a breach. Chapter Summary:
The nature, scope, and extent of the obligations of the parties to a
contract are known as the terms of the contract.
The terms may be express, as when they have been specifically
mentioned and agreed upon by the parties, or they may be implied.
Since the court has considerable discretion to imply a term or not,
parties are best advised to make their agreement as clear and
explicit as possible.
How courts will resolve a contractual dispute over terms is an open
question, as is any matter that proceeds to litigation.
An important evidential rule that guides a judge is known as the
parol evidence rule.
It prevents the introduction of evidence that varies or adds to the
terms of a written contract when the contract is clear and intended
to be the sole source of the parties’ obligations.
Entire contract clauses are used to propel a court to apply the parol
evidence rule in any given case.
An important planning function of contract law lies in the fact that it
permits parties to manage the risk of future uncertainties.
Additionally, it permits them to establish, in advance, the extent of
responsibility for breach through limitation clauses and exemption
Furthermore, parties can bargain for what will be payable in the
event of breach. Such a term will be enforceable, provided the amount is a genuine
pre-estimate of damages and not a penalty.
Courts may refuse to apply a clause that disadvantages a consumer
if the business in question failed to take reasonable steps to ensure
that the consumer was alerted to the clause in question.
Courts are less likely to assist the commercial or industrial
customer, however, on the basis that sophisticated business
interests should be left to take care of themselves. Non-Enforcement of Contracts: 05/10/2012 7:54:00 AM
Voidable contract: a contract that, in certain circumstances, an
aggrieved party can choose to keep in force or bring to an end.
Void contract: a contract involving a defect so substantial that it is of no
force or effect
Legal capacity: the ability to make binding contracts
Age of majority: the age at which a person becomes an adult for legal
Economic duress: the threat of economic harm that coerces the will of
the other party and results in a contract
Undue influence: unfair manipulation that compromises someone’s free
Unconscionable contract: an unfair contract formed when one party
takes advantage of the weakness of another
Misrepresentation: a false statement of fact that causes someone to
enter a contract
Rescission: the remedy that results in the parties being returned to their
Mistake: an error made by one or both parties that seriously undermines
Common mistake: both parties to the agreement share the same
Illegal contract: a contract that cannot be enforced because it is
contrary to legislation or public policy
Public policy: the community’s common sense and common conscience.
Non-solicitation clause: a clause forbidding contact with the business’s
Non-competition clause: a clause forbidding competition for a certain
period of time.
Guarantee: a promise to pay the debt of someone else, should that
person default on the obligation
Chapter Summary: There is a broad range of doctrines available to cancel all or part of a
contract, but they apply only in relatively unusual or extreme
Moreover, courts are justifiably demanding in what parties must prove in
order to be released from their obligations.
Courts expect parties to negotiate carefully and deliberately to ensure
that any commitment they make accurately reflects their intentions.
If the deal merely turns out to be less desirable than expected, the
doctrines in this chapter are unlikely to apply.
With limited exceptions, contracts made by minors are not enforceable
At common law, unless the contract is for a necessary or amounts to a
beneficial contract of service, it is unenforceable at the election of the
In BC, minors have even more protection through legislation
Persons suffering from a mental impairment also do no generally have
the capacity to contract when they are incapable of understanding the
The doctrine of duress permits a court to set aside a contract when one of
the parties was subjected to such coercion that true consent to the
contract was never given.
The doctrine of undue influence permits the same outcome of one party,
short of issuing threats, has unfairly influenced or manipulated someone
else into entering into a contract
Unconscionability also considers the unequal relationship between the two
contracting parties. If both inequality between the parties and an improvident bargain can be
established, the contract can be rescinded by the court.
If the transaction is sufficiently divergent from community standards of
conduct, this may signal the presence of exploitation and lead to a finding
Misrepresentation concerns the parties’ knowledge of the circumstances
underlying a contract.
If one party misrepresents a relevant fact and thereby induces the other
side to enter into the contract, the innocent party can seek to have the
contract set aside or rescinded
If the misrepresentation also counts as a tort, the innocent party is
entitled to damages as well.
A party who has entered into a contract based on wrong information can
try to have the contract set aside on the basis of mistake, but this
strategy will rarely be successful because mistake is an exceedingly
narrow legal doctrine.
Contracts that are illegal because they violate a statute or are at odds
with public policy can also be rescinded.
Courts are increasingly looking at all the circumstances surrounding the
contract and will not automatically set them aside.
The Statute of Frauds, in its various forms, seeks to prevent fraud and
perjury by requiring written proof of certain kinds of contracts
With the use of electronic and Internet contracts becoming more and
more common, modern legislation also seeks to address the same types
of problems in the new environment of technological commerce. Termination and Enforcement of Contracts: 05/10/2012 7:54:00 AM
Vicarious performance: performance of contractual obligations through
Novation: the substitution of parties in a contract or the replacement of
one contract with another
Assignment: the transfer of a right by an assignor to an assignee
Frustration: termination of a contract by an unexpected event or change
that makes performance functionally impossible or illegal
Balance of probabilities: proof that there is a better than 50 percent
chance that the circumstances of the contract are as the plaintiff contends
Condition: an important term that, if breached, gives the innocent party
the right to terminate the contract and claim damages.
Warranty: a minor term that, if breached, gives the innocent party the
right to claim damages only.
Innominate term: a term that cannot easily be classified as either a
condition or a warranty
Fundamental breach: a breach of contract that affects the foundation of
Anticipatory breach: a breach that occurs before the date for
Damages: monetary compensation for the breach of contract or other
Expectation damages: damages which provide the plaintiff with the
monetary equivalent of contractual performance
Punitive damages: damages that are awarded to punish the defendant.
Duty to mitigate: the obligation to take reasonable steps to minimize
the losses resulting from a breach of contract or other wrong
Interlocutory injunction: an order to refrain from doing something for
a limited period of time
Unjust enrichment: occurs when one party has undeservedly or
unjustly secured a benefit at the other party’s expense
Restitutionary quantum meruit: an amount that is reasonable given
the benefit the plaintiff has conferred.
Chapter Summary: In the vast majority of situations, a contract terminates or ends when the
parties fully perform their obligations
Less common are situations where the contract ends because the parties
find it impossible or tremendously difficult to perform their obligations
In such cases, prudent business parties will have addressed such a
possibility through a force majeure clause or equivalent
A more usual and complicated situation, from a business perspective,
occurs when one party breaches the contract by failing to perform or by
There are several ways that contract is terminated:
o By performance
o By agreement
o Through frustration
o Through breach
When a contract is terminated by performance, the parties have fulfilled
all their implied and express promises.
The work necessary to achieve performance may be done by the parties
personally or through their agents / employees, unless a term to the
contrary is included.
Sometimes, parties terminate a contract by agreement
For example, the parties may agree to end the contract entirely or to
replace it with a new one
Alternatively, the parties may vary certain terms of the contract or
substitute a new party who un turn, assumes rights and duties under the
contract Contract law allows one party to assign his right under a contract but not
The law of assignment permits the creditor to assign his right to collect
under a contract to another (the assignee) without the agreement of the
Once the creditor (assignor) has given notice to the debtor, the latter can
perform the obligation only by paying the assignee.
The doctrine of frustration terminates a contract, but only in very limited
It must be shown that an unanticipated event or change in circumstances
is so substantial that performance has become functionally impossible or
Provided the risk of such an event has not been allocated to one party of
the other, and provided the event did not arise through either party’s
fault, the contract has been frustrated
When one party fails to perform its contractual obligations, it is in breach
of contract and subject to a lawsuit
To succeed in its action for breach of contract, the innocent party must
establish the existence of a contract, breach of contract, and entitlement
to a remedy.
Privity means that, with limited exceptions, only those who are parties to
a contract can enforce the rights and obligations it contains.
When a party to a contract fails to keep his promise, he has committed a
breach of contract and is liable for such damages as would restore the
innocent party to the position she would have been in had the contract
These are known as expectation damages If there is an exclusion or limitation of liability clause in the contract, the
defendant’s liability will be reduced or eliminated, depending on the
Damages in contract are ordinarily pecuniary, but in some circumstances,
the innocent party is entitled to non-pecuniary damages for mental
suffering and distress.
As well, punitive damages are exceptionally available
When one party suffers a breach of contract, she must take reasonable
steps to mitigate
If the party fails to do so, the damage award will be reduced accordingly
By the same token, any reasonable costs associated with mitigation are
also recoverable from the party in breach
Contract law also offers equitable remedies, such as specific performance
and injunction, when damages are an inadequate remedy.
On occasion, the best solution is to rescind the contract – that is, return
the parties to their pre-contractual positions
The law of restitution also provides remedies in a contractual context
because its main objective is to remedy unjust enrichment
Unjust enrichment occurs when the defendant has undeservedly or
unjustly secured a benefit at the plaintiff’s expense
Whether the innocent party takes the contract breaker to court is as
much a business decision as it is a legal one Chapter 10: Intro to Tort Law 05/10/2012 7:54:00 AM
Tort: a harm caused by one person to another, other than through
breach of contract, and for which the law provides a remedy.
Trespass to land: Wrongful interference with someone’s possession of
Deceit or fraud: a false representation intentionally or recklessly made
by one person to another that causes damages.
Negligence: Unreasonable conduct, including a careless act or omission,
that causes harm to another.
Tort-feasor: person who commits a tort
Intentional tort: a harmful act that is committed on purpose.
Assault: the threat of imminent physical harm
Battery: intentional infliction of harmful or offensive physical contact
Vicarious Liability: the liability that an employer has for the tortious
acts of an employee committed in the ordinary course or scope of
Joint tort-feasors: two or more persons whom a court has held to be
jointly responsible for the plaintiff’s loss or injuries.
Contributory negligence: a defence claiming that the plaintiff is at least
partially responsible for the harm that has occurred.
Workers’ compensation legislation: legislation that provides no-fault
compensation for injured employees in lieu of their right to sue in tort.
Non-pecuniary damages: compensation for pain and suffering, loss of
enjoyment of life, and loss of life expectancy.
Pecuniary damages: compensation for out-of-pocket expenses, loss of
future income, and cost of future care.
Punitive damages: an award to the plaintiff to punish the defendant for
malicious, oppressive, and high-handed conduct.
Aggravated damages: compensation for intangible injuries such as
distress and humiliation caused by the defendant’s reprehensible conduct.
Tort law has a significant impact on business enterprises, particularly in
the area of negligence
Tort law permits someone who has been injured or suffered a loss to sue
the responsible person for damages The objective of a damages award is to compensate the plaintiff, though
punitive damages are sometimes available if the defendant’s conduct has
been particularly egregious.
Aggravated damages are also available to compensate the person who
suffers intangible injuries such as distress or humiliation caused by the
defendant’s reprehensible conduct.
Less commonly, the injured party will seek an injunction or other form of
equitable remedy, as in a trespass-to-land scenario.
Criminal law also affects a business, thought to a lesser degree.
As the purpose of a criminal law is to punish the offender – through fines
and imprisonment – distinct procedures are in place to help ensure that
only guilty people are convicted.
For example, in a criminal prosecution the Crown must prove uts case
beyond a reasonable doubt
By way of contrast, the plaintiff in a tort action need only demonstrate his
case on the balance of probabilities.
Liability in tort can be primary and vicarious.
Primary liability arises due to one’s own personal wrongdoing
Vicarious liability arises due to the relationship one has with the actual
tort-feasor, as in an employer-employee context
Since a business may have several employees, its exposure in this area
can be considerable
When a person in injured due to the tortious conduct of more than one
person, those culpable are known as joint tort-feasors
A court can apportion liability between them, but the victim or plaintiff
can recover 100 percent of the judgement from any one of them
When a tort victim is at least partially responsible for his own injuries, he
has been contributorily negligent.
The amount that the plaintiff is awarded will be reduced by the proportion
for which he is responsible
Sometimes, the same set of facts can give rise to liability in tort and in
contract, particularly in the context of a professional advice giver such as
a lawyer or an accountant
The best response a business can have to its potential liability in tort is to
establish a risk management plan that reduces, eliminates, or transfers
risk. The Tort of Negligence: 05/10/2012 7:54:00 AM
Reasonable care: the care a reasonable person would exhibit in a
Duty of care: the responsibility owed to avoid carelessness that causes
harm to others
Neighbour: anyone who might reasonably be affected by another’s
Prima facie: at first sight or on first appearances
Reasonable person: the standard used to judge whether a person’s
conduct in a particular situation is negligent
Causation: the relationship that exists between the defendant’s conduct
and the plaintiff’s loss or injury.
Remoteness of damage: the absence of a sufficiently close relationship
between the defendant’s action and the plaintiff’s injury.
Thin skull rule: the principle that a defendant is liable for the full extent
of a plaintiff’s injury even where a prior vulnerability makes the harm
more serious than it otherwise might be.
Pure economic loss: financial loss that results from a negligent act
where there has been no accompanying property or personal injury
damage to the person claiming the loss.
Voluntary assumption of risk: the defence that no liability exists as the
plaintiff agreed to accept the risk inherent in the activity.
Negligent misstatement or negligent misrepresentation: an
incorrect statement made carelessly.
Professional: someone engaged in an occupation requiring the exercise
of special knowledge, education, and skill.
Third party: one who is not a party to an agreement
Product liability: liability relating to the design, manufacture, or sale of
Strict liability: the principle that liability will be imposed irrespective of
proof of negligence
Donoghue v. Stevenson is the foundation of modern negligence law Negligence law is an inherently flexible, growing legal area.
It seeks to provide a remedy to the plaintiff who has suffered a loss or
injury due to the culpable though unintentional conduct of the defendant.
The four steps to a negligence action describe general standards or
markers that help a court assess whether the defendant in any given case
has been negligent
One of the most common defences to a negligence claim is that of
The plaintiff’s damages award will be reduced in proportion to her own
culpability in causing the loss, for example, but failing to wear a seat belt
or drinking to the point of impairment.
A less common defence is to allege that the plaintiff voluntarily assumed
This defence is rarely established since the defendant must prove that the
plaintiff consented not only to the physical risk of harm but also agreed to
accept the legal risk of not being able to sue the defendant for resulting
loss or injury.
Negligent misstatement or negligent misrepresentation holds the
defendant responsible for negligence taking written or oral form
Professionals such as accountants and lawyers are most likely to commit
this kind of tort
Courts guard against the professional facing liability in “an indeterminate
amount for an indeterminate time to an indeterminate class” This sheltering of the professional is also partially justifiable in light of the
fact that a professional’s negligent misstatement is likely to cause only
pure economic loss as opposed to personal injury or property loss
Tort law has been historically less concerned when the plaintiff’s loss is
Business is also affected by product liability
Product liability involves both negligence law and the law of contract.
The manufacturer of a poorly produced or designed product will face an
action in negligence by the disappointed purchase
The retailer will face a breach of contract action by that same person and
– if the retailed was also negligent – an action in negligence as well.
Another area of liability for business relates to the service of alcohol.
Commercial servers of alcohol, such as bars, taverns, and restaurants,
owe a duty of care to protect against the foreseeable risks of intoxication
This duty extends broadly, including the employer who hosts a social
event where alcohol is served.
Strict liability is a liability imposed even where the defendanct has not
This is a rare phenomenon in tort law, but there are other areas of law in
which strict liability is common
The two most important areas relate to liability for breach of contract and
vicarious liability for the torts of one’s employees As well, some of Canada’s major trading partners, including the EU and
parts of the US, use strict liability rather than a fault-based standard in
defective-product liability cases. Other Torts: 05/10/2012 7:54:00 AM
Occupier: someone who has some degree of control over land or
buildings on that land
Contractual entrant: any person who has paid (contracted) for the right
to enter the premises
Invitee: any person who comes onto the property to provide the
occupier with a benefit
Licensee: any person whose presence is not a benefit to the occupier but
to which the occupier has no objection
Trespasser: any person who is not invited onto the property and whose
presence is either unknown to the occupier or is objected to by the
Nuisance: any activity on an occupier’s property that unreasonably and
substantially interferes with the neighbour’s rights to enjoyment of the
neighbour’s own property.
Trespass: the act of coming onto another’s property without the
occupier’s express or implied consent
False imprisonment: unlawful detention or physical restraint or coercion
by psychological means
Deceit: misrepresentations that are made fraudulently or recklessly,
Passing off: presenting another’s goods or services as one’s own
Interference with contractual relations: incitement to break the
contractual obligations of another
Defamation: the public utterance of a false statement of fact or opinion
that harms another’s reputation
Qualified privilege: a defence to defamation based on the defamatory
statement being relevant, without malic, and communicated only to a
party who has a legitimate interest in receiving it
Absolute privilege: a defence to defamation in relation to parliamentary
or judicial proceedings
Fair comment: a defence to defamation that is established when the
plaintiff cannot show malice and the defendant can show that the
comment concerned a matter of public interest, was factually based, and
expressed a view that could honestly be held by anyone. Injurious or malicious falsehood: the utterance of a false statement
about another’s goods or services that is harmful to the reputation of
those goods or services
While negligence is the most common tort a business will encounter,
various other commercially relevant torts merit analysis
These torts can be categorized and assessed according to whether they
would arise because the business is an occupier of property or because it
provides a product or service
Furthermore, torts that could be committed against a competitor can be
grouped separately from those more likely to involve a consumer
Though these distinctions are not definitive, they provide a useful way of
organizing the variety of torts that affect the commercial world.
As an occupier, a business must be sure to keep its property safe so that
people coming on site are not injured, otherwise it faces occupiers’
liability according to a regime that classified the entrant in question under
common law or by statute
To avoid committing the tort of nuisance, a business must not
unreasonably and substantially interfere with the right of its neighbours
to enjoy their property
The law governing trespass gives occupiers a right to exert control over
who comes onto their premises, subject to human rights codes
Torts arising from business operations in relation to customers are:
o False imprisonment
o Assault and battery
o Deceit Through these torts, the law seeks to ensure people’s right to move about
as they please, to have their bodily integrity respected, and not to be
misled about the quality of a product or service
Torts more likely to be committed against a competitor include passing
off, interference with contractual relations, defamation, and injurious
falsehood or product defamation
These torts endeavour to protect a business’s property and its own
Given the diverse and wide ranging nature of a business’s potential
liability in tort, preventing torts from ever occurring should be one of
management’s top priorities Chapter 13 - The Agency Relationship: 05/10/2012 7:54:00 AM
Agency: a relationship that exists when one party represents another party
in the formation of legal relations
Agent: a person who is authorized to act on behalf of another
Principal: a person who has permitted another to act on her behalf
Outsider: the party with whom the agent does business on behalf of the
Law of Agency: the law governing the relationship where one party, the
agent, acts on behalf of another, the principal
Actual authority: the power of an agent that derives from either express or
Apparent Authority: the power that an agent appears to have to an
outsider because of conduct or statements of the principal
Agency by estoppel: an agency relationship when the principal acts such
that third parties reasonably conclude that an agency relationship exists
Agency by ratification: an agency relationship created when one party
adopts a contract entered into on his behalf by another who at the time
acted without authority
Fiduciary duty: a duty imposed on a person who has a special relationship
of trust with another
Fiduciary: a person who has a duty of good faith toward another because of
Warrant of Authority: a representation of authority by a person who
purports to be an agent
Undisclosed principal: a principal whose identity is unknown to a third
party, who has no knowledge that the agent is acting in an agency capacity
This chapter introduced one of the cornerstone relationships in business
Agency is a relationship that allows one person’s actions to be
attributable to another In this way, agency permits one party to represent and bind another in
Thus a business may use agents in many facets of its operations, such as
bullying, selling, leasing, and hiring
As a practical matter, without the disadvantage of agency relationships,
business could not be conducted on any significant scale
The agency relationship most commonly comes into existence when a
principal grants authority to the agent to act on her behalf
The law, however, recognizes an agency relationship when the principal
represents to another that she is represented by an agent – agency by
estoppel – or when the principal adopts a contract made on her behalf by
someone who is not her agent – agency by ratification
In this area, it is the substance of the relationship that is important, not
what parties call their relationship
An agent’s authority to act on behalf of a principal varies
An agent may have actual authority
This is the authority that he is actually given by the principal or that is
implied from his position
Alternatively, an agent may have apparent authority
This is the authority that a third party would reasonably believe the agent
to have based on the principals representations
The scope of an agents apparent authority is fact specific and therefore
varies with the circumstances
An agent has both express and implied duties to his principal Most importantly, an agent has a fiduciary duty to act in the best
interests of the principal
The principal also has express and implied duties, particularly the duty to
compensate the agent for services rendered and for costs associated with
the agency relationship
Agency operates in such a way that the principal is generally liable on
contracts entered into by the agent on her behalf
A contract is formed between the principal and the outsider, and the
agent drops out of the transaction
Though there are a number of potential problems, the agency relationship
generally functions well and according to plan
However, it is possible that agency can operate in ways not desired
For example, the principal may be liable on contracts not desired, as
when the agent negotiates a poor contract or exceeds his actual authority
but not his apparent authority
So too, a principal may be liable for torts committed by an agent
Thus, ironically, the same person who can help a business grow and
prosper can lead that same enterprise to financial loss
The key point is that agency, like other aspects of a business, needs to be
managed and monitored: businesspeople must choose an agent wisely,
instruct him carefully, and review his work regularly. Chapter 14 - Business Forms and Arrangements: 05/10/2012 7:54:00 AM
Sole proprietorship: an unincorporated business organization that has only
Unlimited liability: unrestricted legal responsibility for obligations
Partnership: a business carried on by two or more persons with the
intention of making a profit
Joint liability: liability shared by two or more parties where each is
personally liable for the full amount of the obligation
Joint and several liability: individual and collective liability for a debt.
Each liable party is individually responsible for the entire debt as well as
being collectively liable for the entire debt
Limited partnership: a partnership in which the liability of some partners
is limited to their capital contribution
Limited Liability Partnership (LLP): a partnership in which the partners
have unlimited liability for their own malpractice but limited liability for other
Shareholder: a person who has an ownership interest in a corporation
Director: a person elected by shareholders to manage a corporation
Limited liability: responsibility for obligations restricted to the amount of
Dividend: a division of profits payable to shareholders
Franchise: an agreement whereby an owner of a trademark or trade name
permits another to sell a product or service under that trademark or name
Strategic alliance: an arrangem