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Western University
Management and Organizational Studies
Management and Organizational Studies 2275A/B

Knowledge of Law as a Business Asset: 05/10/2012 7:54:00 AM Vocabulary:  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. Chapter Summary:  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 it.  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 Vocabulary:  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 laws.  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 government  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 international law  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 law  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 proceedings.  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 amount  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 judiciary.  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 similarity.  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 governmental powers. Chapter Summary:  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 charter.  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 Vocabulary:  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 Chapter Summary:  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 developments  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 Vocabulary:  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 compromise  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 lawsuit  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 wrong  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 successful. Chapter Summary:  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: 1. Pleadings 2. Discovery 3. Trial 4. Decision  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 Vocabulary:  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. Chapter Summary:  Through an awareness of contract law, business organizations are better able to protect themselves when forming and enforcing contracts  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 Vocabulary:  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 other side.  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 specified time  Lapse: the expiration of an offer after a specified or reasonable period  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. Chapter Summary:  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 duress.  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 therefore facilitative.  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 Vocabulary:  Express term: a provision of a contract that states a promise explicitly.  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 obligations.  Limitation of liability clause: a term of a contract that limits liability for breach to something less than would otherwise be recoverable.  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 clauses.  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 Vocabulary:  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 purposes  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 will  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 pre-contractual positions.  Mistake: an error made by one or both parties that seriously undermines a contract  Common mistake: both parties to the agreement share the same fundamental mistake  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 customers  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 circumstances.  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 against them.  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 minor.  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 transaction.  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 of unconscionability.  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 Vocabulary:  Vicarious performance: performance of contractual obligations through others  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 the contract  Anticipatory breach: a breach that occurs before the date for performance  Damages: monetary compensation for the breach of contract or other actionable wrong  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 performing inadequately  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 liabilities  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 debtor.  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 circumstances  It must be shown that an unanticipated event or change in circumstances is so substantial that performance has become functionally impossible or illegal  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 been performed  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 circumstances  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 Vocabulary:  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 land.  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 employment.  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. Chapter Summary:  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 Vocabulary:  Reasonable care: the care a reasonable person would exhibit in a similar situation  Duty of care: the responsibility owed to avoid carelessness that causes harm to others  Neighbour: anyone who might reasonably be affected by another’s conduct  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 the product.  Strict liability: the principle that liability will be imposed irrespective of proof of negligence Chapter Summary:  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 contributory negligence  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 the risk  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 purely monetary.  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 been negligent  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 Vocabulary:  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 occupier  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, causing loss  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 Chapter Summary:  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 reputation  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 Vocabulary: 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 principal 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 implied agreement 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 their relationship 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 Chapter Summary:  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 contractual matters  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 Vocabulary: Sole proprietorship: an unincorporated business organization that has only one owner 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 partners’ malpractice 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 investment 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
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