Chapter 15 and 16 Notes.docx

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

Chapter 15: Sales and Consumer Protection THE SALE OF GOODS Sale of Goods Act  every common law province has adopted it  Purpose: to imply the terms that the parties to the sale of goods often leave out  Eg. may fail to specify time of delivery of date- these missing terms will be implied by the Act  Not just limited to retail… applies to all goods bought/sold (buildings)  Intangibles or SERVICES- bonds, stocks are NOT covered by the Act  All other contract rules are to be complied with (consideration, breach etc.)  Servicescourt may imply terms o Example: B commissioned a large painting from Hooper, the artist. When the painting showed serious discolouration, B sued for breach of warranty as to quality under the Act. o Courts “this does not involve sale of goods, but rather sale of work, labour.” o There was a warranty with respect to quality, even though Act does not cover services  Warranty: goods must be fit for the intended purpose (bad food at restaurant= unfit) and if skill of seller is relied on, the goods supplied must be fit for the purpose for which they were purchased  Goods must be TRANSFERRED and involve MONEY  Some provinces require evidence in writing for goods sold over specified amount and part performance Tittle and Risk  Agreement to sell: title (property interest in the goods) does not transfer immediately  Whoever has the title bears the most risk of damage to goods  Four methods used to override this provision of the Act: 1) C.I.F contracts (cost, insurance, Freight) – doesn’t matter when title transfers, one of the parties has been designated as being responsible for paying shipping costs and risk 2) F.O.B contracts (free on board)- seller will bear risk until goods have reached destination, unless it F.O.B shipping point… then buyer assumes risk 3) C.O.D contracts (cash on delivery)- seller has title and control over goods until they have been paid for and delivered 4) Bills of lading- seller has control over goods during shipment. Is a document from the transporter to the shipper (receipt)… who ever’s name is on the receipt has control (and risk)  Who has TITLE? o Remedies may depend on who has title (damages for breach of contract) UNLESS, title is transferred and the seller can sue for entire price o Frist claim (bankruptcy) to goods is based on who has title  RULES FOR DETERIMING WHO HAS TITLE 1) Rule 1: unconditional contract, title transfers immediately to buyer  Eg. buying a used car sold “as is” (nothing more has to be done to it)- title transfers as soon as offer is accepted even though car has yet to be delivered. If car is vandalized upon pickup- buyer bears the risk 2) Rule 2: seller required to do something to put goods in deliverable state- title transfers when task is completed AND person is notified  Eg. the used car above needs repair… seller will bear risk if car is vandalized 3) Rule 3: seller required to determine price (or goods have been weighed)- title transfers when buyer is notified 4) Rule 4: goods are delivered to buyer on approval – title passes when: a. Buyer “okays” approval b. Reasonable time has passed  Eg. goods are taken to buyer to test for trial before deciding to keep them… test drive car for two days- title would transfer when time is expired or the buyer has agreed to purchase car 5) Rule 5: when goods are not manufactured or identifiable as goods- title passes upon unconditional appropriated and assent  Eg. buyer orders a new car that has not been manufactured- title passes upon buyers agreement  Eg. if one purchases a specific model of a car- title doesn’t pass until the actual physical vehicle is selected from the lot Rights and Obligations of the Parties  Breach of warranty- victim is NOT discharged from rest of contractual obligations  Breach of implied condition- contract has ended (not always a breach Of condition)  Eg. a buyer of a TV can return the TV if there was no remote control and one of the conditions included the remote. HOWEVER, if he assembled the TV knowing that there was no remote….he accepted the goods and lost right to discharge o Sue for damages  If an exemption clause is worded carefully, it can override provisions of the act limit liability o Must include all warranty’s and conditions  Seller MUST convey good title (if not=breach) and quiet possession (goods must be delivered in a condition that they can be used and enjoyed by buyer in which they were intended)  AND goods must be free of charge that has not been disclosed TO THE BUYER o Lien… gives the lien holder (secured creditor) the right to retake the goods if not paid if the buyer does not know about the lien, then it is a breach of warranty  Buyer is allowed to perform title search for lien creditor, but even if search is not done, the buyer has the right to claim against the seller for any losses if lien is present  Goods must match description or picture (internet) o Breach of implied condition  Goods must be merchantable quality – free of defect  Suitable for purpose of purchase when sales person was relied upon o eg. purchased paint for concrete because sales person said so… and the paint peeled. He can sue for breach of implied condition o but, if paint was purchased because person was familiar with brand and paint chippedcannot sue  goods must match sample  where price omitted-reasonable price visible  time, payment, delivery implied terms/ conditions  sales made online are to be complied with the terms of sales of goods act-most times sellers will make the implied conditions very hard to find on site- therefore making buyer not bound to contract Remedies on Default Sellers remedies:  When buyer defaults (doesn’t pay-even though seller has supplied), the seller has an unpaid sellers lien against the goods-gives seller right to retain goods until payment made- even though title might have been transferred to buyer  Stoppage on transit: (sellers right) if goods are en route to buyer and buyer defaults, the seller has the right to intercept the goods and retake possession, as long as the goods have not reached the buyer  Bankruptcy and Insolvency Act (federal): seller protected in case of bankruptcy (even if goods have been delivered)  Breach of contract: o Seller has Right to sue for price (when title has passed to buyer/ or if title hasn’t been transferred but reasonable time has passed) o Or seller can sue for refusal of delivery (on buyers part)- buyer doesn’t get goods, but still is required to pay o If seller sells the goods to someone else- can’t sue for entire price  Seller-mitigate losses – resell goods immediately Buyers remedies:  If seller defaults (doesn’t supply-even though buyer has paid), buyer can:  Rescind contract OR seek damages for fraud or negligence  Condition of contract breached by sellerbuyer can refuse to pay or demand return of money  Warranty is breachedbuyer must go through with deal, but can sue for damages (difference b/w the agreed upon price and the price of from another source)  If title has passed- buyer loses right to discharge contract (breach of condition)  If goods caused physical injury/damage (food poisoning= can seek compensation)- damages are recoverable o Specific performance remedy CONSUMER PROTECTION  Consumer transaction: purchased for personal use and NOT for resale/business purposes  Consumer is given right to rescind contract, sue for damages or specific performance  Until recently, caveat emptor and freedom of contract dominated consumer transactions but because of vulnerability of customers and abuse- limit have been placed – statutes prevent abuse Federal legislation  Competition Bureau: Enforces statutes, educates and protects consumers against competition  Competition act: controls abuses in free market and mergers—provisions are included that prohibit any attempt to unduly restrain competition (not all agreements restricting competition will be illegal  Eg. two merchants agree not to sell specific goods in the others area and they are the only source of those goods – unduly restraining competition.… unfair to consumers who are forced to choose from only one source o Subject to criminal law:  Bid rigging  Price fixing  Predatory pricing  Misleading ads o 2002- amended to create a new right of private access- private business or people can seek remedies and competitors can file for remedy if refusal to deal  Horizontal merger: one competitor buys another  Vertical: supplier and retailer  Conglomerate: companies combine that are not direct competition  Food and Drugs Act- carries strict penalties and hazardous products control dangerous products Provincial Legislation  Many exemption clauses can override the provisions in the sale of goods act  Therefore, many provinces in Canada have enacted legislation removing the right to override these provisions in consumer transactions – in Act or separate statute  Manufactures may not be able to rely on warranty’s for fitness and quality (exemption clauses) o Buyers can sue even after expiration for warranty date  Pros for suing in contract: o Plaintiff doesn’t need to prove duty of care o Damages awarded can go beyond the purchase price o PRIVITY =obstacle –only parties to agreement can sue  overcome by statute  and courts  therefore, warranties and exemption clauses DO NOT protect the seller in consumer transactions- but can limit liability  DUTY to warn when product is hazardous o Even when danger is obvious (knife)-warning is still required =limited liability but consumer can still sue  Unacceptable business practices: 1) False or exaggerated claims  That persuade people to buy product  Today, legislation incorporates misleading statements into contract  Eg. if Mrs. H, the buyer of a used car was informed by the salesperson that it had only been `driven to church on Sundays`-- this statement is in contract- can sue for breach of contract if statement is false 2) Unconscionable transactions  To prevent consumers from being taken advantage over by merchants… statute or Unconscionable transactions act- enacted  If consumer does not desire to take part in contract= not binding  Unequal customer  Loan transactions 3) Gift cards  Key issues relate to expiry dates and fees  Gift card regulation—no expiry dates  Controlled business practices: o Door to door sales a.k.a direct sales  Cooling-off period- gives the purchaser time to change his mind and rescind contract o Referral selling: involves a purchaser supplying a seller with a list of friends  When sales are made to any of these people, the purchaser gets a reduction in purchase price etc. o Methods of control:  Supplier is licensed – licenses can be revoked by gov.  Impose fines or imprisonment in event of abusive behaviour  Loan transactions o True cost of borrowing be disclosed o This prohibits excessive rates of interest and costs in the transaction (also in criminal code) o Moneylenders must be registered  Debt-collection processes o Unpaid creditors go to debt collection agencies to collect their money o There is a fee o These agencies are abusive o Legislation requires all debt-collection agencies to be licensed o In B.C, a collector must not communicate with a debtor (or family)  BBB: Better Business Bureau – provide helpful info and services – weeds out disreputable businesses NEGOTIABLE INSTRUMENTS  Consumer and commercial transactions  Freely transferable  Include: o Cheques  Order made by drawer to his bank to pay third party called payee, funds must be paid on demand  Most convenient o Promissory notes  maker promises to pay a certain sum to payee at a specified date  creditor-debtor relationship  often part of loan transaction (debtors must sign) o Bills of exchange  Three parties  drawer orders the drawee to pay the payee money, drawee does not have to be a bank (payable at some future time)  On May 15, June gave April a piece of paper which ordered ABC Company Limited to pay April $50,000 on May 30  Controlled by federal statute  Once cheque has been transferred to the bank, the bank can no longer order an order to stop payment  Any defense that the original contracting party has against the person assigning those rights can also be used against the assignee (third party)  HOWEVER, when a negotiable instrument is passed to third party (innocent)-called holder in due course- the signee must honour it  Holder in due course must be INNOCENT  Any endorser (must sign instrument) may be liable for payment on default by original drawer/maker only if properly notified of default Chapter 16: Priority of Creditors Methods of Securing Debt  When debtor borrows- creditor is at risk that debtor will not pay back debt  There are several methods to provide creditor with this protection  Secured creditor—when creditor is successful in ensuring her priority over other creditors which helps ensures creditor is paid 1) Personal Property  Used to secure debt  Real property=land, buildings, anything attache
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