Business and Consumer Law Exam Notes

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Marketing and Consumer Studies
MCS 3040
Joseph Radocchia

Business and Consumer Law Final Exam Notes Chapter 5: An Introduction to Contracts Contract Law: A deliberate and complete agreement between two or more competent persons in writing supported by mutual consideration, to perform an act. It is enforceable in court. Agreement: composed of an offer to enter into a contract and acceptance of the contract. Complete: the agreement must be certain. Deliberate: both parties must want to enter into a contractual relationship. Voluntary: The agreement must be freely chosen, and not manipulated. Between Two or more Competent persons: Parties that enter into the contract must have legal capacity – that is they can sue and be sued. Suppoted by mutual consideration: Each party must give something of value in exchange for the goods/ services it receives. Doesn’t have to be in writing: Contracts can also come in a verbal form – but tend to be more difficult to prove in court Legal factors in their Business Context: Creating the Contract: Communication can come in the form of finding a partner to do business with as well as negotiations as to what terms will comprise the contract. Objective standard test: the test based on how a reasonable person would view the matter. Equal Bargaining Power: The Capacity for businesses to look out for themselves with regards to their interests. Business relationships: Contract law is narrow in scope in the sense that it is usually regarding one time business dealings, and does not focus on long term relationships. One has to know when to pursue a lawsuit and when to let it go based on how valuable the relationship is with another is. Economic reality: There may be better offers on the table that a party must consider; and therefore pay the penalties to a current business partner to pursue more lucrative options. Reputation management: A company must be careful not to breach to many contracts in its industry lest it be seen as unreliable, and undependable decreasing the amount of potential partners to do business with in the future.  Contract: agreement between two parties that is enforceable in a court of law  A contract must be: -An agreement -Complete (certain) -Deliberate (both parties want to enter a contractual relationship) -Voluntary (agreement must be freely chosen) -Between two or more competent persons -Supported by mutual consideration (involves a bargain or exchange between parties) -Not necessarily in writing  Contract law ensures that each party gets what they bargained for - namely performances of the promises made or compensation in its place  Rules governing contracts based on common law (judge-made laws)  Contract law is facilitative: it allows participants to create their own rights and duties that a judge can later enforce if called upon to do so Legal Factors in Their Business Context: Creating the Contract  Most contracts begin with communication, usually informal contact between individuals in different businesses who recognise mutual needs or general inquiry made to a supplier concerning price and availability of materials  Objective standard test: test based on how a reasonable person would view the matter  Equal bargaining power: legal assumption that parties to a contract are able to look out for their own interests. -courts are usually not entitled to assess the fairness or reasonableness of the contractual terms  Very occasionally, circumstances favour one party to such an extent that they will come to the assistance of the weaker party and set the contract aside Legal Factors in Their Business Context: Performing or Enforcing the Contract  Contract law is narrow in scope: its emphasis is often on a specific transaction, such as a single sale, and is not traditionally concerned with longer-term business relationships  An economic breach happens when one party calculates that it is more financially rewarding to breach the contract in question than to perform it 违反更划算 -if done frequently, this can create an unreliable and undependable reputation for the company Chapter 6: Forming Contractual Relationships  Before a contract can be in place, the parties must be in agreement -consensus as to their rights and obligations Offer  Offer: A promise to perform specified acts on certain terms -only a complete offer can form the basis of a contract, meaning that all essential terms must be set out or the contract will fail for uncertainty  Invitation to treat: An expression of willingness to do business -Such expressions of intent have no legal repercussion because they essentially have no content  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 (ie. renting a car)  A fundamental rule is that a contract is formed only when a complete offer is unconditionally accepted by the other side -if the purported offer is sufficiently comprehensive that it can be accepted without further elaboration or clarification, it is an offer in law  Offeror is the person who makes an offer and offeree is the person whom an offer is made to Termination of an Offer  Revocation: the withdrawal of an offer  An offer is only enforceable if some form of payment has been made for it  Option agreement: agreement where, in exchange for payment, an offeror is obligated to keep an offer open for a specified time (often found in real estate developments)  Lapse: The expiration of an offer after a specified or reasonable period  Rejection: The refusal to accept an offer  Counteroffer: the rejection of one offer and proposal of another Acceptance  Acceptance: An unqualified willingness to enter into a contract on the terms of the offer  In order for acceptance to be legal, the offeree must communicate (e-mail, telephone) an unconditional assent to the offer in its entirety  Acceptance is only effective when communicated - it is this moment that a contract comes into existence  Postbox Rule: If the offer makes it clear they want to apply to their offer, then acceptance is effective at the time of sending/mailing the offer -Ordinary rule: Acceptance is effective when offer is received  Oral agreements are very difficult to prove without some independent verification or corroboration (ie. witness) Consideration  Consideration: The price paid for a promise (what is given up to gain something in a contract) -key ingredient that distinguishes a legally enforceable promise from one that is not  Gratuitous promise: a promise for which no consideration is given  The parties of a contract, not a judge, decide what constitutes a fair, reasonable price  Pre-existing legal duty: a legal obligation that a person already owes  Just as a contract needs to reflect a two-sided bargain, so must variations or changes to said contract Promises Enforceable Without Consideration  If a document containing a promise is signed and the seal (red gummed circle or wafer) affixed, the fact that there is no consideration is irrelevant -seal is taken as evidence of serious intent by the promisor and amounts to acknowledgement that the promise is enforceable  Promissory estoppel: doctrine whereby someone who relies on a gratuitous promise may be able to enforce it (more info on page 137) Intention to Contract  In order for one party to enforce the promise of another, the promise must have been intended to be a contractual one  In the marketplace, the intention to contract is presumed  Rebuttal 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  Common law presumes that promises between family members are non-contractual Chapter 7: The Terms of a Contract Content of a Contract  Express term: a provision of a contract that states a promise explicitly -even when a term is express, there may be problems interpreting what it means because of vague or ambiguous language. -If the contract was drafted by one of the parties, any language confusion will be construed against that party in favour of the other  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 (more info page 149)  Entire Contract Clause: term in a 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  Contracts can take three possible forms: entirely oral, entirely written or a combo of both -the form a contract takes does not affect enforceablity  Parol evidence rule: rule that limits the evidence a party can introduce concerning the contents of the contract -forbids outside evidence as to the terms of a contract when the language of the written contract is clear and the document is intended to be the sole source of contractual content -if an oral commitment is not written into the contract, the commitment dies (more pg. 154-55) Using Contractual Terms to Manage Risk  Many circumstances arise that may prevent a party from performing its contractual duties, however the rule is that the terms of a contract are settled at the time of acceptance -Therefore important in longer-term contracts to evaluate risks, speculate on possible business environment changes, and be wary of making inflexible commitments  Conditional agreements are essential when one party wants to incur contractual obligations but only under certain circumstances  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 that would otherwise be recoverable  Exemption clause: a term of contract that identifies events causing loss for which there is no liability  Liquidated damages clause: a term of contract that specifies how much on party must pay to the other in the event of a breach Chapter 8: Non-Enforcement of Contracts  On one hand the law must prevent people from pulling out of deals due to failing to conduct diligent negotiation or better opportunities, on the other must fix situations where an apparent valid contract fails to reflect the real agreement of both parties or is fundamentally unjust  Both parties must be able to understand the nature and consequences of the agreement for it to be valid. Mentally impaired/people under the influence may be able to get out of a contract  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. 2 circumstances: -Actual pressure: a transaction arising from one party exerting unfair influence onto another -Presumed pressure: relationship that already exists between parties gives rise to a presumption that the agreement was brought about by a parties unfair manipulation of the other  Unconscionable contract: an unfair contract formed when one party takes advantage of the weakness of the other  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: 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 Importance of Enforcing Contracts Exceptions to the General Rule that a Contract is Enforceable - An unequal relationship between parties - Misrepresentation or important mistakes - A defect within the contract Voidable/Void Contracts Voidable Contract – contract that allows an aggrieved (affected) party to keep or bring to an end Void – contract so powerful that no force can be used Contracts Based on Unequal Relationships Legal Capacity – ability to make binding contracts Minors - Minors cannot be obligated by a contract (usually voidable by the minor alone) - ONLY obligated for things known as “necessaries” Mental Incapacity - Parties must understand consequences and not be impaired Duress – threat of physical or economic harm Undue Influence – unfair manipulation that compromises someone’s free will – voidable by victim Unconscionability – unfair contract when one party takes advantage of the weakness of another Misrepresentations and Important Mistakes Misrepresentation – false statement that causes someone to enter into a contract Recession – the remedy that results in the parties being returned to their pre-contractual positions For Misrepresentation the following must be TRUE: - False - Clear and Unambiguous - Relevant to the decision of whether or not to enter into the contract - One that induces the aggrieved party to enter into contract - Concerned with a fact not an option Categories of Actionable Misrepresentations Fraudulent Misrepresentation – speaker has a deliberate intent to mislead or recklessly makes a statement without knowing facts Negligent Misrepresentation – speaker makes statement without knowing or believing it is true Innocent Misrepresentation – speaker is not negligent, just misrepresents facts Remedies for: Fraudulent – Rescission in contract; Damages in tort Negligent – Rescission in contract; Damages in tort Innocent – Rescission in contract Mistake - Error that undermines contract - Rarely proven - The court is able to set contract aside as a remedy Contracts Based on a Defect Illegal Contract – contract that is not following public policy or legislation Illegality – contract that is illegal if it: - Contrary to specific statue - Violates public policy Illegal by Statue – breaks law or legislation Contrary to Public Policy – contracts injure public interest International Perspective – paying bribes to foreign officials to get contracts Writing as a Requirement - Statue of frauds requires that certain contracts MUST be in writing to be enforceable o Guarantees – a promise to pay the debt of someone else o Contracts to not be performed within a year o Contracts dealing with land o Contracts for sale of goods – general between $30 and $50 Technology and the Law E-Signatures – most provinces have electronic signatures Internet Contracts - Applies to consumer purchases over the internet - Requires sellers to disclose certain information to buyer - Must fair and accurately include all of a good’s information and costs Chapter 9: Termination and Enforcement of Contracts  Vicarious performance: performance of contractual evidence 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% chance that the circumstances of a 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 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 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 Termination of Contracts: An Overview  Through performance – when the contractual obligations have been fulfilled  Through agreement – when both parties agree to end the contract  Through frustration – after the formation of a contract, an important, unforeseen event occurs  Through breach – can release the innocent party from having to continue with the contract Termination through Performance  Depends on the nature of the contract  Contract is performed when all implied and express promises have been fulfilled  Does not necessarily mean the end of a commercial relationship between the parties o May continue to do business with each other with new, continuing, and overlapping conditions  Law easily distinguishes between those who have contractual obligation to perform and those who have to do the work o When a corporation enters into a contract to provide goods/services, it must by necessity work through employees/agents  Vicariously perform: performance of contractual obligations through others o Example: if a client specifies that a certain accountant is to do the job, no other accountant is to perform the task  If there is no terms given, the tasks can be delegated in any way the accountants see fit Termination by Agreement  Agreement between parties – if the parties have entered into an agreement that is unfavourable to one or both, the parties can decide on different solutions such as o Enter into a new contract: known as novation  Both parties benefit agreement and will be enforceable by court as a new contract o Vary certain terms of the contract o End the contract o Substitute a party: one party’s rights and obligations are transferred to someone else  New party is substituted an d the old party is dropped  Transfer of Contractual rights o Does not terminate the contract  Eliminates the transferor’s role in it o Contractual duties cannot be transferred to someone else without agreement by the other side but you can transfer contractual rights without this agreement o Assignment: transfer of a right by an assignor to an assignee o Creditor: the person who is now/will be entitled to payment from a contract o Assignee is entitled to collect the debt despite not being involved in the creation of the contract that produced the debt o Advantage of assignment – creditors can sell their rights for cash Termination by Frustration  Frustration: termination of a contract by an unexpected event or change that makes performance functionally impossible or illegal  Both parties are excused from the contract and it comes to an end  Neither side is liable to the other for breach  Events that occur after the contract has been formed  Defence of frustration is difficult to establish  Person claiming frustration must establish the event/change in circumstances o Was dramatic/unforeseen o Was a matter that neither party had assumed the risk of occurring o Arose without being either party’s fault o Makes performance of the contract functionally impossible/illegal  Some events can be dealt with through force majeure or other clause o Parties contractually define for themselves what events would frustrate the contract  Examples of events that do not count as frustration o Prices of materials increasing o If you promise to use a specific type of material but the material is no longer available Landmark Case – Taylor v. Caldwell  Taylor rented from Caldwell the Surrey Garden and Music Hall for four days  Music hall was destroyed by fire and neither party is at fault  Taylor sued for his expenses related to advertising and other preparations  Was Caldwell in breach of contract? o Neither party expressly/implicitly dealt with who would bear the risk o Court had to decide whether contract had been frustrated or not International Perspective  Commercial objective of parties to contract can be defeated by circumstances beyond their control o Unforeseen events, natural and man-made, may occur  Risk of events is particularly higher for international transactions o Storms, earthquakes, and fires  Legal systems understand that unforeseen events are a valid excuse for non-performance  There are varying rules governing when non-performance is excused without liability  Difficult to predict which events will release a party from contractual obligations  Force Majeure clause deals with risk of unforeseen events o Allows a party to delay/terminate a contract in the event of events such as  Fire, flood, tornado (natural disaster)  War, invasion, blockade (military action)  Strike, labour slowdown, walkout (labour problems)  Inconvertibility of currency, hyperinflation, currency devaluation (monetary changes(  Rationing of raw materials, denial of import/export licenses (governmental action) Enforcement of Contracts  Balance of probabilities: proof that there is a better than 50% chance that the circumstances of the contract are as the plaintiff contends  Plaintiff (person who initiates the lawsuit) is obligated to demonstrate the following on the balance of probabilities o Privity of Contract – establish that there is a contract between the parties o Breach of contract – must prove that the other party has failed to keep one or more promises o Entitlement to a remedy – plaintiff must demonstrate that it is entitled to the remedy claimed Privity of contract  Critical ingredient to enforcing a contract  Only the parties involved can enforce the rights /obligations  Contract between a customer and business may have an exclusion clause protecting employees of the business o Under classical approach to privity, employees would not be permitted to rely on such clauses as a defence  CASE – London Drugs Limited v. Kuehne & Nagel International Ltd. o K&N stored merchandise for London Drugs, including a large transformer o K&N dropped the transformer leading to a $33 000 damage o Employees of K&N are limited to liability of $40 per item o London Drugs sued for the full amount o SOLUTION  Judge agreed that that the negligent employees could be sued by the customer  Because K&N employees were negligent in their attempt to lift the transformer, they were liable for the full extent of the damages  Common law of privity has been modified by statue in two important areas o Consumer purchases and insurance Breach of Contract  Classification of the Breach o Every breach of contract gives the innocent party the right to a remedy o Contractual term will be classified was a condition/warranty only if that is the parties’ contractual intention o Condition: important term that, if breached, gives the innocent party the right to terminate the contract and claim damages  If the party chooses, the non-defaulting party can consider herself freed from the balance of contract o Warranty: a minor term that, if breached, gives the innocent party the right to claim damages only o Innominate term: a term that cannot easily be classified as either a condition or a warranty  Court must look at the exact situation of the breach before deciding whether the innocent party is entitled to retract the contract  Contract is unclear and the term is one that could be breached in large/small ways  Exemption and Limitation of Liability Clause o Parties are free to include a clause in their contract that limits/excludes liability for breach o Fundamental breach: breach of contract that affects the foundation of the contract o Argues that this type of breach automatically renders the contract inoperative and the innocent party should be compensated o CASE – Hunter Engineering Co. v. Syncrude Canada Ltd.  Syncrude purchased gearboxes to drive conveyor belts and its oil sands operation in Alberta from Hunter Engineering and Allis-Chalmers  Designed by Hunter  Gearboxes started to fail due to design after the expirey of express warranties and conditions  What is Hunter’s liability under the contract with Syncrude?  Court ruled that the failure due to the design was a breach of a condition that the gearboxes be fit for the purpose o Allis-Chalmers is not liable since it is a design flaw o ETHICAL CONSIDERATIONS – Is it unethical to breach a contract  Generally does not punish a contract breaker  Compensates the innocent party for any loss associated with the breach  Oliver Wendell Holmes: duty to keep a contract means a prediction that you must pay damages if you do not keep it  Economic breach – potential contract breaker measures the cost of breach against anticipated gains  If projected breach > probable costs, the breach is efficient  Timing of the Breach o Breach can occur at the time specified for performance o Can also occur in advance of the date named for performance  When one party advises another in advance that no delivery will be made o Anticipatory breach: breach that occurs before the date ofor performance  Actionable because each party is entitled to a continuous expectation that the other will perform during the period  Innocent party can sue immediate for breach of contract  Not required to wait and see if the other party has a change of heart  If the breach is sufficiently serious, innocent party can also treat the contract as a terminated one Entitlement to a Remedy  Damages: monetary compensation for breach of contract or other actionable wrong o Usual reward to the plaintiff o Possible for plaintiff to be entitled to equitable remedy  Measure of Damages o Expectation damages: damages which provides the plaintiff with the monetary equivalent of contractual performance o Purpose of damages in contract law is to compensate a plaintiff  Pecuniary (tangible) or non-pecuniary (intangible) o Punitive damages: damages that are awarded to punish the defendant  Only awarded for “malicious, oppressive, and high-handed” misconduct that “offends the court’s sense of decency”  Plaintiff must show that defendant has committed an independent actionable wrong  Pecuniary and Non-Pecuniary Damages o Damages in tort can be pecuniary (financial losses) and non-pecuniary (loss of enjoyment, mental distress, and other emotional consequences)  Same rules apply for contract law except that recovery of non-pecuniary losses are unusual o Defendant is responsible only for the reasonably foreseeable damages sustained by the plaintiff  Not for every adverse consequence experience by the innocent party  Pain, suffering and other emotional distress is reasonably foreseeable when one person negligently injures another, but is not generally anticipated as being the consequence of a breach of consequence o Test for remoteness  Types of damages recoverable in contract law are determined by test of remoteness  Test states that  Damages could have been anticipated having “arising naturally” from the breach  Damages, although difficult to anticipate, are reasonably foreseeable because the unusual circumstances were communicated to the defendant at the time the contract was being formed  Claims must pass at least one of the above tests otherwise it is not recoverable  Rationale for such rule is the needs to ensure that defendants do not face unlimited liability for the consequences of a breach  Gives the option of charging a higher price to compensate for the increased risk and maybe perhaps purchasing the necessary insurance o Recovery of Non-Pecuniary Damages  Traditionally viewed with suspicion in contract law o Recovery of Pecuniary Damages  Those who have suffered from a breach of contract can recover all monetary losses unless a clause is included that limits, excludes, or fixes liability at a set amount  Possible in situations such as  Purchaser of a warehouse with a leaky roof can recover the cost of repairing the roof  Client who suffers a financial loss owing to negligent legal advice can recover those losses  Person whose goods are stolen while they are in store can recover loss of the items from the warehouse owner  CASE – Fidler c. Sun Life Assurance Company of Canada  Fidler worked as a receptionist at a bank in BC o Covered by long-term disability policy that would provide her with assured income o Began to receive benefits when she was diagnosed with chronic fatigue syndrome  Sun Life cut her off payments stating that there was videos showing that she was able to work o Eventually gave her payments again before trial  Problem – was the plaintiff entitled to recover damages for mental distress caused by the wrongful denial of benefits?  Solution – mental distress should be recoverable o Disability insurance contracts are to protect the holder from financial and emotional stress/insecurity o Duty to Mitigate  Duty to mitigate: obligation to take reasonable steps to minimize the losses resulting from a breach of contract or other wrong  Must take reasonable steps to minimize loss such as  Person who is fired has the duty to mitigate by finding replacement employment  Landlord whose tenant breaches a lease has duty to find new tenant  If plaintiff fails to mitigate, damage award will be reduced accordingly  If your job pays you $100k per year and you find a job that pays $80k per year after being fired, your damages have dropped by $20k  Employee could also recover expenses related to the job search o Equitable Remedies – in situations where damages are inadequate as a remedy, the following remedies may be granted  Specific performance  Granted by the court for equitable remedy of specific performance o The party that is sued is ordered to perform the task that the contract asked them to perform  Only granted if the item in question is unique and cannot be replaced by money o Injunction  If a contract contains promises not to engage in specified activities, disregarding those promises by engaging in the prohibited acts is a breach of contract  Plaintiff would want the offender to refrain from continued violation of the contract  Is an equitable remedy  Commonly ordered to restrain a party from breaching a promise not to do something  There are occasions where a court will not order an injunction – when the plaintiff is undeserving or delays in bringing the matter to the court  Interlocutory injunction: an order to refrain from doing something for a limited period of time o Rescission  In some situations, it is more appropriate to restore parties to their situation before the contract was formed  Bars to receiving rescission of a contract include  Not being able to restore the situation due to an altered subject matter  Delay by the plaintiff in seeking the court’s assistance  Restitutionary Remedies o Sometimes the claim fails because plaintiff is unable to prove that an enforceable contract is in place o Law of restitution gives remedy to a plaintiff who has discussed benefits on the defendant in reliance on a contract o Main objective is to remedy unjust enrichment  Occurs when one party has undeservedly or unjustly secured a benefit at the other party’s expense  Court will ordinarily order that the benefit be restored to the plaintiff or otherwise be accounted for by the defendant o In response to unjust enrichment, there are several options such as ordering the defendant to  Pay a restitutionary quantum meruit: an amount that is reasonable given the benefit that the plaintiff has conferred  Pay compensation – an allowance of money to put the plaintiff in as good a position as the plaintiff was in prior to conferring the benefit Managing Risk  There are several risks that a business faces when the time comes to perform a contract o It could be that the business cannot perform or does so deficiently  Business can choose to deal with possibilities proactively or reactively o Proactive – force majeure clause, ensure employees are competent and properly trained o Reactive – once the business is in breach of contract  To reduce financial exposure and litigation expense, business should consider seeking mediation or other forms of compromise  When faced with breach of contract, innocent party must make a business decision Chapter 16 - The Corporate Form: Operational Matters A corporation is a legal person in the eyes of the law. A corporation is responsible for its own actions, however the responsibility is complicated by the necessity of corporations acting through human agents. The law has developed rules regarding how a corporation can be said to have committed a tort, a crime or offense, or entered a contract. (A summary of these rules can be found on page 403) Liability in Tort ● A corporation can experience two distinct kinds of liability in tort ● Primary Liability ○ A person has primary liability when, in law, it is regarded as the entity that actually committed the tort in question ○ Since a corporation doesn’t have a physical existence the courts have overcome this problem by developing what is called the identification theory ○ Identification theory: a theory specifying that a corporation is liable when the person committing the wrong is the corporation’s directing mind ○ Generally it is the highly placed corporate officers who are classified as “directing” mind ● Vicarious Liability ○ A corporation has vicarious liability when the tort has been committed by an agent or employee who is not a directing mind of the corporation. Liability in Contract ● To avoid personal liability, the person signing a document on behalf of a corporation should ensure that the document contains a clause indicating that the person is signing on behalf of the corporation and not signing in their own personal capacity. ● Pre-incorporation contracts are contracts that have been entered into by the company’s promoters on behalf of the corporation before it was even created ● The promoter can avoid liability as long as the pre-incorporation contract expressly indicates that the promoter was acting on behalf of the corporation Criminal Liability ● The judiciary solved the problem of criminal liability for a corporation by adapting the identification theory to the criminal law scenario. ● The theory maintains that a corporation has committed a crime if the person who committed the crime was a directing mind of the corporation and he committed it in the course of his duties, and did so mostly for the benefit of the company. Regulatory Offences ● A corporation faces liability pursuant to a wide range of statutory enactments related to taxation, human rights, pay equity, employment standards, consumer protection, unfair or anticompetitive business practices, occupational health and safety, and environmental protection, to name a few. ● The offences listed above are known as regulatory offences, which is an offence contrary to the public interest. Duties of Directors and Officers ● In exercising their management function, directors and officers have obligations contained in two broad categories: a fiduciary duty and a duty of competence Fiduciary Duty ● This duty requires directors and officers to act honestly and in good faith with a view to the best interests of the corporation. For example, they cannot allow themselves to favour one particular group of shareholders, because their duty is not to that group but to the corporation as a whole. ● Directors and officers must not allow their personal interest conflict with their duty to the corporation. ● Self dealing contract: A contract in which a fiduciary has a conflict of interest ● Corporate opportunity: A business opportunity in which the corporation has an interest Landmark Case (page 388) ● On behalf of the company, Aero Service Ltd.(Canaero), the president and the executive vice president had been negotiating to win an aerial mapping contract. Both officers left Canaero and set up their own company, Terra Surverys Ltd. Terra began to pursue the very same line of work as Canaero and successfully bid on the aerial mapping contract. Canaero brought an action against Terra and its former executives for improperly taking Canaero’s corporate opportunity ● Legal question: Where the former executives in breach of the fiduciary duty to Canaero? Did the fact that they resigned and acquired the opportunity for themselves mean there was no liability ● Resolution: ○ The former executives were held liable to account to Canaero for the profits they made under the contract. They had breached the fiduciary duties by taking something that belonged to the corporation. (more reasoning to why they were at breach on page 388) The Duty of Competence ● This duty requires directors and officers to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Case (page 390-391) ● Business Context: Directors and officers must act honestly and in good faith with a view to the best interests of the corporation (the fiduciary duty), and to exercise the care, diligence and skill that a reasonably prudent person would exercise (a duty of care). ● Factual Background: Lionel, Ralph and Harold Wise were majority shareholders and directors of Wise Stores Inc., a publicly traded company operating about 50 department stores in Quebec with annual sales of $100 million. In 1992, Wise acquired all the shares of Peoples department stores from Marks & Spencer for $27 million. Peoples owned 81 stores and generated sales of $160 million annually. The joint operation of Wise and Peoples did not function smoothly. In effort to help the sagging fortunes the Wise brothers implemented a joint inventory purchasing policy on the recommendation of the companies Vice president of finance. The result was that Peoples purchased most of Wise inventory, subject to reimbursement by Wise. Peoples ended up having a lot of trade credit to Wise and by June 1994 Wise owed over $18 million to Peoples. The companies financial situations continued to get worse and by 1995 both ended in bankruptcy, with $21 million in trade debt unpaid. The Peoples trustee in bankruptcy, representing the interest of the unpaid creditors sued the Wise brothers, alleging that they breached their duties as directors of Peoples. ● Resolution: In a unanimous decision the Supreme Court of Canada held that the Wise brothers did not owe a fiduciary duty to the creditors. While directors are entitled to have regard to various stakeholders, they owe the fiduciary duty only to the corporation. Indemnification: The corporate practice of paying the litigation expenses of officers and directors for lawsuits related to corporate affairs Shareholder: A shareholder is someone who invests in a company by buying shares. Regardless of how the shares are obtained the shareholder has few responsibilities with respect to the corporation. Unlike directors and officers the shareholder has no duty to act in the best interests of the corporation. Lifting the corporate veil: Determining that the corporation is not a separate legal entity from its shareholders. Shareholder Rights ● Right to vote ● Right to information ● Financial rights Preferred share: a share or stock that has a preference in the distribution of dividends and the proceeds on dissolution Common share: a share that generally has a right to vote, share in dividends, and share in proceeds on dissolution Proxy: A person who is authorized to exercise a shareholder’s votes Pre-emptive right: a shareholder’s right to maintain a proportionate share of ownership by purchasing a proportionate share of any new stock issue Shareholders Remedies a shareholder who is dissatisfied with a corporations performance or management has a number of remedies available ● Selling the shares ● Exercising Dissent and Appraisal Rights ○ Dissent and appraisal right: the right of shareholders who dissent from certain fundamental changes to the corporation to have their shares purchased at a fair price ● Bringing a Derivative Action ○ Derivative Action: a suit by a shareholder on behalf of the corporation to enforce a corporate cause of action ● Bringing an Oppression Action ○ Oppression remedy: a statutory remedy available to shareholders and other stakeholders to protect their corporate interests Shareholders’ agreement: An agreement that defines the relationship among people who have an ownership interest in the corporate Unanimous shareholders’ agreement (USA): An agreement among all shareholders that restricts the powers of the directors to manage the corporation Winding Up: The process of dissolving a corporation Chapter 17- Personal Property Definition- All property (other than land and what is attached to the land) that can be identified by its mobility. There are two categories of land: Tangible- physical form, has materiality: ex. furniture, supplies, etc. Intangible- personal property which values come from legal rights: ex. insurance, bank accounts, etc. Acquisition of property (ownership)- Happens in a variety of ways: Land- Acquired through purchase or lease Goods- acquired through purchasing, manufacturing, a gift or inheritance Insurance coverage- bought by paying premiums Accounts Receivable- created by selling goods to a customer, in which they pay for them later Intellectual Property- copyrights/patents.. they are owned and can be sold from the ownership Options for the owner- They can sell the rights to the property, lease or lend the property in which they will get it returned when the lease is up, or use property as collateral for a trade Possession without ownership- this is the action of lending property to another person, with the intent that the property will be eventually returned. Bailment- a temporary transfer of ownership from one party to another Bailor- The owner of the property who transfers the item to another party Bailee- The party that receives the property Gratuitous bailment- bailment that requires no payment Bailment contract- the contract normally contains aspects like: - The services provided to the bailee - The price to be paid by the bailor - Consequences for underperformance of the property - The liability the bailee has for the property he receives o Three standards: Low standard (gratuitous, bailee exercises slight care), Middle standard( both bailor and bailee have benefit, exercises moderate care), High standard(common carriers*, Innkeepers*, bailee exercise extremely good care) *Common carrier- bailee who transports the property *Innkeeper- someone who offers shelter or storage to public people - The liability the bailor has for the property he transfers to the consumer - if the goods are unfit and a bailee is injured, the bailor might be liable - have to exercise care and must be aware of any problems of defects of their property Warehouseman- a bailee who stores the property Types of Leases: Chattel- a contract where the lessee pays for the property they receive o DealorSalePurchasor OR o FinancierLeaseLessee Operating- the property is returned to the lesser when the contract’s up Financing- the ability of the customer to lease a tangible item Storage- storing the personal property of the public, the law enforces a strict liability for the storage of the property on the storage company Repairs- a bailment is created when property is left at a shop for repairs, where the bailor expects the good to be returned in perfect condition. The bailee must provide safekeeping of the good and is liable for the property Lien- The right to retain possession of the property until payment is made by the bailor. The bailee has a right to sell the property to recover costs if no payment is ever made Transportation of Property- carriers have a general requirement to take care of the property they’re responsible for. Insurers- The carriers are liable if the product is lost or damaged, and must cover the costs Risk management- proof and protection of ownership, rights to the possession, and the preservation of value. The main concern for tangible products is the responsibility for lost damaged items. For intangible property, the main concern involves the failure of the customer to pay for the service Chapter 18 – Intellectual Property Intellectual Property – The results of a creative process, such as ideas, the expression of ideas, formulas, schemes, trademarks and he like;  Also refers to the protection attached to ideas through patent, copyright, trademark, industrial design ect. Patents – A monopoly to make, use or sell an invention  The Patent Act - defines an invention as “any new and useful art, process, machine, manufacture or composition of matter or any new and useful improvement in any art, process, machine, manufacture or composition of matter Exceptions to Patents 1. Things that receive protection under other areas of the law. Ex. Computer programs 2. Things that do not meet the definition of a patent. Ex. Scientific principles, nature phenomena, and abstract theorems are discovers not inventions 3. Things that are, for policy reasons, not patentable. Ex. Method of medical treatment Requirements for Patentability 1. New - Invention must be new or novel. It is new if it has not been disclosed publicly. 2. Useful – An invention must solve a practical problem and it must actually work. 3. Unobvious – There must be some ingenuity or incentive step involved in the invention. Patent Protection & Application – Protection does not arise automatically as an application for a patent must be filed with the Canadian patent office. Timing is crucial because patent regime is based on a first come-first file basis. Patent Agent – Professionally trained in patent law and practise who can assist in the preparation of a patent application Specification – The description of an invention contained in a patent. Part 1 of application Claims – The exclusive rights of the patent holder. Part 2 of application Industrial Design Act – Provides protection for the appearance of masse produces useful articles or objects Industrial Design – The visual features of shape, configuration, pattern, ornamentation, or any combination of these applied to a finished article of manufacture.  ID protects the shapes of a product but does not protect the factual aspect Requirements of Registration  Industrial design must be original and novel Registration Process and Protection  Application must be submitted to Industrial Design Office  Application must consist of a written description and a graphic depiction, photograph, or drawing.  Registration gives the rights for owner to make, import or sell any article in respect to which the design is registered. Trademark – A word, symbol, design or any combination of these used to distinguish the source of goods and services Distinguishing Guise – A shaping of wares or their container, or a mode of wrapping or package wares Trade Names – The name under which a sole proprietor, a partnership or a corporation does business  Trademarks may or may not be registered. If unregistered, they are referred to as common law trademarks A Domain Name – Is essentially an Internet address of a website  Domains names come into conflict with trademarks when they include another’s trademark. These disputes are settles through litigation using the general law on the adoption and use of trademarks Cyber-squatting – The bad-faith practise of registering trademarks of others as domain names for the purpose of selling the domain name to the rightful owner or preventing them from obtaining the domain name Requirements of registration - An applicant must demonstrate that he has the titles to the trademark that the trademark is distinctive or capable of becoming distinctive and that it is registrable 1. Title – Ownership or title is not established by inventing or selecting a mark. It comes from the use of the trademark, filling an application to register a proposed trademark, making it known in Canada 2. Distinctiveness – It must actually distinguish the goods and services in association with which it is used 3. Registrability – The trade-marks act specifies that a mark must be registrable Copyright – The right to prevent other from copying or modifying certain works  Applied to every original literary, dramatic, musical and artistic work Requirements of Protection – A work must meet requirements of originality and fixation.  Originality – Work must originate from author and not be copied from another and involve the exercise of skill and judgement  Fixation – The work must be expressed in some fixed form such as paper or a diskette Registration Process – There is an optional registration process that has been an advantage because it provides a presumption of ownership Rights under Copyright 1. Reproduction – Right to reproduce the work or a substantial part of it 2. Public performance – right to perform the work 3. Publication – right to publish work 4. Translation – right to produce, reproduce, perform and publish translation of the work 5. Adaptation – right to convert works into other formats 6. Mechanicals Reproduction – right to make sound recordings 7. Communication – right to communicate work to public 8. Exhibition – right to present to public for purpose of sale 9. Rental – right to rent out sound recordings and computer designs 10. Authorization – right to authorize any of the rights Moral Rights – The author’s right to have a work properly attributed and not prejudicially modified and associated with products. They include: 1. Paternity – Author has the right to be associated with work or be anonymous 2. Integrity – Author has the right to object to dealings or uses of the work if they are prejudicial to the author’s reputation 3. Association – Author has the right to object to the work being used in association with the product, service, cause or institution Fair Dealing – A defence to copyright infringement that permits the copying of works for limited purposes. They include: 1. The purposes of dealing 2. The character of dealing 3. The amount of dealing 4. The alternatives of dealing 5. The nature of the work 6. The effect of the dealing of the work Confidential business information – Info that provides a business advantage as a result of the fact that it is kept secret. General categories include: 1. Strategic business info (customer lists, price lists, bookkeeping methods ect) 2. Products (recipes, formulas) 3. Compilations (databases) 4. Technological secrets (scientific processes, know-how) Requirements of Protection 1. A key requirement of protection is the secrecy or confidentiality of the information.  Economic Value as a result of not being known  Subject to efforts to keep secret  Not generally known in the industry Although intellectual property may be created in-house, it is also possible to purchase or receive an assignment or to receive a licence to the use of intellectual property Assignment – The transfer of a right by an assignor to an assignee Licence – Consent given by the owner of rights to someone to do something that only owner can do Protection of Intellectual Property Use – Intellectual property rights are subject to loss if they are not properly used and maintained 1. Patent may be considered abused if insufficient quantities of the patented item are produced to meet demand of Canada 2. Industrial design rights may be reduces if the goods are not properly marked 3. A trademark can be subject to attacks for non-use or abandonment if it is not used continuously in association with a goods or service 4. Confidential business information is lost once it is disclosed. A business must be vigilant in protecting their info Litigation Anton Pillar order – A pretrial order allowing the seizure of material, including material that infringes intellectual property rights The most common Intellectual property actions are: 1. Patent infringement – Taken to mean an unlicensed intrusion on the patents holder’s rights 2. Copyright infringement – Whenever anyone, without consent, does anything that only the owner has a right doing 3. Industrial Design infringement – Prohibits anyone from applying a registered industrial design to the ornamentation of any article without permission of the owner 4. Trademark infringement – When a trader misrepresents the source of goods and services so as to deceive the public 5. Confidential business info – Common law actions for breach of express and implied terms and breach of confidence Chapter 19: Real Property Ownership  Real property: land or real estate, including buildings, fixtures and the associated legal rights  Fixtures: tangible personal property that is attached to land, buildings or other fixtures  People own real property, they own a defined piece of land  Includes not only the surface of the land but everything above and below it (“the earth beneath and the air above”)  Value of land results from two key attributes: 1. Land is permanent and immovable, so it is easier to track and control than other more portable forms of property 2. Although land can be adapted for different purposes the total quantity is finite  Real property is governed by common law and traditionally the law is devoted to protecting rights to property such as determining who owns a piece of land when more than one person is making a claim for it  Interest in Land  Fee simple: the legal interest in real property that is closest to full ownership o Division of Ownership  One piece of land can be owned by several people at once  Tenancy in common: co-ownership whereby each owner of an undivided interest can dispose of that interest  Joint tenancy: co-ownership whereby the survivor inherits the undivided interest of the deceased o Division of ownership in time  Lease  Owner or landlord gives a tenant possession of the building for a period of time in exchange for rent  Limits on Ownership  Imposed by statue law and common law o Municipal governments have the authority to control land use through planning schemes and zoning regulations o Environmental regulations affect the use of land by limiting or prohibiting the discharge of harmful substances o The common law of nuisance limits any use of land that unduly interferes with other owners’ enjoyment of their land o Family law may designate property as matrimonial – to be shared by both spouses – despite ownership registered in the name of one spouse o Many government agencies have the authority to expropriate land for particular purposes o Government agencies can make use of privately owned land for a particular purpose o Ownership of land in a foreign country can be limited by that country’s governmental policy  The landowner may do the following: o Grant an adjoining landowner the right to use a portion of his land for a particular purpose o Grant a lease to a tenant, thereby giving the tenant the right to occupy the land for the specified period in exchange for rent o Grant an oil, gas, or mineral lease to occupy a portion of the land, access that portion and remove materials o Grant mortgage on the land as security for a loan o Make the land subject to a restrictive covenant – a restriction on the use of land as specified in the title document  Registration of Ownership  The value of land justifies a system in which those with an ownership interest are able to record or register their interest in a public fashion  The purposes of this type of system are two fold 1. To enable owners to give notice of the land they own and the extent of their ownership 2. To enable anyone contemplating the acquisition of an interest in land to investigate the state of ownership in order to verify its status o A registry system  Registry system: the system of land registration whereby the records are available to be examined and evaluated by interested parties  The administrators of a registry system take no responsibility for the validity of the documents that are filed and express no opinion on the state of the title of a particular piece of property  Lawyers retained by the buyer of property are responsible for the search and the evaluation of the results o The Land Titles System  Land titles system: the system of land registration whereby the administrators guarantee the title to land  Responsible for the accuracy of the information they provide  If there are conflicting claims to the same piece of land, the person who registered his interest first has priority  The party who registers second has no claim to the land but may have actions against those who assisted in the failed transaction or who made representations concerning the status of title Acquisition of Ownership  The Purchasing Transaction  It is up to the buyer to investigate and evaluate the property in both financial and legal terms  The seller must not mislead the buyer but generally is under no obligation to
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