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Accounting & Financial Management
AFM 231
Darren Charters

Chapter 1: The Legal Environment  Business law – defines the general rules of commerce, protects business ideas, lets people chose their level of risk , makes sure that losses are attributed to those responsible for them  Law- a set of rules and principles that guide the conduct of society done by protecting people and their property , laws not only set the rules to be followed but also seek to make those that break them accountable  Breach of contract- not complying with contractual rights  Contract law – provides a way for both parties to have a binding agreement, creating security and certainty , enforcing expectations while facilitating relationships  Litigation –process of suing one another, it is best to try to avoid proving yourself right in court , try to preserve the relationship before involving the law  The Canadian Legal System demands that both the process for determining liability and the rules or laws applied in that process are free from bias and fair  The law has the following goals : protection ( in the case of copy rights) , facilitation ( contract law), and dispute resolution (arbitration , mediation , litigation)  Steps to Resolution  Mediation – parties dispute with the help of a neutral party to reach a resolution  Arbitration – a neutral party makes a binding decision that resolves the dispute  Both of these help parties to come to a resolution without involving the courts Chapter 2: The Canadian Legal System  The Canadian Legal System is separated into three branches :  Legislative - creates laws , know as statute law ( Criminal Code)  Executive - implements government laws, issues the approval before a statute law is created  Judicial- adjudicates disputes, independent from legislative and executive branches, composed of both federal and provincial judges  Levels of the Court  Trial- superior ( federal) criminal proceedings , inferior (provincial)  Intermediate appeal  Final appeal  Small claims court-handles claims only under a certain amount in Ontario its $10,000  Supreme Court – handles appeals from provincials courts  Federal Court- only deals with cases where one of the parties id the federal government or one of its agencies  Constitutional Law –Supreme law of Canada that controls how the other branches exercise power  Canadian Constitution – is made up of the Constitution Act and the Canadian Charter of Rights and Freedoms , also include some decisions by judges  Constitution Act – divides legislative power to federal and provincial government  Canadian Charter of Rights- identifies which freedoms are guaranteed in Canada  Constitutional Conventions- are not in the Canadian constitution , they cannot be enforced in a court of law , they are a code of ethics that govern political processes  How a law is passed in federal government  Passed by the House of Commons  Approved by Senate  Judges must determine if a law meets the requirements of the Canadian Charter of rights (Section 2(fundamental freedoms; speech, religion) and Section 15 (equal benefit without discrimination)), the charter is no absolute the government can restrict a right as long they justify it  Four sources of Laws:  Constitutional ,Statue, royal prerogative (rights and privileges of the crown, right to declare war) and common law ( precedent created by judges decisions from similar cases , the lower court follows the higher court precedent, Supreme Court being the highest therefore they can decide as they may)  Equity may be used instead of following common law but it will only help those with clean hands  Jurisdiction:  Each level of government has jurisdiction to pass law within their authority , we have jurisdiction in Canada since we are a federal state , this dictates that power must be split between central and national authority  Federal Government gets its jurisdiction from section 91 of the Constitution , they then pass some power to Territorial Governments  Provincial Government gets its jurisdiction from section 92 of the Constitution , they then pass some of this to Municipal Governments(bylaws)  Concurrent Jurisdiction - jurisdiction shared between two levels of government ( health care is an example; federal and provincial levels)  Paramountcy – when there are conflicting provincial and federal laws , federal laws always prevail  Domestic Law :The internal law of a country ( statute and common law)  International Law: Governs relations between states and other entities  Substantive Law : defines right , duties and liabilities  Procedural Law : the law governing the procedure to enforce rights , duties and liabilities  Public Law : regulate the relationship between people and the government ( criminal law , tax law)  Private Law : concerns the relationship between people ( tort law, contract law) Chapter 4: Dispute Resolution  Negotiation : inexpensive , informal , compromise and no technical rules , their success depends on the parties willingness to compromise and the significance of the dispute  Mediation and arbitration : both involve an independent person with expertise in solving disputes , the mediator does not decide or judge the outcome , arbitration is more formal , hearing both sides and making a ruling after both sides have explained their situation , they form a binding / final decision that can’t be appealed  Both of these methods work well when the parties are willing to compromise , also when litigation is too costly , or the information regarding the dispute must be kept confidential  Litigation : costly ,in terms of time and money spent , last resort after all feasible methods have been tried ,commercial litigation involves businesses suing other business  These are resolved by using statue laws or common law ( substantive law)  Once the claim is in the civil justice system , it is dictated by procedural rules ( what documents need to be filled out and when )  A class action suit is one filled by one individual on behalf of a group of people  Limitation periods : dictate the amount of time you can wait before filing a suit , in Ontario its two years after the incident  Stages of a Law Suit  Pleadings : formal exchanges of documents that outline the basis of the suit , including allegations supporting the claim , outlines key points the plaintiff will prove at court , defendant has 20 days to respond to allegations , if no response you admit to the claim ( plaintiff automatically wins) if the defendant wants to fight back they respond with a defense or can sue the plaintiff with a counter claim  Discovery : both parties prove the facts , revealing evidence , there is no time limit , lets you test the strength of the opposing parties , seeing your strength and weaknesses leads parties to come to a compromise through mediation , this is the last possible time to do this , if mediation isn’t chosen then the case moves to pretrial then trial  Trial and Decision : usually only a judge is present , the burden of proof falls on the plaintiff , introduces the evidence according to the balance of probabilities ( if it is more than 50% likely the plaintiff is entitled to their claim ) , the defendant tries to prove the facts otherwise ,once all things are agreed upon ,the judge makes a decision ( contains the judge’s resolution and justification often citing common law cases ) , if you lose the case you pay your legal fees , the amount of the claim plus the other parties fees  Enforcement: judgment debtor party who was enforced to pay a certain amount , if they don’t pay the amount ,the court is entitled to seize and sell assets belonging to the debtor to get the damages , this goes to a certain extent so the party isn’t left destitute  Appeals : if a party does not wish to accept the decision made by the trial , the case moves up to the next court hierarchy / level , you must appeal within a 30 day period , this grants you the ability to argue against the laws or common law cases that were used to justify the judge’s decision  A Respondent is the person who is defending the appeal , the appellant is the party who makes the appeal  The appeal court reaches the decision of confirm the previous court’s decision , varying it , reversing it or ordering another trial Chapter 5: An Introduction to Contracts  Contract: a deliberate and complete agreement between two or more competent persons, not necessarily in writing, supported by mutual consideration, to do some act voluntarily; enforceable in a court of law  agreement ; an offer to enter into a contract and an acceptance of that offer , complete ; must be certain , deliberate ; both parties must want to enter into the contractual relationship ( intent)  Contract law ensures that each party gets what it bargained for, namely performance of the promises made to it or monetary compensation in its place  The majority of rules governing contract law are based on common law, precedent in particular  Legal Factors affecting contractual relationships:  Communication : how was the offer communicated we only care about what was said and done not necessarily the intentions this is governed by the objectives standard test  objective standards test : whether or not a reasonable person observing the communication that has occurred would conclude that an offer and acceptance has occurred  Bargaining Power : in a contractual relationship the power of both parties will not be equal , the one with the most power will be able to enforce more favorable terms for themselves , however courts will go under the basic assumption that those who negotiate and enter into contracts have equal bargaining power: capable of looking out for their own interests before agreeing to terms  Business factors influencing contractual relationships  Economic Reality - it might make more financial sense for a party to breach a contract than to meet its obligations, Business Relationships – it might make more sense to maintain a business relationship than to sure for breach as litigation can be time consuming and uncertain ,Reputation Management – a company has to consider if they regularly breach or are too harsh with their terms how this will impact them in the market place Chapter 6 : Forming Contractual Relationships  an agreement is essential to a contract, an agreement consists of two parts an offer and an acceptance  acceptance : you accept the offer the other party makes  offer: a promise to enter into a contract on certain terms : price, time , place  an offer must be complete so the contract is certain , all essential terms must be set out Contracts comprise four essential elements:  offer  acceptance  consideration  intention to contract   an invitation to treat , is a form of communication that expresses a wish to do business , it has no legal consequences and it isn’t an offer , an example is advertising  a standard form contract is entered into without any negotiation , consent to terms are developed over the years , the help reduce transaction costs and help increase the amount of business you do  offeror : the person who makes the offer  offeree is the person to whom the offer is made to  Offer can be terminated through  Revocation ; either the offeror or offeree say that the offer no longer exists causing there to be no acceptance therefore no contract  Firm offers: are offers that are open for a set period of time , it can be revoked during this period of time if the offeree has not provided something in return for the firm offer  Option agreement: in order to avoid your offer being revoked before the open period is over, you can form an option agreement in order to keep it open , you enter into a separate contract , you pay the offeror a set amount of money for this privilege  Tendering contract: you get competitive bids for a project , you cannot revoke any bids until a certain period has elapsed  Lapse: another way a offer can be terminated, if an offer isn’t accepted by the date it expiries the offer is dead and can no longer be accepted  Rejection : offer is automatically dead when it has been rejected , you can only accept an offer after this point if it is a new offer  Counter offer: it is a form of rejection , the offeree turn down the original offer and proposes a new one , any changes made to the offer are now referred to as a counter offer  Death or Insanity : an offereor or offeree dies so does the offer, unless they as a person were not needed to personally perform the offer  Acceptance of an offer  As soon as you accept an offer you have entered into a contract , your acceptance must demonstrate complete willingness to the proposed terms, acceptance is effective only when communicated, it is at this point that the contract comes into existence  If you are mailing a contract or an offer, the post box rule applies ; it does no matter if the offeree does not receive the contract , acceptance is assumed and a contract is created at the time of mailing not delivery  Formalization : a written contract must be signed so that the agreement is enforceable  Consideration : there must be consideration present in order to make a promise enforceable , consideration involves the price paid for something , not necessarily always monetary can also be a promise to not or to do something  Gratuitous promise: a promise for which no consideration is given , can be broken with no legal considerations  Pre-existing legal duty : an obligation a person already owes , they are not enforceable, if you enter into a contract and you alter it , making a new promise there must be a new consideration made for it to be enforceable  Promises that can be made without consideration :  Promises under seal : regardless of consideration , the promise is enforceable  Promissory estoppels : the person who relies on the gratuitous promise may be able to enforce it  Common law presumes that promises between family members are non-contractual Therefore it is up to the people who want to enforce an alleged contract, to demonstrate that there was an intention to contract.  Chapter 7 : The terms of a contract  a contract is a business tool that manages a businesses’ exposure to risk  terms of a contract can be either express terms or implied  Express terms : state explicitly one party’s promise to another , essential terms must be express terms so everyone knows what their obligations are clearly , only terms have legal weight  The drafter should be aware of the risk of unclear language , if it is too ambiguous , the contract becomes uncertain and therefore not enforceable  Rules of construction : guiding principles to writing and interpreting a contract , should we follow what was written or what was intended  Implied terms : when an event not expressed through express terms, the courts imply a term , a judge does it when they believe that not all the terms were included in the contract , focuses on the person’s intention , used to include everything in the contract that was supposed to be there  Terms are implied based on :  Business efficacy : a term is implied so the contract is workable , one term that courts increasingly imply is good faith  Customs of trade : it is hard to prove this and most times judges will not imply such terms , instead they suggest that they are included in the contract as express terms  Previous dealing : imply current contract has same terms as before  Statutory requirements : terms are implied by statute , sale of goods act  Entire contract clause – a clause requiring that a court only considers what is written in a contract to determine the parties obligations , stops the court from implying any
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