Biz Law First Exam Textbook Notes

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Department
Management and Organizational Studies
Course Code
Management and Organizational Studies 2275A/B
Professor
Desmond Mc Keon

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Description
Exam Questions: - Do we need to know the exclusions of certain provinces, i.e. in Saskatchewan, regarding privity they take this approach, etc. Will there be questions specifically relating to other provinces? P. 209 - How do we need to know the cases in terms of application to the exam? Chapter 1 – Knowledge of Law as a Business Asset p. 4-15 Business law – a set of established rules governing commercial relationships, including the enforcement of rights  Defines general rules of commerce  Protects business ideas and more tangible forms of property  Provides mechanisms that permit business people to select their desired degree of participation and exposure to risk in business ventures  Seeks to ensure that losses are borne by those who are responsible for them  Facilitates planning by ensuring compliance with commitments Law – a set of rules and principles intended to guide conduct in society, primarily by protecting persons and their property, facilitating personal and commercial interactions, and providing mechanisms for dispute resolution Rules and Principles  Protecting Persons and Their Property o Set rules with penalties in order to encourage compliance and accountability o Seeks to make those who break the law accountable for their misconduct o Breach of contract: failure to comply with a contractual promise  Facilitating Interactions o Providing rules concerning marriage, adoption and the disposal of property upon the owner’s death, etc. o Providing rules governing the marketplace o Legal rules provide definition and context to doing business  Providing Mechanisms for Dispute Resolution o First try to come to a resolution/settlement out of court o Mediation: parties to a dispute endeavor to reach a resolution with the assistance of a neutral person o Arbitration: process through which a neutral party makes a decision (usually binding) that resolves a dispute Legal Risk Management Plan: 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 2 – The Canadian Legal System p. 22-44 The Canadian Legal System is divided into three branches:  The legislative brand creates the law in the form of statutes and regulations o Passes laws that impact business operations o Statute law: formal, written laws created or enacted by the legislative branch of government; Criminal Code of Canada o Ex: when government enacts a law, failure to comply may lead to closure of a business  The executive brand formulates and implements government policy (ideals/principles that guide government in its work, including the kind of law it passes) and law o Implements and generates policy that may be directed at business o Formal executive: branch of government responsible for the ceremonial features of the government; represented by governer general; final step in creating statute law o Political executive: branch of government responsible for day to day operations, including formulating and executing government policy, as well as administering all departments of government o The cabinet: made up of all the ministers of the various government departments, as well as the prime minister or premier  Passes regulations providing detail to what the statute in question has enacted  The judicial branch adjudicates on disputes o Provides ruling that resolve existing legal conflicts but also impact on future disputes o Judiciary: judges appointment by both federal and provincial governments o The System of Courts:  Trial courts:  Inferior courts – presided over by the judges appointed by the provincial government; separated by cases (family, criminal, civil)  Superior courts – judges are appointed by the federal government; have the jurisdiction to handle claims involving any monetary amount  Supreme Court of Canada – final court for appeals in the country  Federal Court of Canada – court that deals with some litigation involving the federal government Example: challenge to the Tobacco Act 1. Legislative branch passed the law that is being challenged 2. Executive branch formulated and advanced the government policy that led to the legislation being enacted 3. Judicial branch will determine whether the challenge is valid or not Constitution Act, 1867:  Federal Government o Interprovincial/international trade and commerce o Trade as a whole o Postal service o Navigation and shipping o Currency o National defence o Criminal Law o Banking o All legislative areas not given to the province  Provincial Government o Hospitals o Property and civil rights within a province o Administration of justice o Local matters (highways) o Incorporation of provincial companies  Municipalities (these are known as bylaws) o Zoning o Subdivision o Taxation for the benefit of the municipality o Licensing Constitutional law: the supreme law of Canada; constrains and controls how the branches of government exercise power; upholds the values of the nation; tied to liberalism Constitutional conventions: a code of ethics that governs our political processes not enforceable by law but practically determine or constrain how a given power is exercised Exclusive jurisdiction: jurisdiction that one level of government hold entirely on its own and not on a shared basis with another level Concurrent jurisdiction: jurisdiction shared between two levels of government  Ex: public health  Paramountcy: a doctrine that provides that federal laws prevail when there are conflicting or inconsistent federal and provincial laws o Only applies when there is an express contradiction between the two laws o If a person can obey the stricter law while complying with the other law, paramountcy does not apply The Canadian Charter of Rights and Freedoms  Intended as a judicially enforceable guarantee that the government will act consistently with the values associated with a liberal democratic state  Two important sections related to business: o Fundamental Freedoms  2. Everyone has the following fundamental freedoms:  a. freedom of conscience and religion;  b. freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication;  c. freedom of peaceful assembly; and  d. freedom of association. o Equality Rights  15. (1) every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age, or mental/physical disability o Limitation: 1. The Charter guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society  Must justify an infringement imposed by the government  Permits the government to override or disregard a judicial decision that a given piece of legislation is unconstitutional or to pre-empt judicial involvement at the start Sources of Law  Constitutional Convention  Statute Law  Royal Prerogative – refers to the historical rights and privileges of the Crown including the right to conduct foreign affairs and to declare war  Common law – judge-made law; end product of disputes that come before the judiciary o Precedent: using similar cases; “like cases should be treated alike”  A lower court must follow a relevant precedent created by a higher court within the same jurisdiction  Not all precedents are of equal value – the higher the court that created the precedent, the more valued the decision  Supreme Court is entitled to decide a case in any way it sees fit o 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 Classifications of Law  Domestic law – internal law of a given country and includes both statute and common law  International law – governs relations between states and other entities with international legal status  Substantive law – refers to law that defines rights, duties and liabilities  Procedural law – refers to the law governing the procedure to enforce rights, duties and liabilities o Ex: a trial judge’s decision can be appealed to a higher court  Public law – all those areas of law that relate to or regulate the relationship between person and government at all levels o Criminal, tax law, constitutional law, administrative law  Private law – concerns with dealings between persons o Contract law, tort law, property law, company law Differences between common law and the Civil Code of Quebec  Judges in Quebec look to the Civil code for general principles to be applied to the case at hand o They are not bound by how other judges have interpreted the Code Administrative Law – rules created and applied by the various boards, agencies, commissions, tribunals and individuals who exercise governmental function as a result of legislation giving them that power; fairness that constrain how administrative bodies exercise their authority Chapter 4 – Dispute Resolution p. 77-94 Negotiation: a process of deliberation and discussion used to reach a mutually acceptable resolution to a dispute  The success of a negotiation depends on: o The willingness of the parties to compromise and negotiate in good faith o The nature and significance of the dispute o The priority of the parties give to its resolution o The effectiveness of those involved in the negotiations Alternative Dispute Resolution (ADR): a range of options for resolving disputes as an alternative to litigation  Mediator: person who helps the parties reach a compromise  Arbitrator: listens to both sides and makes a ruling which is usually binding The Litigation Process  Limitation periods: time period specified by legislation for commencing legal action o Breach of contract – six years o Civil Lit. – two years  Stages of a Lawsuit o Pleadings o Discovery – process of disclosing evidence to support claims in a lawsuit o Trial and Decision  Burden of proof (obligation of the plaintiff to prove its case) falls on the plaintiff o Enforcement  Judgment debtor – the party ordered by the court to pay a specified amount to the winner of a lawsuit Chapter 5 – An Introduction to Contracts p. 103-111 Contract: deliberate and complete agreement between two or more competent persons, not necessarily in writing, supported by mutual consideration, to do some act voluntarily  Agreement: composed of an offer to enter into a contract and an acceptance of that offer  Complete: the agreement must be complete, certain  Deliberate: both parties must want to enter into a contractual relationship  Voluntary: agreement must be freely chosen and not involve coercion or other forms of serious unfairness  Competence: must be at least two parties and must have legal capacity  Supported by mutual consideration: each party must given something of value from the other party  Not necessarily in writing: oral contracts are enforceable Contracts are:  Based on common law  Facilitative in that it allows participants to create their own rights and duties within a framework of rules that a judge will later enforce if needed  Varying Creating the Contract  Communication o Most legal contracts begin with communication o Most communication is laden with legal meaning o Objective standard test: the test based on how a “reasonable person” observing the communication would conclude that an offer and acceptance has occurred  Bargaining Power o Equal bargaining power: legal assumption that those entering into a contract are capable of looking out for themselves and will work to maximize their own self- interest Performing or Enforcing the Contract  Business Relationships – is it worth harming a relationship for a relatively small matter? Chapter 6 – Forming Contractual Relationships p. 118-140 Offer  Promise to enter into a contract, on specified terms, as soon as the offer is accepted  All essential terms must be set out of the contract will fail for uncertainty  Invitation to treat: an expression of willingness to do business; not an offer as they fail to specify the terms or scope of the proposed arrangement  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 (ex: renting a car)  If the purported offer is sufficiently comprehensive that is can be accepted without further elaboration or clarification, it is an offer in law  Offeror: person who makes an offer  Offeree: person who an offer is made too Termination of an offer:  Revocation: offer can be revoked at any time before acceptance by simply notifying the offeree of its withdrawal o In terms of a firm offer: a firms offer can be revoked at any time before acceptance because the offeree has not provided at consideration to support the offeror’s implicit promise not to revoke before the deadline  Option agreement: the offeree pays the offeror to keep the offer open for the specified period of time o In the context of a tendering contract:  Lapse o A date upon which the contract expires o If there is no expiry date the offer will remain open for a reasonably long period of time  Rejection o Can only be revived if offeror offers anew or offeree presents it as his own offer  Counteroffer o A form of rejection o Any change to a term of an offer  Death or Insanity Acceptance  Must demonstrate an unqualified and complete willingness to enter into the contract on the precise terms proposed  If it does not mirror the offer it is a counteroffer and thus no contract has been formed  In order to effect legal acceptance, the offeree must communicate an unconditional assent to the offer in its entirety  Postal rule: acceptance is effective at the time of mailing the acceptance, rather than the time of delivery  Ordinary rule: offeror needs to be aware of acceptance before a contract is in place Consideration  Each party must give up something of value in exchange for receiving something of value from the other contracting party  Gratuitous promise: promise for which no consideration has been made  Pre-existing legal duty: legal obligation that a person already owes  Promises enforceable without consideration: o Promises under seal – taken as serious intent by the promisor and amounts to an acknowledgement that the promise is enforceable even if it is gratuitous o Promissory Estoppel  Party B has, by words or conduct, made a promise or an assurance to Party A that was intended to affect their legal relationship and to be acted on  In reliance on the representation, Party A acted on it or in some way changed its position  Party A’s own conduct has been above reproach and, in this way, Party A is deserving of the court’s assistance  Can only be used as a defence to legal claims made by the promise- breaker o Partial Payment of a Debt – in Ontario, if a lesser amount has been agreed to and paid, a debtor cannot go back to claim the full amount Intention to Contract  The promise at issue must be a contractual one, that is, one enforceable by a court of law  The intention to contract is presumed  Rebuttable – 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 7 – The Terms of a Contract p. 148-164 The Content of a Contract  Terms – contractual terms that can be expressed or implied o Express term – provision of the contract that states or makes explicit one party’s promise to another o Rule of Construction: guiding principles for interpreting or “constructing” the terms of a contract o Implied term – a provision that is not expressly included in a contract but that is necessary to give effect to the parties intention  Have to prove on the balance of probabilities  Business efficacy – a judge is entitled to imply terms necessary to make the contract workable  Customs in the Trade of the Transaction – it must be proved that the customer is so notorious that the contract in question must be presumed to contain such an implied term  Previous dealings – if the parties have contracted in the past, it ma be possible to imply that their current contract contains the same terms  Statutory Requirements – certain terms are a mandatory part of every contract for the sale of goods unless specifically excluded by the parties o Entire contract clause – a term in a contract in which the parties agree that their contract is complete as written  The Parol Evidence Rule: when a court is asked to determine what a contract means and includes; 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 o Instances where evidence outside the contract is important and considered:  If there is an alleged problem going to the formation of the contract  If the contract is intended to be partly oral and partly in writing the rule as no application  If the promise to be enforced is contained in a separate (collateral) agreement that happens to be oral, the rule does not apply  If the language of the contract is ambiguous  Using Contractual Terms to Manage Risk o Changed circumstances  Provide a formula setting the price of the goods supplied, in a manner that is tied to the market value  Set the price according to the cost of materials, plus a specific percentage for profit  Allow the parties to reopen negotiations or terminate the contract altogether if specific events occur o Conditional Agreements – essential when one party wants to incur contractual obligations but only under certain circumstances  Condition subsequent: always bind the parties to a contract pending the fulfillment of the condition  Condition precedent: the parties’ obligations to perform are not triggered pending fulfillment of the condition; a contract exists but the obligation to perform the contract is held in abeyance pending the occurrence of the event  Because there is a contract, the law is able to imply certain terms binding on parties in the meantime  Limited 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: term of a contract that specifies how much one party must pay to the other in the event of breach Chapter 8 – Non-Enforcement of Contracts p. 173-193 The Importance of Enforcing Contracts  Law looks to preserve the integrity, reliability and predictability of contractual relationships  Wants to prevent people from pulling out of deals because they have found better opportunities elsewhere or have failed to conduct diligent negotiations  Must remedy situations where an apparently valid contract fails the reflect the real agreement of both parties or is fundamentally unjust  Exceptions to the general contract: o An unequal relationship between two parties o Misrepresentation or important mistake concerning the contract o A defect within the contract itself  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 o “hit-man”- illegal contract – thus never existed Contracts Based on Unequal Relationships  Legal capacity: ability to make binding contracts o Minors – those under the age of majority are not obligated by the contracts they make  Minors have the option to fulfill their contractual commitments and can enforce a contract against the other party should that party be in breach  Contracts with a minor are usually voidable at the option of the minor alone  Necessaries  Is the item being acquired necessary to this minor?  Does this minor already have an adequate supply of the item?  Child who lives with a parent or guardian can be assumed to be adequately provided for  Contracts made when underage, after attaining age of majority, is still unenforceable unless the contract is changed/ratified  Exception: agreement is of a permanent or continuous nature (i.e. partnership agreement); in such a case a minor must reject (repudiate) this obligation even if it is for non-necessaries  Regarding employment: employer must be able to prove that the minor is receiving a significant benefit, otherwise the minor can abandon the contract at the minor’s sole option o Mental Incapacity – both must be able to understand the nature and consequence of their agreement  If people were mentally impaired through illness/intoxication, such that they were unable to understand the consequences of their actions, and the other party was aware of their state, they may be able to avoid the contract at their option  Duress – contracts made as a result of one of the parties being threatened with physical harm (not enforceable) o When present, contract is voidable at the option of the party who was subject to the duress o Economic duress – threat of economic harm that coerces the will of the other party and results in a contract  Under the traditional test, these concessions will be unenforceable if it is shown that the coercion went beyond ordinary commercial pressure to a force or a coercion of will that prevented the other side from giving true consent to the proposal  Some courts have determined a lack of a realistic alternative counts as evidence of economic duress  Undue Influence – unfair manipulation that compromises someone’s free will o Two circumstances:  Actual pressure – a transaction may arise because a party has exerted unfair influence on the other; in this case the party who seeks relief must show that influence existed, was exercised, and resulted in the argument in question  Presumed pressure – the relationship that already exists between the parties gives rise to a presumption that the ensuing agreement was brought about by one parties unfair manipulation of the other (i.e. doctor and patient, lawyer and client)  In this case it falls to the more powerful party to prove that no undue influence was present  Banker and customer typically do not fall into this influence Case Bank of Montreal v. Duguid Mr. Duguid attempted to secure a loan to finance a condominium project, bank said they would only secure if Mrs. Duguid co-signed the loan. Ms. Duguid signed the loan without receiving independent legal advice. In short, the loan went into default and the bank is now suing Mrs. Duguid Question: Did Mrs. Duguid cosign the load as a result of her husband’s undue influence? Resolution: The court said there was no undue influence. As a real estate agent she knew the risks involved in the loan. Dissenting judge would factor in Mrs. Duguids emotional state as a result of a low ebb in their marriage etc. and thus would not make her liable.  Unconscionability – an unfair contract formed when one party takes advantage of the weakness of another o Proof is a two step process:  Proof of inequality between the parties  Required inequality may result because one party is unsophisticated, poorly educated, lacks language facility or has lower economic standing than the stronger party  Proof of an improvident bargain or proof of exploitation (if the transaction is sufficiently divergent from community standards of commercial morality, this is a strong indication of exploitation)  Must be able to demonstrate that its terms greatly advantaged one party over the other Misrepresentations and Important Mistakes  Misrepresentation of Relevant facts – the basic principle or rule is that both parties are to look out for their own interests and if they want information, they should ask for it o Sometimes parties do owe a duty to disclose information without being prompted:  One party provides only partial information to the other side – misleading as once information is offered, it must not be misleading or incomplete  One party actively conceals the truth  One party neglects to correct an earlier assertion that, when stated, was correct but now no longer is so  The parties are in a relationship requiring utmost good faith – provide all information that would be relevant  A statute imposes a positive obligation to disclose information o A statement made in the contract is a promise or term of the contract o Misrepresentation: a false statement of fact that causes someone to enter a contract  Recission: the party who has relied on a misrepresentation may have the contract cancelled and involves putting the parties back to their pre- contractual positions o Ingredients of an Actionable Misrepresentation – the statement must be proven:  False  Clear and ambiguous  Material to the contract (significant to the decision of whether to enter the contract)  One that actually induces the aggrieved party to enter the contract  Concerned with a fact and not an opinion, unless the speaker claims to have special knowledge or expertise in relation to an opinion o Categories of Actionable Misrepresentation  Fraudulent misrepresentation: speaker has deliberate intent to mislead or makes the statement recklessly without knowing or believing that it is true  Negligent misrepresentation: the speaker makes the statement carelessly or negligently  Innocent misrepresentation: the speaker has not been fraudulent or negligent, but has misrepresented a fact o Remedies for Misrepresenation  Fraudulent: rescission in contract, damages in tort  Negligent: rescission in contract, damages in tort  Innocent: rescission in contract  Mistake – error made by one or both parties that seriously undermines a contract; most difficult aspects of contract law o Common mistake: both parties to the agreement share the same fundamental mistake Contracts Based on Defects  Illegality – a freely chosen contract will be unenforceable if it is contrary to a specific statute and/or violates public policy o Illegal by statute  Criminal code forbids loans at a rate of interest exceeding 60% per year  Competition act invalidates a range of commercial transactions that unduly restrict competition  Real Estate and Business Broker’s Act provides an unlicensed realtor cannot maintain an action for services rendered o Contrary to public policy – when they injure the public interest (community’s common sense and common conscience)  Non-solicitation clause: forbids the employee (or business vendor) from contacting the business’s customers  Non-competition clause: forbids competition outright for a certain period of time and is therefore much more intrusive  Courts are not to re-draft overly broad non-competition clauses by “reading them down” until they become reasonable (that is legal and enforceable), rather, such clauses are unenforceable  Judges may remove part of an impugned provision to cure it, but only sparingly and “only in cases where the part being removed is severable, trivial and not part of the main purport of the restrictive covenant”  Drafted clauses are also unenforceable, generally speaking, because its difficult to prove that the clause is reasonable when its meaning is in fact unclear  Writing as a Requirement o Contracts do not have to be written, a party to an oral contract must find other means to prove its existence (i.e. witnesses) o Statute of Frauds: to prevent fraud and perjury by requiring written proof of certain kinds of contracts  Contracts of Guarentee  Gaurentee: a promise to pay the debt of someone else, should that person default on the obligation; must generally be in writing  Contracts Not to be Performed within a Year  The rationale for requiring a written record for these kinds of contracts is the difficulty of proving promises that were possibly made in the distant past  Contracts Dealing with Land  Contracts with land generally must be evidenced in writing in order to be enforceable  Exception in the case of part performance: if the person attempting to enforce an oral agreement for purchase and sale of land has performed acts in relation to the land that could be explained by the existence of an agreement, that performance may be accepted in place of a written agreement  Contracts for the Sale of Goods  Sale of Goods Act which contain a provision that contracts for the sale of goods above a specified amount must be in writing in order to be enforceable by the courts Chapter 9- Termination and Enforcement of Contracts p. 201 – 219 Termination of Contracts: An Overview Several ways a contract may be terminated:  Through performance: when both parties fulfill their contractual obligations to each other, they have performed the contract. (most ideal way of concluding a contract) o A contract is performed when all of its implied and express promises have been fulfilled o Does not mean the end of a relationship o Performance by others: when the contracting party is an individual, employees may have an important role  The employee/agent is not typically a part of the contract  Employee/agent typically lacks privity (relationship to the law) of contract and therefore cannot sue or be sued on the contract  Though there may be liability in tort  Permissible to use employees to vicariously perform a contract in question (performance of contractual obligations through others) as long as personal performance by the particular contracting individual is not an express or implied term of a contract  Through agreement: parties are always free to voluntarily bring their contract to an end. Both parties could agree to simply walk away from their agreement, or one party could pay a sum to the other side by way of settlement in exchange for agreeing to end the contract. o Enter into a whole new contract  Known as novation o Vary certain terms of the agreement o End the contract o Substitute a party  Whereby one party’s rights and obligations are transferred to someone else  Assignment: transfer of a right by an assignor to an assignee  The law of assignment of rights permits the creditor (assignor – person entitled to payment from a contract) to assign the right to collect another person (the assignee – party who is obligated to make the payment) without the agreement of the debtor  To be effective, the debtor must have notice of the assignment so that she knows how to pay the assignee rather than the creditor  Assignee entitle to collect the debt despite not being involved in the creation of the contract that produced the debt  Conversely, after receiving notice of the assignment, the debtor can perform his obligation only by paying the assignee  The assignees who take in good faith rank in the order that they have given notice to the debtor; meaning a later assignee may end up collecting from the debtor ahead of an earlier assignee simply by being the first to give notice to the debtor  Through frustration: after the formation of a contract, an important, unforeseen event occurs such as the destruction of the subject matter of the contract or the death/incapacity of one of the contracting parties. The even must be one that makes performance functionally impossible or illegal o Frustrated contracts must demonstrate the following:  Was dramatic and unforeseen  Was a matter that neither party had assumed the risk of occurring  Arose without being either party’s fault  Makes performance of the contract functionally impossible or illegal o Force Majeure – rather than leaving it to a judge to decide whether the occurrence of a given event amounts to frustration, the parties contractual
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