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BU231 OC Exam Review.odt

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Keith Masterman

1 CHAPTER 15: Leasing and Bailment Bailment • Definition o Bailment is a transfer of possession of personal property without a transfer of ownership  Usually on the understanding that the party receiving the property will return it at a later time o Bailor is the transferor or owner of property o Bailee is the party that receives custody • Benefit of Bailment o Bailments may be for the benefit of the bailor, bailee or both parties o A gratuitous bailment (Non-Contractual) is a bailment where one party provides no consideration, or where this is no intention to create a contractual relationship o A bailment for value is a contractual bailment o Sub-bailee is a person who received a bailment of property from a bailee  To avoid liability, the bailee must obtain permission or consent for the sub-bailment and the sub-bailee must be aware of the bailor's interest Nature of Bailment • Sale: ◦ Involves a transfer of ownership – it not need a change in possession ◦ By contrast to a bailment • Trust: ◦ A transfer of property to a trustee for the benefit of one or more persons does NOT create a bailment ◦ The creation of trust gives legal ownership to the trustee, and the beneficiary acquires an equitable interest in the subject of trust • Debt: ◦ A deposit of money in a bank or trust company creates a creditor-debtor rather than a bailee-bailor relationship ◦ It is not bailment because only property of equal value is returned, not the exact asset given • License ◦ A license amounts to no more than a grant of permission to make use of the licensor's land on the understanding that possession of any chattel is not transferred, and responsibility for guarding the chattel is not accepted Rights and Duties of a Bailee • Liability Under Contract and Tort o In contract often the terms (express or implied) outline the duties and liabilities of the bailee  Exemption clauses written into contracts for liability of bailees are construed very strictly by the court  If goods are damaged for any reason not related to performance related to the contract, bailee is not protected by the exemption clause 2 o The standard of care required by the law of torts applies in circumstances not covered expressly or impliedly by the bailment contract  Also applies to gratuitous bailments o Law of bailment places the burden on bailee of showing they were not negligent, must offer a reasonable alternative explanation (reverse onus)  Eg. You send your car in for repairs and it gets blown up there, you need only establish the condition of the car when you dropped it off, and the condition it was in when you received it  As a result of this, it may be easier for a bailor to sue under the rules of bailment than tort • Standard of Care o Gratuitous Bailment for Benefit of Bailor  Standard of care is least strict  Bailee should not be under a particularly high duty towards bailor because the bailee is doing a favour for bailor  Still liable for gross negligence  Eg. “Can I put my car in your garage for the winter?” o Gratuitous bailment for benefit of Bailee  Standard of care is the highest  Bailor receives no consideration, thus the bailee should compensate the bailor when damage occurs to goods as result of any slight carelessness  Eg. “Can I borrow your lawnmower?” o Bailment for Value  Falls between gratuitous bailment for benefit of bailor and benefit of bailee  A bailee for value is expected to take the same care of goods as a prudent and diligent person should take care of goods  “My car will be at your shop while you service it” o Note: The type of goods affects the standard of care, as very valuable and easily damaged goods require more care than otherwise • Remedies of a Bailee for Value of Services Rendered o Main concern of a bailee is to receive compensation for services rendered, (Can’t undo a repair job) o Usual remedy is an action for the contract price o If a carrier is transporting goods in several installments and only partly delivers the total cargo the carrier can sue quantum meruit  An amount a supplier deserves to be paid for goods or services provided to the person requesting them  Also described as the Fair Market Value of the Benefit Conferred • Lien (Repair and Storage Liens Act) 3 o Liens give the bailee a right to retain possession of goods until the bailor pays what is due for the services o Arises only when the service has already been performed and payment is past- due o A right of lien is available to bailees who perform services in nature of repairs or improvements to goods, innkeepers, common carriers and to lawyers and bankers o An unpaid bailee loses her lien on the bailed goods as soon as the bailor obtains possession of them without deceit or fraud • Right of Sale (Repair and Storage Liens Act) o If a bailee is unable to pay off charges (such as when they become insolvent) the bailee is left with goods they can’t use o Bailees now have a statutory right to sell the goods.  Provisions required:  Certain time needs to elapse after payment is due  Advance notice must be given to bailor of the intention to sell  Sale must be advertised  Sale must be held by public auction o Note: The proceeds of the sale first go to reimburse bailee for costs of sale, then the overdue charge for her services  Any surplus belongs to the bailor Special Types of Bailment • Storage and Safekeeping o Express and implied authority of bailment contract affects their liability  Terms of contract may reduce liability if customer (bailor) overrides a warehouse keeper’s usual discretion in handling goods, become liable only for complying with those instructions o Not customarily obliged to insure goods against fire, but when expressly contracted to do so and they fail, they owe the bailor the insured value of the goods  If goods are fungible (identical substitutes may be bought) then the bailee’s liability is discharged when they replace the goods o Warehouse owners in Canada have a lien on goods, and may sell by public auction • Repair and Work on a Chattel o In accepting work, a repairer undertakes to do it in a competent manner employing the skills it professes and completing it in time, not doing this is a breach of contract o Standard of care is same for warehouse o Ordinarily, a bailor gives repairers implied authority to order replacement parts unless stipulated in contract o A breach may entitle the bailor to not pay for work already done or to sue for damages o Common law gives a repairer a lien 4  Does not extend the right to sell the goods, but some provinces give an additional statutory right to the repairer to sell the goods when the repair charges are three months due • Transportation o Gratuitous Carrier is anyone who agrees to move goods without reward o Private Carrier is a business that undertakes on occasion to carry goods for reward  Reserves the right to select its customers and restrict the type of goods its willing to carry o Common Carrier holds itself out to the public as a transporter of goods or passengers for reward  Common law gives common carriers a lien  Undertakes to indemnify the shipper (the bailor) against loss whether the loss occurs through the carrier's fault or not  Therefore, the carrier is an insurer as well as a bailee  In case of loss or damage, the shipper (bailor) need only prove:  That the carrier received the goods in good condition  That the carrier delivered them in bad condition or failed to deliver them at all  Liability is limited to the declared value  Defenses against liability:  An act of God o Fire is not an act of god, unless lightning started  Inherent Vice in The Goods o Latent defects or dangerous condition of goods  Default By The Shipper o That the shipper has been guilty of a breach of duty or is in someway at fault • Innkeepers o Innkeepers are any people who maintain a establishment offering lodging to any member of the public o Liability:  Liable for damage or loss caused by their negligence or the negligence of their employees  Innkeepers are also liable for the loss or theft of their guests' goods  A hotel may avoid liability if it can show that the disappearance was due to the carelessness of the guest o The Innkeepers Acts of various provinces give the right to sell the goods of guests by public auction if their bills remain unpaid for a specified period • Pledge or Pawn o Pledge or Pawn is a bailment of personal property as security for repayment of a loan where possession passes to the bailee o Borrower is pledgor; creditor is pledgee 5  A pledgee is a bailee for value and must exercise such care as is reasonable in the ordinary and proper course of its business  Pledgee obtains lien on the personal property pledged with it, and the pledgor cannot recover possession of the goods until it repays the debit for which they are security  Pledgor gives authority to the pledgee to sell goods upon default and to reimburse itself for costs incurred o Surplus belongs to the borrower (pledgor)  Pawnbroker may obtain absolute ownership of pledged goods after similar actions in right of sale o The subject matter of a pledge may be goods left with a pawnbroker CHAPTER 17: Agency and Franchising The Nature of Agency • Agent is a person acting for another person in contractual relations with third parties • Principal is the person on whose behalf the agent acts • Agency is a relationship in which one person, known as an agent, is authorized to bring its principal into contractual relations with third parties o An exception to privity rule, allows insurance company to sue you for default of payment. • Dependent Agents – Act exclusively for a single principal o Functions of agency and Third Party employment may be entirely Agent separate, ie.) An agent need not be an employee just as an employee need not be an agent  e.g.) Insurance agent usually only represents Principal one insurance company • Independent Agents – An agent who carries on a independent business and acts for a number of principals – NOT an employee o Eg.) Lawyers or stock brokers who act as agents for their clients when dealing with purchases of land, buildings, shares o So called real-estate agent does not have authority to sell the property of a client and thus is not a true agent… role is only to introduce prospective purchasers and buyers who contract directly with each other  Real estate agent can also act on behalf of buyer and seller which creates a conflict of interest • Commission Agent o One who sells on behalf of a principal to third parties and receives compensation through commissions • Note: Once a person begins to act as an agent in a particular transaction, that person is bound by all the duties of a contractual agent Creation of an Agency Relationship • Agency Agreement o The relationship between principal and agent whereby the agent undertakes to act on behalf of the principal • Principal and third party o Agent makes contracts between these two parties on principal’s behalf • An agent’s power to contract on behalf of her principal is limited to the capacity that the principal possesses By Agreement • Agency agreement may be expressed or implied, oral, written, or in writing under seal o If agreement is to extend beyond one year, it must be in writing to be enforceable • Agreement should define the limit’s of the agent’s authority o ie.) How far they can go in making a contract with a third party without obtaining further instructions from principal • Power of Attorney o A type of agency agreement authorizing the agent to sign documents on behalf of the principal o Usually issued under seal Other Ways to Create an Agency Relationship • May be implied through conduct of the principal and the agent • If the principal has allowed the agent to act like his agent in dealings with third parties, agency will be implied ◦ Estoppel Principle: When someone allows another to believe something, he cannot later deny it • Agency may be created retroactively ◦ If an unauthorized agent negotiates a contract with a third party on another's behalf, that person may subsequently approve the agent's behaviour and adopt or ratify the contract as his owns The Authority of the Agent • Actual Authority o The authority given expressly or impliedly or inferred (by conduct) to the agent by the principal o Contains implied terms • Apparent Authority o The authority that a third party is entitled to assume that the agent possesses o In apparent authority, circumstances may make it appear to third parties that an agent has authority to make the bargain, when in fact they don’t have any real authority o Agents may exceed their real authority by venturing into sideline activities or act in violation of special restrictions o So when can a principal legally refuse to be bound by a contract?  Test is whether a third party should have been aware of the agent’s lack of authority, or had reason to be suspicious  A third party is expected to act with a reasonable measure of business acumen and common sense  Eg. If the proposed contract is not within an area usually entrusted to such agents check with the named principal about an agents authority if you believe it could be exceeding o But it would be impractical to have to check on an agent’s authority in every circumstance, thus a presumption of authority is established by trade o Result is that a principal seeking to abnormally restrict its agent’s authority runs the risk that the agent will have an apparent authority exceeding their actual authority… and thus not be able to deny liability on those contracts • Holding out o Holding out is representing by words or conduct that a person is one's agent or has a particular authority  Eg. If a company describes someone as a ‘director’, they can’t later claim that the person was not properly appointed and consequently not an agent o Holding out may arise when an agency agreement ends, thus it is the responsibility of a principal to inform third parties that the agency has ended… if not they are bound by any contracts that agent creates o Estoppel  When one party allows another to believe that a certain exists and the other person relies upon that belief, the first party will be prevented from stating afterwards that the true state of affairs was different • Ratification o Sometimes a person will pretend to act as an agent knowing they have no authority, but hoping that the proposed principal will later adopt this contract o Ratification, is subsequent adoption by the proposed principal of a contract made by an agent without authority o Need for ratification arises from:  Not actually being an agent of the principal  Because an agent has exceeded their limited authority o If a principal does ratify, the effect is establishing the contract with third party retroactively as if the agent had the power all along  Note: A principal need not ratify it expressly, it can do so impliedly by assuming the benefits of a contract  Note: Ratification cannot be partial, all or nothing o An agent's contract with a third party may be ratified:  Expressly or impliedly;  Within a reasonable time  By a named principal;  If the rights of an outsider are not affected; and  If, at the time of creation and ratification, the principal was capable of making the contract Duties of Agent to the Principal • Duty to Comply with the Agency Agreement o Determined by terms, explicitly and implied of the contract o Breach of any term gives the aggrieved usual remedies against the other for breach of contract (recover losses • Duty of Care o Agent owes duty of care to principal event when she acts WITHOUT payment o Degree of skill that principal expects depends on the nature of the agent’s task and their known competence o An agent has a better chance avoiding liability for consequences if they can demonstrate they were unqualified and that the principal knew it o Agent has a duty to be diligent in keeping her principal informed about all important developments o Note: It’s important to note that an agent may withdraw before performing a gratuitous promise, but if you proceed to act on behalf of principal you are then bound to use reasonable care and diligence • Personal Performance o General rule is that an agent can’t delegate their duties o When an agent gets implied authority to perform through a sub-agent there is only privity between principal and agent, as well as agent and sub-agent…  … but none between principal and sub-agent o Thus a principal can only recover from agent, who must then turn to sub-agent • Good Faith o Fiduciary Relationship  Requires an agent to be loyal, act in the best interest of the principal and keep the principal fully informed  Money should be put into separate bank accounts so that property in agent’s possessions are not confused with principal’s assets  Duty also requires that an agent inform the principal of any information that may influence the principal’s decisions  If agent can get lower price, then they must inform principal of this and not reap profits from better deal! o Acting for two principals  An agent can act for both parties in a transaction if they are aware of the arrangement and have agreed to it  Ordinary business prudence argues against this though, as it is a conflict of interest o Contracts between Agent and Principal  An agent’s loyalty to principal is compromised when they make themselves party to a contract without approval of principal  Eg. An agent buys the property it had been given the task of selling  It is a criminal offense for an agent to corruptly demand or accept any remuneration from a third party in the conduct of her principal's business affairs  The third party who offers a bribe or kickback is criminally liable Duties of Principal to Agent • Does NOT owe a fiduciary duty to the agent • Two Duties on the Principal: o To compensate the agent for his or her effort (by commission or otherwise) o To pay the agent's expenses and compensate for losses • In Listing Agreements o In the absence of an express term regarding an agent’s fee, an agent is entitled to a reasonable fee to be determined by those who offer comparable services  An example of quantum meruit o In real estate, you offer to pay a fee in return for them selling your house, thus the agent only gets paid when they make the sale  Not fiduciary, you can have as many agents as you want to get you best house / best price o This is why real estate agents want an exclusive listing agreement and prospective sellers want a term that the agent only gets commission on sale (competing interests!) o Many listings agreements between sellers and real estate agents state that agent is entitled to commission when she introduces to the seller a prospective chaser  Fact that sale is not completed will not deprive the agent of this right  Unless a term is stated in the contract saying he will not received commission if sale is not made o When an agreement for an agent's services is entirely oral, the agent does not acquire an enforceable right to obtain commission Rights and Liability of Principal and Agent • In agency there is sometimes a question of who is liable for the contract, agent or principal!? o An agent should have no liability in a properly constructed contract because the contract is between the principal and third part • Principal Alone is Liable on the Conduct o Agent incurs no liability on contracts when agency relationship is functioning as intended o To ensure this, an agent should make it clear to third parties and indicate that they are acting as one and identify the principal in all their actions  Don’t have to reveal the name of the principal, only the existence • Agent Alone is Responsible on the Conduct o In order to be held liable the agent must do more than merely fail to disclose existence of principle, they must contract on terms that they are the principle • Either Principle or Agent may be held Responsible o If a third party discovers that an agent has been neglecting to mention that they are operating as such a they are able to sue the agent on the contract o If and when the third party discovers the existence of the principal, they have a choice, they can only sue the agent or the principle… but not both  If the principle isn’t discovered until court, there can be fresh proceedings brought in and start a new case • Liability for Torts o When an agent is guilty of fraudulent misrepresentation in making a contract (even if principal didn’t authorize the misrepresentation) the contract becomes voidable and the third party may rescind it o If the agent was operating within apparent authority, the third party can sue the principal as well as the agent for deceit  If the principal was innocent, they can then sue the agent for damages • Breach of Warranty of Authority o A person who purports to act as agent represents that she has authority to contract on behalf of the principal o There is no contract if a person holds themselves out as an agent but has no authority (actual or apparent) and principal doesn’t ratify o In this case a third party can take the so-called agent to court for a tort known as breach of warranty of authority  This can also occur if an agent creates a contract after the principal has lost contractual capacity or ceased to exist  Thus, it is advisable for an agent to communicate frequently with the principle o Damages are awarded to put the third party in the position in which they would’ve been if representation was true Terminating an Agency Relationship • An agent's authority may be terminated on any of the following occasions: o at the end of a time specified in the agency agreement o at the completion of the particular project for which the agency was formed o on notice by either the principal or the agent that he or she wishes to end the agency o on the death or insanity of either the principal or the agent o on the bankruptcy of the principal o on an event that makes performance of the agency agreement impossible CHAPTER 18 – The Contract of Employment Development of Law Governing Employment • Relationship of master and servant: The contractual relationship between an employer and an employee • Economic and social changes have changed the employment relationship in two respects: ◦ Statues passed to establish minimum standards for safe and fair working conditions; know as employee welfare legislation ◦ Trade unions has led to the evolution of the collective agreement ▪ A separate body of law known as labour law or the law of collective bargaining governs the relationship between employers, trade unions, and their members Relationship of Employer and Employee • Compared with Agency o Relationship of employer and employee is established by a contract that gives one party, the employer, the authority to direct and control the work of another party • Compared with Independent Contractor o If an individual is found to be an independent contractor rather than an employee then the relationship is governed by the terms of the contract and the general principles of contract law o Contract between parties does not create an employer-employee relationship o Distinction is important as it affects agency and vicarious liability  When a firm undertakes work as an independent contractor, any liabilities that it incurs are almost entirely its own  Small exceptions in that a firm may have responsibility to see that contractor takes reasonable precautions to avoid endangering third parties o Characteristics of an independent contractor  Hired to complete a task or deliver a result for a fee  Owns the tools necessary to do the work  Controls his own hours and time for work  Controls how the work is done  No tax, pension, benefit, or government deductions withheld from payment  Invoices for work done and charges GST/HST  Pays his own expenses  Assumes the risk of profit or loss Employment Relationship at Common Law • At common law, the relationship of the employer and employee carried with it responsibilities about: ◦ The employer's liability to third persons ◦ The notice required to terminate the relationships ◦ The limited reasons an employer could terminate the relationship without notice ◦ Assessment of damages for wrongful dismissal Employer’s Liability to Third Persons • Liability in Contract o Employers are held responsible for improper work done by employees just as a promisor is liable for work that it subcontracts • Liability in Tort o A business is vicariously responsible for damages to any third party for the consequences of any tort that an employee commits in their course of employment o All the injured party need establish is that the employee caused the damage while engaged at their work (ie. on-delivery etc…) o Employers can still sue the employee if it deems it worthwhile Notice of Termination of Ind. Employee Contracts • Terms: ◦ Notice is an advance warning that the employment relationship will end ◦ Fixed term is a contract of employment with defied start and end dates ◦ Indefinite hiring is a contract of employment for an undetermined length of time, with no expectation of termination or described end date ◦ Reasonable notice is the acceptable length of notice of termination considering: ▪ the nature of the contract ▪ intentions of the parties ▪ circumstance of the employment ▪ characteristics of the employee ◦ Demotion is transferring a employee to a job with less responsibility and/or income potential ◦ Constructive dismissal is a substantial change to an employee's job that amounts to termination of the existing employment • Implied Term of Reasonable Notice o Common law implies notice requirement into employment contracts o Notice of termination involves telling an employee in advance that the employment relationship will end o When an employer has hired an employee for a fixed term, no notice of termination is necessary • Length of Reasonable Notice o In absence of an express term, reasonable notice shall be given  Minimum for a weekly hiring is one work-week  Minimum for a other hiring is one work-month o Key considerations:  Length of employment  Character of employment  Age of the employee  Availability of similar employment  Education and training of employee  Experience of employee o If an employer wants to immediately dismiss an employee, it can satisfy its obligation to give reasonable notice by paying the employee for a period equal to the time required for reasonable notice  known as, payment in lieu of notice  payment of the amount of compensation the employee would have earned during the reasonable notice period o Employer may sue for damages equal to loss caused by breach of contract if employee does not give reasonable notice o If employer changes employee's job, by demotion or geographic transfer, employee is not obliged to accept change  Change may amount to constructive dismissal and the employee is entitled to reasonable notice o Employee is justified in leaving without giving notice if he can:  Show that he was obliged to work under dangerous conditions  Ordered to do an illegal act Grounds for Dismissal Without Notice (for indefinite employment) Dismissal for Cause: Dismissal without notice or further obligation by the employer when the employee's conduct amounts to breach of contract • The Contractual Basis o An employer need not give notice when it can show that the employee was dismissed for cause  ie.) when an employees conduct amounts to breach of the contract of employment o Employer then becomes discharged from any further obligations • Accepted grounds for ‘cause of dismissal’ o Misconduct  Anything illegal or immoral that would bring business into public disrepute, and or cause employer financial loss o Disobedience  Willfully disrespecting reasonable chain of command, boss’ wishes  Whistle-blowing offers interesting new vantages, lots of protection o Incompetence  Number one killer!  Need to prove that you warned the person, tried to fix you and that you were still lousy…ie. “You will be fired if this doesn’t change”  Depends on the representations made by the employee when seeking the job and the degree of skill required, if they lied during interview its easier  Cause for dismissal becomes more difficult to justify the longer an employee is hired for o Illness  You can fire people, but it looks bad… better to hand over to insurance  You also have a duty to accommodate, if you can accommodate the person (flex-time, accessibility) you must!  Note: Contract is discharged by frustration and not breach  Note: Heed warning of ‘court firing bumbled, if you don’t warn someone about being late they will come back and sue you o Effect of Dismissal  Sometimes an employer has such a general dissatisfaction with or mistrust of an employee that it dismisses him apparently without a cause  If the employer should later discover that there was in fact cause for dismissing the employee without notice, it could use these ground to defeat an action by the employee for wrongful dismissal o Failure to Warn  Only the most serious events entitle and employer to immediately terminate an employee after the first incident. This means:  violate an essential term of the employment contract  breach the faith inherent in the relationship  fundamentally or directly conflict with the employee's obligations to the employer o Adverse Economic Conditions  Does not excuse an employer from its implied obligation to give employees reasonable notice of termination  An employer might overcome this by getting his employee to agree to being dismissed without notice during adverse economic conditions  Statutes now permit an employer to temporarily lay off employees without notice for periods as long as three months under certain economic conditions prescribed by regulation Wrongful Dismissal • Damages o For an employee to succeed in an action against her employer for wrongful dismissal, they must show that the employer has broken the contract by failing to give employee notice they were entitled o Task of court is to first determine the length of time that should have been reasonable given circumstances o To calculate damages, (once the length of reasonable notice is determined) the court multiplies the employee's rate of pay and the value of fringe benefits by the length of reasonable notice o Next, court reviews whether bad faith adds to the harm caused, the court may award extra damages  Damages may be assessed against the employer for mental anguish, pain and suffering, or punitive damages o Finally, the court will consider any other damages flowing directly from breach, such as the transportation costs of finding a new job o Note:  Party’s injured by the breach of contract are expected to mitigate their losses by taking other (similar) job opportunities if possible • Mitigation o A party injured by breach of contract is expected to act reasonably in order to mitigate her loss  Mitigation in wrongful dismissal means finding another job o If employer shows that employee had the opportunity to work elsewhere, the court will reduce the award of damages by the amount the employee might have earned during the required term of notice  If she accepts a lower-paying job, she will be entitled to the lost difference in remuneration during the term of notice • Reinstatement o A form of specific performance by which the court orders the employer to continue to employ the aggrieved employee o The Canada Labour Code [provides that any dismissed person]  (a) who has completed twelve consecutive months of continuous employment by an employer, and
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