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BU231 Final Review - Including Answers to Practice Case

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Valerie Irie

 BU231 FINAL EXAM REVIEW - summarized from multiple course notes, lecture notes, slides, and texts  the chapters that are on the 2012 final exam (more than SOS) Interpretation of Contracts Interpretation of express terms:  strict approach  dictionary definition  liberal approach  looks to the intentions of the parties, the circumstances surrounding the contract  Courts tend to combine the two approaches but the focus of judgement is on one or the other. Credibility  issue of evidence, look to testimony of both parties, last option (courts don’t like it) is to make the contract void  often need a third party to settle the dispute Parol Evidence Rule  Parol = “extrinsic”  can’t add extrinsic (outside) info into the contract  prevents parties from adding a term previousy agreed upon but not included in the final written contract  rule only applies to terms that a party is trying to have added to the contract, does not apply to evience surrounding the contract problem with PER: in standard form contract, won’t include “bonus clauses” How To Get Around PER:  written document was not intended to embody the whole contract (part oral, part written)  does not exclude oral agreement reached after the parties entered into a written contract  this is okay if it has separate consideration  collateral agreement  separate agreement not in the written document, needs separate consideration  condition precedent  any set of circumstances/events parties say have to be satisfied or must happen before contract takes effect  *** don’t confuse this with conditional acceptance which is offer, counter offer  can be oral and used as evience, even if it violates statute of frauds it can still be presented as evidence  implied term  not included by parties but which as reasonable people they would have included had they thought about it  established by custom  long established practices in particular industry (some are now codified in the sale of goods act) Privity of Contract and Assignment of Rights Privity of contract: relationship of parties to a contract  without privity, have no rights under contract  can’t change parties to the contract without everyone agreeing rule:  if no privity, no right to obtain legal remedy (may be opportunity for remedy in tort)  can have harsh results so there are systems developed to get around this (to add a third party) Systems to get around: Novation – termination of one contract and creation of new contract with same or similar terms to introduce third party in the contract Vicarious Performance – third party performs on behalf of promisor who remains responsible for proper performance  Requirement: contract doesn’t specify personal performance Trusts – property has been transferred to a person who administers the property for benefit of another  third party who is obtaining benefit has a “beneficial interest” in the property and has the right to enforce the trust agreement as the “true owner” of the property  trustee is legal owner under common law, but the beneficial owner is the true owner and can sue and avoid privity constructive trusts: relationship permits third party to obtain performance of a promise included in a contract for his/her benefit, original contract must be irrevocable, when court accepts  restrictions of privity don’t apply Other exceptions to privity rule:  insurance  undisclosed principals  represent 3 party, unknown to other party  contracts concerning land  tenancy agreements, tenants on property keep rights even when land is being sold, if you do not warn, the rights remain  special concessions to commercial practice:  collateral contracts: implied conrtact between third party and commercial practice, entitled to sue if you don’t have contractual relationship  exemption clauses: for shipment of goods, intermediaries not liable, keeps prices down Assignment of Rights  transfer by a party of its rights under a contract to a third party  right to enforce contract holds a value independent from contract itself (intangible right is being transferred) chose in action:  intangible right that is able to be sold, has own price and is not related to consideration of original contract  rights to patents, stocks and contracts that may be enforced in court  chose in possession:  tangible goods  can hold physically Parties in Assignment: Original Promiser (1 party)  Assignor (2 party)  Assignee (3 party) Equitable Assignment  example: a owed b $600, B owes X $1200. B assigns the $600 to be collected from A to X and they sue A for the $600.  there is a new party here and in order to enforce the contract they all need to be made parties to the legal action  effect of action in Ontario:  creates artificial contract to collect the amount  not a part of the contract, entire right to full amount  Requirements of Act: (if any are missing it is equitable assignment, if all there it is a statuatory assignment and assignor is no longer bound)  was absolute (unconditional and complete)  was in writing  promisor received notice in writing Negotiable Instruments A written contract containing a promise express or implied to pay a specific sum of money to the order a designated person or to bearer - Bills, Cheques, Promissory Notes Parties: o Promisor/Drawer o Drawee o Payee o Holder – still subject to equities o Holder in Due Course The Discharge of Contracts cancellation of the obligation of a contract, where you make the K null and inoperative Types: Discharge by Performance (most common)  both parties to the contract perform their obligations under the contract satisfactorily  Tender of Performance – an attempt by one party to perform according to the terms of the contract – stops interest from accruing from that point forward Discharge by Agreement  parties agree not to proceed with the contract Waiver:  An agreement not to proceed with the performance of contract in existence  Only when neither party has fully performed – consideration becomes an issue where one party has performed  Must be by agreement of both parties Substituted Agreement:  Can be an out of court settlement where one party offers to pay money in lieu of performance  Could be novation where the old K is discharged and a new K is entered into in its place Condition Precedent: future event req’d for contract to come into effect Condition Subsequent: uncertain event  brings a promisor’s liability to an end if it happens Discharge by Frustration  External forces made performance impossible Requirements of Frustration: (1) must have been unforeseen (2) must be outside of the control of the parties (3) must occur AFTER the agreement was made (4) must make performance impossible or purposeless  Where circumstances have changed and performance is now more onerous than it ought to be is NOT frustration Self-induced Frustration: - party wilfully disables itself from performing a contract in order to claim that the contract has been frustrated This is NOT frustration – it is a breach of K Effect of Frustration: - Where one party has partially performed and the other party has not, then a frustrating event can leave the performing party out of pocket (not fair!) Provides allocation of losses:  If something has been paid or due: may be retained or recovered but no more than the amount paid or due  If nothing has been paid or due but one party has performed: the performing party bears the loss From the sale of goods act: if the goods perish BEFORE delivered to the buyer, the agreement is avoided Three part test to see if event applies to the sale of goods act, and meets frustration: 1) the goods must be specific – that is , “they must be identified and agreed upon at the time the sale is made.” 2) risk must still be with the seller – that is, the seller must still be responsible for the safety of the goods. 3) the cause of the frustration must be the perishing of the goods If sale of goods act doesn’t apply: See if province has a frustrated contracts act and that applies, if not: The Fibrosa decision applies  let losses “lie where they fall” where a contract was frustrated by a supervening event, obligations that arose up until that event continued to be binding Discharge by Operation of Law  bankruptcy and insolvency act  discharge a bankrupt debtor from contractual liabilities after the processes of bankruptcy have been completed.  The debtor is discharged only if he qualifies for a certificate stating that the bankruptcy was caused by misfortune and without any misconduct on his part. Limitations act says that: A debt or other contractual obligation that has been neglected by a creditor for a long time becomes a statute barred – that is, the creditor loses the right to bring an action on it. Each province has a limitations act setting out the time at which the creditor loses its remedy. Breach of Contract  Effect: o May discharge the contract, but not always  Minor Breach: o A breach of a non-essential term of the K or of an essential term in a minor respect  Major Breach: o A breach of the whole K or of an essential term, so that the purpose of the K is defeated  Condition – an essential term of the K  Warranty – a non-essential term of the K  Breach of a condition allows the non-breaching party to opt for discharge of the K – the breaching party remains bound  Breach of a warranty, both parties remain bound to the K, but the non-breaching party can sue for damages where it has incurred a loss  How does a breach occur? o Express Repudiation – declaration of intention not to perform; o By rendering performance impossible; o By failure to perform or tendering inadequate performance  Express Repudiation o Options to non-breaching party  Terminate K but reserve the right to sue for damages; or  Insist on performance and wait for non-performance o Anticipatory Breach  Breach before performance is due o Importance of timing  K formation – K is binding from that point  One Party Renders Performance Impossible: o Self induced frustration o Contracts of personal performance (double-booking) o Can be before or at time performance is due  Failure of Performance: o Can only occur when performance is due o Can be total or partial failure o Can be grossly inadequate performance Doctrine of Substantial Performance  Performance that does not comply in some minor way with the requirements of the contract  Prevents the non-breaching party from avoiding his or her performance Exemption Clauses  exempts a party from liability for failing to perform some or all of its contractual obligations  Risk Allocation o Insurance o Keeps costs low o Problem: if used in SFC – inequality of bargaining power, puts risk on party not willing or able to accept it  Defences: o Inadequate notice o Misrepresentation o Non est factum  Fundamental Breach – goes to the heart of the K – court will strike down the clause Remedies for Breach of Contract 1) Damages 2) Equitable Remedies 3) Quantum Meruit 1) Damages  A money award to compensate an injured party for the loss caused by the other party’s breach of contract  Compensatory in nature  Purpose: to place the injured party in the position they would have been had the contract been performed  Economic Breach o Where it is economically advantageous to breach  Mitigation of Damages: o Action by an aggrieved party to reduce the extent of its loss caused by the breach of the other party o The requirement to act reasonably  Must flow from the breach  Special circumstances: o The breaching party may not be held liable for additional damages arising from special circumstances, where the breaching party was not made aware of them o Test: from past experience and knowledge between the parties, should the managers have reasonably expected the loss at the time of K formation o Measurement of Damages  The moment for determining whether damages were foreseeable is at the time of making the contract not when the breach occurs  At the time the contract is made the promisor is liable to uphold the promise and the promisee becomes entitled to a continuous expectation of performance until the time for performance arrives.  In a breach of contract the court will include in its award of damages for breach an amount equal to the expected profits on the aborted transaction o Expectation damages – an amount awarded for breach of contract based on expected profits o Opportunity cost – the lost chance of making a similar contract with a different promisor o Liquidated Damages – an amount agreed to be paid in damages by a party to a contract if it should commit a breach o Penalty Clause – a tem specifying an exorbitant amount for breach of contract, intended to frighten a party into performance 2) Equitable Remedies  Courts of equity (1) Special non-monetary remedies given where damages are not sufficient (2) Can order a party to perform the K (3) Court orders other than money settlements (4) E.g. Rescission  Discretionary in nature: (1) Plaintiff must come to court with “clean hands” (2) Action must be brought in a reasonable time (3) No innocent 3 party involved (4) Consideration must be commensurate with promise (5) Cannot violate Principle of Symmetry  Specific Performance: (1) An order requiring a defendant to do a specified act; usually to complete a transaction (2) Only for unique properties (real or personal) (3) S.P. is almost never granted in employment or personal service K’s (4) The uniqueness of land: Semelhago v. Paramadevan [1996] 2 SCR 415  Injunctions: (1) a court order restraining a party from acting in a particular manner (2) Need for a negative covenant in the K (3) Injunctions are rare in employment K’s  Injunctions: (1) Injunction (2) Interlocutory Injunction  A temporary restraining order – to restrain immediate harm from being done by a breach of contract (3) Mareva Injunction (4) Anton Pillar Order Quantum Meruit  The amount a person merits to be paid for goods or services provided to the person requesting them  What if the part performance is by the breaching party? Is the breaching party still entitled to QM?  Enforcing a Judgement  The judgment:  Order by the court requiring one party to pay to the other party damages, or perform as per an equitable remedy  The parties become: i. Judgment Creditor; and 1. A party who has obtained a court judgement for a sum of money ii. Judgment Debtor 1. A party who has been ordered by the court to pay a sum of money  The steps to seize assets of the JD:  Judgment must be registered with court;  Writ must be filed with Sheriff’s Office – jurisdiction is important – JC becomes Execution Creditor;  An execution order must be made to the Sheriff and then;  The Sheriff can levy execution – seizes and sells assets for the benefit of ALL execution creditors  NB some assets are exempt from seizure e.g. annuities and pensions  Sheriff’s Office:  Must pay out all secured creditors first  Takes a percentage for Sheriff’s fees  Difference remaining is paid pro rata amongst all of the execution creditors  Garnishment Orders  To access: i. Bank accounts ii. Wages iii. Accounts receivable  Filed with Sheriff’s Office i. Payments made to Sheriff ii. Sheriff distributes to Execution Creditors  Writs have to be renewed regularly – every couple of years – to stay current as an Execution Creditor  Judgments remain in effect for 21 years  Notice of the judgment can be placed on the various credit bureaux to affect the JD’s credit rating and to notify anyone of the outstanding debt  Follow up:  Examination in Aid of Execution i. Allowed annually ii. Interview with JD under oath to determine assets, income, liabilities and expenses of JD iii. JD must bring in all documents related to assets, income, liabilities and expenses  Bailments  A transfer of possession of personal property without a transfer of ownership  Contractual  Non-contractual  Involuntary  Parties:  Bailor  Bailee  Nature of Bailment:  Personal property (chattels) only – can include documents containing legal rights  NOT real property  Transfer of Possession without transfer of title (ownership)  Benefits of Bailment:  Contractual i. Designed to benefit both parties ii. Bailment for value  Non-Contractual i. Can benefit either party or both parties ii. Gratuitous 1. Where there is no consideration or intention to create a legal relationship  Rights and Duties of Bailee:  Tort or contract  Contractual terms can determine the liabilities of the bailee  ALL bailees have a duty of care – the standard of care will depend on the nature of the bailment  While there are elements of both K and tort law – bailments are governed by their own rules!  Sub-bailments  Receiving a bailment from a bailee  Punch v. Savoy Jewellers Ltd. (1986), 26 D.L.R. (4 ) 546  Standard of Care:  Depends on type of bailment  Lowest standard is for the gratuitous bailment where the benefit is for the bailor  Highest standard is for the gratuitous bailment where the benefit is for the bailee  Bailment for value falls in between GB for bailor and GB for bailee  Also depends on other factors including: i. Type of goods bailed ii. Extent of promise to look after the goods iii. Value of the bailed property iv. Whether property is easily damaged  Special standards are set for special bailees  Innkeepers and carriers have very HIGH standards of care  Remedies of a Bailee for the value of services rendered:  For contractual bailees regular contract remedies apply (usually for non-payment) i. Can sue for damages ii. Usually CANNOT obtain rescission iii. Can sue for Quantum Meruit in situations where there has been part performance  Liens:  Gives the right to the bailee to retain possession of the goods  Payment must come due while the goods are still in the possession of the bailee - Possessory remedy  Common Law right for bailees who are: i. Repairers of goods ii. Innkeepers’ iii. Common carriers iv. Lawyers or bankers (over documents in their possession)  Storage bailees have no common law right of lien  Repair and Storage Liens Act, R.S.O. 1990, c.R-25, s.22 provides storage bailees the right of lien by statute  Right of Sale:  Only available by statute or by contract – not a common law right  Provides the bailee/lienholder the right to sell the goods in their possession to cover costs  Right of Sale:  Must follow prescribed formula to sell: i. Provide a specified period of time to bailor to come up with funds ii. Advance notice of the bailee’s intention to sell the goods must be provided to the bailor iii. Sale must be advertised iv. Sale must be by public auction  Special Types of Bailment  Storage and Safekeeping:  Standard of care depends on circumstances: i. Nature of bailed goods ii. Contractual terms (implied or express)  Storer is required to exercise due care of the goods to protect them from harm  Goods brought in must be same ones returned unless fungible  Storer can only obtain right to lien through statute or by contracting for the right  Statutory right to lien applies only to professional storers  Repairers:  Undertaking by repairer to effect repairs in a competent manner and using due care and skill  Failure on the part of the repairer to perform is breach of K – normal contract remedies apply to the bailor including return of the goods  Standard of care of bailee – due care to protect the goods from harm  Common law right to lien, but only a statutory right to sell if payments are 3 months past due  Transportation:  Gratuitous carrier  Private carrier  Common carrier – only limited by its ability to carry goods  Standards of care:  Gratuitous carrier – reasonable person  Private carrier – competent carrier in their line of business  Common carrier – insurer as well as bailee –highest standard of care  Common Carriers:  Undertakes to indemnify shipper against loss regardless of fault  Shipper need only demonstrate: i. Goods were delivered in good condition ii. Carrier failed to deliver goods or delivered them in bad condition  Defences available to the Common Carrier: i. An Act of God (but not fire) ii. Inherent vice in the goods iii. Default by shipper  Liability is generally for full value of goods unless limited by bill of lading 4)  Bill of Lading: document signed by a carrier acknowledging that specified goods have been delivered for shipment  Remedies for a carrier when shipper defaults:  Common carrier – right of lien by common law  Private carrier – has no right of lien by common law or statute – can only obtain by K  Neither has right to sell by common law or by statute, but can obtain only by K  Innkeepers:  A person or firm who maintains an establishment offering lodging to any member of the public  Must keep the goods of patrons and guests safe  Duty to take reasonable care – i.e. avoid negligent acts causing damage or loss  Additional duty to protect the goods of their guests/patrons from loss or theft  Innkeeper can avoid liability for lost goods if they can show that the guest was negligent  If goods were damaged – must show negligence on part of innkeeper  Innkeepers Act, R.S.O. 1990, c.I-7, s.4 limits liability of innkeeper to $40.00, if  Innkeeper must conspicuously display copy of the act  Innkeeper must provide safekeeping if a guest requests it  Innkeeper:  Entitled to common law right of lien  Right to sell is statutory  Pledge or Pawn:  A bailment of personal property as security for the repayment of a loan where possession passes to the bailee  Pledge: i. Creditor is the pledgee ii. Borrower is the pledgor iii. Pledgee obtains a lien on property and right to sell to recover debt and costs iv. Surplus funds belong to the pledgor  Pawn:  Governed by Pawnbrokers Act, R.S.O. 1990 c. P.6 ss 20-2  Pawnbroker obtains title to goods pledged  Must send notice of last opportunity to pledgor  Must advertise in newspaper the final notice to pledgor  But, pawnbroker then obtains absolute ownership over the goods Agency A person acting for another person in contractual relations with third parties - agent acts on behalf of principal to make decisions with third party (like a talent agent) Agents v. employees: - employee’s work is often under direction and supervision of employer - An employee often has no ability or very limited ability to bind their employer to a contract Rights and responsibilities between employer/employee differs from principal/agent The Relationship: - Contractual relationship between principal and agent - Contractual relationship between principal and third party contractor ** not between the third party and the principal! Agent is a middle man Agency Agreement: normal rules of contract formation apply - If contract will extend beyond one year, or the agent’s authority includes issuing promissory notes and cheques, then it must be in writing to satisfy the Statute of Frauds - contract sets out limits to Agent’s authority (can be express or implied) Power of Attorney: agency agreement where agent signs documents on behalf of the principal Ratification: - Where an agent exceeds his/her authority, principal must ratify (authorize) the contract - Must be timely - Must be of entire K - Can be by conduct - Principal must have been capable of entering contract at time of formation and later at time of ratification (capacity) Apparent Authority: fake agent! Test: Should the 3 Party have been aware of the agent’s lack of authority or at least been suspicious? Or is it reasonable to assume from the type of business that the agent is engaged in, that the agent had the authority in question? - Some types of authority are not common  should raise the suspicions of a 3 party rd - Not practical for business to constantly have to check up on agent’s authority - If principal chooses to restrict normal authority within an industry, s/he is estopped (prevented) from denying liability under thecontract Holding Out: pretending that they are an agent or have particular authority for something they don’t (I pretend I’m agent for apple but I’m just some laurier student) Agency by Necessity: - when perishable goods are at risk and agent can’t contact the principle - generally not recognized in law, e.g. my neighbors roof is burning down so I sign a contract to fix it quickly cause it is an emergency Exception (when it is required by law): Canada Shipping Act: Shipper must compensate the rescuer of a ship salvaged at sea Duties of Agent to Principal Duty to comply with the agency agreement, binding for both parties: - Principal can sue for breach of contract where agent acts outside authority Agent has the duty to keep principal informed as courts have deemed that what the agent knows, the principal also knows Duty of Care:  At a minimum: Reasonable care, diligence and skill in transacting business on behalf of the principal  Standard of care will depend on agent’s own knowledge & skill; as well as the nature of the task  Duty of Personal Performance:  Generally personal performance is required  Can sometimes use a sub-agent i. Trade custom ii. Contractually agreed iii. NB no privity of K between sub-agent and principal  Duty of Good Faith:  Fiduciary relationship  Agent must put principal’s interests ahead of his/her own  Agent cannot make secret profits on any transaction made for the principal  Agent has duty to disclose any and all relevant information  Acting for two principals:  Conflict of interest  Breach of duty of good faith  MUST obtain consent of both principals  Acting as the contracting party:  Must disclose to principal and obtain approval PRIOR to the transaction  Remuneration  Obligation to pay as per K or as per reasonable fees of industry  Often paid on a commission basis – when the agent has brought the prospective client who is “ready, willing and able” to close the deal; or;  Upon closing of the sale  Expenses:  Implied term that principal will cover the reasonable expenses of the agent when acting in his/her real authority  No obligation to pay for unauthorized acts unless ratified  Rights and Liabilities of Principal and Agent  Principal alone is liable:  Agent acting with real or apparent authority  Agent must make clear to 3 Party that s/he is acting for a principal – even if an undisclosed principal  Where principal alone is liable, payment or delivery must be made to the 3 party and not the agent – if agent absconds with money/goods, principal remains liable rd to 3 party  Agent alone is liable:  Where agent represents him/herself to be the principal  Under these circumstances the principal has no rights or liabilities under the K  Rights of the Undisclosed Principal  Right to enforce the contract against 3 party where,  s/he can show that the K was made with his authority  The authority must be real and not apparent  EXCEPTION: the undisclosed principal cannot enforce a K that is essentially personal in nature  Third party cannot hold undisclosed principal liable in a situation where the agent acted without real authority; Sign-O-Lite Plastics Ltd. v. Metropolitan Life Insurance Co. (1990), 49 B.C.L.R. (2d) 183  Liability for Torts  Fraudulent Misrepresentation (Deceit) – 3 party has right to:  Rescind K  Sue both agent and principal for tort of deceit  Principal will have right against agent for the deceit  Agent can also be held liable for negligent misrepresentation  Principal is jointly and severally liable for torts committed by agent within real or apparent authority  Breach of Warranty of Authority  Third party has the right to sue for Breach of Warranty of Authority where:  Agent has no real or apparent authority (and no ratification by principal) – there is no contract  Third party will have an action in deceit against a fraudulent agent – there is no contract  Third party will have an action in negligent misrepresentation where agent negligently misrepresents his/her authority – there is no contract  If agent innocently exceeds authority – i.e. contracts without knowing that principal has died, become insane or bankrupt – there is no contract  Warranty of Authority:  Where a person purports to act as agent represents that she has authority to contract on behalf of a principal  Purpose is to put parties back in the position they would have been had the misrepresentation not occurred  Terminating the Agency Relationship  Agents authority is terminated when:  At the end of a time specified in the agency K  At completion of the particular project  Upon notice by either party  Upon death or insanity of either principal or agent  Upon bankruptcy of principal  Upon an event that make performance of the agency agreement impossible  Employment Law  Employment Law  Contract between parties = employment agreement i. Can be for continuous service ii. Can be for fixed term  Governed by: i. Statute – (workers’ Comp.) ii. Labour Union iii. Common Law  A contractual relationship whereby one party, the employer, is authorized to direct and control the work of another party, the employee  Torts  Vicarious Liability  Negligent Hiring  Wrongful Referral  Contracts  Vicarious Performance  Duties of the parties:  Employees’ Duties i. Duty to obey ii. Duty to exercise skill and care iii. Duty of good faith and fidelity  Employers’ Duties i. Duty to pay  Termination of Employment K  Employment contracts are often continuous in nature – so, how are they discharged?  By way of notice  NOTICE = TIME = $$  How much notice is required?  Employment Standards Act, S.O. 2000 c. 41 – minimum requirements  Trade Practices – often suggest longer than minimum as normal within an industry  At common law - Reasonable notice  Some factors for determining reasonable notice:  Trade practice  Duration of employment  Intention at time of K formation  Frequency of pay  Level of position  Dismissal for Cause  Dismissal without notice or further obligation by the employer when the employee’s conduct amounts to a breach of the contract  Misconduct:  Does not have to cause economic loss  Crimes – especially embezzlement or theft  Bad behaviour i. Where reputation of employer is affected ii. Other employees are affected iii. Causes direct financial loss  Disobedience:  Wilfully disobeying: i. A reasonable; and ii. Lawful request  Incompetence  Need for implied or express term of competence i. Express: stating in a resume that one possesses certain required skills ii. Implied: applying for a job that requires certain specific skills  Doctrine of Condonation applies – condoning incompetence makes a claim for dismissal for incompetence difficult  Illness  Not a breach of K – Frustrating event  Role of employment insurance  Employe
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