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LAW 122 (618)
Chapter 3


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Law and Business
LAW 122
Joerg Wittenbrinck

12/7/2013 11:47:00 AM CHAPTER 3 Introduction  Two main sources of obligations in private law: contract and tort  Tort means wrong  Tort generally consists of failure to fulfill a private obligation imposed by law Torts and Crimes  Tort refers to breach of private obligation – obligation in tort owed to a person  Tortfeasor – a person who has committed a tort; entitles other to sue, person liable for damages as result  Tort compared to crime – tort involves person who breaks private obligation; crime involves person who breaks public obligation  Two concepts often arise from same facts, eg., hit another person, you commit tort of battery and crime of assault; taking car without permission – tort of conversion, crime of theft; sneaking into house – tort of trespass to land, crime of break and enter  Two areas of tort and crime share common history – every society has to respond to misconduct – idea of allowing victim to demand compensation from wrongdoer developed into system of private tort law; idea of allowing community to punish wrongdoer developed into public system of criminal law Concept Summary (3.1)  Tort law o private law o Parties involved in obligation: defendant owes obligation to plaintiff o Parties to action if obligation broken: plaintiff sues defendant o Usual remedy: compensatory damages  Criminal law o public law o Parties involved in obligation: accused owes obligation to society o Parties to action if obligation broken: prosecution by government o Usual remedy: punishment, eg., fine, imprisonment Torts and Contracts  Just as torts may be confused with crimes, may also be confused with contracts  One similarity and 4 differences between torts and contracts  Similarity is structure  Structure – both contract, tort involve primary and secondary obligations o Primary obligations: tell people how to act, eg.,do not touch another person (tort of battery); keep your promises (law of contract) o Secondary obligations: are remedial, tell people how to act after primary obligations have been broken, eg., pay money to plaintiff to compensate for losses you have caused, same in tort or contract cases  Differences: Sources of primary obligations, privity, compensation, risk management  Sources of primary obligations: o Obligations in tort imposed by law, must not commit battery o Obligations in contract created by the parties, voluntary agreement Privity:  when two people enter into contract, they create special relationship for themselves; doctrine of privity: only people who can sue or be sued on contract are parties themselves; in tort, obligations imposed by law, no need to create special relationship between parties, eg., anyone who is hit can sue for battery Compensation:  Available in both tort and contract but calculated differently  Tort: obligations imposed to prevent harm, battery to prohibit person hurting another; if breach of primary obligation, then secondary obligation to return person to position at outset, if pay $5000 for medical treatment, entitled to recover that amount from other  Contract: obligations created to provide benefits, will pay $10,000 for your car; if breach primary obligation must make compensation, but goal to put person in position expected to enjoy had person fulfilled promise – if car really worth $13,000 that is amount of compensation  Tort looks backward; contract looks forward Risk Management:  Tort obligations imposed by law, more likely to take person by surprise, may require more than person capable of providing; contract obligations created voluntarily, should not take parties by surprise, not require more than parties believe they can provide Concept Summary (3.2) Tort:  Source of obligation: imposed by law  Privity: enforceable regardless of any agreement between parties  Compensatory damages: place plaintiff as if tort did not occur  Risk management: may take party by surprise, may require more than person able to give . Contract: - source of obligation: voluntarily created by parties - privity: enforceable only by or against party to contract - compensatory damages: place plaintiff as if contract performed - risk management: always possible to know obligations in advance, always possible to limit obligations to promises that can be fulfilled Types of Torts  Tort law covers lots of areas – includes almost every sort of private law wrong outside of breach of contract  Different situations call for different rules – tort law strikes balance between competing interests: freedom of choice, discourage dangerous behaviour, allow business to be innovative, efficient while compensating consumers hurt by manufactured goods  Tort law responds to these challenges in variety of ways – important strategy to focus on mental culpability; some torts require proof that defendant acted with guilty mind, others do not: 3 possibilities - o Intentional torts: person intentionally acts in certain ways, some torts require proof defendant intended to hurt plaintiff, others just that defendant intended to act in certain way, even if did not realize plaintiff would be hurt o Negligence torts : person acts carelessly o Strict liability torts: person does something wrong without intending to do so and without acting carelessly; enough that defendant responsible for situation resulting in plaintiff’s injury Concept Summary – Forms of Tortious Wrongdoing (3.3) Intentional torts:  Assault; battery; false imprisonment; trespass to land; interference with chattels; conspiracy; intimidation; interference with contractual relations; unlawful interference with economic relations; deceit Negligence torts:  Occupiers` liability; nuisance; negligence; professional negligence; product liability Strict liability torts:  Animals  Rylands v Fletcher, 1868 LR 3 (HL) - defendant can be held strictly liable for non-natural use of land if something escapes from its property and injures plaintiff; defendant held liable for doing something wrong even though it did not act intentionally or carelessly Strict Liability Torts  Strict liability torts create special problems for risk management- they do not require proof of intentional or careless wrongdoing; liability imposed as defendant responsible for situation that injured plaintiff  Effective risk management may require defendant to avoid relevant activity altogether  Tort law determined by intentional torts and negligence torts – strict liability torts rare, unfair to impose liability where person did not intentionally or carelessly cause plaintiff`s injury  Strict liability limited to where defendant involved in extraordinarily dangerous activity – balance struck in that defendant can engage in activity but requires defendant to pay for any damage that occurs, eg., owner of livestock strictly liable for damage animals cause trespassing on another`s property Case Brief 3.1  Cowles v Balac, 2005 (Ont.S.C.J.) – David Balac, Jennifer Cowles dating, visit African Lion Safari, sit in safety of car while animals approach  In tiger reserve, car attacked, startles Balac who hits window button by accident, lowers Cowles window, she is mauled by tiger, scars leave her unable to resume work as featured exotic dancer; Balac suffers physical injuries, psychological injuries, prevent him from working as accordion player  Court awards Balac 1.7 million; $813,000 to Cowles  Basis of liability for African Lion Safari: o Negligence: employee carelessly created accident by driving in area with cub, causes lion to become excited and aggressive o Strict liability: even if employee had taken every conceivable precaution, extraordinary risks involved when dangerous unpredictable animals in the business in question; person injured by wild animal not required to prove owner did something wrong intentionally or carelessly, enough that victim shows injury caused by danger in question  . May have been defence had defendants been sufficiently warned about risk of danger, consented to that danger, but not enough to simply post warning signs General Principles of Tort Law  3 concepts, general principles that apply throughout tort law: o liability insurance o vicarious liability o remedies Liability Insurance  Torts can occur unexpectedly, risk management very important  Liability insurance offers protection – a contract in which insurance company agrees, in exchange for price, to pay damages on behalf of person who incurs liability  Liability insurance includes duty to defend – requires insurance company to pay expenses that are associated with lawsuits brought against insured party; litigation costs can be very expensive  Liability insurance creates tension between two of tort law`s most important functions: o Contributes to compensatory function of torts: aims to fully compensate people who are wrongfully injured; if tortfeasor cannot personally afford to pay damages, plaintiff does not receive full compensation unless defendant insured o Undermines deterrence function of tort law: discourages people from committing torts by threatening to hold them liable for losses they cause; little reason to be afraid if know insurance company will pay for something going wrong  . Liability insurance policies do not usually cover all torts, eg., Non- Marine Underwriters v Scalera, SCC (2000), Case Brief 3.2; defendant (bus driver, sexually abuses passenger) not protected by his insurance policy where he commits tort of battery with intention of injuring plaintiff, reduces plaintiff`s chances of recovering full damages Vicarious Liability  Additional need for insurance arises from doctrine of vicarious liability – employer held liable for tort committed by an employee  Doctrine of vicarious liability may be justified on the following grounds: o Serves tort law`s compensatory function by allowing plaintiff to claim damages from both employee (who may not have deep pockets) and employer (more likely to have funds, or at least liability insurance) o Also serves tort law`s deterrence function by encouraging employees to avoid unusually hazardous activities, hire best available people o Fairness – may be appropriate to require business to bear responsibility for losses that its activities create, even if caused by employees who misbehave  Other relevant considerations: o Employer not liable every time employee does something wrong; employer not vicariously liable if employee`s tort occurs completely outside of employment relationship, eg., Bazley v Curry, SCC (1999) o Employer may be held vicariously liable for employees, but not independent contractors: a worker who is not as closely connected to employer`s business as is an employee; for risk management may be better for business to use independent contractor, not employee; person is employee, not independent contractor, if: (i) employer generally controls what is done, how done, when done, where done; (ii) worker uses employer`s equipment and premises; (iii) worker paid regular wage or salary rather than lump sum at end of project; (iv) worker integrated into employer`s business, not in their own business o Vicarious liability does not relieve employee of responsibility, just allows plaintiff to sue both employer and employee, recover all or some of damages from either defendant; if employer pays damages to plaintiff, entitled to go after employee for that amount o Employer may be both vicariously liable and personally liable in same situation: vicarious liability if employer responsible for employee`s tort; personal liability if employer responsible for its own tort Remedies  Variety of remedies available in tort, depending on circumstances  Most important possibilities: o Compensatory damages o Punitive damages o Nominal damages o injunctions Compensatory Damages  Most private law obligations arise in either tort or contract  Compensatory damages standard remedy in both  Defendant required to pay for losses it causes plaintiff to suffer  Significant difference between contract and tort: compensation in tort puts plaintiff back in position before tort occurred; compensation in contract puts plaintiff forward in position it expected to enjoy after contract performed  Sometimes possible for plaintiff to sue in both tort and contract – but plaintiff can recover damages only for one of the actions, even if both successful; plaintiff will choose whichever option provides most money Remoteness  Compensation not available for every loss plaintiff suffers  Defendant responsible only for losses it causes  Even if defendant’s tort caused plaintiff to suffer loss, court will not award damages if connection between tort and loss too remote – loss is remote if unfair to hold to hold defendant responsible for it  Judge asks whether reasonable person in defendant’s position would have realized particular activity might cause sort of harm plaintiff suffered, eg., employee suffers disease after contact with rat urine; even if employer careless allowing rats in warehouse, reasonable person would recognize danger of rat bites, not rat urine  Limitation on remoteness principle – applies to most types of torts, but not intentional torts; people who intentionally do wrong do not deserve leniency in tort law Mitigation  Compensatory damages also limit
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