Business Law in Canada, 13th edition Richard A. Yates Solution Manuals

Type:

Solutions Manual

Resource:

Business Law in Canada

Edition:

13th Edition

Author(s):

Richard A. Yates Teresa Bereznicki-Korol Trevor Clarke

INSTRUCTOR’S MANUAL Business Law in Canada Thirteenth Edition Richard A. Yates Simon Fraser University

Trevor Clarke Aurora College

Angus Ng Northern Alberta Institute of Technology

Teresa Bereznicki-Korol Northern Alberta Institute of Technology

Business Law in Canada, Thirteenth Edition

Chapter 1 Managing Your Legal Affairs Learning Objectives LO 1.1 Explain the meaning of “sophisticated client” LO 1.2 Examine the role of the lawyer LO 1.3 Describe legal aid LO 1.4 Outline the procedure to follow to complain about your lawyer LO 1.5 Discuss the ethics of lawyers and of clients

Discussion

EXPLAIN THE MEANING OF “SOPHISTICATED CLIENT”

EXAMINE THE ROLE OF THE LAWYER

A “sophisticated client” understands the role of the lawyer, and their own role as client. This involves knowing when and how to hire a lawyer, the costs involved and what can be done if the lawyer is not meeting your expectations. Good business decisions can only be made with consideration of appropriate laws, whether the client is able to access that information for themselves, or through the services of a lawyer. A sophisticated client also understands the importance of evidence, and may change their procedures and those of the business in order to make sure the evidence is there in the event of a dispute.

The client is the ultimate decision maker, but makes those decisions with the advice of a number of experts, of which the lawyer is one. If clients deem other business factors to be of greater importance, they may choose to accept some legal risk, but it is an informed decision. Lawyers must follow the instructions of their clients unless they are illegal or unethical (although a lawyer may always resign).

The decision about when to hire a lawyer starts when decisions need to be made as to how the business will be organized, and whether to create a new business or buy an existing one. It allows business owners to minimize their risks and make sure they are in compliance with all laws. This would also apply to decisions about the premises, financing, existing or new contracts, intellectual property and, finally, selling the business. For less significant decisions, clients may choose to inform themselves, through the internet, or from the resources listed throughout this textbook and in MyBusLawLab. Sophisticated clients will know when to do research themselves and, if unable to obtain the information or understand the information found, to seek legal advice. Small claims court trials are often conducted, due to the relatively low monetary limits, unless the legal issues are too complex for the client to handle themselves. Criminal matters should nearly always be handled by legal counsel.

Finding an appropriate lawyer is difficult. Referrals from trusted friends or associates with the same type of legal problems are good. Some provincial law

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societies or branches of the Canadian Bar Association also have lawyer referral services that provide names of lawyers who practice in specific areas of law. You may have an initial consultation for little or no cost, and then decide if you wish to pursue the matter and hire one of them. If not going through one of those services, initial consultation costs will vary and should be confirmed with the lawyer in advance. The lawyer you choose should be someone who you think may be suitable to establish an ongoing relationship with your business.

Lawyers bill their clients for services either by a fixed fee, an hourly rate or by a contingency fee based on a percentage of the money recovered on behalf of the client. Clients are also responsible for paying disbursements, the lawyer’s out-ofpocket expenses incurred, such as filing fees, long-distance telephone charges, etc.

Sometimes a lawyer will require a financial retainer to start a file, which operates as a deposit against legal work performed.

DESCRIBE LEGAL AID

OUTLINE THE PROCEDURE TO FOLLOW TO COMPLAIN ABOUT YOUR LAWYER

DISCUSS THE ETHICS OF LAWYERS

Legal aid may be available for people with low income, but the eligibility varies from province to province, so it’s best to check with the administrators of the program in your province. What types of legal services are covered also varies, and it is generally not available for business issues. Duty counsel is often available at no charge in criminal court to provide advice, but not representation.

Law is a self-governing profession, with provincial law societies that serve this function. Fee complaints are dealt with differently from province to province.

Complaints about a lawyer’s conduct are dealt with through the law society, which will have a resolution process that could include mediation, investigation and formal hearings, with penalties for wrongdoing. Claims for compensation are subject to limitation periods, as is any other action.

Professional and ethical obligations of lawyers are set out in rules of professional conduct established by each province’s law society. The vast majority of lawyers meet these standards, but as with any profession, there are a few that do not. If this occurs, the client needs to take appropriate action on a timely basis.

There is no code of conduct for business people, and there have recently been a number of well publicized examples of breaches of ethical conduct by high profile business people. This affects the public’s perception of the integrity of enterprises in our country and the advisability of doing business here. Each business should make a commitment to ethical behaviour by preparing a code of conduct for their employees. It needs to include issues such as conflicts of interest, use of corporate assets and opportunities, confidentiality, fair dealing, compliance with laws and reporting of unethical or illegal behaviour within the business. It needs to reflect the business’ core ethical values and principles, in order to encourage ethical behaviour on the part of all those associated with the business. This, in turn, can enhance the long term success of the business.

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Answers to Questions 1. Explain the meaning of “sophisticated client”.

Sophisticated clients are confident, knowledgeable, up-to-date and understand the role of a lawyer. As well, they know when to represent themselves and when to hire a lawyer, and the costs involved when a lawyer is hired.

2. Why should the owner of a small business have a lawyer on “the team”?

A lawyer is an expert, providing relevant advice to the client, which allows the client to make an informed decision.

3. Distinguish the role of the client from the role of the lawyer.

The client is the decision maker, who consults a number of experts, including lawyers, in order to make decisions. Lawyers are experts in their field who provide advice, and who must follow the instructions of the client.

4. “The elimination of ‘solicitor-client privilege’ would significantly undermine the integrity of the Canadian legal system.” True or false? Explain your answer.

True. Solicitor-client privilege ensures full and frank disclosure between clients and their lawyers.

The value of the lawyer’s advice will be greatly reduced if it is based on incomplete information.

5. What are some examples of decisions that owners of small businesses make? What role can a lawyer play with respect to the making of these decisions?

The legal form of the business, whether to buy an existing business or create a new one, what are the relevant laws and regulations affecting the business and what constitutes compliance, issues with regard to purchase or lease of business premises, funding of the business, contracts with employees, suppliers and customers, intellectual property and, finally, sale of the business.

6. What role has the computer played with respect to the solicitor-client relationship?

Computers allow clients to research easily accessible legal information online, rather than having to consult a lawyer for every decision.

7. “It is a good idea to hire a lawyer when you have been charged with a crime.” True or false? Explain your answer.

True. The stakes are high. If convicted, you will be punished and have a criminal record.

8. When you are trying to find a lawyer to help you, what are some sources of lawyer’s names?

Sources include referrals from friends or relatives, provincial law societies, lawyer referral services, provincial branches of the Canadian Bar Association, advertisements and the Yellow pages.

9. What is the primary purpose of an initial consultation with a lawyer?

To decide whether the lawyer is suitable for you to retain. If so, then the lawyer will decide if it is agreeable to represent you.

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10. Briefly explain three ways lawyers bill their clients. Which of the three is most commonly used?

Fixed fees - for specific tasks such as will preparation, purchasing a house or incorporation.

Hourly rate - billing for time spent on the client’s file. This is the most common method of billing a business.

Contingency fee - charging a percentage of the amount the client collects. Most appropriate for personal injury or product liability cases. If the client does not collect, the lawyer does not get a fee. The types of cases covered and allowable percentages vary from province to province.

11. “Legal aid is available to anybody with a legal problem.” True or false? Explain your answer.

False. There are financial limitations and limitations on the types of disputes legal aid will deal with. This also varies from province to province.

12. What can a client do if she is unhappy with the bill she received from her lawyer?

Attempt to resolve the dispute directly with the lawyer. If not successful, mediation may be an option. If mediation is not available or successful, the bill could be reviewed by court officials.

The method of review varies from province to province.

13. “Should a client lose money because of the carelessness of his lawyer, he will be compensated for his losses if he makes a complaint to the law society.” True or false? Explain your answer.

False. The Law Society deals with disciplinary matters only in respect of the carelessness.

Compensation would have to result from settlement or, if unable to reach an agreement, through a legal suit by the client against the lawyer. The Law Society will likely require the lawyer to have errors and omissions insurance which will assist with recovery of the loss after settlement or judgment.

14. When will a lawyer be disbarred?

Lawyers who fail to follow the rules of conduct of the Law Society they belong to are subject to disciplinary investigations and hearings. If the conduct complained of is a serious breach, such as misuse of client funds, they may be disbarred.

15. “When a person acts unethically, she will also have broken the law.” True or false? Explain your answer.

False. Ethics tells us what we should do; the law tells us what we must do. Generally speaking, every person breaking the law in Canada is acting unethically, but a breach of ethics is not necessarily breaking the law.

16. What is a code of business conduct? Should such a code be used by a small business?

A code of business conduct is a statement of values and principles of ethical behaviour that establishes a code of conduct which all employees, officers and directors of the business would be expected to follow. If created when a small business is first established, it is probably the best way to ensure the long-term application of these principles as the business grows.

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17. What is “corporate social responsibility”? What is a benefit of being transparent about the reasons why you are engaging in socially responsible behaviour?

Some speak of corporate citizens. With the benefits of citizenship, goes the responsibility of being a citizen. The exercise of corporate social responsibility shows commitment to the communities within which a business operates. Transparency about exercising social responsibility being not just to “do good” for the organization and its community, but also to improve the organization’s image, will reduce community skepticism and disillusionment about the organization.

Solutions to the Cases 1. 1. Newfoundland and Labrador (Justice and Public Safety) v. Newfoundland and Labrador (Information and Privacy Commissioner), 2022 NLSC 59 (CanLII) This decision is about whether the Newfoundland and Labrador Information and Privacy Commissioner can compel the Department of Justice and Public Safety to provide him with records over which the Department asserts solicitor-client privilege, or if it fails to do so, recommend disclosure of such records to a member of the public who requests such disclosure.

The Supreme Court of Canada found that if a legislature attempts to abrogate solicitor-client privilege, it must do so in clear, explicit and unequivocal statutory language. While the Newfoundland and Labrador legislature intended to abrogate solicitor-client privilege, the statutory language it employed was not sufficiently clear, explicit and unequivocal to abrogate a fundamental core value to our legal system and democratic way of life.

2. Ontario (Public Safety and Security) v. Criminal Lawyers’ Association, [2010] 1 S.C.R. 815, 2010 SCC 23 The Supreme Court unanimously reversed the decision of the Court of Appeal. Section 2(b) of the Charter does not guarantee access to all government documents. The documents protected by the Ontario FIPPA dealing with solicitor-client privilege were excluded from being disclosed. Lawyers required to register as lobbyists may have to disclose client names and the nature of the lobbying activity. Some banking records of lawyers regarding client names and information may be accessible under money laundering and state security legislation.

3. Canada (Attorney General) v. Chambre des notaires du Québec, [2016] 1 SCR 336, 2016 SCC 20 (CanLII) It was unanimously held by the Supreme Court that the provisions requiring the production of the documents infringed the protection against unreasonable search or seizure found in Section 8 of the Charter of Rights and Freedoms. The Court further held that Section 8 would not be limited under the closing words of Section 1 of the Charter to allow the impugned provisions to operate.

4. Wayne v. Wayne, 2012 ABQB 763 (CanLII) The relevant legislation does not expressly allow the court to pierce the solicitor-client privilege. The basis for this is for clients to have complete trust their counsel representing them.

Counsel can only represent clients if clients are completely open and speak freely with counsel. The privilege is for the benefit of the client. In this case, the mental state of the trustee’s mother, the privilege does not work to her benefit. The court should grant access to the estate file.

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5. University of Alberta v. Chang, 2012 ABCA 324 (CanLII) The appeals were allowed and the applications were remitted back to the trial court for rehearing. The chambers judge copied and pasted the briefs filed by the parties and simply retyped them. He signed them as reasons for judgment. Briefs are often one-sided so they so they were prepared in an adversarial context. The passages from the chambers briefs did not disclose how the chambers judge arrived at his decision. There was no evidence to suggest there was inordinate delay.

The appellate court must rebut the presumption that the lower court has reached its decision through its own unbiased analysis to overturn the decision of the lower court.

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Chapter 2 Introduction to the Legal System Learning Objectives LO 2.1 Define “laws” and discover more about Canada’s civil and common law legal systems LO 2.2 Explain how powers are divided and exercised under Canada’s Constitution LO 2.3 Outline the protection of Indigenous rights and self-government in Canada LO 2.4 Describe how individual rights and freedoms are protected by the Charter of Rights and Freedoms LO 2.5 Discover how human rights law works in Canada, as under current human rights legislation.

Discussion DEFINE “LAWS” AND DISCOVER MORE ABOUT CANADA’S CIVIL AND COMMON LAW LEGAL SYSTEMS

Although creating a comprehensive definition of the law is difficult, a workable definition for our purposes is: “Law is that body of rules which can be enforced by the courts or by other government agencies.” An essential aspect of rules being considered as law is that they can be enforced by the judicial system or through administrative process.

Substantive Law - rules that establish rights and place limits on individual conduct Procedural Law - rules governing how the substantive law will be enforced Public Law - rules that govern an individual’s relationship with government (e.g. the Constitution) Private Law - rules that govern personal, social and business relationships which can be enforced by one person suing another The two main legal systems in place in the western world are civil law and common law. The civil law originated with the Romans and finds its modern place in the Napoleonic Code of France and other civil codes, including the Quebec Civil Code. The Common law is used in England and other jurisdictions where the English conquered and colonized. In a civil law jurisdiction, the basic rules and general principles are embodied in a central code and the function of judges is to apply the code to the specific cases that come before them. In such a system prior cases or precedents are merely persuasive and play a much less significant role than in the common law system, which has as its main characteristic the principle of stare decisis or the application of precedent cases. In the common law system, prior cases with similar facts in a court and higher courts in the same heirarchy, are binding on judges in that court. Both the civil law and common law system provide predictability, which facilitates stability in a society.

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EXPLAIN HOW POWERS ARE DIVIDED AND EXERCISED UNDER CANADA’S CONSTITUTION

As judges created the body of laws known as the common law, they borrowed from several sources including the traditions of communities where court was conducted, including canon (Church) law, the law merchant, and the civil law of Rome. Due to the strictures of stare decisis, there was extreme difficulty modifying common law precedents. As a result the courts of equity were separately developed to provide relief from the inadequacies of the common law system. A considerable amount of conflict developed between the two courts until they were eventually merged by the Judicature Acts in 1873-1875. However the two bodies of law remain distinct, and each can be applied by a single judge in a case. The principle of supremacy of Parliament, developed in England and brought into Canada, means acts of Parliament or of a Provincial Legislature will override any conflicting rule developed by either the common law, rules of equity, or a prior statute. Today in Canada, in order to determine what law should be applied to a particular situation, we must look to common law, to equity, and to statutes.

1. Statutes, such as the Constitution Act, 1867 BNA ACT, and the Constitution Act, 1982, including the Charter of Rights and Freedoms, 2. Conventions and traditions, which are unwritten customs and rules dictating how the government is to operate. They include the rule of law, the office of Prime Minister and political parties.

3. Case law on constitutional issues, such as whether the federal or provincial government has jurisdiction to create certain statutes.

It was often necessary to turn to the U.K. Parliament to amend or change the Constitution Act, 1867 until 1982. It was then that the Canada Act was enacted in the U.K. (called the Constitution Act, 1982 in Canada). It gave Canada the power to always amend its own constitution and contained the Charter of Rights and Freedoms. Until this time the principle of supremacy of Parliament prevailed and while a court could determine which level of government had the power to pass particular legislation, the court could not say the legislation was beyond the power of both levels of government. With the Charter of Rights and Freedoms, however, that power is now given to the courts.

The Constitution Act, 1867 assigned different legislative powers to the federal and provincial governments. The powers of the federal government are set out primarily in section 91 of the Constitution Act, 1867, and those of the provincial governments in section 92. The federal government has power over matters of broader national concern such as banking, currency, the postal service, criminal law (although not its administration and enforcement), and the appointment of judges in the federal and higher-level courts of the provinces. The provinces have jurisdiction over such matters as hospitals, education, the administration of justice, and commercial activities carried on at the provincial level.

Legislation is created by both the federal and provincial governments. The process involves the drafting and presentation of a Bill in either the federal House of Commons or the provincial Legislative Assembly. When introduced, a Bill will be given a first reading and normally the vote on first reading passes with little debate. If there is a will among the members to move the Bill forward, it will then be presented to the legislature for a second reading. There it is debated by the members of the house and either approved or rejected. If the Bill is approved it will generally go to a committee of members for review for possible amendment.

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When the Bill is in final form, it is presented to the legislature for Third Reading which involves a final debate and a vote. If the Bill passes all the votes, it is submitted to either the Governor General or the Lieutenant Governor for Royal Assent. Once assent is given the new legislation will either come into effect immediately or more commonly now, later upon further proclamation by Cabinet.

OUTLINE THE PROTECTION OF INDIGENOUS RIGHTS AND SELFGOVERNMENT

First Nations enjoy treaty rights dating back to the early 1700s. The Royal Proclamation of 1763 is significant, as it established the relationship between the Crown and First Nation communities as nation-to-nation. With regard to Indigenous title, it explicitly states that “all lands not ceded by or purchased from them by [the Crown] are reserved to the said Indians.” Indigenous peoples did not give up their right to self-government. Although it may have been restricted, it was never extinguished. Various levels of Indigenous self-government exist, often as the result of land claims or comprehensive claim settlements, rather than by constitutional amendment.

Some Métis communities have also achieved, or are in the process of negotiating, self-governance agreements. There are 22 self-government agreements that involve 36 Indigenous communities across Canada.

What this means to businesses interacting with Indigenous peoples is that respect for Indigenous rights and title is necessary and further, failure to consult Indigenous peoples may be costly. Section 35 of the Constitution Act, 1982 recognizes and affirms existing Indigenous and treaty rights. Increasingly, these RIGHTS ARE BEING ENFORCED BY CANADA’S COURTS.

DESCRIBE HOW INDIVIDUAL RIGHTS AND FREEDOMS ARE PROTECTED BY THE CHARTER OF RIGHTS AND FREEDOMS

The Canadian Bill of Rights was a largely ineffective attempt to protect the basic rights of citizens from interference by government. However, the Charter of Rights and Freedoms, being constitutionally entrenched, is very effective. The Charter sets out certain basic rights, privileges and freedoms possessed variously

by Canadians, non-Canadians in Canada, and corporations that cannot be interfered with by any level of government or government official without a constitutional amendment. The Charter is applicable to any relationships existing between individuals and governments or government agencies and covers personal freedoms (freedom of speech), democratic rights (the right to vote), mobility rights, legal rights (a fair trial), equality rights (racial discrimination) and language rights (French and English).

There are three important qualifications on the operation of the Charter of Rights and Freedoms. First the operation of the charter is restricted to an individual’s dealings with governments and government agencies. The second allows the provinces or the federal government in many areas to opt out of the operation of the Charter and the third allows exceptions where “reasonable” in a free and democratic society. The effect of the Charter is to transfer the ultimate burden of protecting our basic rights and freedoms from our parliamentarians to our courts.

These last two exceptions shift the burden back to a degree and restore some supremacy of Parliament. The Charter does not protect an individual’s rights from violation by other individuals or non-government institutions. Such human rights disputes between individuals are handled by human rights commissions created under comprehensive provincial and federal human rights statutes. That is, the Charter protects us from government, and human rights legislation protects us from each other.

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DISCOVER HOW HUMAN RIGHTS LAW WORKS IN CANADA, AS UNDER CURRENT HUMAN RIGHTS LEGISLATION.

Not all discrimination is illegal. Human rights legislation prohibits discrimination on certain grounds, such as gender, religion, ethnic origin, race, age and disabilities. The legislation only prohibits this discrimination in certain areas, such as employment, tenancies, public facilities, services, and signs. Outside of these grounds and areas, discrimination can still legally occur. Sometimes positive action must be taken to avoid discrimination. That is there is a duty to accommodate different genders, the disabled and etc. when there is not undue hardship to do so.

For many years the Canadian Human Rights Act did not apply to the federal government and First Nation governments for decisions authorized by the Indian Act. In 2008, this exemption from the CHRA was removed and gender equality stipulations were expressly protected.

Answers to Questions 1. Why is it difficult to come up with a satisfactory definition of law?

The main point that students should raise is that a definition of “law” varies with the perception and preferences of the person being asked the question. Someone committed to an empirical approach might adopt the definition of the legal positivist. That is, law is determined by the authority of the body that passed it. A pragmatist would lean toward the American legal realist’s definition. That is, law is whatever a judge is willing to enforce. The point is that the student should understand that the definition of law cannot be separated from the philosophical stance of the person responding to the question.

2. Where do we look to predict the outcome of a legal dispute? (a) In a common law system?

Predictability of the law is determined by precedent-making cases. (b) In a civil law system?

Predictability of the law is determined by the central civil code.

3. Explain how the use of previous decisions differs in civil law and common law jurisdictions.

In a civil law jurisdiction only the code is binding on the judge. Cases decided by other judges are merely persuasive. They can be turned to for guidance but the judge is not bound by them.

However, cases in a common law jurisdiction can be a binding aspect of the law and, therefore, if a particular case qualifies as a precedent the judge faced with that precedent must follow it.

4. Describe what is meant by the statement, “Common law judges did not make the law, they found it.”

When the common law was originally introduced in England it was the legal structure that was imposed, not the rules of law themselves. The judges merely applied the law or rules that were already in place with the “common people” in the local jurisdictions. From this arose the concept that the common law was not imposed but merely found. In reality this can only be applied to a small portion of the common law. In fact, as the common law developed, judges borrowed from many different sources, such as civil law, canon law, the law merchant, etc. As well, statutes have been passed which considerably alter judge made law.

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5. Describe the advantages and disadvantages of the system of stare decisis.

The main advantage to stare decisis (or the process of following precedent) is the stability and predictability that it provides for the legal system. It is not always necessary for someone to go to court to find out how the law will be applied in a given situation. Precedent cases can supply that information, and the parties may avoid the cost and difficulties associated with a court action by settling the dispute. Another advantage to the system is that where there is no precedent covering a particular situation before the court, the court then is free to make such precedent.

The main disadvantage of the stare decisis process is that, as the number of precedents grows, the courts are unable to change and adapt as the attitudes of society alter. The courts often find themselves applying rules established centuries earlier which (other than the fact that they form a precedent) may have no justification for being applied in a modern situation. Happily statutes have altered many laws set by precedent and which no longer have a modern use.

6.

Describe the problems with the common law system that led to the development of the law of equity.

Because of stare decisis among other things the common law became rigid in its procedure and inflexible in the rules that were applied. Similarly, the remedies that were applied were limited.

The problems were not corrected internally and, therefore, the courts of chancery developed to provide relief in those situations where it was warranted.

7. Detail what was accomplished by the Judicature Acts of l873-75.

The Judicature Acts (1873-75) rationalized the various different court structures in place in England before this time into one central court system called the English High Court of Justice.

Thus the separate courts of chancery and common law ceased to exist, although the separate bodies of law developed by them continued to exist.

8. Explain what is meant by the phrase, “the supremacy of Parliament.”

In the English and Canadian legal systems, Parliament is supreme. A statute enacted by Parliament becomes the definitive law of the land overriding any other rule or law, such as common law, precedent, etc. This must be contrasted to the American system which has a system of checks and balances among the executive, legislative and judicial branches of government and under various circumstances each branch of government can override what the other does. In Canada the supremacy of Parliament is now subject to the operation of the Charter of Rights and Freedoms.

9.

What effect will a properly passed statute have on inconsistent judge-made law (case law)?

Because of the principle of supremacy of Parliament such a “properly passed” statute will override any inconsistent judge-made law.

10. Outline how a parliamentary bill becomes law.

A new law goes through a process of introduction in the form of a bill, debate, modification, and approval referred to as first, second and third reading and then receives royal assent from the Governor General or a Lieutenant-Governor of a province.

11. Using the principles of stare decisis, explain how judges determine whether or not they are bound by another judge’s decision in a similar case.

Judges are bound by the precedent-making decision of other judges who are in the same court heirarchy at the same or a higher rank.. Thus a Supreme Court of Canada decision is binding on

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the Ontario Superior Court of Justice and an Alberta Court of Appeal decision is binding on a Court of Queen’s Bench of Alberta judge. An Ontario Court of Appeal decision is not binding on judges in the courts of other provinces. However, judges in other provinces may find the Ontario decision persuasive, and adopt its reasoning. Secondly, the judge must determine whether the case presented as a precedent covers essentially the same facts or whether it can be distinguished. If the facts can be distinguished or differentiated the case is not a binding precedent.

12. What is included in Canada’s Constitution?

Legislation, conventions and court decisions considering the constitution form Canada’s Constitution. The British North America Act (now Constitution Act, 1867) is part of the legislation in the Canadian constitution. The legislation in the Canadian constitution also contains many subsequent important documents, such as: the Statute of Westminster (1931), the Constitution Act (1982) including the Charter of Rights and Freedoms, plus any amendments that have taken place. The various statutes having constitutional standing in Canada are now listed in an appendix to the Constitution Act (1982). In addition to these, the Canadian constitution contains all of the great provisions of England’s constitution, such as: the Magna Carta, the English Bill of Rights, and the many unwritten constitutional conventions, such as the principle of the rule of law. Court decisions considering the constitution form binding precedents that become part of the Canada’s constitution.

13. What is the effect of sections 91 and 92 of the Constitution Act, 1867 formerly the British North America Act? Sections 91 and 92 of the Constitution Act, 1867 divide powers between the federal and provincial governments. Section 91 assigns certain areas of legislative power to the federal government and Section 92 assigns other powers to the provincial governments. It is this separation of powers between the federal and provincial governments that is the foundation of our federal system.

14. How did the Constitution Act, 1867 limit the power of the federal and provincial governments? How is it possible, given that division of powers, to have identical provisions in both federal and provincial legislation and have both be valid?

The Constitution Act, 1867 originally referred to as the British North America Act, assigns certain areas of governmental control to either the federal or provincial governments for their exclusive jurisdiction. Since the Act deals with types of legislation there may be overlap between the powers of the two levels of government. For example, the provincial government can pass legislation making a particular type of activity illegal because it interferes with health and the federal government can make that same activity illegal because it is a crime.

15. Explain what is meant by the doctrine of paramountcy. When does the doctrine apply?

Since it is possible to have valid federal and valid provincial legislation dealing with the same activity, it is also possible to have conflict. When it is not possible for a person to obey both laws the doctrine of paramountcy declares that the federal legislation must be obeyed and that the provincial legislation is inoperative to the extent of the conflict.

16. Describe the limitations on the federal or provincial governments’ power to delegate their authority to make laws.

The federal and provincial governments cannot delegate their power to make laws. They can delegate the administration of the laws to another body, such as an administrative tribunal.

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17. Explain how the Constitution Act, 1982, including the Charter of Rights and Freedoms affects the doctrine of supremacy of Parliament.

The Constitution Act, 1982, including the Charter of Rights and Freedoms, places many areas beyond the power of either the provincial or federal governments. Many important rights and freedoms as set out in the Charter cannot be changed or modified without a constitutional amendment, so in those areas Parliament is no longer supreme. The courts now have the power to declare legislation passed by either the provincial or federal governments as unconstitutional, not because it encroaches on the other’s jurisdiction but simply because it is inconsistent with the Charter of Rights and Freedoms.

18. Explain the limitations that apply to the rights and freedoms listed in the Charter.

Section 1 limits our rights when reasonable to do so in a free and democratic society. Section 33 allows government to pass legislation contrary to certain sections of the Charter as long as they state they are doing so at the time. The exemption lasts for only five years but may be renewed at the end of that period.

19. Give examples of democratic rights, mobility rights, legal rights, and equality rights as protected under the Charter.

Democratic rights - right to vote, that elections be held. Mobility rights - the right for citizens to live, work and travel freely in Canada. Legal rights - right to life, liberty, security. Equality rights - the right not to be discriminated against on the basis of sex, religion, race, national origin, etc.

Give examples of three other types of rights protected under the Charter.

20. Give examples of three other types of rights protected under the Charter.

Language rights - French and English are guaranteed as the official languages of Canada.

Parliamentary debates - Everyone has the right to use English or French. Aboriginal rights The Charter will not abrogate aboriginal, treaty or other rights of aboriginal peoples.

21. Explain the limitations that apply to human rights legislation in Canada. Does the Canadian Human Rights Act, for example, address all discrimination?

It only addresses the grounds for discrimination in the areas of society which are described in the legislation. The Canadian Human Rights Act does not address all discrimination. For example, a federally regulated facility containing a restaurant is legally able to only hire attractive servers, so long as they do not discriminate against any applicants on any of the prohibited grounds such as age or physical disability.

22. How do human rights codes differ in their application from the Charter of Rights and Freedoms.

The Charter only deals with our relationships with government and government institutions. The human rights codes govern our relationships with each other and non governmental institutions such as corporations.

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Solutions to Cases 1. R. v. Clough, 2001 BCCA 613 (CanLII) Clough could argue the trial judge was to take in consideration the court’s judgment for Kozma to receive a conditional sentence. The trial judge was not supposed to pass his own judgment on the court’s ruling of Kozma. Clough could then argue that her circumstances were similar to Kozma and the trial judge must impose the same conditional sentencing. Clough could argue on the principle of stare decisis that the judge of the BC court should be bound by the decision of the judge of the BC Court of Appeal since they are in the same judicial system.

2. R. v. Spratt, 2008 BCCA 340 (CanLII); application for leave to appeal to the Supreme Court dismissed June 18, 2009 The British Columbia Court of Appeal held that the intent of the Access to Abortion Services Act to allow safe access to health care services justified a limitation on the freedom of expression protected under Section 2 of the Charter. The court of Appeal pointed out it was only small limitation and therefore the rights of the patients were found to be paramount.

3. Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12 There must be evidence that there is a “live controversy” among the parties. There is no need to provide evidence to delineate which mixed ancestry groups are non-status Indians and which are Métis. Evidence about the historical, philosophical, and linguistic contexts establish that “Indians” in s. 91(24) of the Indian Act includes all Aboriginal peoples, including non‑status Indians and Métis.

4. Basile v. Attorney General of Nova Scotia, [1984] N.S.J. No. 337 N.S.S.C. (App. Div.) Mr. Basile challenged this decision as a violation of his mobility rights under the Charter of Rights and Freedoms. This was clearly an infringement of the mobility rights under the Charter, which gave any Canadian the right to travel to and earn a living in any part of the country. The main difficulty was to decide whether this fell into one of the exceptions set out in either section 6(3)(a) (laws of general application) or the reasonable limitation clause in section 1 of the Charter. The Court held that this did not qualify as a law of general application, since it was directed at one specific group—non-residents. Further, since no evidence had been presented that would support the argument that this was a reasonable limitation as required under section 1 of the Charter, Mr. Basile was successful, and the offending section was declared by the Court to be “of no force and effect.” Accordingly the remedy Mr. Basile received was to be permitted to carry out door-to-door sales in Nova Scotia.

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Chapter 3 The Resolution of Disputes: The Courts and Alternatives to Litigation Learning Objectives • • • •

LO 3.1 Examine the alternative dispute resolution (ADR) methods: negotiation, mediation, and arbitration LO 3.2 Describe the court system in Canada LO 3.3 Outline the process of civil litigation LO 3.4 Explain the nature and function of regulatory bodies

Discussion

EXAMINE THE ALTERNATIVE DISPUTE RESOLUTION (ADR) METHODS: NEGOTIATION, MEDIATION, AND ARBITRATION

ADR (Alternate Dispute Resolution) is an important alternative to the litigation process and should be considered for the following reasons. The parties remain in control of the problem. They can customize the process to suit their needs. It is less costly and time consuming than court action and the matters remain private. Although ADR has some advantages, and there are some situations where it would not be appropriate. Where a legal precedent needs to be established it is best to use the courts. ADR should not be relied on when there is not a reasonable balance of power between the disputing parties. The parties should be willing to cooperate and bring all necessary information to the table.

They must be willing to make concessions and must be looking for a solution that will satisfy all parties. They must have good communication skills or agree to a neutral third party facilitating communications. The major categories of ADR are negotiation where the parties discuss the matter directly or through lawyers and come to a solution on their own. The second is mediation where a neutral third party facilitates the path toward agreement. The third is arbitration where both parties agree or are bound by a pre-existing contract to select a third party who will hear the evidence and will make a binding decision in the matter.

This is a more formal process that will take on many of the procedures of a court but the decision cannot be reviewed by a court unless the process has been seriously flawed. ADR awards and settlements often result in a higher level of compliance because the parties agreed to the process. They also increase the chance of the disputing parties resuming their normal business or social relationships because the process is less adversarial.

DESCRIBE THE COURT SYSTEM IN CANADA

The structure of the court hierarchy in each province is determined by the province. Most provinces have two levels of trial courts: a lower level or provincial court, and a senior level, Supreme Court, Superior Court or Court of Queen’s Bench. Within these two levels are many specialized courts. Above these courts each province has a court which hears appeals from the lower .

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courts. The Supreme Court of Canada has been established to hear appeals from the appeal courts of the provinces but can also hear references from the federal government. In addition, a Federal Court, Federal Court of Appeal and the Tax Court of Canada deal with matters that directly involves the federal government or matters that have been specifically assigned to their jurisdiction.

Courts are usually divided into trial and appeal courts and are usually open to the public. The function of the appeal court is to deal with disputes between the parties about the decision reached in a lower court. Such challenges are usually limited to questions of law, as opposed to questions of fact. A person may be faced with both a civil and a criminal trial over the same event.

The court system is constantly changing to reflect changes in Canadian society.

Recent examples include: Drug Treatment Court, Structured Outpatient Programs, Domestic Violence Court Programs, Mental Health Courts, Single Level Courts (Nunavut), and Sentencing Circles. These innovations can assist in the resolution of disputes and the rehabilitation of offenders but caution is required so that the process of reform does not erode the foundation on which our judiciary rests.

OUTLINE THE PROCESS OF CIVIL LITIGATION

A complicated procedure comes into play when one person sues another. The seriousness of the matter being tried, the amount of funds involved, and where the conduct complained of arose will determine which level of court and in what jurisdiction the parties will bring their action. The process consists of: the issuing of a writ of summons (in some provinces), an appearance, a statement of claim, a statement of defence, and possibly a counterclaim with a defence to counterclaim.

The discovery process, involving the disclosure of documents and examinations (or questioning) under oath, is designed to get as much information as possible into the hands of the disputing parties so that the parties can prepare for trial and assess their positions with respect to settlement. Several provinces have introduced initiatives that streamline the process. These include trial by affidavit, fast track litigation where lesser amounts are involved, summary trials, and mandatory mediation.

At the trial, complex rules are followed to control the presentation of evidence.

First the plaintiff calls witnesses, whom the defendant may cross examine. Then the defendant calls witnesses, whom the plaintiff may cross examine. The lawyers then summarize their cases, first for the plaintiff and then the defendant.

If a jury is involved, the judge makes the findings of law and will instruct the jury on the correct manner for making findings of fact. The jury then meets privately and will announce a decision when they return. If a judge alone is presiding, the decision will likely be reserved and provided in writing at some later time.

When a judgment is obtained, the winning party must enforce that judgment against the other party. Merely obtaining the judgment does not assure payment.

Normally the judgment will include an award for costs where the losing party will be required to pay some or all of the legal costs of the winner. To determine the ability of the debtor to pay, the creditor can examine the judgment debtor under oath. Where the judgment debtor has tangible property, this can be seized .

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and sold. The creditor can also pursue the judgment debtor’s intangible assets such as wages, rents due, bank accounts, etc., through garnishee. Again, a complicated system is in place to assist the judgment holder to obtain the assets of the defendant to satisfy the judgment.

Limitation periods have been established in each province to ensure that claims are advanced in a timely way. In most provinces claims in tort and contract must be initiated within 2 years of the event occurring or the discovery of damage.

Failure to file a Writ of Summons or Statement of Claim within the limitation period will result in the claim being barred. In addition, there are time limits placed on litigants once legal action has been commenced. For example, defendants must respond to a claim within a prescribed time frame (typically 7 to 20 days) or default judgment may be taken against them.

EXPLAIN THE NATURE AND FUNCTION OF REGULATORY BODIES

Government can be divided into the Executive Branch (Cabinet and public service), the Legislative Branch (Parliament and the provincial legislative assemblies) and the Judicial Branch (the courts).

Government legislative power is limited by the Constitution Act, 1867 and the Charter. That power is exercised in many ways, one of which is through government regulatory or administrative bodies. When these administrators make decisions that affect individuals and corporations, certain standards of fairness must be maintained and rights respected.

In determining when the decision of such an administrative body can be challenged the courts will first look at the decision maker’s authority to make the decision. The authority of the decision maker is established by the rule of law and is found in a statute or the regulations passed under the statute. There are definitions set out in the statutes themselves and other statutes establish rules of statutory interpretation. There are also more general rules of interpretation that are applied such as the rule of strict interpretation, the golden rule, or the mischief rule. If the decision is authorized in the statute, then the constitutional validity of the statute should be examined under the Constitution Act,1867 and under the Charter of Rights and Freedoms.

Also, the process itself has to meet certain standards. The rules of natural justice require that administrators must act fairly by being unbiased, giving the person reasonable notice of the hearing, an opportunity to cross examine and for the decision to be made by the administrators who heard all the evidence.

If the decision maker makes some sort of error of law on the record, the courts will overturn the decision and usually send the matter back for rehearing with directions about legal issues. The historical method of judicial review in these circumstances is through the prerogative writs. The most significant of these are (1) certiorari (declaring the decision of no effect) (2) prohibition (ordering a decision not to be made), and (3) mandamus (ordering a decision maker to decide). In addition to the prerogative writs, the courts have developed the right to make a declaration which allows the courts to declare the law in other areas normally not available when a prerogative writ is used. Many jurisdictions have passed legislation simplifying the process of judicial review. In addition to these unique remedies, the more standard remedy of injunction may also be available. .

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Some statutes contain privative clauses that prohibit judicial review. However, the Courts interpret and apply these clauses extremely narrowly. Also note that where Charter rights are involved such privative clauses would be ineffective to keep the court from reviewing the decision. The Supreme Court of Canada has given instruction that the decisions of administrative tribunals should be treated with deference and only be reviewed where the decision appears unreasonable.

Answers to Questions 1. Describe the principal advantages and disadvantages of alternative dispute resolution.

• • • • • • • • • • • •

Control: The parties involved remain in control of the problem and its solution.

Delay: The parties can determine the time and place of the process.

Lost productivity: Managers can devote less time and resources to the dispute allowing them to continue their work.

Costs: Legal and court costs are reduced and avoided.

Privacy: The matter does not become a public record. Only the immediate parties need be involved.

Goodwill: Because both parties agree to the resolution process it is a less adversarial process where concessions and compromise are encouraged.

International disputes: Jurisdictional rules are less of a problem since the parties can set their own terms for resolving the matter. There is no need to turn to the courts of either nation.

Flexibility: The parties select the kinds of processes they use, customize it to their needs and then set the time and place of the hearing and who needs to be involved.

No stare decisis among arbitrators: Arbitrators do not have to follow other arbitrators’ decisions on cases with similar facts. Therefore predicting outcomes is more difficult.

Appeals: Often an arbitration is binding with no opportunity for the result to be reviewed in court.

Balance of power: If there is an imbalance in power between the parties, the rules of court available in traditional litigation do a better job of restoring some balance than ADR. Discovery: Production of records and questioning cannot be compelled in ADR.

2. Distinguish between negotiation, mediation and arbitration; discuss the advantages and disadvantages of each of them.

In negotiation both parties communicate directly to each other or through their lawyers. In mediation the disputing parties agree on a neutral third party to facilitate the communication.

The mediator hears the positions of both sides, has some power to gain the necessary information, suggests areas of agreement and possible compromise, encourages concessions and helps the parties come to agreement. Mediators do not impose a decision on the parties. In arbitration the disputing parties agree to be bound by the decision of a neutral third party. Often they select the arbitrator but the person may be determined by a pre-existing contract between the parties. Parties present all of the information to the arbitrator, who is usually an expert in the matter in dispute, and who then makes a decision. The parties are bound by the decision and usually cannot appeal it. They essentially give control of the matter to the arbitrator. .

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Negotiation is the simplest form of ADR, but requires a willingness to compromise, not compete. Either side can withdraw at any time as a result until a final settlement agreement may be reached. Skill and experience is an asset, and may compromise the outcome if a party lacks these. Mediation is very flexible, but again, relies on cooperation of the parties. There is no power to compel disclosure of evidence, and may emphasize the weaker party’s lack of power.

It is helpful when dealing with confidential information, and also lends itself to a speedier and less costly resolution of disputes. Arbitration often involves the use of an expert in the field, who is trained in the process. There are more formal rules of conduct, and the decision is binding on the parties. It loses the flexibility found with the other two forms of ADR, and is far more adversarial in nature, takes longer and is consequently more expensive as well. However, it is still better than litigation for all these aspects.

3. Explain online dispute resolution and describe two situations in which it is being used.

British Columbia recently incorporated ODR into its law pursuant to the Civil Resolution Tribunal Act. This legislation created Canada’s first online tribunal, for small claims and condominium disputes.

4. “Canadian courts are open to the public and the press.” Explain two exceptions to this rule.

Courts are open to the public and the press, unless there is a matter of national security or a case involving children.

5. Compare the role of criminal courts to that of civil courts. What is the burden of proof in criminal prosecutions? In civil litigation? Who must satisfy the burden in each case?

The burden of proof in a criminal prosecution is beyond a reasonable doubt and in civil litigation, it is on a balance of probabilities. The onus of proof in on the Crown in a criminal matter and on the plaintiff in a civil case.

6. “A conviction of a provincial hunting offence will result in a criminal record.” True or false?

False. A provincial hunting offence is quasi-criminal rather than criminal in nature.

7. What jurisdiction does a provincial court have? What is the monetary jurisdiction of the small claims court in your province or territory?

Provincial courts have jurisdiction over less serious criminal offences, small claims disputes, family issues (except divorce), and youth justice offences. The monetary jurisdiction of the small claims court in Alberta is $50,000.

8. What jurisdiction does a superior court have? What is the name of the superior court in your province or territory? Which court would you go to as the executor of an estate?

Superior courts have jurisdiction over serious criminal offences, civil disputes involving any amount of money, divorces, probate matters, and bankruptcy cases. The Surrogate Court handles estate matters but it has frequently been combined with the Superior trial court of a province.

9. Distinguish between questions of law and questions of fact, and explain why this distinction is significant.

A question of fact is a question regarding the details of an event. Did a particular thing happen? .

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When? Where? And what was the result? A question of law deals with the rules that are applied by the courts to the particular situation. Is a pedestrian permitted to cross on a red light? Is a pedestrian permitted to cross in the middle of the street? Is a director required to disclose conflicts of interest? As a general rule it is only questions of law or disputes over a legal question (as opposed to a question of fact) that can be appealed to a court of appeal.

10. Describe five specialized courts that have recently been created. What concern has been expressed about reform of the Canadian court system?

Drug treatment courts have been established in several large Canadian cities. The emphasis in these courts is on the treatment of addicts, not on incarceration. Domestic violence courts have been established in several provinces in Canada. These courts deal with spousal, elder, and child abuse. Unified family courts have jurisdiction over all legal issues related to the family (including divorce) and do not deal with any other types of cases. Such courts have been created in several provinces. Several provinces have implemented mental health courts. These are specialized courts that focus on the treatment and rehabilitation (rather than the punishment) of those who have committed criminal acts because of mental disorders. The Nunavut Court of Justice, established in 1999, is Canada’s first single-level court. Judges in this court are given the powers of both the superior trial courts and the territorial courts. These judges can, therefore, hear all of the cases that arise in the territory.

11. Does an appeal result in a new trial? What information will an appeal court consider when making its decision?

An appeal is not a new trial. The appeal court will consider questions of law, not questions of fact.

12. Who appoints judges in Canada? Can a judge be removed if she makes a decision that is against the policy of the government that appointed her?

The federal and provincial justice ministers appoint federal and provincial judges, respectively.

There are advisory bodies at both levels that make recommendations. An exception is the Supreme Court of Canada where the judges are appointed by the Prime Minister. The judicial branch of government is independent and a judge cannot be removed because a decision is unpopular with the government.

13. Which court hears an appeal from a decision of the Canada Revenue Agency? From the Federal Court? From the Federal Court of Appeal?

The Federal Court hears appeals from the CRA. The Federal Court of Appeal hears appeals from the Federal Court. Appeals from the Federal Court of Appeal go to the Supreme Court of Canada.

14. If you are unhappy with a decision of the provincial appellate court relating to damages you suffered in a car accident, do you have the right to appeal to the Supreme Court of Canada?

Leave to appeal to the Supreme Court of Canada would have to be obtained from it before the appeal could proceed.

15. How would the expiration of a limitation period affect the rights of parties to litigate a matter in dispute?

The plaintiff must commence an action by filing the appropriate pleading (the writ of summons, the .

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statement of claim, or the notice of civil claim) with the appropriate court. Failure to fulfill that step within the limitation period will result in the plaintiff being barred from pursuing the action.

16.

If a traffic accident happened in Alberta, with one driver from British Columbia and one from Ontario, could the Ontario driver sue in Ontario?

First, the plaintiff must prove that there is a “real and substantial connection,” by identifying a connecting factor that links the litigation to the court. In tort cases, there are four factors that entitle a court to assume jurisdiction over the dispute: 1. The defendant is a resident of the province; 2. The defendant carries on business in the province; 3. The tort was committed in the province; or 4. A contract connected with the dispute was made in the province.

17. Why should an online business include a forum selection clause in its sales contracts?

Since commercial forum selection clauses are usually enforced. However they may not be enforced when there is an inequality in bargaining power and public policy concerns.

18. What are the pleadings used to commence an action in the superior trial court in your jurisdiction?

Appropriately describe Writ of Summons, Answer, Statement of Claim, Statement Defence, Counterclaim and Defence to Counterclaim as appropriate in the province of the class.

19. How does the discovery process take place, and what is its significance in civil litigation?

The discovery of documents and verbal examination for discovery (or questioning) are essential in the litigation process. Information is disclosed to both parties so that there are no surprises later.

This disclosure makes settlement of the dispute more attractive to the parties, thereby considerably reducing costs and the demand for court services. Discovery of documents or records involves each party to the litigation being permitted to inspect and copy the relevant records of the other party. Examination for discovery (or questioning) takes place when, through a lawyer, one party to the litigation is permitted to question under oath the other party on matters relevant to the litigation.

20. Explain how an offer to settle can affect the judgment award made by the court to the plaintiff.

The defendant or plaintiff can make a formal offer to settle to the party. The party receiving the offer then has the option of accepting that offer to settle, which ends the litigation process, or refusing it. If it is refused and the eventual judgment awarded by the court differs from the offer, then the party who made the wrong decision on the offer is punished by the award of costs by the court. For example if the plaintiff made the offer and judgment is less than the amount offered, the plaintiff will not receive compensation for legal costs that have been incurred after the formal offer to settle.

21. Describe the recent initiatives taken in your jurisdiction to “speed up” the litigation process.

This will vary with the jurisdiction but may involve summary trials based on affidavit evidence, streamlined or simplified procedures for cases involving lesser amounts, or mandatory mediation. .

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22. Explain the trial process.

The plaintiff first presents their witnesses (direct examination) and exhibits. The defendant cross examines. The defendant then presents his witnesses (the plaintiff cross examines) and exhibits.

The plaintiff s lawyer and then the defendant’s lawyer summarize and if a jury is involved the judge gives instruction to the jury. The jury meets privately, then returns and delivers judgment.

When there is a judge alone, written judgment may be delivered some time later.

23. Compare party and party costs to solicitor and client costs. To whom are these costs generally awarded?

Either solicitor-client or party-party costs are awarded to the victor and paid by the loser in a civil action. Party-party (or taxable costs) are based on a schedule of costs set out in the Rules of Court and are normally not enough to the cover the actual legal costs incurred. Solicitor-client costs are the amount that lawyers are expected to charge a client for the services provided and are normally in excess of party-party costs.

24. Distinguish among the various types of damages that may be awarded in a civil action.

General damages are based on estimates, such as when the court awards compensation to a litigant for pain and suffering or for future lost wages. Special damages, on the other hand, are calculated to reimburse the litigant for expenses or costs incurred before the trial. Punitive damages or exemplary damages are intended not to compensate the victim but rather to punish the wrongdoer for outrageous or extreme behaviour.

25. Discuss the remedies other than damages that may be awarded in civil litigation.

Accounting where the wrongdoer must account for an amount and pay it to the victim Replevin or restoration of personal property Injunction is an order to stop doing some inappropriate activity.

Specific Performance is an order to do what was agreed to in the contract. Declaration is where the court makes a declaration as to the law and this is usually combined with other remedies.

26. Explain the role of the examination in aid of execution in enforcing remedies and describe the methods available to enforce a judgment against a debtor who is trying to avoid payment.

Once judgment has been obtained it is possible for the judgment creditor to have an examination held to question, under oath, the debtor as to the amount and location of all assets. After the hearing the judgment creditor can ask the sheriff or civil enforcement agent to seize the various assets which will be sold to pay off the debt. Bank accounts and wages owing to the judgment debtor can be garnisheed to satisfy the judgment.

27. Explain the value of an injunction as a prejudgment remedy. Discuss other prejudgment remedies available to aid in the collection of debt.

Some provinces allow garnishment before judgment. Most provinces will permit, with a court order, the seizure of assets that might be used or destroyed before the judgment is obtained. An injunction can be obtained against an institution holding funds for the debtor to prevent the funds being surrendered to the debtor. While this does not make the funds available to the creditor, it does keep the debtor from otherwise disposing of them.

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28. Under what circumstances will the courts review a decision made by a government bureaucrat or administrative tribunal?

1. Judicial review will be available where administrative agencies have no authority to make a decision or have stepped outside their authority. 2. Judicial review is also available when the rules of natural justice have not been followed. 3. In very limited circumstances the merits of the decision itself can be reviewed, but as a general rule courts are reluctant to interfere with a decision unless some procedural or jurisdictional defect is present. 4. Judicial review is available when an error of law on the face of the record has taken place.

29. What must be examined to determine whether a decision maker has acted within his or her authority?

There must be a valid statute or regulation that empowers the decision maker.

30. What are the requirements for a fair hearing and what is necessary to satisfy the rules of natural justice?

The person affected must be given notice of the hearing including an indication of the nature of the matter to be decided. The parties must be given an equal opportunity to state their positions, which may include the right to produce and cross-examine witnesses. The decision maker does not have to follow the strict rules of evidence. The evidence in the case must be heard by the decision maker. The decision maker must be impartial.

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31. Distinguish between certiorari, prohibition, mandamus and a declaration.

Certiorari is an order by the court declaring the decision of the administrator to be null and void.

Prohibition is an order by the court to the administrative tribunal not to make a decision.

Mandamus is an order by the court to the administrative tribunal to make a decision. A declaration is simply the court declaring the law in a particular situation and is not an order to the administrative body.

32. What is a privative clause? How do the courts usually react to them?

A privative clause is a provision in a statute which prevents the courts from reviewing the decision of an administrative tribunal, such as a labour relations board. This is an attempt to exclude judicial review of the administrator’s decision and the court usually interprets such statutory provisions very strictly. They will not give effect to the provision unless there is no way to avoid it.

Solutions to Cases 1. M. v. C., 2014 ONSC 567 (CanLII).

Courts should extend this concern to children who are not parties to the litigation. The best interest of the child should be the focus. The child’s age, physical and emotional constitution, and psychology cannot be ignored. In this case, the social environment the children will live in and how that can be affected must be considered as well as evidence if the children will be harmed by the litigation or if it were made public. An example would be cyber bullying from other children that became aware of the case. The applicant, the 14-year old girl claiming for educational funding from her biological father, continuously posted Internet blogs regarding the case. On the other hand, the public could argue that knowledge of the case could impact a decision made about the parties involved. In this case the court did decide that the file be sealed and the parties referred to by initials.

2. Ontario Public Services Union v. Ontario (Community Safety and Correctional Services), 2015 CanLII 36169 (ON GSB) The Grievance Settlement Board found that that an acquittal on a criminal charge does not dispose of civil proceedings, including an arbitration, involving the same facts. Authority was cited that evidence of a verdict of not guilty in a criminal trial is inadmissible in a subsequent civil trial on the same facts. The same should therefore be true for a subsequent arbitration.

3. Muzik v. RBC Life Insurance Company, 2013 MBQB 309 (CanLII) It is appropriate for legislation to eliminate a judge made principle due to the operation of parliamentary supremacy. The Paramount case is the law in Ontario and the Muzik case is the law in Manitoba. The two cases could be reconciled if a case with similar facts proceeded through the Supreme Court of Canada, which establishes precedent for the entire country.

4. Angelo’s Gold Factory Inc. v. Anthony Pipolo Incorporated, 2007 CanLII 80119 (ON SC).

After judgment was entered by default, enforcement proceedings commenced. The defendants did not even know of the existence of the law suit. The court set aside the enforcement steps and the default judgment, but ordered the defendants to file and serve a statement of defence within 20 days. Practically speaking, the defendants did not have any opportunity to file a statement of defence before default judgment so procedural fairness dictates a new procedure to now permit .

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them to do so. In both court and administrative processes, reasonable notice is an important part of the administration of justice and professional courtesy between counsel.

5. Trindent Consulting International Inc. v. Logsdon, 2018 ONSC 1696 (CanLII) The Master of the Superior Court of Justice did not stay the action. By applying precedent, the court considered the comparative convenience and expense for the parties to the proceeding and for their witnesses, in litigating in the court or in any alternative forum, the law to be applied to issues in the proceeding, the desirability of avoiding multiplicity of legal proceedings, the desirability of avoiding conflicting decisions in different courts, the enforcement of an eventual judgment, and the fair and efficient working of the Canadian legal system as a whole.

6. Community Panel of the Adams Lake Indian Band v. Adams Lake Band, 2011 FCA 37 (CanLII).

A week after the trial judge released the decision, the Supreme Court of Canada issued a decision providing guidance on when an administrative decision should not be quashed by a court even when there are grounds to quash it. Legal error or non-compliance should not be given undue weight and a very broad consideration of practicalities must be considered by the court. The Federal Court of Appeal held that the trial judge did not consider enough practical matters, and upheld the election result.

7. Black v. Canada (Advisory Council for the Order), 2013 FCA 267 (CanLII).

The court found that in denying Black on oral hearing there was no principle of fundamental justice that was breached. In Baker v. Canada, the right to an oral hearing was not included. The court found that Black could make his case adequately through written submissions.

8. Brhane v. Canada (Citizenship and Immigration), 2018 FC 220 (CanLII) The court cited authority that the doctrine of legitimate expectations stands for the proposition that “when a public authority has promised to follow a certain procedure, it is in the interest of good administration that it should act fairly and implement its promise, as long as implementation does not interfere with its statutory duty”. The court found that the Officer deprived the Applicant of a meaningful opportunity to respond to his concerns. The concerns could have been expressed during the interview, and then the interview could have been adjourned to continue in the near future so the Applicant could consider a response.

9. GNWT v. Beaulieu, 2014 NWTSC 63 (CanLII) The SRO was not correct screening in Beaulieu on the basis of his diploma and his varied accounting experience. The screening committee accepted the educational equivalency but Beaulieu did not meet the experience criteria. The SRO's approach would not be appropriate in competitions for which there are several screening criteria. All the criteria need to be met for an applicant to be screened in, not one or part of the criteria. The court could consider her error reasonable if the varied accounting experience included some budgeting and contracting experience.

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Chapter 4 Intentional Torts and Torts Impacting Business Learning Objectives • • • •

LO 4.1 Understand tort law, and how tort law is distinct from criminal or contract law LO 4.2 Explain vicarious liability, indicating when it may be imposed LO 4.3 Gain an understanding of various intentional torts LO 4.4 Detail how privacy is protected in Canada LO 4.5 Identify issues surrounding torts committed in the online environment

Discussion UNDERSTAND TORT LAW, AND HOW TORT LAW IS DISTINCT FROM CRIMINAL OR CORTACT LAW

EXPLAIN VICARIOUS LIABILITY, INDICATING WHEN IT MAY BE IMPOSED

GAIN AN UNDERSTANDING OF VARIOUS INTENTIONAL TORTS

The role of tort law is to compensate victims, requiring the party at fault to bear the burden of the loss suffered. In so doing, it deters the occurrence of such wrongful behaviour and educates society. Harmful conduct that is so serious that it poses a threat to society generally is said to be criminal in nature. The prosecution for such acts is carried out by the state in a criminal court where the focus is to punish the wrongdoer, not to compensate the victim. An act that breaches a contract might not be inherently wrong, but the breach entitles the victim to a remedy. A tort, on the other hand, is inherently wrongful conduct that is either deliberate or falls below a minimal social standard. Remedies in response to a tort may include an injunction (a court order stopping certain conduct) or even punitive damages (an extra award intended to punish the wrongdoer) but normally will be limited to a monetary award of general damages intended to compensate the victim for the loss suffered. An employer can be held vicariously liable for the tortious act an employee commits while at work. This liability is limited to torts committed while carrying out employment duties.

Assault and battery is intentional physical interference with another. Battery is the actual physical contact. Assault takes place when the person fears imminent physical contact. People being attacked are entitled to defend themselves, so long as only reasonable force is used in the process. Consent is a defense to an action for assault and battery and often is given for participation in sports. Trespass to land is entering onto another’s property without permission. This action can also take place by someone throwing something on another’s property or may take the form of a continuing trespass.

Any direct intentional interference causing damage to the goods of another is a trespass to chattels. Generally, the remedy for trespass to chattels is compensatory damages.

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Conversion consists of interference with the plaintiff s chattels in such a way as to deprive the owner of the use of the chattels. For example stealing a chattel. In such circumstances the person converting the goods is forced to purchase them. In exchange for payment, the defendant acquires the property.

The courts also have the power to order the return of the goods if that is a more appropriate remedy.

Detinue, like conversion, involves the wrongful possession of someone else’s goods. But where conversion requires wrongfully taking control of the goods through some intentional act, detinue deals with situations where the person is wrongfully retaining the goods. Like conversion, the calculation of damages essentially amounts to a forced sale of the goods, but since detinue is a continuing tort, damages are calculated as at the date of the trial.

False imprisonment occurs when people are intentionally restrained against their will, without lawful authority. Complete restraint is not required. Section 494 of the Criminal Code sets forth the limited scope of a Citizen’s Arrest.

Malicious prosecution involves the improper use of the criminal justice system. Such a claim arises when a person initiates or causes a criminal or quasicriminal prosecution against another and the accused is acquitted. The acquitted person can then successfully sue for malicious prosecution if it can be proven that the criminal proceeding was motivated by malice.

The tort of private nuisance is committed when individuals or businesses use property in such a way that it interferes with their neigbbours’ use or enjoyment of their property. Such interference is usually required to be ongoing and continuous to be actionable.

A public nuisance takes place when there is interference with some public property. Protesters blocking a road or park, or a mill polluting a river, would be examples. Only rarely is an action for public nuisance brought and then usually by the government.

Defamation is a published false statement that is to a person’s detriment. It is a primary concern for businesses involved in media communications, but all commercial enterprises face some risk over defamation, even if it is only from a carelessly worded letter of reference or an offhand written comment about an acquaintance. For the statement to be an actionable defamation, it must be derogatory, false, and published, and must refer to the plaintiff.

At common law, defamation can be either slander, which is spoken defamation, or libel, which is usually written defamation. The significance of finding a defamatory remark to be libelous rather than slanderous is that libel is easier to prove because there is no requirement to show that special damages have been sustained.

Cyber libel occurs when someone posts on the internet or emails a statement that is untrue and damaging relating to another individual. Comments on social media can be posted instantly and often are made under the mistaken belief that they will remain anon- ymous In Pritchard v. Van Nes40 the defendant made a

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number of completely false and

Truth is an absolute defence to defamation. Other defences include: absolute privilege, qualified privilege, fair comment and public interest responsible journalism.

Injurious falsehood occurs when one person attacks the reputation of another’s product or business. This tort is also known as trade slander or product defamation. It must be distinguished from the tort of defamation that involves injury to the personal reputation of the injured party. Injurious falsehood deals with the reputation and value of a person’s property.

DETAIL HOW PRIVACY IS PROTECTED IN CANADA

IDENTIFY ISSUES SURROUNDING TORTS COMMITTED IN THE ONLINE

ENVIRONMENT

Other business torts include inducing breach of contract, either with employees, suppliers or customers. Intentional interference with economic relations will often be dealt with under the Competition Act. Conspiracy to injure will involve price fixing and supply chain interference by two or more people. Intimidation would involve a threat that forces someone to do something that harms their business. The tort of deceit is the civil claim for fraud. Passingoff occurs when someone attempts to pass off a business or product as their own, when it in fact belongs to someone else. Misuse of confidential information occurs when parties use another parties’ valuable information without their consent and use it to either harm that party or benefit themselves. Invasion of privacy is a developing tort most recently seeing the Ontario Court of Appeal adopt the U.S. concept of “intrusion upon seclusion” to deal with the unauthorized access to banking information.

Statutes dealing with privacy include the federal Privacy Act and the Personal Information Protection and Electronics Documents Act. Under these statutes consent is required to both collect and disclose personal information. Spoliation occurs when evidence that is material to litigation is destroyed, usually to hide wrongdoing.

The widespread use of the internet allows for easy dissemination of confidential information. Defamation and injurious falsehood may also take place, privacy may be invaded, fraud may be perpetrated. Negligent misrepresentations are also frequent. The intentional tort of Online Harassment includes publishing accusations of child abuse, inappropriate sexual relations, and professional misconduct against her targets. The Ontario Superior Court of Justice is the first to recognize a new tort, the intentional tort of Online Harassment.

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Answers to Questions 1. Explain what is meant by the statement, “A tort is a civil wrong.”

This means that the action or conduct itself is considered unacceptable behaviour, and gives rise to a private action between individuals whereby a plaintiff can sue a defendant for compensation. This should be contrasted with a breach of contract, or a criminal act.

2. Distinguish between an assault and a battery.

An assault is an intentional interference with another party creating fear or apprehension of imminent physical contact. A battery is when actual physical contact takes place. A battery may be preceded by an assault but an assault may not be a battery.

3. How do doctors avoid liability for the tort of battery when operating on or otherwise treating patients?

The doctor avoids liability because the patient has “consented” to the physical interference.

4. What limitations are there on the right of self-defense when people are defending themselves against an attack?

People being physically attacked are only permitted to use as much force as is necessary or reasonable force, to defend themselves. If excessive force is used it constitutes an assault or battery.

5. Describe the situations in which battery may be justified.

(1) When there is consent, (2) when reasonable force is being used to eject a trespasser, (3) when defending themselves and using reasonable force, (4) when the power to arrest is present, the arresting party may use reasonable force to do so.

6. What are the necessary elements that must be present for a person to be classified as a trespasser?

The person must intentionally be on land or premises that belong to another and be there without authority. Note that this presence can be in the form of physical presence or some object that has been placed or thrown on the property.

7. What may the proprietor of a business do when faced with an unruly patron?

The proprietor can ask the patron to leave. If he fails to leave he becomes a trespasser in common law and the proprietor can use as much force as is necessary to eject the patron.

8. Distinguish among trespass to chattels, conversion, and detinue.

Any direct intentional interference causing damage to the goods of another is a trespass to chattels.

Conversion consists of interference with the plaintiff s chattels in such a way that it interferes with the plaintiff s use of the chattel.

Detinue, like conversion, involves the wrongful possession of someone else’s goods. But

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where conversion requires wrongfully taking control of the goods through some intentional act, detinue deals with situations where the person is wrongfully retaining the goods.

9. Imprisonment can take the form of confinement, arrest or submission to authority.

Explain.

The classic definition of imprisonment is when a person is confined in a specific place. People can also be imprisoned when they are physically restrained and subdued. When someone purports to arrest someone and insists, in such a way that the person thinks there is no option but to accompany the arresting person or stay in a particular location, that submission to authority can qualify as imprisonment even though there is no physical confinement and no physical restraint.

10. What must be established in order to successfully sue for false imprisonment?

(1) That an imprisonment of the plaintiff has taken place and (2) that it took place without the necessary authority.

11. When a plaintiff sues in malicious prosecution, how is malice typically established?

Evidence of malice can be established by prosecutors who have chosen to ignore important evidence or by complainants who have lied or manufactured evidence used to improperly support the charges.

12. Distinguish between libel and slander, and explain the significance of the distinction.

Libel, as a general rule, is written. Slander is spoken defamation. It is easier to succeed in a libel action because libel is actionable without proof of special damages whereas slander must be supported by some indication of actual loss before an action can be successful. Note that certain types of slander are actionable without proof of special damages as well, such as: statements indicating incompetence in relationship to work, immoral activity, noxious disease, and unchaste conduct.

13. Define the terms “innuendo” and “qualified privilege”.

An innuendo is a hidden meaning in a statement. Usually it takes place when a statement appears perfectly innocent but, when combined with special information possessed by those hearing it, assumes a different meaning that could be defamatory. Qualified privilege is a defense available in a defamation action when the person making the defamatory statement had a duty or obligation to do so (for example, as part of an employment responsibility). This defense is qualified in that if there is any malicious intent, or if the statement is published more broadly than required by the duty, the protection is lost.

14. Distinguish among defamation, injurious falsehood, and deceit, indicating in what situations each would be used.

Defamation is harmful to an individual’s reputation, and may arise in the course of media communication, or employment. Trade slander is harmful to the reputation of a business or a product. If one business attacks another by stating that their products are contaminated or inferior, or the business is struggling and it is not, this gives rise to a claim of trade slander.

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Deceit is the civil action for fraud, or intentionally misleading another that causes them damage. The deliberateness of the act may also result in punitive damages.

15. Explain the nature of the tort of inducing breach of contract and what circumstances would give rise to such an action.

Inducing breach of contract usually involves an employer persuading an employee of another business to leave that employment and work for them without properly leaving the current employment contract. Inducing breach of contract can also be committed when one business induces severance of contractual relations with someone else, as when a supplier is persuaded to abandon one customer in favour of another or a customer is persuaded to breach its contract with a competing supplier.

16. How does the unlawful means tort differ from the tort of inducing breach of contract?

When dealing the tort of interference with economic relations, there is no need to prove a breach of contract. However, there must be some other unlawful conduct associated with the complaint, such as bribery or defamation. That unlawful conduct must have been intended to cause harm and, in fact, harm must have resulted.

17. Differentiate between conspiracy and intimidation.

A conspiracy to injure takes place when two or more persons act together use unlawful means to injure the business interests of another. Intimidation occurs when the threat of violence or some other illegal activity, such as an illegal strike, is used to force a businessperson to do something that harms the business.

18. List the remedies that may be appropriate to redress misuse of confidential information.

The most common remedy is monetary damages. However, equitable remedies such as injunctions and an accounting may also be ordered.

19. Privacy concerns are becoming more problematic in the technological age. What statutes protect the rights of individuals in this area?

Federal and Provincial Privacy Acts; the Personal Information Protection and Electronics Documents Act; and Human Rights Acts.

20. How do the courts determine if they have jurisdiction over a tort action where the internet is the means of communicating a defamatory message?

Jurisdictional problems are one of the most difficult raised by the use of the internet. Where an action for defamation can be brought and who can be sued are examples. Essentially what is necessary is to establish that there is a sufficient link between the action complained of and the province where you wish to bring the action. As a general rule you must seek out your defendant or sue where the offensive conduct took place. This is very difficult to establish where the internet is involved. It also depends on the type of communication involved. If the defamation took place in a private communication such as email to only the potential plaintiff, there may be the problem of publication. Where the comment is made on a web page for all to read the defamation is more clearly established, but still there is the problem of determining where to sue and who should be included as defendants.

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Solutions to the Cases 1. Chopra v. Eaton (T.) Co. (1999), 240 A.R. 201 (Q.B.); 1999 ABQB 201 (CanLII).

Mr. Chopra’s push on Mr. Frauenfeld was a criminal assault and justified a citizen’s arrest.

However since Mr. Chopra was not promptly delivered to the police, the detention became a false imprisonment. In addition to suing for false imprisonment there is an action for battery because Mr. Frauenfeld used unreasonable force in carrying out the arrest. Mr. Chopra also successfully complained to the Alberta Human Rights Commission because of the racial slurs.

Eaton’s was also found vicariously liable for its employee’s conduct.

2. Laing v. St. Thomas Dragway, 2005 Can-LII 1501 (ON SC) The court limited the injunction and damages to the time for worship or rest on Sunday morning.

Racing was ordered to not start until 1 p.m. on Sunday, but could otherwise proceed unimpeded as before on Friday and Saturday.

3. Duke v. Puts (2004), 21 C.C.L.T. (3d) 181, [2004] 6 W.W.R. 208 (Sask. C.A.); 2004 SKCA 12 (CanLII) The trial court held Dr. Puts liable in defamation, unlawful interference with contractual relations, and interference with the economic interests of Mr. Duke. The Court of Appeal found that some of the defamatory statements were covered by absolute privilege, but the rest were not. The defence of qualified privilege was defeated by the malicious intent of Dr. Puts.

Dr. Puts knew of the contract to sell the pharmacy business and intentionally interfered with the completion of that transaction. He also encouraged a Mr. Rowein to leave his employment with Mr. Dukes. Proof of interference in Mr. Duke’s economic interests was established on the same evidence as the claims of defamation and interference with his contractual relations. The Court of Appeal agreed with the trial judge’s award of $400,000 in damages.

4. Robertson v. Stang, [1997] B.C.J. No. 2022 (B.C.S.C.) The plaintiff sued in conversion, bailment, and negligence. For conversion, the plaintiff would have to prove she did not consent to the taking of her goods. For the bailment for reward argument, the plaintiff must show the standard of care was not met and this caused the theft of the goods. In order to prove negligence, a duty of care must be established, a breach of the duty must be shown on the reasonable person standard, causation must be shown and damage must have occurred. The plaintiff succeeded in their action.

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Chapter 5 Negligence, Professional Liability, and Insurance Learning Objectives LO 5.1 Identify and describe the elements that must be proven for a negligence

claim LO 5.2 Distinguish the defences applicable to the tort of negligence LO 5.3 Distinguish occupiers’ liability, innkeepers’ liability, strict liability,

vicarious liability, and product liability LO 5.4 Describe the circumstances where professional liability may arise LO 5.5 Understand what insurance is and some types of insurance available

for businesses LO 5.6 Identify and understand some key legal concepts in insurance law

•

Discussion IDENTIFY AND DESCRIBE THE ELEMENTS THAT MUST BE PROVEN FOR A NEGLIGENCE CLAIM

Negligence refers to inadvertent wrongful conduct that causes injury to another.

To succeed in a claim for negligence, a claimant must establish: 1.

2.

3.

4.

A duty of care.

Breach of that duty.

Causation.

Damages.

To succeed in a negligence action the person bringing the action must first show that a duty was owed to be careful. The reasonable forseeability test is used to determine whether such a duty existed. The question that is asked is whether the conduct that is called into question could have been reasonably foreseen to cause the damage which occurred. (This is now supplemented by the rules set out in the Anns case, which allows the court to reduce the scope of the duty if there is public policy reason to do so.) Liability for negligence will be imposed where there is improper conduct (misfeasance). Only rarely will a duty to act be imposed (nonfeasance).

Once the existence of duty has been established, the plaintiff must then show that the conduct complained of is below the standard of what a reasonable person would have done in the circumstances. What constitutes reasonable conduct will depend on such factors as the risk of danger and the costs of avoidance. .

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The standard used to determine if there has been a breach of the duty of care is the reasonable person test. The reasonable person test is not what would be expected of an average person. A reasonable person is expected to be “prudent” or particularly careful, demonstrating a level of observation considerably better than average. On the other hand, the conduct is not required to be perfect. What constitutes reasonable behaviour will also vary with the profession, trade or other calling of the person being sued.

For negligence to apply, not only must there be damage, but also that damage must be a result of the careless conduct. The ‘but for’ test is the general test for physical causation (i.e. the damage would have been avoided but for the behaviour of the defendant).

The courts apply a slightly different test to establish legal causation. There, liability will only be imposed if the defendant could have reasonably anticipated the general nature of the injury or damage suffered. Liability is avoided if the injury is too remote, or too unforeseeable. The “remoteness” test is often confused with the test to determine whether a duty of care exists, since both are based on reasonable foreseeability. However, with duty of care, the test is used to determine whether danger to the plaintiff should have been anticipated, whereas with remoteness it is the type of injury itself that must have been foreseen.

Traditionally, the Courts only provided compensation if the Plaintiff suffered actual physical damage or bodily injury. However, the Courts have gradually expanded the scope of compensable wrongs to include pure economic loss and mental distress.

DISTINGUISH THE DEFENCES APPLICABLE TO THE TORT OF NEGLIGENCE

DISTINGUISH THE DEFENCES APPLICABLE TO THE TORT OF NEGLIGENCE

Contributory negligence can now provide a partial defence to a claim in negligence. Such a defence arises when the defendant can show that the carelessness of the plaintiff or a third party contributed to the loss. Legislation in most jurisdictions now allows for an apportionment of responsibility for loss.

Voluntary assumption of risk (volenti non fit injuria) is another potential defence to a claim in negligence but its application is now restricted to situations where the defendant can show that the plaintiff knowingly assumed both the physical risk and the legal risk of waiving a claim. In many cases the voluntary assumption of risk is subsumed by the defence of contributory negligence.

Illegality (ex turpi causa) is a further defence to negligence. That defence arises where the plaintiff was harmed while acting illegally or immorally. The application of this defence is quite rare.

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DISTINGUISH OCCUPIERS' LIABILITY, INNKEEPERS' LIABILITY, STRICT LIABILITY,

Vicarious liability is also a form of strict liability in that the employer is being held responsible for the wrongful acts of an employee even though the employer has done nothing wrong. The imposition of vicarious liability is limited to those situations where the employee is carrying out her employment responsibilities.

VICARIOUS LIABILITY, AND PRODUCT LIABILITY

Manufactured products are often dangerous, either because of some inherent defect or because of their nature, such as in the case of chemicals, tools, or explosives. A claimant must establish fault when suing manufacturers for some injury or loss caused by their product. Once the plaintiff establishes the manufacturer failed in its duty to be careful which may be by circumstantial evidence, the onus reverses onto the defendant to establish they are not responsible. It is not just the purchaser of the product that is owed a duty of care, it is the ultimate consumer of the product.

DESCRIBE THE

Professionally liability will arise where the plaintiff suffers loss due to the negligence of a professional such as a doctor, lawyer, accountant or other expert such as a plumber. The claim may be based on breach of contract, breach of a fiduciary duty or in negligence. The significance of professional liability in tort law is that the scope of potential claimants is larger than the immediate parties to a contract. This includes claims based on negligent misstatement.

CIRCUMSTANCES WHERE PROFESSIONAL LIABILITY MAY ARISE

Most provinces have passed legislation eliminating the common law distinction between invitees and licensees, imposing an obligation on occupiers to take reasonable steps to protect all classes of visitors to their property. As for trespassers, most jurisdictions retain the minimum obligation not to wilfully or recklessly cause them injury as found under common law.

Most jurisdictions have modified the common law obligations of innkeepers to guests by statute and impose liability only when the innkeeper or his servants are negligent. This reduction in common law liability is available only where the innkeeper has carefully complied with the statute by placing notices at designated locations.

The case of Rylands v. Fletcher established that strict liability arises in certain circumstances where liability will be imposed regardless of absence of fault. If a person brings something inherently dangerous, such as stored water or explosives, onto his property and it escapes, the occupier is liable for any damage.

UNDERSTAND WHAT INSURANCE IS AND SOME TYPES OF INSURANCE AVAILABLE FOR BUSINESSES

Liability insurance (including professional liability insurance) provides coverage for the negligence of the business owner and employees. Property insurance provides coverage for the land, buildings and personal property utilized in the operation of the business. Business interruption insurance provides coverage for lost profits that are sustained while a business is unable to operate due to damage to real or personal property of the business. Life .

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insurance provides security against losses to the business resulting from the death of key business personnel. Health insurance is usually part of a benefits package and may include dental, prescription drug, and vision care coverage for employees.

An insured must be able to demonstrate an insurable interest in what is insured.

That means that when the insured against event happens, the insured must suffer a loss for which the insurance payout provides compensation. The contract for insurance is a contract of indemnity. Consequently, except in the case of life insurance, the insured can recover only what was actually lost, up to the monetary limit set out in the policy.

IDENTIFY AND UNDERSTAND SOME KEY LEGAL CONCEPTS IN INSURANCE LAW

A relationship of trust exists between the insured and insurer, creating an obligation to act in good faith. An important aspect of that obligation is the duty on the part of the insured to disclose pertinent information, especially where it affects the risk assumed by the insurer. The correct information is used to set premiums and if the insurance industry is deluged with inaccurate information, the industry may fail. Just as the insured has a duty to be honest in its dealings with the insurer, the insurer has a duty to process claims fairly.

Where insurers have withheld payments without justification, damages, punitive damages, and solicitor-client costs have been awarded to the insured.

The contra proferentum rule protects the insured in that any ambiguities in the policy will be interpreted in favour of the insured.

Insurance agents act on behalf of their principal (the insurance corporation) but also owe a duty of good faith to their customer. Any ambiguities in the standard form contracts used by insurance companies are interpreted in favour of the insured. The parties must also act in good faith to each other, which includes the disclosure of all pertinent information. The insurance company, when paying out to an insured, obtains the right from the insured to seek payment from any third party that caused the loss through the principle of subrogation.

They also have the right to the damaged property, which is called the right of salvage.

Answers to Questions 1. List and explain what a plaintiff must establish to succeed in a negligence action.

It must be demonstrated through a reasonable foreseeability test that there was a duty to be careful, and secondly, that there was a failure to live up to that duty. Thirdly, it must be demonstrated that damages or injuries are present and that those injuries were caused by the careless conduct complained of. It must also be clear that the injury was not too remote from the conduct complained of. It should also be noted that the presence of contributory negligence or other unacceptable conduct on the part of the victim, such as voluntarily assuming the risk, may reduce or eliminate any award.

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2. When a tort is committed intentionally, what remedies are available that may not be available when the conduct is unintentional?

The remedy that is usually available when serious intentional wrongdoing is involved is punitive damages. This remedy may not be available for negligence.

3. Explain what is meant by the reasonable person test?

It is a test used by the courts to establish whether a duty is owed by someone to another or others. The court would ask “What would a reasonably prudent person, in possession of all the facts of the case have done?”

4. What test do courts use to determine whether the defendant owed to the plaintiff a duty to be careful?

Because of the Anns case (still followed in Canada) the test for determining duty consists of two questions. First, was injury or harm reasonably foreseeable? And secondly, is there a public policy reason that the duty should not be imposed, that the scope of the duty be reduced, that the class to whom the duty is owed be limited or that the damages be reduced?

5. Explain how the adoption of the Anns case test by the Supreme Court of Canada modified the approach to duty of care established in Donoghue v. Stevenson.

The Anns case added a second part to the test. The first part is a re-statement of the test from Donoghue v. Stevenson. The second part asks if there is a public policy reason the duty should not be imposed, or should it be reduced or restricted in some way? The courts are trying to avoid indeterminate liability for new areas of negligence.

6. Distinguish between misfeasance and nonfeasance, and explain the significance of the difference in tort law.

Misfeasance involves wrongful conduct; nonfeasance is the failure to act. Generally the law will not impose an obligation to do something unless some duty can be shown because of the unique relationship between the two parties. Misfeasance is wrongful conduct that is usually controlled by the law of negligence.

7. Describe the test used in determining the appropriate standard of care demanded of the defendant in a negligence action.

The reasonable person test is used to determine what the appropriate standard of care is for negligence. What would the reasonably prudent person, in possession of all the facts do? The courts also take into account the costs of the taking action and the risks.

8. How has an occupier’s liability to persons using the property changed in recent years?

The most significant change is that occupiers’ liability has been codified in many provinces by legislation. In common law in the past it was thought that the standard of care demanded from an occupier varied with the status of the person on the property. An invitee was owed a different duty than a licensee and very little duty was owed to a trespasser.

9.

How does the “but for” test help to satisfy the requirements of causation?

It is necessary to establish that the action complained of actually caused the injury. The ‘but for’ test is simply a way of applying that principle. To determine the cause of an automobile accident, the question is posed, “But for the careless conduct of the driver, would the injury have been avoided?” .

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10. Distinguish between the thin skull rule and the crumbling skull rule and explain how they relate to the question of remoteness.

With the thin skull rule, as long as the defendant could have foreseen the possibility of injury, the fact that the plaintiff was more susceptible to injury than the average person is not significant. The defendant must “take the victim as he lies”. In a crumbling skull situation, the plaintiff had a pre-existing condition that would have affected them, even if the defendant had never caused anything to happen to the plaintiff. The defendant will therefore be responsible for part of the plaintiff’s injuries, but not all.

11. Explain how the effect of contributory negligence has been modified in recent years.

Historically at common law where there was contributory negligence on the part of the plaintiff, victims were entitled to no compensation from the tortfeasor because of their own negligent conduct. The significant change has been the legislation now permitting the courts to apportion the loss among parties.

12. Explain why the defence of volenti non fit injuria is difficult to establish.

To be successful, the defendant must show the plaintiff assumed not only the physical risk, but also the legal risk of undertaking the action, which is very rarely done.

13. Explain the obligations that are imposed on the producer of a product and to whom that obligation is owed.

The producer must exercise reasonable care in the manufacture of a product. The duty is owed to the ultimate consumer as long there has been no intermediate inspection or modification.

14. Why is the case of Haig v. Bamford important in the development of tort law?

It was thought prior to this decision that a careless statement that resulted in economic loss was not actionable unless some special fiduciary duty could be demonstrated. This case clearly demonstrated that the courts were willing to impose such a duty in broader circumstances. There is still some question as to whether the duty imposed for careless words is as broad as the duty imposed for careless conduct (determined by the reasonable foreseeability test). But in any case, there is no doubt that the liability for careless words has been expanded much beyond the direct relationships where it existed before. The result is that professionals and other experts now face liability for the careless things they say in the course of their professional activities even to those with whom they have no direct relationship. Today the principles developed in this case must be further qualified by the application of the principles of the Anns case.

15. Describe how the Anns case test can impact the establishment of a duty of care in cases involving professional liability.

The rules in the Anns case determining the existence of duty of care consist of 2 parts. The first question to ask is whether there was a degree of proximity between the parties such that if the person being sued had thought of it he or she would have realized that his or her actions posed a risk of danger to the other. This is a restatement of the reasonable foreseeability test developed in Donoghue v. Stevenson. The second part is to determine whether this duty should be modified. Is there any reason that the duty should not be imposed? Should the scope of the duty be reduced? Should the class to whom the duty is owed be limited or should the damages be reduced? This allows the court to apply other non-legal factors such as public policy to the case.

In cases such as Hercules Management Ltd. v. Ernst & Young, the Supreme Court applied the Anns case to limit the liability of the accounting firm when faced with a claim for investor losses based on flawed financial statements. .

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16. Identify the principle established in Rylands v. Fletcher. When will it be applied?

If the defendant chooses to have or store inherently dangerous items on their land, according to the principle of strict liability in this case, the owner will be liable for any damage that results from the escape of the items, no matter how it happened.

17. What is vicarious liability? Are there any restrictions on its availability?

This is a form of strict liability that imposes liability on one person for the actions of another, such as in the employment relationship. The employee must be acting in the course of their employment for the employer to be found liable.

18. How does the standard of care required from professionals or other experts differ from the standard of care required generally?

The standard imposed is more correctly stated as the standard of care expected from a reasonable person in the same circumstances. That is, where the person is a professional, it is the reasonable doctor, lawyer, accountant, etc. When a standard is set by a professional governing body and it falls below what the judge considers appropriate from a reasonably prudent professional, the higher standard will be required.

19. Explain the nature of a fiduciary duty and under what circumstances it arises.

Fiduciary duty arises where two parties are in a trust relationship. One may be an employee, a partner, a director and as such owes a duty to act always in the best interests of the person, business or company to whom they owe the duty.

20. Explain the source and nature of the powers of a professional organization. List the rights a member of that organization has when facing disciplinary proceedings.

Most professionals are members of self-governing disciplinary bodies. These are created under provincial legislation which allows them to grant practice licenses, suspend or expel members and set standards of conduct, education and training. When a member is being disciplined, the body must follow the rules of natural justice, any statutory requirements and the provisions of human rights legislation.

21. Distinguish between business interruption insurance and fire insurance. Why might a businessperson want to have both forms of coverage?

Fire insurance is designed to cover loss to property through fire. To obtain compensation for lost profits during a close down caused by fire, the insured would require business interruption insurance as well.

22. What is meant by an insurable interest, and how does it apply to the various types of insurance discussed in the chapter?

An insurable interest is some relationship that the insured has with the subject matter of the insurance so that if the insured against event takes place the insured will suffer a loss. With property insurance it is the insured’s equity in the property. With life insurance it is based on the relationship or involvement with the person whose life is insured. With liability insurance or business interruption insurance it is the risk of paying a damage judgment and the potential loss of profits.

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23. What remedies does an insurer have if the insured misrepresented material facts when applying for insurance coverage?

Failure to disclose information material to the loss may result in the losses being unrecoverable from the insurance company. Even where it is not relevant to the loss, if it is a material misrepresentation it may cause the entire policy to be void. Legislation in some provinces upholds the insurance where the misrepresentation was innocent; but even in those jurisdictions, the policy will be unenforceable if the misrepresentation or failure to disclose was done knowingly.

24. Explain what is meant by the right of subrogation. How may subrogation affect not only the insured but the person who has caused the injury or damage? Indicate what other means insurance corporations have to keep their damages as low as possible.

When an insured suffers a loss caused by another, the insurance company will compensate the insured but acquire from him the right to sue the person causing the loss. This is called the right of subrogation. The insured then can only collect once, not from both the insurance company and the person causing the injury. Also the person causing the injury is not protected by the insurance carried by the victim because his insurance company can and will turn around and sue in the place of the victim. The insurance company steps into the shoes of the insured upon paying compensation. Insurance companies will often re-insure their coverage if the risk or the magnitude of the potential loss warrants it. This spreads the risk of loss among several insurance companies.

Solutions to Cases 1. Roper v. Gosling, 2002 ABCA 71 (CanLII) The plaintiff and the defendant had both been drinking, but the evidence indicated that Roper was not displaying any outward signs of inebriation. Gosling admitted to being drunk, but asked Roper if he was capable of driving before getting in the car. In the suit, Roper defended on the basis of contributory negligence on the part of Gosling. The trial judge held, and the Court of Appeal affirmed that Gosling did not encourage Roper to drink, there was no evidence of impairment and therefore there was no reasonable foreseeability. As a result there was no finding of contributory negligence on the part of Gosling.

2. Dixon v. Deacon Morgan McEwan Easson, 1989 CanLII 2786 (BC SC) In this case the court held that although it was foreseeable that someone might rely on certain statements, the necessary degree of proximity was missing. The auditors were not aware of the plaintiff as an individual or a member of a limited class of people who would rely on them when they prepared the statements. Rather the plaintiff was a member of an unlimited, open-ended class and therefore no duty was owed and the action was dismissed. Had they known that the statement was to be used to attract investors the plaintiff would have belonged to a limited class of which they had knowledge, and a duty would have been owed. Compare this case to Haig v.

Bamford discussed in the text.

3. Arsenovski v. Bodin, 2016 BCSC 359 (CanLII) The tort claim of Mrs. Arsenovski was for for malicious prosecution. She could have also consideration a claim for defamation. She was awarded damages for the full amount of her criminal charge legal fees, for emotional distress, and $350,000 in punitive damages against ICBC. .

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4. Schoff v. Royal Insurance Company of Canada, 2004 ABCA 180 (CanLII) All insurance policies involve a duty of utmost good faith on the part of the party requesting the insurance. There is a duty to disclose any information that may affect the decision of the insurer as to whether to insure. In this case, there were many misrepresentations on the part of Mrs. Goyan when she obtained the contract of insurance, however it was third parties who were making the claim. The Insurance Act of Alberta required minimum coverage of $200,000 which was not affected for third parties, even in the face of fraud by the policy holder. The Schoffs received $200,000 under the Royal insurance policy and additional money under the underinsured clause of their own insurance policy.

5. Mueller v. Wawanesa Insurance Co. [1995] O.J. No. 3807 (Ont. Ct. [Gen. Div.]) The insurance company refused to honour the policy, and in this action the Court agreed, finding that the use of the house was not the residential use envisioned under the policy and that there had been a material change in risk. The failure to notify the insurer of the change voided the policy and the insurance company did not have to pay.

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Chapter 6 The Elements of a Contract: Consensus and Consideration Learning Objectives • • •

LO 6.1 Discuss the fundamentals of the contractual relationship LO 6.2 Explain consensus and the significance of a “meeting of the minds” LO 6.3 Describe a valid offer LO 6.4 Describe an effective acceptance LO 6.5 Define “consideration” and discuss the significance of “the price you are willing to pay”

Discussion DISCUSS THE FUNDAMENTALS OF THE CONTRACTUAL RELATIONSHIP

A contract as a voluntary exchange of promises, creating obligations that, if defaulted on, can be enforced and remedied by the courts. Most of the operation of business and enterprise is defined by contractual relationships. The common law of contract law has evolved over centuries to provide a great deal of predictability and stability in business.

Creativity is also enhanced by contract law since the parties have freedom of contract. Also unlike tort or criminal law, the parties are willing participants.

There are five elements to a legally binding contract, all of which must be present or there is not an enforceable agreement: Consensus, Consideration, Capacity, Legality and Intention. Consideration is difficult for many students to comprehend. The use of the following sentence might ease the difficulty. “In consideration of me paying you $5.00, you will transfer title of your calculator to me.” As well, many students have the misconception that all contracts have to be in writing to be enforceable.

Formal and Simple Contracts: A formal contract is one that is sealed by the party to be bound. Simple contracts, sometimes called parol contracts, may be verbal or written, but are not under seal.

Express and Implied Contracts: An express contract is one in which the parties have expressly stated their agreement, either verbally or in writing. An implied contract is inferred from the conduct of the parties.

Valid, Void, and Voidable Contracts: A valid contract is one that is legally binding on both parties. A void contract does not qualify as a legally binding contract because an essential element is missing. A voidable contract exists and

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has legal effect, but one of the parties has the option to end the contract.

Unenforceable and Illegal Contracts: An example of an unenforceable contract is one that is required to be in writing under the Statute of Frauds and is not. An illegal contract is one that involves the performance of an unlawful act or involves illegal consideration. An illegal contract is void.

Bilateral and Unilateral Contracts: A bilateral contract is one in which both parties make commitments and assume obligations. There is no exchange of promises in a unilateral contract. This type of contract comes into effect when one party actually performs what has been requested by the other.

EXPLAIN CONSENSUS AND THE SIGNIFICANCE OF A “MEETING OF THE MINDS”

DESCRIBE A VALID OFFER

There must be mutual agreement to be bound to particular courses of action.

One party must not be talking about an exchange of money for apples when the other is thinking of oranges. Such an agreement regarding fruit would be unenforceable and for lack of consensus. The common will in respect of what is to be carried out in the agreement is sometimes called a “meeting of the minds”.

A contract is formed through the process of offer and acceptance. The offer contains all the significant terms of the contract and is often referred to incorrectly as “the contract.” It is in fact a tentative promise on the part of the offeror to honour the terms set out in the offer if there is a similar commitment on the part of the offeree. When the agreement reached anticipates further negotiation, there is no binding contract. An offer must be distinguished from an invitation to treat which is merely an invitation on the part of a seller to come to the place of business and negotiate a deal. “Treat” is the root word for treaty and this difficult concept may be comprehended by a student by also calling the concept invitation to “agree”.

An offer can be accepted providing it hasn’t lapsed for some reason. An offer will come to an end at the expiration of a specific time, and when no time limit is stated, at the end of a reasonable time. An offer will end at the death or insanity of the offeror. Further negotiations can also bring an offer to an end as in the case of revocation, counteroffer or rejection. Once one of these events takes place it is too late to accept the offer unless an option is present.

DESCRIBE AN EFFECTIVE ACCEPTANCE

The acceptance is an indication of a commitment on the part of the person receiving the offer. Therefore such commitment must be unqualified and unconditional. Any new condition added to what purports to be an acceptance, forms a rejection and counteroffer. An effective acceptance must be communicated and it becomes effective when and where the offeror is informed of the acceptance. The “when” can be important for pricing, and the “where” can set the legal jurisdiction to interpret the contract. When it is appropriate to respond by mail, however, the acceptance is effective when and where it is dropped in the mail box. This can result in the unusual circumstance of a contract being in existence before the offeror is aware of it. The postbox rule is an exception to the rule requiring communication of acceptance and does not apply to counteroffers, revocations, etc.

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The law of contracts has evolved with respect to electronic transactions and will no doubt continue to do so as e-commerce continues to grow in importance.

Most electronic transactions involve contracts, whose validity should not be affected by the fact that they were made electronically. The Uniform Electronic Commerce Act (UECA), a model statute created by the Uniform Law Conference of Canada, has largely been adopted in whole or in part by every legislative body in Canada. The UECA clearly states that an offer may be made and accepted electronically. Several courts have refused to enforce electronic contracts when the terms have been found to be unreasonable. Statutes in various jurisdictions provide that communication of acceptance of an offer will be effective when it reaches the information system of the recipient, even though there may be some time before it is actually read. It remains open to the parties to agree to modify any rule pertaining to electronic information.

DEFINE “CONSIDERATION” AND THE SIGNIFICANCE OF “THE PRICE YOU ARE WILLING TO PAY”

The phrase, “consideration is the price you are willing to pay”, refers to the concept of consideration which is central tenet of contract law. Contracts are formed as a result of bargaining between the parties. The process involves an exchange of promises such that all parties derive some benefit from the deal.

The benefits received by each party are the consideration they have received.

It is not restricted to an exchange of money but can involve anything that the parties think is of value.

Consideration need not be fair. The court will not interfere with the bargain struck, even when it is a bad deal for one of the parties. The law presumes freedom of contract and the opportunity to negotiate between equal bargaining parties. In fact, this may not always be true and when unequal parties bargain together and the resulting contract has terms in it bestowing particular advantage to one side or the other (such as exculpatory or exemption clauses which are designed to reduce the liability of one of the parties) the courts interpret those clauses very restrictively.

When businesses deal with consumers, the courts are much more concerned with fairness. They are therefore sometimes willing to assist consumers who have been taken advantage of by merchants. They have developed such concepts as unconscionability, fraud, and mistake (to be discussed in Chapter 7), which give them power to review these transactions. The courts will also examine the fairness of consideration when insanity, drunkenness, or undue influence may have affected the transaction.

The law will recognize that a variation to an existing contract, unsupported by consideration, is enforceable if not procured under economic duress.” After providing several reasons in support of this change in the law, the Court concluded, it was prepared to accept that a post-contractual modification, unsupported by consideration, may be enforceable so long as it is established that the variation was not procured under economic duress.

If the agreement is one-sided, and only one of the parties is getting something from the deal, it is called a gratuitous promise, or a gift, and the courts will not enforce it. There has to be an exchange of consideration. It may well be that such gratuitous promises ought to be honoured from an ethical point of view,

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but there is no legal obligation to do so. An example of a gratuitous promise would be a promise to pay extra for work that was already required under an existing duty. Similarly, past consideration will not support a new bargain. The Court determined that the variation of the existing contract was not supported by “fresh consideration.” The victim was, however, subject to economic duress, so the variation (the increased cost) was unenforceable.

A settlement of a court action will be binding even in the absence of fresh consideration, since the parties discontinue the action. Similarly, the courts rely on the equitable concept of quantum meruit to establish consideration when dealing with contracts for services (such as those provided by a lawyer or mechanic).

Promissory estoppel is the first exception. When a person makes a gratuitous promise and the person to whom it is directed relies on the promise in such a way that if the promise is not kept he will suffer damages, the person making the promise may be bound to it. In Canada promissory estoppel can only be used as a defense and not as a cause of action.

The second exception to the requirement of consideration arises when a contract is executed under seal. The seal normally takes the form of a paper wafer, although almost any form of marking on the document that the parties have identified as a seal can be used. A sealed contract is a formal contract, or a deed.

Answers to Questions 1. What is meant by “freedom of contract?” Explain the impact of this principle on the development of contract law. What are two types of restrictions on this principle?

Freedom to contract assumes that both parties are in an equal position to bargain the terms of their contract. From this principle the courts have developed a hands-off approach to the contractual relationship allowing the parties to determine the nature of their own agreement and refusing to protect either party from a bad deal. This has not been a fair reflection of the relationships that have been created in modern times because of the relative power of large retail organizations over consumers, and so today a considerable body of consumer protection legislation has been created to cover these situations.

2. List and explain the elements that must be present for an agreement to qualify as a contract.

There must be offer and acceptance leading to consensus. Consideration is the price to be paid. Each party must have the legal capacity to contract. The contractual relations must not only be legal, but not against public policy and the parties must have an intention to be legally bound.

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3. Explain the difference between a formal contract and a parol contract.

A formal contract is on that is sealed by the party to be bound. Parol contracts may be verbal or written but are not under seal.

4. Explain the difference between void and voidable. What is the practical result of this difference?

A void contract is missing an essential element and is not enforceable. A voidable contract exists, but one party has the option of ending the contract. The implications of each choice differ for third parties. If the contract is void, title to any subject matter must be returned to the vendor. If voidable, the third party retains title.

5. Distinguish between unenforceable contracts and illegal contracts.

An illegal contract is void, as it involves the performance of an illegal act or payment of illegal consideration. An unenforceable contract is lacking in some requirement, such as consideration.

6. Explain the difference between a bilateral contract and a unilateral contract.

A bilateral contract is one in which both parties make commitments and assume obligations. A unilateral contract involves the performance of an act or service as the consideration for whatever is promised. The contract becomes binding when the act or service is performed. An example is the offer of a reward for the finding and return of an item. Once returned there is a binding contract for payment of the reward.

7. What practical concepts does contract law use to determine if “a meeting of the minds” has happened?

Consensus occurs when one party states its position in the form of an offer and the other party, through acceptance, makes a similar commitment to be bound by the terms of that offer.

8. At what stage in the process of forming a contract are the significant terms of the contract clearly set out?

The terms of the contract are clearly set out when a complete offer is made by one party.

9. Explain the role of implied terms in a contract. Who has the power to imply terms into a contract? When will the power be used?

In order for a contract to be binding the parties must have set out the major provisions of their agreement. There are many minor technical aspects to the agreement, however, which the parties may not have put their minds to. These can be implied into the contract and, therefore, form part of the contract. One of the main functions of the Sale of Goods Act is to set out a number of terms that can be implied into any agreement for the sale of goods when the parties to the sale have not dealt with that particular aspect of the matter.

The court can imply terms into a contract to enforce the intention of the parties but the court will not do so when the term would be clearly inconsistent with what has been agreed. The court will not make the bargain on behalf of the parties. When all the important terms have been agreed to, however, the court will generally be willing to supply missing peripheral elements of the agreement, usually following the accepted practice of the industry involved, rather than

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see the agreement become ineffective because of its incompleteness.

10. Is an “agreement to agree” binding? Explain your answer.

If the terms have been agreed upon, and there are no further negotiations contemplated, then an agreement is valid, even if it is to be put into a more formal document later. If the parties have just reached an agreement to negotiate further, that is not a binding contract.

11. Distinguish between an offer and an invitation to treat.

Invitations in the form of advertisements and displays are designed to encourage the customer to enter into negotiations in relationship to the particular product being advertised and are not intended to be an offer on the part of the vendor. An offer is when one of the parties commits themselves to the particular terms of the agreement in such a way that it is clear that the other party merely has to accept in order for the agreement to be binding. For example, by going to a store advertising an item, selecting one, and taking it to the cashier.

12. Can you accept an offer that was made to someone else? Explain your answer.

No, but appearing to do so becomes an offer.

The naming of the parties is an essential term of an offer in a bilateral contract.

13. List and explain the various ways an offer can come to an end.

An offer will come to an end: (1) at the end of a specified time, (2) at a reasonable time if no time is specified, (3) at the death or insanity of the offeror, (4) when there is a revocation of the offer, (5) if the offer is rejected (6) if there is a counteroffer (7) if the subject of the offer becomes illegal (8) if the subject matter of the offer is destroyed.

14. What is the effect of the offeror stating in an offer that the offer will remain open for acceptance until a specific date? What can offerees do to protect themselves from the offer being revoked?

Stating that the offer will remain open for acceptance until a specific date does not commit the offeror to keep the offer open until that time unless some consideration has been paid for that commitment (option). In the absence of such consideration, the offer can be revoked by the offeror. The effect of the specified date merely determines a point beyond which the offer will no longer be open.

15. What risks are faced when a person offers to sell certain goods to A and then sells them to B? How can this problem be avoided?

When an offer is made to sell goods to a particular person, and then they are sold to another, that sale does not revoke the original offer. The person making the offer may find himself in the difficult position of having sold the goods but still obligated to the original offeree if that offer is accepted. To protect from this eventuality, the offeror should either make sure that the original offer is revoked before the sale goes through, or make the sale conditional on the lapsing of the original offer.

16. Explain the two types of contracts that result from the tendering process.

A tendering contract consists of a contract A and a contract B. Contract A comes into existence when the party presenting a bid responds to the request for tender and submits a bid. That

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contract carries specific terms that are distinct from the ultimate construction contract that is awarded when the successful bid is chosen. The construction contract is contract B. 17. What do the courts do, when interpreting standard form contracts, to correct the imbalance in bargaining power between the parties?

The courts attempt to correct an imbalance in bargaining power by interpreting standard form contracts strictly against the drafter of the contract. That normally results in ambiguity being resolved in favour of the less powerful party. This is particularly important when dealing with exemption clauses.

18. Do parties to a contract have a duty to act honestly in the performance of their contractual obligations? Explain your answer.

Historically, there was no “stand-alone” duty of good faith in the enforcement of commercial contracts. However courts imply a duty of good faith to ensure parties do not act in a way that defeats the objective of the agreement they have entered into. Therefore, parties do have a duty to act honestly in the performance of their contractual obligations. A recent Supreme Court of Canada decision created the need for good faith in contractual performance.

19. What qualities must an acceptance demonstrate to be effective?

The acceptance of the offer must be a complete, unqualified commitment to the original offer and as a general rule must be communicated to the offeror to be effective. (But note postbox rule.)

20. When is a contract formed?

The contract is formed when acceptance of an offer is communicated to the offeror.

21. When will silence be considered an acceptance of an offer?

Silence, as a general rule, does not constitute acceptance. An important exception to this rule occurs when there is an ongoing business relationship between the parties that has an established norm of not saying “no” being an acceptance.

22. What is the general rule regarding acceptance? What is the practical result of this rule?

The general rule is that the contract is formed when and where the offeror learns of the acceptance.

This would then determine the jurisdiction and law governing the contract.

23. Explain the effect of the postbox rule on the principles governing acceptance.

The general rule of acceptance is that it must be communicated to the offeror before it is effective, and it is effective when and where communicated. The postbox rule is an exception and states that when it is appropriate to respond by mail, an acceptance is effective when and where posted.

This can be very important to the parties since the time of acceptance can be considerably earlier, and the place of acceptance may determine what jurisdiction’s law will apply to the contract.

24. Discuss the role the postbox rule plays when modern communication methods are used.

The postbox rule is limited to the use of the postal mail. Where fax and email are used, the

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acceptance will not be effective until received by the or their Internet service provider.

25. What is “click-wrap”? How is an online offer to sell a software license usually accepted?

Before purchasing software on the Internet, the purchaser usually has to agree to the seller’s terms and conditions. When the purchaser clicks on the “I Accept” button it is assumed that the terms and conditions have been read and accepted. This is similar to the in-store purchase of software where the physical removal of the shrink wrap presumes the purchaser has read the terms. For Internet software purchases, clicking on the “I Accept” button is called “click- wrap” as it is similar to the in-store removal of shrink wrap.

26. What two factors do the courts consider when deciding whether to enforce an electronic contract?

The two issues the courts consider when deciding whether to enforce an electronic contract are as follows: One is the form of assent where the offeree really knew and accepted the terms. This highlights the importance of having the purchaser click on the “I Accept” button to verify their acceptance of the terms and conditions before placing their order.

The second issue is the reasonableness of the terms. For instance, terms that are hard to locate or very small are not considered reasonable.

27. Define consideration and explain what is meant by the term “the exchange of consideration.”

Consideration is the price paid by each party for what they obtain in the agreement. Each party must make some sort of legal commitment to the other, and the benefit derived therefrom is referred to as consideration. This is in keeping with the bargaining nature of the agreement and, therefore, the term “the exchange of consideration” simply refers to the fact that a bargain has been struck with both sides committing to give the other some benefit or advantage.

28. Explain under what circumstances a person who fails to properly perform a gratuitous promise can be held legally liable for that failure.

A person failing to perform a gratuitous promise may be liable through promissory estoppel if the other party incurred some cost in reliance upon the promise. Promissory estoppel may only be used as a defense, not as a cause of action. Secondly where the person promising has started to do something and does it improperly which causes injury or loss to the other party, there may be a cause of action based on the tort of negligence.

29. Does consideration have to be fair? Explain your answer.

Consideration does not have to be fair, it only has to have some value, in the absence of other factors such as fraud, unconscionability, etc. The court would only address the value of the consideration as evidence that one party was taken advantage of by the other through fraud, or other situations.

30. What difficulty might be faced by a person who has already agreed to do a specific job and then extracts a promise of more pay from the other party?

The person is already bound by contract and when he extracts a promise for more out of the other party, there may be no consideration to support the new promise.

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31. If a person who is rescued promises to pay the rescuer $1000 but doesn’t pay, will the rescuer be successful in suing for breach of contract? Explain your answer.

If the promise to pay is made after rescue, it is a gratuitous promise and is unenforceable. If made before rescue, it is a unilateral contract. The contract becomes binding when the act or service is performed.

32. “A creditor is bound by her promise to take less in full satisfaction of the debt.” True or false? Explain your answer.

At common law, no, due to a lack of consideration to support the amendment of the contract.

However many jurisdictions have passed legislation providing that when a creditor has agreed to take less in full satisfaction of a debt, and has actually received the lesser sum, the creditor is bound by the agreement and cannot sue for the difference.

33. Explain why a contract dispute settled out of court is considered binding even though one party would have obtained more if the action had been taken to court.

When it is relatively clear that a litigant who settled out of court for a compromised sum would have been fully successful had the court dealt with the matter, there is still consideration to support the settlement. What the two parties have each given up is their right to allow the court to determine the outcome. The right is of considerable value to both parties for saved time and costs.

Therefore, giving it up amounts to valid consideration on both sides.

34. Explain a person’s obligation regarding payment when he has requested a service without specifying a particular fee.

Quantum meruit is one of the exceptions requiring consideration be established if a valid contract is to exist. Even though the consideration has not been specifically agreed to, there is an obligation to pay a “reasonable” amount for the services actually rendered.

35. Describe what is meant by promissory estoppel and the circumstances in which it will arise in contract disputes.

When it is clear that there is no consideration to support a promise made by one of the parties to an agreement, that promise is not enforceable as a general rule. It is only when the other person (promisee) is being sued by the promisor that it is permissible to use that promise as a defense.

36. How does the presence of a seal affect the requirement that consideration must be present in a contract?

When a seal is used it is not necessary to show consideration for the contract to be binding. A sealed contract is considered a formal contract or a deed.

Solutions to Cases 1. Wembley Marketing Ltd. v. ITEX Corp, 2008 CanLII 67425 (ON SC) The Court concluded that “(i)n all of the circumstances, I find that there was a binding agreement between Wembley and ITEX and I see nothing unfair or unreasonable in giving effect to the terms of the Agreement.... I find no evidence of fraud or misrepresentation on the part of ITEX. Moreover, Mr. Fuss, an experienced businessman, signed his name to the same

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agreement on two occasions. This is enough to fall within the principles confirmed in Fraser Jewellers, supra. Moreover, according to his collective evidence on this point, Mr. Fuss either did not read the Agreement, read a specific part of it or merely glanced at the clause. Given how unsatisfactory his evidence was on this point, I am unable to find a basis upon which to conclude that it would be unfair or unconscionable to hold the plaintiffs to the Agreement.” The Court then concluded that the desire to enforce the forum selection clause was genuine and that the plaintiff tendered no evidence that it would be prejudiced if it were forced to bring its claim in a foreign court. Accordingly, the forum selection clause was held to be binding.

2. Bigstone v. Bigstone, 2013 SKCA (CanLII).

The courts should enforce the interspousal agreement, even though the wife signed it after the husband died. The parties were of one mind in the interspousal agreement. The spirit of the contract was that they were of one mind.

3. Yin v. Lui, 2015 CanLII (BC CA) The court held that “it seems to me that throughout the negotiations the husband demonstrated the importance of the indemnity term by his insistence upon it, and cannot now say that it is lacking the importance ascribed to it by the judge. Nor can one say that the essence of the term was agreed once the wife proposed certain language. I say this because the clause was of sufficient importance to the husband that he proposed its language be broadened, and he advanced a different version of the clause, thereby formally making his new version the offer that was on the table.” Therefore the husband's clause was the one that could be accepted.

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4. Ayerswood Development Corp. v. Hydro One Networks Inc., [2004] O.J. No. 4926 (S.C.), 2004 CanLII 45463 (ON SC) This was a unilateral contract. Hydro One had made an offer through their program that was open to anyone. If the conditions of the offer were complied with, acceptance then occurred and the person accepting would be entitled to the incentive payments. The court held suspension of the program did not result in a revocation of the offer before acceptance and “(i)n a unilateral contract, the person making the offer is not entitled to withdraw it once a party is in the process of performance”. The court ordered the incentive payments to be made by the defendant.

5. ASI Group Ltd. v. Toronto (City), 2017 ONSC 3385 (CanLII) The City was found not to be liable to ASI. The City had the right in contract to cancel RFQ#1, and the re-tendering caused all bidders to be treated fairly.

6. IGM U.S.A. Inc. (Bucci Industries U.S.A. Inc.) v. Linamar Holdings Inc., 2007 CanLII 38942 (ON SC), aff’d ONCA 256 (CanLII) Generally an invoice cannot unilaterally impose terms on a customer. (There is a reason we are sometimes asked to sign an invoice. And you do not have to sign.) The court held that “(t)he stipulation on the back of the invoice did not form part of the contract agreed to between the parties, which had already been formed.” The court established that the Ontario courts do have jurisdiction to deal with the litigation using the common law principles of jurisdiction simpliciter and forum non conveniens.

7. Leonard v. GC Surplus, 2014 CanLII 18980 (ONSCSM) The contract was made where the acceptance was received, which was in Toronto. Leonard made the offer from Toronto and received the acceptance there. The contract was formed in Toronto.

8. Lapointe Rosenstein Marchand Melancon LLP v. Cassels Brock & Blackwell LLP, [2016] 1 SCR 851, 2016 SCC 30 (CanLII) The contract at issue is the Wind-Down Agreement. The acceptance took place in Ontario. The Ontario courts properly assumed jurisdiction.

9. Stadnyk v. Dash, 2007 SKQB 443 (CanLII).

The courts should decide that the offer was unconditional and therefore should be accepted. The final paragraph from Stadnyk’s lawyer reference that a response would be appreciated in 10 days but did not make the offer conditional on signing within 10 days. The language was not precise enough to make that conditional.

10. MacMillan Estate v. Hoffman, 2011 BCSC 141 (CanLII).

The court held “...that the Lease to Purchase document does not place any obligation on Mr. Hofmann to purchase the Property and therefore is not an agreement for sale.” Since rent was no longer being paid, the court declared the Lease to Purchase null and void. If a valid Lease to Purchase was in place there would be no need for it to be executed under seal since there would be an exchange of consideration.

11. Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2015 ONSC 3833 (CanLII), aff’d on this issue, 2016 ONCA 93 (CanLII) The renewal language was held not to be “an agreement to agree.” The then current rental rate could be established through expert evidence.Saskatchewan Government Insurance v.

Medynski (Lakeland Towing), 2012 SKQB 157 (CanLII)

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It was held on the facts that a contract had not been formed. The parties had failed to agree on price. Accordingly, quantum meruit was used to establish the pricing.

12. Janz v. Whitehorse Wholesale Auto Centre Ltd., 2016 YKSC 27 (CanLII) Promissory estoppel did not apply because Janz did not rely upon the statements to her detriment. Instead it was to her benefited by being able to use the trucks for a further period of time.

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Business Law in Canada, Thirteenth Edition

Chapter 7 The Elements of a Contract: Capacity, Legality, and Intention Learning Objectives LO 7.1 Review the law relating to the capacity of minors, the insane, the

intoxicated, and others of limited capacity LO 7.2 Discuss the element of legality relating to contracts performed

illegally and to contracts formed illegally LO 7.3 Explain the contractual element of intention LO 7.4 Examine the form of the contract, including the requirement that

contracts be in writing and the principle of part performance

Discussion

REVIEW THE LAW RELATING TO THE CAPACITY OF MINORS, THE INSANE, THE INTOXICATED, AND OTHERS OF LIMITED CAPACITY

The courts have always recognized that some people must be protected in their contractual relations with others because they are more vulnerable. Over the years, several categories of people have had their freedom to enter into contracts limited or in some cases done away with altogether. The age of majority varies from province to province, but people under that age in all provinces are protected to some extent in their contractual relations. Contracts with infants are voidable at the request of the infant unless they are for items or services that are classified as “necessaries”. The adult with whom the infant contracts, is bound. When necessities are involved, the infant must pay a reasonable price. If services beneficial to the infant are involved (e.g. apprenticeships) an infant is bound by that contract. In B.C. all contracts with infants are “unenforceable” except those made enforceable by statue. An infant who affirms a contract upon reaching the age of majority is bound by it. Parents are generally not responsible for their children’s conduct either in contract or tort, but infants are not protected by infancy when a tort is involved.

People who can be classified as insane are also protected in their contractual relations.

This rule also applies to the intoxicated. Intoxicated or insane persons must not only demonstrate that they did not understand the nature and quality of the act performed, but also that the other person knew or ought to have known of the incapacity. They must also show that the contract was repudiated within a reasonable time of regaining their capacity.

“Indians” under the Indian Act, corporations, enemy aliens during wartime and bankrupts have had their freedom to contract restricted. Importantly an undischarged bankrupt often cannot act or continue to act as a director of a corporation.

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The federal government considered using Emergencies Act during the COVID-19 pandemic, but the provincial governments objected. The Emergencies Act is subject to the Charter of Rights and Freedoms, and does not give the federal cabinet unfettered executive power like the War Measures Act did.

DISCUSS THE ELEMENT OF LEGLITY RELATING TO CONTRACTS PERFORMED ILLEGALLY AND TO CONTRACTS FORMED ILLEGALLY

When discussing legality, it is necessary to distinguish between illegality as to formation of the contract (the contract itself is illegal) and illegality as to performance (the contract is performed in an illegal way). An example of a lawful contract that is performed illegally is a renovation contract that is undertaken by contractors who are not properly licensed and who do not obtain the necessary permits.

A reference to an “illegal contract” is illegal at the time it was formed. An illegal contract will not be enforced. It is void. Usually, when faced with a void contract, the court will restore the parties to their original position, ordering them to return any deposits advanced and property that had been transferred. However, because an illegal contract involves unacceptable or immoral conduct the courts will not assist the parties by restoring them to their original position unless one of them is innocent of any wrongdoing.

There are many examples of illegal contracts, including those formed to commit a crime, to commit a tort or to restrain trade.

EXPLAIN THE CONTRACTUAL ELEMENT OF INTENTION

EXAMINE THE FORM OF THE CONTRACT, INCLUDING THE REQUIREMENT THAT CONTRACTS MUST BE IN WRITING AND THE PRINCIPLE OF PART PERFORMANCE

The parties to a contract must have intended that serious obligations and rights would flow from their agreement. Where domestic relations are involved, the court assumes that there was no intention to be bound. In commercial relations the presumption is that there is an intention to be legally bound. In other situations the court will use a reasonable person test to determine whether intention is present.

Most contracts are verbal. There are, however, provisions in place that require some types of contracts to be evidenced in writing to be enforceable. The Statute of Frauds requires that a contract be evidenced in writing if it cannot be performed within one year, if it deals with land, if guarantees are involved, if a promise is made in consideration of marriage, or if an executor of an estate promises to pay the debts of the estate out of personal funds. The written document that records the details of a contract must contain all essential terms.

It may arise after the agreement has been struck or be surmised from a compilation of documents.

The court will waive the requirement of writing if the parties can produce evidence to show that a contract dealing with an interest in land has been partially performed. There are some important limitations to this principle.

The part performance must be evidence of the existence of the contract and consistent only with the existence of the contract.

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Business Law in Canada, Thirteenth Edition Answers to Questions 1. “In determining whether a child has contractual capacity, the court will attempt to determine if she actually understood the transaction.” True or false? Explain your answer.

False. For those under the age of capacity in your province, by law they lack the legal capacity to enter into a binding contract for items other than necessaries.

2. Explain the circumstances in which an infant may escape liability for a contract and the circumstances in which an infant is bound by a contract.

Infants are not bound by the contracts they enter into unless they are for necessities or are beneficial contracts of service. But once an infant’s contract is completely performed or the infant has paid for the goods or services, the contract cannot be voided unless there is a complete failure of consideration.

3. What is the significance of a minor’s contract being designated as a beneficial contract of employment or for service?

It is binding on the minor in most provinces.

4. In addition to debts incurred for necessaries, when will a minor be liable for a debt he incurred?

This varies depending on the province. In B.C., there will be no liability other than for student loans. In other jurisdictions it may include contracts of employment, apprenticeship or service.

5.

What are the three stages of a contractual relationship? Describe the legal situation of a minor in each of these stages.

First stage - executory contract - the parties have entered into the contract, but the minor has not yet received any benefit from it and has not yet paid. A minor is not bound to the contract.

Second stage - partially executed contract - the minor has received the goods but has not yet paid.

The minor may not be bound, but must return the goods and is then entitled to a refund of any money already paid. If the goods have been destroyed or title passed to a third party, the vendor is still not entitled to payment, and cannot pursue the third party.

Third stage - executed contract - Minors have received benefit under the contract and have paid.

In most provinces, minors will be bound unless what they received was of no value. If the contract is prejudicial to the interests of the minor, it will be void.

6.

If there is no relevant legislation, when will the parents of a minor be responsible for the minor’s contracts? When will they be liable for the torts of the minor?

In contract law parents are not responsible for the contracts of their children unless it can be demonstrated that an agency relationship existed between parent and child. Similarly, in tort law parents are not liable for the tortious conduct of their children unless it can be demonstrated that they were negligent in their own right.

7. When can an adult sue a minor in tort even though there is a contract between them?

When the minor uses the subject matter in some way that is not anticipated under the contract,

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Business Law in Canada, Thirteenth Edition (e.g. drag racing) and damages it, the adult can sue in tort and escape the limitations imposed by the minor’s lack of contractual capacity.

8. What must an insane or intoxicated person establish in order to escape liability under a contract?

Each must establish that they were unable to understand the nature of the contractual relationship and that the other person knew or should have known of that drunkenness or insanity as determined by the application of the reasonable person test.

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Business Law in Canada, Thirteenth Edition 9. Explain what care business people must exercise when entering into contracts with government corporations or bodies.

Crown corporations and government bodies are often empowered to enter into contracts generally but some may have that power specifically limited by the legislation or regulations authorizing their operations. Business people should be aware of statutory limitations to the capacity of these bodies when dealing with them.

10. Explain four other situations where business people must be careful that those they deal with have the capacity to contract.

Foreign governments and their representatives, bankrupts, “Indians” under the Indian Act, and government agencies.

11. Explain the difference between a contract that is performed illegally and an illegal contract.

An illegal contract is one that covered an illegal activity. It is unlawful and cannot be enforced.

But if the contract itself is legal, and it was only in the performance that an illegal activity occurred, then innocent parties are entitled to the benefits of the contract.

12. What decisions can a court make if performance of a contract violates a regulatory statute?

The legislation itself may provide for the contract being void, or other mandated outcomes, which the courts must follow. If there are no such provisions, the court may treat the contract as being void, but not illegal and may grant rescission. If the illegal performance can be separated from the rest of the performance of the contract, the court may rule only that part void and enforce the rest of the contract.

13. What are the two reasons that can cause contracts to be illegal?

Commission of some prohibited conduct set out in a statute, or immoral conduct that is against public policy.

14. How has the law regarding the judicial treatment of illegal contracts changed?

The classic approach was that every illegal contract was deemed to be void. The court may now sever just the illegal portion of the contract, leaving the balance of the contract enforceable, even to the point of re-writing part of the contract.

15. Give five examples of contracts deemed by the court to be against public policy and describe the effect of such a designation.

At common law, these are any contracts to commit a crime or a tort, to commit immoral acts, obstruct justice, injure the state, contracts that unduly restrain trade, restrict competition, contracts as bets and wagers, contracts to promote litigation, contracts to injure public service and contracts in restraint of marriage. Most of these types of contracts are void and the courts usually will not assist the parties to return to their original positions. Some, however, such as contracts that unduly restrain trade or restrict competition, may have only that portion of the contract that is tainted invalidated.

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Business Law in Canada, Thirteenth Edition 16. “All contracts that restrain trade are illegal.” True or false? Explain your answer.

False. Only those contracts which unduly or unreasonably restrain trade are against public policy.

For example, when a business is sold it is often necessary to restrain the vendor’s freedom of activity through a restrictive covenant in order to protect the value of the goodwill in the business.

17. Describe the test the courts will use in determining whether the parties had an intention to be bound when they made an agreement.

With close family relationships there is a presumption of lack of intention and in commercial transactions there is a presumption of intention to be legally bound. In other situations a reasonable person test is applied and the courts will give effect to the stated intention of the parties.

18. With respect to the element of intention, explain how the courts’ treatment of domestic agreements differs from their response to commercial transactions.

When agreements involving close family relations or friendships are involved, the courts presume that there is no intention to be legally bound and, thus there is no contract. When a commercial contract is involved, however, the presumption is that there is an intention to be legally bound and this has to be disproved by the parties in order to escape a contract on the basis of lack of intention.

19. How will the court determine if there was a contractual intention when there is a dispute between a brother and his sister over how to operate their business?

The courts presume there is no intention to be bound if the contract is between family members.

However, if the party wishing to enforce the contract can bring forth sufficient evidence to convince the court that they did intend to be bound, the presumption will be rebutted and the court would enforce the contract.

20. What is the significance of a written document in contractual relations?

(1) It has important practical evidentiary effects since it will be a permanent record as to what the parties have agreed. (2) Such a written record might be essential to satisfy the requirements of the Statute of Frauds in order for the contract to be enforceable.

21. Explain why some people have suggested that the Statute of Frauds has led to more frauds than it has prevented.

The Statute of Frauds imposes a technical requirement on the parties to a contract which must be satisfied for that contract to be enforceable. That can work to the disadvantage of either party, not just to the benefit of the victimized party. Therefore many verbal contracts that could be enforced between people allow one of the parties to escape because the Statute of Frauds is not satisfied.

22. Give examples of the types of contracts currently included under the Statute of Frauds?

The answer will vary based on jurisdiction and the relevant legislation i.e. B.C. Law and Equity Act. (1) Contracts not to be performed within one year. (2) Land dealings. (3) Guarantees and indemnities. (4) Promises in consideration of marriage. (5) The promise of an executor. (6) Other special statutory requirements such as the Sale of Goods Act.

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Business Law in Canada, Thirteenth Edition 23. What “evidence in writing” is required to satisfy the requirements of the Statute of Frauds?

This is usually identification of the parties, consideration, the description of the property involved, but may include other provisions as well.

24. “A contract that does not satisfy the Statute of Frauds is void.” True or false? Explain your answer.

False. The contract would merely be unenforceable. If the parties have already partially performed, or if there are other remedies that do not require the court’s involvement, the contract would still be binding. Further self-help is available, such as exercising set-off.

25. Will a contract formed online with electronic signature be enforced by the courts? Why or why not?

A contract formed online with electronic signature will be enforced by the courts. The Uniform Electronic Commerce Act (UECA) has been adopted by the Uniform Law Conference of Canada, following the lead of the United Nations, to create a more certain legal environment for ecommerce. The governing principal of the UECA is that information shall not be denied legal enforceability solely because it is in electronic form. The use of electronic signatures is allowed but the signature must be created or adopted with the intent to sign the document. However, in most provinces, this does not apply to wills, trusts, powers of attorneys, land transfers, or negotiable instruments. Other exclusions exist as well in individual provinces.

26. Under what circumstances will a contract falling under the jurisdiction of the Statute of Frauds be enforceable even though it is not evidenced by writing?

If a contract relating to land has been partially performed by the parties it is not necessary to have evidence in writing. Partial performance has to be consistent only with the existence of the contract and therefore the mere payment of money is not enough.

Solutions to Cases 1. A.V. v. IParadigms, LLC, Civ. Act. No. 07-0293 (E.D. Va., March 11, 2008) A Canadian court may make the same decision. The contract relates to education, which is service, and there was a benefit to the students. The terms were accepted by “click-wrap’’ when “I Accept” was clicked.

2. Graham v. Capital Cabs Ltd., 2005 NWTTC 6 (CanLII).

The court found that the company was contractually bound to pay Graham the sum of $2000 and would have also ordered that sum be paid on the principles of unjust enrichment and quantum meruit. However, the court found that the agreement to provide Graham shares in the company was unenforceable as it was not in writing as required by section 14(2) of the Business Corporations Act. 3. Haghdust v. British Columbia Lottery Corporation, 2014 BCSC 1327 (CanLII).

The plaintiffs were not barred from recovery winning due to illegality. Lottery prizes could not be validly withheld until the authorizing legislation became operative.

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Business Law in Canada, Thirteenth Edition 4. Dhingra v. Dhingra, 2012 ONCA 261 (CanLII).

The public policy rule should not apply prohibiting a person from benefitting from his criminal acts if not found criminally responsible. Since Dinghra was found to be not criminally responsible, he was therefore also found to be not morally responsible.

5. Whitrow v. Hamilton, 2010 SKCA 7 (CanLII).

The Court of Appeal should not uphold the trial judge’s decision to sever all of the interest from the debt obligation. Whitrow is not a loan shark. He is a businessman. Furthermore, severing all the interest created an unjustified windfall for Hamilton. A more appropriate approach would be for Hamilton to pay a rate of interest common at that time on the processing fee. Hamilton had that money over that period of time which belonged to Whitrow.

6. IRIS The Visual Group Western Canada Inc. v. Park, 2017 BCCA 301 (CanLII).

The power imbalance between the parties in this case, was no different than it would have been in an employment relationship. The non-competition clause was found to be unreasonable for two reasons. It was ambiguous. Second it went further than was necessary to protect the interests of IRIS. 7. McKnight v. Grant, 2009 NBCA 4 (CanLII).

The Court of Appeal held that the agreement to re-convey the cottage was not subject to the Statute of Frauds. The court stated that “(a)lthough there are no cases in this Province on point, as a matter of policy, the application of the Statue of Frauds must be restricted to its original purpose (to prevent perjury and fraud) and not to be invoked as a tactical measure to avoid an otherwise enforceable bargain.”

8. Johal v. Nordio, 2017 BCSC 1129 (CanLII) The court held that the email did constitute an acknowledgment of the debt, by applying the reasonable person standard. The limitation was accordingly extended to August 31.

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Chapter 8 Factors Affecting the Contractual Relationship Learning Objectives LO 8.1 Define “misrepresentation” and discuss the three types of misrepresentation LO 8.2 Distinguish duress, undue influence, and unconscionability LO 8.3 Define “mistake” and review the three types of mistake LO 8.4 Explain the doctrine of privity of contact and describe the exceptions to the doctrine

Discussion DEFINE “MISREPRESENTATION” AND DISCUSS THE THREE TYPES OF MISREPRESENTATION

Misleading statements may give rise to a claim of misrepresentation. These misleading statements must be false, statements of fact not opinion (except for an expert) or law, and if they induced the person to enter the contract and losses occur a remedy is provided. Innocent misrepresentation is made honestly and without carelessness. Negligent misrepresentations are made carelessly below the standard expected of the reasonable professional or expert in the area. Fraudulent misrepresentation is lying or deceitful conduct.

Rescission is available as a remedy when the misrepresentation has been innocent. It is only where fraud or negligence is involved that damages may be available as well. When the misrepresentation becomes a term of the contract, the remedies are those normally available for breach of contract.

DISTINGUISH DURESS, UNDUE INFLUENCE, AND UNCONSCIONABILITY

When it can be shown that a person entered a contract because of inappropriate pressure such as duress or undue influence, the resulting contract may be declared voidable by the courts. Where persons are robbed of theirs free will because of the relationship involved, there is a presumption of undue influence and the contract will be voidable at the option of the victim. Where the pressure involves more direct threats of violence, imprisonment or the destruction of property, this amounts to duress and the contract will also be voidable. The courts can also interfere with a contract on the basis of unconscionability where one party has taken advantage of another’s situation, which may arise from desperation, weak intellect or lack of business experience. Simple economic advantage will not be enough for a finding of unconscionability.

There only two elements that needed to be considered in determining whether anarbitration clause was unconscionable. First, was there an inequality of bargaining power? Second, was there an improvident bargain?

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DEFINE “MISTAKE” AND REVIEW THE THREE TYPES OF MISTAKE

Shared Mistakes - where both parties are making the same mistake about the object of the agreement.

Misunderstandings - when the parties have a misunderstanding about the terms of the contract and neither party is aware of the others’ different understanding.

Unilateral Mistakes - where only one of the parties is making a mistake with respect to the contract.

When the written document is an incorrect record of the agreement between the parties, this document may be rectified (corrected) by the court. When the misunderstanding between the parties can be resolved by the application of the reasonable person test or certain rules of interpretation, the court will impose the most reasonable interpretation of the contract on the parties. Only when it is impossible to choose between the two understandings, will the courts declare the contract void because the mistake is serious enough to eliminate consensus.

A unilateral or one-sided mistake will generally be the problem of the person making the mistake. The guiding principle is caveat emptor or let the buyer beware. People who sign a document that they think is of an entirely different nature than it is in reality, may be able to rely on the defense of non est factum if there was no negligence. The guiding principle seems to be that the courts will attempt to give effect to the reasonable expectations of the parties.

When there is a dispute between the parties about the meaning of the contract, there are a number of rules that can be applied in determining the appropriate interpretation of the contract. Generally, a reasonable person test will be used, but where specific terms are involved and those terms are clear and unambiguous, the court must apply their literal meaning. When they are vague, however, the court will generally interpret the words in such a way as to give effect to the contract.

While surrounding circumstances will be considered in interpreting a contract, such considerations cannot outweigh or contradict the words of the contract itself and they must be confined to objective evidence of the background facts at the time of the execution of the contract The parol evidence rule states that where the words are not ambiguous, the parties cannot introduce outside evidence to contradict the contract. The courts can imply terms into the contract when the parties have neglected to include them.

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EXPLAIN THE DOCTRINE OF PRIVITY OF CONTRACT AND DESCRIBE THE EXCEPTIONS TO THE DOCTRINE

The general principle of privity of contract establishes that an outsider or stranger to a contract cannot enforce any rights that have been obtained under that contractual agreement, nor can the contracting parties place any burden upon the third party except in the following situations. When all parties wish to substitute a new party for the old one, then such a novation is binding. When contracts dealing with land are involved, some obligations run with the land and are binding on subsequent holders of the land even though they were not party to the original contract. Agents acting on behalf of a principal can bind the third party principal. When a trust has been created, a trustee is bound to honour the trust for the beneficiaries even though the beneficiary is not a party to the original contract. A beneficiary of an insurance contract between the insured and insurer can enforce it against the insurer. These are exceptions to the rule that the only parties affected by a contract are the immediate parties to it. In some jurisdictions, privity has been overruled by statute in third party liability cases.

Answers to Questions 1. Define “misrepresentation”. When will silence or a statement of opinion be considered misrepresentation?

When statements are false, misleading the other party and inducing them to enter into the contract, an actionable misrepresentation in tort has taken place. For a misrepresentation to take place, there typically must be some actual communication of information. Silence or nondisclosure by itself is not usually actionable. But omissions, can convey a false suggestion that problems do not exist. When there is a special duty to act in good faith, failure to inform a contracting party of certain facts can amount to misrepresentation. A statement of opinion is not actionable unless the opinion is that of an expert in the matter being dealt with.

2. What is one result of a misrepresentation becoming a term of the contract?

The normal rules of breach of contract apply when a misrepresentation becomes a term of the contract. The remedy available depends on whether the false statement was made innocently, fraudulently or negligently.

3. Explain how fraudulent, negligent and innocent misrepresentations differ. Identify the remedies that are available for each type of misrepresentation.

Innocent misrepresentation occurs when individuals do not know that what they have said is false. Negligent misrepresentation is when people honestly thought that what they were saying was true, but should have known it was false. Fraudulent misrepresentation is when someone knowingly makes a false statement that induces another to enter into a contract. The importance of the distinction is in the remedies available. If the misrepresentation is innocent, only rescission is available. If the statement becomes a term of the contract, normal breach of contract remedies apply. If the representation was either negligent or fraudulent, rescission and damages are available to the victim.

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4. What is “recission”? When is not available?

Rescission attempts to return both parties to their original positions; the subject matter of the contract must be returned to the original owner, and any monies under the contract must also be returned. The remedy of rescission is not available if the victim of the misrepresentation has affirmed the contract. Similarly, if it is impossible to return the parties to their original positions or where the granting of rescission will harm a third party, this remedy will not be granted by the courts.

5. How does the tort of deceit differ from fraudulent misrepresentation?

Fraudulent misrepresentation differs from the tort of deceit in the distinction is that the only remedy for the tort of deceit is a claim for damages, while the remedies for fraudulent misrepresentation are recission as well as a claim for damages.

6. Distinguish duress, undue influence, and unconscionability and give examples of each.

Duress is the use of threats of violence or imprisonment to pressure another to enter into a contract. Undue influence may be present when people in a close social relationship contract with one another. Undue influence is assumed when people in certain specified relationships contract. In other circumstances it must be proven. When either of these elements is present the contract is voidable at the wish of the victim. Unconscionability involves one party taking advantage of the other party’s weakness such as desperation, or weak intellect which results in an unfair bargain.

7.

When does the presumption of undue influence arise? How can it be rebutted?

When pressure from a dominant, trusted person makes it impossible to negotiate freely, it is regarded as undue influence. The resulting contract is voidable. identified two classes of undue influence; actual and presumed. Actual undue influence requires the challenger of a transaction to prove that undue influence was exerted. Undue influence is presumed when a relationship of dependency exists. If such a relationship is established, the burden of proof shifts to the party supporting the transaction to rebut the presumption.

8.

A loan with an interest rate of 20% will always be unconscionable. True or false? Explain your answer.

False. If a person having limited assets cannot get a loan from a bank and must pay 20 percent interest to borrow from another type of institution, this alone will not make the contract unconscionable. As always, unconscionability requires an inequality of bargaining power and an improvident bargain. If the 20 percent interest rate was the prevailing market rate for such a loan, the loan agreement was not improvident and it was therefore not unconscionable.

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9.

A mistake may result in a contract being declared void or voidable. What difference does it make if a contract is merely voidable?

If a contract is found to be void it is not a contract at all. If a contract is voidable the contract does exist, but one of the parties has the option of getting out of it. Consequently, when an innocent third party has acquired goods that are the subject of a voidable contract, that party gets to keep the goods; but if the previous contract was void — that is, there never was a contract — the person who sold the goods to the third party never had title to them, and those goods must be returned to the original owner.

10. Courts will provide a remedy for any mistake that is proven by the evidence. True or false? Explain your answer.

False. Courts will not interfere with contractual obligations unless the demonstrated mistake is significant or material with respect to the agreement.

11. What test do the courts use when interpreting ambiguous wording in a contract?

Most reasonable interpretation applied to ambiguous terms. The courts will favour the interpretation that keeps the contract alive and will try to give effect to the reasonable expectations of the parties.

12.

Explain the parol evidence rule. What are the exceptions to the application of the rule?

The parol evidence rule states that when the terms of a contract are clear and unambiguous, the parties will not be permitted to introduce evidence outside of the contract to contradict that clear meaning (whether that outside, extrinsic evidence is in writing or verbal).

Exceptions to the Parol Evidence Rule: • When the evidence to be introduced is of a fraud or some other problem associated with the formation of the contract, such as duress or undue influence • When evidence of a condition precedent (a condition that has to be met before the obligations set out in the contract are in force) exists • Where there is evidence of a collateral contract (a separate contractual obligation that can stand alone, independent of the written one) • Where there is evidence of a subsequent agreement entered into by the parties after the written one • When there is an absence of an intention that all of the contract would be embodied in the written document

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13. Explain the Supreme Court decision that reduced the effect of the parol evidence rule.

The Supreme Court said that “. . . the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” . . . To do so, a decisionmaker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.

14.

What is the significance of contractual interpretation being a question of fact and law, rather than a question of law? What is an important exception to this approach?

The interpretation of a contract is almost always a question of mixed fact and law will usually result in leave to appeal applications being denied in contractual interpretation cases. The impact of the decision will, of course, be determined by how courts interpret and apply it. Some courts have granted leave to appeal applications based on “an explicable question of law.” More significantly, the Supreme Court of Canada itself held that the interpretation of standard form contracts is a question of law. An exception is when necessary, the courts may imply terms into an agreement. It does not occur to most contracting parties to provide terms in their agreement for every possible eventuality, and the courts are willing to supply these missing terms.

15. What must a party to a contract show to obtain rectification of a document? For which types of mistake can a court grant rectification?

If the written document does not reflect the common intention of the parties to the contract, the courts can correct the document through the equitable remedy of rectification. A court can grant rectification for a mutual mistake whereby both parties understood what they were agreeing to, and what was written in the contract was different from that agreement.

16.

What is a common mistake? What remedies may a court order if there is a common mistake?

A common mistake occurs when the parties are in complete agreement but have both made the same mistake regarding some aspect of the contract. The courts will review the transaction only when the mistake relates to some fundamental aspect of the subject matter of the contract. Law of equity may result in rescission or rectification 17.

What is a mutual mistake? What test do the courts use to determine intent when there is a mutual mistake? What is the remedy if there is a mutual mistake?

A mutual mistake occurs when both parties are mistaken about an issue but in a different way. test to determine whether a mutual mistake prevents the formation of a

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contract includes the following: 1. Has there been a mistake?

2. Were the parties, on an objective basis, ad idem (of the same mind) notwithstanding any alleged mistake?

3. If not, is the mistake fundamental?

If there is no consensus between the parties, the contract would be considered void.

18. What is a unilateral mistake? What remedies are available in the case of a unilateral mistake?

A unilateral mistake occurs when one party to a contract has made a mistake of which the other party was aware or ought to have been aware. When the other party knows, or ought to have known, about the mistake, they cannot remain silent and take advantage of the error. (If the other party is not aware of the mistake, the principle of caveat emptor [“Let the buyer beware”] applies.) Contract may be void or voidable, or rectification may be ordered 19.

When does the principle of caveat emptor apply in the case of a unilateral mistake?

Caveat emptor requires a purchaser to be careful. That is, buyers beware! The seller cannot mislead a buyer, but has no obligation to correct assumptions that the buyer has made about the item being purchased. If buyers mislead themselves, that is a unilateral mistake and their problem.

20.

When is the defence of non est factum available? What is the remedy if it is proven?

Defence available when party unaware of nature of document signed If successful, contract is void.

21.

There must be a misrepresentation, by the other party or a third party, for the defence of non est factum to be successful. True or false? Explain your answer True. The mistake made by a person claiming non est factum may have been caused by a misrepresentation, either by the other party to the contract or by a third party. may declare the contract to be void 22.

Explain the doctrine of privity of contract?

Privity is a fundamental principle of contract law that the parties to a contract do not have the power to impose benefits or obligations on third parties or outsiders who are not parties to the contract. The contracting parties have created a private agreement, and outsiders to it can neither enforce it or be bound to perform its terms.

23. What are the exceptions to the operation of the privity rule?

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Novation occurs when the parties to a contract agree to substitute someone new for one of the original parties. Novation can also refer to the change of some important term of the agreement.

Land transactions - This is an exception to the privity rule. Many interests associated with land can run with the land instead of the parties.

Agency - when an agent acts on behalf of a principal the resulting contract is between the principal and the third party.

Trusts - A trust is a true exception to the privity rule since one person has a contract with another to hold property in trust for a third. The third can enforce the trust.

Assignment - Once an agreement has been entered into between two parties, it is possible for the parties to a contract to assign or sell the rights or benefits they are entitled to under that contract to some third party.

24. What direction does the law appear to be taking with respect to third-party beneficiaries under a contract?

Third-party beneficiaries are gaining more rights as there are signs the doctrine of privity maybe breaking down. The Law Reform Commission of Nova Scotia recommended reform to the law pertaining to privity by having it relaxed by statute to allow third-party beneficiaries to enforce their rights under contract. Statutes may grant third parties or intended beneficiaries the right to sue.

25. What may a party to a contract assign to a third party? What can they not assign?

In an assignment of contractual rights a person entitled to receive a benefit under a contract transfer that benefit to a third party. The benefit transferred is known as a chose in action. Some things cannot be assigned, such as the right to collect support payments (in family matters) or the right to sue another in a tort action.

26. What is meant by “the assignee takes subject to the equities?”

This principle refers to the fact that an assignee is in no better position to enforce the contract than the assignor. Accordingly, if a debtor has a good defence against the assignor, it is also a good defence against the assignee.

27. What requirements must be satisfied before there can be a statutory assignment?

First, the assignment must be absolute, meaning that it must be both unconditional and complete. The full amount owed must be assigned without any strings attached. Second, the assignment must be in writing, and signed by the assignor. Third, the original party obligated to pay must be notified in writing of the assignment.

28. Why should a debtor pay the first assignee who gives notice of an assignment?

The original debtor against whom the assignment is made is obligated to pay only once, and one of the two assignees will be out of luck. In such circumstances, it is the first assignee to give

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the debtor notice of the assignment who will collect. The other assignee will be left to seek remedies against the assignor, which may be worthless. assignor, and claim the same amount of damages that West

29. Can a “holder in due course” obtain better rights than an assignee? Explain.

The principle that an “assignee takes subject to the equities” does not apply when dealing with an assignment of a negotiable instrument. Sometimes an assignee of a negotiable instrument is known as a ‘holder in due course’ and as such is not bound by the equities that may exist between the original parties.

Solutions to Cases 1. Queen (Ont.) v. Ron Engineering [1981] 1 S.C.R. 111; 1981 CanLII 17 The deposit should not be returned. By submitting the bid Ron Engineering entered into contract with the owner under the terms of that submission. These are different terms than the terms under which the successful bid would be held to. The court will not rectify the bid as there were no errors made in the bidding process. The error made by Ron Engineering does not enable it to get remedy from the courts. There was nothing in the bidding process or in the acceptance of another bid that violated any of the terms of this bid.

2. Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (CanLII) The Supreme Court of Canada overturned the Court of Appeal. The Court of Appeal wrongly applied rectification of contract. Rectification is used to restore the agreement the parties thought they were making. The phrase “Metropolitan” City of Vancouver is ambiguous.

3. Royal Bank of Canada v. Gill (1988), 47 D.L.R. (4th) 466 (B.C.C.A.); 1988 CanLII 2970(BC CA).

In this case the father is claiming non est factum but the court holds against him. The father, although clearly relying on his son, was aware of the general nature of the documents he signed, and certainly he was careless in signing them. These two factors prevent him from succeeding in a non est factum defense. There was no misrepresentation here on the part of the bank, and it cannot be demonstrated that he thought he was signing something fundamentally different from a guarantee. This is in fact what he signed. When the son told the father he had to sign with him he ought to have understood that it was a guarantee. His failure to properly understand English did not take away from his general understanding of the transaction. Nor did it justify less prudence on his part.

4. Metropolitan Stores of Canada Ltd. v. Nova Construction Co.; [1988] N.S.J. No. 112 (N.S.C.A.).

The Court of Appeal held that a fraudulent misrepresentation had taken place. Parol evidence

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about the qualifications of parties to consider the representation and a memo were admitted into evidence at trial and were also considered by the Court of Appeal. The court ordered rectification of the lease to make it clear that a competitor department store would not be allowed as a tenant on adjacent lands. It further declared that the landlord would be in breach of the lease if it permitted a competitor department store as a tenant in the premises of the mall built adjacent to the shopping centre occupied by Metropolitan.

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Chapter 9 The End of the Contractual Relationship Learning Objectives LO 9.1 Illustrate how a contract is discharged by performance LO 9.2 Describe when a contract is discharged by breach LO 9.3 Explain how a contract may be discharged by agreement LO 9.4 Outline how a contract is discharged by frustration LO 9.5 Discuss the remedies for breach of contract

Discussion ILLUSTRATE HOW A CONTRACT IS DISCHARGED BY PERFORMANCE

DESCRIBE WHEN A CONTRACT IS DISCHARGED

BY BREACH

A contract can come to an end when the parties properly perform their obligations or agree to end or modify their contract. As a general rule substantial performance tendered at the appropriate time and place is the equivalent of performance. However, where money is owed there is still an obligation to pay in full in the proper currency. When parties do not live up to their contractual obligations they are said to breach the contract. When the parties specify (or the court determines) that “time is of the essence,” it must be strictly adhered to.

Even just a few seconds can make a difference.

With the breach of a warranty (a minor term of the contract) victims of a breach must continue to perform their side of the contract, but can sue for damages to compensate for their losses. If a condition is breached, the victim can treat the contractual obligation as ended and sue for compensation or rescind the contract.

If the choice is made not to end the contractual obligation, or there is neglect to treat the contract as discharged, the victim can still sue for breach of warranty.

The parties can specifically designate specific terms as warranties or conditions as they wish.

An exemption or exculpatory clause is an attempt by one of the contracting parties to limit liability. Such clauses are binding on both parties providing they specifically set out the limited liability. Such clauses are strictly interpreted and if the breach can be said to be fundamental even the exemption clause will not protect the breaching party unless it is clear that the exemption clause was intended to cover that breach. With respect to the issue of consensus, the Court described the two-part test that is used to determine whether a person who has signed a release will be bound by it.

When a party to a contract repudiates the contract (refuses to perform), the other party’s contractual obligation is ended. Where the repudiation takes place before performance is due, it is referred to as an anticipatory breach. The other party then has the choice of either ignoring the repudiation and insisting on performance or electing to treat the contract as at an end and suing immediately.

Continuing to insist on performance runs the risk of some intervening event making the contract impossible to perform causing frustration of contract and

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the end of the damages claim.

EXPLAIN HOW A CONTRACT MAY BE DISCHARGED

BY AGREEMENT

Any contractual obligation that can be created by agreement can be ended, modified or changed by agreement, but there must be fresh consideration present on both sides. When both sides receive something, even if it’s merely being relieved of their contractual obligations under the existing contract, it is referred to as a bilateral discharge. When the change in the contract is one-sided it is a unilateral discharge. Before it is binding on the parties it must be demonstrated that the parties have reached an accord and some additional satisfaction or consideration is given. If the contract provides that some condition must be met before the obligation is manifested, this is a condition precedent. If the obligation ends because of some event, it is called a condition subsequent. Therefore the contract can be ended by agreement as a term of the original contract.

When performance of the contract is made impossible or when performance would amount to something substantially different than what the parties anticipated by the operation of some outside, unforeseen event, the contract will be discharged by frustration. The frequently unfair common law consequence of “let the loss fall where it lies” has been mitigated by the Fibrosa case and provincial statutes.

Essentially, if a deposit has been paid, the costs incurred and benefits derived can be taken into consideration by the courts in determining whether that deposit is going to be all or partly returned. Where it is the fault of one of the parties that there is an impossibility of performance, it is referred to as self-induced frustration and is merely breach of contract.

OUTLINE HOW A CONTRACT IS DISCHARGED BY FRUSTRATION

When a breach has taken place the most common remedy is damages in the form of monetary compensation. Here the courts try to put the parties in the position they would have been in had the contract been properly performed. There are limitations, however, on the amount of damages that can be claimed. The damages must have been reasonably within the contemplation of the original parties to the contract and the victim of the breach has a duty to mitigate losses. A term of the contract may provide for a specific amount to be paid in the event of a breach (liquidated damages), but it cannot be an excessive amount, or it will become an unconscionable penalty, which is not recoverable.

DISCUSS THE REMEDIES FOR BREACH OF CONTRACT

When damages would not be an appropriate remedy, the victim can seek equitable remedies such as specific performance (an order to go through with the deal) an injunction (an order to stop breaching the agreement) or an accounting involving disclosing what has been earned by the breaching party as a result of that breach and turning over those sums to the victim. Such equitable remedies are only available when damages would not suffice and the victim is not guilty of any wrongdoing.

Answers to Questions

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l.

Describe the four ways in which a contractual relationship can come to an end.

The contractual relationship can come to an end by performance, by breach or failure to perform an agreement, and by frustration.

2.

What constitutes adequate tender of performance when tendering of performance is not addressed in the contract?

When the parties do specify a time for performance in the contract, the court will have to determine whether it is an important term or not. When the parties specify (or the court determines) that “time is of the essence,” it must be strictly adhered to.

3.

What are two ways in which a breach of contract can take place?

A fundamental breach is a breach that goes to the very root of the contact. Essentially it suggests that the innocent party was denied the benefit it had bargained for. Repudiation occurs when one of the parties to a contract indicates to the other that there will be a failure to honour the contract. Repudiation that takes place after performance is due and is just one more way that a contract can be breached.

4.

Describe the differences between a condition and a warranty. Why is the distinction significant?

A condition is an important term of a contract. A warranty is a minor or peripheral term of a contract. If a condition is breached it allows the victim of the breach to discharge the contract.

If a warranty is breached the victim must continue to perform but can sue for damages.

5.

What are three situations when a breach of condition may be treated as a breach of warranty?

Warranties are minor, insignificant terms or terms that are peripheral to the central obligation of the contract. When a party breaches a warranty, he is regarded as having performed his side of the agreement. The breach of warranty will not relieve the other party of the obligation to fulfill her side of the agreement. The victim of such a breach of warranty has the right to sue the other party for whatever it costs to overcome the deficiency in performance, but still must perform her part of the agreement. When a breach of condition in a contract has been accepted by the other party, it is treated as a breach of warranty. This is also the case if the victim of a breach of condition has received some significant benefit under the contract. She loses the right to discharge and must perform her obligations, subject to a claim or compensation for the breach. When a condition is breached in some minor, inconsequential way, the court will usually treat it like a breach of warranty, requiring the other party to perform subject to a claim for the loss caused by the shortfall.

6.

What should a party to a contract do if there is a term of the contract that she considers very important?

A contract can specify whether a term is a warranty or a condition.

7.

Can a court declare substantial performance when the contract requires exact performance? Explain your answer.

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Yes, a court can declare substantial performance when exact performance will be required then only exact performance will do.

8.

Under what circumstances would a breaching party who had partially performed the terms of the contract be entitled to receive part payment?

The breaching party can receive part payment if, according to the contract, the part payment was due and payable before the breach.

9.

What is an exemption clause? When might an exemption clause be unenforceable?

An exemption clause is designed to limit the liability of one of the parties in the event there is a breach of contract. The courts are generally reluctant to give effect to exemption clauses and, therefore, interpret them very strictly. The meaning set out in an exemption clause must be extremely clear for the court to give it effect. Any ambiguity will be interpreted in favour of the person disadvantaged by the exemption clause.

10. What is meant by fundamental breach? What remedy is available to the victim of a fundamental breach of contract?

The principle of fundamental breach means that there are some obligations in a contract which cannot be contracted out of by an exculpatory clause. There must be some basic, fundamental obligation that must be performed. The exemption clauses then will not apply to such a fundamental clause unless it is clear that the exemption clause was intended to cover the specific thing that happened. If the exemption does not apply, the victim of a fundamental breach will be relieved of obligations to perform and may also recover damages.

11. “An exemption clause cannot protect a party who commits a fundamental breach.” True or false? Explain your answer.

False, a properly worded exemption clause can overcome even a fundamental breach— particularly when sophisticated businesspeople are involved.

12. What is repudiation? How can it be communicated?

Repudiation occurs when one of the parties to a contract indicates to the other that there will be a failure to honour the contract. Repudiation that takes place after performance is due and is just one more way that a contract can be breached.

13. What is anticipatory breach? What options are available to the victim of an anticipatory breach? Explain the advantages, disadvantages and risks associated with each option.

If the repudiation occurs before performance is due, it is called an anticipatory breach and is treated somewhat differently. In the face of an anticipatory breach, victims have a choice.

They can choose to immediately treat the contract as breached, refuse to go through with any further performance on their part, and sue. The repudiation must relate to an important term of the contract and be a clear refusal to perform, not just a disagreement as to the nature of the contractual obligations. Alternatively, the victim of the repudiation can ignore the breach, demand performance, and continue to perform its side of the agreement. If the repudiating party still fails to perform, the innocent party can then sue for breach of contract and the party

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repudiating will be held responsible for damages incurred even after the repudiation. Once made, the choice is binding. This can have serious consequences, for if the victim chooses to insist on performance and then in turn cannot perform, they are then in breach themselves.

14. What is a bilateral discharge?

A bilateral discharge is if both parties have something left to do under the original contract and the agreement to modify relieves them of their respective obligations, there is valid consideration on both sides to support the change.

15. Which contractual element may prevent a unilateral discharge from being enforceable?

How can this problem be avoided?

When one party performs its side, yet allows the other party to abandon all or part of its obligations, the discharge, being unilateral, may not be binding because of a lack of consideration. The original contract may still be enforceable. Additional consideration or putting the agreement under seal avoids the problem surrounding consideration.

16. Assume the defendant claims that the contract was discharged or modified by agreement; the plaintiff challenges this conclusion and seeks to enforce the original contract. What will the defendant need to prove to avoid having the initial contract enforced?

The discharge or modification must be enforceable in law through a modified consensus and the exchange of fresh consideration.

17. In the accord and satisfaction concept, what is the “accord” and what is the “satisfaction?”

When the party benefiting from a modification agrees to do something extra to support the change (or discharge) of the contract, this is called accord and satisfaction. The accord refers to the agreement to change (or end) the old contract, and the satisfaction is the extra consideration to be supplied by the party benefiting from the change (or discharge).

18. What is novation? Why is it important to distinguish between an amended contract and a new contract?

When the new contract involves a new party being substituted for one of the original parties to the contract, it is called a novation. Sometimes the old contract is not simply modified but discharged by agreement and a new contract is substituted for it. Whether a new contract has been created or the old one modified will be determined by looking at the intention of the parties and what has been changed. The more important the provision changed, the more likely it is that a new contract has been substituted for the old one. The difference can be important since it may affect whether various terms from the old contract, such as exemption and penalty clauses, are carried over to the new one. If the original contract was merely modified (and not discharged and substituted), then the clauses found in the original contract continue to apply. Naturally, both parties must agree to the substitution of one party for there to be consensus. One party cannot unilaterally impose substitution of a party.

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19. “How parties agree to end their contracts will always be enforced by the courts.” True or false? Explain your answer.

True. Most contracts, by their nature, will end upon proper performance. However, sometimes contracts involve an ongoing relationship, with no provision to bring that relationship to an end. An employment contract for an indefinite term would be an example.

In these circumstances, the courts have implied that the contract can be terminated by either party giving the other reasonable notice. Often contracts will provide for their own termination, usually by specifying a particular period of notice that must be given; these notice provisions will be binding subject to contrary legislation. Employment relationships and residential tenancy arrangements are two examples of when such termination provisions must comply with the governing statutes. Legislation, such as employment standards acts and residential tenancies acts, renders notice provisions void or ineffective unless they satisfy statutory minimums.

20. How do conditions precedent differ from conditions subsequent?

Both conditions precedent and conditions subsequent determine whether a contractual obligation exists. A condition precedent is a condition that must be met before a contract comes into operation. For example, I will sell you my car if I can purchase car X from Jones. A condition subsequent is a condition which causes an ongoing contractual relationship to come to an end. For example, I will pay you $50 a month until you graduate.

21. Which catastrophic events will be covered by a force majeure clause?

A force majeure clause anticipates some catastrophic event, such as a riot, invasion, earthquake, or flood that will interfere with the performance of the contract. Such terms might set out the consequences— such as which party will bear the risk of loss. Alternatively, they may provide for discharge of the contract. When catastrophic events take place that are not anticipated in the contract, they will likely cause the contract to be discharged by frustration.

22. Define frustration. List three ways that frustration can take place.

Frustration allows for a contract to be treated as discharged when some outside, unforeseen event, beyond the control of either party, makes it impossible to perform a contract or causes the contractual relationship to become something essentially different in its nature than the parties anticipated. Such frustration can take place when performance becomes impossible because (1) the subject matter of the agreement has been destroyed (2) the event that forms the basis of the contract fails to take place or (3) acts of the government affect performance.

23. What is an important distinction between frustration and common mistake?

Frustration occurs when some unforeseen, outside event (out of the control of either party) interferes with the performance of the contract, making the basic object of the contract unobtainable. With common mistake, there is no contract because the subject matter had been destroyed before the contract was entered into. Frustration, on the other hand, deals with situations where the problems arise after the formation of the contract.

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24. What is the significance of a court’s determination that a contract was frustrated through the fault of one of the parties?

Self-induced frustration involves one of the parties causing—or, if it is within her control, failing to prevent—the frustrating event. It may appear to be frustration, but self-induced frustration is simply treated as a breach of contract. A contract is not frustrated if the unforeseen outside event only makes performance of the contract more costly or more difficult.

25. Explain how the Fibrosa case and subsequent statute law changed common law rules regarding how frustration affects the contractual obligations of the parties.

Before Fibrosa, when frustration took place it was thought that the loss would lay where it had fallen. This case established the principle that when there has been a complete failure of consideration and a deposit has been paid (meaning that the person paying the deposit has received absolutely nothing from the other party) that deposit would be repaid. This also caused some unfair results and, therefore, has been modified by statute so that the courts are now permitted in most jurisdictions to apportion the prepayment to provide some compensation for both parties for the costs they have incurred.

26. What recourse is available to one party to a contract when performance is made impossible by the other party’s conduct?

When a benefit has been obtained by one party prior to the frustrating event, legislation in most jurisdictions in the form of the Frustrated Contracts Act now permits the court to order that party to pay the other for it. When a deposit has been paid, the legislation usually allows the court to take into consideration the costs that have been incurred in preparation to perform the contract, whether or not the other party has received a benefit. The court can now apportion that deposit on the basis of the costs incurred and the benefits received 27. In light of the decision in Hadley v. Baxendale, how is the recovery of damages limited?

Generally, the principle developed in this case is that a breaching party is only responsible for those damages that could have been reasonably within contemplation at the time the parties entered into the contract (reasonably foreseeable damages). Therefore, when unusual damages are suffered from circumstances that the breaching party was unaware of, there will be no responsibility for those damages.

28. Describe what is meant by mitigation. Explain how the obligation to mitigate damages limits the ability of the victim of a breach to obtain damages.

Mitigation is the obligation on the victim of the breach to keep damages as low as possible.

Failure to do this means that the victim will only receive damages in the amount that would have been due had losses been properly mitigated.

29. Distinguish between a deposit and a down payment. What is the significance of this distinction?

A deposit is a prepayment designed to secure performance. If persons making the prepayment fail to perform their obligations that prepayment will be lost. Therefore, the prepaid deposit is

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a form of liquidated damages. A down payment, on the other hand, is merely the first payment of several under the contractual obligations and there is no intention that the down payment be forfeited upon breach. The significance of the difference, therefore, is that one will be forfeited and the other will not in the event of failure to perform.

30. What must be shown for the court to conclude that money paid ought to be categorized as a deposit?

It must be show that the parties intended that the prepayment is to be forfeited in the event of the breach or failure to perform by the prepaying party. The court can now apportion that deposit on the basis of the costs incurred and the benefits received. Under common law, when frustration occurs, the loss lies where it falls.

31. Which equitable remedy enables the court to correct a written contract? When is this remedy available?

Rectification allows the court to correct a written contract when it fails to record what the parties had agreed to. Its purpose is to prevent a written document from being used to defraud a party.

32. Distinguish between specific performance and injunction. Explain the restrictions on their availability.

Specific performance is an equitable remedy by which an order of the court requires the breaching party to perform the contract. A negative injunction is an order to the breaching party to stop doing something that is in breach of the contract. These are equitable remedies and are only available when damages would be inappropriate, when there hasn’t been undue delay or fault on the part of one of the parties and, in the case of specific performance, when personal services are not involved. Similarly, when the awarding of an equitable remedy would work a hardship on some person or be otherwise inappropriate, it will not be granted.

33. How can an injured party obtain the information she requires to determine what she is entitled to claim?

The court can order that the defaulting party disclose all financial dealings and records so that the injured party can determine what she is entitled to claim.

34. Describe a situation when quantum meruit would be available.

Quantum meruit is the principle that allows the supplier of a service to collect a reasonable fee, even when no price had been agreed upon. Quantum meruit applied in cases when one party refuses complete performance by the other 35. List three circumstances when equitable remedies will not be available.

Some general requirements must be met before the courts will grant an equitable remedy. If there has been laches (an undue delay on the part of the person seeking the equitable remedy) the courts can refuse to grant the remedy. The plaintiff will still be able to pursue any common law remedy, such as damages, without penalty for delay—provided the action is brought within the limitation period. The courts can also refuse to award an equitable remedy

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in any situation in which it would cause undue hardship to the parties or to some other person, or would be inappropriate for any other reason. A person seeking equity must come to the court with clean hands, meaning the remedy will be denied when the person seeking the equitable remedy is also guilty of some wrongdoing.

Solutions to Cases 1. Zippy Print Enterprises Ltd. v. Pawliuk, 1994 CanLII 1756 (BC CA) The exclusion clauses which would have applied to the substantial misrepresentations were not specifically brought to the attention of the defendant and therefore the court found that the clauses did not provide any protection or benefit to the plaintiff. Later, the court stated: “Having regard to the pleadings, and to the uncontradicted affidavit evidence, I conclude that the counterclaim for misrepresentation resting on negligent misrepresentation was made out and, alternatively, the counter-claim resting on contractual misrepresentations constituting warranties which were breached, was also made out, either as part of a single total agreement between the parties, only part of which was contained in the standard form of license agreement, or, alternatively, on the basis of a collateral contract which was collateral to the standard form of license agreement. On the basis of either tort or contract, and having regard to the fact that there was no cross-appeal, there is no basis for interfering with the trial judge's award of damages on the counterclaim equal to the arrears of Royalties and Marketing Service Fund payments. The counter-claim on the basis of the misrepresentations, framed either on the basis of tort or of contract, cannot be regarded as having been released by conduct.”

2. Teleflex Inc. v. I.M.P. Group Ltd., (1996), 149 N.S.R. (2d) 355 (NS CA); 1996 CanLII 5603.

There can be no frustration when the parties have anticipated the possibility of events in advance, and made provision for them in the contract. The contract specifically made provision for termination of the purchase order, which would then trigger payment to Teleflex for both completed and uncompleted work at that point. It is only unforeseen events that are covered under frustration.

3. Meunier v. Cloutier, 1984 CanLII 1929 (ON SC) The Court would consider if Meunier’s business was negatively affected by Cloutier. It would look at the activities of Cloutier to determine if he purposely tried to take clients away from Meunier or make dealings that would be described as unfair competition. A non-competition clause is unenforceable when it is unreasonable and restricts one party from earning a fair living.

If there is unfair competition, such as taking clients away, and that can be proven, the noncompetition clause can be enforceable.

4. 652013 B.C. Ltd. v. Kim, [2006] O.J. No. 423 (Ont. S.C.J.); 2006 CanLII 2892.

It would be helpful to know if the lack of illumination was the fault of the equipment supplied or the power supplier. The court rejected Kim’s argument that the failure of the signs to operate properly was fundamental breach of the lease agreement. Moreover, Kim had not properly terminated the lease agreement and as a result he was responsible for payment of the accelerated amount claimed. Although the contractual interest was high, it was not unconscionable.

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Chapter 10 Agency and Partnership Learning Objectives

LO 10.1 Describe the agency relationship and how it can be created LO 10.2 Review the duties and liabilities of the parties in an agency relationship LO 10.3 Examine how an agency relationship can be terminated LO 10.4 Review the major types of business organizations and discuss sole proprietorship LO 10.5 Describe partnership and how it can be created LO 10.6 Review the rights, duties, and liabilities of partners LO 10.7 List the advantages of partnership and explain how a partnership can be dissolved LO 10.8 Describe other types of business organizations Describe the agency relationship

Discussion DESCRIBE THE AGENCY RELATIONSHIP AND CAN BE CREATED

REVIEW THE DUTIES AND LIABILITIES OF THE PARTIES IN AN AGENCY RELATIONSHIP

In business, an agent often acts on behalf of a principal in contractual dealings with third parties by entering into a binding contract between the principal and agent on behalf of the principal. The agency relationship is usually created by contract and normal contract rules apply. The agent may be either an employee of the principal or an independent contractor. It is also possible for an agent to be acting gratuitously and still bind a principal in contract. A lack of capacity on the part of the agent will not affect the resulting contractual obligations between the principal and third party. A similar lack of capacity of either principal or third party will affect the validity and enforceability of a contract as is the case with any contract. Agents’ dealings with third parties will bind principals so long as the agents are acting within their authority.

Normally the third party will have no recourse against the agent since the contract is between the principal and the third party. If the identity of the principal is not revealed but the agent makes it clear that they are acting as agent, the agent cannot be successfully sued. But where agents, although acting as agent, contracts as though they were the principal, only the agents can be successfully sued, although the agent will likely bring the principal into the action through third party proceedings. Only where agents enter into agreements in such a way that it is ambiguous as to whether they are acting as agent or principal does the other party have a choice to sue either the principal or the agent. Once the choice is made, the other party is bound by that choice. .

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When agents exceed their authority they can be sued by the other party for breach of warranty of authority. Agents can also be sued by the other party if there has been a fraudulent or negligent misrepresentation. In such circumstances the principal can be sued as well under the principle of vicarious liability, so long as the fraudulent misrepresentation took place when the agent was exercising agency authority.

EXAMINE HOW AN AGENCY RELATIONSHIP CAN BE TERMINATED

The actual authority of an agent will end upon notification by the principal, although apparent authority can survive and so it is important for the principal to notify others of the termination of that authority. Death or insanity of the principal will also normally end that authority. In some jurisdictions it is possible to create an “enduring power of attorney” which will survive mental incapacity and allow the designated agent control over the principal’s affairs.

An agent’s authority may be based on actual authority that is given expressly in the agency agreement or implied from the circumstances. Where principals lead a third party to believe that an agent has authority to act on their behalf, it is called apparent authority and is based on the principle of estoppel. This apparent authority will bind the principal even though, unknown to the third party, the agent may have been specifically forbidden to indulge in the type of dealings forming the basis of the third party’s complaint. Such apparent authority can arise because of a principal’s reference to the agent’s authority in front of the third party without qualification or because the principal has given that agent a title or position that a reasonable person would suppose would carry with it certain authority. When agents exceed the actual authority they have been given, but acts within apparent authority, the principal is bound but may then turn to the agent for compensation because the agent has breached the agency agreement. It is only when the agent has exceeded both actual and apparent authority that a third party can sue the agent for breach of a warranty of authority and in some cases negligence.

When the agent has exceeded both actual and apparent authority, the principal is not bound, but it is still within the power of the principal to ratify the agreement and in effect retroactively give the agent authority to create a binding contract. Such ratification is only available, however, where the principal could have personally entered into the contract at the time when the agent entered the contract and at the time of the purported ratification. The principal must also be careful not to inadvertently ratify such an unauthorized contract by taking some benefit thereunder. The effect of such ratification is retroactive to the time that the agent purported to act on behalf of the principal and, therefore, during the period between the agent’s action and the ratification, the third party is at risk--in effect, bound to the contract if the principal chooses to ratify. Because of this the third party can put a reasonable time limit within which the principal must ratify the contract.

The agent has a duty under contract law to fulfill the terms of the agency contract and competently provide the service required. The agent also has a fiduciary duty to the principal. Agents must refrain from becoming involved .

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Business Law in Canada, Thirteenth Edition in any conflict of interest situation, convey to the principal any information received in the exercise of their duty and not take advantage of any opportunities that come to them because of the agency relationship. Nor can agents enter into business in competition with their principals. They can’t receive payment from both the principal and the third party at the same time without disclosing that fact to both. Normally the agent cannot delegate their responsibilities and must account for all monies earned in the agency function. The principal’s obligations to the agent are to pay for the services and otherwise honour the terms of the agency agreement which normally includes an obligation to reimburse the agent for expenses incurred.

The federal government owes a fiduciary duty to Indigenous peoples. The related duty to consult can, however, only be considered once the legislation has been enacted and it is challenged under s. 35 of the Constitution Act, 1982, which recognizes “existing aboriginal and treaty rights.”

REVIEW THE MAJOR TYPES OF BUSINESS ORGANIZATIONS AND DISCUSS SOLE PROPRIETORSHIP

DESCRIBE PARTNERSHIP AND HOW IT CAN BE CREATED

There are three main methods of carrying on business: a sole proprietorship, a partnership, and a corporation. The sole proprietorship involves one person carrying on business with single person ownership, relatively free from outside interference but compliant with all government regulations and requirements. While the sole proprietor makes all of the decisions associated with the business, and is entitled to all the profits therefrom, the sole proprietor also bears sole responsibility for all costs, losses, and obligations that are incurred in the business activity. The liability is unlimited and includes vicarious liability for torts committed by employees.

Partnership involves two or more people carrying on business together with a view towards profit where incorporation has not taken place. The law of partnership is governed by the Partnership Act, which sets out what constitutes a partnership as well as the responsibilities of the parties to each other and to those they deal with. Two or more people in business together sharing profits is the usual indication of a partnership but the Act also lists exceptions. The parties must also be carrying out an ongoing business activity. Merely participating in a single or limited activity will not normally be enough.

A partnership may be created by oral agreement or conduct, but it should be created by formal written agreement since the general obligations of the partners set out in the Act can be modified by such an agreement to suit the specific needs of the group. This agreement, however, will not affect the rights of outsiders dealing with the partnership.

REVIEW THE RIGHTS, DUTIES, AND LIABILITIES OF PARTNERS

As is the case with a sole proprietorship, a partnership faces unlimited liability for the obligations and liabilities of the partnership. Each partner is an agent for every other partner and therefore responsible for any contracts entered into by that agent. Similarly, each partner is vicariously liable for the acts of the other partners done in the course of the partnership business, and also for the acts of any employees of the partnership. These factors can make the presence of unlimited liability an extremely important factor in determining whether a partnership should be created. The availability of insurance, however, can reduce the risk. .

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Business Law in Canada, Thirteenth Edition It is also possible to create a partnership relationship inadvertently simply by carrying on a business with another person. This carries with it all of the responsibilities discussed above. Retiring partners are responsible for not only obligations incurred while they were partners but also for obligations that were incurred after they left if they failed to notify the injured party that they were no longer partners. Just which types of partnership businesses must be registered varies with the jurisdiction.

There are three types of partnerships used in Canada - the General Partnership (described above), the Limited Partnership, and the Limited Liability Partnership.

A Limited Partnership is similar to a general partnership accept that there are both general partners and limited partners. It is a common investment vehicle.

The position of a limited partner is that liability is limited to the amount invested in the partnership business. It is only when limited partners fail to properly register their interest or violate one of the restrictions on their activities, such as participating in the management of the partnership, that they will lose this limited liability and be treated as a general partner. General partners have unlimited liability. To accommodate professionals, limited liability partnerships (LLP’s) are now allowed in many jurisdictions where only the partnership’s assets and the personal assets of the partner actually responsible for the negligent or fraudulent act will be available as compensation. The personal assets of the other partners are protected by this limited liability from the negligent or fraudulent acts of partners. All partner’s business and personal assets are available to satisfy the business debts of the partnership. A joint venture can be created by a new partnership or new corporation if two or more entities wish to cooperate to carry out a particular project.

LIST THE ADVANTAGES OF PARTNERSHIP AND EXPLAIN HOW A PARTNERSHIP CAN BE DISSOLVED

In general, partnership should be considered as a viable alternative to incorporation as a method of carrying on business. Many of the disadvantages associated with partnership can be overcome. Business persons should exercise great care in choosing the particular method that they will use to carry on his business. Partnership has the advantage of protecting the minority partners, of being less costly and the disadvantage of unlimited liability can be to a large extent overcome by insurance.

Partners are considered fiduciaries of each other and, therefore, have an obligation to act in the best interests of their partners. Partners must account for profits and the use of partnership assets and must not compete with the partnership. Information obtained through the partnership must be disclosed as must any conflict of interest. Unless modified by agreement the Partnership Act provides that profits will be shared equally, that expenses will be reimbursed, that all partners share management responsibilities, that partners are not Entitled to a wage, that major changes must be with unanimous consent, that new partners must be agreed to by all partners, and that all partners have the right to inspect all records.

Generally, a partnership will end when one party serves notice on the others to dissolve the partnership, though the agreement among them may provide .

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DESCRIBE OTHER TYPES OF BUSINESS ORGANIZATIONS

Two or more individuals or corporations wish to cooperate in completing a project together. This is called a joint venture and may be created in two ways. When a corporation is incorporated with each of the parties holding an agreed number of shares, normal corporate law will apply to that corporation.

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Business Law in Canada, Thirteenth Edition Answers to Questions 1. Describe an agency relationship and explain the role of the parties. Why is it important to understand the law of agency in business?

An agent enters into new legal relationships (usually contracts) on behalf of a principal with a third party. Since most business activities are conducted by corporations, the vast majority of contracts are entered into through the services of an agent.

2. Explain how an agency relationship is usually created. When can a principal be bound if the agency agreement is void?

An agency relationship is usually created by an employer as principal to an employee as agent.

It may also be created by a power of attorney. The principal will be bound by someone acting as the principal's agent, when in fact they are not, if the agent has apparent authority.

3. Distinguish between an agent’s actual, implied, and apparent authority. Explain why this distinction can be important from the agent’s point of view.

An agent is given actual authority to act on behalf of a principal. This actual authority can be expressly given in the form of verbal or written instructions or can be implied by circumstances.

So long as the agent acts within actual authority there will be no liability for losses incurred.

Apparent authority is assumed when a principal has done something to lead a third party to believe that the agent has authority that in fact the agent does not have authority. When the agent acts beyond the actual authority, either expressed or implied, but within apparent authority, the contract with the third party is binding on the principal, but the principal can then sue the agent for breach of the agency agreement. It is only when the agent violates both actual and apparent authority that the third party can sue the agent directly for breach of warranty of authority.

4. Describe the role estoppel plays in agency law.

Promissory estoppel is a defence available when consideration is brought into question. It can only be used as a defence and not as a cause of action. When one person makes a promise about future conduct and the other person relies on that promise, incurring expense, the beneficiary of the promise can use the promise as a defence if sued by the person making the promise.

Ordinary estoppel deals with statements of fact. When one person makes a statement of fact that another relies on, the first person cannot deny that fact. In agency law if a principal leads a third party to believe that an agent has authority, it is a fact. If the third party relies on that statement and enters into a contract with the agent on behalf of the principal, the principal will not later be permitted to deny the existence of the authority.

5. How is the reasonable person test relevant to the law of agency?

The reasonable person test is used to determine the existence of apparent authority. The reasonable person test is also used to determine whether the third party was misled by the statements and conduct of the principal into believing that the agent had authority.

6. Explain how an agency relationship can be created by ratification and why the result may seem unfair.

When an agent acts beyond both actual and apparent authority, the third party is not .

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Business Law in Canada, Thirteenth Edition contractually bound to the principal. The principal, however, has the option of ratifying the agreement. That is to give the agent retroactive authority to enter into the contract, making the third party bound by the contract. The third party then faces the possibility of the principal ratifying after the fact, while the principal has the option of making the contract binding or not.

However, the principal can inadvertently ratify by accepting some benefit under the contract, thereby binding themselves to the contract.

7. Describe the duties of an agent.

The agent has a fiduciary duty to act in the best interests of the principal. Any information that would benefit the principal that comes to the agent while acting as agent must be communicated to the principal. Agents must not take advantage of personal opportunities that come to them because of their position. Agents cannot take commissions from both the principal and the third party unless that fact is disclosed to both. An agent who owns property cannot sell it to the principal without disclosure of the interest in the property.

8. List some of the duties that are relevant to an utmost good faith relationship.

The duty of utmost good faith requires the agent to act only in the best interests of the principal.

The agent is required to put the interests of the principal ahead of their own. The agent must turn over to the principal any monies earned pursuant to the agency function. If the agent acquires property, goods, or money on behalf of the principal, it must be paid over to the principal, even when the agent has some claim to the funds. The agent cannot intercept those funds on his own behalf. To facilitate this process, the agent also has an obligation to keep accurate records of all agency transactions.

If the agent made it clear they were acting as agent only the principal can be sued. If the agent acted as if they were principal only the agent can be sued. Where the circumstances are ambiguous as to whether the agent was acting as principal or agent the third party can choose to sue either but is bound by that choice. An undisclosed principal cannot ratify the acts of an agent, since the agent must be claiming to represent a specific principal in the dealings with the third party.

9. When does the federal government owe a fiduciary duty to Indigenous peoples? Will this fiduciary duty be expanded to other issues? How? The federal government owes a fiduciary duty to Indigeneous peoples in respect of aboriginal and treaty rights, and in particular in respect of title to lands. It remains unclear whether the Crown has fiduciary duties to fund social services such as health care and education in First Nation communities because lower courts have made conflicting decisions. There are many related issues that have not yet been resolved by the courts, such as whether the historical obligation of the British Crown survived the devolution of British powers over Canadian affairs and whether the provincial governments owe fiduciary obligations to Indigenous peoples. If the fiduciary obligation is to be expanded, it will be through further decisions of the Supreme Court of Canada.

10. What are the duties of the principal in an agency relationship?

The principal’s primary obligation to the agent is to honour the terms of the contract by which the agent was hired. If the contract is silent as to payment, an obligation to pay a reasonable amount can be implied on the basis of the amount of effort put forth by the agent, as well as the customs and traditions of the industry. The principal is vicariously liable for torts committed .

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11.

Explain when a third party can sue the agent.

A third party can sue the agent when the agent contracts as though they were the principal.

Also when agents exceed their authority, the third party can sue the agent for breach of warranty of authority. The third party may also sue the agent for fraudulent or negligent misrepresentation.

12. How is the doctrine of vicarious liability relevant to an agency relationship?

If the agent happens to be the employee as well, then vicarious liability will be present so long as the act complained of happens within the scope of the employment. When the agent is independent, vicarious liability will only apply if the agent has fraudulently or negligently misrepresented something on behalf of the principal while actually acting as agent.

13. What is an undisclosed principal? Why can’t an undisclosed principal ratify a contract?

When a principal does not want to be disclosed, the agent merely states they are acting as agent for someone, but they will not identify them. The agent must be acting under actual authority.

There can be no apparent authority since the principal is unknown. Nor can the undisclosed principal later ratify the deal, since the agent had no authority to act at the time of the transaction.

14. Explain the different ways an agency relationship can be terminated and why an enduring power of attorney is not terminated when the principal loses mental capacity.

An agent’s authority ends when the agent is notified. If the agent is an employee, the employer can terminate the authority of the employee to act as agent even when the employment continues. Of course, when the employment ends, so does the agent’s actual authority.

Sometimes the authority for the agent to act is given for a specific time or for the duration of a project. Once that time expires, or the project ends, so does the authority of that agent. Some provinces have passed legislation to allow individuals to execute enduring powers of attorney vesting powers similar to those given to trustees to the person chosen to act as one’s attorney.

The enduring power of attorney is created while the principal has full capacity, and the powers typically are exercisable after the principal loses mental capacity.

15. Distinguish among a sole proprietorship, a partnership, and a corporation.

A sole proprietorship is an individual doing business on their own, while a partnership is two or more people carrying on business together. A corporation is a legal entity created pursuant to a statute that carries on business in its own right.

16. What advantages and disadvantages are associated with carrying on business as a sole proprietorship? As a partnership?

The advantages of sole proprietorship include being in control by themselves and not having to split the profits with anyone. The major disadvantage is bearing the risks of business alone.

Many of those risks can be managed with insurance. The advantages of partnership include the protection of minority interests because of the requirement of unanimous consent and involvement of partners in management. This factor also presents the primary disadvantage of partnership since unanimous agreement must be obtained before any changes that affect the partnership can be made. Partners have a right to inspect records. There are few formal .

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17. If two people enter into a business together with the object of making money but lose it instead, can the business still be a partnership?

Yes, it is only necessary that the object be to make profit. It makes no difference that a loss has been incurred instead.

18. When is a partnership not presumed to exist? When is it presumed to exist?

A partnership is presumed not to exist when parties just own property in common, when a debt is repaid by the creditor taking a share of the debtor’s profits, when the payment of an employee is based on a share of sales or profits, when the beneficiary of a deceased partner receives the deceased partner’s share of the profits ,when a loan is made in relation to a business and payment of interest varies with the profit, or when a business is sold and the payment of the goodwill portion varies with the profitability of the business. A partnership is presumed to exist when there is a joint contribution of capital to establish a business, there is an intention to share profits or losses, and there is joint participation in the management of a business.

19. What is the advantage of entering into a formal agreement? What matters should be addressed in a partnership agreement?

Instead of relying upon the Partnership Act to imply terms to the partnership agreement, a formal agreement permits the partners to custom craft the terms of partnership to meet their particular circumstances. The agreement should address the duties of each partner, the amount of time and money to be committed to the business by each partner, how the profits are to be shared, how the capital is to be distributed, any limitations on the powers or authority of each partner, methods of resolving any disputes between the partners, how the business is to be managed, and the circumstances in which the partnership will be dissolved.

20. What is the significance of the existence of a partnership agreement for outsiders dealing with the partnership?

A partnership agreement will not affect the rights of an outsider to obtain a remedy against each individual partner. The Partnership Act regulates such liability.

21. What danger exists when a third party is led to believe that two people are partners when, in fact, they are not? What legal principle is applied in this situation?

A partnership relationship can arise because of estoppel. If one of the parties represents to a third party, either by words or by conduct, that another person is a partner, and that representation is relied on, the existence of a partnership cannot be denied, even if it can be clearly demonstrated that the two were not carrying on a business together.

22. Where are the rights and duties of partners set out? When do these rights and duties not apply?

The Partnership Act sets out the rights and duties of partners. The Partnership Act prescriptions do not apply when there are terms of a formal partnership agreement which contradict them.

23. Partners have fiduciary obligations to each other. Explain what this means and give .

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A partner has an obligation to act in the best interests of the partnership business and the other partners. There is a corresponding obligation to act in the utmost good faith. This means that a partner must not compete with the partnership by carrying on a similar business, must not accept personal benefit without the consent of the partners and must convey any private information that comes because of his associations with the partnership. An example would be that an accountant acting in partnership with another accountant cannot compete with the partnership business by preparing financial statements privately without disclosing the profits generated and paying them to the partnership.

24. Why must a person understand the law of agency to understand the law of partnership?

Partners are agents for each other in respect of partnership matters. A partner is bound by the act of another partner in respect of the partnership, even if they don’t agree with it.

25. What events may bring about the end of a partnership prematurely? Under what circumstances might it be necessary to get a court order to end a partnership?

A partnership can be dissolved upon notice of one of the partners or the death, bankruptcy or insolvency of any partner. If the business carried on by the partnership becomes illegal the partnership is automatically dissolved. Generally, a court can dissolve a partnership where it feels it appropriate to do so--where the business continually operates at a loss, when one of the partners becomes mentally incompetent or is unwilling to perform the partnership responsibilities, or when the conduct of one of the parties is prejudicial to the partnership relationship.

26. When a partnership is being dissolved, and does not have sufficient assets to pay its debts, how is the responsibility for these debts distributed? How are the excess assets distributed?

The assets are distributed first to pay off the debts of the partnership and, if there are not enough assets, creditors will turn to the personal assets of the individual partners. Excess assets will pay expenses of partners, then loans advanced by the partners, then capital investments. Any assets left will be distributed according to the normal distribution of the partnership.

27. What must a person do in order to qualify as a limited partner? What happens when a limited partner violates one of these qualifications?

The limited partnership must be registered. Failure to comply with these regulations causes the limited partner to become a general partner, exposing personal assets to satisfy the debts and responsibilities of the partnership.

28. What is the main advantage of limited liability partnerships? In light of this, what does the law require to protect those who suffer losses through the actions of a partner or an employee of a limited liability partnership?

The limited liability partnership (LLP) is available in some jurisdictions to professionals so that only the negligent or fraudulent partner has personal assets at risk, along with the assets of the partnership itself.

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Business Law in Canada, Thirteenth Edition 29. Explain the nature of a joint venture, how it can be formed, and how normal partnership law applies to such a creation.

When two or more individuals or corporations wish to cooperate in developing a project together, they can form a joint venture. The joint venture can be formed in two ways. A new corporation can be formed where the parties of the venture hold an agreed amount of shares in the corporation. Normal corporate law will apply to that new corporation. They can also be created through partnership. If the parties try to form a joint venture by way of a contract, partnership law will apply even if the parties have stated the Partnership Act will not apply.

Solutions to Cases 1. Bateman v. Steed, 2014 SKPC 81 (CanLII) The court found: “... the Defendant Steeds 50% liable and Ms. Swartz 25% liable for the Plaintiff’s loss. The Plaintiff herself is responsible for 25%.” There was a counterclaim for property taxes, a piece of defendant's furniture that was taken by plaintiff and for cleaning. It was successful and was deducted from the damages awarded to the plaintiff.

2. Moores v. Fish, Food and Allied Workers Union, 2017 NLCA 38 (CanLII) The court found that the Union did owe a fiduciary duty to the fishers and implied it was breached. Since the fishers did not knowingly ratify the agreement by signing the consent forms, it was not ratified.

3. Rivermist Holding Ltd. v. McGregor Estate, 2012 BCSC 1645 (CanLII) Yes, they are personally liable. The court cited from authority: “The essence of all of these cases is that unless an agent clearly identifies him or herself as the representative of a corporation from the outset of the commercial relationship, the agent will be personally liable for whatever promises he or she makes. Even where there are clues as to the existence of a corporate entity behind the scenes, such as names on letterhead or on cheques, that is not sufficient to remove the plaintiff's ability to pursue the individual who now claims to be merely a corporate representative.”

4. Tremblett v. Tremblett, 2012 CanLII 67443 (NL SCTD); appeal, 2013 NLCA 34 (CanLII) Doug would have claim for an equal share over all assets of the business if the business operated as a partnership. The courts could ascertain if the brothers shared the profits and held responsibility for debts equally. It appears they both owned the fishing boat and if they shared profits and responsibility for debts, they acted like a partnership. It’s difficult for each party in a partnership to equally do the same amount of work. If Bill did more than Doug, that should not change the treatment of the business as a partnership. If Doug was successful in the trial, he would be entitled to half of the value of the license or $400,000.

5. Tim Ludwig Professional Corporation v. BDO Canada LLP, 2017 ONCA 292 (CanLII) The common law cited by the court is that an expulsion provision in a partnership agreement will be strictly construed, that partners are fiduciaries to each other, and that management of the firm will be exercised in good faith and not capriciously.

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Chapter 11 Corporations Learning Objectives LO 11.1 Analyze the separate legal entity principle LO 11.2 Describe the advantages and disadvantages of incorporation LO 11.3 Explain the process of incorporation LO 11.4 Discuss the funding of a corporation LO 11.5 Examine the roles of corporate directors, officers, and shareholders LO 11.6 Distinguish the ways that a corporation can be terminated

Discussion ANALYZE THE SEPARATE LEGAL ENTITY PRINCIPLE

DESCRIBE THE ADVANTAGES AND DISADVANTAGES OF INCORPORATION

A corporation is a legal entity, separate and apart from the members who make it up. This is a legal fiction because the corporation does not in reality exist as a separate person, but for the convenience of the legal system, it is treated as if it does. It is to be contrasted to an individual, who is a breathing and sentient person. The separate legal entity of the corporation provides a convenient method of accumulating capital (the selling of shares) without imposing significant responsibilities on the shareholders. Those shareholders have limited liability. That is, the most they can lose if the corporation is liquidated is the amount they have invested. As a general rule there is no restriction on the free transferability of shares, although for a closely held corporation, there is usually a unanimous shareholders’ agreement which does restrict transfers of shares. For a broadly held corporation, shareholders are free to purchase and sell the shares on the open market without affecting the continuation and functioning of the independent corporation. A corporation cannot die like an individual and because it is separate from the members who make it up, the death of the shareholders will not affect the continuation of the corporation. Since management and members are separate, it is possible to have a professional management group.

Limited liability, which is the main attraction of incorporation, is often countered by the requirement that the principals sign a personal guarantee of the indebtedness of the corporation to a bank when the corporation is borrowing money. However, other advantages such as free transferring of shares and succession, majority control, tax advantages and separate management remain. This makes corporations the most .

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common method for carrying on business today.

EXPLAIN THE PROCESS OF INCORPORATION

DISCUSS THE FUNDING OF A CORPORATION

The most significant method of carrying on business in modern times has been through incorporation. The incorporation process takes place by a group of people called shareholders coming together and forming, through application to government, a corporation which then has the status of a separate legal entity. These types of bodies were originally created by royal charter or special acts of the legislature. Today the standard method by which corporations can be created is by the granting of a certificate of registration after filing articles of incorporation.

Historical and limited methods for creating companies or corporations are by the grant of letters patent, or by registration, depending on the jurisdiction. Where the registration method is used, restrictions may be set out in the memorandum of association but this has no effect on those dealing with the corporation unless they have knowledge of the limitation. There is usually no similar limitation on capacity where letters patent or articles of incorporation methods are used. Note that there are other incorporated entities such as cities, universities, Crown Corporations and societies.

In broad terms, corporations are funded either through borrowing or through the issuance of shares. A share does not represent ownership, but it represents the interest that each shareholder has in the corporation.

When a corporation finances through the sale of shares, it is a form of equity financing rather than debt financing. When corporations borrow, they will do so either through direct loans from individuals or financial institutions, or through the sale of debentures or bonds.

It should be noted that when shares are sold they can bring with them special rights and restrictions and accordingly, different classes of shareholders can be created. Typically, these classes are common and preferred shares. Common shares carry with them the right to vote in general meetings of the corporation and the right to a dividend when one is declared. With preferred shares there is a claim to a specific dividend on a regular basis, usually without the right to vote unless dividends are not paid. Even with preferred shareholders, there is no “right” to a dividend.

EXAMINE THE ROLES OF CORPORATE DIRECTORS, OFFICERS, AND SHAREHOLDERS

Corporations are usually divided into broadly held and closely held corporations. As a general rule, the closely held corporation involves few shareholders and usually has some restrictions on the free transferability of the shares (such as the need to obtain the consent of the other shareholders). Broadly held corporations usually involve shares being freely traded on the stock market and are much more closely regulated. .

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Directors of corporations are chosen by the shareholders and have responsibility for the management of the corporation. Directors owe a fiduciary duty to the corporation and not to the shareholders. They are required to act in the best interests of the corporation and usually must exhibit the degree of skill that one would normally expect from a reasonably prudent business person. Directors may also be personally liable where insider knowledge has been misused, where the corporation has not paid wages, not remitted taxes, or has violated environmental law. They may also be charged criminally if they have directed employees to commit crimes to benefit the organization.

Senior managers are responsible for the ongoing daily operation of the business and have obligations similar to the directors. Promoters are responsible for creating the corporation in the first place and their responsibility, in addition to those of the directors and managers, is to disclose all pertinent information and refrain from taking advantage of their positions at the expense of the shareholders.

The shareholders have few responsibilities, but do have access to records kept by the corporation, such as the annual reports. They also have the right to vote at shareholders’ meetings and to choose the directors. In many jurisdictions shareholders have the right to bring an action against the directors on behalf of the corporation when necessary and the right to retain their percentage of the outstanding shares when new shares are issued (pre-emptive rights). Shareholders also have the right to relief from oppression when the powers of the directors are abused at their expense. In some jurisdictions shareholders can file a dissent and have their shares purchased at a fair price when they are harmed by a decision that is otherwise beneficial to the corporation. Many other rights and protections can be incorporated into a shareholder’s agreement.

In 2018, the Canada Business Corporations Act was amended to require directors of federal distributing corporations to provide diversity disclosures to shareholders at every annual meeting and to the Director of Corporations Canada. The disclosure must report on diversity among the directors and members of senior management. This includes women, Indigenous peoples, persons with disabilities, and members of visible minorities.

In 2019, the Canada Business Corporations Act was amended to allow directors and officers to consider certain factors when acting with a view to the best interests of the corporation. These factors include the environment, the long-term interests of the corporation, and the interests of shareholders, employees, retirees, pensioners, creditors, .

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consumers, and Governments. The relevant standard when evaluating a director’s due diligence was objective, not subjective.

DISTINGUISH THE WAYS THAT A CORPORATION MAY BE TERMINATED

A corporation does not die but can be brought to an end through dissolution, or winding-up. This may be done voluntarily or involuntarily as a consequence of court order. Also if a corporation does not keep its filings up to date with the government or its agent, it can be struck from the register. There is a process for revival available for corporations that are struck. Some of the provinces have passed legislation that private corporations maintain a transparency register.

Answers to Questions 1. What is meant by a corporation’s having a separate legal identity?

The separate legal identity means that, in law at least, the corporation is a separate legal person from its shareholders and also separate from the management. Principles such as limited liability and the longevity of corporations are based on this concept.

2. Explain how the liability of a shareholder is limited.

In corporations where a shareholder invests a certain sum, the most that the shareholder can lose is the amount of the investment. Creditors cannot go beyond the assets of the corporation and sue the shareholders to seek a return on the debt. The shareholder therefore has limited liability.

3. Explain under what circumstances a court will “lift the corporate veil.”

It is appropriate to “lift the corporate veil” if principals participate in fraudulent or criminal conduct or the avoidance of obligations that ought to be honoured.

4. Why are the principles of agency law relevant to corporations?

Since the corporate entity is a legal fiction, all of its activities must be carried out through the services of real people acting as agents. The principles of agency law set out in Chapter 10 are, therefore, extremely important when dealing with corporations. Directors and employees, from officers right down to clerks, may have actual or apparent authority to bind the corporation, depending on the nature of their jobs.

5. Explain how a personal guarantee reduces the limited liability of the principals of a closely held corporation.

A personal guarantee, if granted to a creditor of the corporation by one of the principals .

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of the corporation, makes the principal directly liable for the debts of the corporation.

This protects the creditors of the corporation but overrides the limited liability the principals might otherwise enjoy.

6. Explain the advantages of free transferability of shares and how and why this right is often modified by shareholder agreement.

The main purpose for the creation of a corporate identity in the first place is to facilitate capital investment from as large a pool of investors as possible. Through a share purchase, investors are able to invest significant funds and are also free to withdraw from the operation by selling those shares without disrupting the operation of the corporation. In smaller corporations, however, such free transferability of shares can be a disadvantage.

When there are few shareholders the personality of the shareholders becomes important since they are often involved in the running of the corporation and so restrictions are commonly placed on the transferability of shares in closely held corporations.

7. Set out and explain some of the disadvantages associated with the corporate method of carrying on business.

Unlike partnership it is difficult to make major changes in the corporation since incorporating documents have to be altered. The position of a minority shareholder is one of relative weakness in a corporation, whereas a single partner has considerable amount of power and can often veto decisions if the Partnership Act applies. The running of the corporation is usually more expensive.

8. Distinguish among companies and corporations that have been created by special acts of parliament, by royal charter, by registration, by letters patent and by filing articles of incorporation.

Historically, one of a kind businesses were created by royal charter (e.g. The Hudson Bay Company). Now this is done by special act of parliament (CBC, CNR, etc.). For general purposes several different methods of incorporation have been developed. Some provinces use the registration system that requires the registration of certain documents with the appropriate government agency. Letters patent jurisdictions, developing their systems from the royal charter power, create corporations by the governing authority granting letters patent. In more recent times jurisdictions such as the federal government and most provinces have turned to a method which involves the filing of articles of incorporation to obtain a certificate.

9. Explain the significance of the memorandum of association in a registration jurisdiction. Contrast it with the role of articles of incorporation and articles of association.

The memorandum of association in a registration jurisdiction is the document that accomplishes the creation of the corporate body. It is analogous to a constitution in that .

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it sets out important matters such as the name of the company, the authorized share capital and the objects of incorporated entity. The articles of association are more like the bylaws of the incorporated entity used in other jurisdictions. These bylaws deal with the day-today operation of the incorporated entity including how the shares are issued and cancelled, requirements for meetings of the board of directors and shareholders, voting procedures, etc. The articles of incorporation used in such jurisdictions as Ontario and the federal government are quite different from the articles of association in that they are analogous to the memoranda of association in a registration jurisdiction and comparable to a constitution. In those jurisdictions there are separate bylaws dealing with the day-today operation of the corporation.

10. What is a “society” and how does it compare to a corporation.

A society is also a body corporate, but its objects specifically are not to make a profit.

11. What is the capacity of most corporations? What is the exception to this rule?

Modern corporations have all the powers and capacity of a natural person unless the articles of association or memorandum place restrictions on those powers.

12. Explain why the concept of a par-value share is misleading and why the use of such shares has declined.

With a par-value share a specific value is attached to the share certificate at the point of issue. Such a value has no significance except at the point of issue. A par value share may be issued at $1.00, but once on the market the value of that share is determined by the marketplace and may vary from $.50 to $5.00. It may also be discounted at the point of issue and the par value price may bear no relationship to its trading price.

13. What is meant by a “preferred” share? Contrast this with the “common” share.

Explain why the term “preferred shares’’ is misleading.

It is possible to create different classes of shares and while many different characteristics can be given to these shares, usually they are divided into common and preferred shares.

Preferred shares give the shareholder preference in relation to dividends. That is, a set amount of dividend is payable to the shareholder. That dividend must be paid before any dividends are paid to common shareholders. Preferred shares do not usually carry with them a right to vote unless the dividend payments are in default. Common shares carry a right to vote and a right to dividends if they are declared. In other words the majority common shareholder controls the corporation.

14. Does a shareholder, whether preferred or common, have a right to a dividend?

Explain.

No shareholder has a right to demand a dividend. Whether a dividend is paid or not is determined by the board of directors. Even when a preferred share is involved, which sets out that the preferred shareholder is entitled to a yearly dividend, that is not a debt and .

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the corporation is not obligated to pay it. Shareholders cannot sue to force payment of a dividend unless the dividend has been declared and has not been passed on to the shareholders.

15. What is the significant difference between a bondholder and a preferred shareholder, both of whom are entitled to a specified payment each year?

The preferred shareholder is an investor in the corporation and has no right to demand a dividend and cannot sue upon failure to receive one. A bondholder is a creditor of the corporation who can sue or enforce payment through realizing any related security involved if the corporation fails to pay.

16. Distinguish between a closely held and a broadly held corporation and explain the differences in terms of the provisions in place in your jurisdiction.

The answer to this question will vary with the circumstances and the jurisdiction, but essentially the shares of a broadly held corporation are either traded on the stock exchange or the corporation is so large that it has been designated as such by the appropriate government agency. A closely held corporation is usually smaller, often a family organization, with just a few shareholders and some restrictions on the free selling of those shares. A broadly held corporation is subject to more control than a closely held corporation. In some jurisdictions closely held corporations are referred to as private corporations and in others as non-reporting corporations.

17. Set out the nature of the duties owed by a director of a corporation. To whom are these duties owed? Who else in the corporate organization owes similar duties?

The director has an obligation to be careful in dealings on behalf of the corporation and can be sued for negligence if that duty is violated. The director also has the duty of a fiduciary which is to act in the best interests of the corporation, be loyal, avoid conflicts and otherwise to act in the utmost good faith towards the corporation. The director cannot take advantage of opportunities that come because of the position as director, must disclose any situations of conflict of interest and cannot start any business in competition with the corporation. The duty is owed to the corporation and not the shareholders. A similar duty is owed by the officers.

18. Explain why it is becoming increasingly difficult to get prominent individuals to serve as directors of Canadian corporations.

Not only has the standard of care required of a director increased (now to the level of a reasonably prudent business person) but directors also face a number of situations where they can be held personally liable for the corporations actions. In addition to unpaid taxes and wages, the directors can be personally liable for violations of environmental legislation and even in some jurisdictions, violations of consumer protection legislation.

This risk can be managed through an appropriate indemnity of the director from the corporation, backed up by directors’ and officers’ liability insurance. .

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19. Who is usually responsible for running the affairs of the corporation?

Although directors are legally responsible for management, in a large corporation they usually appoint a managing director or chief executive officer (CEO), who is given overall responsibility, along with a managing committee of the directors, to run the affairs of the corporation. The day-to-day operation of the corporation is assigned to others who report to the CEO. These officers may include an executive vice- president, treasurer, secretary, and other senior executives, such as vice presidents and managers, as deemed appropriate for the organization.

20. How can a promoter avoid personal liability for pre-incorporation contracts?

Some jurisdictions allow corporations, once they or formed, to ratify a pre- incorporation contract. If such is possible it will reduce the risk to the promoters. Where ratification is not possible, promoters should include a provision in the contract exempting themselves from any resulting liability.

21. Explain any duties shareholders assume. Summarize the rights of the shareholders in relationship to other shareholders, the management and directors of the corporation.

The shareholder has no duty to the corporation unless he or she qualifies as an insider or has some position within the corporation. The shareholder has significant rights to certain information and can have access to records. The shareholder has a right to receive a copy of the annual report and financial statements. The shareholder has a right to vote on shareholder resolutions (where such power has been given) and to vote for the board of directors. The shareholder has the right to have that vote made by proxy. In some jurisdictions shareholders have pre-emptive rights, relief from oppression and in other cases the special rights given to preferred shareholders.

22. Explain what is meant by a ‘proxy’ and why proxies can be so important at a corporation’s annual general meeting.

A shareholder may not be able to attend the annual general meeting where votes are cast and directors are chosen. A shareholder has the right to authorize someone else to vote in their place. This is called a vote by proxy and if a faction can gain enough proxies they can gain control of a corporation by controlling those elected to the board of directors.

23. Distinguish among a derivative action, dissent and oppression. Explain when it would be appropriate to use each of them.

A derivative action allows the shareholders to sue the directors in the name of the corporation for their wrongdoing. A dissent action arises when fundamental changes to the corporation have adversely affected a minority shareholder, but are in the interest of the corporation. It allows the shareholder to be bought out at fair market value. An oppression action arises when someone (shareholder, director, officer, creditor) is .

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unfairly prejudiced by the actions of the corporation. The court may make any order it sees fit, up to and including dissolving the corporation.

24. Explain the purpose of a shareholders’ agreement and why it is important.

A shareholders’ agreement is put in place, usually in small, closely held corporations, to cover various contingencies which may arise in the future in order to avoid conflict. It often includes pre-emptive rights, restrictions on the sale of shares, and termination provisions if one of the shareholders wishes to leave the corporation. It is often called a unanimous shareholders’ agreement or a USA. 25. How can a corporation be terminated?

A corporation is usually terminated by dissolution provisions which are included in incorporation legislation. There may be separate winding up legislation. However, in some areas failure to file annual reports will eventually cause the corporation to be removed from the lists. Where assets are involved the corporation should be dissolved in line with the legislation. This can be either a voluntary or involuntary process.

Solutions to Cases 1. Dynasty Kitchen Cabinets v. Soheili, 2011 BCPC 414 (CanLII).

Yes, the corporate veil should be lifted. Soheil is personally benefitting from the transaction between Dynasty Kitchen and the corporation. The only reason why the corporation cannot pay its debt is because Soheil is not paying the debt owed to the corporation. This is similar to wrongdoing and fraud. Both the corporation and Soheil personally should be held liable for the obligation and liability to Dynasty.

2. ALPC Housing Solutions Inc. v. Martin, 2017 NSSC 49 (CanLII) The court stated, “I find that Jacques Martin had knowledge of facts which would put a reasonable person on inquiry and he failed to inquire as to the possible misapplication of the trust property and is personally liable for his involvement in Kris Martin’s breach of her fiduciary duty.” The court ordered damages equivalent to the profit made by the Martins, with adjustments for costs, which if not agreed upon, would result in a court ordered accounting.

3. BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69 (CanLII) Directors owe their duty to the corporation and must do what is in the best interests of the corporation. If there is an irreconcilable conflict between the best interests of the corporation and of a stakeholder, the directors should choose in favour of the corporation. Different stakeholders have different remedies, including oppression, preemptive rights, dissent, a derivative action, and what may have been provided in a unanimous shareholders agreement. In the case before the Supreme Court of Canada,

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the directors were obliged to consider the position of the debentureholders and the evidence confirmed that they did so. This fulfilled the directors’ duty and the proposed buyout did not amount to an unfair disregard for the interests of the debentureholders.

The arrangement did not fundamentally alter the debentureholders’ rights, as the investment and return they contracted for remained intact. Accordingly, the Supreme Court allowed the appeal and approved the buyout.

4. Kaur v. Canada, 2013 TCC 227 (CanLII).

Kaur could avoid liability for the upaid GST. It is appropriate for Kaur to rely on expertise of those running the operations of the business. Kaur exercised due diligence as the director of the corporation and should not be held liable for the negligence of the general manager.

5. Urichuk v. Kent, 2017 ABQB 432 (CanLII) The court held, “For the proposed derivative action to appear to be in POG’s interests, it must not be bound to fail. Specifically, Urichuk’s argument that the limitation period was suspended by fraudulent concealment must not be bound to fail. The argument does not meet this threshold. At the time of the 567 transaction, Urichuk was represented by his wellqualified nominee director and shareholder, McGregor. Urichuk was not in a position of vulnerability. While Kent may have breached his duty to disclose his conflict of interest in the 567 transaction, there was no ongoing fraud to conceal this assignment. ” 6. Cohen v. Jonco, 2005 MBCA 48 (CanLII) The court found that John’s 1997 liquidation instructions were “... the essential backdrop to the reasonable expectation analysis ...” needed to provide the oppression remedy to Gwen. The reason given was that the shareholders did not invest in Jonco, but instead their shares were given to them by John in his will. The court ordered that if the preferred shares are not quickly redeemed, that Jonco be wound up.

7. W. Bryant Shears Ltd. v. Northward Services Ltd., 2012 CanLII 79020 (NL SCTD) The court cited a provision of the Corporations Act that the corporate revival of the defendant was retroactive to the date it was dissolved. Therefore the Statement of Claim was not a nullity and was not statute barred.

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Chapter 12 Employment Learning Objectives LO 12.1 Distinguish employees, agents, and independent contractors LO 12.2 Detail common law obligations of employers and employees LO 12.3 Outline the purpose of various statutes impacting employment LO 12.4 Describe collective bargaining and explain the role of labour

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unions

Discussion DISTINGUISH EMPLOYEES, AGENTS, AND INDEPENDENT CONTRACTORS

DETAIL COMMON LAW OBLIGATIONS OF EMPLOYERS AND EMPLOYEES

Employment law is concerned with the relationship where a person contracts to provide services to an employer. This relationship must be distinguished from a service being performed by an agent or an independent contractor. One test for determining whether an employment relationship exists is the control test. If the employer can tell the worker not only what to do but how to do it, an employment relationship exists. A more recent test is the organization test which holds that if the person can be considered an integral part of the organization of the employer, an employment relationship exists. A person can be an agent of the employer whether the individual is an independent contractor or an employee, but this does not mean that all employees or independent contractors are agents. It does not matter if someone is called an independent contractor if the control test or organization test determines it is in fact an employment relationship. The distinction between employee and independent contractor is an important consideration for vicarious liability, income tax, and salary withholdings.

Where the employment relationship does exist, the employer is obligated to provide not only payment for the services, but safe working conditions as well.

The employee is obligated to give competent, careful, honest and loyal service.

The employment relationship is created by contract and normal contract law applies. Such an employment contract, in the absence of any other provision to the contrary, can be terminated at will by either party simply by giving reasonable notice or payment in lieu of notice providing human rights and employment standards are not violated. If there is just cause such as dishonesty, incompetence, fraud, consistent tardiness, disobedience or other serious misconduct, the employment can be terminated immediately without notice.

When either party has breached the employment contract, notice is not required for the contract to be terminated immediately. In the absence of just cause, an .

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employer’s failure to give reasonable notice will give rise to a claim for wrongful dismissal.

Where disabled or ill workers are involved, every reasonable effort must be made to accommodate them. Many firms arrange for disability insurance to deal with this problem. Human rights legislation requires accommodation ofemployees on other grounds as well, such as family status, religion and etc., when it would not place undue hardship on the employer. Since the relationship is primarily contractual, when the employer significantly changes the nature of the job, this amounts to a breach in the form of constructive dismissal and entitles employees to leave and sue for damages unless they consent to the change. It is also possible, although rare, to sue an employee for wrongful leaving. For example, by giving inadequate notice before leaving the job. It is more common for employees to be sued for breaching their duty to the employer by taking customer lists etc. when they do leave. Any restrictive convents imposed on the employee must be reasonable in time duration and geographic scope in order to be enforceable. Otherwise they are void for breach of public policy.

Under the common law the amount of notice or pay in lieu of notice can be substantial, and in excess of 2 years in some circumstances. Some jurisdictions have passed legislation controlling the amount of notice that must be given but most of the legislation deals with minimum notice. The principle of vicarious liability applies, making an employer responsible for the tortious or wrongful acts of an employee committed during the course of employment.

OUTLINE THE PURPOSE OF VARIOUS STATUTES IMPACTING EMPLOYMENT

Of all the different kinds of contractual relationships, employment is one of the most regulated. Both federal and provincial legislation has been enacted to control such areas as minimum wages, hours of work, leaves, vacation and holiday pay, termination, and child labour. This is generally described as Employment Standards legislation. Also, usually as separate legislation, rules controlling discrimination, workers’ compensation, health and safety, payroll withholdings, and employment insurance.

Human rights legislation usually enforced by commissions or boards, finds its most significant application in the field of employment. Discrimination on the basis of race, national or ethnic origin, colour, religion, gender, gender identity, gender expression or sexual orientation are grounds of concern to such boards.

Employers have an obligation to maintain a discrimination and harassment free workplace, along with a duty to accommodate disabilities and cultural or religious practices where reasonable. Workers’ compensation legislation is in place in all jurisdictions to provide compensation to designated workers who are injured or incur illness through their employment, and to limit the liability of employers. Legislation also establishes a regulatory body to establish and enforce safety standards for work sites.

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DESCRIBE COLLECTIVE BARGAINING AND EXPLAIN THE ROLE OF LABOUR

The most significant legislative supplement to the employment relationship deals with collective bargaining. Collective action on the part of employees to motivate employers to improve working conditions has a long history. Over the years much legislation has been passed legitimizing such collective action and today complex legislation is in place designed to reduce the conflict between employers and employees by controlling confrontation, particularly at the recognition stage of the organization process. The Wagner Act passed in the United States became a model for Canadian labour legislation. It attempted to alleviate conflict by keeping the employer out of the union organization process and having the employees vote to determine whether a union should be organized. If 50 per cent of the workforce voted in favour of the union, it would be certified as the bargaining agent for those employees. The effect of this was to require the employer to negotiate in good faith with that union.

Collective bargaining rights have been acquired through the political process and has been held to be guaranteed in the Charter. Collective bargaining is overseen by labour boards set up in each jurisdiction. There are several different areas in the union/management relationship where disputes can arise that are controlled by this legislation. These are jurisdictional disputes, recognition disputes, interest disputes and rights disputes. Jurisdictional disputes deal with disputes between unions as to which body should represent workers doing a particular job. A recognition dispute is handled through the certification process. Once the trade union has become certified, it has the right to serve notice on the employer to commence bargaining. Some jurisdictions also provide for employers’ organizations.

In the bargaining process each side will put forth the interests and terms they wish to have incorporated into the collective agreement. If an impasse is reached in the negotiation process, it is usually referred to as an interest dispute. The process of conciliation/mediation has been introduced to assist the parties to rationally reach an agreement. If there is no resolution of the dispute at this stage, the employer may choose to lock out the employees. That is, refuse them the right to continue work. On the other hand the employees may chose to go on strike. A strike vote must be held. In the event of either strike or lockout, notice has to be given to the other party. When this notice is served and the time has expired, services are then withdrawn or the lock out commences. It is only during an interest dispute that a strike can take place and it is only during a lawful strike that the union members can picket.

Picketing is a process of trying to persuade people not to deal with the business which is subject to the strike. Violence or intimidation on picket lines is illegal.

Picketing can take place at the job-site and, in some jurisdictions, in other locations as well. If the negotiations are successful, however, the result is a collective agreement that must contain several important terms, one of which is the method of solving rights disputes (arbitration). Such an agreement must be ratified by the membership, be in force for at least one year, and have provisions for dealing with technological change. It can also provide for union shops, a stipulation that requires anyone joining the workforce to join the union. Unions .

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are democratic organizations with leadership chosen by vote to be committed to fairly represent and to act in the best interests of those they serve.

These general provisions apply to private sector employment. A few essential government or public employees are usually controlled by special legislation that precludes the right to strike or withhold services.

Answers to Questions 1. Distinguish among an employee, an independent contractor and an agent.

An employee can be told not only what to do but how to do it by an employer. An independent contractor has agreed to do particular work. An agent is a person who enters into contractual relationships on behalf of a principal. Both the independent contractor and the employee can function as agents in different circumstances.

2. Explain how a court will determine whether a person is an employee rather than an independent contractor.

The traditional approach was to determine the degree of control exercised by an employer over an employee. Today the courts have also turned to the organization test to determine how involved the employee is in the organization. If the worker is an integral part of the employer’s organization and subject to group control, the person in that circumstance would be considered an employee.

3. Summarize the obligations of an employer to its employees, and those of employees to the employer under common law.

An employer must provide a safe working place and conditions as well as work and direction.

In addition to the agreed upon wage, an employer must compensate the employee for reasonable expenses incurred. The employee must possess the skills claimed and exercise them in a reasonably competent and careful manner, follow reasonable orders, be honest and courteous, be loyal and not insubordinate, be punctual and not excessively absent.

4. What is a restrictive covenant? What factors determine whether it is enforceable?

A restrictive covenant is a term in an employment contract which prohibits the employee, upon leaving, from working for a competitor employer, in a particular area. To be enforceable such restrictive covenants must be reasonable in duration and geographic area.

5. Describe the proper way to terminate an employment contract that is for an indefinite period of time?

A reasonable amount of notice must be given by either party to terminate an employment contract. This amount varies with the length of time employed and the nature of the job (e.g. an executive will require more notice or pay in lieu of notice than a labourer).

6. How do the courts determine the appropriate notice period to terminate an employment relationship?

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The appropriate notice is determined by the reasonable person test and taking into consideration such factors as length of service, nature of job, qualifications and nature of the job market.

7. Under what circumstances can an employee be dismissed without notice? When can an employee leave employment without giving notice?

When an employee is terminated without notice, it is referred to as termination for just cause.

The employee can be dismissed without notice when there is serious absenteeism, consistent tardiness, open disobedience, habitual negligence, incompetence or immoral conduct. The employee can leave without notice when asked to do something that is immoral or dangerous and not part of the job.

8. What risk does an employer face who ignores an employee’s incompetence over a period of time?

If bonuses or wage increases are paid to an employee it indicates that an employer is pleased with the services being rendered or that any incompetence was not important to the job. The employer will not then be able to raise this incompetence as grounds for dismissing or disciplining the employee.

9. What is “constructive dismissal”? Be sure to explain it using a contractual perspective.

Constructive dismissal can occur when an employer unilaterally changes an employee’s job. This is tantamount to a modification of the employment contract without the employee’s consent. In such circumstances the employee can treat the modification as a termination of the employment contract and sue for wrongful dismissal, claiming pay in lien of reasonable notice.

10. What factors will a court consider as relevant when determining compensation in a wrongful dismissal action? Indicate the various types of remedies that may be available to the plaintiff.

Usually the damages that are awarded to the victim are the difference between the amount the employee was paid upon termination and what would have been earned had pay in place of reasonable notice been given. An employee who is successful in the action will usually be entitled to costs as well. Damages may include claims for lost employment benefits and pension rights. If in the process of being dismissed damage was done to the person’s reputation, damages may be awarded for defamation, as well. Very rarely will a court order an employee to be reinstated.

11. Explain what is meant by “vicarious liability”. Describe the limitations on its application.

Vicarious liability is a principle whereby one person is responsible for the wrongful acts of another person. For example, an employer is liable for the tortious acts of an employee done in the course of the employment. When the employer is held vicariously liable, this does not relieve the employee from responsibility for tortious conduct both to the wronged party and the employer.

12. Describe how the employment standards legislation protects basic workers’ rights.

Minimum wage, minimum termination notice, parental leave, child labour, and other such areas are controlled in this legislation.

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13. Explain how human rights legislation applies hiring employees?

Prospective employees cannot be chosen because of age, gender, ethnic origin, religion, disability etc, by employers. Exceptions are if there is a bona fide occupational requirement or if accommodating the applicant as an employee would be an undue hardship on the employer.

14. Explain what is meant by a “duty to accommodate” in the field of human rights and how it can affect employers.

Employers have a duty to accommodate the religious practices and disabilities of their employees.

This may mean rescheduling shifts to accommodate a day free for religious observance or simply moving the desks to provide for wheelchair access. But it may also require significant modification of job requirements to accommodate a disabled person, up to the point of undue hardship on the employer.

15. Explain the object and purpose of workers’ compensation legislation and how those objectives are accomplished. If a worker is injured on the job and is not covered by workers’ compensation, what course of action need they take to secure a remedy?

The object of workers’ compensation legislation is to provide compensation in case of on-the- job injury without any need to establish who was at fault. The employee loses the ability to sue the employer for the injury. Employers and sometimes employees pay into an insurance fund made available to compensate injured workers. The premiums vary with the risks inherent with the employment. For employees not covered by workers’ compensation, through the common law an employee hurt on the job would have to prove on the balance of probabilities that the employer was negligent or deliberately caused the injury. The employee may also be found contributorily negligent, thereby lessening the damage award.

16. What is the significance of the National Labor Relations Act (Wagner Act) in Canada?

The Wagner Act controlled the certification process (organization) which was the main point of conflict between employers and employees. A government body was established to determine when certification was accomplished thereby eliminating the need for the employer to take part in the process. Similar legislation was adopted by Canada during the Second World War and subsequently adopted by most of the provinces.

17. Compare and contrast recognition disputes, jurisdiction disputes, interest disputes, and rights disputes.

A recognition dispute is a dispute between the trade union and the employer over whether or not the trade union has the right to represent the employees in the collective bargaining process. This is now covered by legislation dealing with certification. An interest dispute is a conflict between the trade union and the employer as to what terms ought to be included in a collective agreement.

A rights dispute is a disagreement between the union and the employer as to the interpretation of rights agreed on in the collective agreement. This takes place only where a collective agreement is already in force. A jurisdictional dispute involves a conflict between two unions as to the kinds of workers to be represented by each union.

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18. Once a collective agreement is in place, what effect will it have on the individual rights of employees? How will it affect the employer?

A collective agreement embodies the terms of the contract of employment between the employer and employees. There is no right to bargain separately with individual employees.

19. Explain the difference between mediation/conciliation and arbitration. Describe how these tools are used in Canadian labour disputes.

Conciliation or mediation involves a third party stepping into an interest dispute to act as a gobetween or intermediary between the parties. An arbitrator is a third party appointed by the parties to the dispute or the government to rule on the dispute. The recommendation of a mediator or conciliator is merely persuasive, but the decisions of an arbitrator are binding on the parties.

Arbitration is the appropriate method of settling rights disputes and provisions for such arbitration must be provided in the agreement.

20. Distinguish among a union shop, a closed shop, and an agency shop.

A union shop clause requires new employees to join the union within a specified period of time.

A closed shop clause requires that the employee be a member of the union before getting the job.

An agency shop clause gives employees the option of joining the union but requires that they pay union dues in any event.

21. Distinguish between a strike and a lockout. What kind of disputes are strikes and lockouts limited to? How are the other types of disputes between union and employer dealt with?

A strike involves a withdrawal of services by employees which may constitute a refusal to come to work, but also may be merely a slowdown or refusal to do certain types of work. A lockout is an action undertaken by the employer whereby the employer refuses to let the employees work.

A strike or lockout can only take place in an interest dispute during the negotiation process for a collective agreement. Once such a collective agreement is in place any disputes have to be handled by arbitration (rights disputes). Recognition disputes are handled by the government- imposed organizational process whereby a union becomes certified.

22. Explain what steps must take place before a strike or lockout is legal.

A strike or lockout can only take place in an interest dispute and even then it must be shown that the parties have attempted to bargain in good faith. Once that is clear, a certain amount of notice must be given to the other party before the strike or lockout can take place. Some jurisdictions such as Alberta have mandatory mediation before strike notice may be given.

23. Explain what is meant by “picketing”, when it can take place, and the limitations that have been placed on picketing in different jurisdictions.

Picketing involves strikers standing near or marching around a place of business trying to persuade people to refrain from doing business there. Only information can be conveyed.

Intimidation or physical violence are prohibited under the legislation and if they occur, may result in criminal charges in addition to sanctions applied under the relevant labour legislation. Picketing must be peaceful and not in violation of private property. Courts or boards may limit the number of picketers where the crowd becomes intimidating. .

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24. What is the legal position of a person who wishes to cross a picket line?

In most jurisdictions, people have a perfect right to cross a picket line if they wish. A picket line is merely a method of persuading people to support the union’s cause.

25. How is collective bargaining for public sector and essential service employees different from that for people employed in private industry?

Courts have held that government and public sector employees may participate in collective bargaining. However, the employers must use a fair process to designate essential employees and these employees are not permitted to participate in strikes and picketing. Usually there is some form of compulsory arbitration to resolve disputes involving employees providing essential services. Of course, in all labour disputes, including private ones, the government has the right, either by existing statute, or by the passage of a specific bill, to end a work stoppage and impose a settlement, or an alternative method of resolving the dispute, such as compulsory arbitration.

Solutions to Cases 1. Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (CanLII) A reasonable person test is used to determine if a dismissed employee should accept a work offer from that same employer in order to mitigate the damage for wrongful or constructive dismissal. Factors to be considered include if the salary offered is the same, is the work now to be demeaning, and if the personal relationships involved are not acrimonious. Also whether or not the employee has commenced litigation, and whether the offer of re‑employment was made after the employee had already left the employment.

2. Menagh v. Hamilton (City), 2005 36268 (ON SC) The court said that our society has evolved to where there cannot be sexual harassment in the workplace which attacks the dignity of the victim. The plaintiff had a protracted record of sexual harassment against the victim. The City established to the satisfaction of the court that the cumulative effect of the plaintiff's misconduct warranted dismissal. The court did not accept the plaintiff's withdrawal of his signed apology to the victim , nor his denial of any misconduct on his part.

3. Emerald Foods Ltd. (c.o.b. Bird’s Hill Garden Market IGA) v. United Food and Commercial Workers’ Union, Local 832, 2003 MBCA 83 (CanLII).

Upon review of the contents of the President’s letter, the Board concluded that it was delivered with the purpose of influencing the outcome of the vote. This constitutes an unfair labour practice. The letter itself spoke of wage negotiations which were taking place through a focus group without union involvement, and carried the implicit warning that improved wages and benefits might not take place should the union be certified. While employers are able to distribute information, they cannot threaten or attempt to influence the outcome of certification votes. The intentions of the employer are relevant in making this kind of determination. The labour statute in this case protected employees against an employer exercising too much power.

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Chapter 13 Intellectual Property Learning Objectives

LO 13.1 Identify the types of intellectual property and distinguish them from other

forms of personal property LO 13.2 Describe the rights protected by copyright and the evolution of copyright laws in Canada LO 13.3 Describe the rights protected by patent laws LO 13.4 Distinguish between trademarks and industrial designs LO 13.5 Describe how the common law protects confidential information and trade secrets LO 13.6 Describe how the growth of the internet and information technology has impacted intellectual property and business Discussion IDENTIFY THE TYPES OF INTELLECTUAL PROPERTY AND DISTINGUISH THEM FROM OTHER FORMS OF PERSONAL PROPERTY

Intellectual property law attempts to balance the protection of the product of a person’s mental effort against the free distribution of new and innovative ideas which stimulate the advancement of the commercial environment. Its attention focuses both on defending the rights of individuals in relation to ideas, information, and other creative works, and on regulating how others use those products of the mind. These opposite interests often collide, especially now in the digital information age, with the universal utilization of computers, software, and internet technology.

A special category of intangible personal property is called intellectual property.

Copyright gives authors control over the use and reproduction of their work. A patent gives inventors the right to profit from their inventions. Trademarks protect the name or logo of a business. Industrial designs protect the distinctive shape or design of an object. Confidential information and trade secrets are further examples of intellectual property that can be protected contractually or by common law.

Usually the sale of land involves first the agreement of purchase and sale and then the actual transfer through deed or the issuing of a certificate of title in a land titles jurisdiction. Historically, there were considerable difficulties with being certain that the vendor had the right to sell the property because of earlier property interests and disputes over ownership. Land registries were introduced to combat this difficulty. The more traditional registration system is a depository .

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of documents and the parties to land transactions are only bound by the documents that have been registered in that land registry. The parties then look at the documents that have been registered to determine their rights. The land titles system takes this one step further and certifies that a particular party owns the property subject only to the interests that are listed on the title document. In addition most provinces have passed special statutes dealing with condominium property. This was necessary because traditional land ownership concepts deal with the land itself and make concepts of common property difficult. As well traditional concepts contemplate only the horizontal division of property and condominiums are often separated in a vertical manner.

The term “real property” refers to land and things permanently attached to the land, such as buildings. The essential characteristic of real property is that it is fixed and immovable. Personal property, on the other hand, is movable and can be divided into two categories - chattels (tangible goods) and choses in action (intangible rights such as shares, bonds and negotiable instruments).

DESCRIBE THE RIGHTS PROTECTED BY COPYRIGHT AND THE EVOLUTION OF COPYRIGHT LAWS IN CANADA

Copyright and patent legislation was exclusively granted to the federal government in the Constitution Act, 1867. The Copyright Act was first enacted in 1928 and has been amended several times since. The most recent amendment is the Copyright Modernization Act, November 2012. This brought Canadian copyright law in line with international treaties particularly to address issues related to technological advances.

Copyright law restricts others from copying or reproducing of works, giving the owner of that created work a monopoly over it. Copyright protects literary, dramatic, musical and artistic works as well as performer’s performances, sound recordings, and communications signals. Computer software is now also specifically protected under the Copyright Act. The created work itself, and not the idea, is copyrighted so there is nothing to prevent another artist or author from expressing the same ideas in another way. Copyright is created automatically with the creation of the work but registration can give additional protection. The copyright holder has complete control (with a few exceptions) over their work for the life of the creator plus fifty years, although recent trade treaties Canada has entered will likely see this time period extended. Even when the copyright is assigned, the author retains moral rights in the created work to approve of any changes. When a copyright is infringed remedies may be available such as an injunction, an Anton Piller order, damages, an accounting or fine or imprisonment in some cases. A copyright board and several associations are in place to enforce the provisions of the Act and help in the royalty collection process.

The Copyright Modernization Act makes it illegal to circumvent digital locks.

Amendments to the Act impose new penalties for infringement and require Internet service providers (ISPs) to provide notice to and information about infringers. Fines for non-commercial infringers have been reduced. Fair dealing rules have been expanded to include education, satire, and parody. Fairness factors are established by court decisions and take into account the purpose, nature, amount, the alternatives, and the effect of the dealing in the work. .

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DESCRIBE THE RIGHTS PROTECTED BY PATENT LAWS

DISTINGUISH BETWEEN TRADEMARKS AND INDUSTRIAL DESIGNS

Patent rights only come into existence when applied for and registered. The registration process requires public disclosure of the invention but it then gives the patent holder a monopoly over the right to produce or profit from the invention for 20 years, although some new trade treaties may cause this time period to be extended by a small amount for some patented items. Theories, concepts and obvious improvements do not qualify and only an original invention can be patented. With patents the protection is for the idea rather than for the object or thing produced. The remedies that are available for infringement are similar to those available in copyright infringement.

Trademarks are symbols or designs associated with a product or business.

Trademarks are created by registration and provide protection to avoid consumer deception. While the remedies are essentially the same as with infringement of copyright or patent, it should be noted that even where there is no registered trademark that has been infringed there may be a common law “passing off’ action that is available. Industrial designs are designs or patterns that distinguish a manufactured article (e.g. the shape of a soft drink bottle) and can also be protected through registration. The last time the Trademarks Act had significant updates was in June of 2019. A trademark can be any word, design, symbol, or packaging that distinctively identifies a business or product. After the 2019 changes to the Act came into force, a registrant of a trademark no longer needs to state that the mark has been used in Canada or that there is an intention to use it in Canada.

There is a general belief in Indigenous communities that traditional knowledge and traditional cultural expressions belong to the whole community, and are to be shared so that everyone may benefit from them. Contrast this with the entire legal regime of intellectual property law, which is centred around exclusivity— that is, a single person or entity has a right to an invention, creation, or a work to the exclusion of all other parties, and specifically so the intellectual property rights holder may personally profit off of it.

DESCRIBE HOW THE COMMON LAW PROTECTS CONFIDENTIAL INFORMATION AND TRADE SECRETS

Common law remedies are available where confidential information has been disclosed. The duty not to disclose such confidential information is based on some special relationship such as principal/agent, employment or directorship of a corporation or society. People in these positions are prohibited from disclosing trade secrets or other forms of confidential information. Remedies are similar to those discussed above. These obligations can be modified by contract. It is wise to make clear to employees and others of confidentiality expectations and to include nondisclosure provisions in employment and consulting contracts.

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DESCRIBE HOW THE GROWTH OF THE INTERNET AND

INFORMATION TECHNOLOGY HAS IMPACTED INTELLECTUAL PROPERTY AND BUSINESS

The ease with which people can transfer material from one computer to another through website links has made the enforcement of intellectual property more complicated. For instance, the information on the linked site, may be connected to the host site, in the viewer’s mind. Controls have been introduced to try to stop domain name and other forms of Internet abuses through the Domain Name Registry. Private information is now subject to private abuse since personal data is collected, stored, and shared through online resources. While there is some protection, such as from the Privacy Act, the onus is still on the company or individual to secure private information. The massive expansion of the Internet has led to increasing problems of abuse in the form of spam, privacy, and fraud.

Enforcement by regulators and through civil action is often difficult. There are however encryption technologies and improved practices that can preserve and enhance business value. Further, self regulation for the protection of intellectual property is spreading in industries. The laws of electronic commerce are strengthening as a result of the implementation of international treaties and model legislation. Also dispute resolution through ADR is growing in respect of intellectual property.

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Answers to Questions 1. What two principles does the law of intellectual property try to balance?

The free accessibility of information is balanced against the right of the creator of the ideas or information to profit from the ideas or information. Stated differently, the degree of the incentive to create is balanced against the good to society of early free access to the protected intellectual property.

2. Explain how a copyright is obtained and the qualifications that must be met in order to obtain such protection.

The copyright is obtained just through the creation of the work in Canada. However, international protection can be obtained through registration. In order to qualify, the work must be original and it must be preserved in some permanent form such as in a written document.

3. Summarize the nature of the protection given to the holder of a copyright and indicate what remedies are available to enforce such rights.

The protection given to the holder of a copyright is a monopoly in relationship to that work. If that copyright is infringed, remedies include an injunction, an accounting for profits, damages and an Anton Piller order providing for the seizure of the goods that are in violation of the copyright.

4. How long does copyright protection last?

The current protection given to the holder of a copyright is for the lifetime of its creator plus 50 years.

5. Discuss under what circumstances an Anton Piller order would be given and indicate how this remedy might be more valuable than other remedies that might be available.

An Anton Piller order is an order to seize the goods that offend the copyright. Because the order is obtained ex parte, the seizure is a surprise, preventing the goods and evidence from being destroyed or hidden. The court will only give such a remedy when there is clear and compelling evidence of the infringement, damages would not be a sufficient remedy and when surprise is necessary in seizing the goods in order to protect the evidence.

6. What is the purpose of patent law, and why is registration required for protection?

The patent is not designed to protect the actual work but the idea behind the work or invention.

An application for registration followed by registration, gives the inventor a monopoly over the use and profits from that invention or idea. The reason for the registration is to provide for the disclosure of the information to others so that they can use the new knowledge in further advancing society. An important purpose patent law and the registration process is to disclose information rather than hide it.

7. How long does patent protection last?

A patent currently gives its holder a monopoly for a maximum of 20 years from the date of application.

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8. What kinds of things are protected by trademark legislation, and how is that protection obtained or lost?

Trademark legislation is designed to protect terms, symbols and designs that are used to identify a product or a business, such as the golden arches for McDonalds. The trademark is created by registration which gives the owner of the trademark exclusive rights in relationship to it. Failure to register results in the loss of this protection but other avenues may be available for enforcement such as a passing off action.

9. What options are available when someone registers a domain name that conflicts with your trademark?

Trademark laws apply to domain names. The registration of a domain name will not overrule trademark law. Infringed trademarks by domain names can be brought to the Federal Court when the infringed trademark has been properly registered.

10. How long does trademark protection last?

Registration of the trademark gives the owner exclusive right in Canada for 15 years and it is renewable. The renewal of the registration is required every ten years.

11. Explain what constitutes passing-off and what course of action is available to the victim.

Passing-off occurs when a person misleads the public into thinking it is dealing with some other business or person when it is not. The court can order compensation to be paid or that the conduct stop. This remedy is available even when an unregistered trademark is involved. The onus is on the plaintiff to establish that actual or potential damage was caused.

12. What type of protection extends to industrial designs? How is this protection obtained?

Industrial designs are intended to protect designs or patterns that distinguish a manufactured article, such as the distinctive shape of a particular designer handbag. In order to obtain this protection the industrial design must be registered and the product must be marked appropriately with the registration mark.

13. What steps should an employer undertake to protect confidential information?

The employer must inform the employee that the information is confidential. The employer can have the employee sign a contract.

14. How does the duty of confidentiality arise, and what protection or remedies are available to the confider?

The duty of confidentiality usually arises when a special relationship is in place such as employment, principal/agent, corporate director or otherwise that imposes a duty of confidentiality on the parties. When the confidence is broken, or likely to be broken, the kinds of remedies that are available are mainly damages, an accounting or, in some circumstances, an injunction.

15. What federal statutes have been enacted to protect privacy rights?

The Privacy Act protects information held by government institutions, limits its collection, and provides or limited access where appropriate. The Personal Information Protection and Electronic Documents Act (PIPEDA) covers all areas of federal jurisdiction and the provinces as well. .

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16. What are some of the problems related to enforcing copyright and trademark law when the medium for transmitting information is the internet?

The person linking the copyright or trademark may feel that since it is linked to the host site, three is no violation. Infringement could occur from offshore companies making enforcement of laws extremely difficult. Determining who is infringing when many players are involved causes difficulty.

17. What steps should a company take to protect itself and its data from internal and external threats?

The corporation should identify the data that is to be protected. They should create policies about who can access the data and policies about how the data can be used and where it can be used. Covenants or contracts should be created when the data must be shared. The entire process should be audited to ensure the policies are being upheld.

18. Indicate how criminal law, tort law and contract law can be used to protect intellectual property. How effective are such alternatives when dealing with online infractions?

When a confidential relationship is created by contract, such as employment, it is appropriate to set out in the contract that disclosure of certain specified information is prohibited so there can be no doubt what is intended. Tort remedies are not as effective, generally, but may be available in specific situations such as when an outside party induces an employee or other to breach a contractual duty of confidentiality. Criminal remedies such as theft or fraud have also been used to prosecute people who have misused confidential information. For online transactions these alternatives are difficult to enforce particularly when infringement originates overseas or when there are multiple parties involved making it difficult to identify the perpetrator.

Solutions to Cases 1. Mars Canada Inc. v. M&MMeat Shops Ltd. 2008 CanLII 4982 (ON SC) The court reviewed the various agreements between the parties and concluded that since “the wording of paragraph three of the Settlement Agreement is clear and unambiguous, there is accordingly no need or legal basis to admit or consider extrinsic evidence in respect of the negotiations leading up to the Settlement Agreement concerning what the parties (or their counsel) intended. Such an exercise will only introduce the subjective intention of the parties which is not appropriate.” The question that remained was whether the sales through Mac’s outlets were permitted. In that regard, the court held that “the M&M Meat Shops operated by Mac’s in or adjacent to its convenient stores are clearly M&M Meat franchised stores, trading under the names LES ALIMENAT M&M and M&M MEAT SHOPS. Accordingly, in permitting the sale of the Restricted Products in Mac’s M&M Meat Shops, M&M Meat is not in breach of paragraph three of the Settlement Agreement.”

2. Black v. Molson Canada, 2002 CanLII 49493 (ON SC), 60 OR (3d) 457 The court held in favour of Black. Molson’s trademark was associated with the production of a specific product: beer. There are lots of examples of businesses with the name Canadian in their titles or product names and they cannot all be acting in bad faith. There is no danger that people will confuse this domain name with the Molson product. The fact that Black wasn’t using the domain name yet had no effect as there was evidence he did plan to use it. Black had the right to use the Domain name in the website catering to Canadian business and entrepreneurs.

3. Rains v. Molea, 2013 ONSC 5016 (CanLII) .

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Neither Rains or Molea should have copyright over all crinkled paper art. They should only have copyright over the art they personally created. It does not matter that Rains based his works on historical architecture. If either can prove that the other copied their work, crinkle for crinkle, then there should be protection provided by copyright law.

4. Wenzel Downhole Tools Ltd. v National-Oilwell Canada Ltd., 2012 FCA 333 (CanLII) The appropriate remedy available to Wenzel is to sue National-Oilwell for patent infringement.

Having sold to the industry the invention prior to patent application, means the invention was available for public inspection and without protection. Since the invention was available the patent should be invalid and the plaintiff should not succeed.

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Chapter 14 Real and Personal Property and Protection of the Environment Learning Objectives

LO 14.1 Distinguish real and personal property LO 14.2 Describe the various types of interest in land LO 14.3 Outline the unique properties of mortgages and the rights of the

parties LO 14.4 Compare the rights and obligations of landlords and tenants LO 14.5 Discuss the special rules applicable to movable property attached to

land and the rights and obligations associated with bailment LO 14.6 Describe legal issues relating to the protection of the environment, conflicts involving environmental law, and the competing Discussion DISTINGUISH REAL AND PERSONAL PROPERTY

Usually the sale of land involves first the agreement of purchase and sale and then the actual transfer through deed or the issuing of a certificate of title in a land titles jurisdiction. Historically, there were considerable difficulties with being certain that the vendor had the right to sell the property because of earlier property interests and disputes over ownership. Land registries were introduced to combat this difficulty. The more traditional registration system is a depository of documents and the parties to land transactions are only bound by the documents that have been registered in that land registry. The parties then look at the documents that have been registered to determine their rights. The land titles system takes this one step further and certifies that a particular party owns the property subject only to the interests that are listed on the title document. In addition most provinces have passed special statutes dealing with condominium property. This was necessary because traditional land ownership concepts deal with the land itself and make concepts of common property difficult. As well traditional concepts contemplate only the horizontal division of property and condominiums are often separated in a vertical manner.

The term “real property” refers to land and things permanently attached to the land, such as buildings. The essential characteristic of real property is that it is fixed and immovable. Personal property, on the other hand, is movable and can be divided into two categories - chattels (tangible goods) and choses in action (intangible

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rights such as shares, bonds and negotiable instruments).

A special category of intangible personal property is called intellectual property.

Copyright gives authors control over the use and reproduction of their work. A patent gives inventors the right to profit from their inventions. Trademarks protect the name or logo of a business. Industrial designs protect the distinctive shape or design of an object. Confidential information and trade secrets are further examples of intellectual property that can be protected contractually or by common law.

DESCRIBE THE VARIOUS TYPES OF INTERESTS IN LAND

Real property involves the land and buildings attached to it. The term property indicates the interests the person has in the item being possessed rather than the item itself. A fee simple interest would have originally been granted by the Crown, and conveys an unfettered right to use or sell property. These rights are limited to some extent by zoning legislation and the obligation to obtain permits.

A life estate is a type of interest in land that conveys exclusive possession. This entitles the holder to possess the land until the death of the person who is used for the basis of the calculation (usually the person possessing the property).

Another lesser interest in land is a leasehold interest. Again this conveys the right to possession and use of the property but is limited by some time aspect e.g. a three year lease. Such leases can also be created on a periodic basis e.g. month to month, year to year.

An easement or right of way is a third party’s right to use some part of the land.

Easements are usually created by contract however in many jurisdictions it is possible for a person to obtain such an interest by merely using the property for a number of years without being prohibited from doing so. In some provinces, the right to actual possession of the land can also be acquired through use over a number of years and this is called adverse possession. Other rights with respect to land are licenses, a profit a prendre, and restrictive covenants.

When we discuss Indigenous claims, especially in regards to land, it has to be treated as its own unique circumstances. An Indigenous land claim, and how Indigenous peoples traditionally deal with land, does not conform with current property law.

OUTLINE THE UNIQUE PROPERTIES OF MORTGAGES AND THE RIGHTS OF THE PARTIES

It is possible for two or more people to own property together. If this is done in a tenancy in common the parties have separate interests in the land. This separate interest can be sold or inherited. If it is a joint tenancy, however, each party jointly owns the whole property and when one of them dies the other(s) have the right to the whole property by the right of survivorship. People can obtain the right to property in other ways. An option agreement allows a person to accept an outstanding offer to sell property and that offer cannot be revoked. The option gives the offeree the right to purchase the property at a given price if the option is exercised. Mortgages and agreements for sale are methods of using real property as security for debt. An agreement for sale is used to sell property on credit with the purchaser getting possession and the vendor retaining title to the land, with a right to repossess if the payments are not made. Historically a mortgage involved the conditional transfer of the title to the property to the creditor as security for the loan. If the loan was not repaid the title remained with the creditor who had the right to take possession of the property and to sell it for .

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the outstanding amount of the loan. Now in land titles jurisdictions a mortgage is simply an interest in land owned by the debtor and on default the creditor can sell or take title to the land.

COMPARE THE RIGHTS AND OBLIGATIONS OF LANDLORDS AND TENANTS

DISCUSS THE SPECIAL RULES APPLICABLE TO MOVABLE PROPERTY ATTACHED TO LAND AND THE RIGHTS AND OBLIGATIONS ASSOCIATED WITH BAILMENT

A very important aspect of the study of real property involves the relationship between the landlord and tenant. The tenant has the right to the exclusive possession of the area rented for a specific time period or for an ongoing time that may be terminated by either party on notice. Generally the landlord must provide vacant possession and quiet enjoyment, with the tenant being obligated to pay rent. There is no general obligation on the landlord to provide property that is clean or in good repair unless specified in the lease, unless the defects render the property unusable. Where a lease is breached the landlord has a general right to seize the tenant’s property or to sue for compensation. Registered leasehold interests run with the land and are binding on subsequent land owners.

Lease agreements are contracts and the rights of the parties can be modified or altered by amending the contract terms. Each jurisdiction has special residential tenancy legislation governing such aspects of this relationship as rent controls, security deposits, the landlord’s obligation to repair and restrictions on the landlord’s right to enter the premises.

Fixtures attached to the land or premises by the tenant can usually be removed by the tenant upon termination provided that doing so will not damage the property. If they are not removed they become part of the real property. The lease agreement will usually categorize which fixtures are landlord’s fixtures and which are tenant’s fixtures.

Bailment is created when goods owned by one person are given for a time to another. The person holding the goods is called the bailee. The bailment can be created gratuitously, or by contract. The duty on the bailee to care for the goods will vary with the provisions of the contract and who is benefiting from the bailment. Where both parties benefit (bailment for value) or where the bailment is voluntary but the bailee is benefiting, the duty is high. But where the bailment is voluntary and for the benefit of the bailor, the obligation may be much less.

When people find a watch or ring in a park, they have the right to that item against everyone except the owner. If that finder were to hand it to the police or the lostand-found centre and the rightful owner could not be found, that finder would be entitled to it. Only the rightful owner or someone having an enforceable interest in it, such as a secured creditor, could demand it from the finder.

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DESCRIBE LEGAL ISSUES RELATING TO THE PROTECTION OF THE ENVIRONMENT,

CONFLICTS INVOLVING ENVIRONMENTAL LAW, AND THE COMPETING INTERESTS OF ECONOMIC GROWTH AND ENVIRONMENTAL PROTECTION

There is considerable government intervention in the form of environmental legislation from federal, territorial, provincial, and municipal bodies. Clearing of forests, depletion of fish stocks, and exhausting other natural resources are scarring the earth and decimating species of animal life. Byproducts of this and waste are further degrading the environment. Many industries in Canada are contributing to this problem including mining, oil development, fishing, forestry, construction, transportation, and manufacturing. Legislation has been introduced over the past few decades to bring balance into the system. The Canadian Environmental Protection Act, 1999 (CEPA) mandates environmental protection. Where equivalent provisions exist provincially CEPA does not apply.

Significant fines and other penalties can apply for offences committed. Projects and activities may require environmental review and the Regulations Designating Physical Activities lists activities that require a project proposal be filed. There is other federal legislation such as the Transportation of Dangerous Goods Act, 1992; Canadian Shipping Act; Arctic Waters Pollution Prevention Act; the Navigation Protection Act; the Nuclear Fuel Waste Act; the Hazardous Products Act; the Canadian Wildlife Act; and the Species at Risk Act. The First Nations peoples must be consulted with respect to projects in their territories.

Some legislation makes it impossible for some business activities. Completing applications for projects are detailed and can be costly. Corporations and individuals must wait for a review and sometimes numerous reviews. The delay can hinder opportunities. Special handling of certain materials considered hazardous, the disposal of those materials, and their shipment are costly. Compliance with legislation at all levels of government must be reviewed and this is costly. Fines and penalties for violations are costly.

Offenders charged with violations defend themselves based on due diligence. Common law provides some protection, for example through the Riparian right to protect water quality. Tort law protects a person from their neighbour’s use of property. The person offended or trespassed must sue for compensation.

Answers to Questions 1. How does personal property become real property? Discuss why a determination of why and when this has happened may be important.

When chattels are affixed to real property they become part of that real property, or fixtures. The circumstances under which they were affixed will determine whether anyone other than the owner of the real property can remove them.

2. What is a fixture? Under what circumstances can someone other than the owner of the real property, such as a tenant, remove fixtures?

When chattels are affixed to real property they become a part of that real property and are called fixtures. Only the owner of the real property has the right to remove them. But where tenants affix

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those chattels they are often entitled to take them with them as they leave unless doing so would cause damage or where those goods were intended to become a permanent part of the real property.

3. What interest in land does the purchaser get when they buy a house?

The purchaser obtains an interest in land or the right to use the land called a fee simple. Such an interest gives the purchaser the right to use the land or to sell it subject to local zoning and other restrictions.

4. What is meant by a fee simple estate in land?

A fee simple is the greatest interest in land that it is possible to possess, apart from Crown ownership, and can be equated to ownership. It conveys with it the right to transfer or sell the land. Fee simple is the dominant method of holding an interest in land today.

5. Explain the rights and obligation of reversion and remainder when discussing a life estate.

A life estate is involved when people are given the right to hold possession of property for the duration of a life, which is usually their own. The death of the person determines the end of the life estate. At that point the property reverts back to the original grantor of the life estate, who is often the person who holds the fee simple. This is referred to as a reversion. The property may also be designated to go to another person called a remainderman, after the end of the initial life estate.

Dower and curtsey are examples of life estates.

6. Contrast life estates and leasehold estates.

A life estate involves possession of the property for the duration of a specified life, which is usually that of the person provided with the life estate. Obviously it is not a set time. With a leasehold interest, however, possession of the property is often conveyed for a specific period of time, for example a 99 year lease, and this is the primary distinction between a life estate and a leasehold estate.

7. What is meant by an easement? Give examples, and explain why an easement is called a lesser interest in land.

An easement does not convey a right to exclusive possession of the land involved and, therefore, is referred to as a lesser interest in land. An easement conveys with it a right to use another person’s land either by encroaching on it or crossing over it. An easement right to cross over is called a right of way.

8. Explain the significance of a dominant and servient tenements when dealing with easements.

For an easement to be valid as an interest in land there must be a servient tenement, which is property on which the easement is imposed. There must also be a dominant tenement that gets the benefit of the easement. For example, when person A has the right of way to cross person B’s property to get to their own property, the property of person A is referred to as the dominant tenement and the property of person B is referred to as the servient tenement

9. What is meant by a restrictive covenant? Under what circumstances will such a covenant be binding on subsequent landowners? How does this relate to a building scheme?

A restrictive covenant is created by the original seller of the property as part of granting a purchaser .

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an interest in that property (usually ownership), and places some sort of restriction on its use. For example, no house can be built on the land without a tile roof or no building can be erected over three stories high. This kind of restrictive covenant may be used to protect the value of the seller’s adjacent property or to protect the view, etc. When property is subdivided by a developer, certain restrictions may be placed on title to protect property values, and this is called a building scheme.

Both restrictive covenants and building schemes run with the land and all future owners are bound by those restrictions.

10. Contrast a tenancy in common with a joint tenancy, and indicate how one can be changed to another. Why is the distinction important?

Both joint tenancies and tenancies in common are methods by which people may own property together. That is all parties can point to any portion of the property and claim to have a designated interest in it. With a tenancy in common the interest in the land is inherited by a deceased tenant in common's designated heirs. With a joint tenancy with a right of survivorship, the remaining joint tenant(s) become the joint owners of the deceased joint owner's interest in the land. Sometimes when a joint tenancy has been created, one of the parties then decides it is time to end the joint tenancy. Relief from the court may be available by severance and sale if the parties cannot agree on a buy out or sale. Joint tenancy with a right of survivorship is a common way for couples to hold title and is a common vehicle to keep real property out of probate and away from probate fees.

11.

How may failure to properly register a mortgage or deed affect the initial parties to an instrument in a registration jurisdiction? What happens when an innocent third party becomes involved? How is this different in a land titles jurisdiction?

Failure to register an interest in property in a registration jurisdiction will not affect the rights of the original two parties as that relationship is governed by the personal dealings between them.

Registration is designed to protect the interests of an innocent third party. If the property is sold to an innocent stranger, the title will not be affected by an unregistered mortgage or deed unless the stranger has knowledge of the mortgage or deed. This is true even in a land titles system where the certificate of title guarantees the ownership and interests in land to be as stated, since it is possible for the person who has neglected to register to correct the oversight, as long as the interests of an innocent third party are not affected.

12. How are rights under a lease different from the rights of a resident created under a licence agreement?

When a leasehold interest is established, even if it is only for a short time, an exclusive right to the possession of that property is given. The only one entitled to be on the property during that time is the leasehold tenant and their permitted guests. When a license to use the property is granted, however, there is no exclusive right to use the property. A hotel grants the license to use a suite and retains the right to enter the room to clean and inspect the premises while the guest is staying there.

The landlord of leased property does not have similar rights.

13. Under what circumstances must a leasehold interest be evidenced in writing? Why? A leasehold interest conveys an interest in land and under the Statute of Frauds all contracts dealing with the conveyance of land must be evidenced in writing. Most provinces have qualified this so that it applies only to leasehold interests of more than three years duration.

14. What is a periodic tenancy? What special problems come into play with periodic tenancies .

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that are not present with term leases?

A periodic tenancy involves a lease agreement that is, in effect, renewable at the end of each period specified in the agreement. There is no termination date and, therefore, it is necessary for the tenant or landlord to serve notice of a wish to terminate. With a term lease, there is no requirement for notice as the lease automatically terminates at the end of the term.

15. Explain what is meant by a landlord’s obligation to ensure a tenant’s “quiet enjoyment”.

A landlord must ensure that nothing happens to interfere with the tenant’s use and enjoyment of the property. There must be no third party who has a right to force the tenant not to use the property.

16. Explain what is meant by the saying “finders keepers” in terms of who is entitled to the property that has been found.

When a chattel has been found, such as a watch on a beach, the finder has a right to it against all others except someone with a prior claim, such as the original owner.

17. Discuss different ways in which a bailment may be created. What duty is imposed on a gratuitous bailee? What duty is imposed on a bailee for value?

The bailment may be created gratuitously for the benefit of the bailee as when a neighbour borrows your lawn mower or for value where the bailee is paid for the service of holding a chattel. In the case of both, the obligation on the bailee is to use the same degree of care in looking after those goods as would a reasonable owner of them. The duty imposed on a gratuitous bailee for the benefit of the bailor is considerably less. Of course any contract provisions can modify these duties.

18. Distinguish between the obligation placed on a bailee for value and that imposed on a common carrier or innkeeper.

The duty on a bailee for value is to take the same care of the goods as a reasonable owner person would exercise. The duty may be modified by contract. The duty on an innkeeper or common carrier is to be responsible for those goods if they are lost or damaged unless, of course, that damage is the fault of the bailor. In effect the common carrier or innkeeper takes on the responsibility of an insurer.

Innkeeper legislation has lowered this obligation in many jurisdictions.

19. What common law provisions protect the environment? Why was it necessary to pass federal and provincial legislation?

Common law has some provisions that relate to the preservation of the environment through the individual rights to property. For instance, Riparian rights give people living near rivers and streams the right to have the water come to them in undiminished quantity and quality, subject to limited domestic usage. The government can override this by issuing permits allowing for the withdrawal of large quantities of water for irrigation or other uses such as the discharge of waste. Federal legislation covers all of Canada whereas provincial legislation covers the province and situations unique to the province. Federal legislation permits similar provincial legislation to override it in most instances of exclusive provincial impact.

Forests, minerals, air, and water are all local matters under the jurisdiction of provincial governments. When activities involving these resources become interprovincial or international in scope, or when they take place on federal lands or in coastal waters, the federal government has jurisdiction.

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20. Describe the federal statutes in place designed to protect the environment. What are the provincial statutes in place in your jurisdiction protecting the environment?

The Canadian Environmental Protection Act, 1999 (CEPA) mandates environmental protection.

Where equivalent provisions exist provincially CEPA does not apply. Significant fines and other penalties can apply for offences committed. Projects and activities may require environmental review and the Regulations Designating Physical Activities lists activities that require a project proposal be filed. There is other federal legislation such as the Transportation of Dangerous Goods Act, 1992; Canadian Shipping Act; Arctic Waters Pollution Prevention Act; the Navigation Protection Act; the Nuclear Fuel Waste Act; the Hazardous Products Act; the Canadian Wildlife Act; and the Species at Risk Act. Students responses will vary based on their province. Examples of provincial acts are British Columbia’s Environmental Protection and Enhancement Act, Ontario’s Environment Protection Act, and Nova Scotia’s Environment Act.

21. What is the purpose of a project proposal? When is it required and how is it used?

A project proposal enables the government to review a project to ensure the environment is not harmed by the activities of the project. The proposal identifies where the project is located, the nature of the work, any infrastructure buildings and construction to take place, waste generation, and any other impact made on the environment. The proposal is required before the project begins and the project cannot begin until the proposal is approved.

22. How would you recommend that businesses deal with environmental issues and regulations?

Businesses should determine the environmental issues and regulation that its activities impact. They can contact the province for guidelines. Once the issues and regulations are understood they should follow the guidelines and file for proposal approval for activities deemed necessary to file a proposal.

Solutions to Cases 1. Paramount Life Insurance Co. v. Hill [1986] A.J. No. 1111 (C.A.).

Title is guaranteed in a land titles jurisdiction, but it is for the benefit of the purchaser. The business partner and purchaser were innocent of any wrongdoing. Therefore the court found that the purchaser held good title to the exclusion of the widow former joint tenant and that the mortgage was valid. The widow would be foolish to make the mortgage payments because she would not obtain any benefit. The result would likely not be any different in a land registry jurisdiction since registration took place and the purchaser and mortgagee were innocent of wrongdoing.

2. Letourneau v. Otto Mobiles Edmonton (1984) Ltd., 2002 AB QB 609 (CanLII), [2003] 3 WWR 389.

This was a bailment for reward, as the trailer was left for the defendant to repair, in the location and under the direction of the defendant. The duty of care is that of a reasonable person holding personal goods. No current work order was signed, so there was not an effective limitation of liability clause.

The defendant was found liable for the theft of the trailer and for the full cost of replacement.

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3. Waterloo (City) v. 379621 Ontario Ltd., [2014] O.J. No. 1416 The order was not being applied retrospectively. The order was prospective, for activities moving forward. The bylaw can be clear. It can be enforced and it can be acted upon.

4. Dunn Estate v. Dunn, 1994 CanLII 9136 (AB QB), 2 RFL (4th) 106 There was a marriage breakdown and Mr. Dunn received a divorce before his death. The joint tenancy was severed. This is a reasonable result as this was the wish of Mr. Dunn before his passing.

5. Performance Plus Golf Academy v. Hydeaway Golf Club, 2017 ONCA 980 The court found that the deck, canopy, ball shack, driving range barrier net poles and nets were trade fixtures and could be removed by the tenant. None of those items could be lawfully distrained by the landlord for arrears of rent due to remaining part of the land. They had not yet been removed and converted to chattels. The parties should have had a written lease that plainly differentiated among what are chattels, tenant's trade fixtures and landlord's fixtures.

6. R. v. Gwaii Wood Products Ltd. et al, 2017 BCPC 6 Fines totaling $1.72 million were assessed against the various accused. The fines were to be used for management and conservation of fish species in the affected area. Gwaii Wood Products was required to transfer the subject land to a conservancy organization. The accused could have avoided liability by communicating and cooperating with the fisheries officers.

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Chapter 15 Priority of Creditors Learning Objectives LO 15.1 Outline the process of securing debt by using personal property LO 15.2 Outline the process of securing debt by using guarantees LO 15.3 Outline the process of securing debt by using other forms of security LO 15.4 Explain the process of bankruptcy LO 15.5 Describe the alternatives to bankruptcy

Discussion OUTLINE THE PROCESS OF SECURING DEBT

BY USING PERSONAL PROPERTY

One of the main areas of contention and litigation that is of concern to business people involves disputes over the collection of money owed to creditors. Central to the process of lending and borrowing money is the creation of security to ensure the repayment of that money. Security usually involves a creditor having first claim against some asset over and above the debtor and other creditors.

Real and personal property can be used as security. The discussion in this chapter deals primarily with personal property.

When the seller is the creditor, the usual method of securing repayment is to sell the goods under a conditional sales agreement. Traditionally this was a twostage process. The first stage transferred possession while the creditor retained title as security. The creditor could repossess the goods and have them resold in the event of default and have priority over other creditors in the process. The other traditional method for creating such security was the chattel mortgage.

The creditor was given title to some form of personal property to secure a loan giving him priority with respect to that property over other creditors. Today these traditional methods are still used, but under the Personal Property Security Act title doesn’t actually transfer but the effect is the same. These two forms of security involve tangible chattels. It is also possible to use intangible claims as security in such a debt transaction. When one person has such a claim against another, it is referred to as a “chose in action”. Accounts receivable in a business can be assigned to a creditor as security for a loan. If the debtor fails to pay the loan, the creditor has the right to collect on those accounts receivable.

There are many different forms of personal property security and, therefore, most provinces have passed general legislation referred to as a Personal Property Security Act incorporating security against all of the different forms of personal property under one heading, a security interest, so that there are many common perfection, attachment, priority and enforcement rules. The method of creating a secured relationship under the PPSA is unique. There are three stages.

First, the parties must enter into the contractual agreement. Second, the secured .

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interest must attach to the collateral that has been identified to provide the security. Third, the secured interest must be perfected.

The contractual agreement requirement is satisfied upon the general principles of contract. Although a security agreement is required in many cases, there is no standard form agreement prescribed by the legislation. Attachment occurs when a creditor gives the debtor the agreed consideration. However, in order to gain priority against other creditors with respect to those goods the security interest of the creditor must be perfected. This is done by registering the interest or by taking possession of the item used to secure the loan. If priority has been established through registration, the creditor obtains priority over most other persons obtaining an interest in the collateral that has a registration later in time.

Failure to register often causes the creditor to lose priority against other creditors. The obligation, therefore, shifts to potential third parties to search the registry to find out if there are any encumbrances against the collateral. If the provisions are properly followed and there is a default the creditor has the right to take possession and sell the goods.

OUTLINE THE PROCESS OF SECURING DEBT

BY USING GUARANTEES

OUTLINE THE PROCESS OF SECURING DEBT

BY USING OTHER FORMS OF SECURITY

The PPSA contains a series of special priority rules that can affect the claims of secured creditors. One example is a Purchase Money Security Interest (PMSI).

This refers to a situation where a lender advances funds to allow a borrower to acquire specific items. In that circumstance, if the lender registers against the collateral purchased within 15 days from the date of acquisition, the lender will have priority in those goods over all other creditors, regardless of when the other creditors registered their security. Sometimes a PMSI notice must be given to some creditors who have a prior registered security interest in all present and after acquired personal property of the debtor.

When the security available from the debtor is inadequate, creditors will often insist that someone else be responsible for the indebtedness along with the debtor by providing a guarantee of the indebtedness of the debtor to the creditor.

Such a guarantee obliges the guarantor to honour the debt, should the debtor default. When guarantors are required to pay, they step into the shoes of the creditor and can enforce all the remedies that were available to the creditor against the defaulting debtor, including the right to seize any property that has been used as security. A guarantee has to be evidenced in writing under the Statute of Frauds.

Another vehicle for creating a security is found in the federal Bank Act. Sections 426 and 427 allow banks to use crops in the process of growing and goods in the process of manufacture as security for loans. A floating charge is used to create Section 427 Bank Act security against the general assets or inventory of a business but still allow that business to deal with those assets. Debtors have the right to manufacture and sell any inventory as long as they are solvent and making payments. As soon as there is default, the floating charge becomes crystalized and attaches to each of the assets included in the inventory, and freezing it from further transaction.

When goods or services are used in the process of construction on land, an unpaid supplier can, pursuant to the applicable provincial legislation, file a .

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builders’ lien (sometimes called a mechanics’ lien) against the real property.

This has the effect of causing the person who benefits from the work, usually the owner of the real property, pay toward the goods or services. The lien claimant also obtains priority for payment over many other creditors. The owner of the property is required to holdback a legislated percentage of the payment to the general contractor for application toward any builders’ liens that may be filed against the land within the required time after the goods or services are provided at the work site.

Negotiable instruments including bills of exchange, postdated cheques and promissory notes are also used as instruments of credit. With a certified cheque the bank adds its assurance that it will honour the cheque when presented. An accepted bill of exchange is much like a guarantee of assured payment.

Promissory notes, like other negotiable instruments, have the advantage of being easily transferred and in the hands of a holder in due course conveying better rights, independent of the original transaction. When negotiable instruments are used to advance credit in consumer transactions they must be stamped consumer purchase and this advantage may be lost. Letters of credit are often used in international transactions to add a bank’s credit to a transaction to assure its proper completion.

Some provinces still retain bulk sales legislation which provides protection to general creditors where merchants sell their inventory or trade assets en masse, signaling a warning that they are likely going out of business. A landlord’s right to distrain for rent is another example of where one creditor is given a priority over many others. Provincial legislation also allows creditors to reverse fraudulent transactions entered into by debtors in order to avoid payment or shelter their assets.

EXPLAIN THE PROCESS OF BANKRUPTCY

When debtors are unable to meet their obligations when they become due, they are said to be insolvent. If the insolvent debtor has some assets, it may be appropriate for the creditors to seek a court order to place that debtor in bankruptcy. Alternatively, the debtor may do this voluntarily by making an assignment. In either case the process involves transferring all the debtor’s assets to a trustee in bankruptcy who then liquidates them and transfers the proceeds to the creditors. Where no bankruptcy offense has taken place, a noncorporate bankrupt will eventually be discharged and able to start over again.

Under federal and provincial legislation debtors are prohibited from transferring assets to relatives or friends to avoid those assets being made available to creditors. Similarly they are prohibited from paying one creditor in preference to another.

When a debtor is bankrupt, the trustee in bankruptcy must assess the claims of the various creditors. This is done by requiring creditors to file a Proof of Claim. The trustee can challenge the legitimacy of any of the claims. Among the valid claims, secured creditors have priority over preferred and unsecured creditors. In most instances, secured creditors are entitled to enforce their security without reference to the trustee. Once the secured creditors are paid, the remaining assets are distributed by the trustee to the preferred and unsecured creditors. Preferred creditors are paid first.

Such claims are for funeral expenses, bankruptcy costs, wage arrears, taxes etc. A .

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common issue that impacts all creditors is deemed trust claims advanced by the Canada Revenue Agency for unremitted source deductions and GST. These trust claims can have priority over all secured and unsecured creditors.

Common bankruptcy offences committed by debtors are: conveyances to avoid creditors, preferences of payment to some creditors, failing to make proper disclosure, destroying records, and hiding or concealing property. The bankruptcy trustee can review and reverse offending transactions, and with the assistance of the court, penalties can be imposed upon the bankrupt for failure to fulfill the statutorily required obligations.

During the bankruptcy process, the bankrupt is required to continue to make regular payments (surplus income payments) to the Trustee to be distributed to the creditors. However, once the bankruptcy process is completed and the estate has been distributed, the bankrupt may apply to the court to be discharged. The discharge is often automatic, after nine months, for an individual involved in his first bankruptcy, unless a creditor or the Trustee opposes the discharge. If someone opposes a first time bankruptcy, or if the bankrupt has been bankrupt before, the matter will be heard by a court. An application for a discharge from bankruptcy may be granted unconditionally, it may be granted subject to certain conditions, or it may be denied.

When discharged, the debtor is freed from the enforcement of most previous claims by creditors and is in a position to start over. Any assets subsequently obtained by discharged bankrupts are theirs to do with as they wish. Pursuant to the Bankruptcy and Insolvency Act, some obligations do survive discharge, such as fines, alimony and maintenance payments, and some civil damage awards.

Enforcement of student loans also survives bankruptcy.

The Superintendent of Bankruptcy brought a motion in order to provide flexibility to the administration of Ontario insolvency estates affected by the economic impacts of COVID-19. He applied for an order to extend the timelines set out in specific sections of the BIA. The Superintendent sought a similar order for each province and territory in Canada. The Ontario court held that there was statutory discretion within some of the relevant sections of the. Parliament passed the Time Limits and Other Periods Act (COVID-19)to extend or suspend time periods, including other sections of the BIA. DESCRIBE THE ALTERNATIVES TO BANKRUPTCY

As noted above, a debtor may become bankrupt either by voluntarily filing an assignment in bankruptcy or by being ordered into bankruptcy. To obtain a bankruptcy order, the creditor must specify that the debtor owes more than $1000 in debt and has committed an act of bankruptcy during the previous six months. Significant acts of bankruptcy include the voluntary assignment of assets to a trustee in bankruptcy, fraudulent transfers of money or assets to keep them out of the hands of the trustee, the giving of a fraudulent preference to one of the creditors, an attempt to leave the jurisdiction without paying debts, and general insolvency. It is usually the failure to pay debts as they become due that is the specified act of bankruptcy.

Under the Bankruptcy and Insolvency Act, a debtor can make a proposal to .

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partially or delay payment of debt and get protection from the creditors for a limited period of time. If the proposal is accepted by the creditors and the court, the assets are not lost to the debtor. Both individuals and corporate debtors can elect to make a proposal in an attempt to avoid going bankrupt. This process involves filing of a Notice of Intention to make a proposal, usually followed within 30 days by the filing of the proposal itself. Once presented, the proposal must be approved by both the creditors (2/3 by value and majority by number) and by the court. If the proposal is rejected, the debtor is automatically bankrupt.

Large corporate debtors can engage in a similar process under the Companies’ Creditors Arrangement Act. Answers to Questions 1. Distinguish between the following: (a) Real property and personal property Real property is land or buildings. Personal property is moveable chattels or personal rights or claims held by one party against another (chose in action). (b) Choses in action and chattels A chose in action is intangible personal property such as a debt. A chattel is tangible, moveable personal property. (c) A chattel mortgage and a conditional sale With a chattel mortgage the personal property is used as security for a loan from a new creditor. The title is transferred to the creditor from the debtor in pre-PPSA jurisdictions.

A conditional sale allows the seller to provide financing while retaining title to the goods until final payment. (d) A chattel mortgage and a mortgage on real estate A chattel mortgage involves the use of a tangible item of personal property such as a car or a boat for which the debtor conveys title to the creditor to secure a loan in pre-PPSA jurisdictions. A real estate mortgage involves real property such as a house and land being used for the same purpose in land registry jurisdictions. In land titles jurisdictions a mortgage is just a creditor’s interest in land of the mortgage debtor.

2. What kinds of property can be used as collateral under the PPSA? Chattels, debts or claims and lease arrangements and any other form of personal property, tangible or intangible.

3. What are the advantages of using the PPSA to govern all transactions involving the use of personal property as security?

The personal property security legislation passed brought all of the various rules dealing with different kinds of personal property security under one statute and dealt with them in a uniform way. There is a common form, a common registry, and common procedures.

4. What significant problem associated with the practice of taking goods as security is alleviated by the registration requirements introduced by legislation? Describe the .

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resulting obligations on all parties.

The problem is that essentially two innocent parties are involved, that is, when a debtor transfers title to goods to a creditor and then resells those goods to a third party without the creditor’s permission. Essentially, both the creditor and the third party are innocent. If the creditor were allowed to retake the goods the third party would suffer. Similarly, if this were not permitted the creditor would suffer. Registration was introduced to overcome that problem, which put an obligation on the creditor to register the agreement and an obligation on the third party to search the registry before entering into an agreement to purchase the goods. If either fails to do so, they suffer the loss.

5. Distinguish among the security agreement, attachment and perfection. Explain the significance of each of them and how each is accomplished.

A security agreement is the contract between the parties creating the security and debt relationship. Attachment takes place when the security agreement is executed and funds are advanced. Attachment results in the creditor obtaining rights in the collateral used as security, but still those rights are only good against the original debtor until the security has been perfected. This is done either by registering the security agreement or by the debtor placing the goods in the possession of the creditor. Proper attachment and perfection give the secured creditor priority to recover against the collateral against most third parties.

6. How is the priority of secured parties determined? What are two exceptions to this general approach?

Priority is generally determined by date of registration. The two exceptions are a purchase money security interest, which will prevail over a general security interest as long as it is registered within the time stipulated by statute and any required PMSI notice is provided. The other exception is goods bought from the debtor in the normal course of business would not be subject to recovery under the secured party’s general security agreement.

7. What are the rights of a secured party when there is a default by the debtor? What determines the limitations of those rights?

If the original contract provides for it the creditor can upon default take possession of the goods and sell them to recover the amount owing. The creditor must act in a commercially reasonable fashion in looking after the seized goods and reselling them. Any deficit after sale can be obtained from the debtor. Alternatively the goods can be retaken and the creditor can elect to retain the goods in satisfaction of the debt. There are many additional restrictions on how the goods must be treated and to control the process. In addition it must be remembered that the normal contractual remedies are available.

8. What obligations are imposed on the secured creditor who retakes the goods used as security when the debtor defaults?

The bailiff charged with repossessing the goods is not permitted to break down doors, force open windows or use any threat of physical contact, without a court order and police assistance.

When the goods have been repossessed they can be sold to recover the money, after being held by the creditor for a specified period of time. The goods must be sold at public auction or privately at a “fair price” depending on the jurisdiction. .

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9. Explain the rights of a debtor after he has defaulted and the secured party has taken possession of the collateral.

The creditor must give the debtor notice of an intention to sell (or retain) and the debtor has the right to file an objection and be heard in court. Then the goods must be disposed of in the normal way with any excess going to the debtor. Where the goods are to be disposed of or where there is an objection to retention, the goods must be cared for in a commercially reasonable way and the sale of them must take place in a commercially reasonable way.

10. “The debtor is always liable to the creditor for any deficiency after the goods used as security have been sold”. True or false? Explain your answer.

The answer depends on the jurisdiction. If there is any deficit owing, it will still be owing after the repossession and resale. In British Columbia it is seize or sue but not both where consumer transactions are involved.

11. What is the difference between a guarantee and an indemnity? Why is the distinction important?

Guarantees involve agreements whereby third parties ensure a debt will be repaid if the debtor defaults. An indemnity is an agreement where one party agrees to be directly responsible for paying the debt of another and no default is required to trigger the obligation. In some provinces, only guarantees must be evidenced in writing under the Statute of Frauds. Guarantees and indemnities are separate contracts, so must have all the required elements of a contract. In practice, they are usually drafted as one agreement. It would be unusual to find a guarantee that did not incorporate an indemnity.

12. What duties does the creditor owe the guarantor before and after the guarantee is given?

The creditor has to make full disclosure of all relevant details of the debt at the time the guarantee is provided. The creditor must preserve the debt and security from the debtor for the benefit of the guarantor after the guarantee is given since the guarantor is subrogated to the interest of the creditor. If either duty is breached it would void the guarantee.

13. If the debtor defaults, what steps does the creditor have to take before she is entitled to demand payment from the guarantor? If the guarantor pays the creditor, what rights do they have against the debtor?

The creditor need not take any steps before demanding payment from the guarantor unless stipulated in the contract that other forms of security must be realized first. Once paid, guarantors take an assignment of the position of the creditor, and can then take any action against the debtor to recover their money that the creditor could have taken to collect the debt.

14. What is the main advantage of the provisions of the Bank Act that allow the banks to take security for loans they grant? Why may these provisions cause confusion?

Growing crops, inventories, and goods in the process of manufacture may be taken as security, even though they change in nature. Under provincial PPSA’s these same types of items may be taken as security, so there is often a conflict between the federal Bank Act (registration required with the Bank of Canada) and the provincial Acts (registration under the provincial registry).

15. What happens upon default when a floating charge has been used to secure a debt?

What is the main advantage of using floating charges? .

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A floating charge is said to descend and crystalize upon the goods that are used as security upon default. Until that time the floating charge does not fix against any particular security and so no priority is established in relationship to it. Those goods can be purchased or sold without conveying with them any charge against the title. It is only at the time of default when the floating charge crystalizes that a priority is established. Any sale that takes place after that or any use of the commodity involved as a security etc. would be subject to the now crystalized floating charge.

Therefore at the time of default anyone who has a fixed charge against the collateral would have priority against the holder of the floating charge. The floating charge would have priority over general creditors once it becomes crystalized. The use of floating charges has been nearly entirely replaced by security agreements that provide for a security interest in all present and after acquired personal property (ALLPAAP) of the debtor.

16. What significant difficulty facing suppliers of goods and services in the construction industry is overcome by the creation of the builders’ lien? How can suppliers protect themselves? Explain the role of the holdback.

The problem addressed by builders’ liens is simply that the owner of the property is usually not the party with whom the subcontractors have contracted. In the absence of a builders’ lien the owners benefiting from the work done would normally have no obligation to pay either the person doing the work or supplying the goods. In such cases the worker or supplier is permitted to register a lien against the land to enforce payment. If the owner of the property has hired a general contractor, that general contractor and any subcontractor can file a builders’ lien to force payment from the owner. Owners can protect their interests by holding back 10% (depending on the jurisdiction) from contract advances to the general contractor to qualify to get a court order to discharge liens which may later be filed within the designated time period.

In turn the owner would require the general contractor to also perform a holdback. This assures that funds will be available to pay the sub-trades and suppliers and limits the owners obligations to the amount held back.

17. Explain the nature and use of a letter of credit and distinguish between a standby letter of credit and a normal letter of credit.

A letter of credit is an instrument produced by a bank that guarantees payment. A normal letter of credit facilitates payment in an international trade transaction. A standby letter of credit acts like a guarantee to ensure that one contracting party, for example in construction on property, completes their obligations under the contract.

18. Explain the difference between a fraudulent transfer and a fraudulent preference. What is the legal effect of both of these types of transactions?

A fraudulent transfer or conveyance occurs when a debtor transfers property to a friend or relative in an attempt to delay, defeat, hinder or prejudice creditors. A fraudulent preference occurs when a debtor makes payment or grants security to one creditor in an attempt to delay, defeat, hinder or prejudice other creditors. These transactions are illegal and can be reversed by the court if relief is sought within the allotted time.

19. Define the purposes of bankruptcy legislation.

The purpose of bankruptcy legislation is to restore a person as a productive member of society and to ensure that all available assets are preserved to protect the interests of the creditors. A third objective is to punish fraudulent debtors. .

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20. Distinguish between bankruptcy and insolvency.

A person is insolvent when they cannot meet their financial obligations when they become due.

Insolvency is one factor that can force a person into bankruptcy but bankruptcy involves the legal process of transferring the debts assets to a trustee in bankruptcy either voluntarily though an assignment or involuntarily through a bankruptcy order under the Bankruptcy and Insolvency Act. 21. Distinguish between an assignment in bankruptcy and a bankruptcy order. Explain the process involved in each case.

When bankruptcy is declared the bankrupt assigns all assets to a trustee. When this is done through assignment the debtor voluntarily assigns assets to a trustee in bankruptcy. When creditors force bankruptcy on a debtor this is done by obtaining a bankruptcy order from the court and the assets of the bankrupt are transferred to the trustee by operation of law.

22. Explain the role of the trustee in the bankruptcy process.

The trustee in bankruptcy is charged with collecting all of the assets of the bankrupt, liquidating the assets, determining the validity of all the claims against the bankrupt and distributing the assets and proceeds according to the priorities set out in the Bankruptcy and Insolvency Act. 23. Who files the proof of claim? What is its purpose? Who evaluates the validity of a filed process of claim?

Each creditor files a proof of claim with the Trustee, who evaluates the claim for validity. This process establishes the nature of the debt, how much is owed and any counterclaims the debtor may have.

24. Describe the order of distribution of the assets, and the proceeds from the sale of assets of the bankrupt. How does a “super priority” affect the order of distribution?

Secured creditors have priority over the bankrupt’s assets given as security. Preferred creditors are then paid, pursuant to the priorities set out in s. 136 of the BIA. Finally, unsecured creditors share the remainder on a pro-rata basis. The federal government has “super priority” or deemed trusts against the debtor’s assets for certain types of claims under the Income Tax Act, Canada Pension Plan, Employment Insurance Act and the Excise Tax Act, which means the government sometimes has priority even over secured creditors for these debts.

25. How are settlements and preferential payments dealt with by the BIA? What are some payments that will not be considered as being made with a view to giving a creditor preference over other creditors?

Settlements involve the transfer of assets for nominal or no consideration. A settlement is void if it took place within one year of bankruptcy, the debtor was insolvent when the transfer was made, and the debtor intended to defraud, defeat, or delay a creditor. If the transfer was to a party not at arm’s length with the debtor, it is void if it was made within one year of bankruptcy, or if it took place within one to five years of the bankruptcy, the debtor was insolvent when the transfer was made and the debtor intended to defraud, defeat, or delay a creditor. A payment made in preference to one creditor over the others is also void. The trustee can force the return of those funds so that they can be fairly distributed to all of the creditors. A payment in the ordinary course of business will not be found to have been made with a view to giving a preference. A payment made because of pressure being exerted on the debtor by the creditor will be void as against the trustee in bankruptcy. .

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26. What are the duties of a debtor in the bankruptcy process?

The bankrupt debtor is required to file an affidavit listing all debt, creditors and assets. The bankrupt must also provide a summary of all asset transfers that took place within the year previous to the bankruptcy (longer, if the court orders) plus any settlements that took place within the previous five years. The bankrupt must cooperate with the Trustee and the court, deliver all assets and records to the Trustee and do all things that “may be reasonably required by the Trustee [...] or the court.”

27. Explain what is meant by a bankruptcy offence and the possible consequences of committing one.

A bankruptcy offence includes such things as giving one creditor a preference over others, trying to hide property or lying or failing to disclose important information to the court or other bankruptcy officials. The effect can be the imposition of penalties as well as the refusal to grant a discharge to the bankrupt.

28. What restrictions are bankrupts subject to?

Bankrupts must disclose the status of bankrupt if involved in any business transaction or when borrowing money over $500. Bankrupts cannot be a director of a corporation, and may not be able to carry on a profession.

29. “An application for discharge by a first-time bankrupt will automatically be granted”.

True or false? Explain your answer.

True, after nine months, unless a creditor or the Trustee opposes the discharge for some reason.

30. What factors will a court consider when determining what conditions, if any, to place on a discharge from bankruptcy?

What efforts bankrupts made to pay creditors, have they reduced their lifestyle, have they cooperated with the Trustee, have they fulfilled their duties under the BIA, and have they committed any bankruptcy offences?

31. What changes for a bankrupt after an absolute discharge?

The debtor is now free from the enforcement of most previous debt, and may start over, although a few claims, such as alimony, maintenance and student loans survive.

32. Why is it unlikely that there will not be a discharge after the bankruptcy of a corporation?

Corporations cannot be discharged from bankruptcy unless they pay all of their creditors in full.

Bankrupt corporations may make a proposal out of bankruptcy and if successful the bankruptcy is set aside.

33. What can a corporation in financial difficulty do to avoid bankruptcy?

Corporations can file a Division I proposal to creditors under the BIA. Large corporations can also restructure under the Companies’ Creditors Arrangement Act. .

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34. When could a creditor who has appointed a receiver to take possession of the debtor’s assets face liability for making the appointment?

When they have appointed a receiver or taken possession of assets without giving reasonable notice to the debtor before doing so, together with any required statutory notice.

35. Discuss the informal options that are available to debtors who are experiencing financial difficulties.

Negotiate directly with the creditors to make alternative arrangements for payment. Debtors could also attempt to negotiate a consolidation loan with their lending institution, which may lower the overall interest rate.

36. Distinguish between Division I and Division II proposals and explain the advantages of making such a proposal.

Both types of proposals are intended as a method for debtors to postpone or suspend legal actions so that they can reorganize their affairs and avoid bankruptcy. A Division I proposal is for corporations and commercial debtors owing more than $75,000 and is a more involved process than Division II. A Division II proposal is for consumers and is a more simple process. If the proposal is accepted and the debtor fulfils it, bankruptcy is avoided.

37. “A consolidation order under the Orderly Payment of Debts program requires the debtor to pay her debts in full.” True or false? Explain your answer.

True. A consolidation order requires that the debtor pay all debt within a three year period, unless creditors consent to a longer period. It is always possible for the creditors to accept less than full payment.

38. What legislation is used by large corporations to obtain bankruptcy protection? What is the main advantage of using this legislation?

Large corporations can restructure debt under the Companies’ Creditors Arrangement Act. The advantage of the CCAA is that the restructuring process in controlled by the court and as a result it can provide more flexibility than the BIA proposal process.

Solutions to Cases 1. Chartier v. MNP Ltd., 2013 MBCA 41 (CanLII), leave to appeal refused, 2014 CanLII 2423 (SCC) The veto right is owned by a bankrupt “property”. The trustee in bankruptcy may potentially claim and utilize the non-owning spouse’s veto power when a homestead is being sold to satisfy the debts to creditors. This is an appropriate result. The intention to protect the family through the provision of a life estate interest in the homestead should not provide protection against what is owed to creditors.

2. Bankruptcy of Ramon Presbitero Arnuco, 2015 MBQB 36 (CanLII) The court held that the security interest was invalid, relying upon the distinctive section 20 of the Manitoba PPSA. “20.

A security interest … (b) in collateral is not effective against .

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(i) a trustee in bankruptcy if the security interest is unperfected at the date of bankruptcy ...”.

However, practical practice would be to search the serial number of a serial number good, in any event, and thereby gain notice of the security interest.

3. GE Commercial Distribution Finance Canada v. R.L. Hillman & Co. Inc., [2016] BCSC 2289 (CanLII) The doctrines of the rule of law and parliamentary supremacy make CGI’s position untenable.

The court used the residual priority rule of first to register having priority in finding the CGI’s security interest was subordinate.

4. Royal Bank of Canada v. Zuk, 2017 BCSC 2069 (CanLII) The guarantee had the usual valid provision waiving the common law requirement of notifying the guarantor of material variations in the debt. In addition the normal practice of ratifying the guarantee or executing a new guarantee on a periodic basis was followed here.

5. CanaDream Inc. v. Garmeco Canada, 2016 BCSC 2426 (CanLII) The question of “super priority” prevalence over the claims of secured or preferred creditors is at its base, in the public policy realm, rather than legal realm. The choice is whether to favour the interests of taxpayers or shareholders of credit institutions. The effect of honouring a government “super priority” is for creditors to discount assets of debtors likely to be subject to government claims in judging credit applications and setting credit margins. The availability of credit is accordingly curtailed.

6. Re Wright, 2017 NBQB 107 (CanLII) The court upheld the Deputy Registrar’s decision, on the basis that the circumstances were the result of Wright’s decisions and not unforeseeable misfortunes. Otherwise presumably she would have had to pay nothing. Even though this was a loan to a post-secondary student, it was not a “student loan” which survives a discharge from bankruptcy. The judge thought the amount ordered to be paid as a condition of discharge to be small, but did not think the amount paled to the level to become to a reversible error on appeal.

7. Alberta (Attorney General) v. Moloney, [2015] 3 S.C.R. 327, 2015 SCC 51 (CanLII) The court found the provincial legislation to conflict with the Bankruptcy and Insolvency Act, in a manner that could not be reconciled. Accordingly it invoked the doctrine of prarmountcy and found the provincial provisions to be inoperative in respect of the discharge of Moloney.

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8. On the Vine Meat and Produce BIA Proposal (Re), 2012 NBQB 86 (CanLII).

The stay should not be lifted because RBC was only at risk for a short period of time. The debtor did not go into overdraft. There is no evidence that the debtor, while having questionable activities, did not act in good faith. A stay can be lifted if the debtor is delinquent in payments or extended beyond limits putting the creditor at abnormal risk.

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Chapter 16 Sales and Consumer Protection Learning Objectives

LO 16.1 Outline the purpose of the Sale of Goods Act LO 16.2 Explain the relationship between title and risk and outline the

rules for determining who has title LO 16.3 Examine the rights and obligations of buyers and sellers and remedies they have available to them upon default LO 16.4 Review the areas of consumer protection covered by federal and provincial legislation LO 16.5 Identify the main forms of negotiable instruments and explain their basic characteristics

Discussion OUTLINE THE PURPOSE OF THE SALE OF GOODS ACT

The law of contracts established a series of rules and concepts designed to govern the agreements between parties in a general way. As with most general principles, however, it became necessary to modify them in special situations. The Sale of Goods Act (SGA) was intended to provide missing terms in contracts for the sale of goods when the parties had neglected to supply sufficient details themselves.

However, the important themes in contract law of the freedom of the contracting parties to govern their own activities and the principle of caveat emptor were carried through in the Sale of Goods Act. The parties were given the power to contract out of the provisions contained in that legislation simply by stating another intention in their agreement. In most commercial agreements the parties almost invariably contract out of the provisions of the SGA, choosing instead to fashion their own bargain.

By operation of Section 2 of the SGA, the Act only applies where a sale is involved (both title and possession of the goods will transfer) and the sale is of a good (as opposed to services). There must be some sort of monetary consideration that is paid as well. Some jurisdictions still require the contract to be in writing.

EXPLAIN THE RELATIONSHIP BETWEEN TITLE AND RISK AND OUTLINE THE RULES FOR DETERMINING WHO HAS TITLE

An important aspect of the Sale of Goods Act is to determine who bears the risk when goods are destroyed or damaged and the basic principle is that risk follows title (although the parties can agree otherwise if they so wish such as with CIF, FOB and COD contracts). The transfer of title (ownership) is determined by a series of rules set out in the Sale of Goods Act dealing with different situations.

Rule 1 states that where the goods are specified and in a deliverable state, title transfers when the contract is made. Rule 2 - where something has to be done to those goods to put them into a deliverable state, title transfers when the changes are made and the buyer receives notice. Rule 3 - where the goods have to be

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weighed or measured first, title transfers when the weighing and measuring takes place and notice is given to the buyer. Rule 4 - when goods are taken on approval, title transfers upon approval being communicated, after a reasonable time or after the buyer acts in some way to those goods inconsistent with the seller’s continued title. Rule 5 deals with future goods or goods not yet manufactured. Title in this case transfers when the goods are selected and unconditionally appropriated to the contract with the assent of the other parties. (It must be noted that assent is something quite different than the notice discussed in Rule 2 and 3 above.)

Personal Property Security Act provisions can also impact on title. Ownership is an interest that can be perfected by possession or registration.

The Sale of Goods Act contains a number of conditions and warranties that are included in the contract unless the parties agree otherwise. There are provisions that the person who sold those goods must have the right to sell them, that they will be free of liens and encumbrances and that the buyer will obtain quiet possession.

Goods bought by sample must match the sample. When goods are bought by description, the goods must match the description and be free from any defect that would render them unmerchantable. Most sales of manufactured goods qualify as sales by description.

When a buyer purchases goods for a specific purpose relying on the statements of a salesperson, there is an implied condition in the contract that the goods will be reasonably fit for that special purpose. When goods are bought by sample, the goods delivered must substantially match the sample and be free from any hidden defect that would render them unmerchantable. When the parties don’t agree on a price, the Act imposes an obligation to pay a reasonable price for the goods.

EXAMINE THE RIGHTS AND OBLIGATIONS OF BUYERS AND SELLERS AND REMEDIES THEY HAVE AVAILABLE TO THEM UPON DEFAULT

When there has been a default and the seller still has possession of the goods, he can retain them as an unpaid seller’s lien, even though title may have transferred.

Even if the goods are in transit he can stop and recover them providing they have not yet reached the buyer. Under the Bankruptcy and Insolvency Act, in certain circumstances the seller can retake goods from the defaulting buyer even after delivery. Generally speaking sellers are much better off if they can sue for the price of the goods rather than suing for damages. The seller can sue for the price of the goods except where the buyer was entitled to refuse delivery because he had not yet received title, payment was not yet due or the goods were defective in some way. Such refusal to accept delivery may still constitute a breach of contract on the part of the buyer, but the will only be required to pay damages rather than pay for the price of the goods (unless specific performance is ordered).

The buyer has the same kind of remedies that are available in a breach of contract action. If there has been misrepresentation, fraudulent or innocent, the remedies available under that heading apply. A problem that may be encountered where the buyer suffers extensive damages is that the seller need only pay if the possibility of those damages was reasonably foreseeable at the time they entered into the contract.

The provisions of the Sale of Goods Act and other statutes are designed to provide protection to consumers in relation to the quality or title of the goods they purchase.

Other consumer protection legislation extends the responsibility of the merchant and

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manufacturer for the products they produce themselves and also controls their activities by prohibiting unacceptable practices in the merchandising process such as false and misleading advertising. When the products are essentially hazardous, there is a duty to warn the user of the hazard. Where misleading statements are made by the seller or seller’s representative, those statements are incorporated into the contract. Legislation has been introduced to control door-to-door sales, referral selling, unsolicited credit cards, tax refund loans, etc. In loan transactions there is a requirement to disclose the actual amount owed as well as the actual interest rate to be paid. The courts are empowered to overturn unconscionable transactions.

Debt collection and credit reporting practices are also regulated.

REVIEW THE AREAS OF CONSUMER PROTECTION COVERED BY

FEDERAL AND PROVINCIAL LEGISLATION

The Competition Bureau is an independent agency that administers and enforces the federal Competition Act. The purpose of the Competition Act is to promote fair competition in the marketplace. Some practices are deemed criminal in nature, while others are deemed civil and allow for remedies directly to those harmed.

Federal legislation also provides for the control of dangerous products, including food and drugs, prohibits misleading and deceptive statements and controls practices that interfere with the free market system such as price-fixing and monopolies. Today’s consumer protection legislation also provides information services for the consumer.

Provincial Legislation addresses such common consumer issues as: regulation of gift cards, door-to-door sales, referral selling, pay day loans, and debt collection.

In addition, there are many government and non- government agencies that distribute information to consumers and hear consumer complaints.

IDENTIFY THE MAIN

Negotiable instruments are regulated by the federal Bills of Exchange Act and can take the form of cheques, bills of exchange or promissory notes. Cheques and bills INSTRUMENTS AND of exchange involve the drawer ordering another to pay a third party, whereas a EXPLAIN THEIR BASIC promissory note is simply a promise to another by the maker to pay a specific CHARACTERISTICS amount. Negotiable instruments are enforceable by an innocent holder in due course against the drawer as well as endorsers on the instrument.

FORMS OF NEGOTIABLE

Answers to Questions 1. Explain the purpose of the Sale of Goods Act in relation to the obligations of the parties to a sale of goods transaction.

The purpose of the Sale of Goods Act is to supply the terms in a contract that parties may leave out and that can be implied from the circumstances. The Act sets out what terms will normally be implied, but in general the parties can specifically overrule these implied terms by stating otherwise in the contract.

2. What three conditions must be met before the Sale of Goods Act applies to a transaction?

Firstly, the subject matter of the contract must be classifiable as a good rather than a service or real property. Secondly, the transfer of those goods must be anticipated by the contract (a sale) and thirdly the transaction must involve the transfer of money (monetary consideration).

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3. What is the distinction between a sale and an agreement to sell? What is the significance of that distinction?

A sale refers to those situations where title and property in the goods are transferred immediately.

When either the title or property is to be transferred sometime in the future it is referred to as an agreement to sell. Since risk normally follows the title, an agreement to sell will leave the risk of loss with the seller. A sale usually transfers the risk immediately to the buyer. The traditional law just stated has been deeply affected by the Personal Property Security Act concept of a security interest.

4. When does the risk transfer to the buyer in a sale of goods transaction? Explain the exceptions to this general rule.

The general rule is that risk follows title. However, this general rule can be overridden firstly by the parties in a C.I.F (cost, insurance and freight) contract which places the risk on the seller during shipping even though title may have already transferred. Secondly, F.O.B. (free on board) contracts make the seller responsible for those goods until they are placed on board the carrier chosen for transport. Thirdly, C.O.D (cash on delivery) contracts leave both the proprietary interest in the goods and the risk associated with them with the seller until payment.

5. What is a bill of lading? How can it affect who bears the risk in a sale of goods transaction?

The seller names itself as the party entitled to receive the goods at their destination on the shipping receipt. The seller then maintains control of the goods, as well as title and risk, as the buyer would not be entitled to receive the goods until the seller gives permission to the shipper to deliver to the buyer.

6. Indicate when title transfers in the following situations: (a) when the contract for sale is unconditional and the goods involved are in a deliverable state at the time the purchase is made.

This is Rule No. 1 and property passes to the buyer at the time the contract is made. (b) when the subject of the contract involves specific goods to which the seller is obligated to do something, such as repair, clean or modify, in order to get them in a deliverable state.

This involves Rule No. 2. The property in the goods only transfers when the thing required has been done and the buyer has notice of it. (c) when the contract for sale involves specific, identified goods which must be weighed or measured before being given to the buyer.

This is Rule No. 3 and property passes when the act required to be done is done and the buyer has notice of it. (d) when the goods are delivered to the buyer on approval.

This is Rule No. 4 and title transfers (1) when the buyer gives approval or acts toward the goods as if they are accepted and (2) if the buyer doesn’t act as though they are approved or accepted, but retains the goods, title transfers after a reasonable time. (e) when goods purchased by description have not been selected, separated out, or manufactured, at the time the sales contract is entered into.

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Property in the goods transfers when the goods have been unconditionally appropriated to the contract by one of the parties with the assent of the other.

7. The Sale of Goods Act imposes terms relating to goods matching samples or descriptions and meeting standards of fitness, quality and title. Explain the nature of these implied terms and their effect on the parties. Indicate which terms are conditions and which are warranties.

Explain the significance of the distinction.

If a condition has been breached, this is an important term of the contract and it allows the victim of the breach to discharge that contract. If a warranty has been breached, the victim of the breach must continue performance, but has the right to sue for compensation. One section of the Sale of Goods Act implies a term in the contract that it shall be a condition of the contract that the seller will have the right to sell the goods at the time the proprietary right is transferred. Another term implies that there shall be a warranty in the contract that the seller will provide quiet possession of the goods, meaning the buyer will be allowed to use the goods free of interference. It is stated that there is an implied warranty in the contract that the seller will provide goods free of any charge or encumbrance meaning no one else will have an interest in those goods. Another term stipulates that the goods delivered must match the description or illustration provided. If the goods delivered are substantially different this would be grounds for discharging the contract. Another section of the Act says that the goods provided must be of merchantable quality, that is, free of any defect that would have persuaded the buyer not to purchase them at the agreed price had they known of that defect.

Similarly, when a buyer has relied on the skill and ability of a salesman in determining whether those goods are suitable for a particular purpose, the goods must be suitable for that purpose. When the purchase of the goods is by sample, the bulk of the goods must match the quality of the sample inspected. The goods must be free from any defect that would render them unmerchantable.

8. Explain what “merchantable quality” means.

This means that the product must be free of any defect that would have persuaded the buyer not to purchase the product at the agreed on price.

9. Explain the effect of an exemption clause included in a contract that is inconsistent with the terms set out in the Sale of Goods Act. Since the parties to a contract have the right to override the provisions set out in the Sale of Goods Act, a carefully worded exculpatory clause will have the effect of eliminating the implied conditions and warranties relating to fitness and quality. The actual effect of the exculpatory clauses must be viewed in the context of provincial consumer protection laws to determine whether they may override this general rule.

10. Explain the rights of the seller when the buyer of goods: (a)

becomes insolvent Generally all contractual remedies are available and so the seller would have the right to sue either for the price of the goods delivered or for damages depending on whether title has transferred.

(b)

defaults on the contract of sale while the goods are still in the hands of the seller Under these circumstances the seller has an unpaid seller’s lien against the goods and can retain them and eventually sell them depending on the specific contractual provisions.

(c)

defaults after the goods have been given to a third party to deliver, but before they are

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received by the buyer While the goods are in the hands of a shipper, as long as they have not yet reached the buyer, the seller has the right to stop those goods and reclaim them while they are in transit (stoppage in transitu). Note that under the Bankruptcy and Insolvency Act, under certain circumstances the seller can even retake those goods from the defaulting buyer after delivery. (d)

becomes bankrupt after the goods have been delivered Under the Bankruptcy and Insolvency Act the seller can recover the goods delivered within 30 days of that bankruptcy so long as they haven’t been resold to someone else.

11. Explain why a seller of goods might be less likely to sue for damages than for price.

It might be difficult to establish that any damages have been suffered. In the context of the duty to mitigate damages, it would be difficult to claim for lost profits if the goods can be sold at the same price to someone else.

12. Under what circumstances may a buyer refuse delivery of goods?

The buyer may refuse delivery before property in the goods has passed, before payment is due or when the seller has breached some condition of the contract.

13. The Sale of Goods Act in each province implies certain terms into contracts of sale relating to the fitness and quality of the product. Some Canadian jurisdictions make these provisions mandatory in consumer transactions. Explain the situation in your jurisdiction.

In B.C. the parties are not permitted to contract out of (including exculpatory clauses eliminating liability) those sections dealing with fitness and quality. In New Brunswick and Saskatchewan, however, special legislation has been passed imposing conditions of durability for the goods.

14. Describe the practices controlled by the Competition Act and explain how that control is accomplished.

The legislation not only controls monopolies, mergers, price-fixing, etc. but also such practices as misleading advertising, double-pricing and bait and switch.

15. How does the concept of privity of contract limit the effectiveness of many consumer protection provisions? How have some jurisdictions overcome this problem?

Since a contract creates rights and responsibilities between the initial parties to it, outsiders or third parties can’t make claims under the original contractual relationship. Therefore consumer protection provisions relevant to contracts don’t extend protection to outsiders or third parties. This problem can be overcome by suing in tort rather than contract, but when this is done, fault must be demonstrated. The provinces of New Brunswick and Saskatchewan have extended contractual protection beyond the immediate parties to the contract in their legislation dealing with requirements of fitness and quality. In addition some courts have been willing to find separate contracts existing between the manufacturer and the ultimate consumer because of the advertising claims made, thereby avoiding the privity problem. These are referred to as collateral contracts.

16. What common law provisions are available to protect consumers from unscrupulous business practices?

Aside from the straight breach of contract remedies, the consumer would also have a remedy in tort against the manufacturer. Unfortunately, in order to succeed in tort it has been necessary to prove

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that the manufacturer was at fault or negligent. This was often difficult to do. Today some courts are willing to find collateral contracts existing between manufacturers and consumers, thereby avoiding the fault problem in tort law.

17. Describe the methods outlined in federal and provincial consumer protection statutes to control businesses with a tendency to abusive practices. Discuss the effectiveness of these tactics.

Several different tactics have been utilized to control specific types of businesses and specific types of abuse in the consumer protection field. Often the practices are either prohibited or controlled by legislation as discussed above. However, the consumer protection agencies established by legislation can be helpful in other ways. They can provide information to consumers with regard to their rights and may assist the consumer in pursuing those rights. They may educate consumers and, in some situations, they have information gathering powers and other powers in relationship to the businesses themselves—in fact becoming a control agency.

18. Identify the legislation in effect in your jurisdiction that offers relief to victims of unconscionable transactions.

The Unconscionable Transactions Act (or its equivalent, depending on jurisdiction) has been designed to release parties from unfair contracts they have entered into because of an inequality in the bargaining positions of the two parties or when one party has been taken advantage of because of a weakness such as desperation, poverty or mental infirmity short of incapacity. The courts have the power under this legislation to interfere with the resulting contract to the point of setting it aside or modifying its terms including ordering a refund of the money. In British Columbia and Newfoundland the governments can actually initiate an action against a merchant on behalf of the consumer and carry it through.

19. What statutory provisions have been introduced throughout Canada to control door-to- door selling, referral selling and other potentially abusive practices?

In some provinces legislation is incorporated in consumer protection acts and in other provinces in separate legislation. Usually they impose a cooling-off period giving consumers a certain amount of time to change their minds about purchases and requiring the door-to- door seller to be registered.

Similarly, referral selling has been controlled in most provinces and in some provinces prohibited altogether. There are many examples of other practices that are controlled in various jurisdictions.

Some provinces have brought in legislation controlling specific types of businesses (e.g. tax refund loan businesses).

20. What services are provided to consumers through organizations set up by the federal and provincial governments? Discuss whether these services are adequate.

These bodies can hear and investigate complaints, seize records, search premises, suspend licenses, etc. They often provide information services for consumers and can also provide the consumer in some situations with help to pursue the remedies provided in the legislation. The federal Office of Consumer Affairs has even become involved in some provincial consumer matters.

21. Distinguish among a cheque, a bill of exchange, and a promissory note.

A bill of exchange is an instrument where one person orders another to pay a third party. A cheque is a bill of exchange drawn on a bank. Thus a person with an account at a bank orders the bank to pay some third party. A promissory note involves only two parties and is a promise by one person to pay another at some point in the future. A bill of exchange can be used to transfer funds or as a method of

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creating credit if it is made payable some time in the future. A cheque is generally not used to grant credit since it is payable on demand. A promissory note is just a method of creating credit.

22. Explain how the position of a holder in due course compares to the position of an assignee of contractual rights.

When contractual rights are assigned, the assignee takes subject to the rights between the initial parties.

Any defense that is good against the original creditor is good against the assignee as well. That is not true with negotiable instruments. An innocent holder in due course is in a better position than the person from whom the instrument was obtained. The position of a holder in due course differs from that of an assignee of contractual rights in that the former is not subject to the rights or equities between the initial parties.

23. Explain the nature of an endorsement and its significance on a negotiable instrument.

Endorsement consists of a signature and words on the back of the negotiable instruments. There are different kinds of endorsement but normally this is done to add the credit of the endorser to the instrument so that if it is not honoured the holder can turn to the endorser for payment.

24. Explain why online transactions do not involve negotiable instruments. What has taken their place?

Negotiable instruments cannot be created or transferred online since their essential nature is a unique written document. Debit cards, credit cards, and other forms of electronic money have taken their place.

Solutions to Cases 1. Resch v. Canadian Tire Corporation, 2006 CanLII 11930 (ON SC), 17 BLR (4th) 301.

Mr. Resch or the injured boy’s mother could sue on behalf of the boy, as “next friend”. The action would be for breach of contract and in negligence for product liability against the dealer and in negligence for product liability against the manufacturer. Consumer protection legislation should be examined to see if it gives a statutory contractual claim against the manufacturer and a collateral contract could also be pleaded. The claim against the dealer may be complicated in tort if Canadian Tire Corporation did an intermediate inspection of the bike. The court found that the boy was not a “buyer” within the Sale of Goods Act, because he was an infant and lacked capacity, so implied conditions and warranties from the Act were not available to him.

2. R. v. Stucky, Ont. C.A., per Weiler and Gillese J.J.A., 2009 ONCA 151 (CanLII), 240 CCC(3d) 141.

The Court of Appeal overturned the conviction under section 52 and ordered a new trial. The court stated, “.. .to satisfy the mens rea component of s.52 offences ..., the Crown must prove beyond a reasonable doubt that an accused had knowledge of the false or misleading character of the representations, or was reckless in that regard.” The court made passing reference to provisions of the Consumer Reporting Act dealing with false or misleading representations. The court held that there must be a real and substantial connection to Canada in order to apply the Competition Act to acts involving foreign victims.

3. Behiel v. Primco Limited, 2011 SKQB 65 (CanLII) The defendant was informed that the plaintiffs had children. While the scratches did not come from .

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the children, the defendant should assume that the flooring would have furniture on it. It is likely the plaintiff would be successful in this action.

4. Muskoka Fuels v. Hassan Steel Fabricators Limited, 2011 ONCA 355 (CanLII) The court found that the implied condition of merchantability found in the Sale of Goods Act was breached. Damages in the sum of $71,589.34 were upheld and Muskoka obtained its costs both at trial and on appeal.

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