BU 231 Class Notes

Tort Law The object of tort law is to place the injured party back in the position he/she wouldve been, had the tortuous act not occurred o Harm is a required element of any tort. The wrongful act must cause the harm o Our tort system today is fault based (some torts dont require an element of fault) o When choosing a writ you need to make sure you find the one that best suits your case because you may win a case under one writ but not another that may even be closely related Strict liability- some torts are still considered to be strict liability and therefore no fault element is required. (public nuisance) Intentional Torts Nuisance: o Public or Private o Interference with the lawful use of public land or private land o Need to prove Intent Trespass: o Entering someone elses land without consent o Harm must be caused o Need to prove intent Assault and Battery: o Assault- Threat of violence to a person o Battery- Unlawful touching of a person (without consent) o You can have one without the other but they are usually together Intentional infliction of Mental Distress: o Intent to cause harm o Recognizable physical or psychopathological harm must occur (person cant just claim they are distressed) o Shows harm does not need to be physical False Imprisonment o Unlawfully restraining or confining another person o Does not need to be physical (manager shouts stop thief to innocent person) Malicious Prosecution o Reporting person to the police when there is no good reason to believe that person committed a crime o This is the next step to false imprisonment Defamation o Making an untrue statement that causes injury to the reputation of another o Slander- spoken, libel- written o The elements are: intent (maliciousness), statement made, statement false, published to 3rd party, must cause genuine and significant injury to the reputation of the plaintiff

BU 231 Class Notes

o Defenses: Statement was true or qualified privilege: statement made in good faith and with honest belief in its truthfulness Defenses to Intentional Torts Consent o Injured party consented to the act that caused the harm, there is no tort o Absolute defense but must be genuine and informed consent Self-defense o The party asserting the defense needs to show that the self defense was necessary and that no excessive force was used (pull a gun on someone who punches you) o Force for force o Absolute defense Necessity o Defense to Trespass where the right of way was impassable o No other option but to destroy property (tear down building to stop spread of fire) Volition o Act must be voluntary o I.e. Getting away with trespassing because someone else forced you onto the property Capacity o Requirement of mental capacity to inform intent if absent forms a complete defense

Tort Law Negligence Negligence is the careless causing of harm to the person or property of another o Takes up the majority of tort law because most of the time people dont intentionally harm people 3 Part test for Negligence: 1) The defendant owed the plaintiff a duty of care 2) The defendant breached that duty of care by falling below the standard of care and 3) The defendants actions caused the injury Duty of Care(DOC) o Take reasonable care to avoid injury to others (must be foreseeable) o Everyone has the duty to not injure their neighbour (good neighbour principle) o Your neighbour is: Wherever you are you must be careful of those around you
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BU 231 Class Notes

o Test for DOC: 1) is there a close enough relationship that the act should have been foreseeable 2) are there any considerations which ought to negative or limit (scope, class of people it is owed, damages to which a breach of it may give rise) Standard of Care o The reasonable and competent ordinary person on the young street subway (lowest level of care) o The professional standard of care o The fiduciary o Children (will be considered adults when engaging in adult activities driving car) Causation o but for test o Remoteness element of forseeability need to be present at the time of the tort o Things directly related- not a string of bad events Vicarious liability o Employers can be held liable for the tortuous actions of their employees when the employee is acting in the course of his/her employment. (Employee still liable) Burden of Proof o Plaintiff has the onus of demonstrating that the elements of a tort exist o The onus then shifts to the defendant to prove valid reason why they didnt and use a valid defense o Plaintiff can use Res Ipsa Loquitur the thing speaks for itself, when there is no other obvious explanation for the harm caused (barrel of flour example) defendant would need to prove why it was not possible for them to do it.

Defenses Contributory negligence: o The plaintiff in some way acted negligently and contributed to their own harm o Only a partial defense Can occur in 3 ways Plaintiff can contribute to the incident that caused the injury The plaintiff can expose themselves to a risk of injury The plaintiff can fail to take reasonable steps to minimize the injury after it has occurred (mitigation) * if they dont mitigate then it will reduce the amount the defendant must pay Voluntary Assumption of Risk o The plaintiff is engaged in an inherently risky activity o Knew the risks and accepted them
3

BU 231 Class Notes

o Complete defense Illegal Act o Where the plaintiff is harmed while engaged in an illegal activity The role of insurance in business is to minimize the risk of loss due to tortuous actions on the part of the employer or employees (vicarious liability)

3 Types of Damages: 1) Special anything that can be calculated (broke leg and off work- thus loss of salary) 2) General loss of a finger (may be a dollar amount assigned but there is an emotional part as well) 3) Punitive punishment (rare in negligence unless act is really bad) Tort Law- Special duties, negligent misrepresentation and economic torts Product Liabilities o Difficulty in demonstrating negligence on part of manufacturer of goods o Need to prove the product was defective and caused harm and then onus shifts to manufacturer o Ongoing duty to warn Dangerous products Products that are discovered to be defective Occupiers Liability o The special standard of care owed by persons who occupy property to persons who enter those premises o Occupier- person who has control over the property (person renting house) o Invitee and licensee owed the highest standard of care of the three Occupier has to remove any hazards of which he/ she is aware and those hazards that he/ she ought to have been aware of Licensee any person there for a lawful reason (mailman) Invitee o Trespassers- still owed a general duty of care (cannot set a bear trap on them) Professional Liability o Professionals with certification in their field held to the standard of their field of expertise o Standard the reasonably competent and diligent person in that field o Doctors and lawyers hold one of the highest standards Fiduciary Duty o The highest standard of care o Applies to those who stand in a special relationship of trust to another person (parent, doctor, trustee)

BU 231 Class Notes

Loss/ Harm o requires that one party suffers some sort of harm, injury, or loss to his/ her person or property Economic loss: No one and nothing has been physically harmed but the plaintiff has sustained an economic loss Negligent misrepresentation o A statement o Can be fraudulent misrepresentation (intentionally made statement) or negligent misrepresentation (carelessly made statement) o Test: statement made, statement false, maker of statement owed duty of care, hearer of statement acted on the statement, hearer of the statement suffered loss as a result, are there any policy considerations to consider that may limit the liability?

Economic Torts (not to be confused with economic loss) Inducing Breach of contract o Where one party induces another party to breach his contract with a 3rd party Unlawful interference with economic relations o Where threats or other unlawful means are sued to convince one party to cease doing business with another Product Defamation o Where one party intentionally makes untrue or disparaging remarks about anothers product in advertising their own product Passing off o Representing ones own product as that of another

Contract Law Definition of a contract o A promise, or set of promises, that the law will enforce Contract Formation o How do you know when you have a legal contract? o 7 elements are necessary for the formation of a contract 1. Offer 2. Acceptance 3. Consideration 4. Intention to Create Legal Relations 5. Capacity
5

BU 231 Class Notes

6. Legality 7. Certainty of Terms 1. Offer A tentative promise made by one party, subject to a condition or containing a request to the other party Must be definite and certain It is intended to be binding on both of the parties as soon as it is accepted Most common type of contract: Standard Form Contract (SFC) The Take it or leave it offer o Standard Form Contract Advantages: Highly efficient Fast Easy Disadvantages: Inequality of bargaining power Little or no room to negotiate terms Unusual or unexpected terms: Tilden Rent-A-Car Co. v Clendenning (19780, 18 O.R. (2d) 601 The need to point out any unusual or unexpected terms to the person signing the contract at the time of contract formation or the term will be struck from the contract by the court No room for negotiation over terms of the contract Counter offer o Amending the contract in order to accept the contract does not equal acceptance o This amounts to a rejection of the offer and a counter-offer 2. Acceptance Final unqualified consent to the terms of the offer Must be communicated either by word or by conduct Timing of Acceptance o Revocation offeror can revoke the offer any time up to acceptance Exceptions: a. where an offeree has paid money to keep an offer open; b. where the offer was made under seal o Lapse where the offer stipulates a time by which the offer must be accepted and that time passes Communication of Acceptance
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BU 231 Class Notes

o method of acceptance should be reasonable in the circumstances and reasonable to the offer (i.e. responding by snail mail on a time sensitive offer is not reasonable) Jurisdiction o Location where the contract was formed is determined by where acceptance is completed o Jurisdiction is important in aiding in determining what province or countrys laws will govern that contract

3. Consideration The price paid for the contract o usually $$$$$, but doesnt have to be Price could be performance Price could be in services/goods in trade Gratuitous Promise o No consideration = no contract Adequacy of consideration o Past consideration = No consideration Existing Legal Duty o No new consideration, so no new contract Debtor/Creditor Rule o Foakes v Beer (1884), 9 App. Ca. 605 o No new consideration for promise to reduce debt = no new contract o Exceptions created to avoid unfair results Mercantile Law Amendment Act, R.S.O. 1990 c. M.10, s.16 o Amended the rule in Ontario Equitable Estoppel o Court exercising equitable jurisdiction to prevent a party from denying his or her promise o At present, can only be used as a shield not a sword (i.e. a defence not a cause of action) Seals o Act of sealing a document meant that the covenanter adopted the document as his/her act and deed o Solemn promise o No consideration required 4. Intention to Create Legal Relations
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BU 231 Class Notes

Reasonable bystander test: Did the outward conduct of the parties lack a serious intention to create legal obligations?

5. Capacity Some parties lacking the necessary legal capacity to enter contracts or holding diminished capacity: o Minors Provincial age of majority in Ontario, 18 years of age Below 18 years a person is considered an infant in law Minors can enter into contracts Contracts would be enforceable by the minor, but not against the minor Contracts for necessaries are enforceable o Mentally incompetent persons o Corporations o Labour Unions o Enemy Aliens o Aboriginal Peoples o Bankrupts Void vs. Voidable contracts o Void contracts never existed; failed formation = no contract o Voidable contracts exist, but can be made void at the option of one of the parties 6. Legality The object of the contract cannot be illegal o Contracts illegal by statute, e.g.: Criminal Code Income Tax Act Competitions Act o Contracts can also be illegal where they breach other Acts or Regulations e.g. practicing a profession without a license Contracts illegal by Common Law or Public Policy o Contracts considered to be immoral, or a perversion of justice, or prejudicial to the interests of the Canadian public o Historically, gambling fell into this category o Insurance and stock exchange transactions are excluded

BU 231 Class Notes

7. Certainty of Terms Vague or incomplete agreements can be deemed void by a court, therefore no contract was ever formed Vague contracts: o Using terminology that is not clear e.g. fair value, if satisfied Incomplete: o Leaving necessary information out of the contract, e.g. the price of the contract Impeachment of Contracts Rescission o The setting aside of a contract because of some defect affecting its formation such as mistake, misrepresentation, duress or undue influence o Or, the discharge of the contract by the subsequent agreement of the parties o It is NOT where an innocent party is discharged from his/her obligations under a contract because of the other partys serious breach of contract or failure to perform under the contract o Courts decision that even though a contract has been formed, it should not be enforced due to a defect Object: To place the parties as closely as possible back to their precontractual positions NOT damages Mistake o Generally, 2 types of mistake recognized in law: o Mistake in the terms of the contract o Mistake in assumptions about the subject matter of the contract Typographical errors Test: Would a reasonable bystander recognize it as a mistake? If yes, then despite proper formation, K would not be enforceable it would be voidable at the option of the party that made the mistake o Mistake when reducing the terms to writing Court may grant rectification, but only where: 1. Court is satisfied that there was a complete agreement; 2. The parties did not engage in further negotiations; and 3. The change in the written document appears to be an error in recording. o Mistake in Terms Ambiguity multiple interpretations of the same term Raffles v Wichelhaus (1864), 159 E.R 375
9

BU 231 Class Notes

A ship called Peerless Mistake in Assumption Refers to the subject matter of the contract Mistake in assumption as to the existence of the subject matter K is void Mistake as to the value Court will not interfere in a fluctuating market Court will interfere if the mistake in value was present from the outset Hyrsky et al v Smith (1969), 5 D.L.R. (3d) 385 Land purchase for development Parcel of land significantly smaller than believed to be Court held that the mistake was so substantial as to change the quality of the subject matter and granted rescission to the purchaser Mistake AND Innocent 3rd Parties Usually occurs in situations of fraud 1. A sells to F 2. F sells to B 3. F takes the $$ and moves to S. America 4. A discovers mistake 5. Who suffers the loss? If K is deemed void, then there was no K and therefore goods or money must be returned to A Title did not pass to F, but stayed with A If K is deemed voidable, then there was a K and therefore goods or money stays with B Title did pass to F and therefore F could pass title to B The innocent 3rd party must be that innocent Must be a BFPVWN: Bona Fide Purchaser for Value Without Notice Non Est Factum Another type of mistake = Not my deed Historical defence devised in a time when people were largely illiterate Claim of non est factum = this is not the contract I agreed to Reliance on another persons word that the document contains the terms agree to Works for the blind or illiterate Mistake in Performance Where someone accidentally pays the wrong party, or overpays the correct party Funds cannot be kept as it would create an unjust enrichment
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BU 231 Class Notes

If a payment is negotiated in good faith and the payment is properly made, and later the party making the payment discovers the claim would not have been as high as that negotiated cannot reclaim those funds

Misrepresentation o A statement/representation made during negotiation of a contract, before formation of the contract, that turns out to be false o Can be: Innocent Negligent Fraudulent o Elements 1. Statement/Representation 2. False 3. Intent (if fraudulent); 4. Duty of Care owed (if negligent) 5. Reliance 6. Caused Harm o Experts: Representation is a statement of fact NOT opinion Expert opinions are considered to be a statement of fact o Omissions: Not necessarily a misrepresentation UNLESS there is a duty of utmost good faith owed, e.g. fiduciary Doctrine of Caveat Emptor applies (less so with consumer goods re: Sale of Goods Act, s. 15) o Omissions Other Contracts that Require Disclosure Directors of companies owe a duty of utmost good faith to their corporations Partners in a partnership Insureds to their insurance company Professionals owe a duty to their clients and must disclose conflicts of interest

Undue Influence o The domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision
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BU 231 Class Notes

o K formed under undue influence would be voidable at the option of the victim o Special Relationships Often fiduciary relationships Special case husband and wife Need for ILA o Dire Circumstances Where one party is temporarily desperate and will agree to any terms o Threat of Prosecution Agreeing to terms to avoid prosecution of a family member o Unconscionable Contracts Arising from inequality of bargaining power but the court is reluctant to look at the bad bargain as being a result of unconscionability o Burden of Proof: Plaintiff who desires to claim undue influence and have the contract voidable at his/her option must show on a balance of probabilities that: 1. There was domination by the other party in the circumstances a) By showing the special relationship exists; or b) That s/he was in desperate circumstances at the time of contract formation 2. That the contract is unfair or disadvantageous to the weaker party o Duress Actual or threatened violence or imprisonment as a means of coercing a party to enter a contract Contract would be voidable at the option of the victim o Economic Duress Coercion and an illegitimate application of pressure Pao On v. Lau Yiu Long [1980] A.C. 614 Gordon v. Roebuck (1992), 9 O.R. (3d) 1 1. Plaintiff must demonstrate that his will was coerced and that the pressure exerted to do that was not legitimate, 4 factors: a) Did the plaintiff protest? b) Was there an alternate course open to the plaintiff? c) Was the plaintiff independently advised? d) After entering into K, did the plaintiff take steps to avoid it
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BU 231 Class Notes

The Requirement of Writing Contracts Statute of Frauds o The need for written evidence of certain types of contracts o It was introduced in 1677 and still exists in Ontario o Historically arose during civil unrest and disputes over long term contracts (foggy memory) Applies to these type of Contracts: o Promise by an Executor of an Estate(Trustee) to pay a debt of the estate Where an executor/executrix makes a promise to a creditor of the estate to pay the creditor personally, that promise cannot be enforced by the creditor unless it has been reduced to writing o Guarantees A conditional promise to pay the debt only if the debtor defaults o Payment by a third party for the miscarriage of another If a 3rd party agrees to pay damages on behalf of another then it is like an indemnity (3rd party paying guarantee) and does not have to be in writing If a 3rd party agrees to pay ONLY if the other party defaults, then it is like a guarantee and must be in writing to be enforceable against the 3rd party o Contracts in consideration of marriage Today contracts relating to marriage are governed by Family Law Legislation, but must still be in writing to be enforceable o Ratification of a minors contract Once a minor reaches the age of majority a ratification (renewal) of the contract must be in writing o Agreement to be performed by either party in over a year Exception 1: Where one of the parties is expected to perform within the year, but the other is not Exception 2: Indefinite time period set out in the contract o Contracts concerning land Any transaction involving real estate must be in writing to be enforceable (exceptions include: repairs, building a house, and room and board arrangements) Essential parts of the Memorandum (written document): o Names o Subject Matter o Consideration (with the exception of a guarantee) o Payment Details o Signature of the paying party o * Signature of the defendant in order to sue under the memorandum

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BU 231 Class Notes

What makes up a memorandum o A piece of paper (it can be a letter) o Does not have to be one document but cannot rely on oral evidence connecting the multiple memorandum Unenforceable Contracts o A contract that still exists for other purposes, but neither party may not enforce the details through court action o * it is NOT void o Contract still exists and can affect the legal interests of the parties o Where they differ from Void contracts Deposits Recovery for Goods and Services Subsequent Memorandums Defendant must plead the statute Effect of a subsequent oral contract on a prior written contract Doctrine of Part Performance o Performance begun by a plaintiff in reliance on an oral contract relating to an interest in land, and accepted by the courts as evidence of the contract in place of a written memorandum o Necessary Criteria for Part Performance Has to be a contract concerning land Acts of performance have to clearly indicate the existence of a contract respecting the land in question Acts have to have been performed by the plaintiff (not the defendant) Sale of Goods Act o A requirement of a written contract for sales of goods o Applied to any purchase of goods in excess of 10 British pounds (original act) o It was repealed in Ontario but still exists in some provinces o Avoiding the Act Where there has been acceptance and actual receipt of the goods by the buyer Part payment tendered by the buyer and accepted by the seller Earnest Consumer Protection Act o Protection of consumers o Some agreements must be in writing, e.g. Direct Agreements under s. 41(1) in excess of $50.00 o Writing must include such details as o Detailed description of goods/services sold o Itemized purchase price
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BU 231 Class Notes

o Name, address and contact information of vendor o Notice of statutory cancellation rights

Chapter 10 Interpretation of Contract

Ambiguity in Language o Multiple Meanings o Special Usage of Words (variations amongst cultures, language etc.) Trade Customs o Does the final price include materials or not? (discrepancies between norms) Interpretation of Express Terms o Strict Approach Dictionary Definitions or the plain (common) meanings of the words used o Liberal Approach Looks to the intentions of the parties at the time of the contract formation the reason why the contract was formed in the first place Looks to the circumstances surrounding the specific contract negotiations Credibility o Issue of Evidence Judge must make determination as to whose story is more believable The more witnesses or other evidence available is great assistance in making the determination Most contract negations do not occur conveniently before witnesses, but are rather conducted between only the parties to the contract o Often necessary to have a 3rd party to settle the dispute o Are judges better at determining credibility than the avg. person? o Courts can make the contract void for uncertainty, but usually an effort to enforce all contracts Parol Evidence Rule (PER) o Extrinsic (not parole that means released early from prison) o A rule preventing a party to contract from adding a term previously agreed upon not included in the final written contract o A party cannot go to court and introduce evidence that something outside of the document was excluded from the contract o Rule only applies to terms that a party is trying to have added to the contract o Problems with the rule effect on the SFC wont include bonus clauses o How to get around the rule: Written document was not intended to embody the whole contract PER does NOT exclude oral agreement reached AFTER the parties have entered into the written contract Collateral Agreement separate agreement between the parties, but not included in the written document needs separate consideration o Another exception to the PER Condition Precedent

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BU 231 Class Notes

Any set of circumstances or events that the parties stipulate must be satisfied or must happen before their contract takes effect Not to be confused with a conditional acceptance Interpretation of Implied Terms o A term that is not included in the contract, but as reasonable person would read it would have thought to include it (term that was implied) o Terms established by Custom Terms implied from long established practices in a particular industry

Chapter 11 Privity of Contract

Privity of Contract o The relationship that exists between the parties to a contract Rule o If there is no privity between the parties then there is no right to obtain legal remedy based in contract law o There may be opportunity to obtain legal remedy through tort law where applicable o Rule can have harsh results therefore systems have been developed to get around the rule Novation o The termination of one contract and the creation of a new contract with the same or similar terms to introduce the 3rd party to the contract o Has the effect of releasing the original party to the contract Vicarious Performance o Where a 3rd party performs on behalf of the promisor who remains responsible for proper performance o Dont confuse it with vicarious liability in tort law o Eg. Corporation cannot act without an agent who is performing vicariously, but the corporation remains liable for performance Trusts o Where property has been transferred to a person who administers the property for the benefit of another o The 3rd party who is obtaining the benefit has a beneficial interest in the property and has the right to enforce the trust agreement as the true owner of the property Constructive Trusts: o The relationship that permits a 3rd party to obtain performance of a promise included in a contract for his or her benefit o Original contract has to be meant to be irrevocable A trust must be permanent with no option for the donor of the trust property to later change his/her mind Exceptions to the Rule :
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BU 231 Class Notes

Insurance Undisclosed Principals Contracts concerning land tenancy agreements Special concessions to commercial practice Collateral contracts and Exemption Clauses Assignment of Rights Assignment of Rights o A transfer by a party of its rights under a contract to a third party o The right to enforce a contract has an independent value from the price of the contract itself (the intangible right is what is being transferred) o This right is referred to as a chose in action o Tangible goods are referred to as chose in possession Parties to the Assignment o The promisor o The assignor o The assignee *Equitable Assignment : o The original assignor is left a party to the transaction therefore in order to enforce the contract all three parties must me bade party to the legal action The effect of the Conveyancing and Law of Property Act in Ontario o Where an assignment meets the requirements of the act, that is: The assignment was absolute (unconditional and complete) It was in writing The promisor received notice of it in writing o Then it is a statutory assignment and the assignor is no longer bound to it Notice to the Promisor o ALL assignments require that the promisor be given notice of the assignment o It is notice to the promisor that is required and NOT consent from the promisor o If the promisor ignore the notice and pays the assignor, then the promisor will be in breach and will be required to pay again to the assignee Assignees Title o The assignee cannot obtain a better title than the assignor o The assignment is subject to any rights that the promisor had against the assignee before the promisor received notice of the assignment Negotiable Instruments o Defined by the Bills of Exchange Act o A written contract containing a promise express or implied to pay a specific sum of money to the order a designated person or to bearer o Includes Bills, Cheques, Promissory Notes Negotiation o The process of assigning a negotiable instrument o o o o

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BU 231 Class Notes

o Negotiable Instruments can be negotiated by simply signing the item where it is made payable to a specific person or by just handing it over if it is payable to bearer o Parties to the negotiable instrument o Promisor/Drawer o Drawee o Payee o Holder still subject to equities o Holder in Due Course

Chapter 13 Breach of Contract

Effect: o May discharge the contract, but not always Minor Breach: o A breach of a non-essential term of the K or of an essential term in a minor respect Major Breach: o A breach of the whole K or of an essential term, so that the purpose of the K is defeated Condition an essential term of the K Warranty a non-essential term of the K Breach of a condition allows the non-breaching party to opt for discharge of the K the breaching party remains bound Breach of a warranty, both parties remain bound to the K, but the non-breaching party can sue for damages where it has incurred a loss How does a breach occur? o Express Repudiation declaration of intention not to perform; o By rendering performance impossible; o By failure to perform or tendering inadequate performance Express Repudiation o Options to non-breaching party Terminate K but reserve the right to sue for damages; or Insist on performance and wait for non-performance o Anticipatory Breach Breach before performance is due o Importance of timing K formation K is binding from that point One Party Renders Performance Impossible: o Self induced frustration o Contracts of personal performance (double-booking) o Can be before or at time performance is due Failure of Performance: o Can only occur when performance is due o Can be total or partial failure o Can be grossly inadequate performance
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BU 231 Class Notes

Doctrine of Substantial Performance Performance that does not comply in some minor way with the requirements of the contract Prevents the non-breaching party from avoiding his or her performance Exemption Clauses A clause in a contract that exempts a party from liability for failing to perform some or all of its contractual obligations Risk Allocation o Insurance o Keeps costs low o Problem: if used in SFC inequality of bargaining power, puts risk on party not willing or able to accept it Defences: o Inadequate notice o Misrepresentation o Non est factum Fundamental Breach goes to the heart of the K court will strike down the clause Remedies for Breach of Contract Types of Remedies: o Damages o Equitable Remedies o Quantum Meruit Damages A money award to compensate an injured party for the loss caused by the other partys breach of contract Compensatory in nature Purpose: to place the injured party in the position they would have been had the contract been performed Economic Breach o Where it is economically advantageous to breach Mitigation of Damages: o Action by an aggrieved party to reduce the extent of its loss caused by the breach of the other party o The requirement to act reasonably Must flow from the breach Special circumstances: o The breaching party may not be held liable for additional damages arising from special circumstances, where the breaching party was not made aware of them o Test: from past experience and knowledge between the parties, should the managers have reasonably expected the loss at the time of K formation Measurement of Damages
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BU 231 Class Notes

o The moment for determining whether damages were foreseeable is at the time of making the contract not when the breach occurs o At the time the contract is made the promisor is liable to uphold the promise and the promisee becomes entitled to a continuous expectation of performance until the time for performance arrives. o In a breach of contract the court will include in its award of damages for breach an amount equal to the expected profits on the aborted transaction Expectation damages an amount awarded for breach of contract based on expected profits Opportunity cost the lost chance of making a similar contract with a different promisor Liquidated Damages an amount agreed to be paid in damages by a party to a contract if it should commit a breach Penalty Clause a tem specifying an exorbitant amount for breach of contract, intended to frighten a party into performance Equitable Remedies Courts of equity o Special non-monetary remedies given where damages are not sufficient o Can order a party to perform the K o Court orders other than money settlements o E.g. Rescission Discretionary in nature: o Plaintiff must come to court with clean hands o Action must be brought in a reasonable time o No innocent 3rd party involved o Consideration must be commensurate with promise o Cannot violate Principle of Symmetry Specific Performance: o An order requiring a defendant to do a specified act; usually to complete a transaction o Only for unique properties (real or personal) o S.P. is almost never granted in employment or personal service Ks o The uniqueness of land: Semelhago v. Paramadevan [1996] 2 SCR 415 Injunctions: o a court order restraining a party from acting in a particular manner o Need for a negative covenant in the K o Injunctions are rare in employment Ks Injunctions: o Injunction o Interlocutory Injunction A temporary restraining order to restrain immediate harm from being done by a breach of contract o Mareva Injunction o Anton Pillar Order
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BU 231 Class Notes

Quantum Meruit The amount a person merits to be paid for goods or services provided to the person requesting them What if the part performance is by the breaching party? Is the breaching party still entitled to QM? Enforcing a Judgement The judgment: o Order by the court requiring one party to pay to the other party damages, or perform as per an equitable remedy o The parties become: Judgment Creditor; and A party who has obtained a court judgement for a sum of money Judgment Debtor A party who has been ordered by the court to pay a sum of money The steps to seize assets of the JD: o Judgment must be registered with court; o Writ must be filed with Sheriffs Office jurisdiction is important JC becomes Execution Creditor; o An execution order must be made to the Sheriff and then; o The Sheriff can levy execution seizes and sells assets for the benefit of ALL execution creditors o NB some assets are exempt from seizure e.g. annuities and pensions Sheriffs Office: o Must pay out all secured creditors first o Takes a percentage for Sheriffs fees o Difference remaining is paid pro rata amongst all of the execution creditors Garnishment Orders o To access: Bank accounts Wages Accounts receivable o Filed with Sheriffs Office Payments made to Sheriff Sheriff distributes to Execution Creditors Writs have to be renewed regularly every couple of years to stay current as an Execution Creditor Judgments remain in effect for 21 years Notice of the judgment can be placed on the various credit bureaux to affect the JDs credit rating and to notify anyone of the outstanding debt Follow up: o Examination in Aid of Execution
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BU 231 Class Notes

Allowed annually Interview with JD under oath to determine assets, income, liabilities and expenses of JD JD must bring in all documents related to assets, income, liabilities and expenses

Chapter 15 Bailments
A transfer of possession of personal property without a transfer of ownership o Contractual o Non-contractual o Involuntary Parties: o Bailor o Bailee Nature of Bailment: o Personal property (chattels) only can include documents containing legal rights o NOT real property o Transfer of Possession without transfer of title (ownership) Benefits of Bailment: o Contractual Designed to benefit both parties Bailment for value o Non-Contractual Can benefit either party or both parties Gratuitous Where there is no consideration or intention to create a legal relationship Rights and Duties of Bailee: o Tort or contract o Contractual terms can determine the liabilities of the bailee o ALL bailees have a duty of care the standard of care will depend on the nature of the bailment o While there are elements of both K and tort law bailments are governed by their own rules! Sub-bailments o after receiving property from bailor, the bailee transfers possession to another person, called the sub-bailee. Often seen in postal or courier services o Punch v. Savoy Jewellers Ltd. (1986), 26 D.L.R. (4th) 546 o All bailees are under a duty to take care of property bailed to them. However the required standard of care varies according to the type of bailment.

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BU 231 Class Notes

o Since bailee is better able to establish the facts, burden of proofs lies with the bailee in show that she was not negligent. Therefore may be easier to sue under rules of bailment than ordinary tort. Standard of Care: o Depends on type of bailment o Lowest standard is for the gratuitous bailment where the benefit is for the bailor o Highest standard is for the gratuitous bailment where the benefit is for the bailee o Bailment for value: a contractual bailment where the standard of care falls between that of a gratuitous bailment for the benefit of the bailee and for the benefit of the bailor Bailee for value is expected to take the same care of goods as though it were their own, or better. If the property is very valuable or easily breakable, the standard of care is higher. o Also depends on other factors including: Type of goods bailed Extent of promise to look after the goods Value of the bailed property Whether property is easily damaged o Special standards are set for special bailees o Innkeepers and carriers have very HIGH standards of care Remedies of a Bailee for the value of services rendered: o For contractual bailees regular contract remedies apply (usually for nonpayment) Can sue for damages Usually CANNOT obtain rescission Can sue for Quantum Meruit in situations where there has been part performance Liens: o Gives the right to the bailee to retain possession of the goods until the bailor pay what is due for the services. o Rights of lien arises only when services have been performed and payment is already due o Payment must come due while the goods are still in the possession of the bailee - Possessory remedy o If the bailor gains possession of their property with out the use of fraud or deceit, the bailee loses the right of lien o Common Law right for bailees who are: Repairers of goods Innkeepers
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BU 231 Class Notes

Common carriers Lawyers or bankers (over documents in their possession) Storage bailees have no common law right of lien

o Repair and Storage Liens Act, R.S.O. 1990, c.R-25, s.22 provides storage bailees the right of lien by statute Right of Sale: o Only available by statute or by contract not a common law right o Provides the bailee/lienholder the right to sell the goods in their possession to cover costs o The bailment contract may contain the right to sell the bailors property when under the right of lien o Must follow prescribed formula to sell: 1. Provide a specified period of time to bailor to come up with funds 2. Advance notice of the bailees intention to sell the goods must be provided to the bailor 3. Sale must be advertised 4. Sale must be by public auction

Special Types of Bailment Storage and Safekeeping: o a warehouse firm that accepts goods for storage and a bank that rents a safety deposit box for storage or safekeeping are under a duty of care of the goods stored with them. o Standard of care depends on circumstances: Nature of bailed goods Contractual terms (implied or express) o Storer is required to exercise duty of care of the goods to protect them from harm o Goods brought in must be same ones returned unless fungible o Storer can only obtain right to lien through statute or by contracting for the right o Statutory right to lien applies only to professional storers Repairers and work on a chattel: o Undertaking by repairer to effect repairs in a competent manner and using duty of care and skill o Failure on the part of the repairer to perform is breach of K normal contract remedies apply to the bailor including return of the goods o Standard of care of bailee due care to protect the goods from harm o Common law right to lien, but only a statutory right to sell if payments are 3 months past due o Bailment is often made for the repair of certain property such as vehicles or clothing. A repairer, who works on these articles on their own premises, using their own expertise, is a bailee for value and therefore has a right of lien when the bailor does not pay Transportation:
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BU 231 Class Notes

o Gratuitous carrier: are anyone who agrees to transport a good for free o Private carrier: does it for a price o Common carrier is a business that holds itself out to the public as a transporter of goods for a reward. Does not discriminate nor does it reserve the right to refuse an offer of goods for shipment. Only limited by its ability to carry goods o All carriers are bailees and have some responsibility for the goods under their control. Bailee would to prove that a loss of property was due to one of three things: act of God; inherent vice in the goods; default by the shipper. Standards of care: o Gratuitous carrier reasonable person o Private carrier competent carrier in their line of business o Common carrier insurer as well as bailee highest standard of care Common Carriers: o Undertakes to indemnify shipper against loss regardless of fault o Shipper need only demonstrate: Goods were delivered in good condition Carrier failed to deliver goods or delivered them in bad condition o Defences available to the Common Carrier: An Act of God (but not fire) Inherent vice in the goods Default by shipper o Liability is generally for full value of goods unless limited by bill of lading o Bill of Lading: document signed by a carrier acknowledging that specified goods have been delivered for shipment Remedies for a carrier when shipper defaults: o Common carrier right of lien by common law o Private carrier has no right of lien by common law or statute can only obtain by K o Neither has right to sell by common law or by statute, but can obtain only by K Innkeepers: o A person or firm who maintains an establishment offering lodging to any member of the public o Must keep the goods of patrons and guests safe o Duty to take reasonable care i.e. under common law, innkeepers are liable for the loss or thieve their guests goods. This prevents collusion between innkeepers and thieves. o Additional duty to protect the goods of their guests/patrons from loss or theft o Innkeeper can avoid liability for lost goods if they can show that the guest was negligent o If goods were damaged must show negligence on part of innkeeper o Innkeepers Act, R.S.O. 1990, c.I-7, s.4 limits liability of innkeeper to $40.00, if Innkeeper must conspicuously display copy of the act
25

BU 231 Class Notes

Innkeeper must provide safekeeping if a guest requests it o Innkeeper: Entitled to common law right of lien Right to sell is statutory Pledge or Pawn: o A bailment of personal property as security for the repayment of a loan where possession passes to the bailee o Pledge: Creditor is the pledgee Borrower is the pledger Pledgee obtains a lien on property and right to sell to recover debt and costs Surplus funds belong to the pledger Pawn: o Governed by Pawnbrokers Act, R.S.O. 1990 c. P.6 ss 20-2 o Pawnbroker obtains title to goods pledged o Must send notice of last opportunity to pledger o Must advertise in newspaper the final notice to pledger o But, pawnbroker then obtains absolute ownership over the goods

Chapter 17 Agency
Agent: A person acting for another person in contractual relations with third parties Principal: the person on whose behalf the agent acts The agent acts on behalf of the principal to bring third parties into a contractual relationship with the principal. Independent agent: acts on behalf of many principals or clients. Dependent agent: acts on behalf of one principal or client. Commission agent: one who sells on behalf of a third party and receives commission An agent owes a fiduciary duty to the principal. This duty of good faith requires that the agent be loyal and act in the principals best interests. Difference between agents and employees: o An employees work is often under direction and supervision of employer o An employee often has no ability or very limited ability to bind their employer to a contract o Rights and responsibilities between employer/employee differs from principal/agent Creating the Agency Relationship: o Three way relationship: Principal Agent Third Party Contractor o Contractual relationship between principal and agent o Contractual relationship between principal and third party contractor Agency Agreement:
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BU 231 Class Notes

o The K between principal and agent whereby the agent undertakes to act on behalf of the principal o Normal rules of K formation apply o If the K will extend beyond one year, then it must be in writing to satisfy the Statute of Frauds - also if the authority includes issuing promissory notes or writing cheques o K should set out limits to Agents authority can be express or implied Power of Attorney: o A type of agency agreement authorizing the agent to sign documents on behalf of the principal o Commonly used Ratification: o Where an agent exceeds his/her authority, principal must ratify the contract o Subsequent adoption by the proposed principal of a K made by an agent acting without authority o Must be timely o Must be of entire K o Can be by conduct o Principal must have been capable of entering K at time of formation and later at time of ratification Principal must be ascertainable at time of K formation Actual authority: the authority given expressly or impliedly to the agent by the principal. Apparent Authority Authority that is not real, but is acquired from a past manner of transacting business or from trade custom. The authority that a third party is entitled to presume the agent possesses Test for Apparent Authority: o Should the 3rd Party have been aware of the agents lack of authority or at least been suspicious? Or is it reasonable to assume from the type of business that the agent is engaged in, that the agent had the authority in question? Some types of authority are not common and therefore should raise the suspicions of a 3rd party Not practical for business to constantly have to check up on agents authority If principal chooses to restrict normal authority within an industry, s/he is estopped from denying liability under the K Holding Out: o Representing by words or conduct that a person is ones agent or has a particular authority Pickering v. Busk (1812), 104 E.R. 758 Agency by Necessity Dire circumstances o Generally it is NOT recognized in law
27

BU 231 Class Notes

o Exception: Shipper must compensate the rescuer of a ship salvaged at sea (Canada Shipping Act, S.C. 1993, c. 36 Sch. V.) Where perishable goods are at risk and the agent cannot contact the principal Duties of Agent to Principal Duty to comply with the agency agreement: o Just like any other K binding on both parties o Principal can sue for breach of K where agent acts outside authority o Agent has the duty to keep principal informed as courts have deemed that what the agent knows, the principal also knows Duty of Care: o At a minimum: Reasonable care, diligence and skill in transacting business on behalf of the principal o Standard of care will depend on agents own knowledge & skill; as well as the nature of the task Duty of Personal Performance: o Generally personal performance is required o Can sometimes use a sub-agent Trade custom Contractually agreed NB no privity of K between sub-agent and principal Duty of Good Faith: o Fiduciary relationship o Agent must put principals interests ahead of his/her own o Agent cannot make secret profits on any transaction made for the principal o Agent has duty to disclose any and all relevant information Acting for two principals: o Conflict of interest o Breach of duty of good faith o MUST obtain consent of both principals Acting as the contracting party: o Must disclose to principal and obtain approval PRIOR to the transaction Remuneration o Obligation to pay as per K or as per reasonable fees of industry o Often paid on a commission basis when the agent has brought the prospective client who is ready, willing and able to close the deal; or; o Upon closing of the sale Expenses: o Implied term that principal will cover the reasonable expenses of the agent when acting in his/her real authority o No obligation to pay for unauthorized acts unless ratified Rights and Liabilities of Principal and Agent
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BU 231 Class Notes

Principal alone is liable: o Agent acting with real or apparent authority o Agent must make clear to 3rd Party that s/he is acting for a principal even if an undisclosed principal o Where principal alone is liable, payment or delivery must be made to the 3rd party and not the agent if agent absconds with money/goods, principal remains liable to 3rd party Agent alone is liable: o Where agent represents him/herself to be the principal o Under these circumstances the principal has no rights or liabilities under the K o when the agent acts as though she is the real contracting party, she has rights and liabilities relative to the third party. Both are liable o if the contract was one that the agent was able to make, then the third party has an action against both parties.

Rights of the Undisclosed Principal Right to enforce the contract against 3rd party where, o s/he can show that the K was made with his authority o The authority must be real and not apparent o EXCEPTION: the undisclosed principal cannot enforce a K that is essentially personal in nature Third party cannot hold undisclosed principal liable in a situation where the agent acted without real authority; Sign-O-Lite Plastics Ltd. v. Metropolitan Life Insurance Co. (1990), 49 B.C.L.R. (2d) 183 Liability for Torts Fraudulent Misrepresentation (Deceit) 3rd party has right to: o Rescind K o Sue both agent and principal for tort of deceit Principal will have right against agent for the deceit Agent can also be held liable for negligent misrepresentation Principal is jointly and severally liable for torts committed by agent within real or apparent authority Breach of Warranty of Authority Third party has the right to sue for Breach of Warranty of Authority where: o Agent has no real or apparent authority (and no ratification by principal) there is no contract o Third party will have an action in deceit against a fraudulent agent there is no contract o Third party will have an action in negligent misrepresentation where agent negligently misrepresents his/her authority there is no contract

29

BU 231 Class Notes

o If agent innocently exceeds authority i.e. contracts without knowing that principal has died, become insane or bankrupt there is no contract Warranty of Authority: o Where a person purports to act as agent represents that she has authority to contract on behalf of a principal Purpose is to put parties back in the position they would have been had the misrepresentation not occurred

Terminating the Agency Relationship Agents authority is terminated when: o At the end of a time specified in the agency K o At completion of the particular project for which the agency was formed o Upon notice by either the principal or the agent h/she wishes to end the agency o Upon death or insanity of either principal or agent o Upon bankruptcy of principal o Upon an event that make performance of the agency agreement impossible

Chapter 18 Employment Law

The relationship of employer and employee is established by a contract that gives the employer authority to direct and control the work of the other party, the employee. In contract law, an employer is liable for any improper work or unsatisfactory work completed by the employees. Also, a business is liable for any tort an employee may commit in the course of employment. Even though the employer may not have authorized the act or even forbidden it, they are still liable. Employment Law o Contract between parties = employment agreement Can be for continuous service Can be for fixed term o Governed by: Statute (workers Comp.) Labour Union Common Law A contractual relationship whereby one party, the employer, is authorized to direct and control the work of another party, the employee Torts o Vicarious Liability o Negligent Hiring o Wrongful Referral Contracts o Vicarious Performance Duties of the parties: o Employees Duties
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BU 231 Class Notes

Duty to obey Duty to exercise skill and care Duty of good faith and fidelity o Employers Duties Duty to pay Termination of Employment K Employment contracts are often continuous in nature so, how are they discharged? Common law implies a notice requirement into employment contracts. Notice of terminations involves telling an employee in advance that the employment relationship will end. When there is a fixed term, no notice is necessary on part of either party. If an employer wants to dismiss an employee immediately, the employer must pay the employee for a period equal to the time required for reasonable notice. This is known as payment in lieu of notice. Employees also have the same obligation to give notice upon leaving. However, no notice need be given if the employee can show that he was forced to work in dangerous conditions, perform an illegal act, or job change such as demotion or geographical transfer. By way of notice NOTICE = TIME = $$ How much notice is required? o Employment Standards Act, S.O. 2000 c. 41 minimum requirements o Trade Practices often suggest longer than minimum as normal within an industry o At common law - Reasonable notice Some factors for determining reasonable notice: o Trade practice o Duration of employment o Intention at time of K formation o Frequency of pay o Level of position Dismissal for Cause Dismissal without notice or further obligation by the employer when the employees conduct amounts to a breach of the contract Misconduct: any action that directly disobeys the employers own standards of conduct or misconduct. o Does not have to cause economic loss o Crimes especially embezzlement or theft o Bad behaviour Where reputation of employer is affected Other employees are affected Causes direct financial loss

31

BU 231 Class Notes

Disobedience: an accurate job description and identifiable chain of command help employers avoid employee confusion about the expected behaviour and disobedience. o Wilfully disobeying: A reasonable; and Lawful request Incompetence o the degree of skill an employer may demand depends partly on the representations made by the employee when seeking the position and partly on the degree of skill ordinarily to be expected of an employee of that category and rate of pay. If an employee accepts a position on the understanding of the skills required of him and is unable to perform these skills, he is subject to dismissal without notice. o Need for implied or express term of competence Express: stating in a resume that one possesses certain required skills Implied: applying for a job that requires certain specific skills o Doctrine of Condonation applies condoning incompetence makes a claim for dismissal for incompetence difficult Illness o Permanent disability or constantly recurring illness entitles an employer to consider the contract at an end, regardless of any terms in the contract requiring notice. o Not a breach of K Frustrating event o Role of employment insurance Employers role: o Need for warnings to employee providing the opportunity for the employee to improve their behaviour o Need to provide adequate training and assistance o Need to document activities of both employer and employee Failure to warn- to dismiss an employee on the first incident must be because the conduct was so serious as to amount to a total breakdown in the employment relationship. This means: o Violate an essential term of the employment contract o Breach the faith inherent in the relationship o Fundamentally or directly conflict with the employees obligations to the employer. o Most circumstances require an employer to warn the employee that the offending conduct is unacceptable and further occurrences will result in termination. Adverse economic conditions o an employer might overcome this implied obligation by getting his employee to agree expressly that in adverse economic conditions he may be dismissed without notice.
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BU 231 Class Notes

o However, when a right to notice is required by statute, even an express agreement to give it up is ineffective; the statute prevails, and the employer must till give notice or wages in lieu of notice. Wrongful Dismissal Where an employee claims they have been wrongfully dismissed: Employers defences: o Employee was dismissed for cause; or o Adequate Notice was provided NB if cause is discovered AFTER the dismissal, the employer can use this in their defence Contract law place the injured party in the position s/he wouldve been had the contract been performed A reasonable timeframe is required to fulfill this purpose, hence the role of Notice Once the court sets the reasonable notice period e.g. 6 months: (Rate of pay + Benefits) X Notice = $$$ Mitigation: o Contract law requirement to act reasonably to reduce losses o The employer may be able to defeat or reduce the employees claim for damages by providing that Employee must try to obtain reasonably comparable employment o Court will reduce damages award if there is a failure to mitigate o If a defendant successfully mitigates, they receive difference between Notice and income as damages o A dismissed employee does not have to take a job that is substantially lower than her previous job to mitigate losses nor does she have to move out of her location to find another job Mental Anguish: o Courts generally do not consider hurt feelings o Recognition over time that while employment contracts are economic in nature, there is decidedly a human element as well o Problems of trying to assess intangibles such as pain and suffering and humiliation Reinstatement o the emphasis on damages for wrongful dismissal as the sole remedy of employees would seem to deny the use of other remedies such as reinstatement-a form of specific performance by which the court orders the employer to continue to employ the aggrieved employee o Equitable remedy o Impersonal nature of large corporations o Canada Labour Code R.S.C. 1985, c. L-2 s. 240 for federally regulated companies o Provincial legislation Quebec, Nova Scotia Employee Welfare Legislation
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BU 231 Class Notes

Human Rights private sector Charter of Rights and Freedoms government Pay Equity Legislation equal pay for equal work Employment Equity Legislation- federal only Regulation of working conditions ESA, Labour codes, Health and Safety Employment Insurance Act insurance against unemployment Workers compensation: o No fault scheme o Applies to certain industries o Employers are required to pay into the fund o Injured employee can apply to the fund except if it was the employees wilful misconduct that caused the injury exception: death or permanent disability Occupational Health o Area of growing concern o Awareness of dangerous substances that can have harmful effects over time (e.g. asbestos) o Improved medical and scientific knowledge o Who should be required to set the standards?

Chapter 24 sole proprietorship and partnership

Business Organizations Sole Proprietorship o Unincorporated business owned by a single individual o Individual is sued in his/her own name Partnership o Relation which subsists between persons carrying on a business in common with a view to a profit (Partnerships Act, R.S.O. 1990 c. P.5, s. 2) o Limited partnerships: a partnership in which some of the partners limit their liability to the amount of their capital contributions. General partner: a partner in a limited partnership whose liability is unlimited. Limited partner: a partner in a limited partnership whose liability is limited to the amount of their capital contribution (investment). The major requirement for the formation of a limited partnership is that there must be one or more general partners. If a limited partner takes an active part in management, she becomes a general partner. Limited partnerships are not used very often mainly because of the dilemma of whether or not to interfere in management and take on unlimited liabilities. Contractual joint venture: a joint venture affected by agreement without the creation of any separate legal entity.

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BU 231 Class Notes

Equity joint venture: a corporation formed, and jointly owned by the parties to a joint venture for the purpose of carrying on the venture.

Chapter 25 The nature of corporation and its formation

Corporation a legal person formed by the act of incorporation according to a prescribed legal procedure Internal Affairs of an Organization Day to day management of a company not the business of the company Corporation is a creation of statute all rules regarding governing a corporation are set out in one of the statutes: o Canadian Business Corporations Act; o Ontario Business Corporations Act Directors o supervise the officers Officers o run the business of the corporation Shareholders o owners of the corporation Stakeholders o Other interested parties, e.g. employees, creditors, community, etc. Directors CBCA s. 102 directors role set out however, majority of power comes from General Meeting of the shareholders Act conveys general powers and specific powers: o Power to issue shares o Power to declare dividends o Power to adopt by-laws o Power to call meetings of the shareholders CBCA requires a corporation to have 1 or more directors; and for a publicly held corporation minimum of 3 directors Shareholders cannot direct directors Initial directors are appointed by Articles of Incorporation, but must hold General Meeting of Shareholders within 18 months of incorporation Subsequent directors are elected by SH Director can sit for 3 years before the need to be re-elected, but can be removed earlier by a Special Meeting of the SH Duties: o CBCA s 122: (1) every director and officer of a corporation in exercising his powers and discharging his duties shall:
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BU 231 Class Notes

a) Act honestly and in good faith with a view to the best interests of the corporation; and b) Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (2) Every director and officer of a corporation shall comply with this Act, the regulations, articles, by-laws and any unanimous shareholder agreement Duties of Care and Skill: o Cannot be negligent standard of the ordinary person o Can rely on information provided to them as long as they are not wilfully blind o If a director acquiesces in situations of misconduct or negligence, then s/he can be held PERSONALLY liable o If a director votes for a decision that is financially detrimental to the corp. & the corp. becomes insolvent, then s/he can be held PERSONALLY liable for employees unpaid wages o If taxes are not paid directors can be held PERSONALLY liable for HST, and employee deductions Defences: o Due diligence Acted diligently Relied on audited financial statements Fiduciary Duties: o Must place corp. ahead of own interests o Must avoid conflicts of interest o Must declare a conflict of interest and cannot vote on the matter o Cannot intercept a Corporate Opportunity o May not carry on business in competition with the Corp. Canadian Aero Service Ltd. v OMalley (1973), 40 D.L.R. (3d) 371 (SCC) Breach of a fiduciary duty o Held liable to corporation for loss sustained arising from breach o Any property acquired by the director as part of the breach will be held in the name of the corporation as a constructive trust o Where property has been transferred to a bona fide purchaser for value, director will be liable to account for profits Insider Trading the use of confidential information relating to a corporation in dealing in its securities

Shareholders Rights: o Derive from Articles of Incorporation and from legislation o CBCA requires that the constitution of the Corporation set out classes of shares (including rights, privileges, or restrictions associated with the class) o Where there is only one class, the rights must include: Right to vote at any meeting of the shareholders
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BU 231 Class Notes

Right to receive any dividend declared Right to receive remaining property on dissolution

Voting: o Method by which SH can exercise their voice on how the corporation should be run o Takes place at General Meeting of SH o SH entitled to advance notice of any meeting o Voting is the passing or defeating of resolutions Ordinary resolution requires a simple majority vote Special resolution requires 2/3 majority Voting: CBCA sets out what is an ordinary or special resolution Ordinary Resolutions Special Resolutions - Approval of any amendments made - Approval of alterations to articles by the directors to the by-laws of incorporation - Election of the auditor - Approval of certain other fundamental changes, such as amalgamations or sale of substantially all the assets of the corporation - Election or removal of the board of directors Voting: o Ability to vote depends on class of shares o Closely held corporation often some classes of shares have more votes o In widely held corporations, SH can nominate a proxy to vote on their behalf Return on investment: o SH purchases shares in corporation as an investment o Can realize on that investment in 2 ways: By way of dividends paid By capital growth Issuing new shares: o Power lies with the board o Majority SH could lose majority position with an new issue In USA concept of pre-emptive rights In Canada no such right, but directors can only issue shares for purpose of raising capital If purpose is to affect voting rights of majority, then the issue may be declared void Right to Information: o Annual financial statement must be presented to SH at the AGM o SH are empowered to elect an auditor who in turn checks the statements for fairness in advance of the AGM and reports to the SH

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BU 231 Class Notes

o Both auditors report and financial statements must be sent to SH (usually 3 weeks) prior to AGM Right to Information: o Auditor has access to books of corporation, but SH does not o SH can send a request to the auditor or directors to check books for discrepancies, but neither has to oblige o SH would have to ask courts to have an inspector appointed Right to Information: o SH are entitled to examine documents of record including: Minute books of meetings of SH Register of all transfer of shares Copy of the corporations charter Copy of by-laws (or articles) and special resolutions Register of SH Register of directors o Documents of record excluded: Minutes of directors meetings Duties of SH: o None o Even if s/he is a director, s/he is entitled to consider her/his own interests when voting as a SH

Protection of Minority Shareholders Where there is a majority shareholder, often minority shareholders are frozen out of the decision making process Often they also cant dispose of their shares, so they are locked-in CBCA s. 190 allows a minority SH who dissents on changes to the corporation to have the corporation buy back his/her shares Where a price cannot be decided, then the court will set a price o This is called the Appraisal Remedy o Appraisal Remedy: The right to have ones shares bought by the corporation at a fair price Restricted to only certain types of actions In order to take advantage, the SH must abide by all requirements in the act can be quite cumbersome Really only useful in closely held corporations Derivative Action o Proceedings brought by one or more shareholders in the name of the corporation in respect of a wrong done to the corporation o SH must make application to court to obtain leave to bring the action and show: The directors are unwilling to bring the action; That he is acting in good faith; and

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BU 231 Class Notes

It appear to be in the interest of the corporation or the shareholders that the action be brought Court can order the corporation to pay the costs of the shareholders in bringing the action Should defendant lose, court may order any amount awarded be paid directly to the shareholders, rather than the corporation

Winding Up o Dissolution for liquidation of a corporation o Under the CBCA, where it is just and equitable to do so o Courts are often reluctant to do this if the corporation is viable and of a reasonable size re: other stakeholder interests Oppression Remedy o Statutory procedure allowing individual shareholders to seek a personal remedy if they have been unfairly treated o Most popular remedy in Canada o Remedy has been granted wider scope by allowing judges to make alternative orders o To justify the remedy, plaintiff must show that the action complained of: Has been oppressive or unfairly prejudicial; or Unfairly disregards the interests of the complainant o Remedy is usually to have corporation buy back the complainants shares at fair market value

Shareholder Agreements An agreement between two or more shareholders that is distinct from the corporations charter and by-laws Shareholder agreements can only apply to the parties in their capacity as shareholders it cannot fetter the discretion of a director Shareholder agreements may include such terms as: o Right to employment o Right to participate in management of the business o Right to a fair price for a share interest Unanimous Shareholder Agreement o A shareholder agreement to which ALL shareholders are parties CBCA allows for a USA to fetter powers of directors USA is only possible in a closely held corporation Presence of the USA must be conspicuously stated on any share certificate new shareholders are held party to the agreement External responsibilities of A Corporation Does a corporation owe a duty to anyone? o Limited liability of corporations o Liability covered by tort and contract law o Legislation enacted to protect stakeholders in a corporation, including:
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BU 231 Class Notes

Employees Creditors Investors General public Environment

Creditors No minimum investment required to start a corporation beyond the cost of incorporating Lack of capital = inability to pay creditors particularly debts arising from tort or breach of K CBCA covers protection of creditors o Share capital cannot be repaid by way of dividends or redemption of shares if the transaction will render the corporation insolvent o Insolvency: having liabilities in excess of the realizable value of ones assets or being unable to pay ones debts as they fall due o Where a payment or redemption is made and causes insolvency directors may be held personally liable The need for maintaining capital in the corporation Maintenance Test (CBCA s. 42) Corporation cannot declare a dividend where: a) The corporation is, or would after the payment be, unable to pay the liabilities as they become due; and b) If the realizable value of the corporations assets would thereby be less than the aggregate of its liabilities AND its stated capital of all classes Protections of Investors Securities legislation Securities Act, R.S.O. 1990 c. S. 5 Governed by Ontario Securities Commission Two Broad goals: o Prevent and punish fraudulent practices; and o Require full disclosure of financial information to prospective buyers of shares and bonds To accomplish these goals: o Licensing brokers and other agents to deal in securities o Requiring corporations to publish a prospectus o Requirement of ongoing disclosure o Regulates practices of takeovers or reorganizations of corporations Public Interest Legislation governing the control of corporations where their actions would be contrary to the public good: o Health & safety o Environment o Consumer legislation o Anti-monopoly legislation o Employment legislation
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BU 231 Class Notes

o Trade Unions Legislation governing the control of corporations where their actions would be contrary to the public good: o Health & safety o Environment o Consumer legislation o Anti-monopoly legislation o Employment legislation o Trade Unions

Civil Liability Torts o Principle of vicarious liability Contracts o Breach of contract o Rules of agency law apply indoor management rule o Adoption of pre-incorporation contracts (CBCA s. 14(1)) Criminal Liability Standard: beyond a reasonable doubt Actus Reus the guilty act Mens Rea the guilty mind o Mens Rea offences o Strict Liability offences o Absolute liability offences (cannot apply to criminal acts that carry a term of incarceration as a penalty) The directing mind Lennards Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705 o Any person who has policy making authority can be construed as the directing mind and can therefore fulfill the mens rea requirement for the corporation to be convicted Criminal Code, R.S.C. 1985, c. C-46 s. 22.1 In respect of an offence that requires the prosecution to prove negligence, and organization is a party to the offence if a) Acting within the scope of their authority i. One of its representatives is a party to the offence, or ii. Two or more of its representatives engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and b) The senior officer who is responsible for the aspect of the organizations activities that is relevant to the offence departs or the senior officers, collectively, depart markedly from the standard of care that, in the

41

BU 231 Class Notes

circumstances, could reasonably be expected to prevent a representative of the organization from being a party to the offence Criminal Code, R.S.C. 1985, c. C-46 s. 22.2 In respect of an offence that requires the prosecution to prove fault other than negligence an organization is a party to the offence if, with the intent at least in part to benefit the organization, one of its senior officers a) Acting within the scope of their authority, is a party to the offence; b) Having the mental state required to be a party to the office and acting within the scope of their authority, directs the work of other representatives of the organization so that they do the act or make the omission specified in the offence; c) Knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measures to stop them from being a party to the offence. Purpose of criminal law: to punish the wrongdoer Sentencing: o Denounce wrongdoing o Protect the public o Rehabilitate the offender i.e. deter the offender from repeating the offence and promote acceptance of responsibility for ones actions o Deter others from committing the offence o Repair harm done o Promote public confidence Problems in Punishment: o Fines a) Tax write-off b) Increase costs to consumers o Incarceration a) Cant imprison the corporation b) Difficulty in widely held corporations in determining the person responsible (actus reus & mens rea) beyond a reasonable doubt

Liability for Environmental Offences Regulatory offence Importance of public safety and protection of the environment Environmental Protection Act, R.S.O. 1990 c. E.19 Presumption of negligence (can be refuted) Corporations must demonstrate: o Effective system to prevent offences is in place o Regular monitoring of that system o Implement improvements where ever identified o Keep up to date on technological and scientific advancements Standard of care of Directors and Officers: o Need for expertise when in engaged in hazardous activities

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BU 231 Class Notes

Held to the higher standard of the specialized skill and knowledge in the area; or If no skill and knowledge then failed to employ the necessary expertise Who should be held responsible? o The actor can be held personally responsible o So can the directors or officers, even where they were not the actors Need to have acquiesced to the hazard in question R. v. Bata Industries Ltd. (1992), 9 O.R. (3d) 329 Sentencing: o R. v. Varnicolor Chemical Ltd. (1992), 9 C.E.L.R. (N.S.) 176 Reasons for punishment: Protect the public Deter and rehabilitate offenders Promote compliance with the law Express public disapproval of the act Factors to be considered in determining Sentence: o Nature of the environment affected o Extent of the damage actually inflicted o Deliberateness of the offence o Attitude of the defendant o Attempts to comply with the Regulations

International Business International Business o Located in one place but dealing with foreign countries in the course of its business Multinational Business o Offices set up in another country (or countries) and carries on business in the other country (or countries) as well as in the originating country Legal Issues: o Trade regulation o Contractual relations o Sale of goods o Carriage of goods and bailment o Insurance o Agency and employment o Jurisdiction o Public international law Export Contracts Regular rules of contract law still apply but now more complicated Additional parties to the contract become necessary, including: o Insurers o Shippers
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BU 231 Class Notes

o Financiers Export Houses created to simplify these problems by provided specialized services

Jurisdiction Whose law governs the transaction? Proper Law of the Contract: o The law of the country or jurisdiction by which the provisions of a contract are to be interpreted and its effect determined o The law that will apply to the contract Determining the Proper Law of the Contract: Allowing the contract to govern; or Private International Law or The Conflict of Laws o Principles of law that apply to resolve questions concerned with private relationships that are affected by the laws of two or more countries Where the contract does not state the Proper Law of the Contract, courts will look to: o Surrounding circumstances and the intentions of the parties o The system of law that is most closely connected to the contract or different systems for different parts of the contract Lost in Translation: o Need for standardized terminology developed through industry practice o International Chamber of Commerce has standardized incoterms o Government intercession: SFCs Uniform codes Import/Export Documentation Bill of Lading o Document signed by a carrier acknowledging that specified goods have been delivered to it for shipment Certificate of Insurance o Insuring goods against loss or damage Invoice o Name and address of buyer and seller o Date of order o Full description of goods sold o Details of packaging o Price of the contract o NB must conform to requirements of importing country Import/Export Shipment and Insurance Who bears the risk is determined and reflected in the price of the transaction Standard terms to describe the shipping and insurance arrangements: o EXW (ex works) o FOB (free on board)
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BU 231 Class Notes

o CIF (Cost, insurance, freight) o DDP (Delivery, duty paid) Import/Export Payment Issues of currency to be paid o Requirement of a stable currency o Should be set out in the contract o Some countries restrict conversion of currency Financing o Letters of Credit o Collection Arrangements Countertrade o Consideration for contract would be other goods, not currency Export of Services o Need to abide by importing countries rules o Still require a Proper Law of the Contract o Still need to determine method and currency for payment Government Regulation Balance in trade between imports and exports Controls set on exports and duties set on imports Promotion of exports through subsidies International Law of Trade Need for balance between trading nations o Subsidies in one country equate to high duties in the receiving country and vice versa o Agreements/treaties & organizations created between countries to assist in the promotion of trade: NAFTA GATT WTO Foreign Investment Passive investment o Buying shares in foreign companies or foreign government bonds Active investment (Foreign Direct Investment) o Purchasing foreign property o Setting up an office in a foreign country o Joint ventures International Business Disputes Issues of Jurisdiction arise even where the Proper Law of the Contract has been set out in the contract A court must consent to the action being brought in its jurisdiction
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BU 231 Class Notes

Courts dislike forum shopping Each court sets out its own grounds for when it will exercise its jurisdiction but there must be some real and substantial connection to the jurisdiction; other factors considered: o Tort committed in the jurisdiction o Contract to be performed in the jurisdiction o Damage from tort or breach of K sustained in jurisdiction o Dispute concerns property located in the jurisdiction o K stipulates jurisdiction is the Proper Law of the Contact or that dispute would be heard in that jurisdiction o Court agrees there is no better or more appropriate jurisdiction to hear the dispute Doctrine of forum non conveniens allows a court to decline jurisdiction where there is no real or substantial connection to that jurisdiction In Ontario, Rules of Civil Procedure: o Rule 17.06(2)(c) The court may make an order under subrule (1) or such other order as is just where it is satisfied that, (c) Ontario is not a convenient forum for the hearing of the proceeding A court may also decline jurisdiction where it believes that another country/state/ province, etc. will not recognize its judgment More than just a question of the appropriate law for the jurisdiction, other factors to be considered: o Service of documents o Availability of witnesses o Enforcement of judgment o Avoidance of multiplicity of actions o Standing o Choice of Law Enforcement of Foreign Judgments o No obligation for one jurisdiction to recognize the judgment of another jurisdiction o Questions arise Was the judgment made in the appropriate forum? Was the judgment legitimately obtained? Does the judgment offend against either natural justice or public policy? o Need to apply to the court in the jurisdiction where assets reside and request recognition or recommence action, if permitted (duplication of costs)

Commercial Arbitration Alternatives to court action: o International, neutral third parties set up to arbitrate disputes o Often forms a term of the contract binding arbitration o Advantage court will recognize an arbitrators judgment as it was previously agreed to by the parties that they would be bound by the decision
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BU 231 Class Notes

Disputes Governments Governments generally cannot be forced to submit to arbitration Apply through WTO or treaties such as NAFTA to redress breaches of treaty agreements or other binding international laws Realistically, these mechanisms only denounce the governments actions, but cannot force compliance International Human Rights Ethical and legal responsibilities that multinational corporations face in dealing with corrupt governments in trampling on the rights of its citizenry Multinationals abiding by the laws of the country in which they operate, but which would be illegal in the originating country E-Commerce The use of computer networks to facilitate transactions involving the production, distribution, sale and delivery of goods and services in the marketplace

E-Commerce and the Law Pace of change is much slower in law then in technology Contract Law o Old systems used as precedents to apply to new technologies o How do you make an offer on-line? o When, where and how is the offer accepted? o Can an on-line offer be revoked? E-Commerce Contract Law Web-wrap Agreements: o A web site document setting out contractual terms, the acceptance of which is indicated by clicking on the appropriate icon o Terms of the agreement must be clear to any potential customer o Internet contract = SFC need for onerous terms to be brought to the attention of the customer Jurisdiction o Timing of acceptance where does acceptance occur? o International transactions o Proper law of the contract o Need to address issues in the web-wrap agreement Formal Requirements: o Statute of Frauds still applies Electronic signatures are valid Electronic document = writing o Problems arising: Intention to be bound by the contract Validity of clicking icon to complete deal is this a signature?
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BU 231 Class Notes

E-Commerce Tort Law Computer malfunction negligence o Reliance on servers o Negligence on part of service provider can have enormous effect Defamation o To publish on the internet o Locating parties Intellectual property infringements o Copyright o Trade-mark Intellectual Property Rights o Abstract property rights owned by persons who have the sole right to licence the use of the property Copyright o Right to copy a literary or artistic work (including computer programs) o Lasts for the life of the author + 50 years o Publishing work on the internet does not make the work public domain o Fair Dealing reproduction for the purpose of criticism or private study need to cite author Trade-mark: o A word (or words), a design, or a combination of these, used to identify the goods or services of one person or organization o Registration of a trade-mark good for 15 years and renewable every 15 years o Passing off on the internet becomes an issue o Location of business is less of a factor on the internet, a business is everywhere o Domain names Cybersquatting E-Commerce Jurisdiction Need for the internet retailer to comply with the laws in multiple jurisdictions Courts will set jurisdiction where the defendant resides, or where there is a real and substantial connection to the jurisdiction o On the internet, where is the defendant located? o How do you locate the assets of the defendant? o How do you enforce a judgment against a defendant? o Defamation sue in the place where the tort was committed; what geographic location would that be in the case of defamation published on the internet? E-Commerce Regulation Canadian Radio-television and Telecommunications Commission o Power to regulate internet o In 1999, opted not to regulate internet promotion of competition

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BU 231 Class Notes

o Periodically reviews policies regarding the internet to be sure that objectives are being met Consumer Protection Privacy o Personal Information Protection and Electronic Documents Act S.C. 2000 c.5 Securities Regulation Illegal Activities Taxation

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