MOS 2275 - Midterm #1 Notes

Mediation: process where parties dispute to reach a resolution with a neutral party Arbitration: process through which a neutral party makes a decision (binding) that resolves dispute Last resort: litigation to establish liability - legal responsibility for the event or loss that has occurred How and why the law works ● Canadian legal system determines liability in accordance with certain principles and processes that are regarded as just ● the process for determining liability and the rules or laws applied in canada aim to be impartial, fair and free from bias ● full and complete impartiality is impossible Knowledge of the Law as a Business Asset ● owners and managers can protect their business by ensuring compliance with legal requirements ● businesses can use contracts to plan for the future ● laws can protect people and property ● businesses can use laws to enforce legal rules against those who have interactions with the enterprise legal risk management plan: a comprehensive action plan for dealing with the legal risks involved in operating a business (should be done before risks occur) Law and Business Ethics ● simply complying with the law is not enough ● business ethics: ethics in the business world Textbook Notes Law in the Business Environment ● protects business ideas and more tangible forms of property ● ensures compliance with commitments Legal ignorance/intentional defiance of the law may result in the business or its owner being subjected to regulatory and judicial sanctions Chapter 2 Notes - The Canadian Legal System Slideshow The Canadian Legal System Canadian legal system: comprises and governs the legislative, executive and judicial branches of government ● can be overwhelming and technical ● essential for business owners and managers to know

- important for business to understand applicable laws and use risk management strategies The Executive Branch of Government - the ceremonial function of government includes supplying the head of the Canadian state, the Queen Formal executive: the branch of government responsible for the ceremonial features of government - represented by the governor general or lieutant governor Political executive: the branch of government responsible for day-to-day operations, including formulating and executing government policy, as well as administering all departments of government → very important for business operations to both understand laws Cabinet: a body composed of all ministers heading government departments, as well as the prime minister or premier / passes regulations Tobacco Regulation by the Federal Government - the Tobacco Act gave power to the governor general in counci (federal cabinet) to regulate information that appears on cigarette packages - regulations will be revamped with the new Bill S-5, which will cover ‘plain and standarized packing’ (PSP) - likely to remove brand colours, logos, and images - the goal is to discourage smoking - the tobacco industry may launch legal attacks on the new regulations, such as violation of freedom of expression under the Charter of Rights and Freedoms The Judicial Branch of Government Judiciary: a collective reference to judges - not a branch of government - independent from legislative and executive branches - composed of appointed judges Judges: - those appointed by federal or provincial governments to adjudicate on a variety of disputes - as well as to preside over criminal proceedings The System of Courts - the provincial and territorial systems of cours have three basic levels: trial, intermediate appeal and final appeal Inferior Court - judges appointed by the provincial government

● deals mostly with states and international organizations Substantive Law ● defines rights, duties and liabilities Procedural Law ● law governing the procedure to enforce rights, duties and liabilities Public Law ● relate to or regulate the relationship between persons and government at all levels - constraints governmental power according to rules of fairness - criminal law - tax law Private Law ● relate to or regulate the relationship between persons and government at all levels - contract law - tort law - property law - company law distinction between public and private law is not absolute Public law Private law Classifications of Law Common Law ● judge-made law ● used in all provinces and territories except quebec ● bases private law on judicial decisuins that must be applied

● offer and acceptance must not be vague or ambiguous ● an “agreement to agree” is nothing ● the test for whether there has been offer and acceptances is objective, not subjective Consideration → Consideration is something of value (often a promise) exchanged between the parties in order to create a contract ● past consideration ● illegal consideration ● something that is already required to be done Exceptions to the consideration rule: ● contracts under seal ● part payment of a debt ● promissory estoppel - unusual set of circumstances where the court will say that this gratuious promise is enforceable ● circumstances: existing legal relationship, other party has to change their position on the promise that they made, express promise by one party, detrimental reliance on the promise by the other party ● can be only used as a shield - not as a sword (can only be used as a defence) Intention ● the parties must intend to create a legally binding relationship ● the test is objective, not subjective Contractual terms ● conditional contracts ● limitation of liability clauses, exemption clauses, waivers ● liquidated damages clauses are enforceable / penalties are not Chapter 3 - Managing Legal Risks Assesing the Legal Environment → Businesses must understand the legal environment in which their actions fit in order to reduce the likelihood and impact of mistakes that are ● costly ● distracting in terms of time and effort ● harmful in terms of relationships and reputation Legal risk: a business risk with legal implications Legal Risk Management Plan ● action plan to deal with legal risks involved in operating a business

2. motor vehicle accidents 3. hacking attempts 4. damaged goods 5. problem employees Is Litigation the Only Option for Resolving Legal Disputes? ● no, managing disputes can be done using ADR Alternative dispute resolution: a range of optionsto resolve disputes as alternative to litigation common methods: negotiation, mediation, arbitration Advantages of ADR ● may preserve confidentiality / relationship ● preserves relationship ● can be less costly and less time consuming ● each side can agree on an outcome that they can live with The Duty to Consult and Accommodate Aborginal Peoples ● the duty to consult is triggered when the crown has knowledge of right or title and considers an action that could adversely affect it ● past wrongs do not trigger ● this can just be a simple duty of notie ● the crown must be integrally involved in the duty to consult ● lack of consultation and communication will cost all sides: businesses suffer from delays and cancellations / aboriginal community duffers from destruction of land/water, loss of economic benefits ADR: Negotiation process of deliberation and discussion intended to reach mutually acceptable resolution ● cost-effective ● quick ● customizable ● lawyers can be of assistance ● negotiation is not applicable in all instances (insurance) ● determine the nature and extent of the dispute ● contact individuals of both sides to clarify the situation ● no rules as to how the negotiation must happen Release: agreement where party agrees to relinquish past, present and future claims from certain event ADR: Mediation

Decision: the judgement of the court that specifies which party is succesful and why → the judge determines who pays the costs of the case Costs: legal expenses that a judge orders the loser to pay the winner 4. Enforcement ● enforcement of the judgement awarded to the winning party ● the winner must enforce this with the assistance of the court ● judgement debtor: the party ordered by the court to pay a specified amount to the winner of a lawsuit Appeals ● optional step if a party does not want to accept a trial decision ● appeal: arguing to a higher court that the court decision is wrong ● does not re-do original case / no new evidence is presented ● the appeal statea that the trial decision is wrong in how it applies to the law ● appelant: the party who begins or files an appeal ● respondent: the part against whom an appeal is filed ● further appeal can be made to supreme court ● the appelant must receive “leave” from the SCC to proceed (very unlikely) Chapter 5: An Introduction to Contracts What is a Contract? Contract - deliberate and complete agreement between two or more persons (NOT NECESSARILY IN WRITING) supported by mutual consideration, to do some act voluntarily and which agreement is enforceable in a court of law ● contract rules are generally based on common (judge-made) laws ● a contract is legal cornerstone of any commercial operation ● allows participants to create their own rights/duties within a framework of rules Elements of a Contract ● agreement between the parties ● completed negotiations ● deliberately made ● voluntarily made ● between two or more competent persons ● supported by mutual consideration ● not necessarily in writing Advantages of Contracts ● permits both parties to rely on the terms they have negotiated and plan their business affairs accordingly ● create binding promises that can be enforced in court

offeree: the person to whom an offer is made Termination of Offer Offers can be terminated by: ● revocation ● lapse - expiration of an offer after a specified or reasonable period ● rejection - the refusal to accept an offer ● counteroffer - turning down an offer and proposing a new one in its place ● death or insanity Revocation of an Offer Revocation: The withdrawal of an offer, anytime before acceptance ● the offeree needs to be notified ● upon revocation, the offer ceases to exist ● offererors can revoke offers despite the promise to leace the offers open for a set period Option agreements: an agreement where, in exchange for payment, an offeror is obligated to keep an offer open for a specified time →seperate contract that may or may not lead to the acceptance of the offer (common in real estate) Revocation in Tendering Situations ● the call for tenders is an offer of a preliminary contract ● the tenderer and the owner are obligated to follow the rules governing the tender selection process (tenderer cannot withdraw its tender) ● everyone who submits a tender is accepting the offer of a contract to govern the relationship between the parties Lapse of an Offer ● an offer may expire on a specified date - offer ends and can no longer be accepted ● if no expiry date is specified, then it remains open for a reasonable time (depends on circumstances) Rejection of an Offer ● offer is automatically terminated if rejected ● offer can only be accepted if revived by offeror with new/revised offer Counteroffer ● form of REJECTION that terminates original offer because offeree is turning down the offer and proposing a new one ● counteroffer=any change (price, quantity, time of delivery) Death or Insanity

● offers generally die if one or other party dies (however if affected party is not the one performing it, could still be accepted by courts) ● as a general rule, someone who is sane at the time of the offer but becomes insane before acceptance would not be bound Acceptance of an Offer ● acceptance: an unqualified willingness to enter into a contract on the terms in the offer ● occurs when an offer made by one party is accepted by the other party ● contract comes into existence at the MOMENT of acceptance ● acceptance must normally be communicated to the party to be effective Communication of Acceptance ● if a method of acceptance is specified, then this method is mandatory ● if it not specified, then the message of acceptance can be conveyed in any manner that is reasonable in the circumstances ● acceptance can be indicated by conduct ● acceptance “lost in the mail” = postbox rule and does not invalidare the acceptance Consideration of an Offer Consideration: price paid for a promise ● each party must give something of value for receiving something of value from the other Gratuitous promise: a promise for which no consideration/no contract is given. It has not been purchased ● something of value - money, goods or services ● can even be a promise “not to do something” eg: no lawsuit if you agree to settlement Promises Enforceable Without Consideration Promise Under Seal ● once a seal is affixed, it is evidence of serious intent ● no further consideration is necessary ● it replaces need for consideration ● example: contracts of guarantee Promissory Estoppel ● someone who relies on a gratuitous promise may be able to enforce it ● it is usable only as a defence to legal claims made by the promise-breaker ● necessary factors - reliance on another’s promise to change your position, and you are above reproach Partial Payment of a Debt ● when a customer cannot pay a debt and offers a smaller amount to settle the debt

● at common law, a gratuitous promise to accept a lesser amount left the creditor free to sue for the balance ● legislation has reversed this is many provinces - once the lesser amount is agreed upon and paid, the creditor cannot later claim the full amount Intention to Contract ● the promise at issue must have been intended to be a contractual one ● business relationship = intentopn is presumed by the courts ● family agreements - common law presumes that promises are non-contractual but presumption is subject to rebuttal Business and Family Agreements Business - common law presumes that the intention to contract is presumed and that business agreements are intended to be contractual Family - common law presuems that promises between family members are non-contractual and it must be proven that there was an intention to contract in court Chapter 7: The Terms of a Contract The Content of a Contract Express Terms - terms of the contract that state or make explicit one party’s promise to another Implied Terms - not expressly included in a contract but that are necessary to give effect to the parties’ intention. A judge may imply terms in a contract to make the contract workable Interpretation of Express Terms ● courts are required to enforce the contract as it is written and to reply primarily on the plain, ordinary meaning of the words that the parties have chosen ● the court assigns as reasonable a meaning as possible to vague or ambiguous terms ● if the contract has been drafted by one of the parties, any ambiguity in language will be construed against that party in the favour of the other Rules of construction: guiding principles for interpreting or constructing the terms of a contract Implied Terms ● terms that are not expressly included in a contract but tht are necessary to give effect to the partie’s intention Examples of Implied Terms ● Business efficacy - things that make the contract workable ● Established custom - terms are implied based on established custom in the particular trade or the commercial context of the transaction

● Previous dealings - if the parties have contracted in the past, it may be possible to imply that the current contract contains the same terms ● Statutory requirements ● Contractual quantum meruit: awarding one party a reasonable sum for the goods or services provided under a contract / where a price was not agreed upon but there was an implied promise to pay The Parol Evidence Rule ● limits the outside evidence a party can introduce concerning the contents of a contract that has been put in writing ● forbids outside evidence as to the terms of a contract when the language of the written contract is clear Entire contract claue: term where parties agree that their contract is complete as written (ensures parol evidence rule) Managing Risks: Changed Circumstances ● circumstances may arise that prevent a party from performing its contractual obligations ● the law permits the use of contractual terms as a buffer against future uncertain events to limit liability Managing Risks: Conditional Agreements Condition subsequent - an event or circumstance that, when it occurs, brings an existing contract to an end Condition precedent - an event or circumstance that, until it occurs, suspends the parties’ obligations to perform their contractual obligations Purchasers of real estate may rely on the conditional agreement by making the contractual obligation to buy and sell subject to - financing - rezoning - subdivision approval Managed Risks: Other Clauses Limitation of a liability clause - term that limits liability for breach to something less than what would otherwise be recoverable Exemption Clause (or exclusion clause) - term that identifies events causing loss for which there is no liability Liquidated Damages Clause

● a term of contract that specifies how much one party must pay to the other in the event of the breach ● parties decide beforehand on compensation ● if the clause sets reasonable compensation terms, it becomes a penalty clause and will be disregarded by the court Terms of a Contract Standard form contract: a contract in which the main terms cannot be changed through negotiations Common Examples: credit card, renting a car, buying insurance ● parties need to protect themselves and ensure understanding of terms before accepting Chapter 8: Non-Enforcement of Contracts The Importance of Enforcing Contracts ● Normally, the law is concerned with enforcing contracts → it is difficult to back out once you have entered into a contract - otherwise, the value of contracts would be lost - sometimes, however, it is necessary for the court to intervene and allow a party to cancel or to avoid a contract Where exceptions may be considered - unequal relationship between the two parties - misrepresentation or important mistakes concerning the contract - a defect within the contract itself voidable contract: in certain circumstances - an aggrieved party can choose to keep in force or bring to an end void contract: a contract involving a defect so substantial that it is of no force or effect Contracts Based on Unequal Relationships legal capacity: the ability to make binding contracts - the law assumes that individuals and organizations have the legal capacity to form contracts - children / people with mental incapacites are given special legal protection Legal Capacity: Minors ● Age of majority: provincially set - when a person becomes an adult legaly ● minors are not obligated to contracts they make / have option to fulfill contract obligations or enforce others / contracts with minors are voidable

● Exception: minors are obligated by contracts for essentials that they don’t have (food, shelter, etc) ● minors are bound to beneficial contracts of service ● once reaching age of majority, contracts formed underafe are still unenforceable unless the now adult adops the agreement ● exception: if the agreement is permanent/continous, the minor must cancel it on reaching the age of majority Legal Capacity: Mental Incapacity ● both parties must understand consequences of the agreement ● impaired people may not appreciate the nature/consequence of their actions ● must be able to prove to other party that they lacked capacity Legal Capacity: Duress ● Duress: threat of physical/economic harm that results in a contract ● the law assumes that threatened party did not consent ● economic duress: threat of economic harm that coerecews the will of the other party and results in a contract ● economic duress established = voidable contract Legal Capacity: Undue Influence ● undue influence: manipulation that compromises one’s free will ● voidable at the option of the victim ● eg: contract between elderly person and caregiver ● undue influence can be: pressure, presumed pressure Legal Capacity: Unconscionability ● unconscionable contract: formed when one party takes advantage of another (weaker party) ● how to prove? 1. proof of inequality 2. proof of exploitation Misrepresentation ● Misrepresentation: false statement that causes someone to enter a contract ● parties negotiating are not obligated to volunteer information (parties look out for itself, if information is wanted, they should ask for it) ● sometimes lacking info=misrepresentation (only providing partial information or concealing the truth) ● Rescission: remedy that results in the parties being returned to their pre-contractual positions Actionable Misrepresentation TO COUNT AS MISREPRESENTATION: following must be proven about statement 1. is false 2. is clear and unambiguous 3. is significant to the decision of whether or not to enter into the contract 4. induces the aggrieved party to enter into the contract 5. is concerned with a fact and not an opinion

Three main categories 1. Fradulent misrepresentation - speaker has intent to mislead of make statement without knowing/believing that it is true 2. Negligent misrepresentation - speaker makes the statement carelessly or negligently 3. Innocent misrepresentation - not fraud or negligence but still a misrepresented fact Misrepresentation Remedies Recission! - parties return to their pre-contractual position / some remedies are in torts, which provide for remedy in damages Important Mistakes ● legal mistake: an error made by one/both parties that undermines a contract ● rarely proven, complex and challenging for courts/lawyers ● when proven - court sets contract aside as a remedy ● common mistake: both parties come to the agreement share the same fundamental mistake / court fixes mistakes but only in limited circumstances ● ratification: remedy available where parties have made a mistake in recording their agreement and establishes the specific terms actually agreed to ● signing a document and saying (i never meant to sign) rarely succeed, signer must be responsible for understanding what is being signed - illiterate / not educated may be enforced Defects: Illegality ● illegal contract: a contract that cannot be enforced because it is contrary to legislation or public policy Defects: Illegal by Statute ● illegal by statute: contracts made illegal by legislation ● contravenes legislation: criminal code, competetion act, real estate and business brokers act ● businesses must ensure that the statutory and regulatory obligations related to their business and contracts are met Defects: Contrary to Public Policy ● public policy: the community’s common sense and common conscience ● contracts are contrary to public policy when they injure public interest ● restricitve covenants / covenants in restraint of trade Contrary to Public Place Non Solicitation Clause

● forbids contact with the business’s customers ● example: forbids the employee (or business vendor) from contacting the business’s customers Non Competition Clause ● forbids competition ● more intrusive ● enforceable if reasonable between the parties and with reference to the public interest Writing as a Requirement ● contracts do not usually have to be in writing to be enforceable ● oral contract means you have to prove it in other ways, such as witnesses ● some exceptions ● statute of frauds: require that certain contracts be in writing to be enforceable ● intended to prevent fraud and perjury ● four categories most relevant to business include: contracts of guarantee, contracts not to be performed within a year, contracts dealing with land, contracts for the sale of goods Statute of Frauds: Examples Contracts of guarantee ● promise to pay the debt of someone else if they default ● generally must be in writing Contracts not to be performed within a year ● difficult to prove promises that are in the distance past ● in some cases, one year would be unjust ● the requirements for writing this kind of contract have been repealed in some provinces Contracts dealing with land ● includes leads, sales ● generally in writing ● exception for past performance / enforceable if the party has performed acts in relation to the land that would be in agreement with the contract Contracts for the Sale of goods ● above $30 must be in writing ● very common so there are broad exceptions ● contracts are within the provincial sale of goods acts Managing the Risks of Unenforceability ● businesses must train employees in how to negotiate, to avoid practices tht may make a business’s contracts unenforceable Examples

1. Are the parties under any legal incapacities? 2. Has one party taken unfair advantage of the other? 3. Has one party misled the other? 4. Is the contract required to be in writing? Chapter 9 - Termination and Enforcement of Contracts Termination of Contracts: An Overview How can a contract be terminated? ● Performance - both parties fullfill their obligations ● Agreement - voluntarily bringing contract to an end ● Frusturation - an important event occurs after the formation of a contract ● Breach - breach can release the innocent party from continuing the contract if they wish Performance ● complete when all implied and express promises have been fulfilled ● does not mean relationship ends ● parties may continue to do business by means of new, continuing and overlapping contracts Vicarious performance: performance of contractual obligations through others - law distinguishes between those who have the contractual obligation and those who may actually do the necessary work - business creates the contract, but the person who actually does the work may not be privy to it (they cannot be sued or sue on the contract) Agreement ● parties may enter agreements that become unfavourable for one or both and may decide to ● novation: enter into a whole new contract ● vary certain terms ● end contract ● substitute a party - transferring one party’s rights and obligations to someone else (limited form of novation) Transfer Rights ● in some circumstances, a party can transfer a contract to someone else ● does not terminate the contract, but does end the original party’s role in it Assignment of a contract: the transfer of a right by an assignor to the assignee ● creditor (the assignor) may assign the right to collect to another person (assignee) without the agreement of the debtor ● to be effective, the debtor must have notice of the assignment so that she knows to pay the assignee rather than the creditor

● to be effective, the debtor must have notice of the assignment so that she knows to pa the assignee rather than the creditor Assignment of Contract Frustration ● termination by an unexpected event or change that makes performance functionally impossible or illegal ● neither side is liable to the other for breach ● it deals with events that occur after the contract has been formed (different from “mistake”) ● difficult to establish in court How to determine if an event frustrates the contract, the event must 1. be unforeseen 2. not arise due to the fault of the parties 3. make the purpose of the contract impossible or very difficult 4. not be a risk ● both parties are excused ● in some cases, parties establish events that would disrupt contactual performance, such as force majeure clauses Force Majeure clauses ● deal with risks of unforeseen events and allow parties to delay/terminate a contract ● eg: flood, war, strike, currency devaluation Enforcement of Contracts ● can be subject to lawsuit in cases of breach of contract The plaintiff must demonstrate 1. privity: establish that there is a contract 2. breach of contract: prove the other party failed to keep its promise

3. entitlement to a remedy: demonstrate entitlement to the remedy claimed balance of probabilities: proof that there is a better than 50% chance that the circumstances of the contract are as the plaintiff contends Breach of Contract court has to decide if the term breached is a condition or warranty condition: important term that if breached gives the innocent party the right to terminate the contract and claim damages warranty: a minor term that if breached gives the innocent party the right to claim damages only innominate term: a term that cannot be classified as either a condition or a warranty Breach of Contract - Timing of the Breach ● breaches can be identified at the time they happen, or can be expected in advance ● anticipatory breach: breach that occurs before the date of performance - actionable, so the innocent party can sue immediately - the innocent party = entitled to damages - innocent party entitled to treat contract as terminated Entitlement to a Remedy ● this is the final step in an action for breach of contract ● plaintiff must satisfy the court that he is entitled to damages damages: monetary compensation for breach of contract or other actionable wrong The Measure of Damages ● several ways of measuring a plaintiff’s losses Expectation damages: damages that provide the plaintiff with the monetary equivalent of contractual performance → the most common measurement ● purpose of damages in contract law is generally to compensate a plaintiff ● punitive damages: an award to the plaintiff to punish the defendant for malicious, oppressive and high handed conduct (very rare) Pecuniary and Non-Pecuniary Damages ● pecuniary damages are for financial loss ● non-pecuniary damages are for loss of enjoyment, mental distress ● recovery is unusual for this → pain and suffering are not seen as consequence of a contract breach ● the kinds of damages recoverable are determined by the test for remoteness (claim for damages must pass this test) Recovery of Damages Recovery of Non-Pecuniary Damages

● traditionally not used in contract law ● a recent SCC case on house building may make this more common Recovery of Pecuniary Damages ● all monetary losses are recoverable unless a clause exists that limits or fixes that liability Duty to Mitigate ● all who suffer a breach of contract are obligated to take reasonable steps to minimize the losses resulting from a breach of contract or other wrong ● reasonable costs associated with the mitigation are recoverable by the party in breach Equitable Remedies ● used in rare situations in which damages would be an inadequate remedy for breach of contract Specific performance ● example of an equitable remedy ● instead of compensation, the party who breached is ordered to do exactly what the contract obligated her to do ● only available when the item is unique / cannot be replace by money ● the course can refuse to use it under certain circumstances Injunction ● the court orders the party who breached the contract not to engage in specified activities (can be in addition to damages) ● this is commonly used to restrain a party from breaching a promise not do something Interlocutory injunction: an order to refrain from doing something for a limited period of time, such as until the entire dispute is resolved Recission ● restores the parties to the situation they were in before the contract was formed ● it is used instead of compensation Restitutionary Remedies ● the law of restitution gives recourse to a plaintiff who has conferred benefits on the defendant, in a contract that cannot be enforced (because of being non-compliant with the statute of frauds for example) ● complex area of law - meant to remedy unjust enrichment Unjust enrichment: occurs when one party has undeservedly or unjustly secured a benefit at the other party’s expense - court will usually order that the benefit be restored to the plaintiff Managing Risk

● several risks that a business faces when the time comes to perform a contract ● it may be that the business cannot perform at all or that when it does perform, it does so deficiently ● a business can attend to these possibilities proactively or reactively ● proactively: negotiate clauses, limit or exclude liability, force majeure clauses, good negotiation training for employees, proper insurance ● reactively: once the business is in breach, matters are reactive. the business faces liability and should consider mediation, arbitration or compromises like settlement offers Lesson 1: What is the Law? The Law: A set of rules established and enforced by the government ● law can be very uncertain ● one never knows for sure if you are going to win Law: Civil vs Common Civil law is a legal system based on a comprehensive code (Quebec, parts of Europe) Common law is a legal system based on previously decided cases (Ontario, U.K, U.S, Australia) Law: Civil vs. Criminal Criminal law is concerned with punishing people who commit crimes (retributive / justice) ● prove case beyond any reasonable doubt Civil law deals with disputes between private parties or behaviour that causes harm to others (distributive justice) ● money, property