Lecture 2: Comm Law 393

September 8, 2014

Authority Roles:
Government
Courts
3 Sources of Laws in Canada (parties who can make laws):
1) Constitution Acts
1867
1982 Charter
2) Legislation
provincial
federal
3) Court Decisions
residual laws were given to the federal government
federal government powers are limited due to the constitution act (gave
powers to provincial government) and the charter
federals decision is paramount; provincial cant change
Why cant the court get involved in Trinity Western?
Because it is not a government
Issues with Human Rights Code:
1) Not entrenched (can be easily changed)
2) Not applicable in any other jurisdiction
Canadian Bill of Rights 1960
Human rights code applies to individuals, therefore, very important
1982 Charter:
1) Charter only applies to public matters governments
2) Charter is entrenched in constitution (can not be easily altered)
3) Can not have ordinary legislation that infringes the charter
4) Section 33: Sunset Clause permits legislation to override certain
charter sections
5) Section 1: allows for legislation that can be brought in saying that
none of the rights under the charter such reasonable limits
Government can bring in legislation that infringes charter if it
benefits the peace and safety of Canada

 rights may be infringed if there can be such

reasonable limits prescribed by law in a free and democratic
society
none of the rights in the charter are absolute
search and seizure
1) Section 2: Fundamental Freedoms
2) Section 3: Equality Rights (check)
3) Section 7,8,9,10: Legal Rights
3 criteria that determines whether the Charter applies and if rights are infringed:
1) Does the charter apply? Yes
2) Were the rights infringed under the Charter? Yes
3) Is it allowed by Section 1? No

1. A statute is presumed valid
2. Onus is on person trying to prove it is invalid
3. If one of the rights guaranteed by the charter is infringed the provision in the
statute will be presumed invalid, unless,
4. The government can prove that the infringement is demonstrably justified
Types of Laws in Canada
Procedural Laws: laws that govern how an action is brought
Provide organization, must bring case following
Substantive Laws: body of law
Public Laws: criminal laws, tax laws, constitutional laws
Private Laws: torts, contacts, property, trusts
Parties: Plaintiff vs. Defendant * known by name*
Ex. Brown vs. Jones
Criminal vs. Civil Procedures
1) The parties are different: Regina vs. accused
Plaintiff vs. defendant
2) Procedure
3) Proof
beyond a reasonable doubt on the balance of probabilities
4) Decision:
Guilty, not guilty, liable, partially liable, not liable

5) Outcome:
Punishment
Remedy: damages, injunction, specific performance
Common Law: theory of precedents, stare decisis
Civil Law: based on written code
Follow precedent: stare decisis (follow previously decided cases)
Courts of Chancery: ask for equitable solution to get around the harshness of
the rule of precedent of the common law
Law of Trusts
Courts of Chancery and Common Law merged in 18
Common Law: theory of precedents, stare decisis
Statutes prevail over Equity prevails over Common Law
Statues: legislative enactments brought in by government that alter common
law; rules and regulations
Equity: acceptions to the rules of common law
Alternate Dispute Resolution (ADR)
1) Negotiation: allow parties to work out a situation themselves
2) Mediation: mediator tries to facilitate and agreement between 2 parties
(flexibility, works with parties, their decision is not binding)
3) Arbitration: makes a binding decision which is usually not appealable in
courts
Why use ADR?

Flexibility (dont abide by any rules)

Less expensive
Speed and finality
Confidentiality (can choose who is sitting in; not public)
Choice of decision-maker
Certainty and enforceability (can be enforced in courts)
Relationship preservation

Disadvantages of ADR:

Cannot ensure full disclosure (because rule of courts arent followed)

Power imbalance (one party may be more prepared, or more quiet)
May not be as predictable (because doesnt follow rule of precedent)

Lecture 3: Comm Law 393

September 10, 2014

Contract: a promise that the law will enforce

Cannot be forced to enter into a contract
Flexible in terms of how contract can be made (can be written but doesnt
have to be; only 3 types that do have to be in writing)
oral
conduct
written

All contracts contain 6 or 7 parts

1) Offer
2) Acceptance
3) Consideration
4) Intention
5) Capacity
6) Legality
7) Writing

Offeror: person who makes offer

Controls the offer (person who has power)
Offeree: person who accepts the offer
Person who has to do what theyre told
Unilateral Contract: the offer is out there, but dont have to accept contract
only one party has to do something: they make an offer, and are only
bound to pay out if the other party accepts; the other party does not
have to accept
as long as someone performs the terms, the offer remains open
Ex. Dont have to look for lost dog but if you do and return it, you
should be paid; cannot withdraw the offer made to pay the
reward amount
usually reward situations
Bilateral Contract: two parties each have to perform something
Ex. I will sell you my car if you give me $500
both parties are the promisor and the promisee
usual type of contract

Law of Intention

Intent is presumed (voluntary agreement)

Presumption is less clear for agreements with family and friends, unless
relationship is formalized (dont intent to be legally bound)
If intent becomes an issue, they will use the test of a reasonable person:
Would a reasonable person looking at the outward conduct of the parties
say that they showed a serious intent to make a contract?
Ex. Carbolic Smoke Ball Case
Intention is resumed unless one of the parties can show that they didnt
intend to enter into a binding contract

Law of Writing

Contracts can be in any form of communication (invoice, 18 pieces of

paper, serviette, conduct in doing something) ; doesnt have to be in
writing unless it is 3 types of contracts:
3 types of Contracts that must be in writing:
1) Contract for the sale of land (Requirement of Form)
except leases and agreements to lease under 3 years duration
must contain all the essential terms, it can leave out
considerations, may state fair value (it is unambiguous)
contact is enforceable if it is signed by the party against whom
the contract is to be enforced: the person denying the existence
of the contract must sign the contract
must contain explanation of what land is involved, important
details

if one of the parties has done something which is indicative of there being a
contact, the contract will be enforced even if they dont have it in writing
Ex. Taken out money to pay for mortgage, even though wasnt in writing
the evidence is sufficient to show the sale of the property
2) Personal Guarantee: a conditional promise to pay only if debtor
defaults on payment (if the other party
doesnt pay)
3) Contracts not to be performed by either party within 1 year
written form can be in several documents (doesnt have to be in 1 document)
documents can be written up after the contract was formed
doesnt have to be signed unless one of the parties is denying the existence of
the contract
Lecture 4: Comm Law 393

September 15, 2014



*Look at law related to offer, consideration, and acceptance for midterm*

Law of Offer
Offer: proposal of some sort made with the intent to be bound should the offer be
accepted

contract cannot come into existence until there is an offer and it

has been accepted
can be communicated orally, written, by conduct, or by all 3
terms may not be ambiguous
the form of the offer is unimportant, just needs to convey all the terms in
clear form
offers must be communicated prior to acceptance
law and moral obligations differ
crossed offer must be communicated before it can be accepted
unsolicited intervention
if havent asked for something, no obligation to be bound
a consumer has no legal obligation in respect of unsolicited
goods or services unless the consumer expressly acknowledges
to the supplier in writing his or her intention to accept the goods
or services (supplier has no cause of action)

Invitation to do Business: when a business is inviting you to make an offer

when goods are on display, it is an invitation to do business
when you go to the cashier desk to pay, it is an offer
when the store accepts the cash, it is accepting the offer
however, certain types of displays are offers
Ex. For the first 10 customers in line, we will sell dvds for $10
Standard form Contracts: offers presented in document or action that cannot
be charged to the offeree and must be accepted or
rejected
Ex. You cannot negotiate payment for bus, either hop on or hop off
unqualified acceptance
when have unusual terms, court needs to decide whether the offeror
has done a reasonable job in notifying the terms / bring the terms to
attention at the time of entering to the contract

Lapse of an Offer: once an offer has been made it can lapse

When can an offer lapse?

1) offeree fails to accept within a time specify in the offer
2) when offeree fails to accept within a reasonable time
3) when a counter-offer has been made
when an offer has been made, and you dont reply in a
specific way / to specific terms, it has become a
counter offer and the original offeror is free to accept or
reject it and the previous offer is now terminated
4) when either of the parties die or becomes insane prior to
acceptance
5) offer is rejected
6) offer is revoked
when a party wishes to withdraw an offer, they can do so
anytime prior to acceptance, even when they have
promised to leave the offer open, unless its under seal or
with option to contract
Revocation Rule: revocation by mail is accepted when
received; for revocation to be effected,
it must be communicated to the offeree
7) an internet consumer is considered the offeree, and after
seeing the terms required to be disclosed by the supplier, he or
she will be bound by the terms of the internet contract at such
time as he/she clicks and I accept icon on the computer
screen

Law of Acceptance

must contain all the terms of the agreement and be a mirror image of the
offer
offeror controls the contract, including how the acceptance should be
made and time offer is open for (if you dont, you are inadvertently making
a counter offer)
acceptance must be made in a manner requested o implied
acceptance must be made in a positive form
silence is only okay if they have agreed on it as a means of
acceptance, or they have used it before, otherwise it cannot be
taken as acceptance, more so as forcing
acceptance is effective when communicated to the offeror

Postal Acceptance Rule: where the offer stipulated acceptance by mail

or the offer has been made by mail and there is no stipulation how the
acceptance show be made

 acceptance is complete when a properly stamped and

addressed envelope is placed in the mailbox, not when the
offeror receives the letter
varies from revocation rule (very important to remember!!)
Payment: term of a contract
Key Points

Offer can be revoked at any time prior to acceptance unless its been
sent under seal or has an option contract assigned to it
It must be communicated before accepted
Ads are just invitation to business/make an offer
Tenders are offers that can not be revoked (under seal)
Postal acceptance rule says may be made by mail if mail is used or
mail is requested (effective when and where the mail is placed in
mailbox)
Revocation must be received at address, or through reliable
source/person

Lecture 5: Comm Law 393

September 17, 2014

Law of Consideration

Must be some reason for entering into a contract = an exchange (benefit)

Unilateral Act: promise in exchange for an act
Bilateral Act: promise for another promise
Consideration is not restricted to the payment of money
Ex. Cleaning of house
Consideration must have some material value; love and affection are not
sufficient consideration, there must be market value (quantified by a
material amount)
Adequacy of consideration is not an issue for the courts (wont undue bad
contracts/bargains), unless there is:
fraud
undue influence
duress physical domination of one person on another; threat of
physical violence, also expanded to include the threat
of disclosing political or social information from past
Ex. Doctor/patient, parent/child relationship

3 promises are not made with binding law:

1) Gratuitous Promises: promises made without consideration

a promise made without bargaining for, or accepting, anything in return
(no exchange between the parties)
because a gratuitous promise lacks consideration, it is not binding in
law

Donations: basically are gratuitous promises that are not binding unless:
1) made under seal
2) where a charity has done something in response to the donation

2) Past Consideration: a gratuitous benefit previously conferred upon a

promisor
act has already been done so it is not binding
if someone does you a favour, that is not binding
a promise to reward another who has previously done an act gratuitously
or given something of value is not binding
there is no element of bargain, no benefit being performed in return for a
promise
3) Existing Legal Duty:

a new bargain requires new consideration is a promise to pay extra for

what is already owed under an existing contract is not binding
there must be either new consideration or promise under seal to be
binding (if they dont get any more value out of new contract, it is not
binding)
if existing legal duty is owed to a third party, a promise to do the same
thing for someone else is enforceable

Gratuitous Reduction of a Debt

1) Section 40 of Law and Equity Act of BC:
creditor who accepts a lesser sum in full satisfaction of a debt will not be
permitted to later claim balance due if lesser sum has already been paid
2) Equitable estoppel may prevail
Get around the rule in Foakes and Beer case by:
1) payment before due date
2) give another form of consideration (bottle of wine)

3) rule only applies to money

4) doesnt apply to third party paying lesser sum if creditor cancels
remaining debt
Equitable Estoppel
Law of Equitable Estoppel / Promissory Estoppel: you said you wouldnt do
that, and now you are going back on your word, and I am going to suffer for it
(cant go back on your word in a legal situation)

courts will exercise of its equitable jurisdiction to estop/prevent/deny a

promisor from claiming that she was not bound by a gratuitous promise
where reliance on that promise caused injury to the promisee

Rule: when a person makes a gratuitous promise and another relies on

that promise in good faith to his detriment, the make of the promise will be
estopped (prevented) from later denying that he made the promise
When one party gives the impression to another party that strict
legal rights will not be enforced, they cannot take the other party
by surprise
Equity will enforce the gratuitous promise if the following is present
(criteria): *must remember them all*

1) the must be a pre-existing legal relationship between the parties

contract must still exist, if at the time the promise is made you
are not in a contract, there is no equitable estoppel
2) one of the parties releases the other from obligation, even by
implication
3) the existing contract is modified/varied by a gratuitous promise (the
requirement to give notice was ignored/modified)
4) the person relying on the gratuitous promise must suffer some
detriment if promise not lived up to
5) equitable estoppel may only be used as a defence, not as a cause of
action; a shield, not a sword (AMS was suing dukes cookies)
* If question on exam about equitable estoppel, set out 5 criteria, and then relate
each one to the facts *
Quantum Meruit

Quantum Meruit: when goods or services are requested in a business context,

and no price is set, there is an obligation to pay a reasonable price
pay what is reasonable worth, or quantum meruit
Payment/ Consideration

the courts interpret the time set for a payment as a warranty unless the
parties have expressed themselves otherwise. Consequently, a seller is
not entitles to rescind the contract of sale and have the goods back simply
because payment is not made on time. He must be content with an action
for the price of the goods (contract doesnt just end)

Use of a Seal

Seal: a seal is an alternative way to make a promise binding

can replace consideration
the seal must be present at the time of signing
party signing must be aware of the seal and its legal significance
must be affixed at the time of document signed
binding without consideration
charities use a seal with donations so the offer is binding, can not revoke
now a days, seal is just a little red circle by your name, must be put on
when you sign document (historically, wax blob with initials)

Lecture 6: Comm Law 393

September 24, 2014

Law of Interpretation
Express Terms: terms explicitly agreed to by the parties
Implied Terms: deemed to exist where standard in trade, and facilitate business
Not expressly included
Not in contract, but courts imply as if they are
Ex. When buy food, dont ask if you can eat it or not, implied that is it safe
for human consumption
Interpretation of Express Terms

General Rule: a person who voluntarily signs a contract will be bound by

its terms

Look at the following:

1. Strict, literal or plain meaning approach; ordinary or dictionary meaning
Usually doesnt work well because there are multiple definitions
in dictionary
2. Liberal approach
Looks at intent of parties circumstances surrounding the
contract, knowledge of the parties and trade usage
Ex. Do you have any wheels? Actually mean a car, not just wheels
3. Contra Proferentum
Interpret the term against the party who is seeking to rely
(party who suggested the term)

Courts ultimate goal is to keep contract alive

Use reasonable person test what would they have thought the words
meant

The Aircraft Accident

Insurance intended to cover risk of flying low, but there was ambiguity in
the contract
Could have said: where the plane was loaded with chemicals
Implied Terms
1. Courts see if intention of parties can be achieved through existence
(get rest of sentence)
2. Type of contract will determine implied terms for example, if a statute
applies
3. Implied terms make business sense
4. Implied terms enforced as if express terms
5. But, courts will not imply a terms contrary to express intention set out in
agreement
If matter explicitly dealt with, this precludes use of an implied
term

 For example, if vendor explicitly says these oranges are not safe
for human consumption, yet you still buy it regardless, will not be
covered

If terms are too vague in contract, courts will set the contract aside, cannot
make one for you

Difficulty in interpretation is NOT the same thing as ambiguity

Lecture 7: Comm Law 393

September 29, 2014

Sale of Goods Act

Criteria:
1) Must be a sale
where property transfers for a money consideration
must have an exchange for money
2) Of Goods
tangible personal property
not real estate
3) Does not apply to services
on the balance is it a contract of sale, or a contract of labour and
materials
Ex. Getting hair dyed
4) Ownership must pass to the buyer
Note: Food is considered a good
Two main conditions the Sale of Goods Act sets out:
1) Warranty: breach of a non-essential term, contract must continue but
can sue for damages
2) Conditions: breach of an essential terms which relieves the injured
party from any further duty to perform the contact
may sue for damages
British Columbia:

s.16 SGA: implied condition as to right to title implied warranty as to free

from charges or encumbrances
have to have the right to sell the good when you go to sell it

s.17 SGA: implied condition that goods will correspond to the description
minor misrepresentation regarding secondary characteristic
may be treated as a breach of warranty
if the goods dont look like they were supposed to,
different from description, it is a breach of warranty
Ex. Have pleather in car rather than real leather, this would be a
breach if thats not what the client had asked for, and they will
get enough money to change it to leather

s.18 SGA: fitness for purpose

implied condition goods are fit for a particular purpose if:
1) buyers communicates expressly/by implication particular
purpose for goods
2) buyer makes it known he is relying on sellers skill and judgment
3) goods are in sellers course of business to supply
4) buyer not purchasing by trade name, relying on own skill and
judgment

s.18b SGA: Merchantability (durability)

implied condition that goods can be used for at least one of the
purposes for which goods of that description would normally be
used

s. 19 SGA: Corresponding to sample implied condition that bulk will

correspond to same and description/sample
if you inspect something reasonable, you will be able to see if
there is something wrong

s.20 SGA: parties free to exclude/override provisions of SGA

but see s.20 SG in BC:
dealer bound by SGA if he sells new goods to an ordinary
consumer
may contract out of s.17, 18, 19 if private sale, used goods,
business use, trustee in bankruptcy.
but never s.16 (title)
buy exemption clause must precisely describe the type of liability

disclaimed
so if it says all warranties then all conditions still apply
so all consumer sales in BC come with non-excludable statutorily
implied conditions and warranties

Risk and Title

Transfer of Title to goods under the sale of goods act
Subject to a contrary intention of the parties: 5 Rules
Rule 1: unconditional contract for sale of specific goods in a deliverable state
title passes when the contract is made (delivery & payment irrelevant)
Ex. If you buy a bunch of goods from Ikea, go to get the car and
you come back and theyre gone, the risk is on you because
you owned them at that time
Rule 2: sale of specific goods where seller bound to do something to put then in
a deliverable statue

title passes when the thing is done and the buyer receives notice

Rule 3: sale of specific goods in a deliverable state but the seller is bound to
weigh, measure, test, etc. to set the price

title passes when the thing is done and the buyer receives notice

Rule 4: sale of goods on approval (adopted the transaction)

Title passes when the buyer signifies approval or acceptance to the seller,
or after a specific or reasonable length of time
Anything that indicates that you want to keep those goods
Ex. Go get a suit for brothers wedding, fianc is fussy, if we dont
hear from you by Tuesday at noon, well assume the suit is okay.
Tuesday you find out from fianc that she doesnt like it, you then own
it

Rule 5: sale of unascertained or future goods by description

The passes when the goods are unconditionally appropriated to the

contract by the seller with the assent of the buyer or the seller delivers the
goods to a carrier pursuant to a contract and does not reserve a right of
disposal

Lecture 8: Comm Law 393

October 1, 2014

Donut Questions
1) If the donut cannot be eaten for any reason, discuss whether the SGA
would apply and if so, what sections
yes it does apply, because donuts are goods
s. 19 sale by sample
sale by description
fitness for purpose: because specifically laid out the criteria
merchantability: not fit for the main purpose which it was meant
to be used
Ex. Fly in the donut
2) Would your answer be any different if the donuts were purchased for
customers of ABC Ltd.
its a company, therefore, its a sale to a business
yes, it still applies; the only way it wouldnt apply is if there was
an exemption clause

3) If I spilled the donuts on the way out the store, can I get a new batch
who bears the risk?
the risk has already passed to you, and therefore, you bear the
risk if you drop it
no cannot get new ones, title has passed
Rule #1 contract was made, goods were specific good, in a
deliverable state, and you took them out to the car
in the scenario that she called ahead of time, which she did, it
would be Rule 5 that applied
- applied when they were packaged, wrapped, and had them
on the trolley

Lecture 9: Comm Law 393

Exemption Clauses
Used frequently in:

October 6, 2014

Standard form contracts

Back of ticket contracts

Used to:

Limit the risk

Transfer the risk to the purchaser

When Exemption Clauses dont work:

Unsigned contracts:
no reasonable notice of the clause (has to be brought to
attention)
onus is on defendant to prove plaintiff adequately informed

Signed Contract:
effective when bargaining power and knowledge of law are equal
ineffective if law such as SGA applies
where exemption does not precisely cover event, then Contra
Proferentum will apply
Ex. If coat gets ruined, soaking wet, would this be
exempted? No, they would not be exempt because only
says not responsible for lost and stolen clothing
Ex. If your laptop and notes are stolen, not exempted
because only said clothing, not goods
Can be ineffective when there is a fundamental breach

Courts will generally enforce exemption clauses because object of

contract law is to carry out whatever parties have bargained to do

But any ambiguity, then narrow or restrictive meaning will be used, will
favour the party who did not draft contract
Ex. Not responsible for lost of stolen clothing

Capacity/Capability
Must have capacity at time entering into contract, or the contract will be declared
voidable
2 types of contract:

1) Void: agreement with no legal effect, therefore, doesnt form a contract

legal nullity
lacks capacity, intention, consideration, legality (not binding)
2) Voidable: had legal effect until declared invalid
Age of majority: 19 in BC (Infants Act of BC)
gain capacity at 19 years
textbook is incorrect in regards to capacity in infants
rule is in BC: law is to protect those who are incapable due to youth
a contract with a minor is voidable at their option but enforceable by
them against the adult, regardless if the adult was unaware that
they were entering into a contract with a minor
- (adult bears all the risk)
except for student loans (binding as if the infants are of legal age)
will be enforceable when you turn legal age if:
(when you buy something at 18)
1) partially perform the contract within one ear
2) dont repudiate the contract
3) affirm the contract within one year
waiver form has no effect on minors
there is a way around waiver forms being signed by adults to protect
infants: get parents to sign an indemnity agreement: they will pay
back any money claimed, so that they can recuperate their losses
Lecture 10: Comm Law 393

October 8, 2014

Infants act subsection a) refers to student loans

Contracts made by Intoxicated/Insane can be exempt:

Permanently or temporarily insane

Bound to contract for necessities (infants are not bound)

only responsible for a reasonable cost

These contracts are voidable if they show:

1) they were incapable of a rationale decision at the time of contract

2) AND the other party was aware of it

people are not normally out on their own

If want to get out of contract, must repudiate contract immediately and

accept no benefits under contract
Ex. Ferrari example
signed lease when you were drunk, need to repudiate as
soon as you are in normal state, cant drive it around for a
while and then take it back (accept no benefits)

In marriage, can get a certificate of independent legal advice

Bankrupt debtors cant enter into contracts until theyve been discharged

Discharge of Contracts
5 ways:
1) Performance: when both parties have fully performed all their obligations =
the expected result
2) Agreement:
a) Waiver: agreement not to proceed
b) Substituted Agreement:
- material alteration of terms
- accord and satisfaction
- novation
c) Condition Precedent or Subsequent or option to terminate
- set out in contract
3) Frustration
i. must relate to an event that occurs after making the contract
ii. must make performance impossible, not just a hardship
iii. frustration must not be self-induced
4) By Operation of Law (Bankruptcy)
5) Breach: party that has been damaged by breach of contract has the
choice to choose whether to continue or not; not automatically termination
of contract

By Performance: parties all perform contractual terms satisfactorily

Tender of Performance: an attempt by a party to perform according to
terms of the contract
can be accepted or rejected
once youve tendered performance, your obligations are over
besides paying back the initial debt (dont have to pay interest)
Substantial Performance: performance that does not comply in some
minor requirement of the contract
cannot seize upon a trivial failure of performance to avoid own
obligations
Example: 2/1000 items not in perfect condition for resale
By Agreement:
parties may agree to not perform contract
replace the original contract with another contract
The parties will not have to perform in certain conditions are met of not
met
cannot change the terms of the contract without both parties agreeing
(there must e some form of exchange)
a) Waiver: an agreement not to proceed with performance of a contract
already in existence
there must be consideration for this
if each party has rights and obligations outstanding, these are
consideration for the waiver of each party
in only one party has performed, release should be under seal or
consideration provided
b) Substitute Agreement:
Accord and Satisfaction: where one party is unable to completely
perform the original obligation, so the parties may agree that it should be
replaces with by new obligation (compromise)
A compromise between contracting parties to substitute a new
contractual obligation if the original obligation cannot be carried
out (reached an agreement)
Material Alteration of the Terms: changed to the root of the contract
parties can agree to discharge their original contract and replace it with a
new one
Ex. Thornhill and Neates see text page

Novation: parties may replace one of the parties to the contract and
discharge the former party from its obligations under the contract
there must be consent
Ex. In a sale of business, keeping independent contractors requires
consent
c) Condition Precedent: an event or requirement that must be satisfied
before either party to the contract is required to do anything
contract itself has binding force from outset
Condition Subsequent: terms are included in a contract that bring the
obligations to an end upon some event or condition taking place
Option to Terminate: term that gives either party the option of bringing a
contract to an end before performance completed, by giving notice
Ex. Mortgage, employment
Discharge by Frustration: an event beyond the parties control
the frustrating event must take place after the making of the contract
frustration event must make the contract impossible to perform, not just
more difficult/ expensive
Ex. Death, bridge burns
event must not be self-induced
Frustrated Contracts Act:
the loss will be portioned between the parties
Lecture 11: Comm Law 393

October 15, 2014

Breach of Contract: When one of the parties wrongfully pails to perform its
obligations under the contract
Breach does not automatically lead to termination of the contract:

The breach must be sufficiently serious

The injured party must choose to terminate

In order to discharge the contract, the breach must be of the whole contract or of
an essential term so that the purpose of the agreement is defeated

Terms condition and warranty distinguish essential from non-essential terms in a

contract
Condition: breach of a fundamental, essential term

Leads to option to terminate contract unless doctrine of substantial

performance applies

Warranty: breach of a non-essential term

Does not discharge contract

Can only claim damages

Write contracts with remedies in mind set out if breach is of a condition or

warranty in advance
How may a breach occur:
1) by repudiation of liabilities expressly
saying I quit to boss
repudiate means: page 482 to reject or declare a an intention to no
longer bound you want out
2) by acting in a way that makes performance impossible to perform
goes to play soccer therefore, wont be attended work
3) by either party failing to perform at all or by tendering performance not
equivalent to its promise
sitting and talking, eating donuts, therefore, probably not doing work
Express Repudiation: a declaration by one contracting party to the other that it
does not intend to perform as promise under the contract
can treat contract at end and sue for damages or insist on performance
Anticipatory Breach: notifies other party in advance that it will not be able to
perform its obligations = A breach occurring in advance of the time agreed on for
performance of the contract
form of express repudiation but its in advance/prior to the contract
being performed
can treat the contract as breached or wait to see if shows up, and if not,
they have not tendered performance theres been a breach of contract

 if you let an anticipatory breach go, if an event of frustration occurs,

then you cant do anything
Failure of Performance:
is it a breach of a condition or warranty?
could be liable for wrongful repudiation if it was only a minor breach
which entitled damages only
if you called contract off and it was only a breach of warranty, you
would then be in breach of contract for calling contract off!
is it minimal to the whole contract? Is that behaviour likely to occur?
What you are capable of claiming when a breach occurs:
1) Damages: are subject to:
a) mitigation: minimized the loss
Ex. If youve been terminated, you have to find another job
b) remoteness
2) Equitable Remedies
specific performance: only allows in situations where theres
something unique or special, and damages wont do, wont be
awarded where involves an element of supervision
injunction: stop it (you cant do it)
rescission: unravelling of a contract; puts parties in position they
were in prior to the contract as long as that position is still able
to be achieved
3) Quantum Meruit: when only half of the job is done
Damages are awarded to place the injured party in the position it would have
been in had the contract been preformed
subject to mitigation
remoteness, or foreseeability
Mitigation: duty of harmed party to minimize the loss suffered
Can only recover for losses not reasonable avoidable
Note re anticipatory breach: promisees duty to mitigate only arises
upon acceptance for the anticipatory breach, or if the promisee
continues to demand performance, upon the time the breach becomes
evident

Remoteness: a loss must be within the foreseeable boundaries of what the

parties would have expected as a likely consequence of a failure to perform
had they thought about it when they drew up their contract
damages not generally awarded to compensate an injured party for
some unusual or unexpected consequence of a breach must flow
directly from breach
Case: Hadley vs. Baxendale Rule 1854 (imp on exam)
only responsible for the usual damages that could be expected if the contract
was breached, unless otherwise communicated at the time contract was entered
into - werent awarded for the full amount, only loss of profit for being shut down
Expectation Damages: expected profits lost due to breach
opportunity cost lost
must be foreseeable calculated at time of making contract
Consequential Damages:
Reliance Damages: waster effort reasonable made in preparation for the
cancelled contract
Nominal Damages: token award
made when loss sustained is minimal
done as a matter of principle: wants to prove a point
Liquidated Damages: amount allowed to be claimed for breach predetermined
in the contract
must be genuine attempt to anticipate consequences of breach, not a
penalty (what a court would award as damages)
agreed n advanced what a breach is worth
doesnt actually matter what the actual loss is - matters of whether it is
a good estimate of what the loss could be
if it is punitive, then court will not award it
if it was an outstanding amount, the liquidate damage turns into a
penalty clause and will not be enforced, and they could only sue for loss
of actual cost

 Deposit: a form of liquidated damages, advanced at outset of the

agreement
- retained if purchaser fails to perform
- must be an honest attempt to estimate damages that would be
suffered due to breach, not a penalty
Down Payment: sum paid, usually as a partial payment, returned where
there is a breach upon which vendor can then sue for damages
considered towards the purchase price (is not a deposit)
HEBB theatre 6:30
Lecture 12: Comm Law 393

October 20, 2014

Remoteness Hadley vs. Baxendale Rule

Damages Westcoast Transmission vs. Cullen deals with the Hadley vs.
Baxendale Rule
Nominal Damages not monetary
Liquidated Damages Blackcomb and Schneider
not penalty (actual reasonable was 20%, they only charged 10%)
deposit is a form of liquidated damages
Parol Evidence Rule: if the language of the written contract is clear and
unambiguous, then a term previously agreed to by the parties (oral or written) but
not included in the final written contract, will not be permitted to add to, vary or
alter/modify the final written document

The per operates to exclude terms one party claims should be added to
the contract
It does not exclude evidence about the formation of the contract, such as
legality, capacity, mistake, duress, undue influence or fraud
That is, it does not affect the evidence of any of the circumstances
surrounding the contract
It operates only to exclude the introduction of terms not found in the
written document

Applies:
1) Where there is a written contract
2) One party alleges that there are further oral terms not included

3) Those excluded terms:

a) Add to
b) Vary
c) Contradict
d) or Alter the contract
4) Then the Parol Evidence Rule will operate to exclude that evidence
5) Only the written contract is enforced
Exceptions to the Rule:
Parol Evidence is permitted as evidence to prove:
1) a misrepresentation took place prior to the making of the contract
2) the formation of an oral contract
3) the interpretation of express terms in contract where those terms are
unclear
4) the evidence of a condition precedent
Subsequent Oral Agreement:

The per does not exclude evidence of an oral agreement that the parties
may reach after they have entered into the written agreement the
subsequent oral agreement may change the terms of a prior written
agreement

Collateral Agreement:

A collateral agreement is a separate undertaking agreed on by the parties

but not included in their written contract

Accepted by courts only when a separate consideration can be found for

the collateral agreement

Condition Precedent

Events which much must occur, or conditions which must be met before a
contract takes effect

If the party alleging that a conduction precedent was agreed on and not
met can product evidence to support the claim, a court will recognize it
despite the existence of a complete and unconditional written form of
contract, and will declare the contract void

Misrepresentation need to know definition for exam

Made prior to contract being entered into, turns out to be false, then it is a
misrepresentation (if it was not made as a part of the contract)
made during bargaining process

Definition: False statement of a material or important face which induced

or persuaded the other party to enter info the contract an was not made a
term of the final contract

It must be an allegation of fact

May be 3 types:
1) innocent: statement false, but they thought it was true, if find out
false and dont correct it, it become fraudulent
Ex. Agent was told by sons that the mother died in hospital and saw
hospital receipt on counter relaying info based on what saw/heard
2) negligent: somebody is careless as to what the said didnt care
if was true or false careless
Ex. Saw stuff in the bed, but didnt bother to find out whether died
there or not, and was asked and said no she died in hospital
have onus when know that something was up
maybe told my neighbours died in bed but sons said hospital would
be negligent if agent didnt find out then
3) fraudulent: deceit know it is incorrect
Ex. Agents told her died in bed but said not to say anything
difficult to determine between negligent and fraudulent (merge together)

 innocent can only get rescission

Experts opinion is considered a statement fact

If its made into a term on contract would be a breach of contract

Misrepresentation By Omission:

Occurs where a material fact is withheld by one party from the other
during negotiations

Try and conceal information from somebody

Ex. Patent defects caveat emptor let the buyer beware
Latent Defects must disclose all you are aware of at time or it
is a fraudulent misrepresentation

Contract of utmost good faith:

party has access to information not available to the other
contracting party in special power of knowledge in comparison
to other
superior position of knowledge, therefore, duty to inform risks
which would be taken under contract
insurance and securities must disclose all relevant information
(require absolute disclosure cant conceal info)
if you do not, then it is misrepresentation

Silence may be a misrepresentation try and hide the facts

contracts of utmost good faith
must disclose latent defects in real estate
misleading half-truths

Remedies: limited damages often are not what you want

can exempt out of innocent or negligent misrepresentations
1) Rescission: an unmaking of the contract
only remedy for innocent misrepresentation

 returns both parties to the position they were in before contract

was entered into (not always possible)
must act quickly, take no benefits or lose right to rescind
innocent party compensated for out of pocket expenses
not available if it will adversely affect a 3rd party
Ex. Land sale (once title has passed)
it is a type of equitable remedy
if subject matter of contract is destroyed, this is not possible
for negligent and fraudulent misrepresentation, can claim damages OR
rescission, not both
2) Damages
only allowed for negligent or fraudulent misrepresentation
can also claim rescission for negligent or fraudulent
misrepresentation, plus indemnity four out of pocket expenses
Ex. Cab fares when car breaks down
Lecture 13: Comm Law 393

October 22, 2014

Duress: actual or threatened violence or imprisonment as a means of coercing a

party to enter into a contract
contract is voidable at the option of the victim (will be set aside)
feel forced or pressured or obligated to do something against your will
by violence or perceived violence
includes threats of criminal prosecution, and threat to reveal
scandalous or embarrassing information about something
Undue Influence: domination of one party over another; someone feels forced to
enter into a contract
often found in special relationships
Ex. Parents and child, doctor and patients
impossible to bargain freely
contract is voidable at the option of the weaker party (victim)
Victim must have clean hands and fast feet
contract is voidable, but must act promptly
certain relationships have a presumption of undue influence (person in
position of power has to prove that they did not use undue influence)
also occurs when someone signs a contract because they are in
financial distress desperate
Ex. Loan transaction with large percent (60% illegal)
stronger party has obligation to show other party was not forced into
contract and the other party received a benefit ( benefit shifts to them;

they have to prove this)

when weaker party, should have access to independent legal advice
1) look at degree of domination
2) look at the extent of the advantage (can be measured in market)

Unconscionability
caused by incapacity, will set the contract aside
3 criteria to determine whether contract was Unconscionable:
1) Bargaining position of the parties is unequal
Ex. Lesser education, doesnt speak the language very well
2) One party dominates and took advantage of the other
3) The consideration involved was unfair
person did not get what they were entitled to
Bomek v. B Case
Lecture 14 Notes
A contract has to be legal or it cannot be enforceable
an illegal contract is void, but a void contract is not necessarily illegal
Legality: if a contract lacks legality it would be void
Contracts must be legal to be enforceable OR void

May be illegal but statute

Criminal Code of Canada
Competition Act
Customs Act

May be void by statute

If you enter into a contract before being discharged from
bankruptcy, it is void
WCB Act
Bankruptcy
Insolvency Act

Courts may sever a void term, if its only a term, but not the entire contract

Courts will not aid parties in an illegal contract

If one party did not know it was an illegal contract, then they will
come to the aid of this party

When a Contract is Illegal by Statute (void)

Agreements contrary to the purpose of legislation
Ex. WCB, Bankruptcy Act)
Promises to pay under betting debt
- Unless okay under legislation
Wagers vs. Insurance Contract
- Wager: a bet where one person will win and the other will lose
Wagering contracts are not enforceable
- Insurance contracts only valid if party-making contract has
insurable interest in insured things/person
- Consent required for writing for purchase of life insurance
business partners are often insured so that in case of their
death, you can own their share of the business
Agreements Illegal by Statute
Criminal Code, Customs Act, Competition Act
Lack of proper licensing may make a contract illegal
If purpose of statute is to protect public from unqualified or unethical
work, the contract will be unlawful if no license held
Variation in acceptability of violations

 If an improperly licensed person is being sued, they cannot use the

claim that they were not properly licensed to get themselves out of
the liability

Contracts Illegal by Commission of Private Working or Tort

Common Law:

1. If a contract contemplates the commission of a private wrong or tort, the

contract is illegal.
- To compensate a person with a contract under a tort would be
illegal
2. Or where the contract provides for compensation for a party who suffers
damages as a result of private wrong they have committed
Public Policy: Contracts held illegal based on public policy (ex. Not turning in an
embezzler, paying witness to fabricate evidence)
Agreements in Restraint of Trade: agreements that affect your business
obligations (between companies, between purchasers, in your employment)
1) Agreements between two parties contract to the Competition Act
S. 45 of Competition Act: you may not conspire combine agree or
arrange with another person to lessen competition unduly
Mergers over a certain size have to be okayed by the Competition
Bureau
Can be prosecuted criminally and civilly
2) Agreements between vendors and purchasers (of a business)
Used to protect goodwill of a business
Vendor may promise not to compete in vicinity
These agreements are prima facie void because they offend public
policy regarding competition
* However, enforced if a party seeking to enforce clause can prove
reasonable (size of area and time denied will vary according to nature
of the business)
If unreasonable, clause will be void courts will sever term, not rewrite
it (will be set aside)
Demand no more than reasonable so that clause will be upheld by
courts
3) Agreements between employer and employee (restrictive covenants)
What courts look at most strictly and are hardest to enforce
a. In present employee/employer relationships

Agreement not to compete (Ex: an accountant working for

the firm doing bookkeeping for clients in their own time.
Okay as long as it is cleared with the employer, as is often
done with pro-bono work)
b. Restriction of revealing valuable trade secrets/confidential
information/expertise, after leaving employment
c. Agreements which restrain employment after leaving current
employer
Trying to govern you against keeping that line of work
almost impossible to do

Test for reasonableness: if unreasonable, will sever them
1. Is restrictive covenant reasonable with respect to the public interest?
a. Is it a restraint on competition looking at the nature of the business
and competition?
b. Would it deprive the public of the employees special services?
2. Is it necessary to protect the parties to the contract?
a. Any proprietary interest to be protected?
b. Geographical area (size) unreasonable?
c. Length of time unreasonable?

Lecture 15: Comm Law 393

October 29, 2014

Privity of Contract
Rule: a contract does not confer any benefits or impose any obligations on a
stranger to the contract. To succeed in an action in contract, to enforce
contractual rights, you must have privity of contract, that is, be a party to the
contract
parties dont have the power to uphold the contract to a third party
Third Party: a person who is not one of the parties to a contract but who is
affected by it
Exceptions to the Rule of Privity:
1) Insurance

 legislations allows a 3rd party beneficiary of an insurance policy to

recover from an insurer
2) Trusts
type of equitable principle
any arrangement whereby property is transferred with the intent that is
be administered by a trustee for anothers benefit
3rd party has a right to the property and can compel the trustee to
transfer it
beneficiary is called the Beneficial Owner even though the trustee
technically is the legal owner of the property
3) Land
land law is not covered by the concept of privity, as property law applies
restrictions and obligations run with the land, despite parties to the
agreement

4) Tort
direct action in tort for negligence Donoghue v. Stevenson Case,
1932, House of Lords
friend bought beer for girl but had a rotten snail in it, until this,
she would not have been able to do anything because her friend
bought the drink
prior to this, consumer had a contract only with the retailer and not with
the manufacturer
so had no cause of action against manufacturer
Ex. If you dyed your hair at your friend's house, and your hair colour
never comes back, you can sue the manufacturer, even though
your friend bought the dye privity wont apply
5) Novation (sometimes)

Assignment of Rights
Assignments: a transfer by a party of its rights under a contract to a third party
Assignor: the party that assigns its rights under a contract to a third party
Assignee: the third party to whom rights under a contract have been assigned
Statutory Assignment: allows the assignee to bring an action directly against
the debtor without having to join the assignor, as long as
certain conditions are met
the assignment must be absolute and unconditional
assignment is in writing, signed by the assignor
proper notice of the assignment is given to the original debtor
What cannot be assigned:
alimony and maintenance
champerty
Notice to the Promisor

all assignments require notice to the promisor

promisor must make payments to the assignee once given notice

if not, and he pays the original party, the assignor, he could be
forced to pay twice

there can be more than one assignee of the same right

Rule RE Competing Assignees:

the first assignee to give notice is entitled to payment, unless aware of a prior
assignment at time of assignment to him (otherwise it would be a fraudulent to
take payment assignees
Assignees Title

takes subject to the equities

so only has as much right to collect the debt as the assignor had

or subject to any defences that the debtor may have against making
payments to the assignors

The Right to Set off

promisor is allowed to deduct an existing debt owed to it by the assignor

until assignee gives notice of the assignment, acts of the assignor or

promisor could affect the assignees rights

but once notice is given, any subsequent claims between the debtor and
assignor, excluding claims dealing with performance of the contract itself,
will not affect the right of an assignee

Assignment of Book Debt

extremely common business transaction

involves assignment of accounts receivable (A debt) to secure credit

these assignments must be registered in a public office or they are of no

effect against creditors of the assignor (under personal property security
act in BC)

if prior claim, may decide not to lend funds

In class Problems Privity

From textbook:
6) Glashov and Trade Creditors:
trade creditors will get the money, because they gave notice first
7)

When southern gave notice, they knew the assignment was contingent on
satisfactory completion of the contract
therefore, Southerns claim was conditional on the completion of
contract
parties still in negotiations

York actually owed the city the balance of 125,000 68,000 =

Southern Foundaries would now have to sue York (for the 68,000) on the
original contract, but they could not sue the City of Vancouver

read negotiations at end of chapter 11

Lecture 16 Notes
Negotiable Instruments: a contract containing a promise, express or implied, to
pay a specific sum of money to the order of a
designated person or bearer
they represent the right to claim funds from a particular debtor or
financial institution
they can be transferred between parties not associated with the original
transaction without the requirement of any notice and without
diminishing the right of the eventual holder to collect on the negotiable
instrument from the original parties
3 types of Negotiable Instruments:
1) Promissory Note
2) Cheque
3) Bill of Exchange (drafts)
Criteria:
1) Are a claim for funds against person designated in instrument
2) Freely transferable
3) Used as an instrument
4) can give greater rights to bearer of instrument than on the party from whom it
was received
Drawer: the person drawing up the instrument responsible for insuring the draft
or cheque will be paid as required
Drawee: party who is requested to make payment, usually a financial institution
Payee: the party who is named to receive payment
Requisitions for Liability (S.17 Bills of Exchange Act)
1) Must be in writing

2)
3)
4)
5)
6)

For a money payment

Must be for a definite sum
Must be unconditional
Money must be payable at fixed or future date or on demand
Must be signed by drawer or authorized agent or by maker of a
promissory note
7) Negotiation must be for the whole instrument
Promissory Note: a written promise by one party, the maker (Debtor), to pay a
specified sum of money to another party at a fixed or
determinable future time o r on demand (an IOY)
used to advance credit, so used by a party wishing to purchase goods
merchandiser negotiates the promissory note
legislation in a place dealing with consumer notes
Cheques: a bill of exchange drawn on a bank and payable on demand
limited to situations in which the drawee is a bank and payment can be
demanded immediately the drawer directs the drawee bank to make
payment of a sum certain to the payee
a cheque contains the implied promise of its drawer that the drawer
has funds on deposit at the bank sufficient to meet its amount
Certification: undertaking by the bank to pay the amount for the cheque to the
holder when presented for payment
Stop Payment/Countermand: advising bank not to pay cheque
if certified by drawer, cheque may be countermanded before the payee
presents it for payment
if certified by payee, not may be countermanded bank obligated to
pay certifying makes drawer bank liable directly to the payee
bank is not held liable if paid to payee if stop payment
Bill of Exchange: an order made by one person to another to pay an amount of
money to a third party
often referred to as a draft
can be used as a means of collecting a debt & then the drawer orders
the debtor to make payments to a third party
Endorsements: a notation on the back of an instrument, which is usually the
endorsers signature

 order instruments must be endorsed

bearer instruments are negotiated by delivery alone
endorsement transfers title to an instrument payable to order
endorser liable to any subsequent holder for the amount set out
endorser who is held liable has recourse against any prior endorser but
not against a subsequent one
Forgery: if bank cashes cheque that has been forged by the person cashing it,
the bank has no right to take funds from the drawees account
if a drawers signature is forget and the bank cashes a cheque, the bank
is liable for any funds it pays out of the drawers account
the drawer and any endorser prior to the forgery are freed from liability
the loss where there is a forgery is suffered by the person who acquired
the instrument immediately following the forgery
this is why banks will not usually accept endorsements
Holder in Due Course: Bills of Exchange Act s.56
Holder has taken a bill:
1)
2)
3)
4)
5)
6)

complete and regular on its face

before its overdue
without any notice or prior dishonour (when someone refuses to pay)
for value (consideration)
in good faith (no noticeable problems)
without notice of an defect in the title of the person who negotiated it

so takes free from any defects between drawer and payee

therefore, not subject to equities
once a cheque has been dishonoured, very hard to cash cheque
Consumer Bills and Notes
allows a buyer, who buys on credit, to bring against a finance company
all the defences which he could raise against the seller where the seller
is the holder of his promissory note
problems would arise when there were defects in the product, as the
finance company could still demand payment as a holder in due course,
despite any contractual dispute between the customer and merchant
legislation now required all consumer bills and notes be stamped as
such removes advantages of being a holder in due course of negotiable
instrument

 merchant can be fined for failure to do this

Retailer

Consumer

Assigns
Finance Co
must be stamped as a consumer purchase before or at time of
signing
the holder in due course takes subject to the equities between
the retailer and the consumer
if not stamped, then the assignment is void
Lecture 17 Notes
Page 257 defrauder may transfer is wrong

Cant give title if you dont have title

Therefore, the analogy is wrong, you cant pass title to an innocent
purchaser

Tort: a social wrong, other than a crime or a breach of contract

The Law of Torts

Torts are private matters between individuals

Brought by a plaintiff against a defendant
The role of tort law is to compensated the victim of harm, rather than to
punish the offender (criminal law)
It is a civil wrong, for which the victim may claim compensation from the
wrongdoer for the harm suffered

Tort Law vs. Contract Law

1) No privity of contract is required
Donaghue v. Stevenson
2) In contract law, the contractual relationship makes a violation of the terms
unacceptable, even where it is not socially wrong; In tort there is inherently wrong
conduct, which falls below a socially acceptable standard

3) Contributory negligence is allowed in tort, but not in contract

if you could have lessened the damage, by wearing a seatbelt in an
accident, you automatically suffer 25% contributory negligence
in tort, you can split up the negligence, in contract you cannot
Basis for Liability in Canada

3 ways you can be held liable for negligence:

1) Strict Liability (US method)

responsible for harm caused, regardless of whether at fault or not
as long as harm is caused, blame is attached
often set out in statutes
2) Fault (% of how much you are at fault)
found liable only where actions intentionally or carelessly disregard the
interest of others and cause unjustifiable harm to their person, property
or reputation
standard of care rises proportionally as danger increases, so can
virtually be strict liability
3) Vicarious Liability
employer is liable for torts committed by employees if within the scope
of their employment or engaged in work = not an independent act
liable even where employer has forbidden such conduct
employer has right to sue the employee after having been held liable
for their negligence
based on fairness, employee generally have limited assets
employer cannot contract out of vicarious liability
not usually liable for independent contractors, only employees and
agents

 has to be within the scope of employees job

Intentional Torts

Committed deliberately or voluntarily

Motive and mistake is irrelevant
Can pleas defences, such as consent, self-defence

To person:

Assault threat of violence

Battery actual violence
Defamation (must be in front of an outside party)

To property:

Trespass but cant set traps for trespassers (Ex. Pit)

Nuisance

Intentional Torts Unique to Business

Inducing breach of contract

Deceit
Conversion
Passing off
Defamation with respect to product
Inducing infliction of mental suffering

Also Privacy Act Violations

contrary to privacy act (federal) and personal information protection and
electronic documents act (pipeda)
Unintentional Torts
Negligence
the careless causing of injury to another
negligent behaviour that causes no harm is not actionable
you do not require privity of contract to sue in tort, but must be a
loss suffered

Defences:
Consent: level of interference cannot exceed the level of consent
Self- Defence: may use reasonable force in defending yourself

Must Prove:

1)
2)
3)
4)

Defendant owed plaintiff a duty of care

The defendant breached that duty of care
Defendants conduct caused the injury
Damages are reasonably foreseeable
A: A loss
B: Breach of Duty
C: Causation
D: Duty of Care Owed
if dont have this 4 criteria, will get E for effect, but F for grade

Duty of Care

Did the defendant owe the plaintiff a duty of care?

Test: would a reasonable person, a normally intelligent person, have

foreseen this conduct causing harm to this plaintiff or someone in the
plaintiffs position

In order to be owed a duty of care, you must be reasonably foreseeable

victim a neighbour
not someone out of ordinary/went out of their way

Within an identifiable group of people who could be harmed, even though

not specifically identified

Duty may be owed to persons other than the person actually injured
Only party that can claim for shock are parents

Standard of Care

The standard of care exists when the circumstances of time, place and
person would make a reasonable person aware of a probability of that
type of harm resulting from that activity to other people at the time and
place

Standard of care is usually that of reasonable person whose conduct

would not fall below a certain standard

Profession can affect the standard

Standard varies according to the activity in question

Likelihood of harm vs. social utility of the activity and feasibility of

eliminating the risk

Causation

Test: would the plaintiff have suffered damage but for the defendants
negligence?

Must be causal link between act of the defendant and loss of the plaintiff

Loss may be too remote, therefore defendant would not be liable

must be connected

Courts only allow a defence of remoteness when the defendants could not
have reasonable anticipated the general nature of the injury of damage
suffered

Liable for all types of injury that are reasonably foreseeable regardless of
whether the extent of the damage could be foreseen
liable if only different in degree (extent) and not in kind
Remoteness: where the extent of the damages can be foreseen

Burden of Proof
must prove case on the balance of probabilities, this is more likely
than not that the defendants conduct caused the harm (more than 50%)
Contributory Negligence
judges may apportion loss according to the degree of responsibility of
the parties
Res IPSA Loquitor
legal rule on principle
shifts burden of proof to the defendant
where something owned by defendant caused the loss
Thin Skull Rule:

If a person experiences greater injury from our conduct than would be

expected because of a unique physical condition, there is none the less a
responsibility to compensate for all consequences of the injury

Defences:
1) Contributory Negligence
appointment of loss legislation
2) Mitigation
must at reasonable to minimize any damages suffered
cannot allow subsequent conduct to contribute to the extent of the
injury
3) Volenti Non Fit Injuria
the volunteer suffers no wrong
1: Did the plaintiff understand the risk?
2: Did the plaintiff consent to the risk?
Lecture 18 Notes
With Torts, the damages allowed:

1) Special Damages quantifiable price
2) General Damages pain and suffering; things that are speculative
Ex. Future lost wages
3) Punitive Damages (sometimes awarded; not very often)


The Scope of the Professional Duty of Care

1) Contractual Duty


either expressly or impliedly promised that services will be provided with

due care

only parties to the contract can sue for breach of contract

2) Fiduciary Duty


special relationship of trust

may arise even if no negligence

most serious breach

3) Duty of Tort


application of general principles of negligence but with specific factors


Two Specific Torts

1) Fraudulent Misrepresentation: Deceit

guilt or wrongful disregard for falsity of information

2) Negligent Misrepresentation or Misstatement

an incorrect statement made without due care for its accuracy


1963L Hedley Byrne & Heller
House of lords said it was possible to award compensation to
the victim of the negligent misstatement even if there was no
contract, no fiduciary duty and no fraud


as a result, experts find themselves responsible not only to their


immediate clients, but to others who suffer loss because of careless


statements

Duty of Care:


duty of care is not owed to all who are reasonably foreseeable


Liability is Limited to:

1) Not only must there be a special relationship, but

2) Liability only extends to the purpose for which the information was prepared

Hercules MGMT. Ltd. v. Ernest and Young

Liability restricted to the purpose for which is was prepared for

eligible plaintiffs must not only be foreseeable in a general sense, but also more
specifically foreseen in relation to a contemplated transaction

Standard of Care:


Must:

1) Exercise the same degree of skill and abilities that one would expect an
expert or professional expertise to have

2) Skill and knowledge must be commensurate with the particular task
undertaken

Client not required to tolerate ineptitude due to lack of experience


Negligent Omission: duty of care includes duty not to omit essential steps

Skill and care that is appropriate and economically justified in the circumstances
must be proportionate to the degree of harm that may result from faulty
professional advice

Therefore, if you devote the appropriate amount of skill and care to meet the
required standard, you are not liable, even if your advice turns out to be wrong

Causation:


is a question of reliance on the professional advice

up to the plaintiff to prove that the misrepresentation caused the loss

but, they do not need to prove that it was the fundamental factor that

caused the loss, as long as it was a contributing factor



Implications of Professional Membership:


the sole fact of membership creates a representation to potential clients

that a member possesses special professional competence and skill

1) A loss

2) Duty

Special Relationship

Purpose prepare for

3) Breach of standard of care

Skill of professional

Commensurate and task

4) Causation

Reliance

Lecture 19 Notes
Negligence Framework
A loss

Breach of Standard Care

professional-competent member
time and effort for task
Causation
Reliance
Remoteness
Duty of Care
special relationship
purposed proposed for (Hercules)
Defences:
contributory negligence
Volenti: accepted full risk, having known the risk (Bertuzzi vs. Moore)
Mitigation: minimize your loss
Vicarious liability: find someone else liable for the loss
Ex. employer liable for acts of employee (foot the bill for employees torts)
Raegen: no special relationship
no duty of care because no special relationship and didnt know
purpose of information
Hercules: purpose of information
didnt know the purpose of information
Fiduciary Duty: a relationship of good faith, fidelity and loyalty, confidentiality

Exists where:
1) The fiduciary has the capacity to exercise the discretion or power
2) The fiduciary has the sole capacity to use their power or discretion in a
way which would affect the other partys interest
rd
3) 3 party is vulnerable due to their relationship of reliance on the
fiduciary
occurs where there is a special relationship of trust or confidence where
one party has powers it exercises for the benefit of a second party

Must act in principals best interests

Cannot take advantage of any personal opportunity
Cannot benefit personally without disclosure and consent
Must not compete
Breach may arise even though there is no negligence
said things that were in confidence

Duty extends beyond term of contract

current view is 1 year beyond end of being director/partner

Breach of Fiduciary Duty = Hodgkin and Simms

Lecture 20 Notes
The Agency Relationship

Where one person (the agent) is authorized by another (the principal) to

bind the latter to contractual obligations

2 separate contract
1) the principal has a contract within the agent
2) the principal has a contract made by the agent with a third party

an agent has only the same capacity as the principal has

what is done to the agent is done to the principal, what the agent does is
done by the principal

4 ways to establish an agent relationship:

1)
2)
3)
4)

Express agreement
Estoppel
Ratification
Necessity

1) Express Agreement
may be written or oral
can confer general or limited authority
power of attorney is an express agreement
authority is real (real estate) of actual
as long as agents acts within scope of her authority, the principal alone
is liable to third parties
2) Estoppel/ Conduct

 agent has apparent authority

a reasonable person could assume agent had actual authority

Agent has no real authority, but

The circumstances (the principal) conveys the impression to

third parties that the agent has some authority by conduct,
representation (cards, title, car, circumstances),
acquiescence

Third party is lead to believe agent has some authority

Induced into contract based on that impression

Is not aware of any restrictions on the agents authoritythen

the principal is estopped from denying that the agent had
authority

presumption of authority if contracts of agents are usual in that particular trade

problems when contracts are terminated and third parties need to be notified
if a reasonable person could assume that the agent was acting within the
scope of actual authority, the principal is bound by the acts of the agent
3) Ratification
principal may ratify/adopt contract made by agent who exceeded their
authority or who acted with no authority
ratification is retroactive
must be of the whole contract
can only ratify if principal was name or easily identified
if party holds themselves out as an agent, and a principal does not
ratify a contract made, the agent may be personally liable to 3rd parties
and can be sued for breach of warranty of authority
but must first querie if there was reliance and estoppel so principal is
bound without ratification

4) Necessity
very seldom occurs
agent enters into a contract for the benefit of the principal but without
authority
allowed in a few circumstances:
-

salvage
perishable goods

where agent has restricted authority but must exceed authority

to protect the principals authority
must be able to show couldnt communicate with
principal and action taken was reasonable in the
circumstances

Termination of Agency Agreement

At time specified
At completion of a particular project
Upon notice of either party
Upon death or insanity of either
Bankruptcy of principal
Upon an event that makes performance of the agency agreement
impossible
Can be discharged by frustration

Liability of Principal and Agent

1) Only principal is liable if agent acting within scope of actual authority and
discloses they are agent
2) Only principal is liable if agent acting within scope of apparent authority
and discloses they are agent
3) Only agent is liable if holds out he is the principal
4) Either principal or agent is liable if agent does not disclose they are agent
and does not hold out that is it the principal and acting within authority
5) Only agent liable if agent has no authority and principal does not ratify

6) Principal Is liable if agent acting within apparent/actual

7) Authority and commits a tort

4 Kinds of Business Organizations:

1)
2)
3)
4)

Sole Proprietorships
Partnerships
Corporations
Joint Ventures

1) Sole Proprietorships: oldest and simplest form

Advantages:

Ease of formation and termination

Low start of costs
No legal requirements other than any licences required to do
business and registration of name if required
All profits belong to owner
Pay taxes as an individual
Own boss, ownership flexibility

Disadvantages:

Unlimited Liability personal liability, vicarious liability

Financing limitations
Lack of continuity may be no company when pass on

2) Partnerships
Section 2 Partnership Act: The relationship that exists between two or
more persons carrying on a business, together with a view to profit
A partnership does not have a separate legal identity from the partners
who make up the partnership
Partners are the partnerships and are personally liable for the debts
and actions of the partnership
Existence of a Partnership may be:
1) Express: where 2 or more parties agree either in writing or orally to
carry on business as a partnership

 may require registration in certain provinces

2) Implied:
Courts will deem a partnership
Look at substance rather than form of relationship
S.2 met, management role, share profit, contribute to capital
Liability of Partners
1) Each party is the principal and agent of the other
unless outside apparent authority or third party aware of limits
2) Each partner liable for debts of the partnership
to the full extend of their assets
3) Partners share of partnerships assets available to personal creditors
4) Responsible for torts of partners while acting within apparent authority
of the business of the firm
5) New Partners
not liable for partnership debts incurred prior to joining firm
6) Retiring Partners
liable for debts incurred while a partner
concern regarding apparent authority
Lecture 21 Notes
1 year limitation fiduciary duty monarch v. Strother
Relations Between Partners

Implies terms into partnership agreements when the parties have not
addressed the issue in question

Unless specified otherwise, partners are equals: implied terms when

partners dont have their own agreement
equals say in management
equal share of profits and losses
equal distribution of capital

Partnership agreements only allow partners to vary terms that govern their
relationship with each other

May not vary terms that govern responsibility to third parties

Are fiduciaries, must act in good faith

Limited Partnerships: silent partners

Used to limit certain partners liability (hide your investment)

Partnership managed by one or more general partners who have no limit

on liability for the acts and debts of the partnerships
only thing they can lose is how much they contributed/ invest.

Must be registered, expressly formed

Can contribute money or property

Cannot provide services or take active role in management without losing

benefit of limitation on their liability

Used mainly as tax shelters

Limited Liability Partnerships: LLP at the end of a name

Was introduced later on

Formed expressly, must be registered

Only available in certain provinces, used only for specific purposes, such
as formation of professional partnership

A partner in a limited liability partnership is not liable for the debts,

liabilities or obligations of the partnership or any partner arising from the
negligent acts or omissions that another partner or an employee, agent or
representative of the partnership commits in the course of the partnership
business while the partnership is a limited liability partnership page 387

Corporations
3 Methods of Incorporation: doesnt matter which way you use
1) Articles of Incorporation
2) Letters Patent
3) Memorandum of Association

Incorporate and Obtain:

Articles of Incorporation - Charter

will bind that company

By-Laws
day to day basis guidelines

Articles: basic document governing the existence of the corporation

set out constitution of company
Name
Place of registered office
Classes and maximum number of shares
Rights of classes of shares
Share transfer restrictions
Number of restrictions
May set out restriction on business
By-Laws: rules which govern the operation of the corporation
approved by a majority of shareholders
easy to amend
deal with terms of directors, powers of directors
any new or amended by-laws brought into effect by the directors need
to be confirmed by a simple majority of shareholders at the next annual
general meeting (AGM)
can incorporate federally (Canada Business Corp. Act) or provincially
Chart page 404
company must abide by act under which they were incorporated
If not incorporated in a province, must comply with registration
requirements of that province see footnote 35, page 404 (only non-Canadian
corporations need a license to do business in Ontario
Corporate Name

Can use a number for a name

Ex. 11235

May not use a name that:

mimics royalty or appears to be a business associated with
government or professional body
Ex. Prince Charles of Englands Polo Company

May not be confused with previously registered company

Ex. Starducks

May not be obscene

Ex. xxx

Types of Corporations
1) Public
2) Private
1) Public

No limit on number of shareholders

No restriction on the right to transfer shares
Permitted to make public offering of shares
Generally means that a company has shares listed for trading on a stock
exchange
As a Distributing corporation is subject to regulation under Provincial
Securities Act

2) Private (over 90% of corporations in Canada)

Used where shareholders seek advantages of incorporation along with the

advantages of partnership
Restriction placed on the transfer of shares
Allows shareholders to choose their business associates like partners can
Shares are usually held by a few members, not traded in market
Management and ownership are substantially identical

creditors dont have a claim on assets of shareholders, corporation is liable for

itself own debts
Salomon v. Salomon (1897) : Precedent Case * read *
establishes complete separation of a company from its shareholders
corporation alone with be responsible for its debts
as long as a company has been duly formed, the shareholders are not
liable for the debts of the company, company alone is liable
no evidence of fraud
Lecture 22 Notes
The Nature of Corporation

A corporation has a separate legal existence from its shareholders, its

directors and its managers

It is an entity recognized by the legal system as having rights and duties

under the legal system separate from its members

It has the capacity to enter into contracts, can sue and be sued

no longer deemed to have knowledge of the Charter (apparent authority)

Indoor Management Rule: corporation is bound by the agents actions
Directors Liability
-

shareholders appoint directors, directors appoint the officers

directors owe duty to the corporation, not the shareholders
owe a duty of care and skill
must not be negligent (ignore misconduct)
has fiduciary relationship with company duty of good faith
refrain from corporate opportunity, insider trading
Personal Liability: environmental torts, human rights, competition act,
waste management act, employment standards, for debts, for contract
Liable if: 1) Breach their fid. duty
2) Under certain statues
3) Tort Liability
not liable if do due diligence

have a moral duty to shareholders

Remedies as a Shareholder:
1) Derivative Action:
1) directors wont bring on an action
2) shareholders acting in good faith
3) best interest of the corporation
2) Oppression Remedy: directors have done something wrong
3) Dissent: court order to buy out shares
Significance of a Separate Existence
Limited Liability:

Company is solely responsible for payment and its debts

Liability is limited to its assets
Creditors have no claim on the personal assets of shareholders
Shareholders risk is limited to the price of their shares
This separate legal existence is the main benefit of incorporation

Transfer of Ownership

Share transfer is simple

Unless rules to contrary in corporations constitution, there are no
restriction on the transfer of ownership of shares
You do not need approval to buy/sell shares
Share transfer makes it easier to raise capital to fund corporations
operations

Management is Streamlined

No individual owners
Shareholders delegate powers to board of directors who name officers of
the corporation to manage corp., shareholders cannot bind corporation

Continuous Existence

Change of shareholders does not dissolve corporation

Limitations on Separate Legal Existence

Associated Companies
income tax act deems income from associated companies,
whose shareholders are closely related, to be income from just
one of the companies
$500,000 lower tax rate

Personal guarantees
shareholders may be required to giver personal guarantees or
other security

Improper Distributions of Corporate Assets/ Funds

Shareholders who have received a dividend in situation where corporation

has made no profits may be liable for corporation debts to the extend of
their payment

Lifting the Corporate Veil

Done to prevent abuse of concept of the corporation

Usually shareholders own an interest through the purchase of shares
Unpaid creditors may not look to the shareholders if unpaid
However, court may look to shareholders the individual controlling the
corporation will be personally liable for the actions/debts of the
corporations
1) Individual must control the corporation
2) Must have used control to commit improper act, such fraud,
wrong or breach
3) The misconduct must be the cause of the injury/loss

Corporate Capital

Corporation can raise funds through sale of shares or through bonds

Bonds are sold to creditors, paid interest as set out, regardless of whether
company has made a profit
Bondholders are secured creditors in the event of bankruptcy
Bondholders do not have right to vote, etc.
Corporation can issue shares
May be more than one class of shares
Rights attached to each share set out in charter documents
Shareholders appoint directors, and may vote at Annual General Meeting
Under articles of incorporation system, corporation may set out the
number of shares that can be issues
Must keep a stated capital account of all shares paid for and price paid
(Referred to as paid-up-capital)
All shares must be fully paid for at time of issue no more par value shares
(shares has s nominal value attached to them, paid dividends)