Comm 304 Midterm 1 Flashcards

Question

Contract Law in Context

Answer 1

A contract is a legally enforceable promise between two or more parties Very old and comprehensive area of law Contract law derives from both common law and equitable sources Contract law of fundamental importance for business transactions Pacta sunt servanda – promises ought to be performed Specific rules apply to specific types of contract, e.g. Insurance contracts Contracts for the sale of land Lease Agreements Construction contracts

Answer 2

Intention of the parties to create a legally binding contact Offer Acceptance Consideration Legal Capacity Legality Sometimes, form requirements

Answer 3

Preliminary agreement might be “agreement to agree” and thus unenforceable as it would lack key/certain terms Some elements of “agreement to agree” may be binding, e.g., obligation to maintain confidentiality In professionally drafted letters of intent and MOUs, intention to be bound is typically explicitly excluded By contrast, commitments letters by lenders, indicating commitment to enter into a loan with a borrower on certain terms and conditions in the future are considered binding contracts

Answer 4

Large commercial loan is negotiated between a bank and a corporation which is a subsidiary of another (large) corporation Lender and parent company agree on a LOC Parent provides various assurance in LOC regarding the state of affairs of the subsidiary Thus, bringing costs of borrowing for subsidiary down Enforceability of LOC questionable and subject to controversy

Answer 5

Scenarios where dealings between family members do create legal obligations: Commercial transactions between family members, e.g., sale of real property Non-commercial transactions between family members, e.g., a family member needing care might compensate another family member for providing the service Marriage contracts regulating e.g., ownership and division of property upon divorce, support obligations, etc. Co-habitation agreements regulating e.g., payment of rent, utilities, car usage Winning Lottery and splitting it

Answer 6

Offer is a communication of the offeror to the offeree to enter into an agreement on certain terms Offers are to be distinguished from invitations to start negotiations/bargaining Mere quotations of prices are not offers Advertisement of items for sale are not offers Offers can be made to the public at large, typically in form of a unilateral contract (reward): “if you do X, I will pay you Y” Special rules apply for tender processes

Answer 7

Display of items in shop does not constitute an offer Nor does placing the items in a basket by the customer Presentation of items by customer to cashier amounts to offer

Answer 8

Involve 3 parties (owner, auctioneer (agent of owner) and highest bidder) Individual bids are offers that may/may not be accepted by auctioneer Seller not bound prior to fall of the hammer and can withdraw item for sale Bids exceeded by higher bids lapse

Answer 9

Acceptance has to mirror the offer – otherwise no meeting of minds and no contract Acceptance can be explicit or inferred from the party’s conduct and must be unconditional A counteroffer is not acceptance and it “kills the original offer”, meaning the original offer can no longer be accepted Acceptance must comply with instructions of the offer for the manner, place, mode of communication and timing of acceptance Late acceptance is ineffective if offer specifies date/time until which it can be accepted If no deadline for acceptance is stated in offer, a reasonable period of time is assumed depending on circumstances of the case (e.g., reasonable period of time for the sale of land different from transaction for sale of perishable goods) Silence is not acceptance unless a pre-existing contract is in place between the parties which stipulates otherwise

Answer 10

Often occurs in commercial settings when parties use standard terms of contract Likely neither party explicitly agreed to the forms of the other party Reply of each party forms a counteroffer Result: the “last shot” rule – party who sends the last document before performance prevails Approach has been criticized as arbitrary

Answer 11

Acceptance must be communicated unless offeror waives the requirement, e.g., unilateral contracts such as rewards If offer requires acceptance in a given form it needs to be adhered to, e.g., written acceptance v. verbal acceptance

Answer 12

An offer can be revoked as long as it is not accepted (revocation rule is reflective of the voluntary nature of contracts) Revocation of offer requires communication by offeror to offeree Revocation may be effective even if not communicated if the offeree becomes aware that offeror is no longer intending to be bound by the offer

Answer 13

Doctrine of consideration requires for a contract to be enforceable that the promise must be given for something of value in return Exceptions: contracts under seal, promised donations to a charity which the charity relied on Promises which lack consideration are gratuitous, sometimes called “naked” or “bare” Consideration does not need to move between the parties of the contract, it can be given to a 3rd party Consideration can be an act or forbearance Forbearance does not need to be for a specific time, if no specific time is agreed, it is for a “reasonable” time Forbearance typically arises in release cases, where one party promises to forbear from suit in exchange for payment of a certain amount

Answer 14

Someone under the age of 18 (under The Age of Majority Act in SK) or 21 (under common law) Protected due to lack of maturity, inability to understand the consequences of their acts and lack of experience Contracts with minor are typically voidable if for non-essential goods/services and not fully performed by the minor Contracts with older minors for necessities will bind the minor for a reasonable price No liability of parents for debts of a minor for non-necessities; if their liability is wanted obtain a guarantee from parents Employment contracts often perceived as beneficial for minor and enforceable against them unless the terms are unfavourable

Answer 15

Are legally treated similar to minors There are varying degrees of impairment with moments of clarity and capacity to enter into a contract Significant impairment may be caused by alcohol, drugs or cannabis Impaired persons will be held liable for contract for necessaries entered into by them If impaired person is incapable of understanding the nature of their action when entering into a contract for a non-necessary item, it makes the contract voidable, requiring repudiation soon after returning to sobriety

Answer 16

Corporations: Consequences of separate legal existence are*: The corporation can own property Shareholders can be employees (unlike partners in a partnership) Shareholders can be (secured) creditors Trade Unions: Unions have a legal existence separate from their members Consequently, unions can sue and be sued in common law courts in matters not related directly to collective agreements (addressed through arbitration) or an employment related statute (addressed though an administrative tribunal)

Answer 17

Agreements to commit an unlawful act Example: agreements to commit a tort or a crime Also includes agreements for defrauding or injuring 3rd parties Rule is not absolute if misconduct is very minor to performance of the contract Agreements facilitating immoral conduct Example: agreements to conduct a business to provide services of prostitution

Answer 18

If an agreement is found to be void due to illegality, a claim for damages of breach of contract cannot succeed because there is no contract. Alternative claims might be: Restitution, collateral claims, passage of property

Answer 19

Severance means disregarding the illegal clause and keeping the remainder of the contract in place Traditional test for severance: Can remainder of agreement meaningfully be enforced? Enforceability of the remainder would not be inconsistent with policy considerations rendering the provision illegal in the first place The blue-pencil rule (courts delete provisions without adding new terms) Supreme Court of Canada introduced concept of “notional” severance under which a contract clause might be “re-written”

Answer 20

Vast majority of contracts today do not require a written form to be enforceable BUT: in commercial context written form strongly recommended Often written document provided by one party to the other, at times on “take it or leave it” basis Issues can arise on matters of incorporation of written terms Courts are reluctant to incorporate written terms that are unfair or a surprise to the other party Practical problems can arise with unsigned documents containing terms (e.g. the “ticket” issue) Reasonable notice of terms might need to be provided to other party

Answer 21

Two versions of the rule have emerged over time: **Traditional approach: **in written agreement which on its face appears to be complete agreement, the rule prevents evidence to be admitted which varies, adds or subtracts from the terms **Modern approach: **in written agreement which on its face appears to be complete agreement, a party could lead evidence suggesting the written terms are only one component of an overall agreement that is partly written and partly oral Canadian courts not entirely clear which approach to favor with Supreme Court seeming to prefer the traditional rule

Answer 22

Means that only a person party to a contract is bound by it Can give rise to difficulties in 3-party contexts leaving the 3rd party without redress Example: A and B enter into a service contract under which B provides services to A A in turn should pay C (not B) A fails to pay Consequence: C cannot enforce A’s obligation Due to unjust results produced by rule, it has received much criticism in Canada and other common law jurisdictions

Answer 23

Contracts fail because of misrepresentation, mistakes and other reasons

Answer 24

Occurs if one party makes a false statement about a material fact which induces the other party to enter into the contract Misrepresentation has to be about a fact, not an opinion or belief, not “sales talk” BUT: one who has superior knowledge with respect to matter on which opinion is offered might have made an implicit statement Example: Esso Petroleum Company v. Mardon Different forms of misrepresentation: Innocent (party making the false statement honestly believes it its true) Negligent (party making the false statements lacks diligence) Fraudulent (party making the false statement knows or ought to have known that it is f

Answer 25

Rescission: Party who was misled may seek rescission, i.e. setting aside of the contract Rescission must be communicated to the other party and not be unduly delayed Yet unperformed contractual obligations become unenforceable Rescission aims at putting the parties in the pre-contractual state by requiring restoration of benefits already transferred Courts more likely to grant rescission in cases of fraudulent than innocent misrepresentation Numerous limitations to rescission e.g.: Rescission is not available if it is impossible to restore benefits already transferred Example: title to property has been passed to 3rd party who was in good faith acquiring the property

Answer 26

Restitution: Means awarding monetary compensation instead of or in addition to rescission Might be an available remedy where restoration to pre-contractual status is not possible Traditionally, no such remedy was available even if rescission was not possible In recent years, Canadian courts recognized restitutionary claims in context of misrepresentation If misrepresentation amounts to deceit (in case of fraudulent misrepresentation) or negligence (in case of negligent misrepresentation), the party who misrepresented may be liable in tort too

Answer 27

Misunderstandings occur if one or both parties are not clear about the meaning of a term/terms of the agreement Critical question: has there been consensus between the parties? If no consensus, the contract is void. No consensus if one party is aware of the other party’s mistaken understanding (no “snapping up an offer”) or ought to have known the error No consensus if the term of the contract are so unclear that neither party can insist on “correct” meaning No consensus in cases of mistaken identity at least where one party was actively involved in inducing the mistake No consensus in non est factum cases (rare), i.e. person signing a contract assumes he/she is signing something different Arising in practice where literate parties fail to read a contract prior to signing and act careless (courts tend not to find non est factum) Different from where literate parties do not understand what they are reading/signing where no carelessness can be established

Answer 28

Rare reason why contracts fail If coerced party wants, contract can be treated as enforceable Doctrine also provides basis for restitutionary claim for recovery of any benefits conferred There are three forms of duress: Duress to a person Includes threats to family members Includes threats of unlawful confinement and imprisonment Sufficient for threatened party to learn about the threat from 3rd party, no direct communication of threat required Duress of Goods Interference with property rights can amount to duress Includes payment extracted through improper seizure/retention of the other party’s property Applies to both actual seizure and threatened seizure

Answer 29

Can occur if one party dominates the other in such a way that the latter cannot make his/her own decision Can take the form of actual or presumed undue influence If party can establish the presumption of undue influence, rescission is available to the weaker party, unless the presumption can be rebutted Important element of presumed influence is a degree of influence that undermines weaker party’s capacity for independent action Independent legal advice is neither necessary nor sufficient for establishing independence; the quality of advice is what matters and that it is given in the absence of the dominant party Traditional remedy for weaker party is rescission, and in some cases, monetary compensation might be available

Answer 30

Applies in dealing between complete strangers as well as parties with a pre-existing relationship For long time, doctrine was based on test of: Inequality of bargaining power between the parties Undue advantage for one party resulting from the inequality Typical examples include: Sale of land for much less than its value Giving of improvident guarantees Disadvantageous release of claims for personal injury Statutory Unconscionability addressed in all provinces, for SK: The Unconscionable Transactions Relief Act, 1978 on excessive loans Available remedy for weaker party is rescission or claim for compensation for value of the benefit conferred if rescission is not available

Answer 31

A contract is discharged by complete and precise performance If performance is not complete and precise the agreement remains in effect Typical commercial contract requires (a) the payment of money by one party and (b) the delivery of goods and/or services by the other party Payment requires payment in the correct form (cash, e-transfer, credit card, etc.) and in the correct currency and amount at the due date Providing goods and/or services requires the seller/vendor to delivery the goods and provide the service at the time, amount and according to the specifications of the contract

Answer 32

A condition is an essential and important term of the contract Parties should contractually agree on which terms qualify as conditions The breach of a condition entitles the innocent party to terminate the agreement and thus being no longer obliged to perform his/her obligations under the contract A condition inserted for the benefit of one party can be waived by that party (subject to certain exceptions)

Answer 33

Occurs if one party expressly or impliedly refuses to perform the contract and is called repudiation, Typically giving the innocent party a right to treat the relationship as terminated, if the term that was broken was a condition classified as such by the contract (or through contract interpretation) or legislation Thus, legal consequences of breach of contract and the rights of the innocent party differ depending on which contract provision was broken and whether the party at fault already performed some part of the contract If party at fault performed substantial part of the contract, innocent party might be precluded from disaffirming the contract Repudiation can occur even before performance is due in which case it is an anticipatory repudiation and has the same effect as if the breach of the contract has already occurred Innocent party can affirm (awaiting performance) or disaffirm (elect to terminate) the contract If innocent party elects to disaffirm the contract, he/she can commence action for breach immediately, not needing to wait until date of performance Disaffirming the contract does not make it ab initio void but excuses the innocent party from future performance

Answer 34

Compensatory damages are the usual – but not the only - remedy for breach of contract Damages are calculated based on the expectancy principle, meaning the victim is financially put in the position as if the contract would have been performed Damages awarded on the expectancy principle are “forward-looking”, unlike in tort cases, which are “backward looking” Damages do include consequential damages, such as loss of profit

Answer 35

Is an equitable remedy only available in rare circumstances where damages are inadequate Means the court orders the party in breach to perform the obligation that has been breached Typical settings in which specific performance plays a role: Sales of land – presumption of uniqueness of land, but presumption can be overturned Sales of goods – purchaser must prove that subject matter is rare/unique with no substitute readily available See also: Sale of Goods Act (SK), section 51 on the availability of the remedy for the buyer Sales of shares Not an issue for shares in publicly traded companies Specific performance likely to be ordered for shares in a privately held corporation (issue of difficulty of evaluating the shares) Specific performance can be combined with a monetary award Most commonly occurs in real estate transactions Example: seller unable to provide ownership rights/quality of land promised in contract leading to specific performance with an abatement, i.e., a reduction in purchase price

Answer 36

Commonly, play a role in scenarios where one party has contractually committed not to do something Typical cases arises on post-employment non-competition clauses or a celebrity refusing to abide by a negative covenant Power to issue interlocutory injunctions usually conferred by statute Issuance of interlocutory injunction often contentious Factors taken into account by courts to determine whether to issue an interlocutory injunction: Does the plaintiff have a strong case? What is the defendant’s defence? Would not issuing the injunction result in irreparable harm? What is the balance of (in)convenience, i.e. which party would suffer greater harm by granting/refusing the injunction?

Answer 37

Disgorgement is a claim to the profits enjoyed by the party in breach because of the breach Traditionally, the victim’s claim for damages was limited to the expectancy principle, i.e., to put the victim in the position it would have been in had the contract been performed In more recent decisions, awarding the victim the profits made by the defendant through the breach was accepted by courts in narrow circumstances (example: breach also amounted to a criminal offence) Fact that breach was cynical or deliberate is not sufficient to grant disgorgement relief Fact that purpose of breach was to enjoy more profitable contract with a 3rd party also not sufficient to grant disgorgement relief

Answer 38

Comes from the Latin term “tortus” meaning wrong Very old and broad area of law Involves a wrong committed by one person against another person, another person’s property or another person’s reputation No need for business transaction between the involved parties, often there is none Not all wrongs are torts, but some torts are criminal acts Not all torts involve intentional acts Typical elements of a tort include: A wrongful act or omission Causation, i.e. the wrongful act/omission caused harm Quantifiable harm

Answer 39

Unlawful touching or striking of a person Requires intention to harm Actual violence not required if injury occurred If no harm is done, must be offensive or accompanied by threat of violence

Answer 40

Is a threat of violence or injury causing reasonable fear of imminent danger Does not need to be accompanied by the application of force to be actionable

Answer 41

Can take the form of libel or slander and requires “publication” Occurs if false statement is made that can injure a person’s reputation Increasing practical importance due to social media In order to avoid defamation claims as a business: do not engage in negative advertising internet/social media policy for large(r) business: involve your media/public relations department review public statements which criticize your competitor/its products with a lawyer prior to publication (or do not publish in the first place)

Answer 42

Also known as “trade libel” or “commercial disparagement” Arises typically in the context of negative advertising Includes for example false statements about products of competitors claiming such products are faulty or unsafe to use Tort can also arise in consumer context where consumers make such untrue statements about the products of a business

Answer 43

Refers to untrue statement about another person’s right to the ownership of goods Includes accusations of goods being stolen, produced in violation of laws (e.g., patent violations) or improperly imported Can also take form of allegations of “passing off”, e.g., claiming a competitor is selling off its own goods as those of a famous manufacturer/label

Answer 44

Allows suing for economic loss resulting from a civilly actionable wrong against a third party

Answer 45

issue whether the wrongful conduct actually caused the injury of the victim Acts or omission must be connected in a direct way to the injury without intervening events breaking that chain Thus, courts ask: would the injury have occurred **“but for” the conduct of the wrongdoer?** Only foreseeable damages from the wrongdoer’s conduct are compensable in negligent tort cases, not any extreme reactions to events not foreseeable by a reasonable person Issue in practice of what can reasonably be foreseen? In reality, often combination of factors lead to injury with multiple parties at times playing a contributory role Test is irrelevant in cases of strict liability where intent or negligence does not matter

Answer 46

Vicarious liability means liability at law of one person (employer) for acts of another person (employee) Is a departure from basic theory that a person who injures someone should bear the resulting loss Employment relationship is the one most commonly giving rise to vicarious liability, others include liability of partners in a partnership or motor vehicle owners for negligent drivers Reasons for holding employer liable: Employees may not have financial means for damages they cause, while employers do Employer should bear responsibility for loss caused by work the employer is directing Employer can obtain insurance coverage for such liability Encourage employers to take proactive steps to reduce potential harm Requirements for holding employer liable: Tort must have been committed by employee “in the course of their employment” Tort just happening during working hours not sufficient Must have a direct link to the duties the employee ought to perform

Answer 47

Can be triggered by someone injured at/near a business premises Occupier does not need to be the owner of the premise Occupier owns duty of care to anyone entering their business premises Example: snow/ice removal in winter Keeping premises safe (e.g., no falling pieces from the roof) Standards of care depends on nature of business and ability to patrol property (if hard to patrol, lower standard) Today mainly addressed through provincial legislation in most provinces, but not in SK Therefore, in SK, traditional common law principles apply

Answer 48

Arises out of damage caused to people or property by defective or dangerous products Manufacturer owns duty of care to anyone reasonable foreseen to use the product Certain products are inherently dangerous, thus consumer/customer has to be warned of danger and instructed on proper use of product Manufacturers over time came up with other innovative risk management techniques, e.g., bitter taste of colourful household cleaning liquids Defective v. dangerous goods If design issue, then all products impacted If manufacturing problem, only some products may be impacted

Answer 49

Arises if one party interferes with use and enjoyment of someone else’s real property Can result from intentional, negligent or no-fault conduct No need of ownership of the impacted property to bring a claim for nuisance Tenants of a business premises can bring a nuisance claim against their neighbours Can come from wide variety of sources, e.g., noise, smoke, fumes, smells, spills, vibration or contamination, but also non-environmental sources Accidents such as broken water/sewage pipes can result in nuisance lawsuits Nuisance can occur even without actual or physical damage to the real property Interference with property has to have substantial and serious impact on enjoyment of property to be actionable Very much depending on individual circumstances, esp. location Municipal zoning by-laws, building codes and environmental laws address impact of different kinds of land/real property use, but do not entirely replace the tort of nuisance Injunctions are an important remedy in nuisance cases, esp. if no damage to the property is done

Answer 50

Tremendous practical importance both in transactions between businesses and between businesses and consumers Is a transaction based on a contract and thus common law contract law applies unless modified by legislation For SK: The Sale of Goods Act, 1978; very similar legislation exists in all provinces except Quebec Typical features of a contract for the sale of goods include: Transaction is in movable goods (chattel) Sale of goods can be absolute or conditional for goods existing or future goods Difference between “contract of sale” (ownership transfers immediately) and “agreement to sell” (ownership transfers in the future) Sale of Goods Act does not apply to real estate transactions and transfer of intellectual property rights Not to be confused with the contract for work and material Transaction must be for money, not a barter of goods No form requirement (can be oral, in writing, implied from conduct) unless goods exceed certain value ($50 in SK) Numerous exceptions to form requirements in practice Example: buyer accepts part of the goods sold and receives them

Answer 51

Timing of title transfer critical as risk of goods being destroyed/damaged passes at this time Timing of transfer of title might impact 3rd party rights Parties to the contract may determine when title passes If they fail to do so, Sales of Goods Act determines when title passes Transfer of title may also be determined based on parties’ conduct Transfer of title may not be at the same time as obtaining possession of goods Depending on the nature of the goods sold (specific goods v. goods not in deliverable state) title passes at different time

Answer 52

A lien is a security interest by the seller in goods allowing seller to retain possession Applies if seller is unpaid but still in possession of goods and certain additional criteria are met

Answer 53

Value of an IP is the owner’s right from preventing others copying it In practice, almost all businesses have some type of IP worth being protected Most IP law is under federal jurisdiction resulting in uniformity across Canada Trade secrets are protected under common law Copyrights and trademarks are protected by both under common law and by legislation

Answer 54

Patent is granted by a government body (the Canadian Intellectual Property Office (CIPO)) and thus requires an application The invention must be: (a) something new, (b) something useful (low threshold for that) and (c) something inventive, i.e. showing ingenuity, not something obvious

Answer 55

Time is of essence in patent applications (first-to-file approach) If you wish to patent an invention quick filing is recommended Issues of patentable inventions can arise in context of employment (best be regulated in the employment contract) Once patent is granted, the holder should meet public demand for the invention, if not a compulsory license may be ordered Holder can seek damages (incl. profits made from unauthorized use) and injunctions for patent infringements Enforcement can be slow and expensive Enforcement complicated in cases of infringement abroad

Answer 56

Is the right of the copyright owner/original author to control the use and reproduction of work and prohibits reproduction without permission Wide application to all written and artistic work, including translations of written work and conversion to another medium

Answer 57

Is the unlawful interference with someone else’s copyright Enforcement of the copyright rests with the holder Copyright infringement does NOT require any (financial) gain by the wrongdoer Typical remedies include injunctions and damages Some infringements, such as software piracy for commercial gain might be subject to criminal proceedings

Answer 58

Is the unlawful interference with someone else’s copyright Enforcement of the copyright rests with the holder Copyright infringement does NOT require any (financial) gain by the wrongdoer Typical remedies include injunctions and damages Some infringements, such as software piracy for commercial gain might be subject to criminal proceedings

Answer 59

Is the unlawful interference with someone else’s copyright Enforcement of the copyright rests with the holder Copyright infringement does NOT require any (financial) gain by the wrongdoer Typical remedies include injunctions and damages Some infringements, such as software piracy for commercial gain might be subject to criminal proceedings

Answer 60

Trade secrets include technical information such as methods, processes, recipes, etc. which provide an economic value In practice, equally important is confidential information, such as clients lists, financial data, business plans and strategies Trade secrets and confidential information are not addressed in specific legislation but protected in common law