Post Midterm Flashcards
(144 cards)
5 Ways to Discharge a Contract
1) Agreement:
- Waiver: Giving up the right to enforce the contract.
- Provision: A clause that terminates the contract based on conditions; precedent or subsequent.
- Substitution: Revision and creation of a new contract.
2) Performance:
- Frustration of Contract: External events make contract performance impossible.
- Novation: Creating a new contract when both parties are unable to perform.
* Both parties are unable to perform the contract but are unable to make because of external events that make it not possible (Frustration Contract)
3) Impossibility:
- Personal Services: Contract depends on an individual (e.g., medical procedure).
- Non-Personal Services: Contract can be fulfilled by someone else.
- Frustration (Force Majeure): Unforeseen events beyond control (Act of God).
- Personal: No liability involved.
- Non-Personal: Liability could result.
4) Operation of Law:
- Direct Sellers Act: 10-day cool-off period to cancel the contract.
- Limitations of Actions Act: There are limitation periods for breach of contract.
- Bankruptcy: Bankruptcy of one party can discharge the contract.
5) Breach (can be breached in 2 ways)
5 Ways to Discharge a Contract
1) Agreement
* Wavier: giving up
*Provision: clause that terminates the contract– Condition; precedent (subsequent-something takes place after the date of the contract, ex. Agree to something providing that something else does not take place)
*Substitution: revise and make a new contract
2) Performance
* Both parties are unable to perform the contract but are unable to make because of external events that make it not possible (Frustration Contract) Novation- new contract
3) Impossibility
* Something happens beyond control between the parties (depends if contract is for personal [medical procedure, sculpting for you, etc. rely on person] or non-personal [someone else can handle to contract, don’t know who is building your house] services)
* Frustration (force majeure) -if doctor sick and can’t, or if builders on strike – no fault of anyone
o Personal = cannot sue for damages (no liability involved)
o Non personal= liability could result
* Act of god
4) Operation of Law
* Direct Sellers Act
o 10 day cool off period, 10 days to cancel the contract
* Limitations of Actions Act
-You cannot sit on your rights forever (if breached contact, there are limitation periods, have 2 years from when money is due)
Bankruptcy
o Bankarupta
Bankruptcy and Insolvency Act
4) Operation of Law
Bankruptcy and Insolvency Act
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Components: 2 objectives of bankruptcy law (2 main reason why there is bankruptcy laws):
1) Bankruptcy (legal process)
2) Proposal -
Objectives of Bankruptcy Law:
1) Orderly Distribution of Assets:- Fair distribution of a debtor’s assets among creditors.
- Allows an honest but unfortunate debtor to start over.
- Provides an opportunity to wipe out most debts.
- Offers a release from most debts for a fresh financial beginning.
-a release from most of their debts so can start all over again with a clean slate
Bankruptcy vs. Insolvency:
Don’t mix up bankruptcy and insolvent
-
Bankruptcy:
- Legal process declaring a person or business unable to repay debts.
- Involves the orderly distribution of assets among creditors.
-
Insolvency:
- General financial state where liabilities exceed assets.
- Encompasses both bankruptcy and other debt resolution processes.
3 classes of creditors
▪ Secured: does not look to the individual to pay him, looks to the assets to pay debts (paid first)
▪ Preferred: employee entitled to pay 6 months as preferred creditors up to $2000. (government agencies, workers, compensation, landlord, funeral services, trustee in bankruptcy).- designated by statute
▪ General/ordinary: if anything is left over (rare), it is distributed
on a pro rata basis.
i.e. 10% out of $4000, you will get 4 cents on the dollar.
Classes of creditors
-
Secured Creditors:
- Hold a security interest in specific assets of the debtor.
- Have a priority claim on those assets.
-
Unsecured Creditors:
- Do not have a security interest in any specific assets.
- Share equally in the remaining assets after secured creditors are satisfied.
-
Preferential Creditors:
- Hold a special status, often defined by law.
- Examples include employees owed wages and certain taxes.
- Given priority in the distribution of assets over other unsecured creditors.
Understanding these classes is crucial for determining the priority of claims during the distribution of a debtor’s assets.
Bankruptcy in Canada
- Every bankruptcy in Canada is reported to the superintendent of bankruptcy; then have licensed trustees
- Insolvent vs. Bankruptcy
o A person is deemed to be insolvent if he can’t pay his bills.
o If a persons debt exceeds the assets by at least $10,000 that person is deemed to be insolvent.
o If they haven’t entered the legally into bankruptcy, they are insolvent
2 Ways to enter bankruptcy
▪ File for bankruptcy (Voluntary Assignment)-sign papers (then in legal state of bankruptcy)
▪ Petition in bankruptcy (force person into bankruptcy)
* Creditors make application to court to force you into bankruptcy. -only takes one creditor to seek a petition (if successful then like if all creditors applied)
Bankruptcy
Once bankruptcy No creditors have any legal rights to come after the debtor (lawsuits, claims stop)
-must be honest with trustee
-once application- creditors cant come after, if approved then discharged (9-12 months)
-criminal fines/charges are not discharges
-student loans after 7 years after being a student are not discharges (if can prove hardship reduced to hardship)
-divorce settlements not discharged
-other than that all other debts are discharges
-what debts are not discharged when apply for bankruptcy
Act of Bankruptcy
o Can’t pay your bills
o Fail to pay bills
o Fraudulent transfer
o Taking money and fleeing the country
o Hiding assets
o Obtaining credit under bankruptcy
Bankruptcy Offences
o Criminal acts
o Any fraudulent transfers is not only a act of bankruptcy but also a bankruptcy offence
o Lying to trustee is an offence, refusing to answer truthfully
o Fines $10,000 and/or prison up to 3 years
o Providing false information
Act of Bankruptcy (more info)
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Definition:
- An action or circumstance that indicates a debtor’s insolvency and triggers bankruptcy proceedings.
Examples of Acts of Bankruptcy:
1) Failure to Meet Liabilities:
- Inability to pay debts as they become due.
2) Fraudulent Conveyance:
- Transferring assets with the intent to defraud creditors.
3) Assignment for the Benefit of Creditors:
- Voluntary transfer of assets to a third party for the benefit of creditors.
Consequences:
- Initiates bankruptcy proceedings, allowing creditors to seek repayment through the legal process.
Understanding acts of bankruptcy is crucial for identifying situations where a debtor’s financial state necessitates legal intervention.
Bankruptcy Offences
- Definition:
- Actions or behaviors that are considered offenses under bankruptcy laws.
- Examples of Bankruptcy Offences:
1) Concealing Assets:- Intentionally hiding or failing to disclose assets during bankruptcy proceedings.
- Providing false or misleading information in bankruptcy filings.3) Fraudulent Transfers:
- Illegally transferring assets to others to avoid creditors.4) Preferential Payments:
- Making payments to favored creditors before filing for bankruptcy. - Consequences:
- Criminal and civil penalties, including fines and imprisonment.
- May impact the discharge of debts or result in the denial of bankruptcy relief.
Understanding bankruptcy offenses is crucial for debtors to comply with the law and avoid legal consequences.
Farm Debt Meditation Act
o Farmers cannot be petition into bankruptcy
o Farmers can file themselves if they choose too for bankruptcy
o Farmers cannot file for bankruptcy, but instead have their own statute
o Only applies to farmers that cannot pay their debts
Farm Debt Meditation Act cont…
- Overview:
- Legislation designed to assist farmers facing financial difficulties by providing a mediation process for debt resolution.
- Key Points:
1) Mediation Process:- Facilitates negotiations between farmers and creditors to reach a mutually agreeable solution.
- Applies to farmers and certain fishers facing financial distress.3) Objectives:
- Encourages open communication and fair agreements.
- Aims to avoid foreclosure and bankruptcy, promoting the viability of farming operations. - Benefits:
- Provides farmers with a stay of proceedings during the mediation process.
- Preserves the farm assets and allows for the development of a viable financial plan.
Understanding the Farm Debt Mediation Act is crucial for farmers navigating financial challenges and seeking debt resolution.
Companies Creditors Arrangement Act (federal statute)
o For corporations who have outstanding issues, and owe over
$5,000,000 dollars (for Canadian corps)
o This act stops any lawsuits and give time to make plans to reorganizations of company (plan for reorganizing the company)
Obtain financing
Reorganize itself internally
Restructure the entire organization
o If most creditors approve reorganization, then court will approve reorganization
Companies Creditors Arrangement Act (CCAA)
- Overview:
- Federal statute in Canada providing a framework for the restructuring of financially troubled corporations.
- Key Points:
1) Purpose:- Facilitates the negotiation of a plan between a company and its creditors for financial restructuring.
- Applies to large corporations with debts exceeding a specified amount.3) Features:
- Grants a stay of proceedings, preventing creditors from taking legal actions against the company.
- Allows for the creation of a plan of arrangement to address and resolve financial issues. - Benefits:
- Provides a mechanism for the orderly restructuring of a company’s affairs.
- Aims to maximize the return to creditors while preserving the company’s value.
Understanding the Companies Creditors Arrangement Act is essential for stakeholders involved in the restructuring of financially distressed corporations.
Proposal (alternative to bankruptcy)
o Form of mediation
o Division 1- applies to corporations: debts exceeds $250,000
▪Failure to comply with meditated proposal, is an automatic file of bankruptcy
▪applies to individuals: whose debts exceeds $250,000
-automatic petition to bankruptcy if don’t meet proposal/fail to keep up
▪ Division 2 -Consumer Proposal -owe up to 250,000 in debt
Less than $250,000, excludes mortgage on residence debt
-if fail to keep up with proposal then creditors have to petition them to bankruptcy
Has become very popular
Proposal as an Alternative to Bankruptcy
- Overview:
- A legal process providing an alternative to bankruptcy for individuals and businesses facing financial challenges.
- Key Points:
1) Purpose:- Allows debtors to make a formal proposal to creditors to restructure their debts.
- Outlines how the debtor intends to repay creditors, including modified payment terms.3) Creditor Approval:
- Creditors must vote on the proposal; if accepted, it becomes a legally binding agreement. - Benefits:
- Avoids the stigma and severe consequences of bankruptcy.
- Provides a structured framework for debt repayment and financial recovery.
- Limitations:
- Requires approval from a majority of creditors.
- Debtors must meet certain eligibility criteria to file a proposal.
Understanding the proposal process is essential for individuals and businesses seeking a viable alternative to bankruptcy.
Discharge of Bankruptcy
o Between 3-12 months the person can apply for discharge in bankruptcy (it will discharge most contracts, discharge most debt, there are certain exceptions, not money owing for spousal or child support, not any fines imposed by the court)
Discharge of Bankruptcy cont…
- Definition:
- The release of a debtor from the legal obligation to repay certain debts after completing the bankruptcy process.
- Key Points:
1) Conditions:- Debtors must fulfill all bankruptcy requirements and obligations.
- Automatic discharge is granted to first-time bankrupts without objections.
- Conditional discharge may apply if the debtor has surplus income or other specific circumstances.3) Impact on Debts:
- Discharges unsecured debts, providing a fresh financial start.
- Certain debts, such as student loans or court-ordered fines, may not be discharged. - Rehabilitation:
- Obtaining a discharge is a crucial step in the debtor’s rehabilitation process.
Understanding the discharge of bankruptcy is vital for individuals navigating the bankruptcy process and seeking debt relief.
Ex. Payday loans
Pay day loans (on west side)- fairly well restricted, cannot exceed $1,500, length of term cannot exceed 62 days length of repayment- vendor must be licensed, can only take postdated check/
-on pay day loan interest charges 891%- then fed gov put in legislation
Payday Loans Regulation
- Overview:
- Payday loans on the west side are subject to specific regulations to protect consumers.
- Restrictions:
1) Maximum Loan Amount:- Payday loans cannot exceed $1,500.
- The length of the loan term cannot exceed 62 days.3) Repayment:
- Repayment is typically required on the borrower’s payday. - Licensing:
- Vendors offering payday loans must be licensed to operate.
- Payment Method:
- Vendors can only accept a postdated check as a repayment method.
- Interest Charges:
- Interest charges on payday loans were historically high, reaching 891%.
- Legislation:
- The federal government has implemented legislation to address and regulate payday loan practices.
Understanding these regulations is essential for consumers and lenders involved in payday loan transactions.
5) Breach (can be breached in 2 ways)
Anticipatory Breach
o Time for the performance of contract has not arrived and you let them know ahead of time that they will not go through with it
They can do two things:
1) Treat the contract as terminated and seek a remedy (sue)
2) Wait and see if I perform the contract and then if I fail to perform at the given date then seek a remedy (sue)
Simple Failure to Perform
o Simply don’t do the contract without telling the other party beforehand