Table of Contents About the Authors v Foreword by Madam Justice Eileen E. Gillese Preface xxi Table of Statutes xxviii Table of Cases xxxi vii Part 1 Introduction to Business Law 1 Unit 1 Introduction to Law 1 Chapter 1 The Legal System and Risk Management 1 Why Study Law? 2 Risk Management 2 Business Law in Action 1.1: Risk Management 3 An Introduction to the Legal System 4 The Nature of Law 5 Ethical Perspective 1.1: Rules and Laws 5 A Map of the Law 6 Sources of Law 10 You Be the Judge 1.1: Court Structure 21 Litigation and Alternative Dispute Resolution 21 Business Decision 1.1: Disadvantages of Formal Litigation 22 WWWeblinks 28 Part 2 Private Law Regulation of Business 31 Unit 2 Contracts 31 Chapter 2 The Nature and Creation of Contracts 31 Intention to Create Legal Relations 33 You Be the Judge 2.1: Fobasco Ltd v Cogan 34 Offer 34 The Nature of an Offer 34 Invitation to Treat 35 Communication of an Offer 36 The Life of an Offer 36 Ethical Perspective 2.1: Dickinson v Dodds 37 Business Decision 2.1: The Granting of Options 38 Acceptance 41 Acceptance by Promise 41 Business Law in Action 2.1: Battle of the Forms 41 Business Law in Action 2.2: Can Computers Accept Contractual Offers? 43 Business Law in Action 2.3: The Postal Rule 45 Acceptance by Performance 46 Chapter 3 Consideration and Privity 52 Consideration 53 Sufficient and Adequate Consideration 53 You Be the Judge 3.1: Forbearance to Sue 54 Past Consideration 55 Ethical Perspective 3.1: Past Consideration 56 Pre-existing Obligation 57 Business Decision 3.1: The Limits of Pre-existing Public Duties 57 Promises Enforceable without Consideration 60 Privity of Contract 63 Assignment 64 Business Law in Action 3.1: Equities Arising from the Assigned Contract 66 xi
xii TABLE OF CONTENTS Business Law in Action 3.2: Equities Arising from Other Transactions 66 Trusts 68 Statute 69 Employment 69 Chapter 4 Representations and Terms 74 Pre-Contractual and Contractual Statements 75 Misrepresentation 76 The Nature of Misrepresentation 76 Business Law in Action 4.1: Statement of Fact or Opinion? 77 Business Law in Action 4.2: Statement of Fact or Future Conduct? 78 Ethical Perspective 4.1: Misrepresentation and Silence 79 You Be the Judge 4.1: Failure to Investigate a Misrepresentation 80 The Legal Consequences of Misrepresentation 81 Types of Misrepresentation 82 Contractual Terms 83 Express Terms 83 Business Law in Action 4.3: Contractual Interpretation 85 Implied Terms 86 Standard Form Agreements 87 Business Decision 4.1: Standard Form Agreements 88 Appendix 4A 94 Chapter 5 Contractual Defects 100 Incapacity to Contract 101 Personal Incapacity 101 Business Corporations 103 Business Decision 5.1: Drafting Articles of Incorporation 104 Associations 104 Indian Bands and Native Persons 105 Public Authorities 105 Absence of Writing 105 Statute of Frauds 105 You Be The Judge 5.1: Van Berkel v De Foort 107 Mistake 108 General Principles 108 Mistakes Preventing the Creation of Contracts 108 Mistakes Rendering Impossible the Purpose of the Contract 109 The Doctrine of Frustration 110 Documents Mistakenly Signed 111 Illegality 112 Agreements Prohibited by Statute 112 Common Law Illegality 112 Business Law in Action 5.1: Illegality and Public Policy 112 The Doctrine of Public Policy 113 Unfairness During Bargaining 114 Duress 114 Undue Influence 115 Unconscionable Transactions 116 Ethical Perspective 5.1: Beach v Eames 117 Chapter 6 Breach and Discharge 122 Discharge by Performance 123 Time of Performance 123 Tender of Payment 124 Tender of Performance 125 Discharge by Agreement 126 Option to Terminate 126 Condition Subsequent and Condition Precedent 126 Business Law in Action 6.1: Condition Precedent 127 Rescission 128
TABLE OF CONTENTS xiii Accord and Satisfaction 128 You Be the Judge 6.1: Accord and Satisfaction 128 Release 129 Variation 129 Novation 129 Business Law in Action 6.2: Novation 130 Waiver 130 Discharge by Operation of Law 131 Frustration 131 Lapse of Limitation Period 131 Ethical Perspective 6.1: Limitation Periods 132 Bankruptcy 132 Discharge by Breach of Condition 132 Types of Terms 132 Business Decision 6.1: Discharging for Breach 135 Types of Breach 135 Business Law in Action 6.3: Anticipatory Breach 136 The Effect of Discharge 137 Chapter 7 Contractual Remedies 141 Damages 142 Expectation Damages 143 You Be the Judge 7.1: Calculation of Expectation Damages 144 You Be the Judge 7.2: Calculation of Expectation Damages 144 Business Law in Action 7.1: Mitigation of Damages 148 Reliance Damages 148 Business Decision 7.1: Expectation Damages and Reliance Damages 149 Ethical Perspective 7.1: Reliance Damages and Bad Bargains 149 Nominal Damages 150 Liquidated Damages 150 Punitive Damages 150 Equitable Relief 151 Specific Performance 151 Injunctions 153 Exclusion Clauses 154 Unjust Enrichment 155 Chapter 8 Special Contracts: Sale of Goods 160 The Sale of Goods Act 161 A Sale of Goods 162 Passing of Property 164 Business Law in Action 8.1: Passing of Property Rule 1 164 Business Law in Action 8.2: Passing of Property Rule 2 165 Business Law in Action 8.3: Passing of Property Rule 3 165 Business Law in Action 8.4: Passing of Property Rule 4 166 Business Law in Action 8.5: Passing of Property Rule 5 166 Terms in Contracts of Sale 167 Title to Sell 168 Nature of the Goods 168 Delivery and Payment 171 Remedies 173 General Remedies 173 You Be the Judge 8.1: Compensatory Damages and the Sale of Goods Act 173 Special Remedies for the Seller 174 Ethical Perspective 8.1: Action for the Price and Expectation Damages 175 Business Decision 8.1: Seller s Lien and Insolvency 176 Chapter 9 Special Contracts: Negotiable Instruments 182 The Bills of Exchange Act 185 Types of Negotiable Instruments 185
xiv TABLE OF CONTENTS Cheques 186 Bills of Exchange 190 Promissory Notes 192 Negotiation 194 Methods of Negotiation 194 Liability 195 Forms of Endorsement 197 Defences 199 Types of Parties 200 Personal Defences 201 Defect in Title Defences 201 Real Defences 203 Consumer Bills and Notes 204 Business Law in Action 9.1: Consumer Bills and Notes 204 WWWeblinks 209 Unit 3 Torts 210 Chapter 10 Introduction to Torts and Intentional Torts 210 Introduction to Tort Law 211 Liability Insurance 212 Vicarious Liability 213 Ethical Perspective 10.1: Bazley v Curry 213 Business Law in Action 10.1: Vicarious Liability and Personal Liability 215 Remedies 215 You Be the Judge 10.1: Compensation in Tort and Contract 216 Alternative Compensation Schemes 218 Intentional Torts 219 Assault and Battery 219 False Imprisonment 221 Business Decision 10.1: False Imprisonment and Detention by Security Guards 222 Invasion of Privacy 223 Trespass to Land 224 You Be the Judge 10.2: Trespass to Land and Injunctions 225 Interference with Chattels 225 Ethical Perspective 10.2: Conversion and Innocent Purchasers 227 Chapter 11 Miscellaneous Torts Affecting Business 231 Intimidation 232 Interference with Contractual Relations 233 Conspiracy 235 Ethical Perspective 11.1: Conspiracy to Injure Plaintiff by Lawful Means 236 Deceit 236 Occupiers Liability 237 Common Law Rules 238 Business Law in Action 11.1: Common Law Categories of Occupiers Liability 239 Statutory Rules 240 Nuisance 241 Defences to Nuisance 242 Business Decision 11.1: Nuisance and the Defence of Statutory Authority 243 Remedies for Nuisance 243 The Rule in Rylands v Fletcher 244 Defamation 245 You Be the Judge 11.1: Defamation of Groups and Organizations 245 Defences to Defamation 246 Remedies for Defamation 248
TABLE OF CONTENTS xv Chapter 12 Negligence 252 Duty of Care 254 Ethical Perspective 12.1: Duty of Care 254 Test for Determining the Existence of Duty of Care 255 Business Decision 12.1: Reasonable Foreseeability and Risk Management 256 Breach of the Standard of Care 259 Professional Negligence 260 Product Liability 261 Causation of Harm 263 You Be the Judge 12.1: The But-For Test 264 Business Law in Action 12.1: Causation and Market Share Liability 265 Remoteness 265 Business Law in Action 12.2: Remoteness and Thin Wallets 266 You Be The Judge 12.2: Remoteness and Intervening Acts 267 Defences 268 Contributory Negligence 268 Voluntary Assumption of Risk 269 Illegality 269 WWWeblinks 274 Canadian Case Study for Unit 3: Business Tricks: Conspiring Against Competitors 275 Unit 4 Property 277 Chapter 13 Real Property: Interests and Leases 277 Interests in Land 278 Estates in Land 279 Ethical Perspective 13.1: Expropriation 280 Business Law in Action 13.1: Life Estates in the Business Context 281 Business Decision 13.1: Choice of Shared Ownership 283 Non-Possessory Interests in Land 284 Leases 288 Duration 289 Assignments and Subleases 290 Commercial Leases 291 You Be The Judge 13.1: Commercial Leases and Mitigation 293 Residential Leases 293 Chapter 14 Real Property: Sales and Mortgages 299 Registration Systems 300 Registry System 300 Land Titles System 301 Unregistered Interests 302 Land Sales 303 Risk Management 303 Ethical Perspective 14.1: Unregistered Interests in Land 303 Agreement of Purchase and Sale 305 You Be The Judge 14.1: Agreement of Purchase and Sale and Conditions 306 Closing 307 Remedies 307 Business Law in Action 14.1: Vendor s Lien and Priority 308 Mortgages 309 Nature of Mortgages 310 Terms of the Contract 313 Remedies for Default 315 Business Decision 14.1: Mortgages and the Right of Possession 316 Chapter 15 Personal Property 322 Acquiring Personal Property Rights 323 Losing Personal Property Rights 324
xvi TABLE OF CONTENTS Bailment 325 Business Law in Action 15.1: Bailment and Parking Lots 326 Liability of Bailors 326 Liability of Bailees 327 You Be the Judge 15.1: Shifting the Burden of Proof 328 Sub-Bailment 330 Personal Property, Risk Management, and Insurance 333 Scope of Coverage 334 Indemnification 335 Business Decision 15.1: Insurance Coverage and the Price of Premiums 336 Insurable Interest 336 Excessive and Insufficient Insurance 337 Subrogation 337 Ethical Perspective 15.1: Subrogation 339 Other Forms of Business Insurance 339 WWWeblinks 344 Canadian Case Study for Unit 4: Commercial Leases: An Overlooked Investment 346 Unit 5 Business Law in the Digital Age 348 Chapter 16 Knowledge-Based Businesses and Intellectual Property 348 Information as a Commodity 349 Miraculous Nature of Information 349 Economics of Information 350 Information-Based Assets 350 Intellectual Property 351 Copyright 352 Business Law in Action 16.1: The Low Threshold of Originality 354 Business Decision 16.1: Unbundling Copyright 356 Ethical Perspective 16.1: Gnass v Cité d Alma 358 Trademarks 360 You Be the Judge 16.1: Trademark and Passing-Off 361 Patents 363 Industrial Designs and Integrated Circuit Topographies 368 Trade Secrets and Confidential Information 369 Chapter 17 Electronic Commerce 374 Electronic Commerce Legislation 375 Canada s Uniform Electronic Commerce Act 375 Provincial Electronic Commerce Legislation 378 Contracting Online 378 Contract Formation 378 Automated Electronic Commerce 380 Authentication 381 Information Security 383 Ethical Perspective 17.1: Online Privacy 384 Domain Names 386 Business Law in Action 17.1: Parody Web Sites 387 Internet Access Provider and Online Service Provider Liability 388 Jurisdiction 388 You Be the Judge 17.1: UEJF et LICRA v Yahoo! Inc et Yahoo!France 390 Online Intermediaries 390 Online Consumer Protection 393 Business Decision 17.1: Respecting Consumer Protection 395 WWWeblinks 400 Part 3 Methods of Carrying on a Business 403 Unit 6 Business Organizations 403 Chapter 18 Basic Forms of Business Organizations 403 Sole Proprietorships 405
TABLE OF CONTENTS xvii Legal Requirements of the Sole Proprietorship 406 General Partnerships 406 Characteristics of General Partnerships 406 Partnership Property 407 Partnership Legislation and Partnership Agreements 407 Creating a Partnership 408 You Be the Judge 18.1: Is There a Partnership? 409 Business Law in Action 18.1: Partnership Tax Losses and the Creation of a Partnership 410 Risk and Liability in General Partnerships 410 Internal Organization of the Partnership 413 Dissolution of Partnerships 414 Limited Partnerships 415 Business Decision 18.1: Creation of a Partnership 415 Corporations 416 Incorporation Process 416 Characteristics of Corporations 418 Ethical Perspective 18.1: Limited Liability 420 Chapter 19 Legal Rules for Corporate Governance 425 Management and Control of the Corporation 426 How Directors and Officers Exercise Power 427 Directors 427 Officers 427 Management s Duties to the Corporation 428 Fiduciary Duty 428 Duty of Care 431 Protection for Creditors 433 How Shareholders Exercise Power 433 Access to Information 434 Shareholders Agreements 435 Shareholder Remedies 436 Dissent and Appraisal Rights 436 Oppression 437 Other Shareholder Remedies 437 Corporate Governance in Practice 437 Corporate Liability 438 Liability in Contract 438 Liability for Crimes 440 Liability in Tort 441 Personal Liabilities of Directors and Officers 441 You Be the Judge 19.1: Consolidated Enfield Corporation v Blair 442 Ethical Perspective 19.1: Indemnification for Liabilities under Regulatory Statutes 442 Business Decision 19.1: Joining a Board of Directors 443 Chapter 20 Agency and Other Methods of Carrying on Business 447 Basic Rules of Agency 449 Creation 449 When Is the Principal Liable? 451 When Is the Agent Liable? 454 The Agent s Duty to the Principal 455 The Principal s Duty to the Agent 457 Termination 457 Risk Management Issues 457 You Be the Judge 20.1: Authority of Insurance Broker 459 Business Law in Action 20.1: When Is the Government Liable as Principal? 459 Ethical Perspective 20.1: Agent s Criminal Liability 460 Business Relationships in Which Agency Issues Arise 460 Joint Ventures and Strategic Alliances 461 Distributorships 461 Agents Governed by Special Statutes 462
xviii TABLE OF CONTENTS Franchising 462 Advantages and Disadvantages for the Franchisee 463 Advantages and Disadvantages for the Franchisor 463 Legal Rules Governing Franchise Relationships 463 Business Decision 20.1: Method of Carrying on Business 464 WWWeblinks 468 Canadian Case Study for Unit 6: Franchise Agreements: Protect Your Investments 470 Unit 7 Practical Business Decisions 472 Chapter 21 Secured Transactions 472 Security Interests and Provincial Personal Property Security Laws 473 How Security Interests Are Created 474 Conditional Sales 474 Granting a Security Interest in a Specific Asset or in All the Debtor s Assets 476 Assignment of Accounts Receivable 476 After-Acquired Property 477 Special Security Interests of Banks 478 Provincial Personal Property Security Legislation 479 Scope of Application 479 Protecting Security Interests under PPS Legislation 481 Business Law in Action 21.1: Registration before Attachment 482 Enforcement of Security Interests 485 You Be the Judge 21.2: Commercial Reasonableness and the Disposition of Collateral 486 Security Interests When Collateral Is Transferred 488 Guarantees 489 Ethical Perspective 21.1: Informed Consent of Guarantor 490 Business Decision 21.1: Setting up a Distributorship 491 Chapter 22 Dealing with Bankruptcy and Insolvency 495 Regulation of Bankruptcy 497 Corporate and Consumer Bankruptcy 498 Bankruptcy 499 Bankruptcy and Insolvency 499 Petition and Assignment 500 Proposals 501 Creditors 502 Creditors and the Market for Credit 502 Creditor Equality 503 Proof of Claim 503 Officials 504 Superintendent of Bankruptcy and Official Receivers 505 Trustee in Bankruptcy 505 Business Decision 22.1: Trustees and Environmental Liability 505 Bankruptcy Court 506 Inspectors 506 Business Decision 22.2: Selling Assets: A Good Price or Simply the Best? 506 The Process of Bankruptcy 506 Assignment 507 Petition and Receivership 507 You Be the Judge 22.1: Demanding a Demand Loan Can a Debt Be Called Too Soon? 508 Distribution of Assets 509 Ethical Perspective 22.1: Discharging Student Loans in Bankruptcy Think Again 509 Proposals 512 Form and Requirements 513 Preparation and Voting 513
TABLE OF CONTENTS xix Other Statutes Dealing with Financial Distress and Failure 514 Business Law in Action 22.1: International Bankruptcy 515 WWWeblinks 518 Part 4 Public Law Regulation of Business 520 Unit 8 Sources and Forms of Public Law Regulation 520 Chapter 23 Government Regulation of Business 520 Business Regulation 521 Concurrency and Paramountcy 522 The Canadian Charter of Rights and Freedoms 523 The Federal Court System 524 Competition 525 Competition and the Common Law 525 A Law for Competition 525 The Competition Act 528 Ethical Perspective 23.1: Single Source Contracts: Private Choice in Public Places 531 You Be the Judge 23.1: Can Mergers Be Efficient? 532 Business Decision 23.1: Taking on the Agreement on Internal Trade 533 Consumer Protection 534 Deceptive Marketing Practices 534 Other Fair Practices Legislation 534 Environmental Protection 535 Common Law Approaches 535 Jurisdiction over the Environment 536 Federal Legislation 536 Provincial Legislation 537 Corporate Exposure to Environmental Liability 538 Due Diligence 539 Environmental Remedies 540 Environmental Impact Assessments 541 International Environmental Protection: Climate Change and the Kyoto Protocol 541 Chapter 24 Doing Business in a Global Economy 545 Domestic and International Law 546 Legal Risk in International Business Transactions 548 Choice of Law 548 Choice of Forum and Jurisdiction 550 Dispute Settlement 551 International Sale of Goods 553 Sale of Goods: Four Contracts in One 553 Business Decision 24.1: Arbitration or Judicial Action? 553 Contract of Sale 554 Contract of Finance 554 Business Law in Action 24.1: International Sales, Drafts, and Negotiation 556 Contract of Transport 556 Contract of Insurance 559 Government Regulation of International Trade 560 Dumping and Subsidies 560 Other Matters 562 Ethical Perspective 24.1: Talisman in Sudan? 562 Public International Law 562 GATT and World Free Trade 562 World Trade Organization 563 You Be the Judge 24.1: Private Participation in WTO Disputes 564 North American Free Trade Agreement (NAFTA) 564 WWWeblinks 567 Canadian Case Study for Unit 8: Fair Trade in International Business 569
xx TABLE OF CONTENTS Part 5 Employment Law 571 Unit 9 Employment and Labour Law 571 Chapter 25 Individual Employment 571 Pre-Employment Matters 572 Job Descriptions 572 Advertising Positions 572 Application Forms and Interviews 573 Business Law in Action 25.1: Advertisements and Human Rights 573 Statements Made during Hiring 574 Nature of the Work Relationship 574 Employers Obligations and Worker Protection Legislation 576 Third-Party Liability 576 You Be the Judge 25.1: Cole v California Entertainment Ltd 577 Supervision 577 Ethical Perspective 25.1: Smyth v Pillsbury Co 578 Statutory Protection 579 Business Decision 25.1: Mandatory Vacation Dates 581 Termination of Employment 584 Summary Dismissal 584 Wrongful Dismissal 587 Constructive Dismissal 588 Business Law in Action 25.2: Pullen v John Preston Ltd 589 Severance Packages and Settlements 589 Chapter 26 Organized Labour 594 Collective Bargaining 595 Nature and Function of Collective Bargaining 595 Acquisition of Bargaining Rights 596 Collective Bargaining Process 597 Collective Agreements 598 Strike and Lockout Provisions 598 Grievance Provisions 599 Union Security Clauses 599 Business Law in Action 26.1: The Lockout Provision 599 Grievance Arbitration 600 Arbitration Process 600 Typical Grievances 601 You Be the Judge 26.1: Demotion 602 Business Decision 26.1: Retroactive Pay to Former Employees 604 Arbitration Awards 604 Enforcement of Arbitration Awards 605 Industrial Conflict 605 Strikes 605 Lockouts 607 Picketing 607 Ethical Perspective 26.1: Brett Pontiac Buick GMC Ltd v NABET Local 920 609 Boycotts 609 WWWeblinks 613 Canadian Case Study for Unit 9: Managing Risk During the Recruitment Process 615 Index 617