Canadian business and the law: Key Concepts

Key Concepts

All readings are useful. If you complete them before class you will find the materials covered in class much easier to understand than if you do not. At the same time, this is an Introductory Course and we do not expect you to remember all content for midterms and final. For this reason, we are summarizing the points from each chapter that we think are most important that you understand and remember. You may use these as a guide for preparing your own study notes. If you are confused on any of these materials, please ask.

1. Chapter 1

Broadly, what law is and its role in business
How law facilitates business activity and certainty in the marketplace
Key concepts: litigation, mediation, arbitration, liability
The difference between law and ethics
Role and importance of business ethics
Acquiring and maintaining knowledge of law if you are not a lawyer

2. Chapter 2

This chapter covers basic information you should know in order to be an educated Canadian. Quite a number of these concepts are addressed in the basic citizenship exam.
While we expect you to understand all of this and remember many of the basic principles, we do not expect you to know all the details. By that we mean, we don’t expect you to remember the details of Figure 2.3 or Figure 2.9.
Likewise, we expect you to have a general idea of the difference between, for example, procedural and substantive law but we won’t be asking you to list all examples given, and between public law and private law. An understanding of the role of equity is also helpful.
Understanding the potential impact of the Charter on business is also worthwhile.

3. Chapter 4

Reading through the Business Law in Practice example (p. 71) and the following pages will be useful.
You should know the general ways in which alternative dispute resolution work. How do they differ, when might you use which, what are the pros and cons from a business context of using each? Which are most useful in international business transactions? The process of litigation is important. You should understand the terminology and the key concepts. While you don’t have to remember all the details, much of what appears in the section from pp 82-90 is important to your basic education including the impact on business of class actions.
The comparison with the US on p. 90 is useful material.

5. Chapter 5

This is useful background material. The two principles in the margins (objective standard and equal bargaining power) are important. You should also attempt to understand the negotiation process and to what extent and when to involve lawyers.

6. Chapter 6

This chapter contains far more detail than you need to remember. What you should do is:

Read through and understand it all (other than promissory estoppel – we don’t expect you to even understand much of that).
What do you need to remember?
That contracts require key elements in order to be binding (offer and acceptance, clarity, consideration, intent) and that most agreements in fact have them.
You generally can’t simply respond to an ad and expect a binding contract. It may be that the supplier, e.g., doesn’t have the goods any more (this leads to the issue of consumer protection legislation to protect against false and misleading advertising but that is a separate subject).
Today, most of the contracts you and I enter into are ‘standard form’. What does that mean? How important are they to business? It is important you understand this.
The time before a contract is formed (when there is an offer on the table and maybe counter-offers), can be confusing. Make sure you understand what options are and why they are important in business.
Acceptance may also be complicated but in most cases it is reasonably clear. Make sure you understand what counter-offers are and their legal status.
Electronic contracting – understand as it is important in particular business transactions.
Consideration: it is confusing so just know it is a reflection of contracts being commercial relations:
Know what a gratuitous promise is.
Make sure you know that you understand pre-existing duties (Gilbert Steel). But that we now have the Greater Fredericton Airport case so as long as there is no ‘blackmail’.
Way around gratuitous promises is seal.
With partial payment – today mostly the promise to accept it is binding because of legislation.
Intention: make sure you understand the marginal note. Basically, for the most part it isn’t an issue (it is presumed; families and close friends excepted.

7. Chapter 8

Sometimes an arrangement looks just like a contract. But one or other of the ‘parties’ says something happened before it was entered into that means it should not be treated as one.
The key thing to understand is that we are not talking about breach of contract (where a promise that was made was not fulfilled). Rather we are talking about events that occurred prior to the contract being created that make us question whether a person should be bound by it. The easiest example would be if you imagine someone pointing a gun to your head and saying ‘sign this’. Not surprisingly, the ‘victim’ can argue they should be allowed not to be bound by the agreement (duress). Also understand how a risk management plan can protect a business from entering into a contract which might be non-enforceable.

What do you need to know?

You must know what voidable means and what are the requirements to claim it. Ensure you can contrast it with void (which is very rare).
Understand why people like minors and those with mental incapacity are protected and, generally, how. Understand the broad principles – why they are protected, why not all contracts are voidable (it would hurt them if this was the case because no one would enter into an agreement).
Generally understand concepts like duress including economic duress, undue influence and unconscionability – by generally we mean, why does the law protect people and how, if you were the other person, might you protect yourself from such an accusation (e.g. have the person see an independent lawyer).
Mistake – the most important thing to know is that it is not ‘oops’ but is major events and quite rare.
Misrepresentation – this should be your focus:
Understand the difference between innocent and misrepresentation.
Understand why innocent is so important. Do you know what rescission means and what constraints there are upon it?
How do you prove both innocent and fraudulent.
Negligent – we will consider that in torts.
Illegality: read this through and make sure you understand the basic principle of how it operates.
Understand the important practical contexts – non-compete clauses especially in employment contexts, and protection of goodwill.
Understand what happens if you get greedy and write a clause ‘too big’ – you get nothing.
Writing:
Know the difference between practice (where it is always smart to have it in writing so you all remember) and law.
The three things that require writing – guarantees, land, and contracts taking more than a year to perform.
Understand the box p. 185 on e-signatures.

8. Chapter 9

This is the ‘meat and potatoes’ of why you have a contract: to get something done. And if it isn’t done, to be able to get some sort of protection. As with some earlier chapters, read the material first and understand it.

Termination is most often by doing what is expected (or close enough that no one cares).
Make sure you understand the meaning of ‘vicarious’ performance.
By agreement – this gets complicated and you have to be careful where stakes are high. But it happens.
Generally understand that benefits of contracts are assigned and that this is the basis of many commercial transactions.
Don’t worry about frustration.
Enforcing:
You do need to know what privity means.
For breach: we only need you to know major (condition) and minor (warranty) breach (not innominate). But you need to know what the difference is and what the difference in outcome is. Different types of breaches are treated differently in law.
Fundamental breach exists but is rare. Know the name but focus on major/minor.
Also understand timing (205-6). This can be important in practice.
Damages: here we expect you to know the general calculation of damages for breach of contract and why they are awarded, the terms pecuniary and non-pecuniary (because the come up again with torts), very generally what remoteness is.
Very important, the duty to mitigate. More people come to grief over not understanding this than almost anything else with breach. Good guys become bad guys.
Understand the key equitable remedies and specific performance and injunction in particular (read the rest).

9. Chapter 7

Much of this is background material. You should read and understand. Things you really should know:

Basically terms are interpreted according to the rules of plain English.
Courts will always try to make a contract binding if it looks anything like one.
Express and implied terms (better to have express terms); dealing with ambiguities.
The parole evidence rule: this is an important basic principle you should understand.
Make sure you understand how you can protect yourself against changes to risk in a contract (151-2).
It is worth knowing what terms like conditional agreements, limitation of liability clauses, exemption/exclusion clauses mean.
Liquidation clauses – you should know what these mean.
Make sure you read the box 156-8 on shrink wrap contracts. 10. Chapter 10

This is the introductory chapter for Torts so it is important for you to read and understand it. You should be sure you know the difference between, for example, torts and criminal law and torts and contracts. This chapter will also help you understand the importance of tort risk to your overall risk management program. There are some additional concepts you must know:
What vicarious liability means, and the reasons businesses should (usually) be held liable for conduct of their employees.
How the concept of joint tort-feasors arises and operates.
The meaning of contributory negligence – we will be looking at this again.
How damages operate and how they are different from damages for breach of contract.
Make sure you understand the different categories of damages – pp. 229-232 -- and learn the meaning of the key categories.
Understand the material in the box, p. 231. Generally you need to know the difference between liability in the US and Canada.

11. Chapter 3

This chapter covers important background information. It will help you understand the interaction of law and business and will be useful for the project with AFM 280. You will learn the basic process of developing a risk management plan in other courses but here the authors are explaining the step-wise process in the context of assessing and managing legal risk, and the importance of legal risk management in enterprise-wide risk management. The difference between risk management and risk avoidance is also introduced. When working through this chapter you should reflect on the question when lawyers should be brought into a business matter, a question for which there is never an easy answer. This broad issue will be explored further in the project with AFM 280.

12. Chapter 11

Negligence is the most important tort and you must understand its basic operation: how it arises and how you prove negligence and defend against it. We will not be requiring you to learn definitions word for word but you must understand and learn the general concepts of foreseeability, etcetera. As with all torts, if you do not know the basic definition of the specific tort, you will not have any idea of how someone could be responsible for it or defend against a claim. You will not be able to ensure measures are in place in your business to minimize the likelihood of a claim in negligence being made against the business and its employees.

Students often find it difficult knowing what to focus on and we certainly do not expect a law school type understanding. For this reason, use the following as your guide:

In class we will ensure you know what we think you need to know about how to prove negligence.
Since the test for negligence includes the measure of what the ‘average’ person (reasonable person) would think, how you assess incidents involves some good common sense or practical thinking. It is just a matter of going through the steps and making sure each aspect is assessed.
The thin skull rule may seem counter-intuitive. But sometimes the courts simply apply rules because that is what they think the fair thing is to do.
Issues of psychological and economic loss are still a little ‘unresolved’ but we will provide you in class with what we expect you to know/understand.
The defences are important. However, in truth, the main defence of “I didn’t do it” or “you didn’t prove all the stages of negligence”, plus contributory negligence are the most important. You must understand how both operate.
Voluntary assumption of risk is very rare these days.
The Crocker case on p. 248 is a good example of how the courts are juggling these issues in order to come up with in their view an appropriate and fair outcome.
Product liability and host liability are simply contexts in which negligence arises. In other words, the tests remain the same and the courts have been exploring how far responsibility should stretch.
Strict liability exists but we will not be focusing on it. It is much easier for you to think of the standard of care being very high when the activity is very dangerous.
Negligent misrepresentation. Make sure you understand what this means.
This is an area of law where the courts have really been juggling (economic loss). And very recently there has been a new case that seems to challenge Hercules Management and may well end up in the Supreme Court: Livent Inc v Deloitte & Touche LLP, 2014 ONSC 2176
We will teach you what you need to know in class.

13. Chapter 12

This chapter covers a lot of material and the primary aim is for you to understand the scope of torts. That said, there are some torts you should know because they are important in the commercial context. We will assume that you have read the chapter, understood the general concepts, and focused on the following:

From our perspective, you should treat occupiers’ liability as if it is negligence. Yes there are slight differences between the legislative regime in Ontario and negligence, and yes, the old (and very confusing) common law system still operates in some places of Canada, but you don’t need to worry about these points.
The important thing to think about is how you might protect your business or property given your responsibilities.
It is important to realize that you are responsible even to trespassers. The standard of care is lower than for people on your property legally, but there are still responsibilities especially if the trespassers are children.
Nuisance is an important tort, especially when environmental issues arise. As you read this think about how it might impact a business and remember what the plaintiff must prove in order to establish nuisance. But also remember that not all things (e.g. views, light) are protected which is why we have planning by-laws etc. to reflect social values.
Trespass is ancient and arises most commonly where you want to stop action (injunctions may be important).
The torts relating to customers are important in general terms and likely if you have worked in a store you will understand already the parameters.
Passing off does arise in the commercial context. You should understand what it is and how it is proven. Again, an injunction may be a common remedy sought if you want, e.g. to stop a competitor taking particular action.
Interference in contractual relations – you need to understand how this arises particularly in employment contracts.
Defamation – understand the definition and main defence (truth). Also the distinction between libel and slander so you use the language correctly.
As you work through the chapter, constantly ask yourself how a business can minimize the risk of a claim being made under the particular tort.

14. Chapters 20 and 21

There is a large amount of material here for one class. We want to introduce you to some basic concepts that will be useful for you either as employee or employer. It will not hurt you to read through this material and this is what we will expect you to focus on:

The difference between an employee and an independent contractor (and an agent – we will be looking at that again under Class 16). Why it is important for a business to distinguish between the two. What steps can be taken to ensure an independent contractor does not become an employee inadvertently.
What laws apply to the employment relationship and what is the difference between the common law rules, labour law, and statutory protections for employees.
What you may/may not ask and do in the hiring process, particularly in terms of avoiding discriminatory practices which may be in breach human rights legislation
What is meant by the duty to accommodate which usually arises once a person has been hired.
The contract: we assume you will not be writing this yourself, but understand the key provisions so you can read your own.
Understand some of the basic statutory requirements that apply in the workplace – you should be guided by what we cover in class.
Understand that the laws are different in different countries – see box p. 505.
Termination – know the basic difference between Canada and US.
Understand the circumstances in which people can be terminated here, including constructive dismissal, and what happens if it is not done correctly. Understand the concept of dismissal for just cause, and notice of termination in the absence of just cause. Make sure you see the connections to basic contract law (e.g. duty to mitigate).
As a particular example, consider the effect that an employee’s use of social media can have on his/her productivity, and also the employer’s business interests, which may result in discipline up to and including termination.

15. Chapter 22

This chapter is critical to you as a future professional. It explains how business makes use of professional services. It also discusses your responsibilities as a professional to your client who may or may not be your employer, to others who may rely on your professional work, and to any professional bodies that regulate your profession. The key to this chapter is your understanding what it means to be a profession and a professional. The basic duties in contract and tort are the same as you have already learned (remember, e.g., the negligent misrepresentation leading to economic loss). As you work through this chapter, consider again the Hercules Management and Livent Inc. cases (dealt with in Ch. 11).

The most important new concepts are:

Fiduciary responsibilities. The concept of the fiduciary is essential that you understand and remember. It will form the basis of much else in the course e.g. agency, partners and directors’ responsibilities. The concept involves a duty of loyalty, trust and confidence that goes beyond what is owed by a nonprofessional service provider. Understand also the need to avoid conflicts of interest.
Professional governance – understanding what it means to be self-governing (have a statute governing the profession), codes of conduct etc. and how the disciplinary processes work. With the latter, you need to remember the basic principles of administrative law and the rules of natural justice (the latter are not in the text but we will review what these mean).
Sometimes conflicts can arise between a professional’s ethical obligations to the profession and his/her obligations to the client, which can not be resolved. What do you do?

16. Chapter 28

The most important elements of what you need to remember from this chapter are the basic principles that govern insurance law and how they are different from contract law in general. You should also gain an understanding of the role insurance can play in a risk management program. We expect you to have read the entire chapter and be very familiar with the types of policies and the rights and obligations of the insurer and insured.. Other concepts you should know include:

The purpose of an insurance contract.
The concepts and definitions at pp. 692-696, which are critical to your understanding of insurance.
Particular elements of a policy including the difference between a rider and an endorsement.
Errors and omissions insurance for professionals.

17. Chapter 13

This chapter explains the concept of agency and its relevance to business, including formation of the agency relationship, the duties and liabilities of the various parties in the relationship, and ending the relationship. This is important material as it forms the basis of relationships in partnership and corporate law. Since fiduciary duties are very important in agency law, some of this material will already be familiar to you. You are responsible for everything in the chapter, however key concepts to focus on are:

Understand the terms agency, agent and principal, and the two figures at pp. 288 and 289. Understand also the difference between actual and apparent authority of an agent.
Consider why a business would use an agent to act on its behalf when there are considerable risks to the business. How can the risks be managed?
Realize that there are various ways an agency relationship can come into being. Know what they are. In particular, make sure you understand that the agency relationship can come about without the principal intending it.
The duties of the agent and principal are critical to understanding agency, as are the various liabilities that can attach to the parties in the relationship. This is where fiduciary duties are particularly important.

18. Chapter 14

This chapter is a broad introductory chapter to the major forms of business organizations, particularly the sole proprietorship, the partnership, and the corporation. Choosing a form of business organization is critical to such issues as liability, who can share in profits, and who is entitled to manage and govern the business. This provides essential background material for those of you who have not already studied these concepts. As you read through the chapter, think about:

How each of the major forms of business organizations is created, owned, and how risk is allocated.
The advantages and disadvantages of each of the major forms.
The use of LLP’s for professional firms (accounting, law, etc.).
When to use joint ventures and strategic alliances (we will talk more about this in the July 28 class which will deal in part with international considerations).

19. Chapter 15

Chapter 15 provides a large amount of information about corporations. Our primary aim is to provide you with an overview of important practical issues such as what to consider when incorporating, choosing the jurisdiction of incorporation (federal vs. provincial) and a corporate name, the incorporation process, corporate share structures, corporate financing, and securities regulation. You’re not meant to be corporate lawyers. Further, if you are starting a new corporation you will likely be using a lawyer and, otherwise you will be working in a corporation where these issues have long since been dealt with. however you must have a good understanding of the basic building blocks of the corporation in order then to learn more complex concepts as you advance in your professional careers. . Concepts to bear in mind include:

A corporation has a legal identity separate and apart from its owners, the shareholders. This has major legal repercussions.
The corporation has both internal and external stakeholders. Understand who they are.
The corporation may be established under federal or provincial law, and may take various forms including public vs, private, widely-held vs. closely-held, etc. There are reasons to go one way or the other.
Share structures can become enormously complicated. Understand generally the consequences of particular structures.
In corporate financing, compare shares to bonds. What factors should be considered when deciding on one way or the other to raise money?
Securities regulation laws, including laws prohibiting insider trading, can significantly impact a corporation and its business. The corporation and its directors, officers, employees and advisors can be harshly penalized for breaches, including incarceration behind bars for individuals. We will discuss this in some detail.

20. Chapter 26

Two classes are set aside to discuss credit (Ch.26), banking (Ch. 25) and bankruptcy (Ch. 27). Credit transactions are a typical part of business. Depending on the transaction a business may be a debtor (borrower) or a creditor (lender). A credit transaction is a contractual relationship which means the laws of contract that you have already studied will apply. In addition, there are laws that are specific to credit transactions. Make sure you read the entire chapter as there is important background material. We will, however, touch only lightly on personal property security legislation in class.

New legal concepts you will need to understand include:

The difference between secured and unsecured credit, and secured creditors and unsecured creditors.
Use of security or collateral to reduce the risk to the lender.
The rights of secured vs. unsecured creditors when there is a default.
Remedies.
Guarantee agreements and personal guarantees.

21. Chapter 25

Every business has a relationship with a financial institution. This chapter deals with the nature of that relationship. The material is technical and relatively straight-forward. It covers the relationship between banks and their customers, electronic banking and the new challenges this type of banking creates, and methods of payment including negotiable instruments, You are not expected to memorize the entire chapter but rather understand the general concepts. Be guided by what we focus on in class. So, for example, we would expect you to understand what a negotiable instrument isbut not all the detailed rules as to how they operate etc.

22. Chapter 27

Businesses fail for many different reasons, even when the economy is strong. A body of law has developed, called bankruptcy and insolvency law, to deal with failed businesses to ensure that all stakeholders are dealt with as fairly as possible. Bankruptcy and insolvency law is a highly technical legal field and here you only will be exposed to the broad principles. In this chapter you will need to understand:

The use of informal arrangements with creditors to avoid entering into bankruptcy.
Bankruptcy vs. insolvency, the difference in meaning between the terms and why you might move from insolvency to bankruptcy and why you might not. .
Highly trained professionals (accountants, lawyers having expertise) will need to be retained to deal with a bankruptcy or insolvency. Some of you may choose this area as a career.
The bankruptcy process, what are the key principles governing it, what is the difference between preferred, secured and unsecured creditors, and distributions to creditors.

23. Chapters 18 and 19

Chapter 19 covers real property and chapter 18 intellectual property. Real property law is typically concerned with land rather than buildings on the land whereas real estate law may be concerned with both land and buildings. In this course we cover very generally both real property law and real estate law. We will also introduce environmental considerations to the discussions in class.

Intellectual property law is a branch of law usually dealt with by lawyers practicing solely in the field (in the project with AFM 280 specialized boutique law firms in Canada and the US were retained to deal with patent issues; these issues required expertise which the local law firm did not have). You will need to understand generally the various types of intellectual property – how they differ and what they cover – but not the detail of each type.

In general, you should ensure you understand:

Ownership of land is not absolute. Understand the restrictions or limits.
Ownership must be registered – registry system vs. land titles system.
The purchase transaction, particularly the due diligence needed to ensure you are acquiring what you intend to acquire (e.g., clean property not contaminated land).
How mortgages work, including remedies.
Regarding intellectual property, read the entire chapter but concentrate on Fig. 18.1 (p. 447) and the section on confidential business information (pp. 445-447).
Ensure you understand the different types of intellectual property and, in broad terms, how they differ.

24. Chapter 16

The chapter brings together various concepts already studied, including contract, tort and agency law, and fiduciary duties, and shows how they create liability for corporations. Also discussed are the duties and liabilities of directors and officers, and the rights and liabilities of shareholders. Particularly important to understand in your future lives as professionals are:

The various types of liability that can attach to a corporation, including in tort and contract, and criminal liability, and how each arise. The policy reasons for holding/not holding corporations criminally liable.
The many specific duties of directors and officers, which flow from two broad duties namely the fiduciary duty and the duty of competence.
The liabilities of directors and officers, including personal liability (e.g., for environmental offences), and how to minimize liability when carrying out duties.
Rights of shareholders and creditors. Note the BCE case discussed at pp. 389-390.
The concept of piercing or lifting the corporate veil.
Fig. 16.3 (p. 392) is a helpful summary of potential liabilities of the corporation and its directors/officers and shareholders.