Business Law in Canada Chapter 16 PDF

Business Law in Canada Thirteenth Canadian Edition Chapter 16 Sales and Consumer Protection Copyright © 2024 Pearson Canada Inc. 16 - 1 Learning Objectives (1 of 2) When you have complete...

Business Law in Canada Thirteenth Canadian Edition Chapter 16 Sales and Consumer Protection Copyright © 2024 Pearson Canada Inc. 16 - 1 Learning Objectives (1 of 2) When you have completed Chapter 16, you should be able to: 16.1 Outline the purpose of the Sale of Goods Act 16.2 Explain the relationship between title and risk and outline the rules for determining who has title 16.3 Examine the rights and obligations of buyers and sellers and remedies they have available to them upon default Copyright © 2024 Pearson Canada Inc. 16 - 2 Learning Objectives (2 of 2) 16.4 Review the areas of consumer protection covered by federal and provincial legislation 16.5 Identify the main forms of negotiable instruments and explain their basic characteristics Copyright © 2024 Pearson Canada Inc. 16 - 3 Purpose and Application of the Sale of Goods Act Sale of Goods Act implies terms into contract Intended to fill the gaps in the terms of a contract Only implies missing terms – parties are free to override provisions of the Act by clearly stating a different intention in their contract Not restricted to retail and consumer transactions; – Applies to commercial transactions Copyright © 2024 Pearson Canada Inc. 16 - 4 Goods and Services The Act applies only to the sale of goods: – Tangible items Where both goods and services are involved, the Act does not apply unless the sale primarily involves the delivery of goods Sale of Goods Act does not apply to: – Real property – Services (except when it involves the installation of goods) Copyright © 2024 Pearson Canada Inc. 16 - 5 Transfer of Goods for Monetary Consideration Title to goods must actually be transferred in order for the Act to apply If the transaction is not a sale, but is securing a loan, the Act does not apply – Except where security is part of the sales transaction (i.e. a conditional sales agreement) Does not apply to barter situations Copyright © 2024 Pearson Canada Inc. 16 - 6 Title and Risk Risk follows title – Sale: title transfers immediately – Agreement to Sell: title transfers at some future time Contract can stipulate who bears the risk: – CI F (cost, insurance, freight) contracts – FO B (free on board) contracts – CO D (cash on delivery) contracts Copyright © 2024 Pearson Canada Inc. 16 - 7 Transfer of Title Table 16.1 Rule Type of Transaction When Title and Risk Pass 1 Unconditional contract. Goods in deliverable When contract is made. state. 2 Seller to put goods into deliverable state. On notification that goods are ready. 3 Seller to ascertain price. On price notification to buyer. 4 Goods delivered on approval. When buyer signifies approval or retains goods for unreasonable time. 5 Unascertained or future goods. Upon unconditional appropriation or with assent of buyer. Copyright © 2024 Pearson Canada Inc. 16 - 8 Question for Discussion (1 of 2) One of the main purposes of the Sale of Goods Act is to supply, by implication, many of the terms that have been inadvertently left out of contracts involving the purchase of goods. Do the terms of the Act excessively interfere with the principles of freedom of contract and caveat emptor? Copyright © 2024 Pearson Canada Inc. 16 - 9 Rights and Obligations of the Parties (1 of 2) The Sale of Goods Act implies both conditions and warranties into the contract Breach of a condition: – Victim can ignore it and accept the goods (but loses the right of discharge), or consider themselves no longer bound to the contract Breach of a warranty: – Victim is not released from obligations under the contract Copyright © 2024 Pearson Canada Inc. 16 - 10 Rights and Obligations of the Parties (2 of 2) Manufacturers and retailers often try to override the implied conditions and warranties – Exemption clauses Parties may be free to contract out of all obligations and responsibilities – Several provinces have enacted legislation prohibiting the seller from excluding or limiting these provisions relating to fitness and quality in consumer sales transactions Copyright © 2024 Pearson Canada Inc. 16 - 11 Obligations of Seller Sale of Goods Act Implies terms in the contract Seller must convey good title and quiet possession Goods must: – Be usable – Be free of liens – Match description – Be of merchantable quality and fit for purpose – Match sample and be free of hidden defects – Be durable (B.C.) Copyright © 2024 Pearson Canada Inc. 16 - 12 Other Implied Terms If terms are not stipulated in contract the Act implies: – Must pay a reasonable price – Time, payment, and place for delivery – With bulk goods the purchaser can choose to return or keep goods when wrong quantity is delivered Time, payment, and place for delivery are usually made conditions of the contract – Time of delivery is a warranty unless time is of the essence Copyright © 2024 Pearson Canada Inc. 16 - 13 Sellers’ Remedies on Default When buyer defaults seller can: – Retain goods until paid – Stop delivery of goods – Recover goods after delivery within 30 days ▪ Seller gets priority over other creditors in case of bankruptcy Sue for breach of contract and for damages – But must mitigate losses by reselling immediately – Cannot sue for whole price, only what was lost on sale – Damages can include costs of restocking and resale Copyright © 2024 Pearson Canada Inc. 16 - 14 Buyer’s Remedies Buyer’s remedies are the same as in contract law: – Damages for fraudulent misrepresentation – Withhold payment for breach of condition The buyer must go through with the deal if only a warranty is breached Extent of damages depends on the circumstances Copyright © 2024 Pearson Canada Inc. 16 - 15 Question for Discussion (2 of 2) Should there be a general requirement in law, independent of contract or tort law that products be safe and capable of living up to the claims made for them? Should strict liability be imposed on the manufacturer and the supplier of products? Copyright © 2024 Pearson Canada Inc. 16 - 16 Online Sales and International Transactions Normal contract rules apply to online transactions – Problems arise concerning formation of contract and determining jurisdiction All jurisdictions in Canada have enacted an International Sale of Goods Act Contract provisions override International Sale of Goods Act Clicking “I Accept” accepts terms that create limits and exemptions Copyright © 2024 Pearson Canada Inc. 16 - 17 Consumer Protection Consumer transactions involve goods for personal consumption rather than business use Consumer protection legislation controls: – Use and disclosure of information and advertising – The safety and quality of the goods sold – Unethical business practices Both provincial and federal legislation in place – May be found in one or more statutes Copyright © 2024 Pearson Canada Inc. 16 - 18 Federal Legislation Competition Act – Act is intended to prevent business activities that interfere with free market – Controls mergers to prevent interference with competition by creation of monopoly – Prohibits abusive trade practices – Restricts agreements between merchants Civil and Criminal court processes Applies to online sales depending on jurisdiction Copyright © 2024 Pearson Canada Inc. 16 - 19 Other Federal Legislation Competition Bureau enforces and administers several other federal statutes that have consumer protection aspects: – Consumer Packaging and Labelling Act – Precious Metals Marking Act – Textile Labelling Act – Food and Drug Act – Hazardous Products Act and Canada Consumer Product Safety Act – Other Acts that enforce product safety and the proper disclosure of information about products Copyright © 2024 Pearson Canada Inc. 16 - 20 Identity Theft Involves a person wrongfully obtaining enough personal information to impersonate a victim Criminal Code includes three specific offences: – Obtaining or possessing a person’s personal information for criminal purposes – Trafficking or transmitting that information to others knowing that it will be used to commit a fraud – Fraudulently impersonating another and misusing wrongfully obtained information Criminal law primary tools used in identity theft Copyright © 2024 Pearson Canada Inc. 16 - 21 Provincial Legislation When products are defective and cause injury or loss consumers have recourse in either contract or negligence Responsibility for Goods – Sale of Goods Act imposes responsibility on sellers – Effect of exemption clauses is limited by statute – Victims of unsafe products can sue manufacturer in: ▪ Tort but must prove fault ▪ Contract law – Consumer protection legislation may waive privity of contract requirement Copyright © 2024 Pearson Canada Inc. 16 - 22 Unacceptable Business Practices Consumer protection legislation controls – False or exaggerated claims – Investigation of complaints Unconscionable transactions – Legislation allows courts to interfere when unequal bargaining power is abusive – Cost of borrowing money and unacceptable business practices Prepaid Cards – Legislation regulates expiry dates and fees Copyright © 2024 Pearson Canada Inc. 16 - 23 Controlled Business Practices Consumer protection legislation also places controls on: – Door-to-Door Sales ▪ Legislation provides for cooling-off period – Many other prohibited or controlled business Methods of Control: – Licensing – Fines or imprisonment – Powers to investigate, to seize records and impose penalties for violations – Government can start actions on behalf of victims Copyright © 2024 Pearson Canada Inc. 16 - 24 Loan Transactions Consumer protection legislation – True cost of borrowing must be disclosed in a standard format – Prohibits misleading information in advertisements – Requires moneylenders to be registered Unconscionability of the transaction has an impact on the severity of the penalty imposed Payday loans are regulated in most provinces Copyright © 2024 Pearson Canada Inc. 16 - 25 Debt Collection Processes Legislation requires that debt-collection agencies be registered and licensed Abusive debt collection practices are controlled Credit-reporting practices are controlled Consumer protection statutes can apply to internet transactions – 2001 Internet Sales Contract Harmonization Template Federal legislation preventing installation of “spyware” Copyright © 2024 Pearson Canada Inc. 16 - 26 Consumer Service Bodies Government departments enforce consumer protection statutes and educate and publicize Consumer Measures Committee – Publishes Canadian Consumer Handbook Private agencies also provide helpful information and services: – Better Business Bureau (BB B) – Canadian Motor Vehicle Arbitration Plan Legislation also governs specialized industries and professionals Copyright © 2024 Pearson Canada Inc. 16 - 27 Negotiable Instruments Negotiable instruments are controlled by federal statute Usually in form of cheques, bills of exchange, and promissory notes Essential characteristics – Claim for funds against drawer of instrument – Transferable – May be used as credit instrument – May give greater rights to the bearer than the person from whom it was issued – holder in due course Copyright © 2024 Pearson Canada Inc. 16 - 28 Holder in Due Course (1 of 2) Holder in due course can enforce a negotiable instrument independent of problems Holder in Due Course – Must have been acquired before instrument was due and payable – Instrument must be complete and regular – Must have no knowledge of any defect – Must acquire instrument in good faith – Some value must have been given – Must have otherwise received the instrument in good faith Copyright © 2024 Pearson Canada Inc. 16 - 29 Holder in Due Course (2 of 2) If the instrument is not honoured when it is presented for collection the holder can turn to the endorser for payment – Holder must give timely notice of dishonour Promissory notes are often part of a loan transaction Advantages of holder in due course are reduced in consumer transactions Copyright © 2024 Pearson Canada Inc. 16 - 30 Cheque Figure 16.1 Cheque Copyright © 2024 Pearson Canada Inc. 16 - 31 Bills of Exchange Figure 16.2 Bills of Exchange Copyright © 2024 Pearson Canada Inc. 16 - 32 Promissory Note Figure 16.3 Promissory Note Copyright © 2024 Pearson Canada Inc. 16 - 33 Electronic Money Credit and debit cards are replacing negotiable instruments Unregulated virtual money is becoming more common – Bitcoin – Virtual vaults and wallets store these funds Fraud is an increasingly common problem for online transactions – Many jurisdictions have passed consumer protection legislation limiting a cardholder’s liability Copyright © 2024 Pearson Canada Inc. 16 - 34 Summary Sale of Goods Act – Relationship between title and risk – Rules for determining who has title – Rights and obligations of buyers and sellers – Remedies Consumer protection Negotiable instruments Copyright © 2024 Pearson Canada Inc. 16 - 35