Business Law in Canada - Chapter 11-15 PDF

Business Law in Canada Thirteenth Canadian Edition Chapter 15 Priority of Creditors Copyright © 2024 Pearson Canada Inc. 15 - 1 Learning Objectives (1 of 2) When you have completed Chapter 1...

Business Law in Canada Thirteenth Canadian Edition Chapter 15 Priority of Creditors Copyright © 2024 Pearson Canada Inc. 15 - 1 Learning Objectives (1 of 2) When you have completed Chapter 15, you should be able to: 15.1 Outline the process of securing debt by using personal property 15.2 Outline the process of securing debt by using guarantees 15.3 Outline the process of securing debt by using other forms of security Copyright © 2024 Pearson Canada Inc. 15 - 2 Learning Objectives (2 of 2) 15.4 Explain the process of bankruptcy 15.5 Describe the alternatives to bankruptcy Copyright © 2024 Pearson Canada Inc. 15 - 3 Securing Debt by Using Personal Property Become a secured creditor – Obtaining a claim on a debtor’s property will help a creditor get paid Real property can be taken as security, using a mortgage Personal Property is used extensively as security – Pledge: title is retained by debtor but possession provided to lender – Personal property security: involves the right to take possession upon default Copyright © 2024 Pearson Canada Inc. 15 - 4 The Traditional Approach (1 of 2) Conditional Sales Agreement – Buyer takes possession of goods – Seller retains title until last payment is made Chattel Mortgage – Creditor is not seller – Uses goods as collateral – Debtor maintains possession of goods while title is transferred to lender Copyright © 2024 Pearson Canada Inc. 15 - 5 The Traditional Approach (2 of 2) Assignment of Book Accounts – Uses chose in action as security (rather than goods) – Debtor assigns accounts receivable as security – In event of default, creditor has right to intercept the payment of accounts receivable Leases – Operating lease: goods are simply rented to the lessee for lease period – Lease to purchase: goods will be transferred to the lessee at the end of the lease period Copyright © 2024 Pearson Canada Inc. 15 - 6 Personal Property Security Act (1 of 4) Used in all jurisdictions in Canada Creates a unified approach toward the use of personal property as security Most personal property can be used as security – PPS A allows other forms of personal property (licences, shares, bonds) to be used as security and to be treated uniformly Registration of claim protects secured creditors and others Copyright © 2024 Pearson Canada Inc. 15 - 7 Personal Property Security Act (2 of 4) Three steps to create a secured relationship: 1. Secured Party and Debtor enter into a Security Agreement 2. Security Interest attaches to collateral 3. Security Interest is perfected by: ▪ Registration, or ▪ Possession of the collateral by the creditor Copyright © 2024 Pearson Canada Inc. 15 - 8 Personal Property Security Act (3 of 4) Priority of Secured Creditors – Secured party has prior claim to collateral over debtor – Priority on same collateral: 1. First to register 2. Purchase Security Money Interest (PM S I) Buyers in the ordinary course of business are not usually bound Copyright © 2024 Pearson Canada Inc. 15 - 9 Personal Property Security Act (4 of 4) Rights and Remedies upon Default – Secured party may take possession of the goods and sell them to recover the amount owed – Creditor usually hires bailiff – Right to redeem: debtor must be provided opportunity to redeem ▪ Debtor will be responsible for difference between remaining debt and sale of goods – Method chosen to sell goods must be commercially reasonable – Debtor is entitled to surplus Copyright © 2024 Pearson Canada Inc. 15 - 10 Securing Debt by using Guarantees (1 of 2) Guarantees are used by creditors to ensure payment of debt by a more substantial debtor A guarantor ensures that the debt will be paid even when the debtor defaults Differs from primary responsibility of indemnity; guarantees are secondary obligations and only arise after default Must be evidenced in writing Copyright © 2024 Pearson Canada Inc. 15 - 11 Securing Debt by using Guarantees (2 of 2) All of the elements of a contract must be present – Consideration can sometimes be a problem Guarantees are often given under seal to avoid problems arising when guarantee given after funds are advanced Copyright © 2024 Pearson Canada Inc. 15 - 12 Rights and Obligations of the Parties (1 of 2) Creditor duties to the guarantor include – Ensuring that guarantor understands guarantee – Not weakening position of guarantor Guarantor may be released from obligation: – If contract is substantially changed – When other forms of security are released – Important information is withheld Copyright © 2024 Pearson Canada Inc. 15 - 13 Rights and Obligations of the Parties (2 of 2) Contract can modify rights and obligations of debtor and guarantor to avoid some obligations – Exemption clauses – Continuing guarantee Right of subrogation to have debt and security assigned to guarantor who pays Any defences that are available to the debtor are also available to the guarantor Copyright © 2024 Pearson Canada Inc. 15 - 14 Other Forms of Security (1 of 2) The Bank Act – Federal statute allowing banks flexibility in what they can take as security Bank Act Security: growing crops, inventories, and goods in the process of manufacture Under provincial PPSA s, other lenders now have similar flexibility and there is more potential conflict between federal and provincial legislation Copyright © 2024 Pearson Canada Inc. 15 - 15 Other Forms of Security (2 of 2) Floating charges: – Used by creditors when dealing with corporations that must be free to buy and sell the assets used as security for the loan – Bonds (or unsecured debentures) may be issued when borrowing funds ▪ Bonds are secured with a floating charge against the general assets of the corporation A floating charge does not interfere with ongoing business but provides a priority over unsecured creditors Copyright © 2024 Pearson Canada Inc. 15 - 16 Builders’ Liens Builders’ Liens create claims for the suppliers of goods and services, against the real property for which they have been supplied – Suppliers of goods and services can file a lien Legislation stipulates the process and timing for registering liens – Holdbacks: owner of the property retains a percentage of what they would otherwise pay to the general contractor to discharge potential liens ▪ Holdback amount is 10% in most provinces Copyright © 2024 Pearson Canada Inc. 15 - 17 Question for Discussion A builders’ lien allows a supplier of goods to impose obligations and risk on a property owner. Is it fair for the owner of property to be subject to such an intrusion into traditional property rights? Would it be fairer to only hold the general contractor responsible? Copyright © 2024 Pearson Canada Inc. 15 - 18 Negotiable Instruments and Letters of Credit Negotiable instruments in secured transactions: – Cheques, bills of exchange and promissory notes Debtors are usually required to sign promissory notes in credit transactions Letters of Credit: – Bank supplies letter committing to honour client’s debt up to a certain value ▪ Used extensively in international trade ▪ May require a confirming bank to communicate with importer’s bank Copyright © 2024 Pearson Canada Inc. 15 - 19 Other Laws Related to Creditors (1 of 2) Landlord’s Right to Distrain for Rent – When tenant fails to pay rent on a leased property – Landlord can seize and hold of defaulting tenant’s assets and eventually sell – Many restrictions Copyright © 2024 Pearson Canada Inc. 15 - 20 Other Laws Related to Creditors (2 of 2) Fraudulent Transfers and Preferences Fraudulent Conveyances: transferring title to an asset so it is not available to your creditors Fraudulent Preferences: paying one ordinary unsecured creditor in preference to another Fraudulent conveyances and preferences can sometimes be reversed – Federal and provincial legislation prevents debtors from unfair payments or transfers Copyright © 2024 Pearson Canada Inc. 15 - 21 Bankruptcy Bankruptcy and Insolvency Act – Federal statute – Preserves as many of the debtor’s assets as possible for the benefit of the creditors – Rehabilitates the debtor by forgiving the unpaid debt Insolvency: a person is unable to pay his debts as they become due Bankruptcy: the process by which a debtor’s assets are transferred to a trustee – Assignment in bankruptcy is voluntary – Bankruptcy order is forced by creditor Copyright © 2024 Pearson Canada Inc. 15 - 22 Involuntary Bankruptcy Process (1 of 2) Involuntary bankruptcy process: – Creditor petitions the court; court makes order – Results in a statutory assignment of the debtor’s assets to the trustee in bankruptcy – Hearing before judge occurs if petition opposed Creditor must be careful in petitioning and may be liable to losses incurred by debtor if application is refused Copyright © 2024 Pearson Canada Inc. 15 - 23 Involuntary Bankruptcy Process (2 of 2) Figure 15.1 Bankruptcy Order Process Copyright © 2024 Pearson Canada Inc. 15 - 24 Voluntary Assignment in Bankruptcy (1 of 2) Voluntary assignment in bankruptcy: – Debtor files “assignment for the general benefit of his creditors” and “statement of affairs” – Trustee will receive the debtor’s assets and administer the estate – Some property is exempt – The trustee in bankruptcy holds the debtor’s property in trust for the creditors Copyright © 2024 Pearson Canada Inc. 15 - 25 Voluntary Assignment in Bankruptcy (2 of 2) Figure 15.2 Voluntary Assignment Copyright © 2024 Pearson Canada Inc. 15 - 26 Priority Among Creditors (1 of 2) Trustee in Bankruptcy – Holds assets in trust for the creditors – Preserves asset value – Sell the assets and distribute the proceeds fairly to the creditors Proof of Claim: each creditors must establish the validity of his claim Goods suppliers can reclaim goods from bankrupt or trustee Copyright © 2024 Pearson Canada Inc. 15 - 27 Priority Among Creditors (2 of 2) Trustee distributes proceeds of liquidated assets according to the priorities in legislation 1. Super priorities 2. Preferred creditors 3. Unsecured creditors Copyright © 2024 Pearson Canada Inc. 15 - 28 Bankruptcy Offences Settlements transferring assets for nominal or no consideration are prohibited – Void if within one year of bankruptcy, debtor was insolvent or the debtor intended to defraud, defeat or delay a creditor Preferential payments may be void Bankrupt must disclose all transactions regarding assets in last year an any settlements of last five years Cooperate with trustee Transfer assets to trustee Copyright © 2024 Pearson Canada Inc. 15 - 29 Restrictions on Bankrupts A bankrupt is subject to several restrictions: – If borrowing over $1000 must disclose status – Cannot be a director of a corporation – Restricted from carrying on certain professions Copyright © 2024 Pearson Canada Inc. 15 - 30 Individual Discharge Individuals – Discharge can be conditional or unconditional – Bankrupt may be required to pay surplus income to estate – Effect of absolute discharge is to end most debts – Some obligations survive discharge: ▪ Student loans ▪ Apprentice loans ▪ Fines, alimony, maintenance payments ▪ Some civil damage awards Copyright © 2024 Pearson Canada Inc. 15 - 31 Corporations Discharge Corporations – Cannot be discharged from bankruptcy – May use Division I Proposal under BI A to possibly avoid bankruptcy Corporations with large debt may restructure under Companies’ Creditors Arrangements Act Directors m have some personal liability Receivership separate from bankruptcy – Triggered by terms of security agreement with creditor Copyright © 2024 Pearson Canada Inc. 15 - 32 Alternatives to Bankruptcy Negotiation: talk to the creditors involved to try to make alternative arrangements for paying the debt BI A alternatives: – Division I proposals (debts over $250,000) – Division II proposals (consumer) Individual debtors with debt under $1000 can apply for Orderly Payment of Debts in some provinces Corporations owing more than $5 million can apply for bankruptcy protection under CCA A Copyright © 2024 Pearson Canada Inc. 15 - 33 Question for Discussion The purpose of bankruptcy legislation is to ensure that the creditors realize as much of the amount owed as possible and to rehabilitate the debtor. Should there be more legislation in place to prevent bankruptcy in the first place or would this create a negative business environment? Copyright © 2024 Pearson Canada Inc. 15 - 34 Summary Methods of securing debt—personal property Personal Property Security Act Guarantees Other forms of security Bankruptcy Alternatives to bankruptcy Copyright © 2024 Pearson Canada Inc. 15 - 35 Business Law in Canada Thirteenth Canadian Edition Chapter 12 Employment Copyright © 2024 Pearson Canada Inc. 15 - 36 Learning Objectives When you have completed Chapter 12, you should be able to: 12.1 Distinguish employees, agents, and independent contractors 12.2 Detail common law obligations of employers and employees 12.3 Outline the purpose of various statutes impacting employment 12.4 Describe collective bargaining and explain the role of labour unions Copyright © 2024 Pearson Canada Inc. 15 - 37 What Is Employment? Not all workers are employees Employment involves one person doing work for another An employee is said to be in a master–servant relationship, acting under the direction of the master (employer) Each relationship imposes different legal rights and obligations on the parties Copyright © 2024 Pearson Canada Inc. 15 - 38 The Control Test Assess the degree of control exercised by the person paying for the service – greater over an employee than an independent contractor Employment: employee agrees to serve the employer, who supervises and directs Independent contractor: contractor agrees to do a particular job Employees work for their employer; independent contractors work for themselves Copyright © 2024 Pearson Canada Inc. 15 - 39 The Organization Test, Risk Test, and Tools Test Organization test: is person an integral part of employer’s organization? – Status important because of vicarious liability and wrongful dismissal Risk test examines whether the worker bears any financial risk of loss or stands to profit is work is completed efficiently Both independent contractors and employees may be agents of the party that engaged them Copyright © 2024 Pearson Canada Inc. 15 - 40 The Law of Employment (1 of 2) Obligations of employer: – Payment of wages or salary – Safe working conditions ▪ Subjective test Obligations of employee: – Competent – Honesty and loyalty – Punctuality – Act in Employer’s best interests – Fiduciary obligations in some cases Copyright © 2024 Pearson Canada Inc. 15 - 41 The Law of Employment (2 of 2) Employment contracts are often verbal with some implied terms All the ingredients necessary for a contract to exist must be present Restrictive covenants must be reasonable – Commitment not to work in a certain industry in a set area for a set time period – Must be a reasonable area and time ▪ Otherwise illegal and void for public policy reasons Copyright © 2024 Pearson Canada Inc. 15 - 42 Termination Contract may stipulate amount of notice to be given Employment can be terminated: 1. By either party giving reasonable notice 2. By pay in lieu of notice: the employer giving the compensation that should have been earned in that notice period 3. Immediately with just cause ▪ May dismiss an employee with notice for any reason unless it violates human rights legislation Copyright © 2024 Pearson Canada Inc. 15 - 43 Reasonable Notice Legislation sets minimum standard for notice – Employment contract notice must meet legislated minimum In setting reasonable notice courts consider: – Length of service – Type of job – Age of employee – Qualifications – Availability of similar employment – Bad-faith conduct Copyright © 2024 Pearson Canada Inc. 15 - 44 Just Cause Just cause dismissal requires no notice Dismissal without notice must be based on employee wrongdoing or a failure to perform the job including: – Absenteeism and tardiness – Disobedience and insubordination – Incompetence – Harassing others – Drunkenness – Immoral conduct Copyright © 2024 Pearson Canada Inc. 15 - 45 Illness and Disability Illness may constitute frustration of contract Human rights and workers’ compensation legislation may require the employee to be accommodated This duty does not apply if resolution of the problem will cause employer undue hardship Most businesses offer some form of illness and long-term disability insurance or policy as part of their benefits package Copyright © 2024 Pearson Canada Inc. 15 - 46 Layoffs Running out of work or employer financial problems are not just cause for termination – Reasonable notice or pay in lieu is required Some collective agreements and provincial legislation provides for temporary layoffs Copyright © 2024 Pearson Canada Inc. 15 - 47 Constructive Dismissal Employment contract may be breached when nature of job changes without consent or working conditions become intolerable Failure to address harassment or sexual harassment by management or by other employees may enable a victim to claim constructive dismissal The law requires that employees take reasonable steps to mitigate damage Copyright © 2024 Pearson Canada Inc. 15 - 48 Remedies for Wrongful Dismissal Damages awarded based on what the employee would have received had proper notice been given Dealing with employees in good faith has benefits – Damages for defamation or intentional infliction of mental stress are possible Damages are the appropriate remedy for wrongful dismissal – Reinstatement is rare but possible Copyright © 2024 Pearson Canada Inc. 15 - 49 Wrongful Leaving Employees must give employer reasonable notice before departing – Employment contract may set notice Following serious breach of the employment contract, an employee may leave without notice Employees may be sued for : – Breach of confidence – Breach of valid restrictive covenant – Breach of fiduciary duty (if management or executives) Copyright © 2024 Pearson Canada Inc. 15 - 50 Liability of Employer (1 of 3) Vicarious liability of employer for torts committed by an employee in the course of employment – Only imposed on the employer for conduct that is closely and materially connected to the risks created or introduced by the employer Operators of motor vehicles of employers may cause vicarious liability to employer Employer has right to turn to employee for compensation when found vicariously liable Copyright © 2024 Pearson Canada Inc. 15 - 51 Liability of Employer (2 of 3) Protections: – Liability insurance – Separating parts of the business and contracting them out Employer responsible for misuse of computers by employees – Intentional or negligent violations of intellectual property rights, privacy rights, or even criminal law Copyright © 2024 Pearson Canada Inc. 15 - 52 Liability of Employer (3 of 3) Employers should advise employees that their online activities are being monitored Privacy laws require consent when personal employee information is collected, used, or disclosed – Personal Information Protection and Electronic Documents Act (PI PED A) – Criminal Code Employers may be held liable to employees should there be an invasion of privacy Copyright © 2024 Pearson Canada Inc. 15 - 53 Legislation Impacting Employment Statutes designed to protect employees by setting minimum standards for: – Wages – Hours of work, overtime, and rest periods – Vacation and holiday entitlements – Maternity and parental leave – Termination and severance pay – Some also provide for bereavement and sick leave Expanded protections in Ontario and Alberta for: – personal, domestic violence, and compassionate care leaves Copyright © 2024 Pearson Canada Inc. 15 - 54 Employment Standards Legislation provides minimal employment standards or protections Notice periods can be less than common law but must be greater than statutory requirement – Void if shorter than the statutory minimum and the employer will have to comply with the longer “reasonable notice” Agreements that waive the protections or remedies available under the legislation will be declared void Copyright © 2024 Pearson Canada Inc. 15 - 55 Termination No notice required in dismissal for cause – Only considers length of service Termination entitlements are determined by length of service – Layoffs may trigger termination pay Issue estoppel: if relief is sought for termination under legislation, then a subsequent wrongful dismissal case may not be possible Copyright © 2024 Pearson Canada Inc. 15 - 56 Human Rights Legislation (1 of 3) Prevents discrimination in hiring and employment practices Federal and Provincial Codes must be consistent with Charter Tribunals hear complaints, investigate, levy fines and reinstate employees Restrictions on questions asked on applications and at interviews Copyright © 2024 Pearson Canada Inc. 15 - 57 Human Rights Legislation (2 of 3) Workplace rules need to be reviewed in light of human rights Discriminatory rules may be saved if the employer establishes them to be bona fide (genuine) occupational requirements Employers have a duty to accommodate employees with disabilities and special needs – As long as the request does not cause the employer undue hardship Copyright © 2024 Pearson Canada Inc. 15 - 58 Human Rights Legislation (3 of 3) Other issues relate to: – Pay equity – Employment equity – Aboriginal Employment Preferences – Reverse discrimination – Affirmative action – Mandatory retirement – Harassment Copyright © 2024 Pearson Canada Inc. 15 - 59 Health and Safety Legislation focuses on prevention of injury in the workplace: – Provides safer working conditions – Ensures safe employment practices – Establishes programs to educate both the employer and the employee Safety boards ensure regulations are adhered to – Can order the problem corrected or, in serious cases, they can shut the job site down – Some can issue tickets Copyright © 2024 Pearson Canada Inc. 15 - 60 Workers’ Compensation Legislation establishes compulsory insurance programs providing coverage for workplace injuries Deals with compensating employees injured on the job, even through their own carelessness Worker usually gives up right other compensation and cannot sue Compensation is limited to injury or disease that arises in the course of employment Copyright © 2024 Pearson Canada Inc. 15 - 61 Employment Insurance Under federal jurisdiction Laid-off employees are entitled to receive E I payments for a specific period of time Eligible: – Those who are unable to work because of illness, disability, pregnancy, or adoption or those caring for critically ill or injured children or adult family members Not eligible: – Workers who voluntarily leave their employment, are involved in a strike or lockout Copyright © 2024 Pearson Canada Inc. 15 - 62 Question for Discussion A considerable amount of legislation in the field of employment affects the responsibilities of the parties. Is this legislative intervention detrimental to our economic system? What may be the justification for such interference? Copyright © 2024 Pearson Canada Inc. 15 - 63 Collective Bargaining Industrial revolution saw workers join together to negotiate wages and working conditions Legislation reduced conflict by recognizing an employee’s right to be a member of a union – Eliminated the employer’s power to interfere in any way with the organizational process – Employer obligated to negotiate with union in good faith Copyright © 2024 Pearson Canada Inc. 15 - 64 Legislation Legislation is designed to reduce conflict in interest disputes and rights disputes Collective bargaining is regulated by federal and provincial legislation Labour tribunals regulate the dispute process Employers need to engage in good-faith bargaining and negotiate terms in a meaningful way – Charter cases clarified the right to bargain collectively Copyright © 2024 Pearson Canada Inc. 15 - 65 Organization of Employees Certification process: employees’ application to labour relations board to be recognized as a bargaining unit – Majority of workers must be members of the union – To obtain certification over 35 percent of the workforce must participate in vote and a majority must support certification Copyright © 2024 Pearson Canada Inc. 15 - 66 Bargaining Agent Once certified, the trade union has exclusive bargaining authority for the employees it represents A unionized employee loses the right to negotiate personally with the employer Bargaining Agent – Given exclusive authority to negotiate with employer – Any contract negotiated is binding on all employees within the unit Copyright © 2024 Pearson Canada Inc. 15 - 67 Unfair Labour Practices Prohibited unfair labour practices include threats or coercion of employees by either the union or management Employer cannot threaten dismissal for joining a trade union or require refraining from trade union as employment condition – In some provinces, unfair labour practices can result in certification without a vote Employer retains right of free speech Copyright © 2024 Pearson Canada Inc. 15 - 68 Bargaining Either party can give notice to commence bargaining – Notice cannot be given until shortly before expiration of existing collective agreement – Parties must bargain “in good faith” ▪ Make reasonable effort to reach an agreement Once agreement is reached it must be ratified by both employees and employers Copyright © 2024 Pearson Canada Inc. 15 - 69 Mediation and Arbitration Mediation: third party intervention in the negotiation process to facilitate agreement – Used when negotiations break down – May be mandated by legislation Parties are prohibited from taking more drastic forms of action, such as a strike or lockout when mediating Arbitration: a method for settling disputes and grievances arising out of the agreement – Decisions of arbitrators are binding on parties Copyright © 2024 Pearson Canada Inc. 15 - 70 Terms of Collective Agreements Contract must be for at least one year May have an automatic renewal clause Retroactivity is generally a matter to be negotiated by the parties Must have provisions for settlement of disputes: – Grievance process ▪ Collective agreements must contain provisions for the settlement of disputes arising under the agreement – Arbitration ▪ Can be appeal to Labour Relations Board or courts Copyright © 2024 Pearson Canada Inc. 15 - 71 Strikes and Lockouts Job Action – Lockout: action by employer to prevent employees from working – Strike: withdrawal of services by employees – Work to rule: employees do no more than minimally required by agreement It is unlawful for a strike or lockout to occur while an agreement is in force – Otherwise, disputes are it resolved through grievance and arbitration process Must bargain in good faith before strike and give sufficient strike notice Copyright © 2024 Pearson Canada Inc. 15 - 72 Picketing Occurs once a strike or lockout is underway Strikers gather at a place of business providing information that dissuades people from doing business with employer – Peaceful – Courts or labour relations boards may restrict picketing when regulations violated – Solidarity and confrontation – Secondary picketing Copyright © 2024 Pearson Canada Inc. 15 - 73 Public Sector and Essential Services Public sector employees have limited rights to job action People involved in essential services may have their right to strike limited by special legislation – May still collectively bargain – Affects police, firefighters, hospital workers, some educators – Substitute compulsory arbitration Copyright © 2024 Pearson Canada Inc. 15 - 74 Union Organization Trade unions are democratic organizations in which policy is established by vote – Elections of officers – Expulsion or ddiscipline for misbehaviour Subject to Human Rights legislation – Trade unions are overseen by labour relations boards and courts – Obligation to represent all members fairly Copyright © 2024 Pearson Canada Inc. 15 - 75 Discussion Question A substantial amount of legislation concerning unions provides for the avoidance of unfair and illegal practices around the formation of the union and negotiation with unions. What are the advantages and disadvantages of collective bargaining with a union rather than with individual employees? Copyright © 2024 Pearson Canada Inc. 15 - 76 Summary What is employment? The law of employment Collective bargaining Copyright © 2024 Pearson Canada Inc. 15 - 77 Business Law in Canada Thirteenth Canadian Edition Chapter 13 Intellectual Property Copyright © 2024 Pearson Canada Inc. 15 - 78 Learning Objectives (1 of 2) When you have completed Chapter 13, you should be able to: 13.1 Identify the types of intellectual property and distinguish them from other forms of personal property 13.2 Describe the rights protected by copyright and the evolution of copyright laws in Canada 13.3 Describe the rights protected by patent laws Copyright © 2024 Pearson Canada Inc. 15 - 79 Learning Objectives (2 of 2) 13.4 Distinguish between trademarks and industrial designs 13.5 Describe how the common law protects confidential information and trade secrets 13.6 Describe how the growth of the internet and information technology has impacted intellectual property and business Copyright © 2024 Pearson Canada Inc. 15 - 80 Intellectual Property (1 of 2) Intellectual property is a subcategory of intangible personal property referring to ideas, information, and creative works Purpose of law is to: – Protect the product of mental effort – Encourage the free flow of new ideas Governed by Federal legislation Copyright © 2024 Pearson Canada Inc. 15 - 81 Intellectual Property (2 of 2) Five Types: 1. Copyright 2. Patents 3. Trademarks 4. Industrial Design 5. Confidential Information Copyright © 2024 Pearson Canada Inc. 15 - 82 Copyright Copyright: the monopoly to copy or reproduce a created work – Only the actual work itself is protected, not the ideas or thought behind it Creator of intellectual property has exclusive right to profit or control their creation for a period of time – For artists and authors: 50 years after death – For corporations, unknown authors and movies, photos, or sound performances: 50 years After expiry of copyright work becomes part of the public domain Copyright © 2024 Pearson Canada Inc. 15 - 83 Matters Covered (1 of 2) Table 13.1 Works Protected by the Copyright Act Literary works – “Literary compilations” such as articles and postings; news feeds and books; and computer software code and hardware design Dramatic works – Movies, videos, television, and theatre productions and performances, including choreography and scenery that are fixed in some permanent form such as writing (including electronic) Musical works – Musical compositions with or without words, including music embedded in a website or stored electronically Artistic works – Paintings, drawings, charts, maps, plans, photographs, sculptures, graphic user interfaces, and architecture Copyright © 2024 Pearson Canada Inc. 15 - 84 Matters Covered (2 of 2) Table 13.1 Works Protected by the Copyright Act (continued) In addition to these works, copyright protection has also been extended to Performances – Performances by actors, musicians, dancers, and singers Sound recordings – C Ds, tapes, computer memory, and other methods for reproducing sound Communication signals – Radio, television, cable, and Internet broadcasts Note that there is considerable overlap, and someone’s creative work might qualify for copyright protection in more than one of these categories. Copyright © 2024 Pearson Canada Inc. 15 - 85 File Sharing Copyright law provides the owner of electronic material with the legal right to prevent unauthorized copying and to rent it and otherwise control its use Copyright law protects owners of electronic materials from unauthorized reproduction as well as the right to control or rent it – Downloading a song for the purpose of sale, rental, distribution, communication by telecommunication, or performance in public is prohibited Copyright © 2024 Pearson Canada Inc. 15 - 86 Creation Existence of copyright is automatic in Canada – Registration worthwhile as it establishes when the copyright was created and names owner – Registration helpful for gaining international protection Ownership: the creator or employer owns the work unless there is an agreement otherwise Copyright can be assigned, but moral rights are retained after assignment Copyright © 2024 Pearson Canada Inc. 15 - 87 Ownership The creator or employer owns the work unless there is an agreement otherwise Creator retains moral rights – Author can demand to have name associated with it as creator – New owner may not have the work changed to degrade it or bring harm to author’s reputation – The work may not be used in association with a product, service, cause, or institution that is prejudicial to the reputation of the author Moral rights can be waived Copyright © 2024 Pearson Canada Inc. 15 - 88 2012 Amendments to the Copyright Act Illegal to circumvent digital locks that protect digital content from unauthorized access – Even where the material is downloaded for personal use, research, or study purposes I S Ps are required to inform infringers of violations and provide user’s identity to copyright holder Some exceptions for personal use Copyright © 2024 Pearson Canada Inc. 15 - 89 Fair Dealing Fair dealing exception expands rights to use copyrighted work under certain conditions: – Education, parody, and satire – Research, private study, news reporting, criticism, and review Must also meet the fairness factor – Consider the purpose, nature, amount, the alternatives, and the effect of the dealing in the work Copyright © 2024 Pearson Canada Inc. 15 - 90 Copyright Infringement Infringing copyright includes: – Benefiting from sale reproduction, distribution, or other commercial use of the work – Plagiarism – Someone else asserting authorship Author can seek injunction or compensation Employers can be held vicariously responsible for copyright infringement by employees Copyright © 2024 Pearson Canada Inc. 15 - 91 Other Exceptions Legislation and case law can be copied without a fee as long as copy is accurate and not represented as official version Attributed quotations that are not extensive are not copyright infringement Users with exceptions: – Libraries, archives, and museums; – Persons with perceptual disabilities; – People making private copies of commercially recorded music or sound recording Copyright © 2024 Pearson Canada Inc. 15 - 92 Remedies (1 of 2) Interlocutory injunction: stops infringement before trial Anton Piller order: court order to seize material from manufacturer or distributor Permanent injunction: prohibiting the production, sale, or distribution of the product – Delivery up order Damages: compensates victim for losses suffered – Accounting – Punitive damages Copyright © 2024 Pearson Canada Inc. 15 - 93 Remedies (2 of 2) Rights holders can sue service providers whose primary purpose is to enable online infringers and service providers – Websites, web hosts, or peer-to-peer file-sharing networks Statutory damages Enhanced injunctions Summary procedures Criminal Code may apply Copyright © 2024 Pearson Canada Inc. 15 - 94 Copyright Board Established under Copyright Act Handles – Disputes between individuals – Arbitrates tariffs – Sets levies – Reviews and approves fees Tariffs: set fees that users must pay for using certain copyrighted material Royalties: sums paid as commission for sales of a work or permission to use it Copyright © 2024 Pearson Canada Inc. 15 - 95 Patents (1 of 2) Patent: The exclusive right to produce, market and sell import or otherwise profit from a specific invention Extends to the abstract conception of the idea To qualify the invention must be: – New and no one else has patent for it – Original work of the inventor – Unique and distinguishable – Useful – Possible to build on basis of instructions filed with patent office Copyright © 2024 Pearson Canada Inc. 15 - 96 Patents (2 of 2) Theories, concepts, or obvious improvements are not patentable Not patentable: – Scientific principles or abstract theories – Products designed for illegal purposes – Computer programs (Canada) Business method likely patentable – Can be patented in the U S Copyright © 2024 Pearson Canada Inc. 15 - 97 Creation (1 of 2) Inventions must be registered with Patent Office before patent is granted The first to apply in their own country has priority Employers are permitted to patent the inventions of their employees Joint patents Copyright © 2024 Pearson Canada Inc. 15 - 98 Creation (2 of 2) Process of obtaining a patent: – Patent records searched to see if a patent already exists and application submitted – Patent office assigns examiner – Patent granted when all conditions met Can apply for patent in other jurisdictions – priority in other countries based on when application was first made in Canada Patent grants monopoly for 20 years Inventor can license patent to others for manufacture Copyright © 2024 Pearson Canada Inc. 15 - 99 Trademarks (1 of 3) Trademark: Protects terms, symbols, designs, sounds or colours that identify a product or company and distinguishes it from a competitor Trademarks on the Internet: – Downloading and using trademarks for own purposes is an infringement Purpose is to protect consumers from deception – Goodwill: reputation, ongoing relations with customers, and product identification Copyright © 2024 Pearson Canada Inc. 15 - 100 Trademarks (2 of 3) Registration protects trademark – Owner have an exclusive right to use it throughout Canada for 10 years (renewable indefinitely) – Creates presumption of ownership Must be distinctive – Cannot be obscene, scandalous or confusing with a known mark Injunctions available against knock-offs Surnames may not qualify as trademarks Copyright © 2024 Pearson Canada Inc. 15 - 101 Trademarks (3 of 3) Domain name disputes often solved by trademark law Cannot trademark a functional aspect of the product or the product itself Use: – Trademark loses status as it becomes a generic term for a type of product (i.e. kleenex) – If trademark is not used, may be lost due to abandonment Remedies are the same as copyright infringement Copyright © 2024 Pearson Canada Inc. 15 - 102 Passing-Off Passing-off action – Prevents misleading the public into thinking it is dealing with a different business or person – Damages and injunction possible even for unregistered trademark – Available in tort and under Trade-marks Act Must show likely to have been misled – Onus on plaintiff to establish actual or potential damage – If the defendant has registered a trademark, it may operate as a complete defence to a passing-off action Copyright © 2024 Pearson Canada Inc. 15 - 103 Industrial Design Registration of a unique shape, pattern under the Industrial Design Act – No legal protection against imitation unless an industrial design is registered Must take place within one year of publication Protection lasts 10 years from registration or 15 years from filing Protects attractive and distinctive patterns Must be original and not a copy of existing product Copyright © 2024 Pearson Canada Inc. 15 - 104 Integrated Circuit Topography Integrated Circuit Topography Act protects 3-D design of integrated circuits – Registration protects for 10 years Remedies for infringement include: – Damages and injunction – Payment of royalties – Punitive damages – Seizure and destruction of the offending product Copyright © 2024 Pearson Canada Inc. 15 - 105 Indigenous Perspective on Intellectual Property General belief that traditional knowledge and traditional cultural expressions belong to the whole community Shared so that everyone may benefit Government of Canada trying to acknowledge discrepancy between our legal system and the Indigenous teachings Copyright © 2024 Pearson Canada Inc. 15 - 106 Confidential Information Confidential information: given in circumstances clear that the information is intended to remain confidential and not be disclosed Duty not to disclose confidential information about a business that would cause harm to the business or bring personal benefit – Duty created by a business relationship – Duty stems from common law, trusts and fiduciary obligations – Information should be identified as confidential Copyright © 2024 Pearson Canada Inc. 15 - 107 Trade Secrets Trade secret: particular kind of confidential information that gives a businessperson a competitive advantage – Information must be valuable to the business – Not commonly known or readily available Wrongful act is in conveying private information – No proprietary right in the information Disclosure may be prohibited by contract – Restrictive covenant/ non-competition clause Non-disclosure agreements protects employer Copyright © 2024 Pearson Canada Inc. 15 - 108 Remedies Plaintiff must show that the disclosure of information has caused harm Remedies: – Injunction – Damages – Accounting Non-disclosure provisions will provide grounds for remedies for breach of contract May also sue for inducing breach of contract Copyright © 2024 Pearson Canada Inc. 15 - 109 Question for Discussion (1 of 2) Employees leaving their jobs may be restricted from using the information they have gained in another job, restricting their chances of new employment. What social and public policy issues are associated with these kinds of employment restrictions? Copyright © 2024 Pearson Canada Inc. 15 - 110 Regulating Information Technology Ease of electronic information transfer complicates enforcement of intellectual property rights Controls introduced to inhibit internet abuses such as bad faith use of domain names – Canadian Internet Registration Authority (CI R A) – CI R A policy protects personal information ▪ Exceptions Copyright © 2024 Pearson Canada Inc. 15 - 111 Protecting Private Information Privacy protection legislation: – Privacy Act protects information held by government institutions and limits collection and access – PI PED A covers all areas of federal jurisdiction and the provinces unless they have passed similar legislation – Requires companies to develop privacy policies Onus still on company or individual to secure confidential information – Criminal and civil liability for not exercising due diligence Copyright © 2024 Pearson Canada Inc. 15 - 112 Additional Challenges Combating Counterfeit Products Act – Expands definition of trademark – Creates additional criminal offences – Expands powers of enforcement Still difficult to enforce Difficult to determine who is subject to controls and responsible for violations Jurisdiction difficult with information technology and internet – I S P may be responsible to stop abuses Copyright © 2024 Pearson Canada Inc. 15 - 113 Dispute Resolution AD R may be efficient and effective way to resolve disputes between users of the internet Online AD R services – Mediation and arbitration offered in domain name and consumer disputes ▪ CI R A, W I P O, Cybersettle Copyright © 2024 Pearson Canada Inc. 15 - 114 Criminal Activity and Other Abuses Criminal offences proliferate on the internet Criminal Code – Theft and fraud – Unauthorized use of computer – Mischief regarding computer data – Interception of private messages – Provision against revenge porn Offences listed in Copyright Act, Trade-marks Act Encryption of data and other defences are the best protection Copyright © 2024 Pearson Canada Inc. 15 - 115 Question for Discussion (2 of 2) The difficulty of enforcing existing and new laws regulating the internet is a recurring theme. Is a possible solution to move the responsibility of an Internet Service Provider (I S P) in the direction of becoming more of an Internet Content Provider? Copyright © 2024 Pearson Canada Inc. 15 - 116 Summary Copyright Patents Trademarks Industrial designs Confidential information Copyright © 2024 Pearson Canada Inc. 15 - 117 Business Law in Canada Thirteenth Canadian Edition Chapter 14 Real and Personal Property and Protection of the Environment Copyright © 2024 Pearson Canada Inc. 15 - 118 Learning Objectives (1 of 2) When you have completed Chapter 14, you should be able to: 14.1 Distinguish real and personal property 14.2 Describe the various types of interest in land 14.3 Outline the unique properties of mortgages and the rights of the parties 14.4 Compare the rights and obligations of landlords and tenants Copyright © 2024 Pearson Canada Inc. 15 - 119 Learning Objectives (2 of 2) 14.5 Discuss the special rules applicable to movable property attached to land and the rights and obligations associated with bailment 14.6 Describe legal issues relating to the protection of the environment, conflicts involving environmental law, and the competing interests of economic growth and environmental protection Copyright © 2024 Pearson Canada Inc. 15 - 120 Types of Property Real property: land and anything permanently attached to it Personal property: – Chattels (goods): tangible personal property that is moveable and can be weighed and measured – Chose in action: An intangible right is a claim one person has against another (as a claim for debt) Copyright © 2024 Pearson Canada Inc. 15 - 121 Real Property Land and anything permanently attached to it Only the portion that can be permanently used or occupied Use is usually restricted by zoning laws Mineral rights usually separate from surface rights and covered by their own body of law Copyright © 2024 Pearson Canada Inc. 15 - 122 Estates in Land Estates in Land: the right of possession to land granted by the Crown Fee Simple: the right to use and sell land subject only to local restrictions – ownership Life Estate: upon the death of a life tenant property reverts back to original owner – Dower and homestead rights Leasehold Estates: land leased to a tenant for a specific period of time Copyright © 2024 Pearson Canada Inc. 15 - 123 Lesser Interests in Land (1 of 2) Easements: gives person right to use a portion of another’s land for a particular purpose but does not give possession Right of way: right to cross another’s land Licence: gives a person permission to use another’s land Copyright © 2024 Pearson Canada Inc. 15 - 124 Lesser Interests in Land (2 of 2) Easement by prescription: right to land acquired by use – Landowner must exercise control periodically Adverse Possession: a right to actual land possession through long-term use tolerated by legal owner Restrictive Covenants: designated restrictions on how the land can be used and bind all subsequent holders – Building scheme Copyright © 2024 Pearson Canada Inc. 15 - 125 Tenancy in Common and Joint Tenancy Owning property together may be joint or in common Tenancy in Common: two or more people share an undivided interest in property with each owning a designated portion of title Joint Tenancy: two or more people own the entire property – With a right of survivorship – Can be severed Copyright © 2024 Pearson Canada Inc. 15 - 126 Indigenous Perspective Indigenous rights and claims to land are considered sui generis An Indigenous land claim has to be treated as its own unique circumstances Indigenous land claims do not conform to current property law Copyright © 2024 Pearson Canada Inc. 15 - 127 Other Interests in Land Option gives the right to purchase and keeps an offer open for a specified period (i.e. land speculators, leases with option to purchase) Agreement for sale: like a conditional sale with two stages – possession and then title exchanged after last payment; includes right to retake possession if person buying land fails to pay instalments Copyright © 2024 Pearson Canada Inc. 15 - 128 Transfer and Registration of Interest in Land (1 of 2) Agreement of Purchase and Sale: – Contract for the purchase of commercial or residential real property – May be preceded by Interim Agreement (the binding contract for sale of the property) Registration system: – Registration is imposed to assist in ascertaining title – Documents related to land transactions create an accurate title trail Copyright © 2024 Pearson Canada Inc. 15 - 129 Transfer and Registration of Interest in Land (2 of 2) Land Titles System: certificate of title is conclusive evidence in any court that the person named on the certificate is the holder in fee simple of that property – A central registry prepares “certificate of title” which is binding on all parties after it has been registered – Government guarantees title – assurance fund to pay claims – Certificate of title determines the interest of the parties listed on it to the land specified Electronic registration systems Copyright © 2024 Pearson Canada Inc. 15 - 130 Condominiums and Cooperatives Condominiums: – Ownership involves a combination of unit and common ownership – Bylaws outline the rights and duties of members – Rules must be obeyed and fees paid Cooperatives: – Real property owned in common, or by corporation with shareholders – No member owns individual title Copyright © 2024 Pearson Canada Inc. 15 - 131 Mortgages (1 of 2) Mortgage involves the debtor borrowing money and giving the creditor a claim against their property (land and buildings) as added security in the event of default Historically title was transferred to lender and borrower stayed in possession Mortgage agreement is calculated on repayment of the debt over a long period of time (25 or 30 years) Copyright © 2024 Pearson Canada Inc. 15 - 132 Mortgages (2 of 2) Equity of redemption: right of mortgagee to redeem property even after default Foreclosure: ends equity of redemption by setting a time limit Order for judicial sale: application by other creditors to have property sold Mortgagor is responsible for any shortfall Copyright © 2024 Pearson Canada Inc. 15 - 133 The Landlord-Tenant Relationship Leasehold Estates: Landlord retains reversionary interest in property Lessee is entitled to exclusive possession during term of the lease Contract law applies Lease must be evidenced in writing (over 3 years) – Long-term leases may also need to be registered Leasehold interests run with the land Copyright © 2024 Pearson Canada Inc. 15 - 134 Types of Tenancies Term lease: stipulated to run for a specific period of time Periodic tenancy: period-to-period rental Sublets: tenant retains reversionary interest with permission of landlord “which shall not be unreasonably withheld” Copyright © 2024 Pearson Canada Inc. 15 - 135 Rights and Obligations of the Parties (1 of 2) Landlord must provide: – Vacant possession: premises are ready for occupancy – Quiet Enjoyment: must not interfere with tenant’s use of the property – Repair: landlord has no general obligation to repair unless it amounts to breach of quiet enjoyment – Termination with proper notice by either tenant or landlord ▪ Tenancy at sufferance: fails to leave after term of lease expires Copyright © 2024 Pearson Canada Inc. 15 - 136 Rights and Obligations of the Parties (2 of 2) Tenants obligations: – Pay the rent ▪ Abatement if landlord in breach of obligations – Not responsible for reasonable wear and tear ▪ Obligation to make repairs if used in an unanticipated manner – Can remove their own fixtures before termination of lease Copyright © 2024 Pearson Canada Inc. 15 - 137 Remedies (1 of 2) Landlord may sue for: – Overdue rent – Damages for breach Tenant vacates premises – Forfeiture: tenants forced to vacate the premises which can be accomplished by the landlord changing locks or eviction – Relief against forfeiture: equitable principle allowing tenant to have lease reinstated or landlord retaining right to payment if premises vacated Copyright © 2024 Pearson Canada Inc. 15 - 138 Remedies (2 of 2) Breach of Lease: – Landlord can seize tenant’s property (distress or distraint) – Injunction available to both landlord and tenant when lease is breached – Tenant may sue for injury suffered by landlord’s breach Occupier’s Liability imposed on tenants Copyright © 2024 Pearson Canada Inc. 15 - 139 Residential Tenancies Provincial legislation modifies residential tenancy common law with areas typically altered including: – Standard form lease – Quality of facilities and repair – Notice of termination periods – Security deposits – Rent controls – Landlord has no right of distress – Imposition of term lease Copyright © 2024 Pearson Canada Inc. 15 - 140 Personal Property Chattels: moveable things such as electronic devices, clothes, animals, and motor vehicles Fixtures: a chattel when it is attached to the land and becomes part of the real property Exceptions: trade fixtures and things that have not been incorporated into the structure of the building Copyright © 2024 Pearson Canada Inc. 15 - 141 Finders Keepers Law of finders: – Finder gets good title against all but the original owner – The only person who has a better claim to goods that are found is the original owner – Rights depend on where item is found ▪ If in a public place - the finder ▪ If in a private space - the owner of the place – Finder has obligation to return found goods to proper owner when it is possible to do so Copyright © 2024 Pearson Canada Inc. 15 - 142 Bailment Bailment: when a person (bailee) acquires temporary possession of personal property owned by another (bailor) With fungibles (similar and indistinguishable goods) the exact particular goods need not be returned Bailees are liable for wilful, negligent or fraudulent acts done to goods while in their possession – Duty of care Copyright © 2024 Pearson Canada Inc. 15 - 143 Bailment for Value Bailment for value: a mutual benefit or consideration flowing between the parties – E.g. goods being repaired, stored or transported – Contract may determine level of care owed – In commercial relationships, level of care may be based on standards expected in the industry or explicitly stated in contract Exemption clauses may limit liability Copyright © 2024 Pearson Canada Inc. 15 - 144 Common Carriers Common carriers (i.e. trucking companies, airlines and railroad) and innkeepers have higher standards imposed by statute Common carriers undertake the standard of an insurer Liable for damage even if not caused by negligence Innkeepers also have high duty of care but liability has been reduced by statute in most jurisdictions Copyright © 2024 Pearson Canada Inc. 15 - 145 Gratuitous Bailment Gratuitous bailment: when only one party receives a benefit (i.e. borrowing goods) – Historically: ▪ When for benefit of bailee, the bailee has higher standard of care with reference to the goods ▪ When for the benefit of the bailor, gross negligence on the part of the bailee brings liability Liability today is based on the reasonable person test Copyright © 2024 Pearson Canada Inc. 15 - 146 Involuntary Bailment Involuntary bailment: when goods have been left without permission No duty of care until goods have been accepted Obligation to: – Take care of the goods – Return to bailor Copyright © 2024 Pearson Canada Inc. 15 - 147 Discussion Question (1 of 2) Is it fair to have differing standards for different types of bailment? Would a single standard provide clearer regulations concerning duty of care? Copyright © 2024 Pearson Canada Inc. 15 - 148 Protection of the Environment Common Law has provisions preserving the environment (i.e. Riparian rights protecting water quality) Tort of nuisance protects a person from their neighbor’s use of property Torts of negligence and trespass have also been used for environmental protection Problems with common law remedies is that they require personal involvement and individual must bear costs Copyright © 2024 Pearson Canada Inc. 15 - 149 Federal Government (1 of 3) Federal government has jurisdiction: – In matters that are interprovincial and international in scope – Take place on federal land or coastal waters Power to enact environmental protection laws under its criminal law power Can exercise a considerable amount of indirect control by requiring that provincial environmental projects satisfy federal standards to qualify for federal funding Copyright © 2024 Pearson Canada Inc. 15 - 150 Federal Government (2 of 3) Canadian Environmental Protection Act (CEP A) – Assesses new projects affecting the environment – Provides for research and development, measurement of pollution levels, monitoring industry and punishing violations – Empowers Federal government to negotiate with provinces and others – Empowers enforcement officers to issue compliance order – Act permits parties to negotiate solutions to avoid prosecution which encourages compliance Copyright © 2024 Pearson Canada Inc. 15 - 151 Federal Government (3 of 3) Canadian Environmental Assessment Act: – Requires project proposals for certain activities potentially affecting the environment – Reviews project to assess if further action is necessary – Different levels of report from screening to comprehensive study Other federal environmental legislation contained in Transportation of Dangerous Goods Act, 1992 and Fisheries Act Copyright © 2024 Pearson Canada Inc. 15 - 152 Provincial Legislation All provinces have a general environmental statute supplemented by issue-specific legislation – Examples include Ontario’s Environment Protection Act with the Ontario Safe Drinking Water Act 2002 added as a statutory change following the Walkerton water contamination Municipalities and local governments also have significant impact Copyright © 2024 Pearson Canada Inc. 15 - 153 Other Issues in Environmental Projects Resource development is a prominent area of environmental concern – Requires sophisticated planning and significant public input Indigenous peoples must be consulted with respect to projects in their territories Copyright © 2024 Pearson Canada Inc. 15 - 154 Discussion Question (2 of 2) The CEP A provides that due diligence is an effective defence in cases where a company has committed an environmental offence. Is the non-litigious approach of the CEP A sufficient to deter companies from committing breaches of environmental law? Copyright © 2024 Pearson Canada Inc. 15 - 155 Summary Real property Mortgages Leasehold estates Personal property Environment protection Copyright © 2024 Pearson Canada Inc. 15 - 156 Business Law in Canada Thirteenth Canadian Edition Chapter 16 Sales and Consumer Protection Copyright © 2024 Pearson Canada Inc. 15 - 157 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. 15 - 158 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. 15 - 159 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. 15 - 160 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. 15 - 161 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. 15 - 162 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. 15 - 163 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. 15 - 164 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. 15 - 165 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. 15 - 166 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. 15 - 167 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. 15 - 168 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. 15 - 169 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. 15 - 170 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. 15 - 171 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. 15 - 172 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. 15 - 173 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. 15 - 174 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. 15 - 175 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. 15 - 176 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. 15 - 177 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. 15 - 178 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. 15 - 179 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. 15 - 180 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. 15 - 181 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. 15 - 182 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. 15 - 183 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. 15 - 184 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. 15 - 185 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. 15 - 186 Cheque Figure 16.1 Cheque Copyright © 2024 Pearson Canada Inc. 15 - 187 Bills of Exchange Figure 16.2 Bills of Exchange Copyright © 2024 Pearson Canada Inc. 15 - 188 Promissory Note Figure 16.3 Promissory Note Copyright © 2024 Pearson Canada Inc. 15 - 189 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. 15 - 190 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. 15 - 191 Business Law in Canada Thirteenth Canadian Edition Chapter 11 Corporations Copyright © 2024 Pearson Canada Inc. 15 - 192 Learning Objectives When you complete Chapter 11, you should be able to: 11.1 Analyze the separate legal entity principle 11.2 Describe the advantages and disadvantages of incorporation 11.3 Explain the process of incorporation 11.4 Discuss the funding of a corporation 11.5 Examine the roles of corporate directors, officers, and shareholders 11.6 Distinguish the ways that a corporation can be terminated Copyright © 2024 Pearson Canada Inc. 15 - 193 Separate Legal Entity (1 of 3) Incorporation creates a separate legal entity, that has a legal personality separate from the people who own shares in it – An “owner” owns shares that can be bought and sold – Shareholders can be continually changing, while the company itself remains intact – Provides flexibility – Shareholders do not actually own the assets of the business – Is a legal fiction Copyright © 2024 Pearson Canada Inc. 15 - 194 Separate Legal Entity (2 of 3) – Courts may “lift corporate veil” to get at managers who commit crimes or avoid regulations – Allows for acquisition of capital without involving shareholders in operation of corporation – Allows purchase and sale of corporation’s shares without interfering with ongoing operation of business – Vicarious liability for agents and employees – Limits liability of shareholders ▪ But limited liability can be lost by giving a guarantee Copyright © 2024 Pearson Canada Inc. 15 - 195 Separate Legal Entity (3 of 3) Figure 11.1 Separate Legal Entity Copyright © 2024 Pearson Canada Inc. 15 - 196 The Role of Agents All activities of a corporation are carried out by agents – Actual or apparent authority must be established Filed documents no longer count as notice of limited authority Copyright © 2024 Pearson Canada Inc. 15 - 197 Question for Discussion Because a corporation is a separate legal entity, the shareholders are protected from liability to the creditors and may in fact be secured creditors as well. Is it reasonable to give a shareholder/director who is also a secured creditor priority over other creditors if it is their actions that have caused the company to incur liability? Copyright © 2024 Pearson Canada Inc. 15 - 198 Pros and Cons: Advantages (1 of 3) Limited Liability – Shareholders protected from unexpected corporate obligations ▪ Torts committed by employees ▪ Failure to properly perform contractual obligations Limited Liability is lost when: – Directors/officers give personal guarantees for loans – Courts “lift corporate veil” and hold principals liable for company’s obligations Copyright © 2024 Pearson Canada Inc. 15 - 199 Pros and Cons: Advantages (2 of 3) Taxes – Tax advantages may be gained through incorporation ▪ Shareholder can leave funds in the corporation and use it as a vehicle of investment to defer taxes – Take great care in tax planning ▪ Expert advice Succession and Transferability – Corporation continues to exist after death of a shareholder – Shares can be transferred at will Copyright © 2024 Pearson Canada Inc. 15 - 200 Pros and Cons: Advantages (3 of 3) Obligations of the Participants – Shareholders ▪ Owe no duty to the company ▪ May carry on business in competition – Insiders, directors or officers and majority shareholders activities may be restricted Management – Elected directors appoint managers; shareholders are removed from day-to-day operation of company Copyright © 2024 Pearson Canada Inc. 15 - 201 Pros and Cons: Disadvantages Major changes in corporate structure require amendments to the incorporation documents Position of minority shareholder is weak Free transferability of shares may be restricted Most expensive way to operate a business Copyright © 2024 Pearson Canada Inc. 15 - 202 The Process of Incorporation (1 of 4) Registration of a Company: – Practice adopted from Britain – Registration done by filing “memorandum of association” and “articles of association” with government agency ▪ Memorandum of association sets out: – Name of the company, – Authorized share capital – Objects of the incorporation ▪ Articles of association: internal procedural regulations for governing the operation of the company Copyright © 2024 Pearson Canada Inc. 15 - 203 The Process of Incorporation (2 of 4) Letters Patent – Based on practice of royal charters – Letters patent granted by Crown – Sets out the constitution of the new company and contains: ▪ Purpose for which the company is formed ▪ Name to be used ▪ Share structure ▪ Any restrictions on the transferability of shares ▪ Rights and obligations of the parties Copyright © 2024 Pearson Canada Inc. 15 - 204 The Process of Incorporation (3 of 4) Articles of Incorporation – Adopted from U S – Has features of both the letters patent and the registration methods – The articles of incorporation are the main incorporating document ▪ Articles of incorporation contain constitution, purpose, bylaws controlling day-to-day operation – Government body has no discretion to refuse request Copyright © 2024 Pearson Canada Inc. 15 - 205 The Process of Incorporation (4 of 4) Table 11.1 Methods of Incorporation in Canada Jurisdiction Charter Documents Bylaws Nova Scotia Memorandum Articles (filed) Prince Edward Island Letters patent Bylaws (not filed) British Columbia Notice of articles Articles (not filed) Other provinces and federal Articles of incorporation Bylaws (not filed) Copyright © 2024 Pearson Canada Inc. 15 - 206 Other Incorporated Bodies Cities Public institutions Universities Non-profit Societies – Non-share capital companies Copyright © 2024 Pearson Canada Inc. 15 - 207 Capacity Most corporations have capacity and the rights, powers, and privileges of a natural person – Subject only to provisions of legislation Power to contract may be limited in certain specified situations – When dealing with corporations created by special acts of the legislature or Parliament, those acts may limit their activities to specified areas Copyright © 2024 Pearson Canada Inc. 15 - 208 Funding Funds are raised by selling shares Shares – Par-value: company places a monetary value on the share at issue; may not reflect actual value on the market ▪ The articles of incorporation jurisdictions (except British Columbia) have abolished par-value shares – No-par-value: value of share is determined by the market ▪ Common practice is to issue no-par-value shares Copyright © 2024 Pearson Canada Inc. 15 - 209 Special Rights and Restrictions (1 of 2) Shares issued by a corporation are normally divided into different classes Common shares include the right to: – Vote at shareholders’ meetings – Receive dividends declared by the corporation – Receive property of the corporation on its dissolution Common shares are issued if there is only one class of shares Copyright © 2024 Pearson Canada Inc. 15 - 210 Special Rights and Restrictions (2 of 2) Preferred shares usually give the shareholder preference when dividends are declared – If dividends are not paid - preferred shares may convert to common shares (with a vote) – Restriction on the transfer and sale of shares often imposed where the company is closely held – Shareholder may not have the right to vote Copyright © 2024 Pearson Canada Inc. 15 - 211 Borrowing Corporations can borrow funds and accumulate debt Single creditor: bank loans Multiple creditors: – Debentures and bonds – Bondholders are only creditors and have no right to vote Most large corporations maintain balance between common and preferred shares and various types of debt instruments Copyright © 2024 Pearson Canada Inc. 15 - 212 Funding of Corporations Figure 11.2 Funding of Corporations Copyright © 2024 Pearson Canada Inc. 15 - 213 Closely Held and Broadly Held Corporations Closely held corporation: – Few shareholders – Shares not sold openly on stock market – Private corporation (non-reporting) Broadly held corporation: – Public share offering – More highly structured and regulated (reporting) than closely held corporations Copyright © 2024 Pearson Canada Inc. 15 - 214 Corporate Directors, Officers and Shareholders (1 of 2) Directors: – Elected by shareholders – Owe a duty to the company to be careful; to “exercise the care, diligence and skill of a reasonably prudent person” – Have a fiduciary duty to the corporation (rather than the shareholders) Copyright © 2024 Pearson Canada Inc. 15 - 215 Corporate Directors, Officers and Shareholders (2 of 2) Directors and officers can consider the following when acting with a view to the best interests of the corporation: – environment, long-term interests of the corporation, and interests of shareholders, employees, retirees, pensioners, creditors, consumers and governments Shareholders can bring a derivative action against directors on behalf of the company Directors can face personal liability Directors cannot use “insider knowledge” Copyright © 2024 Pearson Canada Inc. 15 - 216 External Obligations Directors may be personally liable for: – Unpaid wages – Breaches of company employment standards – Unpaid taxes – Damage to the environment – Breaches of consumer protection legislation, the federal Competition Act, securities legislation, and provincial human rights codes – Commission of tort – Causing employees to commit crimes Copyright © 2024 Pearson Canada Inc. 15 - 217 Officers and Senior Executives Senior management: owes the same types of general obligations, duties of care, and competence to the corporation as the directors, but may be held to an even higher standard – Responsible for day-to-day management – Fiduciary duty – Duties of care and competence Copyright © 2024 Pearson Canada Inc. 15 - 218 Promoters Promoter: Assists corporation with a public share offering – Prepare the prospectus to be approved by Securities Commission – Owe a fiduciary duty to the corporation Copyright © 2024 Pearson Canada Inc. 15 - 219 Shareholders (1 of 2) Shareholders: Have few obligations unless they hold enough shares to be classified as ‘insiders’ Rights and Remedies – Access to most records and financial reports – Receive notice of annual general meetings – Right to vote on major changes – First offer of new shares Transparency registers – Company to maintain a current register of individuals with “significant control” over the corporation Copyright © 2024 Pearson Canada Inc. 15 - 220 Shareholders (2 of 2) An annual general meeting of shareholders must be held; Shareholders have the right to vote for the directors of the corporation Preferred shareholders may have the right to vote Pre-emptive rights entitle shareholders to be offered any new shares first Copyright © 2024 Pearson Canada Inc. 15 - 221 Shareholder Protections Minority shareholders have a weak position Shareholder protections: – Derivative (representative) action – Oppression action – Dissent and appraisal remedy Copyright © 2024 Pearson Canada Inc. 15 - 222 Dividends Shareholders have no right to dividends – Can require payment if one has been declared by the directors – No specific rate of return on investment – Preferred shareholders can force payment before any dividend is paid to the common shareholders Shareholder may sue for oppression when: 1. There is an expectation of a regular income flow through dividends; and 2. That income flow is stopped Copyright © 2024 Pearson Canada Inc. 15 - 223 Shareholders Agreements Shareholders Agreement cannot restrict directors Shareholder agreement should consider situation and may provide: – Shareholders will be elected to the board of directors every year – That major changes will not take place without the unanimous agreement of the shareholders – Restrict a sale of shares to outsiders and may set a valuation method of the shares Unanimous shareholder agreement (US A) Copyright © 2024 Pearson Canada Inc. 15 - 224 Corporate Structure Figure 11.3 Corporate Structure Copyright © 2024 Pearson Canada Inc. 15 - 225 Termination of Corporation Dissolution of a corporation – May be voluntary or involuntary – Induced internally or externally – Bankruptcy – Neglecting to file annual return Selling the shares vs. selling the assets u s r e Creditors entitled to assets before shareholders Copyright © 2024 Pearson Canada Inc. 15 - 226 Questions for Discussion Shareholders of a corporation normally have their financial risk limited to the value of their shares. Why do you think this type of liability protection is not available to those who cannot use corporations to operate their business such as most professional accountants? Copyright © 2024 Pearson Canada Inc. 15 - 227 Summary Separate legal entity principle Advantages and disadvantages of incorporation The process of incorporation Funding of a corporation Role of corporate directors, officers, and shareholders Termination of a corporation Copyright © 2024 Pearson Canada Inc. 15 - 228