This Document Contains Chapters 13 to 16 Chapter 13 Intellectual Property Answers to Questions 1. What two principles does the law of intellectual property try to balance? The free accessibility of information is balanced against the right of the creator of the ideas or information to profit the ideas or information. Stated differently, the degree of the incentive to create is balanced against the good to society of early free access to the protected intellectual property. 2. Explain how a copyright is obtained and the qualifications that must be met in order to obtain such protection. The copyright is obtained just through the creation of the work in Canada. However, international protection can be obtained through registration. In order to qualify, the work must be original and it must be preserved in some permanent form such as in a written document. 3. Summarize the nature of the protection given to the holder of a copyright and indicate what remedies are available to enforce such rights. The protection given to the holder of a copyright is a monopoly in relationship to that work. If that copyright is infringed, remedies include an injunction, an accounting for profits, damages and an Anton Piller order providing for the seizure of the goods that are in violation of the copyright. 4. How long does copyright protection last? The protection given to the holder of a copyright is for the lifetime of its creator plus 50 years. 5. Discuss under what circumstances an Anton Piller order would be given and indicate how this remedy might be more valuable than other remedies that might be available. An Anton Piller order is an order to seize the goods that offend the copyright. Because the order is obtained ex parte, the seizure is a surprise, preventing the goods and evidence from being destroyed or hidden. The court will only give such a remedy when there is clear and compelling evidence of the infringement, damages would not be a sufficient remedy and when surprise is necessary in seizing the goods in order to protect the evidence. 6. What is the purpose of patent law and why is registration required for protection? The patent is not designed to protect the actual work but the idea behind the work or invention. An application for registration followed by registration, gives the inventor a monopoly over the use and profits from that invention or idea. The reason for the registration is to provide for the disclosure of the information to others so that they can use the new knowledge in further advancing society. An important purpose patent law and the registration process is to disclose information rather than hide it. 7. How long does patent protection last? A patent gives its holder a monopoly for a maximum of 20 years from the date of application. 8. What kinds of things are protected by trademark legislation and how is that protection obtained or lost? Trademark legislation is designed to protect terms, symbols and designs that are used to identify a product or a business, such as the golden arches for McDonalds. The trademark is created by registration which gives the owner of the trademark exclusive rights in relationship to it. Failure to register results in the loss of this protection but other avenues may be available for enforcement such as a passing off action. 9. What options are available when someone registers a domain name that conflicts with your trademark? Trademark laws apply to domain names. The registration of a domain name will not overrule trademark law. Infringed trademarks by domain names can be brought to the Federal Court when the infringed trademark has been properly registered. 10. How long does trademark protection last? Registration of the trademark gives the owner exclusive right in Canada for 15 years and it is renewable. The renewal of the registration is required every ten years. 11. Explain what constitutes passing-off and what course of action is available to the victim. Passing-off occurs when a person misleads the public into thinking it is dealing with some other business or person when it is not. The court can order compensation to be paid or that the conduct stop. This remedy is available even when an unregistered trademark is involved. The onus is on the plaintiff to establish that actual or potential damage was caused. 12. What type of protection extends to industrial designs? How is this protection obtained? Industrial designs are intended to protect designs or patterns that distinguish a manufactured article, such as the distinctive shape of a particular designer handbag. In order to obtain this protection the industrial design must be registered and the product must be marked appropriately with the registration mark. 13. What steps should an employer undertake to protect confidential information? The employer must inform the employee that the information is confidential. The employer can have the employee sign a contract. 14. How does the duty of confidentiality arise, and what protection or remedies are available to the confider? The duty of confidentiality usually arises when a special relationship is in place such as employment, principal/agent, company director or otherwise that imposes a duty of confidentiality on the parties. When the confidence is broken, or likely to be broken, the kinds of remedies that are available are mainly damages, an accounting or, in some circumstances, an injunction. 15. What federal statutes have been enacted to protect privacy rights? The Privacy Act protects information held by government institutions, limits its collection, and provides or limited access where appropriate. The Personal Information Protection and Electronics Documents Act (PIPEDA) covers all areas of federal jurisdiction and the provinces as well. 16. What are some of the problems related to enforcing copyright and trademark law when the medium for transmitting information is the Internet? The person linking the copyright or trademark may feel that since it is linked to the host site, three is no violation. Infringement could occur from offshore companies making enforcement of laws extremely difficult. Determining who is infringing when many players are involved causes difficulty. 17. What steps should a company take to protect itself and its data from internal and external threats? The company should identify the data that is to protected. They should create policies about who can access the data and policies about how the data can be used and where it can be used. Covenants or contracts should be created when the data must be shared. The entire process should be audited to ensure the policies are being held. 18. Indicate how criminal law, tort law and contract law can be used to protect intellectual property. How effective are such alternatives when dealing with online infractions? When a confidential relationship is created by contract, such as employment, it is appropriate to set out in the contract that disclosure of certain specified information is prohibited so there can be no doubt what is intended. Tort remedies are not as effective, generally, but may be available in specific situations such as when an outside party induces an employee or other to breach a contractual duty of confidentiality. Criminal remedies such as theft or fraud have also been used to prosecute people who have misused confidential information. For online transactions these alternatives are difficult to enforce particularly when infringement originates overseas or when there are multiple parties involved making it difficult to identify the perpetrator. Solutions to Cases 1. Mars Canada Inc. v. M&M Meat Shops Ltd. 2008 CanLII 4982 (ON SC). The court reviewed the various agreements between the parties and concluded that since “the wording of paragraph three of the Settlement Agreement is clear and unambiguous, there is accordingly no need or legal basis to admit or consider extrinsic evidence in respect of the negotiations leading up to the Settlement Agreement concerning what the parties (or their counsel) intended. Such an exercise will only introduce the subjective intention of the parties which is not appropriate.” The question that remained was whether the sales through Mac’s outlets were permitted. In that regard, the court held that “the M&M Meat Shops operated by Mac’s in or adjacent to its convenient stores are clearly M&M Meat franchised stores, trading under the names LES ALIMENAT M&M and M&M MEAT SHOPS. Accordingly, in permitting the sale of the Restricted Products in Mac’s M&M Meat Shops, M&M Meat is not in breach of paragraph three of the Settlement Agreement.” 2. Black v. Molson Canada, 2002 CanLII 49493 (ON SC), 60 OR (3d) 457 The court held in favour of Black. Molson’s trademark was associated with the production of a specific product: beer. There are lots of examples of businesses with the name Canadian in their titles or product names and they cannot all be acting in bad faith. There is no danger that people will confuse this domain name with the Molson product. The fact that Black wasn’t using the domain name yet had no effect as there was evidence he did plan to use it. Black had the right to use the Domain name in the website catering to Canadian business and entrepreneurs. 3. Rains v. Molea, 2013 ONSC 5016 (CanLII) Neither Rains nor Molea should have copyright over all crinkled paper art. They should only have copyright over the art they personally created. It does not matter that Rains based his works on historical architecture. If either can prove that the other copied their work, crinkle for crinkle, then there should be protection provided by copyright law. 4. Wenzel Downhole Tools Ltd. v National-Oilwell Canada Ltd., 2012 FCA 333 (CanLII) The appropriate remedy available to Wenzel is to sue National-Oilwell for patent infringement. Having sold to the industry the invention prior to patent application, means the invention was available for public inspection and without protection. Since the invention was available the patent should be invalid and the plaintiff should not succeed. Chapter 14 Real and Personal Property and Protection of the Environment Answers to Questions 1. How does personal property become real property? Discuss why a determination of why and when this has happened may be important. When chattels are affixed to real property they become part of that real property, or fixtures. The circumstances under which they were affixed will determine whether anyone other than the owner of the real property can remove them. 2. What is a fixture? Under what circumstances can someone other than the owner of the real property, such as a tenant, remove fixtures? When chattels are affixed to real property they become a part of that real property and are called fixtures. Only the owner of the real property has the right to remove them. But where tenants affix those chattels they are often entitled to take them with him as they leave unless doing so would cause damage or where those goods were intended to become a permanent part of the real property. 3. What interest in land does the purchaser get when he or she buys a house? The purchaser obtains an interest in land or the right to use the land called a fee simple. Such an interest gives the purchaser the right to use the land or to sell it subject to local zoning and other restrictions. 4. What is meant by a fee simple estate in land? A fee simple is the greatest interest in land that it is possible to possess, apart from Crown ownership, and can be equated to ownership. It conveys with it the right to transfer or sell the land. Fee simple is the dominant method of holding an interest in land today. 5. Explain the rights and obligation of reversion and remainder when discussing a life estate. A life estate is involved when people are given the right to hold possession of property for the duration of a life, which is usually their own. The death of the person determines the end of the life estate. At that point the property reverts back to the original grantor of the life estate, who is often the person who holds the fee simple. This is referred to as a reversion. The property may also be designated to go to another person called a remainderman, after the end of the initial life estate. Dower and curtsey are examples of life estates. 6. Contrast life estates and leasehold estates. A life estate involves possession of the property for the duration of a specified life, which is usually that of the person provided with the life estate. Obviously it is not a set time. With a leasehold interest, however, possession the property is often conveyed for a specific period of time, for example a 99 year lease, and this is the primary distinction between a life estate and a leasehold estate. 7. What is meant by an easement? Give examples, and explain why an easement is called a lesser interest in land. An easement does not convey a right to exclusive possession of the land involved and, therefore, is referred to as a lesser interest in land. An easement conveys with it a right to use another person’s land either by encroaching on it or crossing over it. An easement right to cross over is called a right of way. 8. Explain the significance of a dominant and servient tenements when dealing with easements. For an easement to be valid as an interest in land there must be a servient tenement, which is property on which the easement is imposed. There must also be a dominant tenement that gets the benefit of the easement. For example, when person A has the right of way to cross person B’s property to get to his own property, the property of person A is referred to as the dominant tenement and the property of person B is referred to as the servient tenement 9. What is meant by a restrictive covenant? Under what circumstances will such a covenant be binding on subsequent landowners? How does this relate to a building scheme? A restrictive covenant is created by the original seller of the property as part of granting a purchaser an interest in that property (usually ownership), and places some sort of restriction on its use. For example, no house can be built on the land without a tile roof or no building can be erected over three stories high. This kind of restrictive covenant may be used to protect the value of the seller’s adjacent property or to protect the view, etc. When property is subdivided by a developer, certain restrictions may be placed on title to protect property values, and this is called a building scheme. Both restrictive covenants and building schemes run with the land and all future owners are bound by those restrictions. 10. Contrast a tenancy in common with a joint tenancy, and indicate how one can be changed to another. Why is the distinction important? Both joint tenancies and tenancies in common are methods by which people may own property together. That is all parties can point to any portion of the property and claim to have a designated interest in it. With a tenancy in common the interest in the land is inherited when one of the parties dies. With a joint tenancy with a right of survivorship, the remaining joint tenant(s) become the owners of the property. Sometimes when a joint tenancy has been created, one of the parties then decides it is time to end the joint tenancy. Relief from the court may be available by severance and sale if the parties cannot agree on a buy out or sale. Joint tenancy with a right of survivorship is a common way for couples to hold title and is a common vehicle to keep real property out of probate and away from probate fees. 11. How can failure to properly register a mortgage or deed affect the initial parties to an instrument in a registration jurisdiction? What happens when an innocent third party becomes involved? How is this different in land titles jurisdiction? Failure to register an interest in property in a registration jurisdiction will not affect the rights of the original two parties as that relationship is governed by the personal dealings between them. Registration is designed to protect the interests of an innocent third party. If the property is sold to an innocent stranger, the title will not be affected by an unregistered mortgage or deed unless the stranger has knowledge of the mortgage or deed. This is true even in a land titles system where the certificate of title guarantees the ownership and interests in land to be as stated, since it is possible for the person who has neglected to register to correct the oversight, as long as the interests of an innocent third party are not affected. 12. How are rights under a lease agreement different from the rights of a resident created under a licence agreement? When a leasehold interest is established, even if it is only for a short time, an exclusive right to the possession of that property is given. The only one entitled to be on the property during that time is the leasehold tenant and their permitted guests. When a license to use the property is granted, however, there is no exclusive right to use the property. A hotel grants the license to use a suite and retains the right to enter the room to clean and inspect the premises while the guest is staying there. The landlord of leased property does not have similar rights. 13. Under what circumstances must a leasehold interest be evidenced in writing? Why? A leasehold interest conveys an interest in land and under the Statute of Frauds all contracts dealing with the conveyance of land must be evidenced in writing. Most provinces have qualified this so that it applies only to leasehold interests of more than three years duration. 14. What is a periodic tenancy? What special problems come into play with periodic tenancies that are not present with term leases? A periodic tenancy involves a lease agreement that is, in effect, renewable at the end of each period specified in the agreement. There is no termination date and, therefore, it is necessary for the tenant or landlord to serve notice of a wish to terminate. With a term lease, there is no requirement for notice as the lease automatically terminates at the end of the term. 15. Explain what is meant by a landlord’s obligation to ensure a tenant’s “quiet enjoyment”. A landlord must ensure that nothing happens to interfere with the tenant’s use and enjoyment of the property. There must be no third party who has a right to force the tenant not to use the property. 16. Explain what is meant by the term “finders keepers” in terms of who is entitled to the property that has been found. When a chattel has been found, such as a watch on a beach, the finder has a right to it against all others except someone with a prior claim, such as the original owner. 17. Discuss different ways in which a bailment may be created. What duty is imposed on a gratuitous bailee? What duty is imposed on a bailee for value? The bailment may be created gratuitously for the benefit of the bailee as when a neighbour borrows your lawn mower or for value where the bailee is paid for the service of holding a chattel. In the case of both, the obligation on the bailee is to use the same degree of care in looking after those goods as would a reasonable owner of them. The duty imposed on a gratuitous bailee for the benefit of the bailor is considerably less. Of course any contract provisions can modify these duties. 18. Distinguish between the obligation placed on a bailee for value and that imposed on a common carrier or innkeeper. The duty on a bailee for value is to take the same care of the goods as a reasonable owner person would exercise. The duty may be modified by contract. The duty on an innkeeper or common carrier is to be responsible for those goods if they are lost or damaged unless, of course, that damage is the fault of the bailor. In effect the common carrier or innkeeper takes on the responsibility of an insurer. 19. What common law provisions protect the environment? Why is it necessary to pass federal and provincial legislation? Common law has some provisions that relate to the preservation of the environment through the individual rights to property. For instance, Riparian rights give people living near rivers and streams the right to have the water come to them in undiminished quantity and quality, subject to limited domestic usage. The government can override this by issuing permits allowing for the withdrawal of large quantities of water for irrigation or other uses such as the discharge of waste. Federal legislation covers all of Canada whereas provincial legislation covers the province and situations unique to the province. Provincial legislation overrides federal legislation except in some instances. Forests, minerals, air, and water are all local matters under the jurisdiction of provincial governments. When activities involving these resources become interprovincial or international in scope, or when they take place on federal lands or in coastal waters, the federal government has jurisdiction. 20. Describe the federal statutes in place designed to protect the environment. What are the provincial statutes in place in your jurisdiction protecting the environment? The Canadian Environmental Protection Act, 1999 (CEPA) mandates environmental protection. Where equivalent provisions exist provincially CEPA does not apply. Significant fines and other penalties can apply for offences committed. Projects and activities may require environmental review and the Regulations Designating Physical Activities lists activities that require a project proposal be filed. There are other federal legislation such as the Transportation of Dangerous Goods Act, 1992; Canadian Shipping Act; Arctic Waters Pollution Prevention Act; the Navigation Protection Act; the Nuclear Fuel Waste Act; the Hazardous Products Act; the Canadian Wildlife Act; and the Species at Risk Act. The First Nations peoples must be consulted with respect to projects in their territories. Students responses will vary based on their province. Examples of provincial acts are British Columbia’s Environmental Protection and Enhancement Act, Ontario’s Environment Protection Act, and Nova Scotia’s Environment Act. Federal statutes designed to protect the environment include the Clean Air Act, Clean Water Act, and the Endangered Species Act. Provincial statutes in my jurisdiction, such as Ontario, include the Environmental Protection Act and the Ontario Water Resources Act. 21. What is the purpose of a project proposal? When is it required and how is it used? A project proposal enables the government to review a project to ensure the environment is not harmed by the activities of the project. The proposal identifies where the project is located, the nature of the work, any infrastructure buildings and construction to take place, waste generation, and any other impact made on the environment. The proposal is required before the project begins and the project cannot begin until the proposal is approved. 22. How would your recommend that businesses deal with environmental issues and regulations? Businesses should determine the environmental issues and regulation that its activities impact. The can contact the province for guidelines. Once the issues and regulations are understood they should follow the guidelines and file for proposal approval for activities deemed necessary to file a proposal. Solutions to Cases 1. Paramount Life Insurance Co. v. Hill [1986] A.J. No. 1111 (C.A.). Title is guaranteed in a land titles jurisdiction, but it is for the benefit of the purchaser. The business partner and purchaser were innocent of any wrongdoing. Therefore the court found that the purchaser held good title to the exclusion of the widow former joint tenant and that the mortgage was valid. The widow would be foolish to make the mortgage payments because she would not obtain any benefit. The result would likely not be any different in a land registry jurisdiction since registration took place and the purchaser and mortgagee were innocent of wrongdoing. 2. Letourneau v. Otto Mobiles Edmonton (1984) Ltd., 2002 ABQB 609 (CanLII), [2003] 3 WWR 389. This was a bailment for reward, as the trailer was left for the defendant to repair, in the location and under the direction of the defendant. The duty of care is that of a reasonable person holding personal goods. No current work order was signed, so there was not an effective limitation of liability clause. The defendant was found liable for the theft of the trailer and for the full cost of replacement. 3. Waterloo (City) v. 379621 Ontario Ltd., [2014] O.J. No. 1416 The order was not being applied retrospectively. The order was prospective, for activities moving forward. The bylaw can be clear. It can be enforced and it can be acted upon. 4. Dunn Estate v. Dunn, 1994 CanLII 9136 (ABQB), 2 RFL (4th) 106 There was a marriage breakdown and Mr. Dunn received a divorce before his death. The joint tenancy was severed. This is a reasonable result as this was the wish of Mr. Dunn before his passing. Chapter 15 Priority of Creditors Answers to Questions 1. Distinguish between the following: (a) Real property and personal property Real property is land or buildings. Personal property is moveable chattels or personal rights or claims held by one party against another (chose in action). (b) Choses in action and chattels A chose in action is intangible personal property such as a debt. A chattel is tangible, moveable personal property. (c) A chattel mortgage and a conditional sale With a chattel mortgage the personal property is used as security for a loan from a new creditor. The title is transferred to the creditor from the debtor in pre-PPSA jurisdictions. A conditional sale allows the seller to provide financing while retaining title to the goods until final payment. (d) A chattel mortgage and a mortgage on real estate A chattel mortgage involves the use of a tangible item of personal property such as a car or a boat for which the debtor conveys title to the creditor to secure a loan in pre-PPSA jurisdictions. A real estate mortgage involves real property such as a house and land being used for the same purpose in land registry jurisdictions. In land titles jurisdictions a mortgage is just a creditor’s interest in land of the mortgage debtor. 2. What kinds of property can be used as collateral under the PPSA? Chattels, debts or claims and lease arrangements and any other form of personal property, tangible or intangible. 3. What are the advantages of using a personal property security act to govern all transactions involving the use of personal property as security? The personal property security legislation passed brought all of the various rules dealing with different kinds of personal property security under one statute and dealt with them in a uniform way. There is a common form, a common registry, and common procedures. 4. What significant problem associated with the practice of taking goods as security is alleviated by the registration requirements introduced by legislation? Describe the resulting obligations on all parties. The problem is that essentially two innocent parties are involved, that is, when a debtor transfers title to goods to a creditor and then resells those goods to a third party without the creditor’s permission. Essentially, both the creditor and the third party are innocent. If the creditor were allowed to retake the goods the third party would suffer. Similarly, if this were not permitted the creditor would suffer. Registration was introduced to overcome that problem, which put an obligation on the creditor to register the agreement and an obligation on the third party to search the registry before entering into an agreement to purchase the goods. If either fails to do so, they suffer the loss. 5. Distinguish among the security agreement, attachment and perfection. Explain the significance of each of them and how each is accomplished. A security contract is the agreement between the parties creating the security and debt relationship. Attachment takes place when the security agreement is executed and funds are advanced. Attachment results in the creditor obtaining rights in the collateral used as security, but still those rights are only good against the original debtor until the security has been perfected. This is done either by registering the security agreement or by the debtor placing the goods in the possession of the creditor. Proper attachment and perfection give the secured creditor priority to recover against the collateral against most third parties. 6. How is the priority of secured parties determined? What are the two exceptions to this general approach? Priority is generally determined by date of registration. The two exceptions are a purchase money security interest, which will prevail over a general security interest as long as it is registered within the time stipulated by statute and any required PMSI notice is provided. The other exception is goods bought from the debtor in the normal course of business would not be subject to recovery under the secured party’s general security agreement. 7. What are the rights of a secured party when there is a default by the debtor? What determines the limitations of those rights? If the original contract provides for it the creditor can upon default take possession of the goods and sell them to recover the amount owing. The creditor must act in a commercially reasonable fashion in looking after the seized goods and reselling them. Any deficit after sale can be obtained from the debtor. Alternatively the goods can be retaken and the creditor can elect to retain the goods in satisfaction of the debt. There are many additional restrictions on how the goods must be treated and to control the process. In addition it must be remembered that the normal contractual remedies are available. 8. What obligations are imposed on the secured creditor who retakes the goods used as security when the debtor defaults? The bailiff charged with repossessing the goods is not permitted to break down doors, force open windows or use any threat of physical contact, without a court order and police assistance. When the goods have been repossessed they can be resold to recover the money, after being held by the creditor for a specified period of time. The goods must be sold at public auction or privately at a “fair price” depending on the jurisdiction. 9. Explain the rights of a debtor after he has defaulted and the secured party has taken possession of the collateral. The creditor must give the debtor notice of an intention to sell (or retain) and the debtor has the right to file an objection and be heard in court. Then the goods must be disposed of in the normal way with any excess going to the debtor. Where the goods are to be disposed of or where there is an objection to retention, the goods must be cared for in a commercially reasonable way and the sale of them must take place in a commercially reasonable way. 10. “The debtor is always liable to the creditor for any deficiency after the goods used as security have been sold”. True or false? Explain your answer. The answer depends on the jurisdiction. If there is any deficit owing, it will still be owing after the repossession and resale. In British Columbia it is seize or sue but not both where consumer transactions are involved. 11. What is the difference between a guarantee and an indemnity? Why is the distinction important? Guarantees involve agreements whereby third parties ensure a debt will be repaid if the debtor defaults. An indemnity is an agreement where one party agrees to be directly responsible for paying the debt of another and no default is required to trigger the obligation. In some provinces, only guarantees must be evidenced in writing under the Statute of Frauds. Guarantees and indemnities are a separate contract, and therefore must have all the required elements of a contract. 12. What duties does the creditor owe the guarantor before and after the guarantee is given? The creditor has to make full disclosure of all relevant details of the debt at the time the guarantee is provided. The creditor must preserve the debt and security from the debtor for the benefit of the guarantor after the guarantee is given since the guarantor is subrogated to the interest of the creditor. If either duty is breached it would void the guarantee. 13. If the debtor defaults, what steps does the creditor have to take before she is entitled to demand payment from the guarantor? If the guarantor pays the creditor, what rights does she have against the debtor? The creditor need not take any steps before demanding payment from the guarantor unless stipulated in the contract that other forms of security must be realized first. Once paid, guarantors take an assignment of the position of the creditor, and can then take any action against the debtor to recover their money that the creditor could have taken to collect the debt. 14. What is the main advantage of the provisions of the Bank Act that allow the banks to take security for loans they grant? Why may these provisions cause confusion? Growing crops, inventories, goods in the process of manufacture may be taken as security, even though they change in nature. Under provincial PPSA’s this same type of items may be taken as security, so there is more potential conflict between the federal Bank Act (registration required with the Bank of Canada) and the provincial Acts (registration under the provincial registry). 15. What happens upon default when a floating charge has been used to secure a debt? What is the main advantage of using floating charges? A floating charge is said to descend and crystalize upon the goods that are used as security upon default. Until that time the floating charge does not fix against any particular security and so no priority is established in relationship to it. Those goods can be purchased or sold without conveying with them any charge against the title. It is only at the time of default when the floating charge crystalizes that a priority is established. Any sale that takes place after that or any use of the commodity involved as a security etc. would be subject to the now crystalized floating charge. Therefore at the time of default anyone who has a fixed charge against the collateral would have priority against the holder of the floating charge. The floating charge would have priority over general creditors once it becomes crystalized. 16. What significant difficulty facing suppliers of goods and services in the construction industry is overcome by the creation of the builders’ lien? How can suppliers protect themselves? Explain the role of the holdback. The problem addressed by builders’ liens is simply that the owner of the property is usually not the party with whom the subcontractors have contracted. In the absence of a builders’ lien the owners benefiting from the work done would normally have no obligation to pay either the person doing the work or supplying the goods. In such cases the worker or supplier is permitted to register a lien against the land to force payment. If the owner of the property has hired a general contractor, that general contractor and any subcontractor can file a builders’ lien to force payment from the owner. Owners can protect their interests by holding back 10% (depending on the jurisdiction) from contract advances to the general contractor to get a court order to discharge liens which may later be filed within the designated time period. In turn the owner would require the general contractor to also perform a holdback. This assures that funds will be available to pay the sub-trades and suppliers and limits the owners obligations to the amount held back. 17. Explain the nature and use of a letter of credit and distinguish between a standby letter of credit and a normal letter of credit. A letter of credit is an instrument produced by a bank that guarantees payment. A normal letter of credit facilitates payment in international trade transaction. A standby letter of credit acts like a guarantee to ensure that one contracting party, for example in construction on property, completes their obligations under the contract. 18. How does the Bulk Sales Act protect creditors when a business is selling all, or almost all, of its assets? The Bulk Sales Act is designed to prevent merchants from selling all, or almost all, of their business’s assets before a creditor can take action and recover against those assets. Creditors expect a business to sell inventory in the normal course of operations, but when all, or most, of the inventory, equipment, or other assets needed for the ongoing operation is sold, that is an indication that the merchant is going out of business. The Bulk Sales Act operates in these circumstances to protect the creditors. The purchaser must obtain a list of creditors, notify them of the sale and pay the proceeds directly to them if they so wish, or obtain a waiver from them. Great care must be taken to comply with the legislative requirements. Failure to comply will make the sale void as against the creditors, requiring the purchaser to account to the creditors for the value of the goods. 19. Explain the difference between a fraudulent transfer and a fraudulent preference. What is the legal effect of both of these types of transactions? A fraudulent transfer or conveyance occurs when a debtor transfers property to a friend or relative in an attempt to delay, defeat, hinder or prejudice creditors. A fraudulent preference occurs when a debtor makes payment or grants security to one creditor in an attempt to delay, defeat, hinder or prejudice other creditors. These transactions are illegal and can be reversed by the court if relief is sought within the allotted time. 20. Define the objectives of bankruptcy legislation. The purpose of bankruptcy legislation is to restore a person as a productive member of society and to ensure that all available assets are preserved to protect the interests of the creditors. A third objective is to punish fraudulent debtors. 21. Distinguish between bankruptcy and insolvency. A person is insolvent when they cannot meet their financial obligations when they become due. Insolvency is one factor that can force a person into bankruptcy but bankruptcy involves the legal process of transferring the debts assets to a trustee in bankruptcy either voluntarily though an assignment or involuntarily through a bankruptcy order under the Bankruptcy and Insolvency Act. 22. Distinguish between an assignment in bankruptcy and a bankruptcy order. Explain the process involved in each case. When bankruptcy is declared the bankrupt assigns all assets to a trustee. When this is done through assignment the debtor voluntarily assigns assets to a trustee in bankruptcy. When creditors force bankruptcy on a debtor this is done by obtaining a bankruptcy order from the court and the assets of the bankrupt are transferred to the trustee by operation of law. 23. Explain the role of the trustee in the bankruptcy process. The trustee in bankruptcy is charged with collecting all of the assets of the bankrupt, liquidating the assets, determining the validity of all the claims against the bankrupt and distributing the assets and proceeds according to the priorities set out in the Bankruptcy and Insolvency Act. 24. Who files the proof of claim? What is its purpose? Who evaluates the validity of a filed process of claim? Each creditor files a proof of claim with the Trustee, who evaluates the claim for validity. This process establishes the nature of the debt, how much is owed and any counterclaims the debtor may have. 25. Describe the order of distribution of the assets, and the proceeds from the sale of assets of the bankrupt. How does a “super priority” affect the order of distribution? Secured creditors have priority over the bankrupt’s assets given as security. Preferred creditors are then paid, pursuant to the priorities set out in s. 136 of the BIA. Finally, unsecured creditors share the remainder on a pro-rata basis. The federal government has “super priority” or deemed trusts against the debtor’s assets for certain types of claims under the Income Tax Act, Canada Pension Plan, Employment Insurance Act and the Excise Tax Act, which means the government sometimes has priority even over secured creditors for these debts. 26. How are fraudulent transfers and fraudulent preferences dealt with by the BIA? The courts have the power to reverse these transactions, forcing the return of the funds or the assets to the Trustee in bankruptcy. 27. What are the duties of a debtor in the bankruptcy process? The bankrupt debtor is required to file an affidavit listing all debt, creditors and assets. The bankrupt must also provide a summary of all asset transfers that took place within the year previous to the bankruptcy (longer, if the court orders) plus any settlements that took place within the previous five years. The bankrupt must cooperate with the Trustee and the court, deliver all assets and records to the Trustee and do all things that “may be reasonably required by the Trustee […] or the court.” 28. Explain what is meant by a bankruptcy offence and the possible consequences of committing one. A bankruptcy offence includes such things as giving one creditor a preference over others, trying to hide property or lying or failing to disclose important information to the court or other bankruptcy officials. The effect can be the imposition of penalties as well as the refusal to grant a discharge to the bankrupt. 29. What restrictions are bankrupts subject to? Bankrupts must disclose the status of bankrupt if involved in any business transaction or when borrowing money over $500. Bankrupts cannot be a director of a corporation, and may not be able to carry on a profession. 30. “An application for discharge by a first-time bankrupt will automatically be granted”. True or false? Explain your answer. True, after nine months, unless a creditor or the Trustee opposes the discharge for some reason. 31. What factors will a court consider when determining what conditions, if any, to place on a discharge from bankruptcy? What efforts bankrupts made to pay creditors, have they reduced their lifestyle, have they cooperated with the Trustee, have they fulfilled their duties under the BIA, and have they committed any bankruptcy offences? 32. What changes for a bankrupt after an absolute discharge? The debtor is now free from the enforcement of most previous debt, and may start over, although a few claims, such as alimony, maintenance and student loans survive. 33. Why is it unlikely that there will not be a discharge after the bankruptcy of a corporation? Corporations cannot be discharged from bankruptcy unless they pay all of their creditors in full. Bankrupt corporations may make a proposal out of bankruptcy and if successful the bankruptcy is set aside. 34. What can a corporation in financial difficulty do to avoid bankruptcy? Corporations can file a Division I proposal to creditors under the BIA. Large corporations can also restructure under the Companies’ Creditors Arrangement Act. 35. When can a creditor who has appointed a receiver to take possession of the debtor’s assets face liability for making the appointment? When they have appointed a receiver or taken possession of assets without giving reasonable notice to the debtor before doing so, together with any required statutory notice. 36. Discuss the informal options that are available to debtors who are experiencing financial difficulties. Negotiate directly with the creditors to make alternative arrangements for payment. Debtors could also attempt to negotiate a consolidation loan with their lending institution, which may lower the overall interest rate. 37. Distinguish between Division I and Division II proposals and explain the advantages of making such a proposal. Both types of proposals are intended as a method for debtors to postpone or suspend legal actions so that they can reorganize their affairs and avoid bankruptcy. A Division I proposal is for corporations and commercial debtors owing more than $75,000 and is a more involved process than Division II. A Division II proposal is for consumers and is a more simple process. If the proposal is accepted and the debtor fulfils it, bankruptcy is avoided. 38. “A consolidation order under the Orderly Payment of Debts program requires the debtor to pay her debts in full.” True or false? Explain your answer. True. A consolidation order requires that the debtor pay all debt within a three year period, unless creditors consent to a longer period. It is always possible for the creditors to accept less than full payment. 39. What legislation is used by large corporations to obtain bankruptcy protection? What is the main advantage of using this legislation? Large corporations can restructure debt under the Companies’ Creditors Arrangement Act. The advantage of the CCAA is that the restructuring process in controlled by the court and as a result it can provide more flexibility than the BIA proposal process. Solutions to Cases 1. Chartier v. MNP Ltd., 2013 MBCA 41 (CanLII). The veto right is owned by a bankrupt “property”. The trustee in bankruptcy may potentially claim and utilize the non-owning spouse’s veto power when a homestead is being sold to satisfy the debts to creditors. This is an appropriate result. The intention to protect the family through the provision of a life estate interest in the homestead should not provide protection against what is owed to creditors. 2. Hoskins (Re), 2014 CanLII 2318 (NL SCTD) Total accuracy by name or registration by serial number is not necessary. However, a seriously misleading description of either the name or the serial number in the registration will defeat the registration. A seriously misleading registration would prevent a reasonable search. Student responses will vary. An argument could be made for a dual search although due diligence would suggest a dual search would be conducted. In Hoskins (Re), 2014 CanLII 2318 (NL SCTD), the Newfoundland and Labrador Supreme Court, Trial Division, dealt with a case involving the interpretation of statutory provisions related to family law. The decision focused on issues such as spousal support and property division, emphasizing the importance of fairness and the application of relevant legislative criteria. 3. Carevest Capital Inc. v. Belle Harbour Developments Inc., [2009] O.J. No. 138 6 (S.C.), 2009, CanLII 15439 (ON SC). A guarantee is a contract and the parties have some freedom to contract. Here the form of guarantee had the guarantor waive these types of defences to claims on the guarantee. Further the judge found the facts of the case created no real chance of success even if the defences had not been precluded. 4. Bank of Montreal v. Canada (Attorney General) (2003), 66 O.R. (3d) 161 (C.A.), 2003 CanLII 52158 (ON CA). Ordinary debts do not take precedence over an assignment into bankruptcy, however some claims of the government have “super priority”. The demand for the GST remittance was issued before the bankruptcy, and therefore the government would have priority over those monies, in preference to any other creditors. Lenders will take guarantees and collateral security to deal with this additional risk, if it is available. Otherwise the availability of credit is affected. Lenders will often obtain a clearance letter from Canada Revenue Agency that there are not any outstanding remittances owing from the debtor before a loan is advanced and when the loan is reviewed. 5. On the Vine Meat and Produce BIA Proposal (Re), 2012 NBQB 86 (CanLII). The stay should not be lifted because RBC was only at risk for a short period of time. The debtor did not go into overdraft. There is no evidence that the debtor, while having questionable activities, did not act in good faith. A stay can be lifted if the debtor is delinquent in payments or extended beyond limits putting the creditor at abnormal risk. Chapter 16 Sales and Consumer Protection Answers to Questions 1. Explain the purpose of the Sale of Goods Act in relation to the obligations of the parties to a sale of goods transaction. The purpose of the Sale of Goods Act is to supply the terms in a contract that parties may leave out and that can be implied from the circumstances. The Act sets out what terms will normally be implied, but in general the parties can specifically overrule these implied terms by stating otherwise in the contract. 2. What three conditions must be met before the Sale of Goods Act applies to a transaction? Firstly, the subject matter of the contract must be classifiable as a good rather than a service or real property. Secondly, the transfer of those goods must be anticipated by the contract (a sale) and thirdly the transaction must involve the transfer of money (monetary consideration). 3. What is the distinction between a sale and an agreement to sell? What is the significance of that distinction? A sale refers to those situations where title and property in the goods are transferred immediately. When either the title or property is to be transferred sometime in the future it is referred to as an agreement to sell. Since risk normally follows the title, an agreement to sell will leave the risk of loss with the seller. A sale usually transfers the risk immediately to the buyer. 4. When does the risk transfer to the buyer in a sale of goods transaction? Explain the exceptions to this general rule. The general rule is that risk follows title. However, this general rule can be overridden firstly by the parties in a C.I.F (cost, insurance and freight) contract which places the risk on the seller during shipping even though title may have already transferred. Secondly, F.O.B. (free on board) contracts make the seller responsible for those goods until they are placed on board the carrier chosen for transport. Thirdly, C.O.D (cash on delivery) contracts leave both the proprietary interest in the goods and the risk associated with them with the seller until payment. 5. What is a bill of lading? How can it affect who bears the risk in a sale of goods transaction? The seller names itself as the party entitled to receive the goods at their destination on the shipping receipt. The seller then maintains control of the goods, as well as title and risk, as the buyer would not be entitled to receive the goods until the seller gives permission to the shipper to deliver to the buyer. 6. Indicate when title transfers in the following situations: (a) when the contract for sale is unconditional and the goods involved are in a deliverable state at the time the purchase is made. This is Rule No. 1 and property passes to the buyer at the time the contract is made. (b) when the subject of the contract involves specific goods to which the seller is obligated to do something, such as repair, clean or modify, in order to get them in a deliverable state. This involves Rule No. 2. The property in the goods only transfers when the thing required has been done and the buyer has notice of it. (c) when the contract for sale involves specific, identified goods which must be weighed or measured before being given to the buyer. This is Rule No. 3 and property passes when the act required to be done is done and the buyer has notice of it. (d) when the goods are delivered to the buyer on approval. This is Rule No. 4 and title transfers (1) when the buyer gives approval or acts toward the goods as if they are accepted and (2) if the buyer doesn’t act as though they are approved or accepted, but retains the goods, title transfers after a reasonable time. (e) when goods purchased by description have not been selected, separated out, or manufactured, at the time the sales contract is entered into. Property in the goods transfers when the goods have been unconditionally appropriated to the contract by one of the parties with the assent of the other. 7. The Sale of Goods Act imposes terms relating to goods matching samples or descriptions and meeting standards of fitness, quality and title. Explain the nature of these implied terms and their effect on the parties. Indicate which terms are conditions and which are warranties. Explain the significance of the distinction. If a condition has been breached, this is an important term of the contract and it allows the victim of the breach to discharge that contract. If a warranty has been breached, the victim of the breach must continue performance, but has the right to sue for compensation. One section of the Sale of Goods Act implies a term in the contract that it shall be a condition of the contract that the seller will have the right to sell the goods at the time the proprietary right is transferred. Another term implies that there shall be a warranty in the contract that the seller will provide quiet possession of the goods, meaning the buyer will be allowed to use the goods free of interference. It is stated that there is an implied warranty in the contract that the seller will provide goods free of any charge or encumbrance meaning no one else will have an interest in those goods. Another term stipulates that the goods delivered must match the description or illustration provided. If the goods delivered are substantially different this would be grounds for discharging the contract. Another section of the Act says that the goods provided must be of merchantable quality, that is, free of any defect that would have persuaded the buyer not to purchase them at the agreed price had they known of that defect. Similarly, when a buyer has relied on the skill and ability of a salesman in determining whether those goods are suitable for a particular purpose, the goods must be suitable for that purpose. When the purchase of the goods is by sample the bulk of the goods must match the quality of the sample inspected. The goods must be free from any defect that would render them unmerchantable. 8. Explain what “merchantable quality” means. This means that the product must be free of any defect that would have persuaded the buyer not to purchase the product at the agreed on price. 9. Explain the effect of an exemption clause included in a contract that is inconsistent with the terms set out in the Sale of Goods Act. Since the parties to a contract have the right to override the provisions set out in the Sale of Goods Act, a carefully worded exculpatory clause will have the effect of eliminating the implied conditions and warranties relating to fitness and quality. The actual effect of the exculpatory clauses must be viewed in the context of provincial consumer protection laws to determine whether they may override this general rule. 10. Explain the rights of the seller when the buyer of goods: (a) becomes insolvent Generally all contractual remedies are available and so the seller would have the right to sue either for the price of the goods delivered or for damages depending on whether title has transferred. (b) defaults on the contract of sale while the goods are still in the hands of the seller Under these circumstances the seller has an unpaid seller’s lien against the goods and can retain them and eventually sell them depending on the specific contractual provisions. (c) defaults after the goods have been given to a third party to deliver, but before they are received by the buyer While the goods are in the hands of a shipper, as long as they have not yet reached the buyer, the seller has the right to stop those goods and reclaim them while they are in transit (stoppage in transitu). Note that under the Bankruptcy and Insolvency Act, under certain circumstances the seller can even retake those goods from the defaulter after delivery. (d) becomes bankrupt after the goods have been delivered Under the Bankruptcy and Insolvency Act the seller can recover the goods delivered within 30 days of that bankruptcy so long as they haven’t been resold to someone else. 11. Explain why a seller of goods might be less likely to sue for damages than for price. It might be difficult to establish that any damages have been suffered. In the context of the duty to mitigate damages, it would be difficult to claim for lost profits if the goods can be sold at the same price to someone else. 12. Under what circumstances may a buyer refuse delivery of goods? The buyer may refuse delivery before property in the goods has passed, before payment is due or when the seller has breached some condition of the contract. 13. The Sale of Goods Act in each province implies certain terms into contracts of sale relating to the fitness and quality of the product. Some Canadian jurisdictions make these provisions mandatory in consumer transactions. Explain the situation in your jurisdiction. In B.C. the parties are not permitted to contract out of (including exculpatory clauses eliminating liability) those sections dealing with fitness and quality. In New Brunswick and Saskatchewan, however, special legislation has been passed imposing conditions of durability for the goods. 14. Describe the practices controlled by the Competition Act and explain how that control is accomplished. The legislation not only controls monopolies, mergers, price-fixing, etc. but also such practices as misleading advertising, double-pricing and bait and switch. 15. How does the concept of privity of contract limit the effectiveness of many consumer protection provisions? How have some jurisdictions overcome this problem? Since a contract creates rights and responsibilities between the initial parties to it, outsiders or third parties can’t make claims under the original contractual relationship. Therefore consumer protection provisions relevant to contracts don’t extend protection to outsiders or third parties. This problem can be overcome by suing in tort rather than contract, but when this is done, fault must be demonstrated. The provinces of New Brunswick and Saskatchewan have extended contractual protection beyond the immediate parties to the contract in their legislation dealing with requirements of fitness and quality. In addition some courts have been willing to find separate contracts existing between the manufacturer and the ultimate consumer because of the advertising claims made, thereby avoiding the privity problem. These are referred to as collateral contracts. 16. What common law provisions are available to protect consumers from unscrupulous business practices? Aside from the straight breach of contract remedies, the consumer would also have a remedy in tort against the manufacturer. Unfortunately, in order to succeed in tort it has been necessary to prove that the manufacturer was at fault or negligent. This was often difficult to do. Today some courts are willing to find collateral contracts existing between manufacturers and consumers, thereby avoiding the fault problem in tort law. 17. Describe the methods outlined in federal and provincial consumer protection statutes to control businesses with a tendency to abusive practices. Discuss the effectiveness of these tactics. Several different tactics have been utilized to control specific types of businesses and specific types of abuse in the consumer protection field. Often the practices are either prohibited or controlled by legislation as discussed above. However, the consumer protection agencies established by legislation can be helpful in other ways. They can provide information to consumers with regard to their rights and may assist the consumer in pursuing those rights. They may educate consumers and, in some situations, they have information gathering powers and other powers in relationship to the businesses themselves--in fact becoming a control agency. 18. Identify the legislation in effect in your jurisdiction that offers relief to victims of unconscionable transactions. The Unconscionable Transactions Act (or its equivalent, depending on jurisdiction) has been designed to release parties from unfair contracts they have entered into because of an inequality in the bargaining positions of the two parties or when one party has been taken advantage of because of a weakness such as desperation, poverty or mental infirmity short of incapacity. The courts have the power under this legislation to interfere with the resulting contract to the point of setting it aside or modifying its terms including ordering a refund of the money. In British Columbia and Newfoundland the governments can actually initiate an action against a merchant on behalf of the consumer and carry it through. 19. What statutory provisions have been introduced throughout Canada to control door-todoor selling, referral selling and other potentially abusive practices? In some provinces legislation is incorporated in consumer protection acts and in other provinces in separate legislation. Usually they impose a cooling-off period giving consumers a certain amount of time to change their minds about purchases and requiring the door-todoor seller to be registered. Similarly, referral selling has been controlled in most provinces and in some provinces prohibited altogether. There are many examples of other practices that are controlled in various jurisdictions. Some provinces have brought in legislation controlling specific types of businesses (e.g. tax refund loan businesses). 20. What services are provided to consumers through organizations set up by the federal and provincial governments? Discuss whether these services are adequate. These bodies can hear and investigate complaints, seize records, search premises, suspend licenses, etc. They often provide information services for consumers and can also provide the consumer in some situations with help to pursue the remedies provided in the legislation. The federal department of Consumer and Corporate Affairs has even become involved in some provincial consumer matters. 21. Distinguish among a cheque, a bill of exchange, and a promissory note. A bill of exchange is an instrument where one person orders another to pay a third party. A cheque is a bill of exchange drawn on a bank. Thus a person with an account at a bank orders the bank to pay some third party. A promissory note involves only two parties and is a promise by one person to pay another at some point in the future. A bill of exchange can be used to transfer funds or as a method of creating credit if it is made payable some time in the future. A cheque is generally not used to grant credit since it is payable on demand. A promissory note is just a method of creating credit. 22. Explain how the position of a holder in due course compares to the position of an assignee of contractual rights. When contractual rights are assigned, the assignee takes subject to the rights between the initial parties. Any defense that is good against the original creditor is good against the assignee as well. That is not true with negotiable instruments. An innocent holder in due course is in a better position than the person from whom the instrument was obtained. The position of a holder in due course differs from that of an assignee of contractual rights in that the former is not subject to the rights or equities between the initial parties. 23. Explain the nature of an endorsement and its significance on a negotiable instrument. Endorsement consists of a signature and words on the back of the negotiable instruments. There are different kinds of endorsement but normally this is done to add the credit of the endorser to the instrument so that if it is not honoured the holder can turn to the endorser for payment. 24. Explain why online transactions do not involve negotiable instruments. What has taken their place? Negotiable instruments cannot be created or transferred online since their essential nature is a unique written document. Debit cards, credit cards, and other forms of electronic money have taken their place. Solutions to Cases 1. Resch v. Canadian Tire Corporation, 2006 CanLII 11930 (ON SC), 17 BLR (4th) 301. Mr. Resch or the injured boy’s mother could sue on behalf of the boy, as “next friend”. The action would be for breach of contract and in negligence for product liability against the dealer and in negligence for product liability against the manufacturer. Consumer protection legislation should be examined to see if it gives a statutory contractual claim against the manufacturer and a collateral contract could also be pleaded. The claim against the dealer may be complicated in tort if Canadian Tire Corporation did an intermediate inspection of the bike. The court found that the boy was not a “buyer” within the Sale of Goods Act, because he was an infant and lacked capacity, so implied conditions and warranties from the Act were not available to him. 2. R. v. Stucky, Ont. C.A., per Weiler and Gillese JJ.A., 2009 ONCA 151 (CanLII), 240 CCC(3d) 141. The Court of Appeal overturned the conviction under section 52 and ordered a new trial. The court stated, “…to satisfy the mens rea component of s.52 offences …, the Crown must prove beyond a reasonable doubt that an accused had knowledge of the false or misleading character of the representations, or was reckless in that regard.” The court made passing reference to provisions of the Consumer Reporting Act dealing with false or misleading representations. The court held that there must be a real and substantial connection to Canada in order to apply the Competition Act to acts involving foreign victims. 3. Behiel v. Primco Limited, 2011 SKQB 65 (CanLII) The defendant was informed that the plaintiffs had children. While the scratches did not come from the children, the defendant should assume that the flooring would have furniture on it. It is likely the plaintiff would be successful in this action. 4. 321665 Alberta Ltd. v. Husky Oil Operations Ltd., 2013 ABCA 221 (CanLII) The basis of the plaintiff’s complaint would be the oil companies relying on one company and not two, as in the past, unduly limited competition and that activity is prohibited by the Competition’s Act. The plaintiff could expect to succeed. Giving both haulers a fair chance to argue why they should be selected does not change the fact that selecting one hauler for all of the business, severely limits competition. Solution Manual for Business Law in Canada Richard A. Yates, Teresa Bereznicki-Korol, Trevor Clarke 9780133847130, 9780132164412
Download
Close
Close
