Canadian Business and the Law 5th Edition Solution Manual

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Table of ContentsChapter 1: Knowledge of Law as a Business Asset............................................................ 1Chapter 2: The Canadian Legal System............................................................................ 34Chapter 3: Managing Legal Risks..................................................................................... 65Chapter 4: Dispute Resolution .......................................................................................... 97Chapter 5: An Introduction to Contracts......................................................................... 132Chapter 6: Forming Contractual Relationships............................................................... 154Chapter 7: The Terms of a Contract ............................................................................... 196Chapter 8: Non-Enforcement of Contracts ..................................................................... 234Chapter 9: Termination and Enforcement of Contracts .................................................. 282Chapter 10: Introduction to Tort Law............................................................................. 316Chapter 11: The Tort of Negligence ............................................................................... 346Chapter 12: Other Torts .................................................................................................. 393Chapter 13: The Agency Relationship............................................................................ 434Chapter 14: Business Forms and Arrangements............................................................. 472Chapter 15: The Corporate Form: Organizational Matters............................................. 523Chapter 16: The Corporate Form: Operational Matters.................................................. 565Chapter 17: Personal Property ........................................................................................ 614Chapter 18: Intellectual Property .................................................................................... 641Chapter 19: Real Property............................................................................................... 689Chapter 20: TheEmploymentRelationship .................................................................... 723Chapter 21: Terminating the Employment Relationship ................................................ 778Chapter 22: Professional Services .................................................................................. 825

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Chapter 23: Sales and Marketing: The Contract, Product, and Promotion.................... 858Chapter 24: Sales and Marketing: Price, Distribution, and Risk Management .............. 889Chapter 25: Business and Banking ................................................................................. 918Chapter 26: The Legal Aspects of Credit ....................................................................... 948Chapter 27: Bankruptcy and Insolvency......................................................................... 978Chapter 28: Insurance ................................................................................................... 1009

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Chapter 1Knowledge of Law as a Business Assetby Shannon O’ByrneDETAILED TABLE OF CONTENTSBusiness Law in Practice ............................................................................ 2Law in the Business Environment .............................................................. 3Rules and Principles.............................................................................. 5How and Why the Law Works.................................................................. 13Knowledge of the Law as a Business Asset........................................ 14Law and Business Ethics .......................................................................... 15Business Law in Practice Revisited .......................................................... 16Chapter Summary ......................................................................................18Key Terms and Concepts .................................................................... 19Questions for Review.......................................................................... 19Questions for Critical Thinking .......................................................... 19Situations for Discussion .....................................................................20

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I. TEACHING OBJECTIVESAfter studying this chapter, students should have an understanding ofthe role of law in guiding conductthe importance of legal knowledge in the business environmentthe challenges posed by business ethics and their relationship to legal requirementsThis chapter provides an introduction to the role and purpose of the Canadian legal systemwithin a business context.It endeavours to put forth a corrective or alternative to the view that thelegal system is obstructionist in the sense of “getting in the way” of commercial activity. Instead,the chapter advances the perspective that the law facilitates business planning, offers protectionmechanisms, provides general rules of commerce, and allows businesspeople to manage theirexposure to risk. In this way, the chapter defends the central proposition that informs the wholetext: knowledge of the law is a business asset.The teaching objective of this chapter is to establish why it is important to study law in abusiness program. It is helpful to convey to students that the whole course is centred on thepracticalapplication of legal ideas and principles, and will therefore likely resonate throughouttheir careers.To provide a foundation for the subsequent discussion of specific legal subject areas,Chapter 1 is an account of the basic ideas that inform the Canadian legal system. By relying on theexaggerated persona of the incompetent and oblivious Louella (whose business suffers from aseries of tribulations), the chapter also illustrates the pitfalls of legal ignorance. Beyond this, itdemonstrates the wide range of laws that affect Louella’s operations and how Louella shouldproactively endeavour to understand and use the law to her advantage.

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Through class discussion, the instructor can try to tap into whatever legal knowledgestudents may have and then gently advance it. For example, a student may think that the law issimply a set of rules—which it is, from a certain perspective—but it is also a process by whichdisputes are resolved. Furthermore, the law does not concern a process that resolves disputes in anyold way; it embodies important principles, such as the idea that the laws and how they are appliedshould be fair and free from bias. Though no justice system can achieve such a standard ofperfection, the Canadian legal system is dedicated to trying to reach it.

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II. TEACHING STRATEGIESAlthough some students may have a general sense of the legal system, it can be difficult to elicitclass discussion on such a broad topic. In short, students may be too intimidated to share theirthoughts on the subject. Since the tone of the class is established early in the term, it is important tofind ways of securing student participation at the outset.Students (at least some) will have read Chapter 1 and already be familiar with the BusinessLaw in Practice scenario involving Louella and her disastrous business venture. During class, itmay therefore be preferable to present a new, but parallel, example to facilitate discussion.The following example has been classroom tested, with success. A businessperson has comeup with a new product—say, a computer that translates English into other languages. Thisentrepreneur believes that her product has numerous applications, in both the public and privatesectors. She needs to work up a business plan. What business decisions must she make to bringthe product to market?This example encourages discussion because it is straightforward. Students will quicklyidentify a number of areas requiring attention—the entrepreneur needs to choose a businessname, hire employees, get financing in place, and so on. After general discussion subsides, theinstructor can then zero in on two or three of the business decisions identified and illustrate how thelaw affects those decisions and provides mandatory parameters. For example, when choosing aname, the entrepreneur must be sure not to commit the tort of passing off, nor violate someone else’strademark. In hiring employees, the entrepreneur must abide by the dictates of humanrights legislation prohibiting discrimination, as well as comply with occupational health andsafety legislation during operations. Before beginning production, the entrepreneur must be surethat his idea does not involve someone else’s patent, and so on.

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From there, the instructor can ask the class to considerwhat the purpose of these laws might bewhether they are positive or negative forces for this entrepreneur specificallywhether they are positive or negative forces for business generallyAfter discussing these points, the instructor can thensteer debate to the text’s account of thegeneral purposes of law.An alternative approach—which has also proven successful in the classroom—is to followthrough with the Business Law in Practice scenario. By highlighting the legal difficultiesexperienced by Louella, an instructor can focus on this chapter’s themes, namely:the three purposes of the law (i.e., protecting persons and their property, facilitatinginteractions, providing mechanisms for dispute resolution)how and why the law workshow knowledge of the law is a business asset, including the importance of legal riskmanagementthe relationship between law and business ethics

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III. STUDENT ACTIVITIESTask 1:One way to help students prepare for class discussion about the role of the law in thebusiness world is to ask them to find a news story, in a local or national paper, involvingbusiness and the law. Ask students to come to class having summarized the story and identified themain legal question or legal issue to be resolved.Task 2:Chapter 1 of the DVD supplement (supporting the Instructor’s Manual) includes a CBCMarketplaceupdate (called “Faking It”) about San Francisco Gifts Ltd. and its owner, BarrySlawsky. This video builds on the Business Application of the Law: Fraud on the Public (page 4of the text), which kicks off the story of San Francisco Gifts placing fake UL (UnderwritersLaboratories) labels on table lamps being sold in its retail outlets. The lamps had not been ULinspected and, in fact, were a potential fire hazard. The video discusses the fire hazard created byanother San Francisco Gifts product—specifically, a dolphin lamp—which also bore a fake ULlabel. In this latter case, the product in question began to catch on fire but the family was homeand the appliance was quickly unplugged, thereby averting a potential tragedy. See too: CBCNews, “Fake labels give consumers false sense of safety: CBC report” (7 April 2007) athttp://www.cbc.ca/canada/story/2006/04/07/labels060407.html.After showing the CBCMarketplacevideo to the class, the instructor might pose thequestion in Task 1 above (“Whatis the main legal question or legal issue to be resolved?”) and thefollowing questions as well:What is the purpose of the law that requires UL inspection and prohibits counterfeit ULlabels?How does such a law fit within the definition of law set out on page 5 of the text?

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Is the law failing in the San Francisco Gifts case?Is enforcement failing in the San Francisco Gifts case?What do you think should happen next?On a related front, students could be asked to consider the video in light of Questions forReview 1, 2, 3, 10, and 12.Task 3:The DVD (supporting the Instructor’s Manual) also includes several short news clipsreporting on an emerging legal issue or problem. “Sled Dog Repo” concerns the killing of sleddogs in British Columbia (which is also the focus of Ethical Considerations: Inhumane Killing ofSledDogs in British Columbia, page 7). “Facebook Privacy” concerns privacy issues onFacebook (which is also the focus of Technology and the Law: University of Ottawa LawStudents Help Challenge Facebook, page 6). “Victoria Tanning” concerns underage tanning(which is also the focus of Business and Legislation: Regulating the Tanning Industry, page 10).The instructor could show these clips in succession and ask the class to discuss the role of law inmodern Canadian society. To what extent should the law mandate protection (for animals, forunderage tanners, for those who use Facebook) and to what extent should people (includingthose in the sled dog industry, corporations like Facebook, and those who choose to tan) be leftfree from government constraint or control. One common theme that unites the clips is that thosewhom the law seeks to protect are vulnerable in that they cannot choose their own course (suchas sled dogs) or might be too immature to do so rationally (underage tanners) or do not know thattheir rights may be being violated to begin with (such as when social media share informationwith third party vendors).

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IV. EXPLANATION OF SELECTED FEATURESPage 4Business Application of the Law: Fraud on the PublicCritical Analysis: What are the alternatives to market regulation by government?Absent market regulation by government in relation to product safety standards, for example,consumers would presumably be left to discover for themselves what products are safe.Businesses that supply shoddy products would develop poor reputations and end up out ofbusiness. Relying on the market to drive such individuals out of business, however, is a slowprocess and needless injury and loss could arise in the interim. Market regulation by government istherefore generally seen as preferable.Page 5International Perspective: US Spam LawsCritical Analysis: Should American judgments be enforceable in Canada? Why or whynot? What is objectionable about spamming? How is it different from marketing?(Note: Though the question above raises the more complicated matter of when foreign judgmentsshould be domestically recognized, there is no need to take a technical approach to the matter—especially so early in the course. It is preferable to approach the question conceptually but within thecontext offered by the Guerbuez narrative.)If Facebook were unable to enforce its judgment in Canada, Guerbuez would essentially be ableto break US laws with impunity. That is, assuming that Guerbuez has no assets in the UnitedStates, the only way that Facebook will see adime of its award is to seize Guerbuez’s property inQuebec. This it can do only by getting its US judgment recognized in Quebec. So long as the US

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court’s decision has been reached on a fair and legitimate basis, there is no reason for Canadiancourts not to assist Facebook. Beyond this, and as the Quebec Superior Court points out,Guerbuez would have faced similar sanctions under Canada’s then-proposed spam legislation. Itadvances justice to permit Facebook to satisfy its judgment in Quebec. As Daniel Bourque notes,these Quebec decisions demonstrate that “as a matter of international courtesy,” Canadian courtswill enforce, not lightly set aside, foreign judgements absent important reasons mandating them to.See Daniel Bourque, “Quebec court enforces U.S. court’s $873 million judgement againstFacebook spammer” (2011-201) 11 I.E.C.L.C. athttp://www.mcmillan.ca/Files/129163_article.pdf.Spamming is objectionable for a multitude of reasons. For example, it wastes employee time,hurts the reputation of legitimate Internet marketers, and puts a strain on Internet servicesproviders. According to the 2005 National Task Force on Spam:[t]he new mutations of spam undermine consumer confidence in the Internet as aplatform for commerce and communications. Because of this, the potential ofinformation and communications technology to buttress productivity, and theability of e-commerce to attract investment, create jobs and enrich our lives, isconstrained not only by the torrents of spam, but by the deception, fraudulent andmalicious activities that sometimes accompany it.For more analysis from this Canadian task force, see “Stopping spam: Creating a stronger, saferInternet: Report of the task force on spam” (May 2005) athttp://www.ic.gc.ca/eic/site/ecic-ceac.nsf/eng/h_gv00317.html.Spamming is a form of marketing but of an inherently objectionable variety. Spammerstypically purchase email lists of potential customers and then inundate those email addresseswith advertisements for products and services. There has been no consent by the recipients toreceiving such communication—the ads are unsolicited and therefore particularly intrusive.

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The question concerning the difference between spam and marketing can usefully berevisited in Chapter 6, where the textbook provides a basic introduction to Canada’s newantispamming legislation (which is anticipated to be proclaimed in force in 2013). When thislegislation is in place, the difference between spam and simple e-marketing will bestraightforward. E-marketing communications will be legislatively compliant. Spam will not be.For more discussion, see too Chapter 6 of this Instructor’s Manual.Page 6Technology and the Law: University of Ottawa Law Students Help Challenge FacebookCritical Analysis: In what way does PIPEDA protect people and their property? Do youthink that the legislation puts too much responsibility on business?PIPEDArequires businesses to be accountable in how they gather, secure, disclose, and discardthe personal information of customers, including credit card numbers, photographs, businessemail addresses, and computer internet protocol (IP) addresses. (For analysis, see Office of thePrivacy Commissioner of Canada, “Leading by example: Key developments in the first sevenyears of thePersonal Information Protection and Electronic Documents Act(PIPEDA)” (2008)athttp://www.priv.gc.ca/information/pub/lbe_080523_e.asp.)PIPEDA’s legislative requirementsseek to protect persons and their property by acknowledging the importance of privacy,regulating how business is to manage the personal information of customers, and endeavouringto prevent such crimes as identity theft.Inits report entitled “Leading by example: Key developments in the first seven years ofPIPEDA” (2008) athttp://www.priv.gc.ca/information/pub/lbe_080523_e.asp, the Office of thePrivacy Commissioner of Canada provides many illuminating examples of privacy breaches that

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could be used by an instructor in the classroom. For example, the report recounts theinappropriate disposal of personal information by a bank, in the following terms:The Assistant Commissioner has found that disposing of sensitive personalbanking information in a recycling bin is a violation of PIPEDA. In this case, thecomplainantlearnedthathispersonalbankinginformation—includingthecomplainant’s and his wife’s names, address, social insurance numbers, accountnumber and transaction history—was found by a third party in an unattendedrecycling bin in a parking garage. The bank determined that two of its employeeshad inadvertently put the information in a recycling bin rather than in a shreddingbin when cleaning out the desk of a former employee. In addition to finding thatthe organization had violated PIPEDA’s safeguards provision, the AssistantCommissioner was troubled by the fact that the information had been left in thedesk of the former employee for a year. The Assistant Commissioner stated thatsuch information should be shredded as part of a systematic approach to dealingwith any confidential information in the custody of a departing employee.[footnotes deleted]Although privacy legislation inevitably does place burdens on business, it has a strongjustification for doing so. Customers are entitled to expect that their personal data will beproperly stored and protected. As then-industry minister John Manley stated in 2000, “Theprotection of our personal privacy is a basic right which Canadians cherish” (quoted in “Leadingby example” athttp://www.priv.gc.ca/information/pub/lbe_080523_e.asp).For a news clip concerning Facebook’s privacy issues, see the DVD supplement entitledTheNational: “Facebook Privacy.”Page 7Ethical Considerations: Inhumane Killing of Sled Dogs in British Columbia.Critical Analysis: What is the role of business to ensure the ethical treatment ofanimals? Is it acceptable to kill sled dogs with a shotgun? What is the role ofgovernment to ensure the ethical treatment of animals?

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Working animals must rely on the business responsible for their care to provide adequate food,water, shelter, and other forms of protection. Common humanity requires no less. Beyond this,provincial animal protection laws, as well as theCriminal Code of Canada, mandate minimumstandards of treatment. More specifically for the purposes to this question, causing unnecessarydistress to an animal is contrary to law; therefore, when an animal has to be “put down,” it mustbe done humanely. On this point, Tracy Sherlock, “Sled dog bodies exhumed,”Vancouver Sun(9 May 2011) athttp://www2.canada.com/edmontonjournal/news/story.html?id=e25c4365-57a4-419a-a71a-621fd777ea6e relies on the analysis of Marcie Moriarty of the BC SPCA when shewrites, “A single, fatalgun shot does not constitute animal cruelty, but throat slashing,bludgeoning or multiple gun shot wounds when the first is not fatal do.” Since this news report,the British Columbia government approved (in January 2012) theSled Dog Code of Practices,which, at page 40, offers the follow recommended best practices in the context of sled dogeuthanasia:Work with a practicing veterinarian to develop a euthanasia plan.Ensure sled dogs are euthanized by a practicing veterinarian using abarbiturate overdose with prior sedation.In an emergency situation(i.e. critical distress) AND when a practicingveterinarian is not available, euthanasia should be performed by a competentperson (see glossary), and undertaken by a single bullet of an appropriatecalibre to the brain (see Appendix “G”,Guidelines for euthanasia of domesticanimals by firearms, Longair et al.).Use appropriate restraint if required.Do not use euthanasia for population control.Undertake euthanasia out of the sight of other sled dogs to minimize distress.To read the Code, go tohttp://www.gov.bc.ca/agri/down/sled_dog_code_of_practice.pdf.For anews clip concerning this story, see the DVD supplement entitled “Sled Dog Repo.”Page 9Ethical Considerations: The Subprime Mortgage Crisis

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Critical Analysis: Even though the lenders may not have acted illegally at the time, doyou think that they had any ethical responsibility to ensure that mortgage applicantswere financially able to afford the loan in question? Do you think it is better forborrowers who overextend themselves to simply bear the consequences of their ownactions? Is government to blame for not doing more to protect naïve borrowers?As this chapter notes, no set of regulations can prevent fraud; however, there seems to bereasonably wide acknowledgment that government needs a stronger presence in the subprimemortgage market to reduce the likelihood of future abuses. Though borrowers and investors areresponsible, to an important degree, for their own decisions, subprime borrower looked to thelender and broker as experts. According to the Federal Reserve Board, with implicit concernabout the practice,[loan]originatorsmaysometimesencourageborrowerstobeexcessivelyoptimistic about their ability to refinance should they be unable to sustainrepayment. For example, they sometimes offer reassurances that interest rates willremain low and house prices will increase; borrowers may be swayed by suchreassurances because they believe the sources are experts.From 44522 Federal Register/Vol. 73, No. 147/Wednesday, July 30, 2008/Rules and Regulationsathttp://www.federalreserve.gov/reportforms/formsreview/RegZ_20080730_ffr.pdf.As well, academics, such as Oren Bar-Gill (“The law, economics and psychology ofsubprime mortgage contracts” (2009), NYU Law and Economics Research Paper No. 08-59 athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1304744), have shown how the subprimemortgage industry designed their mortgage products to be unduly complex. This preventedunsophisticated mortgagors from understanding what they were getting into.

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