Problems in Canadian Business Law

Pol/Soc Sci 3165 6.0A

Tuesdays, 2:30-5:30 pm

Simon Archersarcher@torys.com

Announcements See updated sked on web page:

www.arts.yorku.ca/politics/sarcher/revisedoutlinejan04.doc

Dropped a couple of topics, will move more deliberately through remaining topics

Note drop date: Feb 6 Papers back: end of January, excepting

those handed in late, which may take longer

Last term Court system, legal procedures,

constitutional arrangements pertaining to business matters

Introduction to administrative law Law of torts Law of contract

employment K, collective bargaining consumer protection and sale of goods

Law of trusts and fiduciaries income trusts, fiduciary duties

This term How businesses are formed, what forms they

take business associations, statutes and rules governing

those associations Some ways businesses raise money for their

operations securities, rules governing securities

Special issues or topics in business (as many as we can get to) Intellectual property International trade Bankruptcy and insolvency Regulation of competition

Today Overview of types of business

association Discussion of law of agency

Overview of business associations Four basic types of business relationships

Sole proprietorships Contractual relations

• partnerships, franchises, joint ventures Trusts (discussed last term) Corporations

The law of agency is relevant to all forms

Sole Proprietorships Most common method in Canada today. Includes anyone working for him/herself.

• Can have employees i.e. doctor’s with receptionists.

Taxed as income from business. Taxpayer can deduct more items. Full liability for actions of business.

Contractual relations Partnerships

Formed when two or more persons “carry on a business in common with a view to profit”, a statutory definition, Partnerships Act (Ont.).• Can be set up for a single horizontal

project and then called a “joint venture” or a “syndicate”

Full liability USUALLY• Exception, some LLP forms

Contractual relations cont’d Franchising or vertical arrangements

Can be set us as a supplier/ distributor/retail business, then called a “franchise”

Top entity sets standards for independent outlets.• Pizza Hut• IGA

Contractual relations, cont’d Horizontal arrangements

Ownership of assets used in business separated from the entity exploiting those assets • e.g. author’s royalties from publisher• These are all partnerships of some sort

Trusts Used mainly in financial investment

vehicles in Canada, such as mutual funds, real estate investment trusts (REIT’s), or Income Trusts.

Taxed much like an individual would be taxed on income from a business, to the extent not distributed to beneficiaries.

Discussed last term, briefly. Remember the liability discussion.

Corporations Only exist if created pursuant to a statute. Legal concept that has become the

central commercial vehicle in our society. Single most useful concept the law has

ever invented? Separate legal entity that owns assets

and carries on a business. Can also be not-for-profit institutions. Liability limited to investment.

Why Choose One? Statutory requirements (e.g. doctors

cannot incorporate). Taxation. Expense of incorporation - ongoing, not

just initial - avoid lawyers. Liability issues

unilimited versus limited personal liability Corporate and trusts have perpetual

succession.

Agency

1. The role of an agent, vocabulary2. Historical development3. The nature of the relationship4. Ratification of contracts by a

principal5. Third parties and the agency

relationship

Historical development Expansion of mercantile dealings beyond

ones own community spurred need for agents

Agent removes need for direct principal-third party contact

Agent acts on your behalf within the scope of their duties as an agent and can legally bind you to agreements within that scope, and you are liable for their actions within that scope

Definitions Principal = the person for whom the agent acts Agent = the person designated or deemed to be

acting for the principal Third party = the person with whom the agent

deals with on behalf of the principal If not an principal-agent relationship, could be

A power = a form of authority to manage property you do not own beneficially, a more discretionary power

A trustee relationship (where, for e.g., a transfer of property, etc.), greater responsibility re: the property

Nature and duties in the relationship Can be an agent by:

express agreement conduct (essentially, an estoppel)

• Cannot deny fact you represented that the agent was working for you even if it was not true, you will be bound by agreements, you “clothed them with authority” by your actions

“necessity” (deemed by law)• Not much used -- comes from seafaring days when

communications were slow or non existent

Nature and duties Duties

To act within scope of instructions• Limits on normal or reasonable actions must be brought to

third party’s attention, or else principal will be bound by agent even if acting outside the scope of the agency. Difficult area.

Agent owes duty of utmost good faith• Act in principal’s interest, not your own• Not to make profit at principals expense• Not to conflict with principal• Not to act for third party

• Exception: consent of both parties• Not to commingle trust funds!!!!

Cf. fiduciaries and trust law

AGENCY

CONTRACTUAL RELATIONSHIPS

EXAMPLE:

PRINCIPAL

THIRD PARTY

AGENT

Authority to Enter into Contract on Behalf of Principal

(Contract Usually Between Principal and Agent) Negotiation of

Contract on Behalf of Principal (Within

Scope of Authority)RESULT

PRINCIPAL

THIRD PARTY

AGENT

Contract

Key elements Ratification of K by a principal

Lack of authority by Agent, but ratification sets acceptance at time of

contract, not at time of ratification • Principal must have been in existence at

time of K, and must be contemplated by the K.

• Within a reasonable time, whole K, deemed by conduct, etc.

Apportioning liability If A acts within authority and follows procedure, rights of

TP are only against P If A contracts on own behalf (with view to later assigning to

P), the rights of TP are against A If A does not disclose P-A relationship to TP, but acts

according to rules, TP rights are against P, not A If A represents a fictitious P, TP has rights against A

Could be actions in fraud or deceit If A acts beyond scope of directions, can be TP rights

against P and A Could be actions in breach of warrant of authority

AGENCY

RIGHTS OF THIRD PARTIES

PRINCIPAL

DISCLOSED PRINCIPAL

UNDISCLOSED PRINCIPAL

AGENT THIRD PARTY

Right of Action

Authority Contract on Behalfof Principal

PRINCIPAL AGENT THIRD PARTY

Right of Action Against Agent or Principal

Authority Contract on Behalfof Undisclosed

Principal

AGENCY

RIGHTS OF THIRD PARTIES, cont’d

PRINCIPAL

AGENT HOLDING SELF OUT AS PRINCIPAL

AGENT THIRD PARTY

Right of Action

Authority Contracts asPrincipal

Liability Vicarious liability for acts within scope

of agency agreement, or those ratified by principal

Where agent is deceitful, both are liable in tort

Principal liable in fraud where allowing agent to innocently make false claims

Termination of the relationship

Express termination Specific purpose complete Incapacity of principal or agent Bankruptcy of principal Notification requirements to third parties

• But, umm, what about reason for having agent?• Fairness to TPs - hard to find info about P, so make a

rule to make P liable in absence of notice.

Creative problems For a fee, someone provides you

with investment advice on an on-going basis, and on your orders, buys and sells some junk bonds on your behalf. Is this person an agent?

Is the World Bank an agent of the Canadian federal government?

Advisor or agent? Fees are paid Advice is provided Acts are undertaken on your behalf Why is this an important distinction?

Because of the legal liability -- advisors may not have same duties as agents

What else could this relationship be? Employee? Independent contractor?

WB an agent? Canada and many other nations are

“members” of WB by a contractual relationship (the Articles of Agreement)

They provide some money to WB which then raises more money in capital markets and provides members with loans

Some members form a “Board of Directors” of the WB that makes broad decisions (only the U.S. has a veto in decision-making)

WB makes contracts with needy members to provide loans

What else could this relationship be?

Next class Partnerships...