Torts and Contracts Study Notes - Business Law 

Let's explore torts and contracts in business law including the difference between torts and contracts, non-enforcement, remedies, and defences for them.

Torts and Contracts Study Notes - Business Law

The Difference Between Torts and Contracts 

Torts

-          Torts repair damage once occurred

-          Private, yet the “social contract”

-          Reasonableness

-          Implicit, back-end

-          Evaluate past behaviour

 

Contracts

-          Private to private

-          Freedom to individualise (not available in tort)

-          Explicit, front-end

-          Determine future behaviour

 

Damages in Tort 

 

1. Pecuniary damages (money damages)

   1) Cost of future care

   2) Cost of future income (reduced earning power)

   3) Special damages (out of pocket expenses, ie. Medication)    

 

 2. Non-pecuniary / General damages

     1)  Pain and suffering (mental and physical pain compound on each            other)

     2)  Loss of enjoyment of life

     3)  Loss of life expectancy


3. Punitive / Exemplary damages

No real “loss” by plaintiff per say,

+ this is an exception to the compensation rule of torts – the goal is to punish (criminal law goal), but since tort law is confined (cannot deprive of liberty), method chosen is to award additional damages over and above a reward that would compensate the plaintiff.


Let's consider a couple examples of torts (the tort of negligence is a major tort that will be covered in another post)


Tort of Trepass 

Arises in one of 2 ways: 

1. A person enters property without the express or implied permission of the owner. 

2. A person receives pemission to enter property, but refuses to leave when subsequently asked (restaurants & bars for example). 


** Damages are usually minimal. 


Injunction - Court tells person not to trepass, and if they do, they are sent to prison. 


Tort That May Involve Customers 

False Imprisonment 

TEST: Unlawful detention or physical restraint (includes the perception that restraint exists) 


Suspsicion or even "reasonable belief" of guilt is not sufficient to justify retraint. 


Defence: 

- Must prove to have witnessed the crime or have video proof. 


Torts and Criminal Law Overlap (Intentional Torts)

Torts of Assault & Battery

Civil action brought against Defendant by Plaintiff for compensation 

Criminal action brought by crown (government) to sanction behaviour 


Civil Standard: Balance of Probabilities (BOP is the abbreviation for this). = More likely than not that incident took place. 


Legal Tests - Assault & Battery:

 

Assault (test): Physical contact or apprehension of contact

 

Battery (test): Physical contact amounting to violation of body security

 

Defences:

1)      Self defence

2)      Consent e.g. waiver

 

Tort of Defamation

Test: Defendant utters a false statement (statements of fact not opinion) about plaintiff, to at least one other (makes it public) - has the effect of lowering the reputation of the plaintiff, in the mind of a reasonable person.

 

Verbal defamation = slander

Print defamation = libel

 

Defamation is not

1)      Opinion

2)      Subjective à e.g. “my company treated me ‘poorly’”


Defences for defamation:

1)      The Truth

2)      Absolute privilege – within parliament. Politicians are allowed to battle it out by defaming each other.

3)      The courts

They lie to get the truth from a defendant – competition.

4)      Qualified privilege – duty is to comment,

Test: Based on reason & not malicious (proper motives)

 **Includes fair comment by media**


Tort of Injurious Falsehood

- Similar to defamation (likely to overlap), except the concept deals with product not persons.

Test (P) establish

-          False statement made about a businesses’ goods and services

 

Tort of Nuisance 

-          Arises from conflicts over land use

-          Activity on one piece of land causes harm to individuals on another

Test:

Activity on neighbouring land has resulted in “an unreasonable and substantial interference with the use and enjoyment of land”.

-          Noise

-          Fumes


Variables used to balance interests:

1)      Intrusion must be significant and unreasonable

2)      Intrusion must be more than temporary

3)      Views & natural light excluded in nuisance

4)      Cost & benefits of nuisance are measured

5)      Original / prevailing uses usually hold sway


Remedies in nuisance:

1)      Damages

2)      Injunction (Can be costly)


** The government has eminent domain. Government pays you fair market value for you to leave.

Contracts

Trust is a currency. Without it, the economy suffers.

Historically, the desire to trade created the need for contract law.

Important elements of commerce:

-          Predictability

-          Certainty

-          Trust

Characterists of the Contractual Relationship

1)      Communication of intention to form an agreement

2)      Binding promises

a.       Free promise – A price is not paid to keep the promise to trade. If the other side breaks their promise, you cannot legally force them to keep it. No penalty if promise is broken.

b.      Paid/binding promise – Considered a legally enforced promise to trade. If one side breaks their promise, the other side may ask the court to force that party to keep their promise or pay compensation for breaking it.

 

3)      Capable bargaining power is assumed, contractor beware.

4)      In writing? With some exceptions (e.g. a land guarantee), a contract does not have to be in writing. However, it helps prove parities intentions by creating a more accurate evidentiary record. Complexity often necessitates a written agreement.

5)      Mutual exchange of value

6)      Contract advantages – strategic liability management à for business to work, waivers

 

There are 4 necessary elements to a contract: 

1)      Offer

2)      Acceptance

3)      Consideration (exchange of value)

4)      Intention to create a legal contract

 

1) Offer

Offer – represents a communicated promise to be bound to an agreement upon acceptance.

There is a difference between an offer and negotiating, or an ‘invitation to treat’.

  • An offer is not an expression of wishing to do business – this lacks sufficient detail and or communication to constitute an offer.
  • An ‘invitation to treat’ cannot be accepted.


Advertisements are considered ‘invitations to treat’. Ads can be detailed, but not tailored to a specific contracting party – i.e. quantity cannot be guaranteed.

 

With offers, it is possible to agree on future specifics if they will become succinct at some point (i.e a future price based on a 12 month commodity average).

 

Unreasonable example: "In 2019 I will pay you some money" – need a workable mechanism to establish certainty.

 

2) Acceptance

Unconditional acceptance – upon acceptance of an offer, a binding contract is formed.

You accept a mirror image of the offer.

Unconditional acceptance of an offer must be communicated to the offeror. Communication can take a variety of forms (including conduct), except if offer stipulates a particular method of communication.

 

Acceptance manifests when offeror becomes aware of acceptance, not when offeree delivers acceptance.

 

Post box rule: When you post the mail, you have accepted the offer. The post box rule doesn’t apply to revocation, only acceptance.

 

3) Consideration

- Exists to avoid servitude

Consideration is the value component of a promise - it gives the promise legal validity. 


Rule: New consideraton must accompany a new promise - avoids misuse of pre-existing legal duty. 

Exceptions to the consideration rule: 

Promise Under Seal 

Substitute for consideration

Promissory Estoppel 

Fairness issues arising from reliance upon gratuitous promise 

Act of affixing a seal – binding intent to fulfill a promise 

B makes a gratuitous promise

 

A relies on the promise (changes legal position)

 

Used as a defence – estoppel: reliance on a statement, promise is taken as fact

 

Parol evidence rule: When a contract is in writing – rule applies (no evidence to term/intentions outside of the written contract)

 

Typically affects verbal promises.

 

Exceptions:

Formation of a contract

Intent of parties to be written and oral contract combination.


Conditional Agreements


Condition precedent: Until the condition occurs, parties are under no obligation to perform.

Adds leverage to economy/ conditional agreements.

Conditional subsequent: When the condition occurs, the contract is ended.

 

Liability & Contract Breach 

Inability to fulfill contract terms – liable for breach.

 

If there is a breach, you can sue for damages that naturally flow from the breach. Everything else that you want to sue for has to be included in the contract.


Terms to know for liability: 

1)      Limited liability

A term of contract that limits damages to less than what would be otherwise recoverable in breach.


2)      Exemption clause

 A term of contract that absolves a party of all liability due to breach – zero exposure to damages.

 

3)      Liquidated damages clause

A term of contract that specifies damages owning in the event of a breach. Unenforceable if there is a large gap between actual and agreed damages, acts to punish rather than compensate (Defendant).

 

Non-enforcement of Contracts

A)      Unequal contracting capacity

o   Minors

o   Duress

o   Unconscionability – no conscience

o   Undue influence

Law assumes capacity to enter into a contract

Minors – At the age of majority, you’re legally bound to a contract, under this age – no obligations - at the option of the minor.

Mental incapacity – capacity affected by drugs, illness etc.


B)      Misrepresentation & mistake

Disclosure during contract formation

Prior to contract (misrepresentation) – false statement of fact that induces someone into entering a contract

-          Generally no duty to disclose unless asked, volunteered information must be correct.

Tests for misrepresentation – the statement is:

1)      False

2)      Clear

3)      Material

4)      Induces contract – marketing

5)      Fact, not opinion (unless opinion is specialised)

 

Legal mistake – an error made by a party(s) that seriously undermines intentions of a contract.


C)      Defects

Contracts based on Defects

Illegality

1)      Cannot contract out of the law

2)      Violate public policy (this will change) i.e. non-compete agreements (impair an individual’s ability to make a living)

These contracts have to be written:

-          Land

-          Guarantee (to pay third party debt)

-          Not to be performed within a year

 

Termination & Enforcement of Contracts (Remedies)

There are 4 main ways a contract is brought to an end:

1)      Performance

The ideal result considering motivations for entering into a contract and associated costs (time/negotiation).


2)      Agreement to end – benefits both parties

    a.       Novation – Create a whole new contract – consideration flows and      timing are relevant to fairness

    b.      Vary a term – New consideration must always accompany a new          term.

    c.       End the contract – Parties agree to drop enforcement entitlement        (includes a buyout)

    d.      Substitute a party – Step into someone else’s “contractual shoes”.        One party’s right and obligations are transferred – agreement of both      parties is needed!!

    e.      Contractual rights only (assignment) – no agreement needed –              thus easier to transfer

   o   Third party receives the benefit of the other side fulfilling its                     promise 

   o   Must inform debtor of assignment

 

3)      Frustration

A significant, unplanned event outside the scope of either party’s control

-          The event makes performance impossible or illegal

-          Neither side is liable for broken promises

-          Jurisdiction is material to frustration – i.e. snow in Arizona vs. Calgary


4 elements necessary for frustration:

1)      Dramatic & unforeseen

2)      Neither party assumed risk

3)      Arose without either party’s fault

4)      Makes performance impossible

 

4)    Breach

A)     Terms

Must distinguish between contractual terms of condition vs. warranty (non-core)

Condition (core)

-          Integral term (a promise)

-          Break a condition = damages + breach

-          Treat contract as over (& by implication, no further obligations)

Warranty (non-core)

-          Sue for damages only

 

Breach (continued)

B)     Innominate term –  A term of contract is if broken could have negligible to significant impact. Severity contingent upon particular circumstances – could be classified as either condition or warranty.

 

B)      Timing of breach.

Breach can occur at:

a.       Time specified for performance

b.      In advance of obligations (anticipatory breach)

Contractual Remedies 

Equitable remedies /Non-cash remedies 

1. Specific performance

    1)      Force performance of contract

    2)      Must be unique (i.e. land) (sentimental items)

    3)      Refused, when impossibility, severe hardship, employment contract

 

2.   Injunction

     1)      Applicable in contracts where one party promises not to do x,y,z

     2)      Court order to refrain from acting

     3)      Interlocutory (in the meantime) definite time set injunction


3. Rescission

     1) Restore parties to their original (pre-contract) position, rather than           monetary damages

     2) Unconscionable transactions – unethical

     3) Undue influence - a person is taken advantage of 


...And that's the summary of torts and contracts! Thanks for reading. 

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