Business Law in Canada, 7/e

1. 9-1 Business Law in Canada, 7/e Chapter 9 Sales and Consumer Protection

2. 9-2 Sale of Goods Act • Statute embodies case law and complements normal rules of contract law • applies to all situations where goods are bought and sold – but not to the transfer of real property • intended to fill the gaps in the terms of a contract • terms in contract prevail over provisions of Act

3. 9-3 Goods and Services • Sale of Goods Act applies to: • Goods - tangible items • Sale of Goods Act does not apply to: • Services - except when it involves the installation of goods

4. 9-4 Transfer of Goods • Goods must actually be transferred in order for the Act to apply • The transfer of the possession of the goods in exchange for money must be intended or anticipated as in a conditional sale

5. 9-5 Statute of Frauds • Requirement of Writing • Goods over a specified value ($30-$50) must be evidenced in writing to be legally enforceable in some jurisdictions • unless some money has changed hands • or there has been part performance

6. 9-6 Title and Risk • Risk follows title • Sale – title transfers immediately • Agreement to Sell – title transfers at some future time

7. 9-7 Transferring Title • Methods of specifying who will bear the risk: • 1. C.I.F. contracts • 2. F.O.B. contracts • 3. C.O.D. contracts • 4. Bill of Lading

8. 9-8 Transfer of Title • Timing of transfer determines whether seller can sue for entire price of goods or only damages when purchaser defaults • 5 Rules set out in Sale of Goods Act • Parties can contract out of Sale of Goods Act

9. 9-9 Question for Discussion • One of the main purposes of the Sale of Goods Act is to supply, by implication, many of the terms that have been inadvertently left out of contracts involving the purchase of goods. • Do the terms of the Act excessively interfere with the principles of freedom of contract and caveat emptor?

10. 9-10 Rights and Obligations • Terms of a sale of goods contract are called conditions or warranties • The victim of a breach of a condition can: • ignore it and accept the goods - cannot later claim a breach of contract • consider themselves no longer bound to contract Continued on 9-11

11. 9-11 Rights and Obligations/2 • The victim of a breach of warranty is not released from obligations under the contract but may be entitled to damages Warranty The victim of a breach of warranty is not released from obligations under the contract

12. Seller must convey good title Goods must be usable Goods must be free of liens Goods must match description Goods must be of merchantable quality Goods must match sample and be free of hidden defects 9-12 Obligations of Seller

13. 9-13 Other Implied Terms • When following terms are not stipulated in contract • whether time of delivery is a condition or warranty will be implied from conduct • purchaser can choose to return or keep goods when wrong quantity is delivered • must pay a reasonable price

14. 9-14 Remedies for Purchaser’s Default • Seller can retain goods until paid for • Stop delivery of goods • Recover after delivery within 30 days • Seller gets priority over other creditors in case of bankruptcy • Sue for breach of contract and for damages • but must mitigate losses by reselling immediately

15. 9-15 Remedies for Seller’s Default • Rescission for innocent misrepresentation • Damages for fraudulent misrepresentation • Withhold payment for breach of condition • Withhold enough to cover loss with breach of warranty • Purchaser can sue if goods have been paid for but not delivered • Damages are recoverable if defective goods cause injury

16. 9-16 Remedies for Default/2

17. 9-17 Question for Discussion • Should there be a general requirement in law, independent of contract or tort law, that products be safe and capable of living up to the claims made for them? • Should strict liability be imposed on the manufacturer and the supplier of the product?

18. 9-18 Negotiable Instruments • Essential Characteristics • claim for funds against drawer of instrument • freely transferable • may be used as credit instrument • may give greater rights to the bearer than the person from whom it was received

19. 9-19 Bills of Exchange Act • Act summarizes common law • common law principles still apply • federal jurisdiction • Negotiable instruments are: • order of one person to another to pay funds to a third • promise that funds will be paid out to another at some future date

20. 9-20 Cheques • A bill of exchange drawn on a bank and payable on demand • primary purpose the exchange of funds

21. 9-21 Bill of Exchange • an order made by one person to another to pay money to a third person • drawee has no obligation to third party until bill is accepted • avoids having to use cash • can be used to create creditor/debtor relationship

22. 9-22 Promissory Notes • Promises to pay the amount stated • used for granting credit • may bear interest and be paid by installment • Bills of Exchange Act applies • An IOU is not a negotiable instrument unless it is designated payable on a certain date

23. 9-23 Certified Cheques • Certified cheques ensure that the instrument will be honoured by the bank. • Treated like accepted bill of exchange

24. 9-24 Requirement for Negotiability • 1. Promise to pay must be unconditional • 2. Instrument must be signed and in writing • 3. It must be payable at a fixed time or on demand • 4. Designated for a fixed sum • 5. It must be delivered to payee • 6. Partial claims on instrument not permitted

25. 9-25 Holder in Due Course: • must receive instrument through negotiation • instrument must be complete and regular • must have been acquired before it was due and payable • must have no knowledge of any defect • must acquire instrument in good faith • some value must have been given

26. 9-26 Endorsers • Endorsers - liable if instrument is refused by drawer • holder must give notice of dishonour

27. 9-27 Consumer Protection • Consumer transactions involve goods intended to be used by the consumer and not resold • Consumer protection legislation controls: • use and disclosure of information • unethical business practices • Both provincial and federal legislation in place Continued on 9-28

28. 9-28 Consumer Protection/2 • Imposes controls on consumer transactions • Limits effect of exemption clauses • Establishes liability • Identifies unconscionable transactions • Regulates money lenders, credit reporting practices • Federal legislation

29. 9-29 Responsibility for Goods Sold • Sale of Goods Acts impose responsibility on sellers • Victims of unsafe products can sue manufacturer in tort but must prove fault • can sue seller under contract law - if they purchased the product themselves • Privity of contract applies

30. 9-30 Summary of Case • Murray v. Sperry Rand Corp. • Purchaser of harvester successfully sued manufacturer and vendor for breach of contract Continued on 9-31

31. 9-31 Summary of Case/2 • Court found a collateral contract between purchaser and manufacturer included the obligations in a contract between vendor and purchaser • Because manufacturer advertised directly and its product did not live up to those claims • This overcame privity of contract

32. 9-32 Unacceptable Business Practices • Consumer protection legislation controls • false advertising - by making claims part of the contract • the investigation of complaints • Unconscionable transactions • legislation allows courts to interfere when unequal bargaining power is abusive Continued on 9-33

33. 9-33 Unacceptable Business Practices/2 • Door-to-Door Sales • legislation provides for cooling-off period before contract can be enforced • registration of direct sellers may be required • Referral Selling • controlled or prohibited in some jurisdictions • Some business tactics regarded as abusive are controlled by legislation

34. 9-34 Question for Discussion • Consumer protection legislation controls many aspects of the transactions between buyers and seller. • Does this kind of legislation interfere with commercial activities to the extent that many businesses are overregulated and unable to function efficiently in the market- place?

35. 9-35 Loan Transactions • Consumer protection legislation • prohibits excessive rates of interest • requires that the true cost of borrowing be disclosed • prohibits misleading information in advertisements • requires moneylenders to be registered • controls credit reporting bodies

36. 9-36 Debt Collection • Common law remedies apply but are not very effective • Legislation requires that debt-collection agencies be registered and licensed • Some jurisdictions allow civil suits against abusive debt collectors

37. 9-37 Competition Act • Act is intended to prevent business activities that interfere with free market system • Violators are subject to prosecution • Competition Act • controls mergers • prohibits abusive trade practices • restricts agreements between merchants

38. 9-38 Other Federal Legislation • Contains consumer protection components • Food and Drug Act • strict enforcement provisions • Hazardous Products Act • controls the manufacture, importation and sale of products that are inherently dangerous • Other Acts enforce the proper disclosure of information about products

39. 9-39 Question for Discussion • One of the goals of consumer protection legislation is to give consumers greater access to the court as well as allow for government prosecution of offenders. • Are these the best ways to discourage and control abusive and unacceptable practices in consumer transactions?