Commercial Law 3300 - Final Exam

Partnerships

Persons carrying on a business in common with a view of profit. It is formed by an agreement

Law that Involves Partnerships

-The Partnership Act (MB)
-judge made law
-partnership agreement

The Partnership Act (MB)

-where a statute codifies the law. Judges can create case law regarding partnerships unless it conflicts with the Partnership Act
-set of fallback rules in case a partnership agreement wasn't made
-equal profits, equal loss, if a partner dies/goes bankrupt then the partnership ends, etc

Types of Partnership Agreements

1. Express Agreement
2. Implied Agreement

Express Agreement

Express and discuss the partnership. It doesn't have to be in writing and there shouldn't be any surprises

Implied Agreement

Declaring a partnership as it follows the definition. The substance and acting of the relationship is what matters

Liability of a Partner

1. unlimited liability
2. joint and several liability
3. every partner is an agent of the firm and all the partners for business of the kind carried on by the firm
4. retiring partners can still be liable for obligations incurred while they were a partner
5. newly admitted partners are not liable for obligations existing prior to their joining (NOT A DISADVANTAGE BTW)
6. retiring partners can still be liable for things done after their departure via estoppel

Joint and Several Liability

Every partner is liable for the entire amount. Where two or more persons are liable in respect of the same liability

Agency Law

There are 3 parties in agency law (principal, agent, 3rd parties)

Agent

Not in the contract. They enter the principal into a contract with 3rd parties

Apparent Authority

When it seems a partner has the authority for a contract, when they really don't

Indemnity Agreement

Asking partners to indemnify and promise to cover you

Novation

If you're able to find someone to join the partnership and take on the liability and would release yourself of the liability. The new person, other partners and bank has to agree
(new person would need to have a better credit score)

Ways to Notify of Retirement of a Partnership

1. Send notice that the partner is leaving. Double check if it was actually sent out
2. Remove name off of letterhead
3. Send notice to the Company's Office of departure
4. Putting an ad in a business newspaper to notify of departure

Estoppel

If a person makes a representation to a 3rd party that is true, and if the 3rd party reasonably relied on said believable representation and the 3rd party suffers the loss because they relied on the statement. Then the person who made the statement will be stopped from denying liability

Potential Advantages of a Parntership

1. Partnerships allow multiple people to carry out common goals together with a set of rules governing their relationship
2. Partnership allows owners to pool knowledge, skills and financial & physical resources

Potential Disadvantages

1. 5 previous points (incompetent/dishonest partners can do damage)
2. Compared to sole proprietorship, it costs more time and money to properly set up a partnership

Partnership Agreement

Partnership act implies terms if they're not overridden by the partnership agreement. Written partnerships are not mandatory

Shotgun Buy-Sell Agreement

Either partner can offer to buy the other out, the partner who receives the offer can agree or buy the other out for the same offer

What's Included in a Partnership Agreement

-Ways to deal with someone leaving
-Right of first refusal
-Identify the partners, name of business, what kind of business, duration of partnership, rules for partners being terminated, rules for adding partners, what happens during the death of a partner, what happens during the death of a partner, expected degree of participation from each partner, sharing of profits and losses, dispute procedures, etc.

Registration of Partnership

-Pay to reserve business name at the Company's Office
-Register the business

Limited Partnership

-1 or more general parties (manages the business with unlimited liability)
-1 or more limited parties (investors who have no say in the business and have limited liability. They have a rate of return and are paid first out of profit)

Restrictions for Limited Parties

-Limited partners are not to take an active part in the partnership. If they do, they become liable like general partners
-Registrations requirements must be kept up (2 years renewing)

LLP (Limited Liability Partnership)

A partnership in which non-negligent partners are not personally liable for losses caused by the negligence of a partner
(only lawyers and accountants can form LLP because they have minimum amount of liability insurance coverage)

Nature of Corporations

In the law, corporation is viewed as being a separate and distinct legal "person" (entity) apart from its shareholders, directors and officers

Shareholders

Owners of the corporation (every share = 1 vote)

Partners

Owner-managers

Directors

Global policy managers of a corporation. They give goals to the company and are not employees. Appoints the officers of the corporation

Board

Group of directors

Officer

senior managers of the corporation (president, vp, etc.) They manage day-to-day and are employees

Corporation Names

Corporations all have a formal name. It will always end in Limited, Ltd., incorporated, inc., corporation, corp. or the French variations.
Can register a business name especially for marketing purposes. Corporations can have more than one business names

Significance of the Separate Corporate Existence

1. Limited liability
2. Ease of transfer of ownership
3. Continuous Existence
4. Shareholders do not owe a fiduciary duty to the Corporation
5. Separation of Ownership & Management
6. Management (done by owners and officers)

1. Limited Liability

Shareholders have limited liability. When a corporation is sued, the owners' liability is limited to the value of their shares

3. Continuous Existence

When an owner dies, it still goes on. It has a separate life from the owner. The requirement is to file the annual return once a year to remain a corporation

Annual Return

It includes the name of the corporation, name of officers and directors, names of shareholders. On the second year of not filing, you have 90 days to file or else it is dissolved

Fiduciary Duty

You owe the individual/entity a duty to act in their best interest and benefit

5. Separation of ownership & management

Can separate from managing while still being an owner

Piercing the Corporate Veil

Suing the people behind corporations

Corporate Veil

Veil that protects shareholders/owners from liability
ex. Salomon's Case

Real Property

Land, buildings and everything attached

Personal Property

All property that's not real property (ex. unbolted desks, chairs, etc.)

When the Corporate Veil can be Pierced

If a corporation is used to shield fraud, the court will allow you to sue people hiding/committing it

Fraud

Wrongful/criminal deception intended to result in financial/personal gain

Methods of Incorporation

1. Creation via "special act"
2. Creation by general acts

1. Creation via "special act

Legislature can create a statute that creates a corporation and given power
(Crown Corporations)

2. Creation by General Acts

Sets out law about corporations and creating them so people can register
(Corporations Act)

3 Main Kinds of General Acts

-memorandum type (old)
-letters patent type (old)
-articles of incorporation type

Constitution of a Corporation

-articles of incorporation
-by-laws
-unanimous shareholders agreement

Articles of Incorporation

Signed pages submitted to the Company's Office and creates the corporation. This document proves that it is alive and the content is very broad

MANDATORY

Included in Articles of Incorporation

Name of corporation, address of registered office, who the director(s) are so they can accept shareholders, max/min range of directors, classes of share and the max number of each shares, setting out

Corporate By-Laws

Operating rules of a corporation for its day-to-day affairs.
lawyers add standard clauses that can be edited

MANDATORY

Included in Corporate By-Laws

Minimum # of days for notice of a director's meeting, minimum # of directors needed to hold a director's meeting (quorum), what notice is needed to hold a shareholder's meeting, max # of directors, who can sign documents involving the corporation borrowing money, etc.

Unanimous Shareholders Agreement

Contract between all shareholders and the corporation itself. It’s the partnership agreement but with limited liability and has the advantages of both a partnership and a corporation

OPTIONAL

Potential Advantages of Incorporation

1. Limited liability
2. Ease of transfer ownership
3. Continuous existence
4. Loyalty issues (if shareholders want to invest in competitors)
5. Separation of ownership & management

Potential Disadvantages

1. More costly to set up than a sole proprietorship/partnership
2. Takes longer than a sole proprietorship/partnership

(weak arguments)

Duty of Directors

1. Duties owed to the corporation itself
2. Duty of care skill and diligence
3. Duty to disclose an “interest” in contracts with the corporation
4. Duty to refrain from abuse of corporate opportunity

1. Duties Owed to the Corporation Itself

If it’s for the good of the corporation, it should automatically be good for shareholders

2. Duty of Care, Skill and Diligence

Attend meetings, ask questions, participate, review minutes, ask for clarification

3. Duty to disclose an “interest” in contracts

If a director has a bias because of a potential personal benefit, then they need to declare it and be absent from meetings or else they can be held liable

4. Duty to Refrain from Abuse of Corporate Opportunity

When a director steals an opportunity for themselves. It is a breach of fiduciary duty

Bankruptcy and Insolvency Act

Regulates law on bankruptcy and insolvency in Canada

Insolvent

Financial condition of being unable to pay your debts when they are due

(negotiate for an extension of time)

Bankrupt

Legal status of the law saying you are bankrupt. Unable to pay outstanding debts. Pre-condition is being insolvent

Purposes of Bankruptcy

1. Allows an honest but insolvent debtor to start over again with a clean financial state
2. Allows for a fair and orderly distribution of the debtor’s assets amongst creditors

Debtor

Person who owes money

How to Declare Bankruptcy

1. Insolvent person makes a “voluntary assignment in bankruptcy.” Needs to list all owing and all assets and is initiated themselves
2. Creditor(s) file a petition to obtain a “receiving order” and initiate the bankruptcy. A % of creditors need to be in favour
3. A formal “proposal” does not receive sufficient approval/isn’t followed through

Act of Bankruptcy

It is designed to help "honest but unfortunate debtors" overcome their financial challenges

Formal Proposal

Proposal to a Trustee in Bankruptcy describing how they can pay back the owings to avoid bankruptcy and don’t owe all the money back

How Long to Have Bankrupt Status

1. Shortest period of time in status for the first time: 9 months (no surplus available)
2. 21 months for richer people so that excess money is directed to the bankruptcy

Power and Duties of the Trustees in Bankruptcy

Satisfies claims of creditors in an orderly and fair way

Trustee

Holds assets in trust for the benefit of another party. They hold the money for the creditors to be paid back

Recovery of Property

1. Transfers under value
2. Fraudulent Preferences
3. Fraudulent Transfer

1. Transfers Under Value

Transfers under fair market value. Trustees can forcefully take it back in exchange for the cash it was paid for

Transaction @ Arms Length

with someone not related/associated with. Less likely to have shenanigans and can look back within 1 year

Transaction Not @ Arms Length

Associated/close with the person

2. Fraudulent Preferences

Where there’s payment of $/transfer of property to a creditor over other creditors

(giving preference of paying one creditor over others)

3. Fraudulent Transfer

Transfer of property by a debtor with intention of hiding it from creditors

Super Priority Creditors

Creditors who will be paid before others in a bankruptcy


1. Unpaid sellers
2. Wage earners

1. Unpaid Sellers

If someone sells goods to someone who becomes bankrupt within 30 days of sale. If bought for the purposes of business, the creditor has to give notice to repossess the goods

2. Wage Earners

Only if there are current assets from cash/money in the bank can they get paid first in arrears for 6 months for a maximum of $2000

Secured Creditors

Paid first to the extent of their security. Creditor that has collateral security in the form of a recognized claim against specified assets of the debtor

FCFS if more than one person registered

Collateral Security

Secured against an asset to force its sale so the creditor can be paid

Preferred Creditors

1. If the bankrupt person dies, the first preferred creditor is the funeral and legal fees
2. Expenses and fees of the Trustee in Bankruptcy
3. Superintendant Trustee in Ottawa gets paid
4. Up to 6 months for wage earners in arrears to a max of $2000
5. Spousal support

etc

Unsecured/General Creditors

1. Suppliers
2. Investors
3. Friends and family
4. Credit cards

(usually never gets paid)

Goal of Bankruptcy

Debts you were owed is struck out by law through the bankruptcy

Tort Law

Wrongful act causing harm to the person/property of another. Mostly judge-made law

Two Main Categories of Tort

1. Intentional torts
2. Unintentional torts

Award of Damages

This is to compensate the plaintiff for the injury sustained. The goal isn’t to punish

(how much money needs to be paid to put the person back in the position they were in before the tort happened)

Pain and Suffering Damages

Compensation is artificial and the judge uses ranges of how much others have been awarded before

2 Main Changes in Tort Law

1. Basis for liability was strict liability
2. Change from awarding damages from only involving direct harm to also indirect harm

Strict Liability

One person may be required to compensate another for injury or damages even though the loss was neither intentionally nor negligently inflected

Intentional Torts

Intentional acts causing prohibited harm

3 Elements to Intentional Torts

1. Intent
2. Causation (reason why it occurred)
3. Prohibited harm

Intent

An individual’s decision to carry out specific action and bring about certain consequences

Motive

Underlying reason why someone intended to do the act

Assault

Threat of harm

Battery

Unlawful physical contact with a person that causes harm

(in criminal law: assault)

Trespass

Entrance onto lands unlawfully

(signs with “no trespassers”/ having fences)

Defamation

Causes unreasonable harm to their reputation

Libel

Written defamation