Lecture notes, course GMGT 3300 COMMERCIAL LAW PDF

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1 of 76 COMMERCIAL LAW

I) AN INTRODUCTION TO LAW AND CANADA’S LEGAL SYSTEM a) What is Law in Philosophical Terms 3 questions to answer: i) What is Law? ii) What are the basic theories and philosophies of law? iii) What are the purposes of law in society?

1. What Is Law? Law is ubiquitous, it is everywhere, and you bump into it everywhere. Law is a subset of rules and are differentiated in the formalities of documentation and enforcement. Sanctions means that you are subject to punishment and they differentiate law and rules. Humes distinguished between physical and normative laws. Physical laws are laws of nature in physics, chemistry and biology. For example, the law of gravity or law of inertia. Normative laws are some of the rules governing human conduct made by humans. For example, the law of stealing: one should not steal, but not that you can’t physically steal. Rather it indicates or commends that you shouldn’t steal and if found guilty you suffer the consequences. You may break the law and suffer the consequences, because it is a decision of free will. Therefore, physical laws cannot be broken, but normative ones can. Humes also distinguished between normative rules. Some normative rules were law because they created a code of behaviour with sanctions. Laws are created by formal processes of enforcement and adjudication. How are sanction created? There are 2 sanctions for drinking and driving: 1) the criminal code and 2) the highway and traffic act (provincial). They are created by politicians. Relationship between the law and politics: Laws are not value neutral, they manifest from the political/philosophical values of the law maker. Generally they emerge from the law makers. Legal philosophies are basically dressed up political philosophies. The process that leads to law (most significant) is the legislature (at least in Canada). For example, the highway traffic act is made by legislature. There are two parts of the legislature: 1) legislative assembly who are elected to position and are politicians and 2) the monarch: Queen Elizabeth II, governor general (federal), 3) and lieutenant government (provincial). The monarch approves the bill by the legislative assembly. Essentially the laws are the crystallized product of the political process. Law is not unique, detached or discrete. Politics govern through law.

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2. What are the basic theories and philosophies of law? Legal philosophy is jurisprudence – manifestation of politics. There are 3 different schools of jurisprudence: a. natural law b. legal positivism c. legal realism a. Natural law is made up of 2 subcategories who are both trying to ask the same question: “What should the law be?” i. Old school gets its origins from Thomas Aquiness and Edmond Burk (founder of modern conservatism). This school states that the law should be based on eternal fundamental truths inspired by God. These truths or moral principles are perceived in history, customs and scriptures and should be replicated in society. They are metaphysically create d. ii. Deistic natural law believes that it rests NOT on Devine inspiration, but on the assumption that rational people, by applying their inheritabilities of reason and logic to their perception of the world, will arrive at basic principles of justice. It is man’s faculty of reason. Believers of this school are Thomas Pane, Thomas Jefferson, Pierre Trudeau, and John Lock. Basic principles should be common to us, even though they usually aren’t. b. Legal positivism is only concerned with “What is the law?” It is like a social science because it doesn’t evaluate the law. It wants to be value neutral. It identifies legal principles. The founder of positivism is August Compt (founder of sociology). Sociology emerged because scholars in the humanities were jealous of scientists getting all the praise and notoriety. They suggested focusing on the scientific method (methodology), breaking down the methods and isolating one variable for testing and applying it to the humanities. They applied the scientific method and got sociology. They felt that the only things tested through this methodology is considered fact (i.e. Fact value distinction), otherwise it is merely thoughts and values. There are 2 steps to the process: 1) locate the holder of power (sovereign) and 2) identify and interpret the law as created by the sovereign authority under different methods and different cases. c. Legal realism is concerned with “Why is the law what it is?”, “Why decisions are made?” They don’t look at what are the rules, but they have to be positivists in order to look at why is the law created. Use scientific techniques as to why the law is created. Therefore, use positive techniques (scientific method) to discover this. More Complete Positivists.

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3. What are the purposes of law in society? Law has many purposes in society. Law provides consistency and guidelines for individuals to follow. It essentially regulates society. It is “freedom from violent conflict… essential characteristics of society” (according to the text). Therefore, it is providing order. The law provides order for our relationships in society more than just protection of a person, but other aspects of fair relations between people (i.e. economic and property allocation matters). There are a few different views of a just society. a. Liberal Capitalist Society: economic analogue of liberalism  Market economy: driven by profit and exchange (trading, buying and selling) freedom without government intervention in exchange. (or limited)  Private property: you have to have something to trade, but is it socially just? 2% of the population owns 95% of the property. How is capitalism just? Maybe because it is the best of the alternatives b. Marxism (NDP):  Believe in an equality of condition, no one gets more than the other  Formula: from each according to ability to each  Private property and capitalism are tools of economic oppression  Exploited, believe in the eradication of private property c. Jeremy Bentham:  Principle of utility: the greatest happiness of the greatest number  Problems: how do you measure happiness? A lot of subjective flexibility d. Social Engineering: Roscoe Pound  Scientific study of people’s needs and expectations and of prevailing values, more rational adjustments of the rights given to competing interests could be made to improve the lot of society.  Reflects a Bentuamite influence  Obtains its values or criteria for change from the scientific study of the community There are 3 questions: 1. Does the law influence the development of society or is it a reflection of changing value in society?  Ex. New laws, sexual orientation reflect changing values, family values changed (easy to get a divorce)  However, even if society does not have these values, the law affects the values of society  Ex. Law has changed our views on drinking and driving laws and consequences are more severe, as well with new smoking laws  Laws are often created by vanguards and lobbyists 2. Can scientific method be used to improve the quality of law making or are scientific methods neutral instruments to be used by social groups?

4 of 76  Ex. Climate Change issue  Scientific methods often misused, abused, misinterpreted. 3. If scientific methods can be effective in exposing society’s ills is there a danger that they will destroy the myths upon which society depends?  Myths: similar cases are treated similarly (process does not discriminate against people)  However, sentencing and probability of conviction are much higher for minorities therefore you can destroy myths  Scientific study can destroy the myths  Other myths: generally speaking only the guilty are convicted

Institutions that create law: i) ii) iii)

Courts Legislatures Delegate Bodies

Substantive law: the rights and duties which person has in society. It is concerned with liabilities. Public law: concerned with the conduct of government and with relations with government on side and private persons on the other. Divided into criminal, constitutional, administrative laws. Procedural law: the process through which liabilities can be enforced. Private law: composes the rules governing the laws between private person when disputes arrive, the persons involved may go to the court to have their rights (liabilities) decided by the rules of private law. These rules are the basis substance of contract law, tort law, property law and civil law. Civil law: relies on code Common law: relies on precedent cases

1. Courts The courts are a mechanism of settlements of disputes and are the most formal method  Look to the courts for guidance  create legal principles (primary creator of law in society)  institution of dispute resolution however there are other institutes that do this as well 1. arbitrators: always get fee in advance because loser will not be happy 2. mediator: appointed by statue or agreement, can only suggest a solution 3. conciliation: gets the party talking but can’t suggest anything 4. settlement: disputes resolved but not by the courts, however they pay attention to methods resolved by the courts

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a) this is the best method because it is formalized and others pay attention to it b) another function of the courts is creating common law all provinces are common law except Quebec (sources based on previous cases) all states as well except for Louisiana because it was a French settlement decided on the basis of previous principles (precedence) there are case reports that explain the judges reasoning for the verdict as well as the facts, discussion of the laws and the holding In this the judge has created a legal principle called a ratio decidendi: the narrowest and necessary legal principle upon which the decision was based. It is not specifically said and you have to interpret and identify it. It is the key creative element of the courts. The principles are called common law (expositions of law as pronounced by the court of law.) 2 types of cases 1. Cases regarding legislation, i.e. statues or subordinate legislation Interpreting legislative instruments and seeking to discern the intent of the legislation and effect of law as formulated by legislation. 2. Judge made/Common law: Court rather than interpreting and applying legislatively created law is declaring the law in areas untouched by legislation. The law established by the courts in this matter is the core of what is known as judge made or common law. Here the courts are themselves making authoritative pronouncements of the law without the existence of enactive laws whose intent the courts are generally bound to follow subject to the process of interpretation. The courts are themselves making the law. It is further subdivided into 2 categories: a) the common law courts b) the law of equities

In feudal times the king was the fountain of justice in early times. This jurisdiction was exercised by the king himself. The king was said to have a court, but it was a court of advisors and hadn’t been segregated with duties. The king appointed member to do cases in different areas. In 1066 there was the battle of the Normans vs. Anglo-Saxons. The Norman’s conquered England, but retains aspects of the Anglo-Saxons system. Retained it for political control of property. Judges dispensed law that was common to all people in England. It became distinct of the king’s court. It did not however strip the king of all judicial authority, he retained an overriding residual authority to administer law outside the common law courts, however it was only envoqued when the common law courts were unable to uphold justice. The king was approached for equity. There were too many cases so he appointed the chancellor to deal with these cases. It was called the court of chancery or the court of equity. Equity principles overruled common law principles. Cases could take up to 60 or 70 years.

6 of 76 In 1865, in response to Charles Dickens commentary on court systems, Blique House, (also wrote Christmas Carol, Great expectations) they created the judicature act: one set of courts simultaneously (equity and common law). Both bodies of principles remained separate. This was applied to Canada and Manitoba.

2. Legislatures  

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The legislatures produce laws known as statutes or acts. Halsbury defines it as: a statute or act of parliament has been defined in the English law as a pronouncement by the sovereign in parliament. That is to say made by the Queen (monarch) by and with the advice and consent of both house of parliament, or in certain circumstance the House of Commons alone, the effect of which is either to declare law or change the law. A bill is a draft of a statue. This definition applies mutatis mutandis, which means with necessary changes being made, to statues of Canadian parliament and provincial legislature.

There are 3 institutions that make up parliament 1) In the UK: i. Monarch – Queen ii. Upper house – House of Lords: weren’t appointed, but is being changed by Toni Blair. He is stripping hereditary peers with appointed life peers from the labour force. They will be considered designated members of lords because they are not titled. It’s modelled after the Canadian senate. iii. Elected assembly – House of Commons (Lower House) 2) In Canada i. Monarch – Queen or monarchical representative (governor general Adrienne Clarkson) ii. Upper house – senate: completely appointed, no social prestige, no credibility, used to be a senator for life iii. Elected assembly – House of Commons (MP’s, approve all statutes) 3) Provincial Legislature (MB) i. Monarch – Queen or representative (lieutenant governor John Harver) ii. Upper house – doesn’t exist, it was abolished in the late 19th century, but was called the legislative council (Quebec was the last province to have one) iii. Elected assembly – legislative assembly: inhabited by politicians, statues generally started in the elected assembly.

3. Delegate Bodies  

Delegate bodies produce subordinate legislation. Defined as: legislation made by a person other than the sovereign in parliament by virtue of powers covered either by statue (delegated legislation) or by legislation (subdelegation), which itself is made under statutory powers.

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The influence can be overestimated. In terms of volume in legislations it constitutes by far the largest number of laws. In terms of effects it regulates, organizes and directs a broadening sphere of social conduct by the specific implementation of the general legislative policies embodied in enabling statues. There are thousands of bodies for example, school boards, municipalities, police depts, fire depts, crown corps, CRTC, etc. Statutes give them power and are very brief, the regulation is very in-depth. Frequently the recipient of power is the cabinet. The problem with this is that the cabinet has so much power now, the legislature has none left. Executive Dominance: delegation to cabinet of subordinate legislation. Canada’s system has the worst aspect of the US and UK systems. Subordinate legislation has various names ex. regulation, orders, rules, bylaws or ordinances (created by delegate bodies). There are 2 principles of law that form administrative law.

1. Delegate bodies can only create legislation within its jurisdiction given by statues. Anything else is ultra vires – beyond the power, the jurisdiction (it is void, has no force or effect) Intra vires means within the power, the jurisdiction. 2. Delegates can’t delegate – delagatus non potest delagare – can’t further delegate their power. For example, in estate law you appoint an executor, they can’t delegate their powers. They have to attend to them personally.   

Until the 20th century, the most significant institution creating law was the courts. In the early 20th century the delegate bodies exploded and the relative roles of significance reversed. Why did this occur? 1. In order for courts to make law they must wait for an appropriate dispute to arise. o The other is proactive; they can make law, giving the advantage to the legislature. o Judges were conservative, relatively uneducated, non-proactive, nonelected, narrow in background. 2. Previously there wasn’t a great demand for laws. 1. No legislature needed to organize non-existent social services 2. Court resolution worked quite well 3. Bolstered by scholars (historical inertia) 4. Legislative process was difficult, expensive, sophisticated  Suddenly with the industrial revolution there was a big change in society. The legislature, because they were proactive, they could immediately act to the problems of the industrial society, however the courts because they were conservative, couldn’t/didn’t react. 3. Society finally had sufficient wealth to support an ongoing legislature function. Ironically, it was the industrial revolution that fuelled the wealth

8 of 76 and allowed for the problems to occur. It required more legislation and aided it come about.

Systems of Law  

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Black’s law dictionary: a system is an orderly combination or arrangement as of particulars parts or elements into a whole, especially such combinations according to some rationale or principle. The essence of a system is the rationale and/or principle according to which various related matters are arranged. When we speak of legal systems in contradistinction from one another, we mean to differentiate that rationale or principle around which laws and legal decisions are ordered. Principles judges use to adjudicate cases not including legislation

In Europe there are 2 great legal systems. i) Civil Law ii) Common Law

1. Civil Law      

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more ancient of the two systems. Europe: everywhere but England, Whales and Ireland. America’s: everywhere except Guyana. US: everywhere except Louisiana because it was colonized by the French and Spanish. Mexico uses civil law. Canada we have basically the common law system except for Quebec, because they were colonized by the French. Even though Quebec was conquered by England in 1759 in the battle of the planes of Abraham (General Wolf for the English, General Montcalm for the French.) It became part of the British Empire in the treaty of Paris in 1763. However in 1773 the Quebec act allowed for the continuation of the Quebec system. Regarded by one of the intolerable acts for the Americans. The British allowed the civil law system to continue. Everything is so nicely articulated, instead of trying to figure out the principles yourself. The essence of the civil law system is the existence of the code. The modern system owes it genesis to the Roman Empire, in particular the empire of Justinian in the 6th century AD. According to Black’s legal dictionary codification means: the process of collecting and arranging the laws of a country or state into a code that is into a complete system of positive law scientifically ordered and promulgated by a legislative authority. It became known as Justinian’s code.

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It was replaced in 1804, when Napoleon Bonaparte created a replacement code. The modern civilian countries update the code more frequently. They have ongoing tribunals that update the code on an ongoing basis. Always refer to a code to access a principle to settle a dispute. Only if the code does not cover the new problem is the court free to settle the problem from the introductory general principles (in the front of the code book). There is no doctrine of precedence in the civil law system. Later courts may decide in a similar case that a just result is a reverse to the original decision. This is regarded as the critical weakness in the civil law system. It’s a deductive system.

Weaknesses: 1) there is an absence of doctrine of precedence, which removes certainty from the law, 2) in new areas of development where there aren’t specific princip...