Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Business Law in Canada, 7/e
Chapter 9Sales and Consumer Protection
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Title and Risk
Risk follows title • Sale – title transfers immediately• Agreement to Sell – title transfers at
some future time
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 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?
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Obligations of Seller
Seller must convey good title
Goods must be usable
Goods must be free of liens
Goods must match description
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Goods must be of merchantable quality
Goods must match sample and be free of hidden defects
Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Business Law in Canada, 7/e, Chapter 9
Remedies for Default/2
S u e for d am ag es D em and S p ecificP erform ance
V ictim s o f b reach m ay:
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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?
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Cheques
A bill of exchange drawn on a bank and payable on demand• primary purpose the exchange of funds
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Certified Cheques
• Certified cheques ensure that the instrument will be honoured by the bank.
• Treated like accepted bill of exchange
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Endorsers
Endorsers - liable if instrument is refused by drawer• holder must give notice of dishonour
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
Summary of Case
Murray v. Sperry Rand Corp. Purchaser of harvester successfully sued
manufacturer and vendor for breach of contract
Continued on 9-31
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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?
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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
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Copyright © 2005 Pearson Education Canada Inc.
Business Law in Canada, 7/e, Chapter 9
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?
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