Midterm Exam Review

Fall 2012

Sadly, Pennys grandma died, but left Penny $100,000.00 in her will. Penny decides that she would like to buy a house with the money in a few more years time after she graduates from Laurier. She decides that in the meantime she needs to invest her money. One of her friends suggests she find an investment broker. Penny looks in the Yellow Pages and finds an ad for Sheldon the Bang Up Broker who specializes in investing in the stock market. She sets up an appointment to see him in the morning because she has a class in the afternoon at 2:30 p.m. that she doesnt dare miss. At their first meeting Penny explains that she knows nothing about the stock market or investing money. Sheldon assures her that she doesnt need to thats his job. They talk for a while about investment objectives, and she tells him that she would like to use the money to buy a house in a few years and that she is looking for a safe investment. Sheldon makes several suggestions about diversifying a stock portfolio, but Penny laughs and says she doesnt understand anything about the subject. Sheldon hands Penny a standard form contract whereby he has the authority to make investment decisions on her behalf and to conduct trades without her prior consent. The contract also includes the following clauses: (9) The investor will not hold the advisor liable for any losses incurred whatsoever, or for whatever reason, (10) Should the investor fail to make the regular fee payments of $100.00 per quarter due in advance on the first day of each February, May, August and November the investor will be held liable to a fixed sum of $5,000.00 Penny takes the complicated looking contract and then glances at her watch. She exclaims about how late it is and that she really has to dash or she will be late for her class. She quickly signs the contract and hands it back to Sheldon. A couple of months later, Sheldons brother-in-law, Howard lets Sheldon know that his company Rovers-R-Us is having a share release to the public because the company is having some small cash flow problems. Sheldon decides to take $80,000.00 of Pennys money and buy stocks in Rovers R Us in order to help Howard out and get the ball rolling on the shares. He figures that this will be a good investment for Penny. Meanwhile, the month of May has come and gone, and Penny has forgotten to pay her $100.00 fee to Sheldon. A demand letter for payment of $5,000.00 has automatically been generated by the companys computer and mailed out to Penny. A couple of days later a surprise audit is conducted on the books of Rovers R Us and a scandal breaks with the realization that the company is bankrupt. The price of the shares drops to zero. Sheldon is glad that he doesnt have any money in the company, but remembers that he bought some shares for Penny. He checks her accounts and discovers that all of her money has been transferred in error and she has lost everything. Advise Penny of all of her rights and obligations in both contract and tort with regards to the loss of her money and the demand letter for payment.

-section of law , describe it as if she knows nothing, without reference to facts Then apply facts to demonstrate how legal principles apply Identify party, who is plaintiff who is defendant Tort Negligence- Professional Liability Test : 1) defendant owed plaintiff duty of care 2) breach duty of care by falling below standard of care 3) caused harm *fiduciary -----Trust in relationship Describe law 1. Define neighbour, good neighbour principle. Reasonable foreeeable, that the outcome of action may hurt them, limiting scope of duty (is there a reason we want to limit liability) 2. Level of care you have to reach in order to fulfill duty of care, reasonable person, social utiliy, degree of harm, held to a standard of competant person in same field. Fiduciary duty- high standar, requires person to put interst of beneficiary first, avoid conflicts of interst, applies to special relationship. Test is three part test 1) fiduciary has power/discretion 2) can unilaterally affect interst 3) beneficiary is particularly vulnerable 3. But for test- would injury have occurred but for conduct of Harm may be purely financial, economical, defendant does not have to be sole cause, conduct can not be too far removed (remote principle) Application 1. It is reasonable forseeable sheldons act would affect penny, she is neighbour in law 2. At the least would be held to competent professionals. But most likely Fiduciary standard, Has power over investment, his actions can unilaterally affect her, she is at his mercy- did he breach it? Yes conflict of interest with brother-in-law 3. But for sheldons investing in bros company, harm is purely economic, it was forseeable because company was not optimal choice (conflict of interest) She has met her burden of proof Vicarious liability- clerical error for 20, 000 made by an employee Defences His defence would have been she signed contract SFC unexpected term, must have pointed it out at time of contract formation because there is no negotiation involved In our case he knew and let penny sign it 100 dollars- 5000 dollars Is this tort or contract isuee? It is contract what is that definition Was it properly formed? 7 elements are you missing one of the elements? Is it a legality issue A way to get contract set aside, or is there a writing issue Is she a minor, Sheldon has right to sue for non-payment

$5000 is not in any way relevant to $100 breach, it is an uncommon term, should have been pointed out to her 10 multiple choice 6 short answer- only answer 4 worth 8 marks each but find 5 key points What is legal issue, legal principle Long answer1 case couple questions Can answer in point form Setting aside contacke mistake , misrep, undue ing, duress Requirement of writing- payment of miscarriage of third party reduce