Commercial Law | The Canadian Encyclopedia


Commercial Law

Commercial law is that branch of private law concerned primarily with the supply of goods or services by merchants and other businesses for profit. Textbooks on commercial law frequently differ on the range of topics treated in them.

Commercial Law

Commercial law is that branch of private law concerned primarily with the supply of goods or services by merchants and other businesses for profit. Textbooks on commercial law frequently differ on the range of topics treated in them. Any serious exposition of commercial law, however, will include such topics as sale of goods, bailment and carriage of goods, documents of title and negotiable instruments, banking, the various forms of secured credit, and BANKRUPTCY law.

These topics are often linked through an originating transaction. For example, a seller selling goods to a buyer at a distant location will often have to make arrangements for their shipment; this will involve a contract of carriage for conveyance of the goods (by land or sea and, in overseas shipments, frequently both) with a carrier, who will issue the seller with a bill of lading (a "document of title"), which may be negotiable or non-negotiable. During their transit the goods will also usually be covered by a policy of insurance ("inland" or "marine" insurance) against loss or damage. In commercial transactions, the buyer will almost invariably make payment by means of a negotiable instrument, which in domestic transactions normally consists of a cheque drawn on the buyer's bank in the seller's favour. In international transactions payment will often be arranged through a banker's letter of credit.

If the buyer cannot or does not wish to make immediate payment, the seller may give him a short period of credit. Alternatively the seller may be willing to sell the goods on a "conditional sale" basis, involving an extension of medium- or long-term credit while reserving title until the goods have been paid for; or the buyer may arrange for a loan from a financial institution and give security to the lender to secure repayment of the loan. If the buyer becomes bankrupt before the goods have been paid for, the seller will want to know whether he can recover the goods and, if he cannot, how the seller will rank with other creditors who have claims against the bankrupt's estate.

Federal and Provincial Jurisdiction

In Canada jurisdiction to regulate commercial transactions is divided between the federal and the provincial governments, so commercial lawyers must be familiar with federal as well as provincial laws. A further complication arises because the commercial law of Québec is or was derived from the CIVIL CODE of France while the commercial law of the English-speaking provinces is largely based on English law. At both the provincial and federal levels the relevant rules of many of the principal branches of commercial law have been reduced to statutory form. Thus, all English-speaking provinces have a substantially identical Sale of Goods Act while the Bills of Exchange Act, the Bank Act, the Carriage of Goods by Sea Act and the Bankruptcy and Insolvency Act codify all or a substantial part of the areas of commercial law under federal jurisdiction.

Sales Law

The function of sales law is primarily to determine the rights and duties of the seller and buyer where the contract itself does not contain a complete set of terms. The seller's obligations are generally the more onerous. The seller must not only deliver goods of the right quantity and description and at the agreed time; he must also supply goods that are of "merchantable quality" and reasonably fit for their intended purpose. The oft-quoted maxim caveat emptor ("let the buyer beware") has long ceased to represent the Canadian law. If the seller fails to live up to his obligations he may have to compensate the buyer for the losses suffered by them, and these could be very substantial. However, well-drafted contracts almost invariably limit the seller's liability for defective goods. The buyer's primary obligations under the typical contract of sale are to accept the goods and to pay for them as agreed.

The federal Bills of Exchange Act deals with the following types of payment instrument: bills of exchange, cheques (ie, bills of exchange drawn on a bank or recognized near-bank) and promissory notes. An important function of the Act is to regulate the assignability (ie, negotiability) of rights obtained under one of these instruments and to determine when the transferee of an instrument can obtain better rights to payment than its original holder had. The transferee is then said to be a "holder in due course." Similar principles of negotiability apply to "documents of title," ie, recognized types of documents (such as bills of lading and warehouse receipts) that indicate that the holder of them is entitled to the delivery of goods by the bailee who issued the document in the first place.

Changes in Canadian Commercial Law

Canadian commercial law is changing rapidly in response to a variety of technological and other nonlegal factors. In the sales area, the courts and the legislatures are increasingly having to recognize that the typical retailer is only a conduit for the manufacturer, who produces the goods and creates a market for them through intensive advertising. There is strong pressure, therefore, to hold the manufacturer directly responsible to the ultimate buyer if the goods are defective, even though no formal contract exists between the parties.

Negotiable-instruments law is deeply affected by the use of electronic systems for the transfer of funds (including the use of automated tellers at the retail level) and the widespread substitution of cheques by CREDIT CARDS. "Debit cards," a process by which a purchaser's bank account is electronically debited with the price of a purchase or service at the point of purchase, are also beginning to make a substantial inroad into the use of cheques, although the "cashless society" is still some distance away. Containerization of cargoes and intermodal methods of transport have radically altered the law of bills of lading and the traditional roles and duties of carriers.

The greatly increased importance of secured credit of all types is also contributing to changes in this branch of commercial law. In particular, 7 provinces (Ontario, all 4 western provinces, and New Brunswick and Nova Scotia) and the Yukon and the Northwest Territories have now adopted a substantially similar Personal Property Security Act to replace the old provincial Conditional Sales, Chattel Mortgages, and Assignment of Book Debts Acts. The other common-law jurisdictions (PEI and Newfoundland) are expected to follow suit before the turn of the century. The new Québec Civil Code also contains elements of the same approach.

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