TEST BANK for Managing the Law 6th Edition The Legal Aspects of Doing Business (Canadian Edition)

Managing the Law, 6e (McInnes) Chapter 01: Risk Management and Sources of Law True/False Questions 1. The law can affect a business both positively and negatively. It often prohibits actions that otherwise would be possible. However, it sometimes permits parties to do something that they could not otherwise do. a True b False Difficulty: 2 QuestionID: 01-1-01 Topic: Why Study Law? Skill: Recall Answer: a. True 2. Beta Inc has recently discovered that a defect in one of its products poses a risk of injury to consumers. Its only option, from a legal risk management perspective, is to eliminate the risk of liability by removing the product from the market. a True b False Difficulty: 2 QuestionID: 01-1-02 Topic: Risk Management Skill: Applied Answer: b. False 3. As described in the text, the four forms of risk management are risk avoidance, risk elimination, risk transfer, and risk acceptance. a True b False Difficulty: 1 QuestionID: 01-1-03 Topic: Risk Management Skill: Recall Answer: b. False 4. Sabeka Inc has discovered that one of its products may cause consumers to suffer a certain form of property damage. In response to that risk, the company has written an exclusion clause into its sales contracts. In doing so, it has adopted a form of risk management known as risk shifting. 1 © 2023 Pearson Canada Inc.

a True b False Difficulty: 2 QuestionID: 01-1-04 Topic: Risk Management Skill: Applied Answer: a. True 5. Jahume Ltd operates as an Internet service provider. It has retained Alison to work as in-house counsel. Following an increasingly common trend, this means that she will work for the company from her own home, rather than from a traditional law firm office. a True b False Difficulty: 2 QuestionID: 01-1-05 Topic: Risk Management Skill: Applied Answer: b. False 6. Quebec is said to be a "civil law system" because it is derived from the legal system that governed the citizens of ancient Greece. a True b False Difficulty: 3 QuestionID: 01-1-06 Topic: Map of the Law Skill: Recall Answer: b. False 7. "Administrative law" derives its name from the fact that it is concerned with the administration of the trial courts and appellate courts. a True b False Difficulty: 1 QuestionID: 01-1-07 Topic: Map of the Law Skill: Recall Answer: b. False 2 © 2023 Pearson Canada Inc.

8. Bianca punched Mick. She now finds herself in court. The person who has brought the claim for damages against her is Mick himself. It is safe to assume that the court is concerned with a private law issue, rather than a criminal law issue. a True b False Difficulty: 1 QuestionID: 01-1-08 Topic: Map of the Law Skill: Applied Answer: a. True 9. Glimmer Co recently received a tax assessment with which it disagrees. It does not believe that it should be required to pay the full amount of the demand. If it challenges the assessment, the case will fall into the category of "public law" even though the company is a private corporation. a True b False Difficulty: 3 QuestionID: 01-1-09 Topic: Map of the Law Skill: Applied Answer: a. True 10. Bastarache & Michel is a law firm in your province. Although it occasionally has clients from other jurisdictions, the vast majority of its work comes from within your province. Your legislature recently enacted a statute that imposes a 5% tax on the "sale of professional services, including … legal services." As that wording suggests, the statute treats Bastarache & Michel as the taxpayer, even if the firm adds the cost of the tax onto the fees that it charges to its clients. The new tax is probably intra vires and valid because most professionals provide services in only one province. a True b False Difficulty: 3 QuestionID: 01-1-10 Topic: Map of the Law Skill: Applied Answer: b. False 11. Because of the need to ensure that the fundamental rules for governing the country are kept up to date, the Constitution (unlike most statutes) is quite easily amended. a True 3 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 01-1-11 Topic: Sources of Law Skill: Recall Answer: b. False 12. Athlone Inc wants to start a new television channel. To do so, it requires a government licence. It should apply to the federal government, rather than the provincial government, because the issue of telecommunications is not mentioned in the Constitution. It therefore falls under federal jurisdiction because of the residual clause. a True b False Difficulty: 3 QuestionID: 01-1-12 Topic: Sources of Law Skill: Applied Answer: a. True 13. Kane Media Inc wants to start a new radio station. The government has refused to grant a licence. Kane Media Inc believes that the government's position is blatantly discriminatory. Nevertheless, it cannot rely on the Charter of Rights and Freedoms, which was intended to protect the fundamental rights and freedoms of people, and which does not apply in favour of companies. a True b False Difficulty: 2 QuestionID: 01-1-13 Topic: Sources of Law Skill: Applied Answer: b. False 14. A bill to amend a business corporation's statute was introduced in the House of Commons. The statute in question must be a piece of federal legislation, as opposed to provincial legislation. a True b False Difficulty: 3 QuestionID: 01-1-14 Topic: Sources of Law Skill: Applied 4 © 2023 Pearson Canada Inc.

Answer: a. True 15. Quiet Corner Bookstore is something of a landmark. It was opened in 1908 and it has long served the needs of the community. The store's popularity is based not only on its reputation for excellent service, but also on the fact that it has always been run by members of the same family: the Meyers clan. In an age of increasingly anonymous chain stores, customers appreciate the personal touch that they receive at the Quiet Corner. Recently, however, the government has announced that it intends to expropriate the land upon which the store is located in order to build a highway through the neighbourhood. The Meyers family may, however, be able to defeat that plan, and save their store, by relying on a provision of the Charter that protects cherished property. a True b False Difficulty: 3 QuestionID: 01-1-15 Topic: Sources of Law Skill: Applied Answer: b. False 16. The duty to consult requires the Crown to consult with Indigenous Peoples whenever it intends to act in a way that may adversely affect Indigenous rights. a True b False Difficulty: 1 QuestionID: 01-1-16 Topic: Sources of Law Skill: Recall Answer: a. True 17. Delta Mining wants to start its operations on Indigenous lands. Delta Mining would have no obligation to undertake direct contact with the affected Indigenous Peoples because the duty to consult only applies to the Crown. a True b False Difficulty: 2 QuestionID: 01-1-17 Topic: Sources of Law Skill: Applied Answer: b. False

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Multiple Choice Questions 1. The three steps in risk management are A) realization, response, and reaction. B) recognition, evaluation, and insurance. C) identification, evaluation, and response. D) evaluation, qualification, and litigation. E) assessment, formulation, and implementation. Difficulty: 2 QuestionID: 01-2-01 Topic: Risk Management Skill: Recall Answer: C) identification, evaluation, and response. 2. Alpha Corp has discovered that one of its products is potentially dangerous. It therefore has purchased liability insurance. It has employed a form of risk management known as A) risk capitalization. B) risk elimination. C) risk shifting. D) risk acceptance. E) risk avoidance. Difficulty: 1 QuestionID: 01-2-02 Topic: Risk Management Skill: Applied Answer: C) risk shifting. 3. Beta Inc has discovered that one of its products is potentially dangerous. It therefore pulled that product from the store shelves before any were sold. It has employed a form of risk management known as A) risk destruction. B) risk avoidance. C) risk reduction. D) risk acceptance. E) risk denial. Difficulty: 1 QuestionID: 01-2-03 Topic: Risk Management Skill: Applied Answer: B) risk avoidance. 6 © 2023 Pearson Canada Inc.

4. Gamma Co has discovered that one of its products is potentially dangerous. That danger, however, is not great. There is only a small chance that someone will be hurt, and even if someone is hurt, the injury will not be life threatening. Gamma Co therefore has decided to do nothing about the danger. It has employed a form of risk management known as A) risk ignorance. B) risk aversion. C) risk displacement. D) risk harmonization. E) risk acceptance. Difficulty: 1 QuestionID: 01-2-04 Topic: Risk Management Skill: Applied Answer: E) risk acceptance. 5. In an effort to increase sales, Delta Ltd hired Chandra, a marketing expert. Because Delta was concerned about being held responsible for any torts that Chandra might commit, it arranged to hire her as an independent contractor, rather than an employee. It has employed a form of risk management known as A) vicarious liability. B) independent responsibility. C) risk allowance. D) risk shifting. E) incorporation. Difficulty: 2 QuestionID: 01-2-05 Topic: Risk Management Skill: Applied Answer: D) risk shifting. 6. Epsilon Inc has recently retained the services of Noriko as in-house counsel. Which of the following statements is most likely TRUE? A) Although Noriko is not an employee of Epsilon Inc, she can be called in from her law firm whenever the company has a legal problem. B) Noriko can both help to resolve legal problems and help to prevent legal problems from arising in the first place. C) Epsilon Inc has probably made a mistake because, like most in-house counsel, Noriko is probably available because she cannot find work in a law firm. D) Epsilon Inc has hired Noriko for the purpose of resolving a single legal problem that it expects will drag on for several years. E) Noriko may provide advice to Epsilon, but she cannot represent the company in court. 7 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 01-2-06 Topic: Risk Management Skill: Applied Answer: B) Noriko can both help to resolve legal problems and help to prevent legal problems from arising in the first place. 7. Which of the following statements is TRUE with respect to risk management and incorporation? A) Incorporation is irrelevant to risk management because corporations cannot be held liable. B) Incorporation increases the risk of liability because a shareholder of a corporation is personally liable for all of the corporation's torts. C) Incorporation completely eliminates the risk of liability because the government is responsible for a corporation's debts. D) Incorporation reduces the risk of liability because the doctrine of limited liability usually means that a corporation's debts must be paid by the corporation and not by the people who run the corporation. E) Incorporation spreads the risk of liability because if one corporation becomes liable, every other corporation in the same province may be required to pay the debt. Difficulty: 3 QuestionID: 01-2-07 Topic: Risk Management Skill: Recall Answer: D) Incorporation reduces the risk of liability because the doctrine of limited liability usually means that a corporation's debts must be paid by the corporation and not by the people who run the corporation. 8. Which of the following statements is TRUE with respect to exclusion clauses and risk management? A) An exclusion clause can be inserted into a contract for the sale of goods. B) An exclusion clause cannot affect liability for property damage. C) An exclusion clause can be used by a person but not by a corporation. D) An exclusion clause represents a type of risk acceptance. E) An exclusion clause always shifts the risk of liability onto an insurance company. Difficulty: 2 QuestionID: 01-2-08 Topic: Risk Management Skill: Recall Answer: A) An exclusion clause can be inserted into a contract for the sale of goods. 9. Techniques for managing risks include A) insurance and incorporation but not exclusion clauses. B) exclusion clauses, negligence, and contract. C) incorporation, insurance, and exclusion clauses. 8 © 2023 Pearson Canada Inc.

D) vicarious liability, employment, and the Charter. E) independent contractors, exclusion clauses, and residual powers. Difficulty: 1 QuestionID: 01-2-09 Topic: Risk Management Skill: Recall Answer: C) incorporation, insurance, and exclusion clauses. 10. Red River Inc, which is based in Winnipeg, Manitoba, has sued a company called Eiffel Tours, which is based in Paris, France. That dispute will be decided by the "common law." That most likely means that the case will be decided by A) the provision of a statute. B) a legal system that can be traced to England. C) a legal system that can be traced to France. D) a government official, other than a judge. E) a law that is frequently applied in both France and Manitoba. Difficulty: 1 QuestionID: 01-2-10 Topic: Map of the Law Skill: Applied Answer: B) a legal system that can be traced to England. 11. Which of the following statements is TRUE with respect to the law of Quebec? A) Because Quebec inherited its laws from France, its criminal laws are different from those that apply in other parts of Canada. B) Because Quebec inherited its laws from France, its constitutional laws are different from those that apply in other parts of Canada. C) Even though Quebec inherited much of its law from France, it has the same criminal law as provinces and territories that inherited most of their laws from England. D) Quebec is considered a common law jurisdiction because it inherited most of its laws from England. E) Quebec is considered a common law jurisdiction because it inherited laws that were once common to all parts of the Roman Empire. Difficulty: 2 QuestionID: 01-2-11 Topic: Map of the Law Skill: Recall Answer: C) Even though Quebec inherited much of its law from France, it has the same criminal law as provinces and territories that inherited most of their laws from England. 12. Eric, who is a resident of Saskatchewan, has sued Trois Étoiles Ltd, which is a company based in 9 © 2023 Pearson Canada Inc.

Quebec, for breach of contract. Which of the following statements is TRUE? A) The case can be classified as a "public matter" because it involves a person suing a company for breach of contract. B) The case will be heard in a "civilian jurisdiction" if the claim is heard by a Saskatchewan court applying the laws of Saskatchewan. C) The case can be classified as an "international law" matter if the claim is heard by a Quebec court applying the laws of Quebec. D) The case would be classified as a "criminal matter" if Eric sued the government of Quebec rather than the Quebec company. E) The case can be classified as a "civil matter" under the "common law" if it is decided on the basis of the laws of Saskatchewan. Difficulty: 2 QuestionID: 01-2-12 Topic: Map of the Law Skill: Applied Answer: E) The case can be classified as a "civil matter" under the "common law" if it is decided on the basis of the laws of Saskatchewan. 13. Which of the following statements is TRUE with respect to administrative law? A) Administrative law is concerned with the behaviour of public officials and therefore is not particularly important to business people. B) Because of the Constitution, administrative law applies at the federal and provincial levels but not at the municipal level C) Administrative law affects the government but not private individuals or corporations. D) Administrative law isthe law by which the decisions of government-appointed decision-makers and government-appointed tribunals are reviewed by the courts. E) Administrative law is usually classified as a branch of criminal law. Difficulty: 2 QuestionID: 01-2-13 Topic: Map of the Law Skill: Recall Answer: D) Administrative law isthe law by which the decisions of government-appointed decision-makers and government-appointed tribunals are reviewed by the courts. 14. Attila works for Epsilon Inc. The police recently became aware of illegal activities in connection with that organization. Which of the following statements is TRUE? A) Epsilon Inc may be charged with a "white collar crime," which is any crime that was committed by a corporate organization rather than an individual. B) Neither Attila nor Epsilon Inc can be charged with a "corporate crime" unless they broke a law that was intended to protect another corporation. C) A "white collar crime" is the same thing as a "corporate crime." D) Attila may be charged with a crime, but Epsilon Inc cannot, because only a human being can be 10 © 2023 Pearson Canada Inc.

convicted of a criminal offence. E) Even if Attila and Epsilon Inc are convicted of crimes, they may also be sued privately if their actions also amounted to torts committed against other individuals. Difficulty: 3 QuestionID: 01-2-14 Topic: Map of the Law Skill: Applied Answer: E) Even if Attila and Epsilon Inc are convicted of crimes, they may also be sued privately if their actions also amounted to torts committed against other individuals. 15. The category of public law contains A) constitutional law and administrative law but not tax law. B) constitutional law and tax law, among other things. C) criminal law, employment law, and constitutional law. D) administrative law and tax law but not criminal law. E) any case in which a government sues or is being sued. Difficulty: 1 QuestionID: 01-2-15 Topic: Map of the Law Skill: Recall Answer: B) constitutional law and tax law, among other things. 16. The category of private law contains A) contract law and tort law but not if a government has sued or is being sued. B) real estate transactions, lawsuits based on deceit, and the violation of copyrights, among other things. C) contract law and property law but not tort law, which is closely related to criminal law. D) only those cases that the parties resolve themselves, or with the assistance of a neutral third party other than a judge. E) rules that govern personal matters, such as the right to privacy but not rules that govern public matters, such as the contracts of a public company. Difficulty: 2 QuestionID: 01-2-16 Topic: Map of the Law Skill: Recall Answer: B) real estate transactions, lawsuits based on deceit, and the violation of copyrights, among other things. 17. The Canadian legal system contains various types of laws. It occasionally is necessary to consider the relationship between two or more areas of law. Which of the following statements is TRUE? A) Because they deal with different types of rules, it is impossible for criminal law and tort law to ever 11 © 2023 Pearson Canada Inc.

apply to the same set of facts. B) Because they involve obligations that arise from different sources, it is impossible for tort law and contract law to ever apply to the same set of facts. C) "White collar crime" is a misleading phrase because the relevant concepts arise in tort law rather than criminal law. D) The relationship between an employer and an employee is governed entirely by the law of contract. E) A lawyer who provides careless services usually is sued in both tort and contract because the lawyer owes the client a duty of care to not be careless and is also bound by the terms of the contract with the client not to be careless. Difficulty: 3 QuestionID: 01-2-17 Topic: Map of the Law Skill: Recall Answer: E) A lawyer who provides careless services usually is sued in both tort and contract because the lawyer owes the client a duty of care to not be careless and is also bound by the terms of the contract with the client not to be careless. 18. Suppose that there is a general feeling in certain parts of the country that judges should be elected rather than appointed. A system of electing judges can be introduced only through a constitutional amendment. This means that A) there must be unanimous agreement by all of the provincial legislatures. B) the federal Parliament can adopt the new system as long as there is majority support in both the House of Commons and the Senate. C) the prime minister must call an election. D) the new system must be supported by at least half the provinces, and those provinces must contain at least two-thirds of the country's population. E) the new system must be supported by Parliament, plus two-thirds of the provinces, where those consenting provinces represent at least half of the Canadian population. Difficulty: 3 QuestionID: 01-2-18 Topic: Sources of Law Skill: Applied Answer: E) the new system must be supported by Parliament, plus two-thirds of the provinces, where those consenting provinces represent at least half of the Canadian population. 19. The Citizen's Coalition for Property Rights (the CCPR) believes that the Charter should protect the right to own property. Which of the following statements is TRUE? A) The CCPR has no need to worry because property rights are already expressly protected by the Charter. B) The Charter cannot be amended unless, among other things, the federal Parliament agrees. C) Because property rights are listed under section 91 of the Constitution, the CCPR will not have to persuade the federal government to amend the Charter. D) The Charter can be amended as long as at least half of the Canadian population supports the protection 12 © 2023 Pearson Canada Inc.

of property rights. E) The Charter cannot be amended unless the government holds a referendum and allows individual Canadians to vote on the issue. Difficulty: 3 QuestionID: 01-2-19 Topic: Sources of Law Skill: Applied Answer: B) The Charter cannot be amended unless, among other things, the federal Parliament agrees. 20. During a trial, a lawyer raised an argument based on the concept of the "residual power." The lawyer's argument must A) involve an issue of private law. B) be concerned with the amending formula. C) be based on either section 98 or section 99 of the Constitution. D) have something to do with the municipal governments. E) be concerned with the federal government and constitutional law. Difficulty: 2 QuestionID: 01-2-20 Topic: Sources of Law Skill: Applied Answer: E) be concerned with the federal government and constitutional law. 21. A province created a statute. A court ruled that the statute was ultra vires. That means that A) the statute has full force (ultra means "most" and vires means "strength," as in "virility"). B) the province acted contrary to the division of powers because it enacted legislation that it did not have the constitutional jurisdiction to enact. C) the statute must violate the Charter. D) the statute applies both inside and outside of the province. E) the statute must deal with public law rather than private law. Difficulty: 3 QuestionID: 01-2-21 Topic: Sources of Law Skill: Applied Answer: B) the province acted contrary to the division of powers because it enacted legislation that it did not have the constitutional jurisdiction to enact. 22. In an effort to protect its dairy industry, a provincial government passed a law that prohibits the importation or manufacture of soy milk. If a soy milk company challenges that statute on constitutional grounds, what would a court likely say? A) Because property rights are protected by the Charter, the statute is constitutionally invalid. 13 © 2023 Pearson Canada Inc.

B) Inter-provincial trade is an issue that provinces are entitled to decide for themselves. C) The federal government has jurisdiction over international trade but not over inter-provincial trade. D) The statute is entirely ultra vires because federal jurisdiction over international and inter-provincial trade extends to every issue that is related to trade, including the manufacture or production of soy milk. E) The statute is at least partially intra vires because provinces have the authority to regulate the production or manufacture of things like soy milk within the province, but the law may be constitutionally ultra vires because it interferes with the federal jurisdiction over inter-provincial trade, or mobility rights under the Charter. Difficulty: 3 QuestionID: 01-2-22 Topic: Sources of Law Skill: Applied Answer: E) The statute is at least partially intra vires because provinces have the authority to regulate the production or manufacture of things like soy milk within the province, but the law may be constitutionally ultra vires because it interferes with the federal jurisdiction over inter-provincial trade, or mobility rights under the Charter. 23. Which of the following statements is TRUE with respect to the Charter? A) It was introduced in 1982. B) It is a federal statute. C) Because it is intended to protect people's rights and freedoms, it severely limits the grounds upon which courts can strike down laws. D) It only applies in favour of a government or a government actor. E) It applies to federal laws but not provincial laws. Difficulty: 1 QuestionID: 01-2-23 Topic: Sources of Law Skill: Recall Answer: A) It was introduced in 1982. 24. The federal, provincial, and territorial governments have decided to re-consider the contents of the Charter. They are particularly interested in the possibility of protecting economic and property rights. Which of the following statements is TRUE? A) Although the Charter does not currently contain a section devoted exclusively to the protection of economic and property rights, the right to "liberty" in section 7 of the Charter has been judicially interpreted in a way that broadly provides such protection. B) The introduction of a new Charter right for the protection of economic and property rights would be desirable primarily because it would increase the federal government's ability to regulate natural resources. C) The Supreme Court of Canada has said that because the Charter does not limit economic and property rights, every Canadian enjoys the unconstrained right to transact business whenever one wishes. D) The introduction of a new Charter right for the protection of economic and property rights might allow 14 © 2023 Pearson Canada Inc.

courts to compel governments to ensure that every Canadian enjoys adequate housing. E) Since the Charter applies to the relationship between private citizens, it should protect economic and property rights. Difficulty: 2 QuestionID: 01-2-24 Topic: Sources of Law Skill: Applied Answer: D) The introduction of a new Charter right for the protection of economic and property rights might allow courts to compel governments to ensure that every Canadian enjoys adequate housing. 25. The Charter includes (among other things) rights regarding A) mobility, housing, and equality. B) contracts, sexual orientation, and religion. C) ownership, expression, and association. D) equality based on religion, age, and ethnic origin. E) Aboriginals, multiculturalism, and accommodation. Difficulty: 1 QuestionID: 01-2-25 Topic: Sources of Law Skill: Recall Answer: D) equality based on religion, age, and ethnic origin. 26. A provincial government recently enacted a statute that established a scholarship for "Aboriginal students who are enrolled at Canadian universities." Melissa, a university student whose ancestors were all born in England, believes that the scholarship is unconstitutional because it unfairly discriminates against her on the basis of her race. If Melissa brought that complaint to court, a judge would likely say that A) the scholarship presumably is unconstitutional because it discriminates on the basis of race, and that it can be saved, if at all, only under section 1 of the Charter. B) the scholarship is unconstitutional because the federal government has exclusive jurisdiction over education as a result of section 92 of the Constitution. C) the scholarship is valid under section 15(2) of the Charter because it is aimed at improving the conditions of a disadvantaged group. D) because Canadian universities are private institutions, the facts do not reveal any government action that could possibly trigger the Charter's provisions. E) Melissa is entitled to participate in the scholarship scheme because she is a woman and because the Charter prefers rights based on sex to rights based on race. Difficulty: 3 QuestionID: 01-2-26 Topic: Sources of Law Skill: Applied 15 © 2023 Pearson Canada Inc.

Answer: C) the scholarship is valid under section 15(2) of the Charter because it is aimed at improving the conditions of a disadvantaged group. 27. The rights and freedoms contained in the Charter are limited A) to cases involving interactions between different governments. B) to human beings, with the result that the Charter cannot work in favour of a company. C) by the ability of a federal or provincial government to invoke the notwithstanding clause only in relation to the rights and freedoms in section 2 or sections 7 to 15 of the Charter, and the general limitation of those limits demonstrably justified in a free and democratic society pursuant to section 1. D) to situations in which the government created a law in bad faith. E) to cases involving substantial amounts of money. Difficulty: 1 QuestionID: 01-2-27 Topic: Sources of Law Skill: Recall Answer: C) by the ability of a federal or provincial government to invoke the notwithstanding clause only in relation to the rights and freedoms in section 2 or sections 7 to 15 of the Charter, and the general limitation of those limits demonstrably justified in a free and democratic society pursuant to section 1. 28. Lamda Corp is based in Vancouver but sells products across Canada. Which of the following statements is TRUE with respect to Lamda Corp and the Charter? A) Although the people who work for Lamda Corp enjoy Charter protection, the company itself is not a person and therefore is not protected by the Charter. B) Although Lamda Corp enjoys freedom of religion, it does not enjoy freedom of expression. C) Although Lamda Corp enjoys freedom of expression, it does not enjoy freedom of religion. D) Although Lamda Corp enjoys freedom of religion and freedom of expression, it is not a person and therefore it does not enjoy equality rights. E) Although Lamda Corp does not enjoy any Charter rights, it may be sued if it violates the Charter rights of one of its employees. Difficulty: 3 QuestionID: 01-2-28 Topic: Sources of Law Skill: Applied Answer: C) Although Lamda Corp enjoys freedom of expression, it does not enjoy freedom of religion. 29. The premier of your province wants to invoke the notwithstanding clause in order to avoid the consequences of a recent decision by the Supreme Court of Canada. Before trying to do so, however, the premier wants to know as much as possible about the notwithstanding clause. Which of the following statements is TRUE? A) The notwithstanding clause cannot be invoked unless the relevant people are willing to amend the Constitution. 16 © 2023 Pearson Canada Inc.

B) If the notwithstanding clause is invoked, it will have effect for 10 years, after which it will lapse unless it is reapplied. C) The notwithstanding clause can be invoked by the federal government or by a provincial government. D) The notwithstanding clause can be used against equality rights but not against mobility rights. E) The notwithstanding clause has been invoked frequently in the western provinces but not in Ontario. Difficulty: 2 QuestionID: 01-2-29 Topic: Sources of Law Skill: Applied Answer: C) The notwithstanding clause can be invoked by the federal government or by a provincial government. 30. The Dark Room Bookstore was recently charged under the Criminal Code with selling magazines that contain photographs of people involved in violent and degrading sexual acts. The owner of the bookstore believes, however, that the government should not interfere in the private lives of its citizens and that he has a right to express his sexuality through the sale of such magazines. Which of the following statements is TRUE with respect to the Charter in this situation? A) Because freedom of expression is one of the fundamental rights that is contained in section 2 of the Charter, it cannot be subject to the notwithstanding clause. B) Once a court decides that the relevant provision of the Criminal Code does violate the right to freedom of expression, it becomes impossible to save that provision under section 1 of the Charter. C) The Charter is irrelevant in this case because the corporation that owns the store is not a person and therefore cannot claim the right to freedom of expression. D) Because the Charter applies only to government actions, it will not apply to this case unless the court is satisfied that at least one of the magazines was sold to a government official. E) The owner would have a good legal defence that his Charter rights of freedom of expression are infringed by the law. However, that law may be upheld as a reasonable infringement of the right of expression, if infringement is demonstrably justified in a free and democratic society. Difficulty: 3 QuestionID: 01-2-30 Topic: Sources of Law Skill: Applied Answer: E) The owner would have a good legal defence that his Charter rights of freedom of expression are infringed by the law. However, that law may be upheld as a reasonable infringement of the right of expression, if infringement is demonstrably justified in a free and democratic society. 31. A provincial statute says that a monthly allowance of $250 is available to "any parent or set of parents that cares for an adopted child who is under the age of 12." That provision was challenged under the Charter by a parent who cares for a young child to whom she gave birth. The court agrees that the statute discriminates against "birth parents." As a remedy, the court could A) declare that the relevant provision is valid under the Charter and is therefore unconstitutional. B) allow the federal government to amend the provincial statute. 17 © 2023 Pearson Canada Inc.

C) grant an injunction that allows the parents to re-draft the statute in a way that extends the allowance to birth parents. D) read in a broader definition of "parent" that excludes both adoptive parents and birth parents. E) strike down the statute, but suspend the effect of that remedy in order to give the government time to redraft the legislation. Difficulty: 3 QuestionID: 01-2-31 Topic: Sources of Law Skill: Applied Answer: E) strike down the statute, but suspend the effect of that remedy in order to give the government time to re-draft the legislation. 32. Sigma Inc sued Tau Ltd for breach of contract and asked for the remedy of specific performance. The case will be heard in Alberta. Which of the following statements is TRUE? A) Specific performance is an equitable remedy because it historically was awarded by the court of legislators. B) Because of the fusion of courts, there no longer is any need to draw a distinction between law and equity. C) Sigma Inc's claim against Tau Ltd is an example of legislative litigation because it involves a claim by one private party against another private party. D) Sigma Inc's claim against Tau Ltd is a common law claim because it will be decided on the basis of laws that historically were developed in French courts. E) Specific performance is an equitable remedy that is now granted by the courts as the courts of common law have been fused with the courts of equity. Difficulty: 2 QuestionID: 01-2-32 Topic: Sources of Law Skill: Applied Answer: E) Specific performance is an equitable remedy that is now granted by the courts as the courts of common law have been fused with the courts of equity. 33. Omicron Inc claims that a municipal by-law violates its right to equality under section 15(1) of the Charter. Section 15(1) states: "Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination" based on various grounds. The company will lose its argument because A) the Charter never applies to corporations. B) the Charter applies to federal, provincial, and territorial statutes but not to municipal by-laws. C) although some parts of the Charter apply to corporations, section 15(1) is limited to "individuals" and therefore cannot apply to Omicron. D) section 15(1) of the Charter was recently repealed (that is, done away with). E) section 15(2) of the Charter prevents Omicron Inc from using section 15(1).

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Difficulty: 2 QuestionID: 01-2-33 Topic: Sources of Law Skill: Applied Answer: C) although some parts of the Charter apply to corporations, section 15(1) is limited to "individuals" and therefore cannot apply to Omicron. 34. Civitas Inc sells widgets. The company recently complained in court that it was being prevented from using a particular type of advertisement. In some circumstances, such a restriction violates section 2(b) of the Charter. Ultimately, however, the court upheld the restriction and prevented Civitas Inc from advertising as it wished. Which of the following statements may explain that end result? A) The restriction was imposed by a statute and the government responsible for that statute reacted to the court's decision by invoking the residual clause. B) The party was not entitled to freedom of expression because it is a company rather than a human being. C) The court held that the restriction was an "unreasonable limitation" on the freedom of expression. D) The restriction was saved under section 15(2) of the Charter. E) The restriction was imposed by a contract that Civitas Inc created with another private corporation. Difficulty: 2 QuestionID: 01-2-34 Topic: Sources of Law Skill: Applied Answer: E) The restriction was imposed by a contract that Civitas Inc created with another private corporation. 35. The notwithstanding clause A) is contained in section 1 of the Charter. B) is applied to Canadian laws regularly. C) must be reinvoked every ten years in order to remain in effect. D) can be applied with respect to each and every the right and freedom contained in the Charter. E) is seldom used by governments because it involves a potentially controversial political decision to override fundamental rights and freedoms protected by the Constitution of Canada. Difficulty: 2 QuestionID: 01-2-35 Topic: Sources of Law Skill: Recall Answer: E) is seldom used by governments because it involves a potentially controversial political decision to override fundamental rights and freedoms protected by the Constitution of Canada. 36. Subordinate legislation A) involves a statute that was introduced to change an existing statute. B) always prohibits certain forms of behaviour. C) is always created at the provincial level, rather than at the federal level. 19 © 2023 Pearson Canada Inc.

D) is practically necessary because it is impossible for legislators to constantly monitor all of their statutes and continuously update laws in order to reflect local conditions and society's changing needs. E) always consists of by-laws. Difficulty: 2 QuestionID: 01-2-36 Topic: Sources of Law Skill: Recall Answer: D) is practically necessary because it is impossible for legislators to constantly monitor all of their statutes and continuously update laws in order to reflect local conditions and society's changing needs. 37. The Town of Blackville created a set of rules for the licensing of businesses. Which of the following statements is likely TRUE? A) The rules take the form of statutes rather than by-laws. B) The rules are a form of superior legislation. C) Blackville was created by a statute in Parliament. D) Blackville is located in Quebec. E) The Town of Blackville was created under the authority of a provincial statute that gave the town the power to create these rules. Difficulty: 1 QuestionID: 01-2-37 Topic: Sources of Law Skill: Applied Answer: E) The Town of Blackville was created under the authority of a provincial statute that gave the town the power to create these rules. 38. Which of the following statements is TRUE? A) The Queen is represented by a lieutenant governor in each province and territory. B) The legislature in each and every province and territory is called the Legislative Assembly. C) The territories have legislative assemblies similar to legislatures, but they do not have senates. D) Parliamentary bills are always introduced in the House of Commons before being sent to the Senate. E) Each province has a senate. Difficulty: 3 QuestionID: 01-2-38 Topic: Sources of Law Skill: Recall Answer: C) The territories have legislative assemblies similar to legislatures, but they do not have senates. 39. Which of the following statements is TRUE with respect to indirect taxation? A) The issue of indirect taxation arises in connection with municipalities. B) A province can impose an indirect tax because of the doctrine of "residual powers." 20 © 2023 Pearson Canada Inc.

C) An indirect tax is always ultra vires because of the constitutional principle that requires governments to act in an "open and straightforward manner." D) An indirect tax is a tax that was created by subordinate legislation. E) The federal government can impose an indirect tax, but a provincial government cannot do so. Difficulty: 2 QuestionID: 01-2-39 Topic: Sources of Law Skill: Recall Answer: E) The federal government can impose an indirect tax, but a provincial government cannot do so. 40. Which of the following statements is TRUE? A) The prime minister is the person who leads the party that has the most number of senators. B) Before a bill becomes a federal law, it must receive royal proclamation, which is given by the Lieutenant General on behalf of the Queen. C) In Parliament, a bill cannot become a law unless it has passed through four readings in the House of Commons and four readings in the Senate. D) Regulations, statutory instruments, ordinances, by-laws, and orders-in-council are types of subordinate legislation. E) In Parliament, a bill can become a law only if it is supported by at least two-thirds of senators. Difficulty: 2 QuestionID: 01-2-40 Topic: Sources of Law Skill: Recall Answer: D) Regulations, statutory instruments, ordinances, by-laws, and orders-in-council are types of subordinate legislation. 41. The Doubleday Baseball Academy operates a training facility across the road from a number of houses. The homeowners have begun to complain about baseballs occasionally crashing into their yards and through their windows. As a form of risk management, the Academy could A) shift the risk to homeowners by encouraging them to buy liability insurance. B) accept the risk and pay for any damage that occurs. C) require its baseball players to sign exclusion clauses before they begin training. D) hire in-house counsel, which is a type of lawyer that specializes in limiting liability for damage caused to residential properties. E) purchase property insurance to pay for any damage that is done to nearby homes. Difficulty: 2 QuestionID: 01-2-41 Topic: Risk Management Skill: Applied Answer: B) accept the risk and pay for any damage that occurs. 21 © 2023 Pearson Canada Inc.

42. Lake Charybdis has long been a popular area for nature-lovers, but it recently was the site of an unfortunate tragedy. A canoe carrying a woman and her young daughter tipped over. The woman desperately tried to hold onto her child while calling for help. Because the event occurred early in the morning, the normally crowded beach was empty with the exception of Glaucus. He is an expert swimmer and he easily could have saved the pair. As he later explained to the police, however, he had just lit a cigarette and he wanted to finish his smoke before getting into the water. By the time he was ready to rescue the woman and her child, both had drowned. Which of the following statements is most likely TRUE? A) Glaucus can be convicted of a crime for failing to rescue the girl, but not for failing to rescue her mother. B) Glaucus will be held liable in private law and guilty in criminal law. C) A court will find that a crime was committed as long as it is convinced that, given the circumstances, Glaucus had a moral obligation to rescue the pair. D) Glaucus will be held legally responsible for failing to rescue only if he was the woman's husband and the girl's father. E) If Glaucus had rented the canoe to the woman, he will be held liable in tort for failing to rescue. Difficulty: 3 QuestionID: 01-2-42 Topic: Nature of Law Skill: Applied Answer: E) If Glaucus had rented the canoe to the woman, he will be held liable in tort for failing to rescue. 43. The Government of Canada thinks that Harpreet has purposefully misfiled his taxes in order to pay less. The Government will pursue Harpreet under A) public law — the government will use both criminal and tax law. B) common law — the government will sue Harpreet for the tort of negligence. C) civil law — but only if Harpreet lives in Quebec. D) public law — Harpreet can be tried under tax law, but not criminally. E) private law — public law can be applied to a government, but not a private citizen. Difficulty: 2 QuestionID: 01-2-43 Topic: Map of the Law Skill: Applied Answer: A) public law — the government will use both criminal and tax law. 44. A triple ionized defraculator (or "TID," as people in the industry call it) is a special type of equipment used in a small number of mining operations. The market for TIDs is very narrow. Queensway Inc, which is located in Calgary, is one of only three TID manufacturers in the world, and within Canada, only five mining companies purchase and use TIDs. Four years ago, the Province of Alberta imposed a 10% "green tax" on the sale of every TID. During that period, Queensway paid the province a total of $2 000 000. As the Province expected, however, Queensway passed the burden of the 22 © 2023 Pearson Canada Inc.

"green tax" onto its customers by simply adding 10% to the purchase price of each TID. Which of the following statements is most likely TRUE? A) The doctrine of "federal paramountcy" will require the Province to pay part of the "green tax" over to the federal government. B) Because the division of powers gives the provinces jurisdiction over "mines and minerals," the tax is valid as long as Queensway did not sell a TID to a customer outside of Canada. C) Because of the principle that "the law operates on substance — not form," the tax is valid as long as all of Queensway's customers are located in Alberta. D) Even though the customers actually paid for the tax, Queensway will be entitled to recover $2 000 000 from the Province if a court holds that the tax was unconstitutional. E) A court will hold that the "green tax" was not a true tax because the Province did not provide anything of value in exchange for it. Difficulty: 3 QuestionID: 01-2-44 Topic: Sources of Law Skill: Applied Answer: D) Even though the customers actually paid for the tax, Queensway will be entitled to recover $2 000 000 from the Province if a court holds that the tax was unconstitutional. 45. Whether dogs must be leashed in a local park would be decided by A) the municipal government. B) the federal government. C) the provincial government. D) Parliament. E) the Legislature. Difficulty: 2 QuestionID: 01-2-45 Topic: Sources of Law Skill: Applied Answer: A) the municipal government. 46. Marjorie agrees to purchase a house from Mabel. Although a signed contract is in place, Mabel decides to sell her house to Mary instead. However, Marjorie could force Mabel to sell to her because A) all contracts must be enforced. B) the law of equity allows for specific performance which grants specific performance with respect to the transfer. C) the contract must have stated that Mabel could not sell to anyone else. D) the contract with Mary is fraudulent. E) Mabel cannot be forced to sell to Marjorie as she merely breached a contact so only monetary damages are required. Difficulty: 2 23 © 2023 Pearson Canada Inc.

QuestionID: 01-2-46 Topic: Sources of Law Skill: Applied Answer: B) the law of equity allows for specific performance which grants specific performance with respect to the transfer. 47. The term ultra vires would apply when A) a corporations violates its corporate charter. B) a university discriminates based on sex. C) a government tries to create a law outside its own area. D) a hospital refuses to admit patients. E) a private citizen acts in a discriminatory manner. Difficulty: 2 QuestionID: 01-2-47 Topic: Sources of Law Skill: Recall Answer: C) a government tries to create a law outside its own area. 48. SkateCo plans to build an ice skating rink on Indigenous lands. The Crown has required SkateCo to undertake direct contact with the affected Indigenous People as part of the duty to consult. If the proposed project must be adjusted or modified in response to Indigenous concerns it would be because A) the Indigenous People have a strong claim and the proposed project would have a serious impact on their concerns. B) the concerns of Indigenous Peoples always have to be accommodated. C) the Crown has deemed it necessary in order to satisfy the duty to consult. D) the municipal government has created a by-law that affects the land. E) the provincial government provides guidance on the duty to accommodate. Difficulty: 2 QuestionID: 01-2-48 Topic: Sources of Law Skill: Applied Answer: A) the Indigenous People have a strong claim and the proposed project would have a serious impact on their concerns. Essay Questions 1. Omega Inc manufactures several types of widgets and sells them directly to consumers. One type of widget contains a design defect that creates a risk of injury. Briefly explain the steps that the company should take by way of risk management. Identify the sorts of additional facts that would be required for the purpose of effective risk management.

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Difficulty: 1 QuestionID: 01-3-01 Topic: Risk Management Skill: Applied Answer: Although there are not enough facts to properly formulate a response, students can be expected to explain the general process of risk management, and to identify the sorts of information that they would require in order to fully address the situation. - Identification: It would first be necessary for Omega Inc to identify the risk management problem, by recognizing that one of its widgets contains a design defect that creates the possibility of injury. Identification might involve steps like pre-sale testing and post-sale surveys. - Evaluation: Having identified the risk of injury, Omega Inc would then have to evaluate it. To do so, it would need to know the likelihood of injury, the potential severity of injury, the possible costs of liability, the possible costs of adverse publicity, the extent to which it wishes to act as a good corporate citizen (regardless of financial costs) and so on. - Response: After identifying and evaluating the risk, Omega Inc would be in a position to formulate an appropriate response. It might, for instance, take steps to avoid or reduce the risk, or shift the burden of the risk onto someone else, or simply accept the risk. 2. Sigma Corp manufactures widgets. It has discovered a design defect that creates a risk that one or more widgets may cause property damage. Briefly explain how the company could manage that risk by shifting it. Identify a potential cost of shifting the risk. Difficulty: 3 QuestionID: 01-3-02 Topic: Risk Management Skill: Applied Answer: Risk management often has both a front end and a back end. In this case, if it has recognized the problem in time, Sigma Corp might take steps to avoid causing property damage in the first place. The question, however, pertains to ways in which the company can allow losses to occur, but then shift their financial burden onto someone else. There are two possibilities. First, Sigma Corp might be able to purchase liability insurance. By doing so, it would pay a price in exchange for an insurance company's promise to pay for any losses that the defective widgets create. Second, Sigma Corp could ensure that its sales contracts contain exclusion clauses. Such clauses would exempt the company from liability for losses that occur. The financial burden of those losses would fall instead on the parties that actually suffered them (or perhaps upon those parties' insurers). Either of those possibilities might allow Sigma Corp to shift the financial burden of any losses onto a third party, at least in an immediate sense. The company would not have to directly pay for such losses. Both tactics, however, entail costs of their own. An exclusion clause might frighten away some customers, while causing others to demand a lower price because their usual right to sue is limited or eliminated. An exclusion clause may not be enforceable if it is unconscionable or contrary to public policy. Therefore, 25 © 2023 Pearson Canada Inc.

exclusion clauses are a risk management tool to shift risk that may not necessarily be always enforceable. An insurance policy might be expensive to buy. Furthermore, to pay for such a policy, Sigma Corp might be required to raise its prices, thereby once again hurting its ability to sell widgets at a competitive price. 3. Theta Motor Co manufactures the Presto, which is a type of compact car. It has discovered a design defect that affects the Presto. Identify and briefly explain situations in which it would be appropriate for the company to manage the risk by: (a) avoiding it, (b) reducing it, and (c) accepting it. Difficulty: 1 QuestionID: 01-3-03 Topic: Risk Management Skill: Applied Answer: This question requires students to recognize that the third stage of risk management (response) flows from the second (evaluation). Broadly speaking, the strategies of avoidance, reduction, and acceptance should reflect the extent and nature of the danger that the design defect in the Presto creates. If the danger is very significant, the company should probably use a strategy of risk avoidance. For instance, if the design defect causes the Presto to blow up frequently or to roll over, the vehicle should almost certainly be taken off the road. That is true for obvious moral reasons. It is also true as a matter of good business sense. Such accidents will likely entail substantial liability costs. Those costs may include not only compensatory damages, but also punitive damages. Furthermore, Theta Motor Co could suffer substantial financial costs as a result of adverse publicity, especially if the public knew that it left the Presto on the road even after its defect was discovered. 4. Lamda Inc recently decided to use "in-house counsel." What does that phrase mean? Explain the advantages and disadvantages of the company's decision. Difficulty: 1 QuestionID: 01-3-04 Topic: Risk Management Skill: Applied Answer: Businesses usually hire lawyers as the need arises. Once a problem is identified, a lawyer can be retained to deal with it. Quite often, however, businesses retain in-house counsel. As the name suggests, in-house counsel refers to a lawyer that is part of the business's organization. In-house counsel is permanently on the payroll and therefore works within the business on a full-time basis, and not merely as the need arises. While that option obviously creates an additional expense, it also provides more efficient risk protection. Lawyers will not only be on hand to resolve legal problems, but also to help identify them. A disadvantage to in-house counsel is that in-house counsel may consider themselves part of the corporate team, rather than objective and independent professionals who must give advice candidly without fear of consequence including future employment. Therefore, the largest and most sophisticated corporations often use 26 © 2023 Pearson Canada Inc.

in-house counsel to perform routine corporate governance tasks and to manage outside counsel. 5. Identify and briefly explain four areas of public law. Difficulty: 1 QuestionID: 01-3-05 Topic: Map of the Law Skill: Recall Answer: Public law is concerned with governments and the ways in which they deal with their citizens. The text discussed four areas: (a) constitutional law, (b) administrative law, (c) criminal law, and (d) tax law. - Constitutional law: The Constitution provides the basic rules of our political and legal systems. It determines who is entitled to create and enforce laws, and it establishes the fundamental rights and freedoms that Canadians enjoy. - Administrative law: In the past 50 years, Canadians have grown to expect more and more from their elected officials. In order to manage that workload, governments regularly delegate or assign responsibility to a wide variety of agencies, boards, commissions, and tribunals. Administrative law is concerned with the creation and operation of those bodies. It has a profound impact on business simply because so much government work has been delegated. - Criminal law: Criminal law deals with offences against the state and therefore is concerned with people who break rules that are designed to protect society as a whole. Crimes are prosecuted by the government on behalf of the community. If convicted, the accused may be punished, for instance by a fine or imprisonment. Although there is a tendency to think of criminals as violent individuals, it is important to appreciate that crime can happen in the business world as well. "White collar crimes," as the name suggests, are committed by people in suits. And "corporate crime" occurs when a company itself commits a criminal offence. - Tax law: In order to operate, the various branches of government (such as Parliament, administrative bodies, courts, and so on) require a great deal of money. Tax law is concerned with the rules that are used to collect money for the purposes of public spending. Taxes are obviously of great interest to the business community. 6. What are the main differences between a tort and a crime? Can the same event ever give rise to both a tort and a crime? Explain your answer. Difficulty: 1 QuestionID: 01-3-06 Topic: Map of the Law Skill: Recall Answer: A tort is an offence against a particular person. A crime, in contrast, is an offence against the state. Significantly, however, while crimes are offences against the state, they very often are based on actions that are committed against a person. Take a simple case in which Ann punches Bob. She has committed the tort of battery against him personally. But she has also committed a crime against society. Bob obviously has an interest in not being punched. He does not want to suffer personal injury or the indignity of being hit. But even beyond that, society has an interest in ensuring that people are not punched. It wants to keep the peace. A community cannot properly function if it condones a great deal of violence. 27 © 2023 Pearson Canada Inc.

The basic differences between a tort and a crime are reflected in the ways in which the two concepts are addressed. With respect to the tort, Bob has the choice as to whether or not he will bring Ann into court in a private matter. He might decide not to do so if, for instance, she is his girlfriend and if she hit him during a fight that has since been resolved. And if he does successfully sue her in tort, she will probably be required to pay money to him as compensation for the damage that she caused. (That point was not mentioned in Chapter 1 of the textbook, but it is addressed elsewhere in the text.) In contrast, the choice to bring criminal proceedings against Ann generally lies with the government. Even if Bob wants to drop the matter, the police and prosecutor may take action against Ann because they are concerned not so much with the effect that the punch had on Bob, abut with the effect that the incident had on society as a whole. Given the complex nature of intimate relationships, too few instances of domestic violence would be addressed in the criminal courts if the decision to prosecute was left entirely up to the individual victim. If convicted of the criminal offence, Ann would be punished, possibly through imprisonment or a fine. 7. Howard is a manager with Rogue Used Cars Inc. He and the company have both misbehaved. The police have laid charges concerning a white collar crime and a corporate crime. Describe the differences between those two types of crimes. Difficulty: 2 QuestionID: 01-3-07 Topic: Map of the Law Skill: Applied Answer: White collar crime is a crime that is committed by a business person (which traditionally meant a person who wore a white shirt to work) in a business context. For instance, Howard may have been charged with stealing money from the petty cash drawer at Rogue Used Cars Inc. Corporate crime, in contrast, is a crime that is committed by a corporation itself. Since a corporation is an artificial entity, the criminal offence must actually be carried on by one of its human agents on its behalf. Nevertheless, the corporation itself can be held responsible. That would be true, for instance, if Rogue Used Cars Inc had a policy of turning back odometers on its vehicles, which constitutes a crime of fraud. 8. A town called Malice has undertaken a risk management study in an effort to minimize its exposure to legal liability. Since it is a form of government, and therefore a public body, it wants to know if it ever needs to worry about private law. Provide an answer to that question. Difficulty: 3 QuestionID: 01-3-08 Topic: Map of the Law Skill: Applied Answer: Private law is concerned with the rules that apply in private matters. But that does not mean that private law never applies to the government like the municipality of Malice. Broadly speaking, there are two possibilities. - Private law applies to Malice when it is involved in private law matters. That is true, for instance, when it 28 © 2023 Pearson Canada Inc.

orders paper supplies from a stationery store, or when it leases a vehicle from a car dealership. Sales and leases are forms of contracts. And contracts are part of private law. In such cases, the town's status as a public authority is generally irrelevant. It is treated as if it was a person or a private corporation. - In some circumstances, private law may also apply to Malice with respect to acts that it undertakes in discharge of its public functions. For instance, municipalities generally enact bylaws that require building projects to be inspected and approved by a government official from time to time. If the town fails to do so in one instance, with the result that a building is completed in a defective manner, the owner of that structure may be entitled to sue Malice for the tort of negligence. 9. Is it easy or difficult to change the Constitution? What is the policy that underlies the correct answer to that question? Who must agree before the Constitution can be changed? Difficulty: 2 QuestionID: 01-3-09 Topic: Sources of Law Skill: Recall Answer: The Constitution is very difficult to change. The justification for that fact stems from its nature and purpose. It is the document that creates the basic rules for Canadian society, including our political and legal systems. It therefore must remain relatively stable. Although amendments are possible, they should reflect fundamental changes in national values, rather than merely transitory shifts in public perceptions. It is one thing, for instance, to tinker with the rules that govern the enforcement of contracts. It is a far more serious matter to alter the fundamental rules of Canadian society. Most laws can be changed by a legislature or by a court. The Constitution is different. It can only be changed through a special amending formula. It is necessary to have the consent of Parliament plus the legislatures of at least two-thirds of the provinces that represent at least 50 percent of the country's population. Consequently, constitutional amendments are rare. However, the Canadian courts have interpreted the Constitution as a "living tree" the text of which is interpreted in accordance with changes in the historical circumstances, Sometimes controversially, the courts have construed the construction in a manner which the courts claim is consistent with changing Canadian values; as the courts perceive those values and those changes. 10. An appellate court recently heard two cases. In the first, it decided that a statute was ultra vires. In the second, it decided that another statute violated the Charter. What is the significance, in each case, of section 52 of the Constitution? Difficulty: 3 QuestionID: 01-3-10 Topic: Sources of Law Skill: Applied Answer: The Constitution is the document that creates the basic rules for Canadian society, including our political and legal systems. Consequently, every other law in the country must be compatible with it. Section 52 of the Constitution states: "The Constitution of Canada is the supreme law of Canada, and any law that is 29 © 2023 Pearson Canada Inc.

inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect." In addition to section 52, the Constitution contains sections 91 and 92, which allocate legislative authority over various topics to either the federal government or the provincial governments. (Topics not mentioned are allocated to the federal government because it enjoys the residual power.) A government acts ultra vires when it creates laws in an area outside of its scope of authority. And since an ultra vires law contravenes the allocation of powers established in sections 91 and 92 of the Constitution, it is inconsistent with the Constitution and hence invalid by virtue of section 52. The Charter is also part of the Constitution. It provides the guarantee of certain rights and freedoms to people in Canada. If a statute is inconsistent with those protections (e.g. because it discriminates on the basis of sexual orientation, contrary to section 15(1) of the Charter and that discrimination is not constitutionally justifiable), then it is inconsistent with the Constitution and, once again, may be invalidated under section 52. 11. What is the residual power? What is meant by the phrase "ultra vires"? How are those two concepts related to the notion of federalism? Difficulty: 2 QuestionID: 01-3-11 Topic: Sources of Law Skill: Recall Answer: Canada is a federal country because it has two constitutionally recognized levels of government: federal and provincial. (Municipalities are a third level of government formed pursuant to provincial or territorial legislation.) Both levels of government have legislative power, in the sense that they can both create laws by enacting statutes. In most instances, however, it would be undesirable if both levels of government were able to legislate with respect to the same issue. To take a simple example, chaos would ensue if the federal government required driving on the left side of a highway at the same time that a provincial government required driving on the right side. To avoid such difficulties, sections 91 and 92 of the Constitution allocate authority over certain topics to one level of government or the other. Sections 91 and 92 are not, however, exhaustive. They do not list every possible topic. Indeed, since they were drafted in the nineteenth century, when Canada first became a country, they could not possibly deal with more modern issues, such as telecommunications and space travel. Consequently, to deal with such gaps, the Constitution gives the residual power to the federal government. That means that the federal government has authority over every topic that has not otherwise been granted to the provinces. As a general rule, then, every issue is allocated to either the federal government or the provincial government. Each level of government must act intra vires, which means "within the power." If a government acts outside of its proper scope of authority, or ultra vires, then the purported law is inconsistent with the Constitution and, by virtue of section 52 of that document, "of no force or effect." 12. Ranji wants to start a new company, but he is concerned about risk management and legal liability. He is particularly concerned about the Charter, in both a positive sense and a negative sense. Explain the extent to which the Charter applies in favour and against a corporation.

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Difficulty: 3 QuestionID: 01-3-12 Topic: Sources of Law Skill: Applied Answer: Section 32(1) of the Charter states that the document applies to "Parliament" and "the legislature ... of each province." Consequently, its rights and freedoms have full effect only if a person is complaining about the government's behaviour. In contrast, the Charter does not directly apply to disputes involving private parties. For instance, the right to freedom of expression that is found in section 2(b) does not entitle a union to picket a private corporation. That is not to say, however, that Ranji's corporation would be entirely immune to the effect of the Charter. The Supreme Court of Canada has said on several occasions that even the rules that apply between private parties should be developed in a manner that is consistent with Charter values. Although the precise meaning of that proposition is not yet entirely clear, Canadian courts have, on several occasions, formulated private law rules with the Charter in mind. The Charter therefore generally will not apply against Ranji's corporation. It may not apply in favour of the company either. It depends upon the circumstances. Some Charter provisions, such as section 2 which deals with basic freedoms, refer to "everyone." Others, however, such as section 15(1) which deals with equality, refer to "every individual." A corporation is a kind of "person," but it is not an "individual." As a result, Ranji's company may enjoy some freedoms, but not the right to equality. Furthermore, even though it falls within the scope of "everyone" in section 2, the company will not be able to claim the protection of some specific freedoms that are contained in that section. For instance, a company may have the need for the freedom of expression that is found in section 2(b), but not the freedom of religion that is found in section 2(a). A corporation can express itself, but it cannot hold religious beliefs. 13. A judge recently decided a Charter case that involved the government on one side and a corporation on the other. After that decision was released, one of the parties indicated its intention to use the "notwithstanding clause." What is the effect of that clause? Who is entitled to use it? Difficulty: 2 QuestionID: 01-3-13 Topic: Sources of Law Skill: Applied Answer: Given the expressed intention to invoke the notwithstanding clause, it can be assumed that the company won its Charter challenge and that the court held that a particular law was invalid. The notwithstanding clause, which is found in section 33 of the Charter, allows Parliament or a legislature to create and enforce a law "notwithstanding" the fact that it violates the Charter. It can only ever be used by the government, and not by a corporation. It is intended to allow the government to override a Charter violation in the greater public interest. In that sense, it is part of the delicate balance that the Charter seeks to strike between individual rights and the rights of the majority (as expressed through a democratically elected government). The notwithstanding clause only applies to some of the rights and freedoms listed in the Charter. Parliament or a legislature can override section 2 (fundamental freedoms) or section 15 (equality rights), for instance, but not section 6 (mobility rights). Furthermore, the notwithstanding clause can only be used for five years at a time. At 31 © 2023 Pearson Canada Inc.

the end of that period, the clause must be reapplied. That rule ensures that the significant constitutional rules are re-examined on a regular basis. In practice, the notwithstanding clause is almost never used. The section requires the government to expressly declare that it is overriding fundamental rights and freedoms. That sort of declaration may be politically unpopular or politically unwise 14. Statutes may be created at either the federal level or at the provincial (or territorial) level. In either event, the rules and procedures are much the same. There are, however, some differences in terms of the people, processes, and types of laws that are involved. Identify and briefly explain those differences. Difficulty: 3 QuestionID: 01-3-14 Topic: Sources of Law Skill: Recall Answer: The differences can be discussed under three headings. Legislatures At the federal level, the legislature is Parliament. It consists of two chambers: the House of Commons, which contains elected Members of Parliament (MPs), and the Senate, which contains Senators appointed by the Governor-General in Council, which in substance and practice means the Prime Minister. While MPs must stand for re-election from time to time, Senators do not. The political party that has the greatest number of MPs (generally) forms the government. The leader of that party is called the Prime Minister. At the provincial or territorial level, the legislature is usually called the Legislative Assembly. (There is some variation. Newfoundland, for instance, has a House of Assembly, while Quebec has a National Assembly.) The Legislative Assembly contains only elected members. There is no equivalent to the federal Senate. The political party that elects the greatest number of people to the Legislative Assembly (generally) forms the government. The leader of that party is called the Premier. Jurisdiction Sections 91 and 92 of the Constitution create a division of powers that determines which level of government has jurisdiction (authority) to legislate with respect to particular subjects. The federal government also enjoys the residual power, with the result that it has jurisdiction over subjects that are not enumerated in sections 91 or 92. Any attempt to legislate outside of one's jurisdiction is ultra vires (outside the power). By virtue of section 52 of the Constitution, a law "inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect." Legislative Process Laws begin life as bills. At the federal level, a bill must be introduced by either a Member of Parliament or a Senator. It must then pass through three readings in the chamber where it originated (usually the House of Commons). In order to pass a reading, a bill must be supported by a majority of those members of the chamber who chose to vote. The first reading usually consists of the mere introduction of the bill. Substantive debate in 32 © 2023 Pearson Canada Inc.

the chamber typically occurs at the second reading. After the second reading vote, the bill is sent to a legislative committee for detailed study. Once a bill has fully passed through the first chamber, it must then similarly pass through three readings in the other chamber (usually the Senate). Finally, if a bill has passed through both chambers, it must receive royal assent from the Governor General, who acts on behalf of the Queen. That final step is a mere formality. The legislative process at the provincial or territorial level is much the same. The primary difference is that while it must pass through three readings in the elected chamber, there is no equivalent to the federal Senate. And in terms of the final formality, the Queen's royal assent is given by the Lieutenant Governor (or Commissioner in the territories) instead of the Governor General. 15. Identify and briefly explain the remedies that a judge may award after finding a Charter violation. Difficulty: 2 QuestionID: 01-3-15 Topic: Sources of Law Skill: Recall Answer: The courts enjoy considerable latitude in awarding relief for a Charter violation. The basic provisions are section 52 of the Constitution and section 24 of the Charter. Section 52 states: "The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect." Since the Charter is part of the Constitution, a law that violates the Charter is "of no force or effect." Section 24 of the Charter states that upon finding a violation of the Charter, a court may award "such remedy as [it] considers appropriate and just in the circumstances." The precise nature of the court's response therefore depends upon the situation. The most significant possibilities were discussed in the text. - Declaration: A court may simply declare that the Charter has been violated. The legislature will then have the obligation of finding some solution to the problem. - Injunction: A court may take a more active role. It may impose an injunction that requires the government to address the problem in a certain way. The choice therefore lies with the judge, rather than with the legislature. - Striking Down: Going even further, a court may strike down or eliminate a statute that violates the Charter. The decision to do so may take effect immediately or its effect may be temporarily suspended. A temporary suspension is appropriate where the immediate elimination of a statute would create substantial problems. - Severance, Reading Down and Reading In: Sometimes, a court may save a statute by re-writing part of it. If only one part of a statute is offensive, it may be severed or cut out. If a statute is written too broadly, it may be read down so that it applies only where it can be justified. Likewise, if a statute is written too narrowly, the court may read in a broader interpretation so that the law no longer discriminates against some people by excluding them from a certain benefit. - Damages: Just as a successful litigant in a private law case may be awarded damages for a loss that has been suffered, so too may a person who has suffered a Charter violation. Charter damages are awarded by the courts for the purposes of compensating losses caused by the Charter breach, to demonstrate the vindication of the plaintiff's Charter rights, and to discourage further breaches of the Charter of Rights and Freedoms. 16. Identify and briefly explain why the duty to consult can have a significant impact on business. 33 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 01-3-16 Topic: Sources of Law Skill: Recall Answer: A duty to consult arises as long as (1) the Crown knows or, given the circumstances, should know that its act or decision (2) might, but not necessarily will, have a harmful impact on (3) a right that the Indigenous group either established in the past or claims and may prove in the future. Business projects that touch upon Indigenous lands—such as real estate developments, logging, mining, pipelines—require governments permits and approvals. The Crown's involvement attracts the duty to consult. Although the Crown is legally responsible for the duty to consult, it often delegates the procedural aspects of that obligation to the business interests that are involved in a project. This will involve discussion of the impact of the project and the formulation of a plan to accommodate Indigenous interests.

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Managing the Law, 6e (McInnes) Chapter 02: Litigation and Alternative Dispute Resolution True/False Questions 1. Longhorn Inc has served a statement of claim on Trojan Ltd for breach of contract. Given the current trends in Canadian litigation, there is approximately a one in four chance that the case will eventually be resolved by a judge at a trial. a True b False Difficulty: 2 QuestionID: 02-1-01 Topic: The Litigation Process Skill: Applied Answer: b. False 2. Screaming Eagle Inc, a company based in Los Angeles, wants to sue Canuck Manufacturing Inc in a court in Vancouver. While the American company may be entitled to sue in Canada, it must be represented by a litigation guardian. a True b False Difficulty: 2 QuestionID: 02-1-02 Topic: Who Can Sue or Be Sued? Skill: Applied Answer: b. False 3. Although trade unions are unincorporated associations, and therefore are not legal persons, they generally can sue or be sued because of a statutory change made to the common law. a True b False Difficulty: 1 QuestionID: 02-1-03 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: a. True 4. The Crown can be sued only if a statute allows an action to be brought against the Crown. a True b False 1 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 02-1-04 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: a. True 5. Morley suffered a minor injury as a result of using a toothbrush manufactured by DentPlus Inc. The evidence indicates that the type of toothbrush in question suffers from a design defect and therefore is likely to have injured every person who used it. In the circumstances, Morley wants to bring a class action against DentPlus. Class action proceedings are, however, available only if certain requirements are met. Morley must, among other matters, satisfy the court that he has developed a workable plan for notifying all of the other members of the plaintiff class of the class action. a True b False Difficulty: 2 QuestionID: 02-1-05 Topic: Class Actions Skill: Applied Answer: a. True 6. Geeta was one of several hundred people who received tainted blood from a hospital that carelessly collected and stored blood. Although each of the victims will be able to make essentially the same arguments against the hospital, a court will, as a general rule, not certify a class action unless each of the victims also intends to claim roughly the same amount of damages. a True b False Difficulty: 3 QuestionID: 02-1-06 Topic: Class Actions Skill: Applied Answer: b. False 7. A person generally is not entitled to act as a lawyer in Canada unless they have completed a "period of articles." That phrase refers to the fact that admission to the bar depends upon proof that a person went to law school for a certain length of time. a True b False Difficulty: 2 QuestionID: 02-1-07 2 © 2023 Pearson Canada Inc.

Topic: Lawyers Skill: Recall Answer: b. False 8. Citizens are protected from dishonest lawyers who steal money or breach conditions of trust for holding client's money, by the law society's assurance fund. That fund always consists of the professional liability insurance that each lawyer is required to hold while practising. a True b False Difficulty: 3 QuestionID: 02-1-08 Topic: Lawyers Skill: Recall Answer: b. False 9. Makayla was recently served with a statement of claim that alleges that she committed a breach of contract. Makayla simply denies that allegation. She will likely present her arguments against the allegation by using a document called a counterclaim. a True b False Difficulty: 1 QuestionID: 02-1-09 Topic: Pleadings Skill: Applied Answer: b. False 10. Katrina has sued Bensam Inc, her former employer, for unfairly firing her from her job. The company denies that it has done anything wrong. The parties have exchanged pleadings and are now preparing to participate in a pre-trial case planning conference. The trial is less than one month away. This means that they will necessarily meet with a mediator, rather than a judge, at the pre-trial case planning conference for the purpose of discussing their case and possibly reaching a settlement. a True b False Difficulty: 2 QuestionID: 02-1-10 Topic: Pre-Trial Activity Skill: Applied Answer: b. False

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11. Scalia Inc sued Ginsberg Ltd. in tort. Scalia claimed that it was entitled to receive $15 000 in compensation. Ginsberg denied liability, but in an attempt to resolve the issue quickly and quietly, formally offered to settle the claim for $9000. Scalia rejected the offer and took the case to trial in the federal court. The trial judge has now decided the case in favour of Scalia, but damages were limited to $8000. In the circumstances, the trial judge must award party-and-party costs against Ginsberg for the period up to the day when the settlement offer was made, and double party-and-party costs against Ginsburg for the period between that day and the end of the trial. a True b False Difficulty: 3 QuestionID: 02-1-11 Topic: Costs Skill: Applied Answer: b. False 12. Kathy has sued her employer in a superior court. Although Kathy is the first person in her province to make such a claim, similar cases have occurred elsewhere. In Boe v Demarco, the Federal Court of Appeal dealt with the same issue, but held that the law applied in favour of the employer. Under the doctrine of precedent, the judge hearing Kathy's claim will have to apply the same rule. a True b False Difficulty: 1 QuestionID: 02-1-12 Topic: Court Hierarchy Skill: Recall Answer: a. True 13. A puisne judge is a judge that hears trials rather than appeals. The word "puisne" is based on a Latin word meaning "small" or "less powerful." a True b False Difficulty: 3 QuestionID: 02-1-13 Topic: The Supreme Court of Canada Skill: Applied Answer: b. False 14. Kabesa Inc sued Mahuja Ltd. The court held completely in favour of the defendant and the claim of Kahesa was dismissed in its entirety. The court probably also ordered Kabesa Inc to pay Mahuja Ltd's costs. 4 © 2023 Pearson Canada Inc.

a True b False Difficulty: 2 QuestionID: 02-1-14 Topic: Costs Skill: Applied Answer: a. True 15. A contractual dispute has arisen between Jyoti and Arlen. She believes that he owes her money, but he disagrees. The parties do, however, agree that it would be desirable to resolve the dispute as quickly and as amicably as possible. For that reason they should use litigation, rather than negotiation. Negotiation tends to take much longer, and is much more likely to generate hostility, because it requires the parties to discuss the matter between themselves, rather than through their lawyers. a True b False Difficulty: 2 QuestionID: 02-1-15 Topic: Alternative Dispute Resolution Skill: Applied Answer: b. False 16. A class action allows a single person, or a small group of people, to sue on behalf of a larger group of claimants. a True b False Difficulty: 1 QuestionID: 02-1-16 Topic: Who Can Sue and Be Sued? Skill: Recall Answer: a. True 17. Missing a limitation period deadline in a contractual dispute will result in the debt that still exists, but one that is unenforceable by the court. a True b False Difficulty: 1 QuestionID: 02-1-17 Topic: Pleadings Skill: Recall 5 © 2023 Pearson Canada Inc.

Answer: a. True Multiple Choice Questions 1. Hughes Inc hired Liz to act as the chief architect for a major shopping development. After about a year, however, the parties' relationship began to deteriorate and the situation quickly became intolerable and irreparable. Each side blamed the other. Hughes Inc sued Liz for breach of contract. Liz defended that claim and started a counterclaim in which she alleged that Hughes Inc had broken their agreement. The dispute was eventually resolved through arbitration. Which of the following statements is TRUE? A) The parties probably used arbitration, rather than litigation, because a judge decided that the issues were too complicated to be understood by jurors. B) Even if both parties are based in Manitoba, even if the contract was signed in Manitoba, and even if the shopping development was intended to be located in Manitoba, the arbitration could have taken place in a different province, as parties who arbitrate disputes are, subject to the contractual terms, free to choose the rules and jurisdiction of the arbitration. C) Although the arbitration would not have taken place in a court, it was probably conducted by a judge. D) Assuming that the parties served a complete set of pleadings on each other, Hughes Inc. would have used a document called a reply in order to respond to Liz's counterclaim. E) Some provinces require the parties in commercial disputes to participate in a mandatory arbitration program, as opposed to a mandatory mediation program, before taking a case to trial. Difficulty: 3 QuestionID: 02-2-01 Topic: Arbitration Skill: Applied Answer: B) Even if both parties are based in Manitoba, even if the contract was signed in Manitoba, and even if the shopping development was intended to be located in Manitoba, the arbitration could have taken place in a different province, as parties who arbitrate disputes are, subject to the contractual terms, free to choose the rules and jurisdiction of the arbitration. 2. Demartini Inc sued Bentley Regehr for breach of contract. Demartini argued that it was entitled to receive a payment of $50 000 from Regehr. After failing to reach a settlement, the parties took their case to court. Which of the following statements is TRUE? A) If Regehr offered to settle the claim out of court for $30 000, and if the judge eventually decides that Demartini is entitled to receive $35 000, the judge may award an unusually large amount of costs against Regehr in order to punish him for making an inadequate settlement offer. B) While the courts generally refuse to receive hearsay evidence, the judge in this case will probably allow expert witnesses to provide such evidence. C) If the court finds Regehr liable for $50 000, Demartini may try to obtain payment from Regehr by garnisheeing money that Regehr is entitled to receive from his employer. D) There are no jurisdictions in Canada where a claim for $50 000 or less can be heard in a small claims court. E) The parties' case will almost certainly be heard by a judge of the provincial court, as the issues in this claim can only be adjudicated in the small claims court division of the provincial court of whichever 6 © 2023 Pearson Canada Inc.

province has the closest connection to the parties and their agreement. Difficulty: 3 QuestionID: 02-2-02 Topic: Enforcement Skill: Applied Answer: C) If the court finds Regehr liable for $50 000, Demartini may try to obtain payment from Regehr by garnisheeing money that Regehr is entitled to receive from his employer. 3. Wolodko Engineering Inc sued Dhaliwal Ltd for the tort of negligence. At one point during the litigation process, an examination-in-chief occurred. This means that A) one of the parties asked the other party's witness a question during an examination for discovery. B) the other side asked the opponent's witness questions under oath. C) one of the parties hired an expert witness to conduct a scientific investigation on a piece of physical evidence. D) the examination in chief occurred while the case was on Appeal. E) questions were answered under oath at a trial by one party of its own witnesses. Difficulty: 1 QuestionID: 02-2-03 Topic: The Trial Skill: Applied Answer: E) questions were answered under oath at a trial by one party of its own witnesses. 4. A court recently held Acme Corp responsible for spilling pollutants into a stream. Which of the following statements is most likely TRUE? A) If the court required proof beyond a reasonable doubt, the claim against Acme Corp arose in private law. B) If the court required proof beyond a reasonable doubt, Acme Corp was called the accused and was prosecuted by the state in criminal or criminal like proceedings. C) Since Acme Corp is not a human being, the case was heard in a special court called the Commercial Court of Canada. D) If Acme Corp is dissatisfied with that decision, it is entitled to appeal, but only if it is willing to pay for the other side to bring its witnesses back into court. E) If the claim against Acme Corp arose in private law, it almost certainly was heard by a jury, as well as a judge. Difficulty: 1 QuestionID: 02-2-04 Topic: The Trial Skill: Applied Answer: B) If the court required proof beyond a reasonable doubt, Acme Corp was called the accused and was prosecuted by the state in criminal or criminal like proceedings.

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5. The doctrine of precedent A) prevents a judge from resolving a dispute on the basis of a decision from another jurisdiction. B) requires the Supreme Court of Canada to follow decisions of the Judicial Committee of the Privy Council in England. C) is never relevant if the resolution of a case involves the interpretation of a statute. D) draws a distinction between binding authorities and persuasive authorities. A judge is bound to follow a binding authority, even if the judge disagrees with the reasoning or conclusion of that authority. E) prevents the Supreme Court of Canada from relying on a decision of a lower court. Difficulty: 3 QuestionID: 02-2-05 Topic: Court Hierarchy Skill: Recall Answer: D) draws a distinction between binding authorities and persuasive authorities. A judge is bound to follow a binding authority, even if the judge disagrees with the reasoning or conclusion of that authority. 6. A trial judge in Manitoba has heard a case dealing with a particular issue. Which of the following statements is TRUE according to the doctrine of precedent? A) If there are no binding precedents, the judge may consider cases from anywhere in the world, and decide the case based on the extension or modification of established principles of law, thus creating a new precedent. B) If there are no precedents, the judge is not entitled to decide the case, and therefore must refer the matter to the legislature because of the doctrine of parliamentary supremacy. C) If there are conflicting precedents from the Court of Appeal of Ontario and the Court of Appeal of Saskatchewan, the judge must follow the former, because it comes from a jurisdiction with a larger population. D) If there are conflicting precedents from the Court of Appeal of Ontario and a trial court in the Bahamas, the judge must follow the former because it is Canadian. E) If there are no other precedents, the judge is required to follow a decision of the Alberta Court of Appeal. Difficulty: 2 QuestionID: 02-2-06 Topic: Court Hierarchy Skill: Applied Answer: A) If there are no binding precedents, the judge may consider cases from anywhere in the world, and decide the case based on the extension or modification of established principles of law, thus creating a new precedent. 7. Jinyan has been involved in a law suit for several years. She recently sought "leave" from the Supreme Court of Canada. This means that A) she wants the Supreme Court of Canada to grant her leave to hear her appeal at the Supreme Court of Canada. B) she wants the court to release her from jail. 8 © 2023 Pearson Canada Inc.

C) she wants the Supreme Court of Canada to hear a trial of her case with live witnesses. D) she wants the Supreme Court of Canada to appoint a new lawyer to work for her. E) she wants the Supreme Court of Canada to come to her province where she lives and to have a full new trial in front of the Supreme Court of Canada in her home province. Difficulty: 3 QuestionID: 02-2-07 Topic: The Court System Skill: Applied Answer: A) she wants the Supreme Court of Canada to grant her leave to hear her appeal at the Supreme Court of Canada. 8. Justice Major dissented in the case of Dobson v Dobson. This means that A) he was hearing the case as a trial judge and rejected the plaintiff's claim. B) he disagreed with the result reached by the majority of his colleagues in an appeal that a panel of Justices of the Supreme Court of Canada heard. C) he held that a statute was invalid because it violated the Charter. D) he rejected a party's application for leave to appeal an earlier decision. E) he was unable to decide the case because he had some personal connection to it so he recused himself from the panel that heard the case. Difficulty: 2 QuestionID: 02-2-08 Topic: Appeals Skill: Applied Answer: B) he disagreed with the result reached by the majority of his colleagues in an appeal that a panel of Justices of the Supreme Court of Canada heard. 9. Which of the following statements is TRUE? A) The phrase "court hierarchy" refers to the fact that the courts must obey the words of a valid statute. B) Arbitration is usually binding but it depends on the arbitration agreement of the parties and on the powers of the courts to review arbitration decisions. C) The judges of the superior court in each province are appointed by that province's government. D) The phrase "rule of law" refers to the fact that a law must contain a rule that either prohibits someone from doing something or allows someone to do something. E) The phrase "court hierarchy" refers to the fact that the Supreme Court of Canada contains one chief justice and eight puisine justices. Difficulty: 1 QuestionID: 02-2-09 Topic: Arbitration Skill: Recall Answer: B) Arbitration is usually binding but it depends on the arbitration agreement of the parties and on the 9 © 2023 Pearson Canada Inc.

powers of the courts to review arbitration decisions. 10. At the end of a case, a court awarded costs against Craig. Which of the following statements is TRUE? A) Craig probably won a private law case. B) Craig probably was convicted of a serious crime. C) Craig necessarily must reimburse the other party for all of the expenses that it incurred in connection with the case. D) The court almost certainly awarded costs against the other party as well. E) Craig must pay money to the other side in compensation in whole or in part for legal fees and disbursements of the other side–even if he won his case. Difficulty: 3 QuestionID: 02-2-10 Topic: Costs Skill: Applied Answer: E) Craig must pay money to the other side in compensation in whole or in part for legal fees and disbursements of the other side–even if he won his case. 11. Which of the following statements is TRUE? A) ADR stands for "additional decision resolution." B) Mediation is normally binding, unless the parties agree otherwise. C) The process of negotiation tends to correct any imbalance in bargaining power, and therefore is usually preferred if one party is a consumer and the other is a large corporation. D) Even if the parties submit their dispute to binding arbitration, a court may become involved in the enforcement of the arbitrator's decision. E) ADR is usually used in criminal law, particularly mediation by the police. Difficulty: 2 QuestionID: 02-2-11 Topic: Arbitration Skill: Recall Answer: D) Even if the parties submit their dispute to binding arbitration, a court may become involved in the enforcement of the arbitrator's decision. 12. The front window of Polly's Flower Shop was recently broken when someone threw a rock through it. Which of the following statements is TRUE? A) If the person who threw the rock is 13 years old, there will not be a lawsuit because children under the age of majority cannot be sued. B) If the person who threw the rock is insane, Polly's Flowers will not be able to sue unless it receives permission from the Public Trustee. C) If the person who threw the rock is a European who is visiting Canada for less than a year, the case will have to be heard in the International Court of Justice. D) Because a lawsuit can be brought only by a human, the plaintiff named in the statement of claim cannot 10 © 2023 Pearson Canada Inc.

be the corporation that owns Polly's Flower Shop. E) The person who threw the rock may be sued even if that person worked for the government and threw the rock while that person was on duty as a government employee. Difficulty: 2 QuestionID: 02-2-12 Topic: Who Can Sue or Be Sued? Skill: Applied Answer: E) The person who threw the rock may be sued even if that person worked for the government and threw the rock while that person was on duty as a government employee. 13. Which of the following statements is TRUE? A) A lawsuit may be brought against human beings, corporations, and any unincorporated associations. B) A young child who is sued will be represented by an adult who acts in parens patriae. C) In order to sue in Canadian courts, a person must either be a Canadian citizen or be represented by a lawyer who is a Canadian citizen. D) Trade unions sometimes can sue or be sued even though they are unincorporated associations. E) Foreign corporations, like Canadian corporations, have an absolute right to sue in Canadian courts. Difficulty: 1 QuestionID: 02-2-13 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: D) Trade unions sometimes can sue or be sued even though they are unincorporated associations. 14. Geetha has been diagnosed with skin cancer. Based on her physician's diagnosis, she believes that her condition was caused by SofSkin, a lotion that she used for many years. She wants to sue the manufacturer of SofSkin, but she realizes that a lawsuit would require a great deal of complicated evidence, and therefore would likely be long and expensive. Which of the following statements regarding class actions is TRUE in this situation? A) Even if a court allowed a class action to proceed, it would be possible for other people in the same situation as Geetha to sue by themselves. B) By participating in a class action, Geetha almost certainly would be able to avoid any expense if the claim failed. C) A court would not allow a class action to proceed unless Geetha was joined by a substantial number of other people with virtually identical claims against the manufacturer of SofSkin. D) Regardless of which province or territory the class action occurred in, it would be governed by statute. E) A class action is possible only if Geetha's lawyer works for a contingency fee. Difficulty: 2 QuestionID: 02-2-14 Topic: Class Actions Skill: Applied

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Answer: A) Even if a court allowed a class action to proceed, it would be possible for other people in the same situation as Geetha to sue by themselves. 15. Class actions have become more common in Canada in recent years. This increase in popularity can be explained, at least in part, by the fact that A) lawyers are able to aggregate many small claims of similar factual circumstances and undertake the aggregated class claims on an economical contingency fee basis as the single claims, because they are so small would be uneconomic to litigate separately on a contingency fee basis. B) the rules governing class actions are now contained in statutes in every province. C) lawyers conducting class actions must work on a contingency fee basis, with the result that their clients are liable for their expenses only if the case is won. D) the Supreme Court of Canada recently said that, in contrast to the past, class actions can now be certified even if success for one claimant does not necessarily mean that all of the other claimants will also enjoy success. E) liability in a class action can never be appealed. Difficulty: 3 QuestionID: 02-2-15 Topic: Class Actions Skill: Recall Answer: A) lawyers are able to aggregate many small claims of similar factual circumstances and undertake the aggregated class claims on an economical contingency fee basis as the single claims, because they are so small would be uneconomic to litigate separately on a contingency fee basis. 16. The requirements for certification in a class action include A) proof that the class action will be substantially less convenient than individual proceedings. B) proof that all of the claimants are being represented by the same law firm. C) a clearly defined class and most substantive issues are common to every claimant in that class. D) a payment of bond money to the court, to be used to pay for the defendant's costs if the claim is unsuccessful. E) proof that every potential member of the class has been personally notified of the proceedings. Difficulty: 1 QuestionID: 02-2-16 Topic: Class Actions Skill: Recall Answer: C) a clearly defined class and most substantive issues are common to every claimant in that class. 17. A company that manufactures cigarettes has been named as the defendant in a class action. Which of the following statements is TRUE? A) The fact that the defendant has been sued in a class action necessarily means that other companies have also been sued in the same action. B) The company will likely place notifications in newspapers in an attempt to avoid certification. C) The company will probably have to pay costs on a party-and-party or partial indemnity basis if it loses 12 © 2023 Pearson Canada Inc.

the case. D) Because they have sued by way of a class action, the plaintiffs necessarily have hired lawyers on a contingency basis E) As long as a class action is the plaintiff's preferred procedure, the court will grant certification, even if the judge believes that some other procedure would be better. Difficulty: 2 QuestionID: 02-2-17 Topic: Costs Skill: Applied Answer: C) The company will probably have to pay costs on a party-and-party or partial indemnity basis if it loses the case. 18. Which of the following statements is TRUE with respect to representation in legal disputes? A) Litigants are entitled to represent themselves in trials but not in appeals. B) If a lawyer has acted improperly but has no money to pay, the client may receive compensation from a law society fund. C) In-house counsel refers only to a situation in which a law firm that has been sued is represented by one of its own lawyers. D) The Law Society of Canada has the responsibility of regulating lawyers across the country. E) Communications between a paralegal and a client are always confidential and privileged. Difficulty: 1 QuestionID: 02-2-18 Topic: Lawyers Skill: Recall Answer: B) If a lawyer has acted improperly but has no money to pay, the client may receive compensation from a law society fund. 19. Herbert & Hart Inc, an accounting firm, was legally represented in a recent dispute by Alan Munt, who is a lawyer. Herbert & Hart have now learned that Munt professionally misconducted himself by passing confidential information to the other side in the dispute. Herbert & Hart consequently lost approximately $12 million. Which of the following statements is TRUE? A) Munt probably does not have liability insurance that will help to pay for his liabilities. B) Munt may be investigated by the law society only if he is an articling student. C) Munt may be sued, but his behaviour cannot be investigated by the law society. D) Herbert & Hart very likely violated the law society's code of conduct. E) If Herbert & Hart sue Munt they will likely recover their loss if Munt has sufficient insurance coverage, or personal assets in excess of his insurance coverage sufficient to pay for the loss. Difficulty: 1 QuestionID: 02-2-19 Topic: Lawyers Skill: Applied 13 © 2023 Pearson Canada Inc.

Answer: E) If Herbert & Hart sue Munt they will likely recover their loss if Munt has sufficient insurance coverage, or personal assets in excess of his insurance coverage sufficient to pay for the loss. 20. Kirndeep recently received a bachelor of business administration. She has, however, always dreamed of representing people with legal problems. She has come to you for advice and guidance regarding the various possibilities. Which of the following statements is TRUE? A) Lawyers always make more money than paralegals. B) Paralegals are permitted to help clients draft legal documents, but they are never entitled to appear in courts or tribunals. C) Paralegals are allowed to represent clients in small claims courts in some jurisdictions in Canada. D) Paralegals are more heavily regulated than lawyers. E) Before starting a private practice, a paralegal is required to complete a period of articles with a law firm. Difficulty: 2 QuestionID: 02-2-20 Topic: Paralegals Skill: Applied Answer: C) Paralegals are allowed to represent clients in small claims courts in some jurisdictions in Canada. 21. Which of the following statements is TRUE with respect to pleadings? A) The party that creates a counterclaim is usually also the same party that creates the statement of claim. B) Each pleading must be filed with the opposing party and served on the court. C) A demand for particulars is always created by a plaintiff. D) The party that files and serves a reply is usually the same party that files and served the statement of claim. E) The purpose of a counterclaim is to counter, or contradict, a statement of claim by alleging facts that have the effect of denying liability. Difficulty: 2 QuestionID: 02-2-21 Topic: Pleadings Skill: Recall Answer: D) The party that files and serves a reply is usually the same party that files and served the statement of claim. 22. Rawls Inc recently sued Nozick Ltd. As Nozick has pointed out, however, Rawls' statement of claim was not filed within the limitation period. Which of the following statements is TRUE? A) The length of the limitation period depends upon the nature of Rawls's claim. B) If Nozick committed a tort, the limitation period must have started on the day that Nozick acted wrongfully. C) If Rawls's claim was for breach of contract, the limitation period was probably 10 years. D) The primary purpose of limitation periods is to save society money by reducing the number of cases that need to be heard by courts. 14 © 2023 Pearson Canada Inc.

E) There would not be a limitation period if Rawls sued the government. Difficulty: 2 QuestionID: 02-2-22 Topic: Pleadings Skill: Applied Answer: A) The length of the limitation period depends upon the nature of Rawls's claim. 23. Fuller Inc. has sued Perdue Corp. Which of the following statements is TRUE? A) If Perdue counterclaims, Fuller will use a reply in order to deny Perdue's allegations. B) All of the parties' pleadings must be stamped and filed at the registry of the court. C) The judge may draft a demand for particulars in order to receive more information regarding Fuller Inc.'s claim. D) If the case goes to court, it will likely be heard by a jury. E) A counterclaim usually is used if the plaintiff wants to change the details in a statement of claim. Difficulty: 2 QuestionID: 02-2-23 Topic: Pleadings Skill: Applied Answer: B) All of the parties' pleadings must be stamped and filed at the registry of the court. 24. Examinations for discovery A) take place before the plaintiff drafts a statement of claim. B) take place after a jury has decided a case. C) are designed primarily to determine the defendant's financial situation, and therefore to help the plaintiff decide whether or not it makes sense to sue. D) encourage settlement by allowing each party to gather information regarding the strengths and weaknesses of its side of the dispute. E) usually discourage settlement by demonstrating the weaknesses of each party's arguments. Difficulty: 1 QuestionID: 02-2-24 Topic: Pre-Trial Activity Skill: Recall Answer: D) encourage settlement by allowing each party to gather information regarding the strengths and weaknesses of its side of the dispute. 25. Hobbes has sued Kant for breach of contract. The facts and issues are very complicated. Which of the following statements is TRUE? A) A pretrial conference will require the parties to explain their arguments to a mediator, who has the power to decide the case in favour of the defendant if the plaintiff's evidence is very weak. B) Although it would be quicker and less expensive to have the case decided by arbitration, arbitrators 15 © 2023 Pearson Canada Inc.

usually have less expertise than judges. C) If Hobbes wins the case at trial, but is awarded less than Kant offered in a formal settlement, the court will probably award costs against Hobbes on a solicitor-and-client basis. D) Because they occur outside of court, examinations for discovery are entirely voluntary and neither party could be compelled to answer the other's questions E) Hobbes must prove the facts necessary to establish his cause of action to the standard of a balance of probabilities. Difficulty: 3 QuestionID: 02-2-25 Topic: The Trial Skill: Applied Answer: E) Hobbes must prove the facts necessary to establish his cause of action to the standard of a balance of probabilities. 26. Justice Veritas is hearing a case in court. Which of the following statements is TRUE? A) If the case involves a civil matter, rather than a criminal matter, the only party entitled to conduct a cross-examination is the plaintiff. B) If the case involves a criminal matter, rather than a civil matter, the prosecutor must prove the elements of the offence on a balance of possibilities. C) Justice Veritas will allow an expert witness, but not an ordinary witness, to present hearsay evidence. D) If the case involves a minor crime, Justice Veritas will require proof on a balance of probabilities. E) The rules regarding hearsay evidence apply to statements that someone said to a witness, but not to documents that the witness personally read. Difficulty: 2 QuestionID: 02-2-26 Topic: The Trial Skill: Applied Answer: E) The rules regarding hearsay evidence apply to statements that someone said to a witness, but not to documents that the witness personally read. 27. Arvid Dunston was severely injured when a large rock tumbled off a steep cliff and crashed through his windshield as he drove. Arvid sued the company that manufactured his vehicle on the basis that it had tortiously failed to use a type of glass that might have prevented the rock from entering the vehicle. He also sued the provincial government on the basis that the government had tortiously failed to inspect the area for rocks that might fall onto the road and hurt motorists. Which of the following statements is TRUE? A) While the common law traditionally said that "the King can do no wrong," the relevant rules have been changed so that exactly the same rules will govern both of Arvid's claims. B) The limitation periods that are applicable to the two claims will almost certainly be the same. C) Arvid's two claims cannot be heard together because all claims against the government must be heard in a special type of court that is not available for disputes between two private parties. D) In order to sue both the company and the government at the same time, Arvid will be required to satisfy 16 © 2023 Pearson Canada Inc.

the rules governing class actions. E) Even though one of the defendants is a private company and the other is a government, both claims against each defendant will require Arvid to prove his allegations on a balance of probabilities. Difficulty: 1 QuestionID: 02-2-27 Topic: The Trial Skill: Applied Answer: E) Even though one of the defendants is a private company and the other is a government, both claims against each defendant will require Arvid to prove his allegations on a balance of probabilities. 28. Which of the following statements regarding the right to sue and representation in court is TRUE? A) Because they are legally incapable of providing consent, children and people with mental disabilities cannot be members of class actions. B) Even though unincorporated associations are not classified as legal persons and therefore generally cannot sue or be sued, an exception exists for trade unions even though they are unincorporated associations. C) A lawyer who acts for the plaintiffs in a class action must work on a contingency fee basis. D) For public policy reasons, a person who wants to sue the government cannot hire a lawyer on a contingency fee basis. E) Paralegals are always entitled to appear in a provincial court but not in a superior court. Difficulty: 2 QuestionID: 02-2-28 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: B) Even though unincorporated associations are not classified as legal persons and therefore generally cannot sue or be sued, an exception exists for trade unions even though they are unincorporated associations. 29. Retailers Inc. hired Clean Air Services (CAS) to develop and install an air conditioning system in a large office complex. The system that CAS installed turned out to be grossly inadequate, largely because, contrary to the terms of its contract, it used inferior materials. It did so in order to save money and increase its profits. A court has found CAS liable for breach of contract. In terms of a remedy, the judge A) will probably impose a conditional sentence, unless CAS's breach caused someone to suffer an injury, in which case the judge would probably prefer imprisonment. B) will classify Retailers Inc as a judgment debtor. C) may hold CAS liable for a payment of money, in which case Retailers Inc may have some of CAS's assets seized and sold under the garnishee process. D) cannot hold CAS liable for damages unless Retailers Inc has demonstrated that CAS has sufficient assets to satisfy judgment. E) may award nominal damages if the defendant's breach of contract did not actually cause any loss to the plaintiff. Difficulty: 3 17 © 2023 Pearson Canada Inc.

QuestionID: 02-2-29 Topic: The Remedy Skill: Applied Answer: E) may award nominal damages if the defendant's breach of contract did not actually cause any loss to the plaintiff. 30. Kirndeep Khan wants to sue her employer for sexual harassment. She has therefore hired Rory McAngus to represent her. Which of the following statements is TRUE? A) If the limitation period has lapsed, Kirndeep will be unable to obtain judgment against her employer even if she satisfies the judge that she has all of the relevant documents and that all of the witnesses still have clear memories of the events. B) If Rory is a lawyer, then Kirndeep's conversations with him will be privileged, meaning that Rory cannot reveal what Kirndeep said to him unless a judge orders him to do so. C) Rory is probably the employer's in-house counsel. D) If Kirndeep hired Rory on a contingency fee basis, and if she wins her case, then the judge will increase the measure of damages to ensure that Kirndeep receives full compensation even after Rory has received payment of his fee. E) Whether he is a lawyer or a paralegal, Rory cannot act for Kirndeep unless he has completed a period of articles. Difficulty: 3 QuestionID: 02-2-30 Topic: Pleadings Skill: Applied Answer: A) If the limitation period has lapsed, Kirndeep will be unable to obtain judgment against her employer even if she satisfies the judge that she has all of the relevant documents and that all of the witnesses still have clear memories of the events. 31. A number of commentators have referred to litigation as a "lottery." By using that word, they are suggesting that A) jurors are selected in a random manner. B) because the results are often unpredictable, litigation is always risky, even if the plaintiffs believe that they have a strong case. C) there are far more losers than there are winners. D) the government heavily regulates trials in the same way that it heavily regulates lotteries. E) many cases involve the enforcement of gambling debts. Difficulty: 3 QuestionID: 02-2-31 Topic: Alternative Dispute Resolution Skill: Recall Answer: B) because the results are often unpredictable, litigation is always risky, even if the plaintiffs believe that they have a strong case. 18 © 2023 Pearson Canada Inc.

32. Which of the following statements is TRUE with respect to remedies? A) Nominal damages are defined as damages that are awarded against a named defendant, rather than against a corporation. B) Punitive damages are available only in criminal proceedings. C) Even if a judgment debtor is bankrupt, the successful plaintiff may be able to fully satisfy judgment if the court finds that the debtor holds an asset in trust for the plaintiff. D) Each law society has an assurance fund in order to provide a source of compensation for claimants who are unable to fully enforce their judgments against bankrupt judgment debtors. E) Nominal damages are awarded if a case involves several plaintiffs and the court must decide, or nominate, which plaintiff is entitled to enforce a remedy. Difficulty: 3 QuestionID: 02-2-32 Topic: Enforcement Skill: Recall Answer: C) Even if a judgment debtor is bankrupt, the successful plaintiff may be able to fully satisfy judgment if the court finds that the debtor holds an asset in trust for the plaintiff. 33. Marisa successfully sued Ivan, a stockbroker who works for Blue Sky Investments, for breach of contract. The court held that Ivan's breach caused Marisa to suffer a financial loss of $50 000. The court also held that Ivan is personally liable to pay that amount to Marisa. Which of the following statements is TRUE? A) Because Ivan acted wrongfully, the damages are properly classified as punitive damages. B) An award of damages for breach of contract is the same as an order for specific performance. C) Once judgment has been decided in her favour, Marisa became a judgment debtor. D) If necessary, Marisa is entitled to have all of Ivan's assets seized and sold in order to pay for the judgment. E) Marisa may garnish the non-exempt portion of Ivan's income if he does not otherwise pay his debt. Difficulty: 2 QuestionID: 02-2-33 Topic: Enforcement Skill: Applied Answer: E) Marisa may garnish the non-exempt portion of Ivan's income if he does not otherwise pay his debt. 34. Kaelen works as a sales representative for a large book publisher. She was recently held liable in tort and ordered to pay $35 000 to Antony. Which of the following statements is TRUE? A) If Kaelen wants to appeal the trial judge's decision, she normally must do so within one year of that decision. B) The garnishee process will allow Antony to seize and sell some of Kaelen's assets in order to satisfy judgment. C) Antony may be able to directly receive some of the money that Kaelen normally would receive as income from her employer, by garnisheeing Kaelen's wages. 19 © 2023 Pearson Canada Inc.

D) The court's award can be classified as nominal damages because Antony is entitled to receive damages of a certain denomination in money. E) If Kaelen does not have enough money to fully pay her debt to Antony, Antony will be entitled to collect the remainder either from Kaelen's lawyer or, if Kaelen's lawyer does not have sufficient funds, from the law society's assurance fund. Difficulty: 2 QuestionID: 02-2-34 Topic: Enforcement Skill: Applied Answer: C) Antony may be able to directly receive some of the money that Kaelen normally would receive as income from her employer, by garnisheeing Kaelen's wages. 35. Josie lost a breach of contract case against Charles. She has now launched an appeal of the trial judge's decision. Which of the following statements is TRUE with respect to that appeal? A) Although the appellate court is always entitled to apply its own view of the law, the trial judge's finding of facts can be overruled only if the members of the appellate court are unanimously agreed that the trial judge made a mistake. B) The appellate court may accept or reject the trial judge's decision, but it cannot vary the terms of the trial judge's final order. C) If Josie loses her first appeal, she has a right to appeal to the Supreme Court of Canada as long as her claim is worth at least $100 000. D) Josie's first appeal will likely be heard by three judges of the appellate court. E) Although an appellate court is entitled to award damages, it cannot order specific performance of a contract. Difficulty: 2 QuestionID: 02-2-35 Topic: Appeals Skill: Applied Answer: D) Josie's first appeal will likely be heard by three judges of the appellate court. 36. Which of the following statements is TRUE with respect to small claims courts? A) Small claims courts are a type of superior court with the inherent jurisdiction of the common law courts and the courts of equity. B) In order to minimize costs and delays, small claims court judgments cannot be appealed. C) Cases heard in small claims courts are decided by magistrates, rather than judges. D) Small claims courts can award damages, but equitable relief. E) A plaintiff has the right to have a claim heard in the small claims court that is closest to their home. Difficulty: 3 QuestionID: 02-2-36 Topic: Small Claims Courts Skill: Recall 20 © 2023 Pearson Canada Inc.

Answer: D) Small claims courts can award damages, but equitable relief. 37. Which of the following statements is TRUE with respect to small claims courts? A) Although small claims courts often hear contractual cases, they may also resolve some types of personal injury claims. B) Assuming that the amount in dispute is under $10 000, a taxpayer has the right to recover an improperly collected tax in the federal small claims court. C) A small claims court may hear any type of claim, and has jurisdiction to grant all the same remedies, including injunctions, as could be granted by a superior court of common law and equity. D) If a claim exceeds the monetary limit of a small claims court, the plaintiff is entitled to use the small claims court for part of the claim and another court for the remainder of the claim. E) Because small claims courts often hear contractual disputes, they have the ability to order specific performance. Difficulty: 2 QuestionID: 02-2-37 Topic: Small Claims Courts Skill: Recall Answer: A) Although small claims courts often hear contractual cases, they may also resolve some types of personal injury claims. 38. Rejean is a world class athlete, who was recently suspended by the Canadian Athletics Association. If that suspension remains in place, Rejean will not be allowed to compete in the upcoming world championships. Rejean therefore hopes to quickly and conclusively have the suspension overturned. The contract that Rejean had signed with the Canadian Athletics Association gives him the right to choose any form of dispute resolution. Which of the following alternatives is likely his best option? A) litigation B) mediation C) negotiation D) arbitration E) small claims court Difficulty: 1 QuestionID: 02-2-38 Topic: Alternative Dispute Resolution Skill: Applied Answer: D) arbitration 39. Which of the following statements regarding the Supreme Court of Canada is TRUE? A) The court consists of the chief justice and eight filial justices. B) Each member of the court was appointed by the premier of the judge's home province. C) In addition to appeals, the court occasionally hears references for the purpose of providing advisory opinions to the governments on the constitutionality of laws. 21 © 2023 Pearson Canada Inc.

D) Unless a member voluntarily retires, they are entitled to hold office for life as long as they are on good behaviour. E) No court is ever required to hear an appeal unless it has granted leave. Difficulty: 1 QuestionID: 02-2-39 Topic: The Supreme Court of Canada Skill: Recall Answer: C) In addition to appeals, the court occasionally hears references for the purpose of providing advisory opinions to the governments on the constitutionality of laws. 40. Which of the following statements is TRUE with respect to alternative dispute resolution? A) Arbitration is often preferred to mediation when the parties want to receive a binding decision from a third party. B) Arbitration cannot be used unless the parties previously created a contract that required all disputes to be resolved solely by arbitration. C) Negotiation is often considered a binding process when used by large corporations. D) Because they work outside of the regular court system, small claims courts are considered a form of binding arbitration. E) While negotiation and mediation are confidential procedures, arbitration is not confidential because arbitrators' decisions are always reported in public documents. Difficulty: 1 QuestionID: 02-2-40 Topic: Alternative Dispute Resolution Skill: Recall Answer: A) Arbitration is often preferred to mediation when the parties want to receive a binding decision from a third party. 41. Which of the following statements is TRUE? A) It is sometimes possible for the Federal Court of Appeal to hear an appeal from a decision of the Court of Appeal in your province. B) Every court other than a provincial court is classified as a superior court. C) Most small claims courts are part of the Federal Court system D) Justices of the Supreme Court of Canada are required to leave the court at age 75. E) A small claims court action always occurs in the jurisdiction where the plaintiff resides. Difficulty: 1 QuestionID: 02-2-41 Topic: The Court System Skill: Recall Answer: D) Justices of the Supreme Court of Canada are required to leave the court at age 75.

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42. Tom Servo sued Crow Robot Inc. The circumstances surrounding the company's allegedly wrongful act are highly unusual. Which of the following statements is TRUE? A) Tom was entitled to commence the claim in the Federal Court as long as he is employed by the federal government. B) If Tom sued in Alberta, then the judge will have to apply a decision of the Supreme Court of Canada even if the case that the Supreme Court of Canada decided was commenced in some other province. C) If Tom sued in one of the northern territories, as opposed to a province, the judge is bound by a decision of the Federal Court. D) If Tom's case is heard by the Supreme Court of Canada, the judges must apply an earlier decision by the same court that dealt with the same issue. E) Because Tom's case occurs in civil law, rather than criminal law, decisions of the Federal Court are necessarily irrelevant. Difficulty: 3 QuestionID: 02-2-42 Topic: Court Hierarchy Skill: Applied Answer: B) If Tom sued in Alberta, then the judge will have to apply a decision of the Supreme Court of Canada even if the case that the Supreme Court of Canada decided was commenced in some other province. 43. Within the context of administrative law, which of the following statements is TRUE? A) An administrative tribunal is said to be quasi-judicial when it makes decisions that affect people's lives. B) Because of the division of powers, there is always a right to appeal a decision of an administrative tribunal. C) Judicial review is one of the most popular forms of alternative dispute resolution. D) Judicial review refers to the process that the federal government uses to ensure that the provinces do not create invalid legislation. E) Under the Constitution, administrative tribunals must be created by the federal government. Difficulty: 2 QuestionID: 02-2-43 Topic: Administrative Tribunals Skill: Recall Answer: A) An administrative tribunal is said to be quasi-judicial when it makes decisions that affect people's lives. 44. Sarah acted very badly toward Max. Although Max suffered a small loss as a result of the event, he primarily wants Sarah to apologize to him. Which of the following statements is TRUE? A) In addition to awarding monetary damages, a court that hears a claim in tort or breach of contract can order the defendant to apologize to the plaintiff. B) Most provinces have created legislation that would encourage Sarah to apologize to Max without fear of admitting liability. C) A court will have the power to order Sarah to apologize if Max testifies in a criminal case rather than a civil case. 23 © 2023 Pearson Canada Inc.

D) A court will order Sarah to apologize only if Max proves that he suffered a compensable loss as a result of her wrongful act. E) Because witnesses testify at trial but not on appeal, trial judges can order apologies, but appellate courts cannot. Difficulty: 2 QuestionID: 02-2-44 Topic: Alternative Dispute Resolution Skill: Applied Answer: B) Most provinces have created legislation that would encourage Sarah to apologize to Max without fear of admitting liability. 45. Rachel has sued Nicholas in the superior court of the same province where you live. Although the trial judge denied liability, Rachel has appealed. The appellate court A) is bound by a decision of the Federal Court of Appeal. B) may deliver a decision that can be appealed to the Federal Court of Appeal. C) may refuse to follow one of its own earlier decisions. D) must follow decisions that the House of Lords reached before 1966. E) must not apply the decision of a non-Canadian court if it conflicts with the decision of an appellate court in Canada. Difficulty: 2 QuestionID: 02-2-45 Topic: Court Hierarchy Skill: Applied Answer: C) may refuse to follow one of its own earlier decisions. 46. Class action law suits have been brought about which of the following? A) Product liability B) Workplace discrimination C) Securities law D) Sexual abuse E) All of the above Difficulty: 1 QuestionID: 02-2-46 Topic: Class Actions Skill: Recall Answer: E) All of the above 47. Joseph entered in to a contract to renovate Jenny's bathroom. While he started the work, he stopped working halfway through leaving the bathroom unfinished. Jenny wants to sue Joseph for $10,000. In which court should she bring the action? 24 © 2023 Pearson Canada Inc.

A) Small Claims Court B) Federal Court C) Superior Court D) Inferior Court E) The Supreme Cour Difficulty: 1 QuestionID: 02-2-47 Topic: Provincial Courts –Small Claims Courts Skill: Applied Answer: A) Small Claims Court 48. Melissa recently purchased mascara from a make-up company that claimed in its advertising that it would make your eyelashes ten times longer. After trying the product, Melissa is disappointed and believes that the company has engaged in false advertising. Which adjudicative body should Melissa contact? A) Small Claims Court B) Federal Court C) Human Right Tribunal D) Competition Tribunal E) The False Advertising Tribunal Difficulty: 1 QuestionID: 02-2-48 Topic: Administrative Tribunals Skill: Applied Answer: E) The False Advertising Tribunal Essay Questions 1. Briefly explain the rules that determine the circumstances under which the following types of parties can sue or be sued: (i) children, (ii) adults suffering from a mental incapacity, (iii) corporations, and (iv) unincorporated associations. Difficulty: 1 QuestionID: 02-3-01 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: (a) While a child may sue or be sued, they must be sued in the representative capacity in court of an adult representative, such as a parent or litigation guardian. (b) Similarly, while a person suffering from a mental disability can sue or be sued, they must be represented by a litigation guardian to sue or be sued and that guardian must have the legal capacity to represent to the person 25 © 2023 Pearson Canada Inc.

under a disability. (c) As a matter of law, a corporation has the same powers as a person and has legal personality. A company may therefore sue or be sued. There are, however, restrictions on foreign corporations, which may need to be registered in certain provincial jurisdiction before they can use Canadian courts in certain provincial jurisdictions–depending on the nature of the claim being brought. (d) In contrast to corporations, unincorporated organizations (such as clubs and church groups) are not distinct legal entities with a legal personality. As a result, they normally cannot sue or be sued. Instead, it is usually necessary to sue the individual members of those organizations. In some provinces, however, there is an important exception to that rule. That exception is that, although trade unions are unincorporated organizations, they can sue and be sued directly. 2. In the context of the ability to sue or be sued, what is the meaning and effect of the doctrine that "the King can do no wrong"? Difficulty: 1 QuestionID: 02-3-02 Topic: Who Can Sue or Be Sued? Skill: Recall Answer: The doctrine that "the King can do no wrong" traditionally meant, quite literally, that the courts would not accept claims that the King had acted unlawfully or illegally. As a result, it was impossible to sue the King unless the King gave his permission to be sued. That doctrine was extended to mean that the King's representatives in government similarly could not be sued without their permission. That traditional rule has now been changed by legislation. As a result, it generally is possible for the government to both sue and to be sued. The governing statutes are, however, complicated and they often introduce unusual restrictions, including special and sometimes very short limitation periods. They need to be read very carefully. 3. Chad purchased an economics textbook online from Shady Press Inc for $40. While the information contained in the book appears to be correct and current, the book itself began to fall apart almost immediately. After he complained about the situation in an electronic chat room that had been set up by his course instructor, Chad discovered that a large number of other students had suffered through the same experience. Chad then emailed Shady Press to register his complaint and to ask for a rebate on at least part of the price. The company responded by saying that, as a matter of policy, it would not provide any sort of financial relief unless ordered to do so by a court. Although he is now even more annoyed at Shady Press than before, he assumes that he is, practically speaking, powerless to do anything. He has heard that litigation is expensive and he is unwilling to spend a lot of money in the hope of getting a refund on a book that cost only $40. Assuming that the company will not pay unless compelled by a judge to do so, what advice can you offer to Chad? Suggest, and briefly describe, several strategies that might overcome Chad's concerns about costs. (You need not go into great detail on each strategy.) Difficulty: 2 QuestionID: 02-3-03 Topic: Class Actions, Contingency Fees, Costs, Small Claims Courts Skill: Applied 26 © 2023 Pearson Canada Inc.

Answer: Because Shady Press Inc refuses to pay anything in the absence of a court order, Chad will need to proceed by way of litigation rather than some form of alternative dispute resolution. Within that context, his financial concerns might be overcome by various means: (i) class action, (ii) contingency fee, (iii) costs, and (iv) small claims court. Class Action Chad could minimize the expense to himself by participating in a class action. Although that class action would involve many (perhaps all) of the people who purchased Shady Press books that fell apart, only one lawyer would be needed. Consequently, because the expenses of the action would be spread among all of the claimants, each claimant would likely stand to gain more than they lost in litigation costs. However, in some Canadian jurisdictions, Chad may be exposed to the costs of the litigation if the class action is not certified or otherwise fails. Contingency Fee Whether or not he participated as a member of a class action, Chad could further reduce the expense associated with litigation by hiring a lawyer to act on a contingency fee basis. If so, Chad would need to pay his lawyer's fees only if the claim was successful. In that event, the lawyer's fees would be paid out of a judgment that the court awarded against Shady Press. However, it is highly unlikely any lawyer would agree to work on a contingency fee if the only damages were Chad's claim for $40. Costs Regardless of whether he participates in a class action or a contingency fee arrangement, Chad should be informed that the winning party usually has costs awarded against the losing party. That means that if he won his case, Shady Press would have to pay for some of his litigation expenses. At the same time, however, Chad should realize that (i) judicially awarded costs seldom cover all of a party's actual expenses, and (ii) if he loses his case against Shady Press, he would likely have to pay for some of the company's litigation costs. Small Claims Court Finally, because his individual claim is worth only $40 at most, Chad would be entitled to bring his action against Shady Press in a small claims court. Litigation in that type of court requires far fewer resources in terms of time and money. Chad would be well advised not to use a lawyer in the small claims court for this claim as it is almost certain that the lawyer's fees would be much more than any likely recovery. 4. Until recently, Enya did all of her banking at the Bank of the Prairies (BOP). She transferred her business to a different bank when she discovered that BOP had been systematically overcharging for a number of services. Enya was, for instance, charged excessive amounts every time that she wrote a cheque or withdrew money at an ATM. She knows that friends and relatives were similarly overcharged when, for example, they paid bills by telephone or received payment by way of direct deposit. Enya suspects that she personally was overcharged about $750. While that represents a substantial amount for her, she also realizes that litigation against BOP might involve a great deal of time and expense. She consequently wonders if her case might be a suitable candidate for a class action. She would like to participate in a class action alongside all (or many) of the other people who have been overcharged by BOP. What requirements must be satisfied before a court will grant certification to a class action? Difficulty: 2 QuestionID: 02-3-04 Topic: Class Actions Skill: Applied

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Answer: Class actions are created by statute in most Canadian provinces. The criteria for certification of a class action are similar in each province. (a) Common Issues: There must be common issues amongst the various members of the class. In this case, the court would have to be satisfied that all of the class members were subject to the same type of systematic overcharging by BOP. It is not necessary, however, for every claim to be identical. Even if the court certifies a class action to proceed, it may set up a process to deal with the special circumstances that affect some claimants. Consequently, it would not necessarily be fatal that different members were overcharged for different types of services. (b) Representative Plaintiff: The plaintiff must qualify as a representative plaintiff. They must demonstrate a workable plan for fairly representing the interests of the class members. That will not be true, for instance, if the plaintiff wants the court to rely on a rule that will help their claim, but that will be adverse to the claims of some or all of the other claimants. (c) Notification: A representative plaintiff must also have a workable plan for notifying potential class members. In this case, class members might, for instance, be notified by way of notices in newspapers and magazines. Those notices are very important. Often, a class action, once certified, automatically includes every claimant who has not expressly opted out within a certain length of time after the notice procedure has been followed. Every member of that class will be bound by the decision that the court gives at the end of the trial. People who have not opted out cannot bring separate actions of their own. (d) Preferable Procedure: The court must be convinced that a class action is the preferable procedure for dealing with the claims. It will, for instance, consider whether a class action will become too complicated, and whether there are enough similarities between the class members. 5. List and briefly describe the options that are available in terms of legal representation. Difficulty: 1 QuestionID: 02-3-05 Topic: Legal Representation Skill: Recall Answer: We discussed three basic options in the text. (a) An adult person of competent mental capacity always has the right to self-representation. That approach is most common in relatively simple matters, such as cases in small claims courts. (b) Particularly in more complex cases, it is common to hire a lawyer. Some companies retain in-house counsel to provide legal services on an on-going basis as employees of the company. (c) In some situations, it is possible to receive competent legal services, at less than the cost of a lawyer, by hiring a paralegal. A paralegal is a person who is not a lawyer, but who nevertheless has training and government recognized certification for providing certain limited legal advice and legal services. 6. There is no guarantee that things will go well merely because you hire a lawyer. There are, however, 28 © 2023 Pearson Canada Inc.

certain conditions that are required of lawyers, which provide some assurance that (a) a lawyer is competent, (b) a lawyer will act ethically, and (c) compensation will be available if you suffer a loss as a result of a lawyer's careless or wrongful behaviour. Identify and briefly describe the relevant conditions for each of those three propositions. Difficulty: 1 QuestionID: 02-3-06 Topic: Lawyers Skill: Recall Answer: (a) Competence In order to practice law in Canada, a person must (i) hold a law degree, (ii) serve an apprentice period of articles with a law firm or other legal organization, and (iii) pass the bar by successfully writing a number of examinations. (b) Ethical Behaviour Although nothing can ensure that a person will always act ethically, lawyers are subject to codes of conduct that are administered by provincial and territorial law societies. The codes of conduct establish rules governing the behaviour of lawyers. A lawyer who is found guilty of professional misconduct or conduct unbecoming a lawyer, can be punished in a variety of ways, including fines, suspension, or disbarment (ie being deprived of the ability to practice law). (c) Compensation Every practising lawyer is required to carry professional liability insurance. If a lawyer is found liable for negligence or breach of contract as a result of negligence, the insurance company will be required to pay damages for the loss caused by that negligence, to the plaintiff on the lawyer's behalf. Law societies maintain assurance funds, which can also provide compensation to people who are hurt by lawyer misconduct in the nature of dishonesty, theft or breach of trust. 7. As a result of recent events, Marshall requires legal representation. Because he has limited knowledge of the law, he has ruled out the possibility of self-representation. He realizes that he therefore must hire someone to act on his behalf. In choosing between hiring a lawyer and hiring a paralegal, what factors should he take into consideration? Difficulty: 3 QuestionID: 02-3-07 Topic: Lawyers, Paralegals Skill: Applied Answer: There is no bright line rule, for determining whether legal representation should come in the form of a lawyer or a paralegal. The decision depends upon the circumstances and these factors in particular. Cost As a general rule, paralegals charge fees that are considerably less than lawyers, even when providing the same service. Consequently, if, for instance, Marshall requires someone to process a simple land transfer, he might consider hiring a paralegal. Expertise Because paralegals tend to be confined to certain tasks, they naturally have no expertise in some areas of law. Often, however, lawyers and paralegals deal with precisely the same types of files. And in those areas, paralegals frequently have similar expertise and experience as some lawyers. 29 © 2023 Pearson Canada Inc.

Accessibility Accessibility in this case will depend upon the nature of Marshall's needs. Some types of cases (eg murder trials) are handled only by lawyers. Other types of cases (eg house transfers) are handled by lawyers and paralegals. Training Although most paralegals are well-trained and thoroughly-experienced, they are not, in contrast to lawyers, subject to the same mandatory educational requirements in every jurisdiction. (There is, however, a growing movement by Law Societies to impose standardized educational requirements on paralegals.) Regulated Profession Lawyers are members of a regulated profession. Paralegals can only practice law to the extent that the legislature in a province or territory has permitted them to practice law; and they must confine their practice to those areas of law and procedures which they are allowed to practise and perform. Mandatory Codes of Conduct Although every practising lawyer is subject to their law society's code of conduct, paralegals are not currently subject to any parallel regime although a paralegal may lose certification as a paralegal for unprofessional conduct or incompetence. Privilege Whether he spoke with a lawyer or a paralegal, Marshall's conversations would be confidential. Consequently, neither a lawyer nor a paralegal would generally be entitled to disclose the content of those communications to some third party. In contrast, communications with a lawyer would be privileged, but those with a paralegal would not be privileged. A privilege would ensure that, unless Marshall agreed, his lawyer could not be judicially compelled to disclose the content of those communications in court, nor could the lawyer ever disclose the contents of those communications in any manner, including after the death of the client. 8. Your company has purchased a wide variety of supplies from Acme Inc over the course of many years. Much to your surprise, Acme has just served a statement of claim on your company. You are puzzled and annoyed. First, you are puzzled because while the statement of claim clearly alleges that you owe Acme $15 000, the precise basis for that allegation is unclear. Given the amount of business that your company does with Acme, that claim might be made in reference to any one of literally dozens of recent transactions. You are quite sure, however, that you have not done anything wrong under any of those transactions. Second, you are annoyed because, in the interests of goodwill, your company has often accepted from Acme goods that were defective. In the past, you said nothing to Acme about those problems because you did not want to create bad feelings. But now that Acme has sued your company, you are feeling far less lenient. You are, in particular, dissatisfied with a shipment of shelving units that you received from Acme last week. Those shelves stand only 1.8 metres high, even though Acme promised in the contract of purchase and sale that the shelves would stand 2 metres high. In the circumstances, you have decided that you should sue Acme for breach of contract. Identify and briefly explain the pleadings that you will need to serve on Acme Inc. in the near future. Difficulty: 2 QuestionID: 02-3-08 Topic: Pleadings Skill: Applied Answer: Your choice of pleadings is determined by the actions that you must take with respect to Acme Inc. to advance your claims. You will need to issue and serve three documents. 30 © 2023 Pearson Canada Inc.

Demand for Particulars Because you require further information in order to understand the allegation contained within Acme's statement of claim, you will need to serve Acme with a demand for particulars. Statement of Defence Because you dispute the allegations on that you are liable, you will need to serve a statement of defence on Acme that has been filed in the court registry. That document should be filed and served promptly. If you fail to do so in a timely manner, Acme may be entitled to obtain default judgment against you. Counterclaim Because you want to sue Acme for breach of contract with respect to the defective shelving units, you will need to serve Acme with a counterclaim. That counterclaim is, in effect, your own statement of claim. You most likely will include your statement of defence and counterclaim in the same package of documents. 9. Briefly explain the difference between (a) examinations-in-chief and cross-examinations, (b) direct evidence and hearsay evidence, (c) ordinary witnesses and expert witnesses, and (d) proof on balance of probabilities and proof beyond a reasonable doubt. Difficulty: 2 QuestionID: 02-3-09 Topic: The Trial Skill: Recall Answer: (a) Examinations-in-Chief and Cross-Examinations These concepts pertain to the manner in which evidence is presented in court, usually by a lawyer. An examination-in-chief occurs when the lawyer questions a witness who is giving evidence for that lawyer's side. Leading questions are not allowed, and the witness essentially tells the story of what happened or what they witnessed. A cross-examination occurs when a lawyer questions a witness who has testified for the other side. In cross-examination the lawyer seeks to obtain admissions from the witness favourable to the lawyer's client's case, and where necessary, to damage or destroy the credibility of the witness. (b) Direct Evidence and Hearsay Evidence These concepts relate to the type of evidence that may or may not be allowed in court. Direct evidence occurs when a witness testifies and provides evidence with respect to an event that they personally experienced. The evidence is "direct" in the sense that the witness is testifying as to their own experience. Relevant direct evidence is generally admissible in court. Hearsay evidence occurs when a witness testifies and provides evidence with respect to an event that they learned about from another party or is testifying about out of court statements made by other parties. The witness does not, therefore, have personal knowledge of the events in question that are recounted in the out of court statements, therefore it is not possible to know whether the out of court statements repeated as hearsay evidence are relating the truth of what happened. As a general rule, hearsay evidence is inadmissible. The courts normally do not want to rely upon evidence that the witness cannot discuss from personal experience and that lawyers consequently cannot directly cross examine upon as to its veracity. There are many exceptions to this rule, such as out of court admissions by parties of facts adverse to their interest. (c) Ordinary Witnesses and Expert Witnesses These concepts relate to the type of people who may testify and provide evidence. An ordinary witness testifies with respect to facts with which they have first-hand knowledge. An expert witness provides opinions and assessments on the basis of information provided by ordinary witnesses or hypothetical propositions. For instance, an ordinary witness may testify that they served 31 © 2023 Pearson Canada Inc.

the defendant with six glasses of wine during a dinner and an expert witness may offer an opinion as to the intoxicating effects of those drinks. (d) Proof on Balance of Probabilities and Proof Beyond a Reasonable Doubt These concepts relate to the extent of proof required by the court to grant judgment that a civil claim has been established or a criminal prosecution has been proven. In private law, generally the plaintiff has to prove its claim on a balance of probabilities. That means that every important part of its claim must be probably true. While it is impossible to accurately measure these things, it may help to think of a set of scales. At the end of the trial, the defendant will be held liable only if the scales are tipped in the plaintiff's favour–51 percent. If the scales are either evenly balanced or tipped in the defendant's favour, then the defendant will be not liable. In criminal cases, the standard of proof is much higher. The Crown has to prove the accused's guilt beyond a reasonable doubt. If that standard is met, then the accused will be found guilty. If not, the verdict will be not guilty. If at the end of the case, the judge or jury has a reasonable doubt on the facts that the prosecution must prove, the accused must be acquitted. 10. In a case filed in a superior court, Alpha Inc sued Beta Ltd for breach of contract. Alpha claimed damages of $250 000. Although Beta denied liability, it formally offered to settle the claim for $100 000. Alpha rejected that offer, but in response, it formally offered to settle its claim for $200 000. Beta rejected that offer. The case has now gone to trial. Explain what order the judge will likely make with respect to costs if (a) Beta is liable for $150 000, or (b) Beta is liable for $50 000? Difficulty: 3 QuestionID: 02-3-10 Topic: Costs Skill: Applied Answer: As a general rule, the party that wins a private lawsuit is awarded costs against the losing party. Those costs are calculated, under the heading of party-and-party costs (or partial indemnity costs in Ontario), on the basis of standardized tariffs and only rarely cover the winning party's actual legal costs. The applicable rules may be different in the province or territory where the trial took place, however, if one of the parties formally offered to settle out of court, the judge may award costs in a way that punishes an unreasonable refusal to settle a case that is not accepted, and this policy encourages parties in future cases to offer and accept reasonable settlement offers. (a) The first part of the question assumes that Beta is held liable for $150 000: ie more than Beta's settlement offer but less than Alpha's settlement offer. In that situation, it is that Alpha may have acted unreasonably in rejecting Beta's offer. A superior court judge may therefore order Alpha (even though Alpha won its case) to pay Beta's costs in whole or in part, on a party-and-party basis. (b) The second part of the question assumes that Beta is held liable for $200 000: ie more than Alpha's settlement offer. In that situation, Beta may have acted unreasonably in rejecting Alpha's offer. A superior court judge may therefore order Beta to pay Alpha's costs on a party and party basis or on solicitor-and-client basis (in Ontario, on a substantial indemnity basis). Although Alpha still will not be reimbursed for all of its actual legal costs, it will enjoy costs calculated on a tariff that is significantly more generous than the party-and-party tariff if solicitor-and-client costs are awarded to it.

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11. In a case filed in the federal court, Gamma Inc sued Delta Ltd for breach of contract. Gamma claimed damages of $500 000. Although Delta denied liability, it formally offered to settle the claim for $200 000. Gamma rejected that offer, but in response, it formally offered to settle its claim for $400 000. Delta rejected that offer. The case has now gone to trial. Explain what order the judge will likely make with respect to costs if (a) Delta is held liable for $450 000, (b) Delta is held liable for $100 000, or (c) Delta is held not liable. Difficulty: 3 QuestionID: 02-3-11 Topic: Costs Skill: Applied Answer: As a general rule, the party that wins a private lawsuit is awarded costs against the losing party. Those costs are calculated, under the heading of party-and-party costs, on the basis of standardized tariffs and only rarely cover the winning party's actual legal costs. The applicable rules may be different in each Canadian jurisdiction. However, if one of the parties formally offered to settle out of court, the judge may award costs in a way that punishes an unreasonable refusal to settle a case and encourages parties in future cases to offer and accept reasonable settlement offers. Although that is true generally in Canada, special variations on the rules apply in this case because as it is being heard in the federal court. (a) The first part of the question assumes that Delta is held liable for $450 000: i.e., more than the amount contained in Gamma's formal offer to settle. In that situation, it is clear that Delta acted unreasonably in rejecting Gamma's offer. The judge may therefore (i) award party-and-party costs to Gamma for the period leading up to its formal offer of settlement, and (ii) double party-and-party costs to Gamma for the period after its formal offer of settlement. (b) The second part of the question assumes that Delta is held liable for $100 000–less than the amount contained in Delta's formal offer to settle. In that situation, it is clear that Gamma acted unreasonably in rejecting Delta's offer. The judge may therefore (i) award party-and-party costs to Gamma for the period leading up to Delta's formal settlement offer, but (ii) double party-and-party costs to Delta for the period after its formal settlement offer. (c) The third part of the question assumes that Delta was held liable for nothing at all: ie less than the amount contained in Delta's formal settlement offer. In that situation, it is clear that Gamma acted unreasonably in rejecting Delta's offer. The judge may therefore (i) award party-and-party costs to Delta for the period leading up to Delta's formal settlement offer, and (ii) double party-and-party costs to Delta for the period after its formal settlement offer. 12. The Government of Canada is considering introducing a new law. However, the government is concerned that the law may not be constitutional. Can the Government of Canada ask for the Supreme Court of Canada to provide an advisory opinion on the constitutionality of a law or proposed law? Difficulty: 3 33 © 2023 Pearson Canada Inc.

QuestionID: 02-3-12 Topic: The Supreme Court of Canada Skill: Applied Answer: While the vast majority of the work performed by the Supreme Court of Canada consists of appeals from lower court decisions, the court also has jurisdiction to hear references. A reference occurs when a government asks for an opinion on the constitutional validity of a statute. 13. Panaural Inc is a long-established entertainment company. Among other things, it manufactures and sells music CDs. One of its best-selling artists is a group called Funky See Funky Do. Under the contract that exists between Panaural and Funky See Funky Do, copyright in all of the group's songs is held by the company. Panaural was therefore especially upset when it discovered that Noize Records, a small music company, has been manufacturing and selling CDs containing music by Funky See Funky Do. Panaural intends to sue Noize Records in to obtain (a) an injunction to stop Noize Record's illegal sales, and (b) $75 000 in compensation for the losses that it has suffered as a result of Noize Record's breach of copyright. In an effort to keep costs down, however, Panaural wants to bring its case in a small claims court. Is it entitled to do so? Provide several reasons for your answer. Difficulty: 2 QuestionID: 02-3-13 Topic: Small Claims Courts Skill: Applied Answer: Panaural cannot bring its action against Noize Records in a small claims court. There are several reasons for that conclusion. (a) Type of Claim Panaural's claim is based on a breach of copyright. Copyright law is governed by the federal Copyright Act and copyright claims are generally heard in either the federal court or a superior court of the province. It is unlikely that the small claims court has jurisdiction to hear claims of breach of copyright. (b) Types of Remedies A small claims court cannot grant equitable relief such as injunction. Consequently, while they can award compensatory damages, they cannot award the injunction that Panaural seeks. (c) Monetary Limit A small claims court can deal only with small claims. The monetary limit varies across the country from $5,000 to $50,000. Panaural is seeking compensation of $75 000, which clearly exceeds the limit of any small claims court. 14. Describe the relationship between the concept of hierarchy and the doctrine of precedent. How are those concepts related to the rule of law? Difficulty: 2 QuestionID: 02-3-14 Topic: Court Hierarchy Skill: Recall Answer: For present purposes, the relevant hierarchy consists of the fact that not all Canadian courts have equal 34 © 2023 Pearson Canada Inc.

authority. Some are more jurisdiction than others. As a general rule, trial courts have the jurisdiction to decide the facts and law at first instance–usually by trial. At the intermediate level, various courts of appeal have relatively more authority. That is, they can set aside the orders of trial courts that are errors of law, where there are no facts to support the finding, or where a palpable and overriding error was made by the trial court in deciding the facts. The Supreme Court of Canada sits atop the hierarchy because it has the final appeal jurisdiction. It is the highest court in the land. In fact, there are a number of judicial hierarchies within the country. Each province and territory has its own system of trial courts and appellate courts. An additional system exists separately for certain matters that fall within the federal jurisdiction. There is one constant, however, in that the Supreme Court of Canada is at the apex of each and every hierarchy. Those hierarchies are essential to the doctrine of precedent. The doctrine of precedent states that a court must adhere to a decision that was given by a court higher above in the same hierarchy and must not depart from previous decisions of courts at its own level without a good reason–such as a disagreement concerning the law. Consequently, a trial judge in Edmonton must follow a decision of the Alberta Court of Appeal, just as a trial judge in Sudbury must follow a decision of the Ontario Court of Appeal. Significantly, however, because they are not in the same hierarchy, a trial judge in Edmonton does not have to follow a decision of the Ontario Court of Appeal, nor does a trial judge in Sudbury have to follow a decision of the Alberta Court of Appeal. (In such circumstances, a decision of an appellate court in another jurisdiction may be persuasive, in the sense that it inclines the trial judge to adopt a similar approach. It is not, however, binding, and it need not be followed.) Once again, however, since the Supreme Court of Canada sits atop every hierarchy, its decisions must be followed by all Canadian courts. The rule of law, in part, states that disputes should be settled on the basis of laws, rather than on the basis of personal opinions unrelated to law. The concept of a hierarchy and the doctrine of precedent support the rule of law by requiring judges to follow the courts above them, and generally to follow the decisions made by courts within their same jurisdiction. If there is a binding precedent on point, the judge has no choice but to follow the settled legal rule. Even if there is no binding precedent directly on point, the judge must make a rational legal decision in relation to previous decided decisions of Canadian courts. 15. Omicron Inc is one of several companies that manufacture widgets. For many years, almost half of its annual sales have been made to Sigma Ltd. Despite those sales, its financial position has always been somewhat precarious. A dispute recently arose with respect to financial losses that Sigma claims to have suffered as a result of a defective widget. Omicron strongly denies that it is responsible for those losses. Sigma, however, has announced that it will not purchase any more items until the matter is resolved. Omicron has asked for your advice. Analyze the situation from a risk management perspective by outlining the advantages and disadvantages associated with the various ways in which the case might be resolved. Difficulty: 3 QuestionID: 02-3-15 Topic: Alternative Dispute Resolution Skill: Applied Answer: There are at least four possible ways of resolving the dispute: litigation, negotiation, mediation, and 35 © 2023 Pearson Canada Inc.

arbitration. Each has advantages and disadvantages. Litigation is not a very attractive option in the circumstances. Given that half of Omicron's sales are to Sigma, and given that Sigma apparently could purchase its supply of widgets from another manufacturer, Omicron probably needs to resolve the issue quickly and amicably. It cannot afford to lose half of its sales, either temporarily while the dispute drags on, or permanently if litigation's adversarial nature causes a rift between the parties. Several other factors also militate against the litigation option. (a) To some extent, litigation tends to be something of a lottery. Its outcome is unpredictable. The worrisome nature of that proposition is heightened by the fact that litigation also usually provides an all-or-nothing solution. Omicron might win the case and be entirely absolved of responsibility (but possibly lose Sigma as a customer), but it might also lose the case and therefore be held liable for all of Sigma's losses. (b) Since some aspects of litigation are almost always open to the public, the case might create adverse publicity for Omicron. Even if Omicron wins the case, potential customers might recall Sigma's allegations, rather than the actual outcome. The result may be lost profits due to fewer sales. The other three possibilities are forms of ADR (alternative dispute resolution). Consequently, they all share certain advantages. (a) First, since they do not occur in court, they are not generally publicly accessible. Omicron therefore would have to worry less about adverse publicity. (b) Second, they all tend to be quicker and less expensive than litigation. There is no need to wait for a trial date to come available, nor possibly to proceed through a series of appeals. Likewise, since they are relatively less formal and protracted, they tend to involve fewer costs. (c) Third, since they are not based on an adversarial model, they tend to be less injurious to on-going business relations. That is especially true of negotiation and mediation. That is important to Omicron because so many of its sales are made to Sigma. -Finally, because ADR generally involves give and take by both sides, Omicron ultimately might be required to pay less money than would be the case if it was held liable at the end of a trial. There are, however, other features that should be considered with respect to each form of ADR. (a) Negotiation is a discussion that leads to the settlement of a dispute. Although the parties may use their lawyers, they are not required to do so. Negotiation may have certain drawbacks in the present case. First, since it requires cooperation, it may not be possible if a dispute has already turned ugly. Second, the parties do not appear to have equal bargaining power because Omicron apparently needs Sigma more than Sigma needs Omicron. It also seems true that Omicron has fewer resources than Sigma. Consequently, Sigma may exploit its advantage to force a harsh settlement on Omicron. Third, if the dispute concerns a loss that is covered by an insurance policy, Omicron will be required to let the insurance company take control of the negotiations. If Omicron attempts to settle the matter itself, it may lose the benefits of the policy. Finally, there is no guarantee of success. Negotiations may collapse and a dispute may remain unresolved. If so, the effort put into the negotiations will be largely wasted. (b) Mediation is a process in which a neutral person (called a mediator) helps the parties reach an agreement. Like negotiation, mediation is non-binding. A mediator would bring the parties together, listen to their arguments, outline the issues, comment on each side's strengths and weaknesses, and suggest possible solutions. But the mediator would not give a decision and the parties would not be required to obey any orders. In that sense, mediation is unlike formal litigation, but like negotiation. It has many of the same limitations and dangers 36 © 2023 Pearson Canada Inc.

as negotiation, except that it also provides the parties with a neutral perspective. (c) Arbitration, in contrast, would look more like court proceedings. It is a process in which a neutral third person (called an arbitrator) imposes a decision on the parties. The fundamental difference between arbitration and mediation is that an arbitrator's decision is almost always binding, in the sense that the parties must obey it. Indeed, Omicron and Sigma might agree beforehand that the arbitrator's decision, unlike a trial judgment, cannot even be appealed. The trial-like features of arbitration may not be very attractive to Omicron. Given its precarious position, Omicron might prefer either negotiation or mediation, which involve greater flexibility and somewhat less likelihood of a devastating result. Finally, it should be noted that the various forms of dispute resolution could all be used in this case. Omicron and Sigma might try to negotiate a settlement. If that fails, they might seek help from a mediator. If that also fails, they might send their dispute to an arbitrator. And if one party is unhappy with that decision, it might appeal it to a court (unless it had agreed that the arbitration was final and binding). 16. Marco has a long-standing business relationship with Max. Marco has supplied goods and services to Max for the last ten years. However, the price of raw materials has gone up and Marco is worried that he'll go out of business if he does not raise prices on his existing customers. He wants to re-negotiate his contacts with Max. Describe the advantages and disadvantages of negotiation in resolving this type of business dispute. Difficulty: 2 QuestionID: 02-3-16 Topic: Alternative Dispute Resolution Skill: Applied Answer: Advantages: It tends to be quicker, less complicated, and less expensive. It allows the parties to control the process and decide the outcome themselves. It often helps the parties to remain on good terms with each other. Since it is a private procedure, it can be used to avoid bad publicity. Disadvantages Since negotiation requires co-operation, it may not be possible if a dispute has turned ugly. One party may take the opportunity to simply drag the matter out—possibly in the hope that the other side will eventually lose interest or run out of resources. If the parties do not have equal bargaining power—perhaps because one side is represented by a team of lawyers, while the other side is small and inexperienced—then negotiations may not result in a fair settlement. Confidentiality may be undesirable—a consumer who has been hurt by a defective product may want to go to trial in order to publicize the manufacturer's poor safety standards. There is no guarantee of success—negotiations may collapse after years of effort, and the parties may have to go to court after all. If a dispute is covered by an insurance policy, the insured party may lose the benefit of the policy unless it immediately hands the matter over to the insurance company.

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Managing the Law, 6e (McInnes) Chapter 03: Introduction to Torts True/False Questions 1. Although the same set of events may support both a law suit in tort and a criminal prosecution, a civil action will not succeed if a wrongdoer has already been convicted of a criminal offence. a True b False Difficulty: 2 QuestionID: 03-1-01 Topic: Torts and Crimes Skill: Recall Answer: b. False 2. You may be held liable in tort even though you were unaware of the fact that you owed an obligation to the plaintiff. a True b False Difficulty: 1 QuestionID: 03-1-02 Topic: Torts and Contracts Skill: Recall Answer: a. True 3. Miles was sued in tort. He previously purchased a liability insurance policy from Western Mutual Insurance Co. Even if the lawsuit against him ultimately fails, that insurance policy may be beneficial to Miles because it will require the insurance company to pay for the costs associated with the trial including Miles actual expenses to have a lawyer defend him. a True b False Difficulty: 2 QuestionID: 03-1-03 Topic: Liability Insurance Skill: Applied Answer: a. True 4. The deterrent function of tort law is based on the belief that the high costs associated with litigation will discourage plaintiffs from starting law suits that have little chance of success. a True 1 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 03-1-04 Topic: Liability Insurance Skill: Recall Answer: b. False 5. Felipe bought a liability insurance policy. That policy included a clause that excluded coverage for injuries inflicted through "intentional or criminal acts." Felipe deliberately broke a bottle over a store clerk's head during a robbery. Because of the compensatory function of tort law, a court will require the insurance company to pay damages to the victim of the wrong, but it will also give the insurance company the right to sue Felipe for that same amount. a True b False Difficulty: 3 QuestionID: 03-1-05 Topic: Liability Insurance Skill: Applied Answer: b. False 6. Sidhu was injured when Melissa, a construction worker, carelessly dropped a hammer out of a window. Sidhu has successfully sued both Melissa, on the basis of her personal liability, and Melissa's employer, on the basis of the employer's vicarious liability. Given the policies that support vicarious liability, Sidhu must first try to recover his damages from the employer. a True b False Difficulty: 2 QuestionID: 03-1-06 Topic: Vicarious Liability Skill: Applied Answer: b. False 7. Damages in tort look backward, whereas damages in contract look forward, primarily because the courts realize that the victim of a tort is relatively more likely to suffer a serious physical injury. a True b False Difficulty: 2 QuestionID: 03-1-07 Topic: Torts and Contracts 2 © 2023 Pearson Canada Inc.

Skill: Recall Answer: b. False 8. Suneel committed the tort of battery against Jodi. The injuries that she suffered were unexpectedly severe. Suneel may be held fully liable for Jodi's losses even if the extent of the losses were not reasonably foreseeable. a True b False Difficulty: 3 QuestionID: 03-1-08 Topic: Compensatory Damages, Remoteness Skill: Applied Answer: a. True 9. A tort is considered to be actionable per se (which means "actionable in itself") only if the same facts also support a criminal prosecution. a True b False Difficulty: 2 QuestionID: 03-1-09 Topic: Nominal Damages Skill: Recall Answer: b. False 10. Most alternative compensation schemes apply only if an injury is the result of a wrongful act. a True b False Difficulty: 1 QuestionID: 03-1-10 Topic: Alternative Compensation Schemes Skill: Recall Answer: b. False 11. Robert successfully sued Marjorie in tort. Marjorie has liability insurance. In this situation, Marjorie is considered the tortfeasor. a True b False Difficulty: 1 3 © 2023 Pearson Canada Inc.

QuestionID: 03-1-11 Topic: Liability Insurance Skill: Applied Answer: a. True 12. According to one old English case, Ethelred was entitled under the doctrine of blood feud to kill Halebert. If the same facts arose today, the Canadian legal system would deal with the situation through a combination of tort law and contract law. a True b False Difficulty: 2 QuestionID: 03-1-12 Topic: Torts and Crimes Skill: Applied Answer: b. False 13. Suneeta successfully sued Olaf in tort. In this situation, it is accurate to say that while Olaf's primary obligation was imposed by law, his secondary obligation was voluntarily created. a True b False Difficulty: 3 QuestionID: 03-1-13 Topic: Torts and Contracts Skill: Applied Answer: b. False 14. Lupine Inc. successfully sued Wolf Finance Ltd. in both tort and contract. In this situation, it is accurate to say that Wolf Finance owed obligations to Lupine, one that arose by operation of law and the other that arose through voluntary agreement. a True b False Difficulty: 2 QuestionID: 03-1-14 Topic: Torts and Contracts Skill: Applied Answer: a. True 15. Nelson successfully sued Horatio in tort. The court awarded an injunction, nominal damages, and punitive damages. It therefore must be true that Horatio deliberately breached an obligation that he 4 © 2023 Pearson Canada Inc.

owed to Nelson in connection with a strict liability tort. a True b False Difficulty: 3 QuestionID: 03-1-15 Topic: Strict Liability, Nominal Damages, Punitive Damages, Injunctions Skill: Recall Answer: b. False 16. The concept of privity has the same application to both contract and tort. a True b False Difficulty: 3 QuestionID: 03-1-16 Topic: Torts and Contracts Skill: Recall Answer: b. False 17. Negligence torts occur when a person acts carelessly. a True b False Difficulty: 3 QuestionID: 03-1-17 Topic: Torts and Contracts Skill: Recall Answer: a. True Multiple Choice Questions 1. Darius, a security professional, agreed to guard Myrna's house. That contract contained a number of terms. One clause required Darius to "take every precaution possible to ensure that no personal belongings are improperly removed from the house." In fact, Darius himself stole several objects of art from Myrna's house. Darius has committed A) a crime, a tort, and a breach of contract. B) a crime and a breach of contract but not a tort. C) a crime and a tort but not a breach of contract. D) a tort and a breach of contract but not a crime. E) a breach of contract, but neither a tort nor a crime. Difficulty: 1 5 © 2023 Pearson Canada Inc.

QuestionID: 03-2-01 Topic: Introduction to Tort Law Skill: Applied Answer: A) a crime, a tort, and a breach of contract. 2. During an argument, Sylvia flew into a rage and hit her friend Ian in the head with a baseball bat. Which of the following statements is TRUE? A) In the normal course of events, Ian could prosecute Sylvia for her crime. B) Sylvia breached a civil obligation that she owed to society as a whole. C) Sylvia breached a public obligation that she owed to Ian personally. D) If a court decides that Sylvia has violated a public obligation, it will probably award damages against her. E) Sylvia probably has committed both a tort and a crime. Difficulty: 1 QuestionID: 03-2-02 Topic: Torts and Crimes Skill: Applied Answer: E) Sylvia probably has committed both a tort and a crime. 3. Which of the following statements is TRUE with respect to the comparison between a tort and a contract? A) Both a tort and a contract always involve the breach of a civil obligation that gives rise to an award of damages. B) Although the same set of facts may support both a claim for tort and a claim for breach of contract, the plaintiff cannot sue for both at the same time. C) From a risk management perspective, tort obligations are often more dangerous than contractual obligations because tort obligations generally are not voluntarily created. D) Damages look backward in contract, but forward in tort. E) If the same events involve both a tort and a breach of contract, the plaintiff generally is entitled to collect damages for both equal to double damages. Difficulty: 2 QuestionID: 03-2-03 Topic: Torts and Contracts Skill: Recall Answer: C) From a risk management perspective, tort obligations are often more dangerous than contractual obligations because tort obligations generally are not voluntarily created. 4. Steven committed a trespass to Rundeep's land by building a fence on her property. He did so in the belief that the property actually belonged to him. Steven has a liability insurance policy that he purchased from Burlington Life & Accident Ltd (BLA). Which of the following statements is TRUE? A) If Rundeep is awarded an injunction, rather than damages, Steven's insurance policy will be of no 6 © 2023 Pearson Canada Inc.

benefit to him because the court's order will not require him to pay any money to Rundeep. B) BLA's duty to defend is an obligation that it owes to Rundeep. C) If BLA pays damages on Steven's behalf, tort law's compensatory and deterrence functions will be equally served. D) BLA probably has a duty to defend that requires it to pay Steven's legal expenses. E) BLA must compensate Steven if he suffered any property damage as a result of his own trespass. Difficulty: 3 QuestionID: 03-2-04 Topic: Liability Insurance Skill: Applied Answer: D) BLA probably has a duty to defend that requires it to pay Steven's legal expenses. 5. Which of the following statements is TRUE? A) Studies prove that tort law has a very effective deterrent function. B) The word "tort" is derived from the Greek word for "obligation" or "duty." C) In tort law, nominal damages are generally restricted to cases in which the defendant committed a tort that is actionable per se, but did not cause the plaintiff to suffer any loss. D) Punitive damages cannot be awarded at the same time as compensatory damages. E) Nominal damages are restricted to strict liability torts. Difficulty: 2 QuestionID: 03-2-05 Topic: Nominal Damages Skill: Recall Answer: C) In tort law, nominal damages are generally restricted to cases in which the defendant committed a tort that is actionable per se, but did not cause the plaintiff to suffer any loss. 6. Brian takes great pride in being obnoxious. One of his favourite ploys is to talk loudly on his cellphone during movies. Unfortunately for him, few people see the humour in his behaviour, and some become positively hostile. Brian learned that lesson several months ago during a late night show at the Bijou Theatre. After he rudely refused to quiet down, Brian was asked by Myriam, the theatre's night manager, to leave the premises. Brian loudly refused that request as well. Myriam then announced that she was going to the lobby to call the police to escort Brian off the premises. The moment she left the room, however, another customer named Ivan jumped Brian from behind, knocked him senseless with a single, vicious blow to the back of his head, and dragged his limp body out the exit and into the alley behind the theatre. Which of the following statements is most likely TRUE? A) Because Ivan, by removing Brian from the premises, was performing the type of act that is normally performed by an employee, the theatre may be vicariously liable for any torts that Ivan may have committed. B) If Ivan's actions constitute a crime, then he will be held liable to Brian for compensatory damages only if there is proof beyond a reasonable doubt that Ivan also committed a tort. C) Given the violent nature of Ivan's attack on Brian, a court almost certainly would apply a strict liability tort. 7 © 2023 Pearson Canada Inc.

D) As long as Ivan and Brian both contribute to a workers' compensation scheme, Brian will be entitled to compensation from that scheme. E) Ivan may be liable to Brian for punitive damages even if he is not convicted of any crime. Difficulty: 3 QuestionID: 03-2-06 Topic: Punitive Damages Skill: Applied Answer: E) Ivan may be liable to Brian for punitive damages even if he is not convicted of any crime. 7. The Kingston Maroons Corp (usually known simply as the Maroons) owns and operates both a hockey team by that name and the Kingston Arena. The Maroons employ Gilbert Douglas, who is the team's star player. During a recent game, Douglas was sent to the penalty box by the referee. Unhappy with the referee's decision, Douglas slammed the penalty box door shut. That caused the protective glass attached to the penalty box to shatter. Cherie, a fan who was sitting nearby, was cut by the broken glass. The evidence proves that the accident was caused partly by Douglas's carelessness in slamming the penalty box door shut, and partly by the fact that the Maroons organization had carelessly installed the protective glass. Both Douglas and the Maroons therefore committed the tort of negligence. Which of the following statements is probably TRUE? A) The Kingston Maroons Corp. is personally liable to Cherie only if Douglas is classified as an independent contractor. B) Douglas is not personally liable to Cherie in tort because her case falls within the workers' compensation scheme. C) The Kingston Maroons Corp. and Gilbert Douglas are both liable to pay compensatory damages to Cherie. D) Douglas is relieved of personal liability if the Kingston Maroons Corp. is held vicariously liable. E) If Douglas is an employee of the Kingston Maroons, then he must be an independent contractor as well. Difficulty: 2 QuestionID: 03-2-07 Topic: Compensatory Damages Skill: Applied Answer: C) The Kingston Maroons Corp. and Gilbert Douglas are both liable to pay compensatory damages to Cherie. 8. Which of the following statements is TRUE with respect to the doctrine of vicarious liability? A) While vicarious liability provides employers with more incentive to act carefully when selecting, training, and supervising employees, it may also tend to provide employees with less incentive to act carefully as they perform their jobs. B) Vicarious liability serves tort law's compensatory function by increasing the possibility that the tortfeasor will receive damages from someone. C) A person who is injured by a tort that was committed by an employer personally can use the doctrine of vicarious liability to sue any of the employer's employees. D) As a general rule, employees who pay damages for torts that they personally committed, whether or not 8 © 2023 Pearson Canada Inc.

those torts occurred in the course of employment, are entitled to use the doctrine of vicarious liability to recover that same amount of money from their employers. E) Because personal liability and vicarious liability are separate concepts, a successful plaintiff usually is entitled to collect full damages from both the employee and the employer. Difficulty: 1 QuestionID: 03-2-08 Topic: Vicarious Liability Skill: Recall Answer: A) While vicarious liability provides employers with more incentive to act carefully when selecting, training, and supervising employees, it may also tend to provide employees with less incentive to act carefully as they perform their jobs. 9. Elise owns and operates a convenience store. Because that store is located near a high school, it loses a great deal of profit to shoplifting. Last week, Elise caught Hakan in the act of stealing a magazine. She physically detained him and called the police. The police arrived and placed Hakan in handcuffs. At that point, Elise calmly and intentionally punched Hakan in the face and said, "I've been waiting a long time for the chance to do that." Elise has a liability insurance policy that she purchased from the Pacific All Risk Insurance Co. Which of the following statements is TRUE? A) Elise almost certainly committed the tort of false imprisonment. B) Pacific All Risk Insurance will probably be required to pay damages on Elise's behalf with respect to Hakan's claim for false imprisonment. C) If Elise is found liable for the tort of battery, she will probably have to pay the damages herself. D) If Elise is found liable for the tort of battery, the police department will also be held vicariously liable for the same tort. E) Because Elise was acting on behalf of her store, a court could impose liability upon the store but not upon Elise. Difficulty: 2 QuestionID: 03-2-09 Topic: Liability Insurance Skill: Applied Answer: C) If Elise is found liable for the tort of battery, she will probably have to pay the damages herself. 10. During an argument in a nightclub, Marie deliberately slapped Caesar's face. She had done so many times before, with few consequences. On this occasion, however, the slap caused Caesar to suffer a blood clot that led to a serious injury. The medical evidence indicates that Caesar had always suffered from a rare condition that made him unusually vulnerable to such complications. Neither Caesar nor Marie had any way of knowing about that pre-existing condition. Which of the following statements is TRUE? A) An injury is never considered to be too remote if the parties were married or closely related to each other. B) The doctrine of remoteness is based on the court's desire to award compensatory damages even if the parties are not joined together by a contract. C) Because she committed an intentional tort, Marie cannot avoid liability on the basis of the general 9 © 2023 Pearson Canada Inc.

doctrine of remoteness. D) Caesar will probably receive an injunction. E) The rules of remoteness are important only if the court awards punitive damages. Difficulty: 3 QuestionID: 03-2-10 Topic: Remoteness Skill: Applied Answer: C) Because she committed an intentional tort, Marie cannot avoid liability on the basis of the general doctrine of remoteness. 11. Gawain and Julie are neighbours. Gawain committed the tort of trespass to land by smashing a window in Julie's attic with a baseball bat. Julie could have quickly and easily fixed that damage by paying a home repair company $1000. Instead, she did nothing for eight months. At the end of that period, a thunderstorm caused rain to pour into Julie's attic through the broken window. Julie then paid a home repair company $4000 to fix both the broken window and the damage caused to the attic by the rain. Which of the following statements is TRUE? A) A court would probably impose an injunction to require Gawain to fix the damage to Julie's house himself. B) The doctrine of mitigation would not apply because Gawain committed an intentional tort. C) A court would probably award Julie compensatory damages of $4000. D) A court would probably order Gawain to pay compensatory damages of $1000 and hold that Julie is responsible for the rest of her loss. E) The doctrine of mitigation is used to deter the commission of torts. Difficulty: 2 QuestionID: 03-2-11 Topic: Mitigation Skill: Applied Answer: D) A court would probably order Gawain to pay compensatory damages of $1000 and hold that Julie is responsible for the rest of her loss. 12. Which of the following statements is TRUE? A) Punitive damages cannot be awarded in addition to compensatory damages. B) Punitive damages are only available for intentional torts. C) Punitive damages are only available for unintentional torts. D) Punitive damages are usually awarded at the same time as nominal damages to ensure that the defendant is punished for the tort. E) Punitive damages may be awarded even if the defendant is not guilty of a crime. Difficulty: 1 QuestionID: 03-2-12 Topic: Punitive Damages Skill: Recall 10 © 2023 Pearson Canada Inc.

Answer: E) Punitive damages may be awarded even if the defendant is not guilty of a crime. 13. Which of the following statements is TRUE? A) Nominal damages are always awarded in addition to compensatory damages. B) In tort law, nominal damages are generally only available for torts that are actionable per se. C) Nominal damages are generally only available for the tort of negligence. D) Nominal damages are intended to punish the tortfeasor. E) The phrase "nominal damages" refers to any type of damages that have a name. Difficulty: 1 QuestionID: 03-2-13 Topic: Nominal Damages Skill: Recall Answer: B) In tort law, nominal damages are generally only available for torts that are actionable per se. 14. Which of the following statements is TRUE with respect to alternative compensation schemes? A) Most workers' compensation schemes are funded by voluntary donations from employees. B) No-fault automobile accident schemes only apply to accidents that were not the fault of either party. C) No-fault automobile accident schemes are restricted to people who are not to blame for the accidents that caused their injuries. D) Most alternative compensation schemes are funded by a tax that is imposed on damages that are awarded in tort cases. E) Workers' compensation schemes usually prevent the victim of a workplace accident from suing in tort. Difficulty: 1 QuestionID: 03-2-14 Topic: Alternative Compensation Schemes Skill: Recall Answer: E) Workers' compensation schemes usually prevent the victim of a workplace accident from suing in tort. 15. Which of the following statements is TRUE? A) Liability in tort law always requires proof of deliberate or careless wrongdoing. B) The victim of a tort is called a tortfeasor. C) Liability in tort always involves both primary and secondary obligations. D) In exceptional circumstances, a person may be imprisoned for committing a tort. E) The concept of privity is part of every tort. Difficulty: 1 QuestionID: 03-2-15 Topic: Torts and Contracts Skill: Recall

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Answer: C) Liability in tort always involves both primary and secondary obligations. 16. Christine entered into a contract with Vernon. She was required to pay $5,000 and he was to provide advice regarding a business venture that she was pursuing. If Vernon had performed properly, Christine would have earned a profit of $20,000. As a result of Vernon's negligent performance, however, Christine suffered a loss of $10,000 (in addition to the $5,000 that she had paid to Vernon). Christine wants to sue Vernon in both contract and tort. Which of the following statements is most likely TRUE? A) Christine will receive damages of $20,000 if her claim in tort is successful. B) Christine will receive damages of $5,000 if her claim in tort is successful. C) Christine must choose between tort and contract, and cannot sue for both at the same time. D) As the terms were explained in the text, Vernon owed a primary obligation in contract and a secondary obligation in tort, at the moment before her acted carelessly. E) As the terms were explained in the text, Vernon owed a primary obligation to Christine in both tort and contract. Difficulty: 3 QuestionID: 03-2-16 Topic: Torts and Contracts Skill: Applied Answer: E) As the terms were explained in the text, Vernon owed a primary obligation to Christine in both tort and contract. 17. Terry committed a tort against Julia by using her computer, without her permission, while she was away on vacation. Which of the following statements is TRUE? A) Because he breached the secondary obligation that he owed to Julia, Terry is now subject to a primary obligation to provide her with compensatory damages. B) Terry may be held liable in tort even if he has already been convicted of a crime as a result of his use of Julia's computer. C) Terry cannot be held liable in tort if he already has been convicted of a crime as a result of his use of Julia's computer. D) Julia is entitled to either sue Terry for damages in tort or prosecute him for a crime. E) Julia is entitled to an injunction that would force Terry to pay for the monetary value of his use of her computer. Difficulty: 2 QuestionID: 03-2-17 Topic: Torts and Crimes Skill: Applied Answer: B) Terry may be held liable in tort even if he has already been convicted of a crime as a result of his use of Julia's computer. 18. Which of the following statements is true regarding alternative compensation schemes? A) Alternative compensation schemes are always funded by the general body of taxpayers. B) Alternative compensation schemes are administered by private charities. 12 © 2023 Pearson Canada Inc.

C) From the victim's perspective, alternative compensation schemes are usually more generous than the tort system. D) Alternative compensation schemes are generally premised on the basis of compensation regardless of fault. E) Since they are designed to minimize time spent in court, alternative compensation schemes generally prohibit both tort claims and criminal prosecutions for wrongful acts that cause accidents. Difficulty: 2 QuestionID: 03-2-18 Topic: Alternative Compensation Schemes Skill: Recall Answer: D) Alternative compensation schemes are generally premised on the basis of compensation regardless of fault. 19. Makayla successfully sued Deacon for the tort of defamation. In that situation, the term "tortfeasor" refers to A) Makayla as the person who suffered, or was injured by, the tort. B) Deacon as the person who committed the tort. C) the traditional idea, or theory, of tort law. D) the court, which represents society's concern, or fear, or anti-social behaviour. E) the fact that Makayla's tort caused Deacon to fear that he would suffer an injury. Difficulty: 2 QuestionID: 03-2-19 Topic: Torts and Crimes Skill: Applied Answer: B) Deacon as the person who committed the tort. 20. Which of the following statements is TRUE with respect to the relationship between tort and contract? A) A plaintiff who is entitled, on the basis of the same set of facts, to sue in both tort and contract should always sue in contract because contractual damages are always worth at least as much as tort damages. B) A plaintiff who is entitled, on the basis of the same set of facts, to sue in both tort and contract should always sue in tort because tort damages are always worth at least as much as contractual damages. C) The concept of privity is fundamental in contract but does not exist in tort law. D) Damages look backwards in contract but forwards in tort. E) The obligation to behave in a certain way is considered primary in contract and secondary in tort because contract law historically developed before tort law. Difficulty: 1 QuestionID: 03-2-20 Topic: Torts and Contracts Skill: Recall

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Answer: C) The concept of privity is fundamental in contract but does not exist in tort law. 21. Werner owns a number of animals that live in and around his home. Because Werner's house is located in a secluded area, he has little interaction with people outside of his immediate family. He consequently has never received any complaints about his animals until recently. That complaint has come in the form of a tort action by Madonna, who claims that she was wrongfully hurt by one of Werner's animals. The evidence establishes that she was bitten by the animal as she knocked on Werner's door with the intention of asking him to donate to a charity. Which of the following statements is TRUE? A) Under the traditional common law rules, if the animal that bit Madonna was a wild wolverine, Werner could be held liable only if he knew that the animal was dangerous. B) Strict liability is a type of vicarious liability. C) Under the traditional common law rules, the owner of an animal may be held liable for any damage caused by the animal only if that owner intentionally or carelessly created the situation that resulted in the damage. D) There are no defences to a strict liability tort. E) Madonna may have a good claim against Werner even if he did not intentionally or carelessly cause his animal to bite her. Difficulty: 3 QuestionID: 03-2-21 Topic: Strict Liability Skill: Applied Answer: E) Madonna may have a good claim against Werner even if he did not intentionally or carelessly cause his animal to bite her. 22. Jose has sued Sharona in tort as a result of an injury that he suffered while visiting her property. Given the facts of the case, it is possible, at least in theory, for Jose to prove a number of different torts. Which of the following statements is TRUE? A) Jose is entitled to sue for a number of different torts at the same time and he is not required to sue for one particular tort that he believes will lead to the best result. B) If Jose sues for an intentional tort, he must prove that Sharona intended to cause harm to him. C) If Jose sues for a negligence tort, he must prove that Sharona deliberately neglected to protect him from harm. D) While the common law traditionally recognized a few strict liability torts, those torts frequently created unfair results, and consequently they have now been abolished in Canada. E) Because the traditional category of torts was developed in both the courts of law and the courts of chancery, that category is generally said to include both legal and equitable wrongs. Difficulty: 2 QuestionID: 03-2-22 Topic: Types of Torts Skill: Applied Answer: A) Jose is entitled to sue for a number of different torts at the same time and he is not required to sue for one particular tort that he believes will lead to the best result. 14 © 2023 Pearson Canada Inc.

23. Beverley, who is a Canadian judge, has just heard the parties' arguments in a tort case. Given the complexity of the situation, she feels the need to research the relevant law before she gives her decision. Which of the following statements is TRUE? A) Beverley will need to examine the rules pertaining to intentional torts if the case before her deals with product liability. B) Beverley will have to examine the rules pertaining to strict liability torts if the case before her deals with a conspiracy. C) Beverley will need to examine the law of defences if the case before her deals with an intentional tort but not if it deals with a strict liability tort. D) Beverley is entitled to impose liability only if she is satisfied that the defendant breached a legal obligation, even if the case deals with a strict liability tort. E) Every type of intentional tort requires proof that the defendant intended to cause the plaintiff to suffer an injury. Difficulty: 3 QuestionID: 03-2-23 Topic: Types of Torts Skill: Applied Answer: D) Beverley is entitled to impose liability only if she is satisfied that the defendant breached a legal obligation, even if the case deals with a strict liability tort. 24. You have been hired by a law reform commission to examine ways in which tort law can be used to affect behaviour. As part of that project, you have been asked to consider the level of mental culpability that the plaintiff is required to prove before the defendant can be held liable by a court. Which of the following statements is TRUE with respect to tort law as it currently exists in Canada? A) Strict liability allows people to engage in unusually hazardous activities, but also requires them to pay for any damage that occurs, even if they took every reasonable precaution. B) An intentional tort occurs only if the defendant intended to cause the plaintiff to suffer a loss. C) An intentional tort occurs only if the defendant intended to breach an obligation. D) Because of the need to discourage tortious behaviour negligence forms the smallest category of tort. E) The concept of strict liability always applies if a person intentionally causes another person to suffer an injury. Difficulty: 2 QuestionID: 03-2-24 Topic: Strict Liability Skill: Applied Answer: A) Strict liability allows people to engage in unusually hazardous activities, but also requires them to pay for any damage that occurs, even if they took every reasonable precaution. 25. Which of the following torts fall within the category of intentional torts? A) battery, false imprisonment, and negligence B) trespass to land, conspiracy, and product liability for negligently designed products 15 © 2023 Pearson Canada Inc.

C) interference with chattels, professional negligence, and product liability D) Rylands v. Fletcher, control of wild animals, and intimidation E) false imprisonment, trespass to land, and interference with chattels Difficulty: 1 QuestionID: 03-2-25 Topic: Types of Torts Skill: Recall Answer: E) false imprisonment, trespass to land, and interference with chattels 26. Which of the following torts fall within the category of strict liability torts? A) nuisance, battery, and negligence B) deceit, battery, and trespass to land C) control of wild animals and Rylands v. Fletcher D) Rylands v. Fletcher, deceit, and false imprisonment E) negligence, nuisance, and occupiers' liability Difficulty: 3 QuestionID: 03-2-26 Topic: Types of Torts Skill: Recall Answer: C) control of wild animals and Rylands v. Fletcher 27. Faye is a wildlife expert who works for a major zoo. Because her love of animals does not end when she leaves work each night, she has a number of exotic pets in her home, including a small capuchin monkey that she calls Kong. Unfortunately, although Kong had no history of violent behaviour, he viciously attacked a door-to-door canvasser named Ray who rang Faye's doorbell one evening. Which of the following statements is TRUE? A) Under the traditional common law rules, Faye cannot be held liable because Kong had not previously bitten anyone. B) Because the common law imposes unlimited and absolute liability on anyone who has control of a wild animal, Faye will be held liable for Ray's injuries and there are no defences that are available to her. C) Faye cannot be held liable unless the court is satisfied that she either carelessly controlled Kong or intentionally caused Kong to attack Ray. D) Even if she would otherwise be held strictly liable for Ray's injuries, Faye may escape liability under the defence of consent if she proves that, before ringing the doorbell, Ray freely chose to accept the risk of injury despite reading a sign that provided a clear warning about the wild animals in the house and told people to stay away. E) Liability for wild animals is a type of intentional tort. Difficulty: 3 QuestionID: 03-2-27 Topic: Strict Liability Skill: Applied 16 © 2023 Pearson Canada Inc.

Answer: D) Even if she would otherwise be held strictly liable for Ray's injuries, Faye may escape liability under the defence of consent if she proves that, before ringing the doorbell, Ray freely chose to accept the risk of injury despite reading a sign that provided a clear warning about the wild animals in the house and told people to stay away. 28. As a result of dumping toxic materials into the water supply, Acme Corp. has been held liable under the tort of nuisance to several of its neighbours. While the company's directors are concerned about the bad publicity, they do take comfort in the fact that Acme holds a liability insurance policy that applies in this situation. Which of the following statements is TRUE? A) The insurance policy requires insurance company to pay for the defence costs associated with the lawsuits that were brought against the company. B) Because of the insurance policy, the court's judgment will have a much greater deterrent effect. C) Because of the insurance policy, Acme's neighbours are entitled to be paid twice, once by Acme and again by the insurance company. D) The doctrine of the duty to defend requires Acme to defend itself against its neighbour's claims in order to protect the insurance company from having to pay any money. E) A duty to defend exists under the insurance policy only if the directors are not liable for the nuisance. Difficulty: 2 QuestionID: 03-2-28 Topic: Liability Insurance Skill: Applied Answer: A) The insurance policy requires insurance company to pay for the defence costs associated with the lawsuits that were brought against the company. 29. Case Brief 3.2 discusses the Supreme Court of Canada's decision in Non-Marine Underwriters, Lloyds of London v. Scalera. As a result of that decision A) the plaintiff in the case was more likely to receive compensation. B) liability insurance is never available if a tort is committed against a child. C) liability insurance always defeats tort law's deterrence function. D) sexual abuse may involve a crime, but it never creates liability in tort. E) the wording of a liability insurance policy may allow an insurance company to exclude coverage if the insured party intentionally committed a tort. Difficulty: 2 QuestionID: 03-2-29 Topic: Liability Insurance Skill: Recall Answer: E) the wording of a liability insurance policy may allow an insurance company to exclude coverage if the insured party intentionally committed a tort. 30. Omega Inc purchased a liability insurance policy from WorldWide Insurance Ltd. Which of the following statements is most likely TRUE? 17 © 2023 Pearson Canada Inc.

A) The insurance policy will protect WorldWide from liability in tort. B) A liability insurance policy is important only if and when a person is held liable by a court. C) The insurance policy will protect Omega only if Omega has a contract with at least one other party. D) Omega probably purchased liability insurance because it was worried that it might not be able to collect full damages if it was hurt by a tortfeasor. E) Despite issuing the liability insurance policy, WorldWide may not be required to pay damages on behalf of Omega if Omega committed a tort with the intention of deliberately hurting the victim, and if the insurance policy excludes coverage for such acts. Difficulty: 3 QuestionID: 03-2-30 Topic: Liability Insurance Skill: Applied Answer: E) Despite issuing the liability insurance policy, WorldWide may not be required to pay damages on behalf of Omega if Omega committed a tort with the intention of deliberately hurting the victim, and if the insurance policy excludes coverage for such acts. 31. Case Brief 3.2 discussed the Supreme Court of Canada's decision in Non-Marine Underwriters, Lloyd's of London v Scalera. Which of the following statements is TRUE? A) The court's decision focused on the concept of vicarious liability. B) The court held that tort law's compensatory function prohibits an employer from relying upon a liability insurance policy in a case of vicarious liability. C) The court held that an employer may be held vicariously liable for the torts of an independent contractor. D) The court held that an insurance company is entitled to rely on a term in a liability insurance policy that denies coverage if the policy holder committed a tort with the intention of causing harm. E) The court held that a liability insurance policy causes the insurance company to be held vicariously liable for the policy holder's torts. Difficulty: 3 QuestionID: 03-2-31 Topic: Liability Insurance Skill: Recall Answer: D) The court held that an insurance company is entitled to rely on a term in a liability insurance policy that denies coverage if the policy holder committed a tort with the intention of causing harm. 32. Gold Star Investment Inc is in the business of providing financial advice to clients. Alan, who is the company's managing director, hires all of the company's staff. Unfortunately, he tends to hire not on the basis of formal qualifications, but rather on the basis of physical beauty. Consequently, among Gold Star's staff are Brad and Angie, a pair of exceptionally attractive, but dull-witted, financial advisors. When Jennifer retained Gold Star to provide investment advice, her file was assigned to Brad and Angie. Through incompetence and negligence, the pair managed to lose virtually all of Jennifer's money on bad investments within a very short time. If Gold Star is held vicariously liable, A) Jennifer will not be entitled to sue Brad and Angie. B) Gold Star will have to compensate Brad and Angie if Jennifer collects damages from those two 18 © 2023 Pearson Canada Inc.

individuals. C) Gold Star will have to pay damages to Jennifer only if Brad and Angie cannot afford to do so. D) Gold Star must hold a liability insurance policy. E) If Gold Star is held vicariously liable on the basis of Brad and Angie's torts, it may be entitled to hold Brad and Angie responsible for the damages that it paid to Jennifer. Difficulty: 3 QuestionID: 03-2-32 Topic: Vicarious Liability Skill: Applied Answer: E) If Gold Star is held vicariously liable on the basis of Brad and Angie's torts, it may be entitled to hold Brad and Angie responsible for the damages that it paid to Jennifer. 33. Miriam worked as a financial advisor with Acme Investments Inc. Over the period of several years, she stole millions of dollars from the company's clients. She did so by means of a complex and carefully planned series of fraudulent transfers. The company had no reason to believe that anything was wrong until the police arrived one day and explained the entire situation to Acme's president. Which of the following statements is TRUE? A) If the company's clients sue Miriam in tort law, she automatically has the right to rely on any liability insurance policy that Acme purchased for itself. B) As a result of tort law's deterrence function, an employer is vicariously liable for every tort that an employee commits during normal business hours. C) Acme may be held vicariously liable even though it had no reason to believe that Miriam was acting improperly. D) Acme may have liability insurance against personal liability, but it cannot have liability insurance against vicarious liability. E) The doctrine of vicarious liability means that Acme has a duty to defend Miriam if she is sued in tort. Difficulty: 2 QuestionID: 03-2-33 Topic: Vicarious Liability Skill: Applied Answer: C) Acme may be held vicariously liable even though it had no reason to believe that Miriam was acting improperly. 34. Abdul worked for Primus Finance Co. Following a series of disastrous losses, several of the company's customers have sued Abdul in tort. Because Abdul has relatively little money, however, those customers also want to sue Primus Finance. Primus Finance denies vicarious liability by arguing that Abdul was an independent contractor rather than an employee. A court is more likely to decide that Abdul was an independent contractor if A) Abdul decided for himself when, where, and how he would provide services to Primus Finance. B) in order to perform his work, Abdul used an office and computer system that belonged to Primus Finance. C) the customers who are suing protected themselves against losses through insurance policies. 19 © 2023 Pearson Canada Inc.

D) Abdul committed his torts against the company's clients deliberately rather than carelessly. E) Abdul was paid a consistent amount by Primus Finance every two weeks. Difficulty: 2 QuestionID: 03-2-34 Topic: Vicarious Liability Skill: Applied Answer: A) Abdul decided for himself when, where, and how he would provide services to Primus Finance. 35. Max worked in a warehouse owned by Fortress Storage Inc. His job consisted mainly of moving and storing expensive and sensitive pieces of computer equipment that Fortress had received from its customers. Unfortunately, while Max normally was among the company's most trusted workers, he carelessly dropped a computer that belonged to HAL Inc. and that HAL had asked Fortress to store. Which of the following statements is TRUE? A) Fortress may be vicariously liable only if a court decides that Max is not liable. B) Max may be vicariously liable for Fortress's tort even if HAL's equipment was damaged while Max was doing something that Fortress had told him not to do. C) If Fortress is held vicariously liable, then HAL will be prevented from suing Max. D) The court may apply the doctrine of vicarious liability only if Fortress has liability insurance. E) As a matter of risk management, Max and Fortress both should have purchased liability insurance. Difficulty: 2 QuestionID: 03-2-35 Topic: Vicarious Liability Skill: Applied Answer: E) As a matter of risk management, Max and Fortress both should have purchased liability insurance. 36. Teach Inc. sold a computer consulting business to Blackbeard Corp. Blackbeard was persuaded to enter into that sale contract by documents that Teach had produced that suggested that Blackbeard would enjoy a profit of $1,000,000. In fact, as Teach knew, the business was really worth far less. As a result of purchasing the business, Blackbeard has actually suffered a total loss of $400,000. Blackbeard has successfully sued Teach in both tort and contract. Though it may also be entitled to other relief, Blackbeard is entitled to damages of A) $600,000 in contract. B) $400,000 in tort. C) $400,000 in contract. D) $1,000,000 in tort. E) $600,000 in tort. Difficulty: 3 QuestionID: 03-2-36 Topic: Compensatory Damages Skill: Applied

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Answer: B) $400,000 in tort. 37. Bentham Inc sued Locke Ltd in tort. The judge denied liability on the grounds of remoteness. This means that A) the tort that Locke committed was not an intentional tort. B) Locke's tort did not in fact cause Bentham's loss. C) the tort must have been committed by a person who worked for Locke as an independent contractor. D) Bentham waited too long before starting its lawsuit against Locke. E) the tort occurred outside of Canada. Difficulty: 3 QuestionID: 03-2-37 Topic: Compensatory Damages Skill: Applied Answer: A) the tort that Locke committed was not an intentional tort. 38. Paine Enterprises sued Montesquieu Corp. in tort. The court held that there had been a failure to mitigate damages. This means that A) the tort that Montesquieu committed was not an intentional tort. B) Paine may still be entitled to damages for losses that could not have been reasonably mitigated. C) Paine committed a tort that wiped out the effect of Montesquieu's tort. D) the loss that Paine suffered was not reasonably foreseeable loss to Montesquieu. E) Paine started its lawsuit against Montesquieu too late. Difficulty: 2 QuestionID: 03-2-38 Topic: Compensatory Damages Skill: Applied Answer: B) Paine may still be entitled to damages for losses that could not have been reasonably mitigated. 39. Rawls Inc. sued Nozick Ltd. in tort. The court awarded nominal damages. This means that A) Nozick must have committed the tort of negligence. B) the court held Nozick liable even though it did not know the company's name. . C) Nozick must have committed an equitable wrong rather than a legal wrong. D) Rawls did not prove that it suffered an actual loss as a result of Nozick's tort. E) Nozick must have committed the tort of defamation. Difficulty: 2 QuestionID: 03-2-39 Topic: Nominal Damages Skill: Applied Answer: D) Rawls did not prove that it suffered an actual loss as a result of Nozick's tort.

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40. Jojo suffered a catastrophic injury while she was at work. Although she strongly suspects that the accident that injured her was caused by the carelessness of one of her co-workers, she cannot prove that fact. She therefore hopes to receive compensation for her loss from a workers' compensation scheme. Which of the following statements is TRUE? A) Jojo cannot receive workers' compensation unless she can prove who caused the accident that resulted in her injury. B) If Jojo receives workers' compensation, she will likely be entitled to receive less than she would have been entitled to receive if she had been awarded damages after proving that a tortfeasor caused her loss. C) Jojo is not entitled to workers' compensation unless she voluntarily contributed money toward the workers' compensation fund. D) If Jojo is entitled to receive workers' compensation, she will receive compensation for her loss directly from her employer. E) Workers' compensation schemes operate in less than half of Canada's provinces. Difficulty: 2 QuestionID: 03-2-40 Topic: Alternative Compensation Schemes Skill: Applied Answer: B) If Jojo receives workers' compensation, she will likely be entitled to receive less than she would have been entitled to receive if she had been awarded damages after proving that a tortfeasor caused her loss. 41. Maria intends to create a new business, but she is worried that some of her workers may commit torts on the job. She therefore has asked you about employees and independent contractors. You should tell her that A) employees are always paid less than independent contractors because of the doctrine of vicarious liability. B) independent contractors are vicariously liable for employer's torts, but employees are not. C) an employer may be held vicariously liable even if a worker did not follow all of the employer's instructions. D) an employer can be held vicariously liable for an employee's torts, but only if the employer failed to properly instruct the employee. E) an employer can avoid vicarious liability by ensuring that all of its records refer to workers as "independent contractors." Difficulty: 3 QuestionID: 03-2-41 Topic: Vicarious Liability Skill: Applied Answer: C) an employer may be held vicariously liable even if a worker did not follow all of the employer's instructions. 42. Carlos has been sued for the tort of negligence while working at SKS Logistics. He failed to inspect his truck and missed seeing a failure in the brake line that caused him to get in an accident. Which of the following is true? 22 © 2023 Pearson Canada Inc.

A) SKS is not vicariously liable if it has liability insurance. B) The plaintiffs can sue SKS only if SKS specifically told Carlos not to check the brakes. C) SKS bears all of the risk and Carlos cannot be sued for acts performed on the job. D) Depending upon how SKS trained Carlos, it may be both vicariously liable and personally liable. E) Because of the need to hold companies responsible, the law prohibits SKS from acquiring liability insurance in connection with the risk of vicarious liability. Difficulty: 2 QuestionID: 03-2-42 Topic: Vicarious Liability Skill: Applied Answer: D) Depending upon how SKS trained Carlos, it may be both vicariously liable and personally liable. 43. Eve is very angry about an incident that she experienced at work last week. She says that her employer acted in a completely negligently manner when it ordered her to perform a dangerous task. Which of the following statements is most likely to be TRUE? A) If Eve's employer acted very badly, but she did not actually suffer any loss as a result of the incident, a court will award both nominal damages and punitive damages. B) The workers' compensation scheme will provide Eve with compensation only if she can prove that another employee caused her injury. C) If Eve is entitled to receive benefits under the workers' compensation scheme, she cannot sue her employer. D) If Eve receives partial relief from the workers' compensation scheme, she can sue her employer to provide compensation for the rest of her losses. E) Eve has the right to choose between suing her employer in tort and making a claim to the workers' compensation scheme. Difficulty: 3 QuestionID: 03-2-43 Topic: Alternative Compensation Schemes Skill: Applied Answer: C) If Eve is entitled to receive benefits under the workers' compensation scheme, she cannot sue her employer. 44. Within the context of alternative compensation schemes, which of the following statements is TRUE? A) Alternative compensation schemes may apply whether the cause of the claimant's injury was innocent, accidental, or deliberate. B) Alternative compensation schemes are generally thought to be inefficient because they often fail to provide full compensation. C) Workers' compensation schemes were created in order to protect employers from vicarious liability. D) Parliament created a no-fault insurance scheme for automobile accidents that applies across the country. E) No-fault insurance schemes are funded with compulsory contributions by employers. Difficulty: 2 23 © 2023 Pearson Canada Inc.

QuestionID: 03-2-44 Topic: Alternative Compensation Schemes Skill: Recall Answer: A) Alternative compensation schemes may apply whether the cause of the claimant's injury was innocent, accidental, or deliberate. 45. Which of the following statements is TRUE? A) An employer cannot be held liable for a tort that an employee deliberately committed. B) Vicarious liability supports tort law's compensation and deterrence functions. C) The duty to mitigate requires the plaintiff to use every possible means to minimize the losses caused by the tortfeasor's wrongful act. D) Injunctions are limited to cases in which the plaintiff did not suffer any loss as a result of the defendant's tort. E) Because punishment is better addressed through criminal law, a court cannot award more than $500,000 in punitive damages against a tortfeasor. Difficulty: 2 QuestionID: 03-2-45 Topic: Vicarious Liability Skill: Recall Answer: B) Vicarious liability supports tort law's compensation and deterrence functions. 46. Which of the following statements is NOT an example of an intentional tort? A) Assault B) False imprisonment C) Product liability D) Deceit E) Trespass to land Difficulty: 2 QuestionID: 03-2-46 Topic: Types of Torts Skill: Recall Answer: C) Product liability 47. An energy company has purchase liability insurance for its operations. During routine maintenance, one of the company's employees damages the property of a private individual. What is the major implication of the insurer's Duty to Defend in in this case? A) It requires the insurance company to defend at its own expense, any lawsuit that is brought against the energy company. B) It requires the energy company to defend at its own expense, any lawsuit that is brought against the insurance company. C) It creates a deterrence for the energy company not to act carelessly in the future. 24 © 2023 Pearson Canada Inc.

D) It provides a compensation fund for the plaintiff. E) None of the above Difficulty: 2 QuestionID: 03-2-47 Topic: Liability Insurance Skill: Applied Answer: A) It requires the insurance company to defend at its own expense, any lawsuit that is brought against the energy company. 48. While on a night out with friends, you trip on an unsafe floorboard at a bar. You are offered medical assistance, but you refuse believing that doing so will increase the damages you will get from the bar owner. Compensatory damages will be reduced because: A) the bar owner did not breach the duty of care. B) the bar owner owed you no duty of care. C) the damages you experience are too remote. D) there is no causation. E) you failed to take steps to minimize the losses that result from the defendant's tort. Difficulty: 2 QuestionID: 03-2-48 Topic: Compensatory Damages Skill: Applied Answer: E) you failed to take steps to minimize the losses that result from the defendant's tort. 49. Punitive damages are aimed at: A) Punishing the defendant B) Deterring others from similar conduct C) Adding to compensatory damages D) Having a narrow application in Canadian law E) All of the above Difficulty: 2 QuestionID: 03-2-49 Topic: Compensatory Damages Skill: Recall Answer: E) All of the above Essay Questions 1. Celine physically attacked Roger. She therefore committed both a tort and a crime. Briefly identify and explain any important differences between court proceedings concerning the tort and court proceedings concerning the crime. 25 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 03-3-01 Topic: Torts and Crimes Skill: Applied Answer: Roger will sue Celine for the tort of battery. Battery is a civil wrong. It is based on a private obligation that Celine owed to Roger personally. For that reason, the legal proceedings will generally be restricted to Celine as the defendant, and Roger as the plaintiff. Society is not directly involved in the matter as it is a private dispute. (Society is, however, indirectly involved in the matter because it provides the legal rules and the court system through which the claim will be resolved. Furthermore, society does, of course, prefer victims to prevail over wrongdoers.) If Roger's claim is successful, he will receive damages, most likely in the form of compensatory damages (for any losses that he suffered as a result of the attack), but possibly in the form of nominal damages (if he suffered no loss) or punitive damages (if the court believes that it is necessary to express its disapproval of Celine's reprehensible behaviour). Criminal proceedings are concerned with public wrongs. Celine would be prosecuted not because she owed an obligation to Roger personally, but rather because she owed an obligation to the community to refrain from physical attacks. Consequently, she would not be sued by Roger. Instead, she would be prosecuted by the state (which is represented by the sovereign–the Crown), which acts on behalf of society as a whole. If Celine is convicted of a crime, she will probably be punished in some manner. For instance, she may be fined or imprisoned. 2. Briefly identify and explain the manner in which tort obligations and contractual obligations generally arise. Briefly explain why tort obligations create a greater hazard for the purposes of risk management. Difficulty: 1 QuestionID: 03-3-02 Topic: Torts and Contracts Skill: Recall Answer: As a general rule, tort obligations are imposed by law. For instance, you are required to refrain from committing the tort of battery simply because you are a member of Canadian society. It is irrelevant that you never promised to do so. In contrast, contractual obligations are voluntarily created by the parties themselves. For instance, you will have an obligation to pay $10 000 to me, and I will have an obligation to transfer a car to you, only if we agree to that arrangement. Tort law consequently often creates a greater hazard for the purposes of risk management. The risks associated with a contractual obligation are relatively easy to manage because they are usually obvious and terms can be negotiated to manage contractual risks. You know that you promised to pay $10 000 to me and I know that I promised to transfer a car to you. In contrast, because tort obligations are imposed by law, they have effect even if you are entirely unaware of them. Almost everyone knows, at least implicitly, that battery is prohibited. Some torts, however, are more complicated and far less obvious. The rules regarding false imprisonment and false arrest are illustrative. As a store owner, for instance, you might honestly and reasonably believe that you are entitled to detain people suspected of shoplifting, even if they did not actually commit that crime. In fact, as discussed in this chapter, you could not have the right to do so. Moreover, by detaining an innocent person, you 26 © 2023 Pearson Canada Inc.

commit a tort. 3. Explain, from a risk management perspective, why liability insurance may be more important with respect to liability in tort than with respect to liability for breach of contract. Difficulty: 1 QuestionID: 03-3-03 Topic: Torts and Contracts Skill: Recall Answer: This question builds upon the last. Tort obligations are generally imposed by law. Contractual obligations, in contrast, are generally voluntarily created by the parties. Consequently, there is a much greater chance that a person will, without knowing it, be subject to a tort obligation. And as a result of that fact, there is a much greater chance that that person will not take active and effective steps to avoid the conduct that leads to liability in tort law. Therefore, there is a greater need to manage a risk on the back end, not by avoiding the prohibited conduct itself, but rather by purchasing liability insurance that will provide a source of funds from which damage awards can be satisfied. Of course, even that risk management tactic requires some knowledge of tort law. It is necessary to recognize, in broad terms at least, the sort of insurance protection that is needed. In contract risk can be managed, in part, by negotiation of the terms of the contract. 4. The Ozark Carnival Corp (OCC) owns a traveling fairground that it operates in shopping mall parking lots. It hired Cletus to run "The Splasher," which is one of its amusement rides. It provided Cletus with the most extensive training possible. Nevertheless, while operating The Splasher, Cletus carelessly failed to fasten the safety harness on Celia, a five-year-old passenger. Celia was thrown from the ride and suffered serious injuries. Cletus has admitted liability in negligence. Unfortunately, he has no money with which to pay Celia's damages. The court also held OCC vicariously liable for Celia's injuries. Identify and briefly explain three possible justifications for the doctrine of vicarious liability. Difficulty: 2 QuestionID: 03-3-04 Topic: Vicarious Liability Skill: Applied Answer: The text provided three possible justifications for the doctrine of vicarious liability. First, it serves the compensatory function of tort law because it allows Celia to claim damages from both Cletus (who has no money) and OCC (which is more likely to have money, or at least liability insurance), both of whom could have reasonably anticipated the risk of this harm arising from negligent use of the product. Second, vicarious liability may serve the deterrence function of tort law by providing OCC with an incentive to avoid unusually hazardous activities and to hire the best people available. Although OCC properly trained Cletus, it may be that he was beyond hope, from a risk management perspective. For instance, he may be the sort of person who simply does not pay attention, regardless of how much training he receives. Furthermore, OCC should realize that carnival rides are inherently dangerous and perhaps are not appropriate for small children, who cannot watch out for their own interests, under any circumstances.

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And finally, it may be, as a matter of fairness that OCC should take responsibility for the losses that its activities create, even if those losses are caused by the carelessness of well-trained employees. If OCC wants the profits associated with the operation of the risky business of a traveling carnival, it arguably should have to accept the costs as well. 5. Ramon cut the grass that surrounded a condominium complex owned by Acme Inc. He carelessly failed to check the ground for dangerous objects before doing so. As a result, he ran the lawnmower over a pile of rocks. One of the rocks shot out from the lawnmower and hit Irene in the eye. Irene is sure that Ramon committed the tort of negligence, but she also realizes that he has very little money. She therefore wants to claim damages from Acme Corp on the basis of the doctrine of vicarious liability. Is she entitled to do so? Do you require any additional information before answering that question? Explain your answers. Difficulty: 1 QuestionID: 03-3-05 Topic: Vicarious Liability Skill: Applied Answer: This question requires students to realize that the doctrine of vicarious liability applies only if the worker personally responsible for the commission of a tort was an employee, rather than an independent contractor. It therefore would be necessary to determine the capacity in which Ramon was cutting grass for the company. In that regard, a court would consider a number of factors. It would be more inclined to find that Ramon was an employee if: - Acme Corp controlled what he did, how he did it, when he did it, and where he did it. - Ramon used equipment (such as a lawnmower) belonging to Acme Corp. - Ramon was paid a regular wage or salary, as opposed to a lump sum at the end of each project. - Ramon was integrated into Acme Corp's business and was not in business for himself. 6. Cheyenne committed the tort of battery against Joey. A court held that Joey is entitled to recover damages from her. Identify and briefly explain three types of damages that the court might have awarded. Difficulty: 3 QuestionID: 03-3-06 Topic: Remedies Skill: Applied Answer: The court probably awarded compensatory damages. Such damages would be intended to compensate Joey for the losses and injuries that he suffered as a result of the battery. For instance, he might receive damages with respect to medical bills that he incurred or income that he lost as a result of being unable to work. Battery is actionable per se. That means that Cheyenne committed the tort merely because she made offensive bodily contact with Joey. Joey was entitled to successfully sue even if he did not suffer any loss or damage as a result of the tort. (Indeed, as discussed in Malette v Shulman, which is cited in Chapter 4, the plaintiff may succeed in an action for battery even if the defendant's actions were actually beneficial, so long as they were unwanted.) In that case, Joey would have received nominal damages. Such damages involve a very small 28 © 2023 Pearson Canada Inc.

amount of money (eg $10) and are intended to symbolize that the defendant acted wrongfully, even though she did not cause any harm. Finally, the court might have awarded punitive damages. Such damages are awarded in addition to either compensatory damages or nominal damages. They are intended to express the court's disapproval at the defendant's outrageous conduct. They deter future wrongdoing and impose a punishment on the wrongdoer. They would be appropriate, for instance, if Cheyenne's battery was particularly harsh, vindictive, high-handed, reprehensible, or malicious. 7. Sasha committed a tort against Katarina. Katarina wants to recover compensatory damages. Identify and briefly explain two doctrines that may limit the amount of money that she actually receives. Difficulty: 2 QuestionID: 03-3-07 Topic: Compensatory Damages Skill: Applied Answer: Katarina presumably is entitled to receive compensation with respect to all of the losses and injuries that she suffered as a result of Sasha's tort. However, the measure of recovery may ultimately be limited by two factors. First, compensatory damages may be denied with respect to losses that are too remote. A loss is too remote if it would be unfair to hold the defendant responsible for it. For instance, even though there may in fact be a causal connection between the commission of the tort and the creation of a particular injury, Sasha might not be held responsible if, as a matter of legal policy, it would be unfair to impose liability upon him. The issue of remoteness is decided on the basis of the reasonable person test. The court would ask whether a reasonable person in Sasha's position would have realized before the tort was committed that a certain form of conduct created a risk of the sort of harm that Katarina suffered. Significantly, however, the issue of remoteness would not apply if Sasha committed an intentional tort (though it would apply if he committed some other type of tort, such as negligence). The law has decided that people who commit intentional wrongs should not be allowed to benefit from a defence of the loss being too remote. Second, compensatory damages would be denied to the extent that Katarina unreasonably failed to mitigate a loss. The doctrine of mitigation states that the plaintiff is denied recovery if they could have, but did not, take reasonable steps to minimize the losses flowing from the defendant's tort. Suppose, for instance, that Sasha's tort caused Katarina to miss work and therefore lose income. Suppose further that while she was required to miss ten months of work, she could have been back on the job in six months if she reasonably had undergone an operation. In that situation, she would receive damages for loss of income for six months, but not for the other four. The concept of mitigation applies to all torts, including intentional torts. 8. What is an "alternative compensation scheme"? From the perspective of an injured person, what are the advantages and disadvantages of receiving relief under an alternative compensation scheme, rather than under tort law? Difficulty: 2 QuestionID: 03-3-08 29 © 2023 Pearson Canada Inc.

Topic: Alternative Compensation Schemes Skill: Recall Answer: An alternative compensation scheme is a system that allows a person who has suffered an injury to receive compensation without bringing an action in tort. Two common examples apply to injuries suffered in the workplace (workers' compensation schemes) or in traffic accidents (no-fault automobile insurance schemes). There are two main advantages to alternative compensation schemes. First, the tort system provides compensation only to those people who are injured as a result of torts and are in whole or in part innocent of fault. Many injuries, however, occur without anyone's fault. Those injuries fall outside the tort system. An alternative compensation scheme, in contrast, can provide relief in some such cases because it is not premised upon wrongdoing. A second advantage to an alternative compensation scheme is that even if an injury was caused by a tort, it may be difficult or expensive to prove that cause of action. Once again, such proof is unnecessary under an alternative compensation scheme. The most significant disadvantage of an alternative compensation scheme is that while it provides compensation more easily, more often, and to more people, it also generally provides compensation in smaller amounts. The system must work within a finite set of resources. It could not possibly provide full compensation equal to the amount obtainable at trial in court, to every person who suffered an injury. A second disadvantage is that a person who is injured as a result of another's tort may actually be prevented from suing in tort, even though such an action would yield a higher level of compensation. That is generally true, for instance, under the workers' compensation scheme (though not under all no-fault automobile accident schemes). 9. Explain how torts are classified according to the degree of mental culpability. Your answer should include examples of each category within that classification system. Difficulty: 2 QuestionID: 03-3-09 Topic: Types of Torts Skill: Recall Answer: Tort law needs to respond to a variety of social problems. In each instance, it must strike a sensitive balance between competing interests. It must, for instance, balance the defendant's right to exercise freedom of action against the plaintiff's desire to receive compensation for losses. In each instance, it must therefore strike a balance that best serves society's interests. Tort law accordingly recognizes three categories of wrongs. Each category strikes a different balance. Intentional torts require proof that the defendant intentionally acted in a certain way. The central element of intention is, however, defined in a way that is sometimes surprising. It is enough that the defendant intended to act in a certain way and the plaintiff need not prove that the defendant also intended either to act wrongfully or to inflict an injury. For example, a trespass to land occurs as long as the defendant intended to erect a fence on a particular piece of ground, even if the defendant believed that it was acting lawfully because it believed that it owned the land in question. As a result, the intentional torts provide very strong protection for the plaintiff's interests in personal well-being (eg battery), land (eg trespass to land), and personal property (eg interference with chattels). 30 © 2023 Pearson Canada Inc.

Negligence torts require proof that the defendant negligently caused the plaintiff to suffer a loss. As a result, the defendant enjoys a relatively greater degree of personal freedom. They are entitled to act in a certain way, and will not be held liable for any resulting losses unless the acts in question were performed without reasonable care for the plaintiff's interests. Strict liability torts merely require proof that the plaintiff suffered a loss as a result of a situation over which the defendant had control. The plaintiff need not further prove that the defendant either acted intentionally or acted without reasonable care. The defendant is entitled to engage in the behaviour in question, but subject to narrowly circumscribed defences, must pay for any resulting damage. Given the substantial burden upon the defendant, strict liability torts are accordingly confined to circumstances in which the defendant is engaged in some ultra-hazardous activity (eg such as the care and control of wild animals). 10. Eliza adores animals. Consequently, although she works in a small office, she brings a number of pets to work with her every day. She always brings Higgins, her poodle. Depending upon the circumstances, she often also brings Henry, her badger. For the most part, the animals cause no problems. Eliza is very conscientious and she takes every precaution to ensure that her animals do not cause any damage to the people and property around them. Unfortunately, as a result of a thunderstorm, both Henry and Higgins became unusually agitated one day at Eliza's office. And despite Eliza's best efforts to comfort and control them, they both bit Rex, a courier delivery person, as he entered Eliza's office. Eliza is very apologetic, but she does not believe that she should be liable for the losses that Rex suffered as a result of the attack. She did, after all, do her best to protect Rex from harm, both by training Henry and Higgins to behave gently toward strangers and by trying to calm them down during the storm. Based on the common law rules discussed in Chapter 3, would a court hold Eliza liable to Rex? If so, on what basis? Difficulty: 3 QuestionID: 03-3-10 Topic: Strict Liability Skill: Applied Answer: Liability for damage caused by animals depends upon the circumstances. The law draws a distinction between wild animals and tame animals. Higgins, the poodle, presumably is tame; Henry, the badger, presumably is wild. Tame animals generate liability for their owners in relatively narrow circumstances. The court must first determine whether or not Higgins, though classified as a tame animal, was unusually dangerous. If Higgins had not previously bitten anyone, and if Eliza had no reason to believe that he would hurt Rex, then she will not be held liable simply on the basis of her relationship to the dog. As explained in a footnote in the text, the law allows tame animals "one free bite." In contrast, if Eliza knew that Higgins posed a danger, perhaps because he previously had bitten someone, then she will be held liable to Rex even though she otherwise exercised reasonable care in the circumstances. Wild animals create far more serious risk-management issues for their owners. Wild animals are not entitled to "one free bite." To the contrary, they are presumed dangerous. The court consequently will hold that as Henry's owner, Eliza is strictly liable for the damage that the badger inflicted upon Rex. It is irrelevant that she otherwise acted reasonably in the circumstances 31 © 2023 Pearson Canada Inc.

The question requires the case to be decided on the basis of the traditional common law. Some students might nevertheless also mention that some Canadian jurisdictions have enacted legislation that make dog owners strictly liable, in much the same way that wild animals generate strict liability. If such a statute applied in this case, then Eliza might be held liable for the damage that Higgins inflicted upon Rex, even if Eliza had no reason to believe that Higgins might behave in such a way. 11. The provincial government has become very concerned about the number of torts that occur each year that result in personal injuries. Aside from the human misery that they cause, those accidents cost society a great deal of money. A tort victim cannot be a productive member of the work force while they are recuperating at home or in hospital. The provincial government consequently has asked you to prepare a report on how the rules in tort law might be reformed to more effectively deter tortious behaviour. Your report should include a discussion of (a) the availability of liability insurance, and (b) the rules of vicarious liability. You have also been asked to consider whether it is always desirable to deter activities that may result in tortious losses. Difficulty: 3 QuestionID: 03-3-11 Topic: Liability Insurance, Vicarious Liability Skill: Applied Answer: Deterrence is said to be one of the primary goals of tort law (compensation being the other). As explained in the text, however, the empirical evidence suggests that tort law actually does surprisingly little to prevent wrongful injuries. It therefore is open to debate as to whether there is anything that the provincial government can do, within reasonable boundaries, to substantially increase tort law's deterrent effect. It is also important to appreciate that there is a danger of too much deterrence. Costs are associated with every type of behaviour. At some point, those costs will become prohibitively high and people will avoid certain types of socially useful activities. In some cases, that might well be desirable (eg it might be desirable to eliminate certain forms of behaviour that cause injuries and contribute little benefit to society). In other situations, however, it is preferable to allow the activity to occur, even knowing that accidents occasionally will happen (eg it is desirable for some physicians to work in obstetrics despite the risk of medical mishap). People will engage in those activities, however, only if they are able to reasonably protect themselves against the risk of personal liability. (a) Liability insurance tends to diminish the deterrent effect of tort law. The fear of being held liable in tort consists not so much of the stigma of being branded a tortfeasor, but rather the financial consequences of being held responsible for the plaintiff's injuries. Because a person with liability insurance is relieved of the need to personally pay for the expenses associated with litigating a lawsuit and satisfying an award of damages, tort law holds relatively little to fear. Consequently, it would seem that tort law's deterrent effect could be enhanced by abolishing or narrowly confining the availability of liability insurance. However, a person who is consistently negligent may pose too great a risk to insurers to obtain insurance therefore the insurance market itself may deter tortious behaviour. Abolishing or limiting the availability of liability insurance is not an efficient means to increase the deterrence effect of tort law. Tortfeasors very often do not have sufficient funds to satisfy awards of damages. Tort 32 © 2023 Pearson Canada Inc.

judgments often are satisfied only because an insurance company pays damages on behalf of the tortfeasor. No socially useful purpose is obtained by denying innocent victims of tort recovery by abolishing liability insurance. (b) Vicarious liability often allows the victim of a tort to recover damages from the employer of a tortfeasor as long as the tort occurred within the context of employment. To the extent that vicarious liability can be used to deter wrongful behaviour, it appears that it already does so. For instance, the doctrine encourages employers to exercise care in hiring and training employees. It would be difficult to expand the scope of the doctrine any further without creating results that are intolerably unfair to employers (eg by extending vicarious liability to any tort committed by an employee, regardless of context). One possibility, however, is to extend vicarious liability beyond employees to include torts committed by independent contractors (to whom the doctrine currently does not apply). In some situations, it already is difficult to draw a distinction between employees and independent contractors. In that sense, the proposed development would not create any greater sense of unfairness to employers. In other situations, however, such a development arguably would create intolerable hardship. Many independent contractors work entirely independently. The parties that hire them have little, if any, real control over their activities. It therefore would be relatively more difficult to justify the imposition of vicarious liability to all independent contractors. 12. Until recently, Tamara worked in a warehouse, earning $3,000 a month. She was required to quit her job, however, after being injured in a skiing accident that was tortiously caused by Buck. That injury required Tamara to spend two months in the hospital. After being discharged from the hospital, Tamara was further required to complete an intensive physiotherapy program over the course of a month. At the end of that month, her physician told her that while she could never return to work in a warehouse, she should immediately take up employment in a less demanding (and lower paying) job. Nevertheless, for the next two months, Tamara chose to do nothing at all beyond watching television and listening to music. As her financial difficulties deepened, she eventually decided to re-train as a secretary. She therefore enrolled in a three-month secretarial course, for which she was required to pay a total of $3,000. At the end of that course Tamara promptly returned to workforce, this time as a secretary at a salary of $2,000 per month. Exactly one year has now passed since Tamara began working as a secretary. How much is she entitled to receive from Buck by way of damages for lost income in the past? Difficulty: 3 QuestionID: 03-3-12 Topic: Compensatory Damages Skill: Applied Answer: As a general rule, Buck is required to compensate Tamara for the loss of income that she suffered as a result of the tort. Damages will, however, be reduced to the extent that Tamara unreasonably failed to mitigate her losses. It is easiest to calculate the final total in four stages. First, Buck undoubtedly is liable for the loss of income that Tamara suffered immediately after the accident, when she was hospitalized and in physiotherapy, and consequently unable to mitigate her losses by working. That period lasted for three months. Because Tamara lost income of $3,000 per month, she is entitled to receive $9,000.

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In the following two months, Tamara did not receive any income, but the explanation was not so much Buck's tort, as Tamara's voluntary choice to remain idle. Consequently, because she unreasonably failed to mitigate her damages while staying at home for two months, she will likely be denied compensation for that period. Tamara then missed another three months of work as a result of her decision to retrain as a secretary. In addition to the loss of income, that course also cost Tamara $3,000. Because those losses are attributable to Tamara's reasonable efforts to mitigate her losses, she is entitled to compensation from Buck in the amount of $12,000 ($3,000 for the course $3,000 per month for 3 months for loss of income). Finally, when Tamara did return to work, she did so at a lower rate of pay. She consequently worked for 12 months at a salary of $2,000 per month, rather than $3,000 per month. Buck is liable for the cumulative loss of $12,000 of income ($3,000 − $2,000 = $1,000 × 12 month = 12,000) under this heading. Buck will also have to compensate Tamara for her future loss of income after the date of trial. That calculation may be a matter of some difficulty of calculation but that does not relieve Buck from the responsibility for compensating Tamara for her post-trial future loss of income or income earning capacity. Adding all of the damages together, Buck's liability for past loss of income is $33,000 ($9,000 $12,000 $12,000). Buck will, of course, also be liable for the damages resulting from the fact that Tamara will continue to suffer a reduced income in the future, and for the damages for Tamara's expenses connected to her medical treatment and physiotherapy in the past and to the extent they can be proved as a substantial possibility, in the future. 13. Sinead owns a cottage that has been in her family for generations. Until recently, the natural beauty of the property was enhanced by surrounding forest, which consisted of old-growth trees that had taken generations to reach full maturity. Sinead was therefore devastated when she last visited her cottage and discovered that all of those trees had been cut down and dragged away. It was not difficult to identify the culprit. Xarol Developments Inc had purchased a number of nearby properties with the intention of building new, luxury cottages for the high-end market. In order to add to the value of those properties, Xarol had entered onto Sinead's land and cut down her trees, thereby allowing the new cottages that it was building to have unobstructed views of the nearby lake. Xarol has admitted to committing a trespass to land and has offered to pay for the value of the trees. It does so secure in the knowledge that it would still reap a substantial profit of $100,000 from its actions as a result of being able to sell its new cottages for higher prices. Sinead disagrees. She believes that she is entitled, in addition to compensatory damages for her loss, to punitive damages worth $5 million. She settled on that figure after watching a television program that dealt with punitive damages in American courts. (She could not find a similar program on Canadian law.) Is a Canadian court likely to award punitive damages? If so, it is likely to award punitive damages worth $5 million? Explain your answer. Difficulty: 2 QuestionID: 03-3-13 Topic: Punitive Damages Skill: Applied Answer: Punitive damages are available in Canadian tort law where the tortfeasor breaches an obligation in a "harsh, vindictive, reprehensible and malicious" manner. The facts of this case are based on Horseshoe Bay 34 © 2023 Pearson Canada Inc.

Retirement Society v SIF Developments Corp (mentioned in Chapter 3 at note 36) in which that test was satisfied. In Horseshoe Bay Retirement Society, however, the court awarded punitive damages of only $100,000. Furthermore, the highest amount of punitive damages ever awarded by a Canadian court was $1 million (in Whiten v Pilot Insurance Co, which is mentioned in Chapter 3 at note 37). As a matter of precedent, it therefore is unlikely that Xarol would be held liable for punitive damages of anything near $5 million. The court would instead likely calculate punitive damages at something near $100,000. That amount would both deter future wrongdoers and ensure that Xarol did not profit from its tort. Sinead was misled by the television program that she watched that dealt with punitive damages in the United States. Punitive damages are awarded much more often, and in much higher amounts, by American courts. 14. Alpha Corp owns a large plot of land called Blackacre. Except for one corner of that property, where Alpha's factory, offices, and warehouse are located, Blackacre is undeveloped. Omega Inc owns a piece of land that shares a common border with Blackacre. That border is located at the edge of an undeveloped section of Blackacre. Omega's property contains a number of buildings, including a manufacturing plant. That plant generates a considerable amount of waste. For the past 10 months, Omega has greatly reduced its waste disposal expenses by simply dumping its waste onto Blackacre, rather than transporting the waste to a proper dumpsite. Alpha objected to the waste from the outset and initially tried to resolve the issue through friendly negotiations. It eventually became clear, however, that Omega would not voluntarily stop dumping waste onto Blackacre. Alpha consequently sued Omega for trespass to land. The court agreed with the claim and imposed liability upon Omega. The judge is now required to decide which remedy or remedies Alpha is entitled to receive. In that respect, Alpha has shown three things. (i) It will cost $75 000 to remove Omega's waste from Blackacre. (ii) Omega will dump waste onto Blackacre again in the future unless there is something to prevent it from doing so. And (iii) Deliberate dumping of this sort has become a widespread problem because manufacturers, such as Omega, often believe that while the expense of properly disposing of waste material is much the same whether the work is done immediately or whether it is done only after a court has imposed liability, there is always a chance that the victim of a tort will not, for some reason, actually take the problem to court. Consequently, manufacturers often believe that there is little to lose, and potentially much to gain, by tortiously dumping waste on neighbouring properties. What remedies should be awarded against Omega on these facts? Difficulty: 2 QuestionID: 03-3-14 Topic: Compensatory Damages, Punitive Damages, Inunctions Skill: Applied Answer: The facts demonstrate three distinct problems, each of which should receive a specific response. Compensatory damages should be awarded with respect to the loss that Alpha has suffered as a result of Omega's trespass to land. The purpose of compensatory damages in tort is to place the plaintiff in the position that it was in before the tort was committed. In this case it will cost $75 000 to remove the waste from Blackacre, and to thereby put Blackacre and Alpha back into their original conditions.

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Injunctive relief should be awarded in order to prevent Omega from dumping waste onto Blackacre in the future. The obligation that underlies the tort of trespass to land in this case already prohibits Omega from dumping waste onto Blackacre. As the evidence indicates, however, that obligation is not enough to deter Omega. Nor, as the evidence further indicates, is the threat of monetary damages sufficient to deter Omega. A court would therefore impose an injunction on Omega. Alpha is entitled to have its rights respected. Punitive damages should also be awarded. Punitive damages are intended to punish "harsh, vindictive, reprehensible and malicious behaviour" and in doing so, to deter other potential tortfeasors from disregarding their obligations. The facts in this case seem especially well-suited to such relief for two reasons. First, it is clear that Omega deliberately and cynically committed trespass to land, and continued to do so even after Alpha had asked it to stop. Second, it is also clear that the threat of mere compensatory damages is not sufficient to deter this sort of cynical breach as the breach is being done in expectation of profit being made by lack of detection. 15. Bondi Shipping Corp steered its ship, The Surf, into a dock that was owned by Bradman Inc. Bondi intended to make certain repairs to The Surf. During the course of those repairs, Bondi's employees carelessly allowed a chemical, known as australite, to leak into the water surrounding the dock. The australite, which floated on the surface of the water, caught fire after sparks from a welding gun that Bondi's employees were using fell into the water and onto the australite. The flames spread quickly and Bradman's dock was entirely destroyed. The total cost of the damage is $2 million. The court has found that Bondi is vicariously responsible for the actions of its employees, and that those employees committed the tort of negligence when they carelessly allowed australite to leak out of The Surf and onto the water. The court also found that while it is now obvious that australite is flammable in some circumstances, no one knew (or could have known) at the time of the accident that australite is flammable. Will Bondi be held liable to Bradman for compensatory damages? Provide the best explanation for your answer. Difficulty: 2 QuestionID: 03-3-15 Topic: Compensatory Damages Skill: Applied Answer: The facts of this question are based on one of the leading case on remoteness: Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd(The Wagon Mound No 1) [1961] 1 AC 388 (PC). Bondi will likely not be held liable for Bradman's loss. Bondi is vicariously liable for its employees' actions. It therefore will be held liable only if those employees could be held liable. It initially may appear that those employees could be held liable to Bradman. They committed the tort of negligence, and that tort, as a matter of fact, caused Bradman's dock to burn down at a cost of $2 million. However, as explained in the text, compensatory damages generally are limited by the doctrine of remoteness. Regardless of a factual connection between a tort and a loss, the defendant generally will not be held liable if the loss is too remote from the wrong. In this case, it would be unfair to hold the employees liable, or Bondi vicariously liable, for a fire that no one knew, or could have known, might occur. Reasonable people are expected to guard against reasonably foreseeable risks. They simply cannot take precautions against risks that were not foreseeable. Bradman consequently will suffer the full burden of the accident unless it insured the dock–a point that was not discussed in this chapter, but that will be discussed in Chapter 17. 36 © 2023 Pearson Canada Inc.

16. While driving home you run a red light and crash into an oncoming vehicle. Both vehicles suffer damage. There is a no-fault insurance scheme operating in your province. Explain the advantages and disadvantages of this alternative compensation scheme. QuestionID: 03-3-16 Answer: Tort law is fault-based. It provides compensation only if a person is injured as a result of a wrongful act. From the victim's perspective, however, the physical and financial consequences of being injured are the same even if an injury occurs innocently. Consequently, it is sometimes desirable to allow that person to collect compensation regardless of fault. Also tort law is inefficient. Since it is based on an adversarial system in which lawyers compete on behalf of clients, it requires a great deal of time and expense. Studies suggest that less than one-third of all the money involved in the tort system is actually used for compensating injuries. Because alternative compensation schemes operate on a no-fault basis, there is far less need for costly investigations and lengthy disputes. However, while no fault schemes provide compensation more often, they also provide less of it. In tort law, the plaintiff is usually entitled to recover the full value of a loss. In alternative compensation schemes, however, the level of compensation is almost always capped. Because they include many more claimants, such schemes would quickly go broke if they provided full compensation for every loss.

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Managing the Law, 6e (McInnes) Chapter 04: Intentional Torts True/False Questions 1. As a practical joke on April Fools' Day, Hannah put a mask over her face, carried a toy gun, and knocked on the door of her good friend, Woody. When Woody opened the door and saw the apparent intruder, he fainted and hit his head on a wall. Hannah may be held liable for assault even though she did not intend to cause any harm to Woody. a True b False Difficulty: 2 QuestionID: 04-1-01 Topic: Assault and Battery Skill: Applied Answer: a. True 2. Axl was physically detained by two security guards who worked for a department store. Axl is entitled to sue for false imprisonment only if he proves that the security guards knew that he had not committed any crime. a True b False Difficulty: 2 QuestionID: 04-1-02 Topic: False Imprisonment Skill: Applied Answer: b. False 3. Detlef, who was shopping in a store, was approached by two security guards who asked him to accompany them to a back room "to see the manager." When he asked the purpose for the request, he was told that he was "under suspicion." Detlef complied with the request because he wanted to avoid a public spectacle. He will not be able to successfully sue the security guards or the store unless he proves that someone, at some point, made physical contact with him. a True b False Difficulty: 2 QuestionID: 04-1-03 Topic: False Imprisonment Skill: Applied Answer: b. False 1 © 2023 Pearson Canada Inc.

4. Zirka owns a vacant piece of land. Without her consent or knowledge, Jonathan has been using that property as a motorcycle race course. She can sue him for both trespass and conversion. a True b False Difficulty: 2 QuestionID: 04-1-04 Topic: Trespass to Land, Interference with Chattels Skill: Applied Answer: b. False 5. The most significant advantage to the tort of detinue is that it gives the plaintiff an absolute right to recover the disputed property, whereas the tort of conversion only allows the plaintiff to recover the monetary value of the disputed property. a True b False Difficulty: 3 QuestionID: 04-1-05 Topic: Detinue Skill: Recall Answer: b. False 6. Jules and Jim are neighbours. Because their relationship was poor, Jules built a high fence to prevent Jim from looking into his backyard. Although Jules did not realize it at the time, he has since been informed that the fence sits partially on Jim's property. In this situation, the judge may award an injunction that requires Jules to remove the fence from Jim's property, even though Jules did not deliberately commit any tort. a True b False Difficulty: 2 QuestionID: 04-1-06 Topic: Trespass to Land Skill: Applied Answer: a. True 7. Irrespective of the usual terminology, an intentional tort may be committed either intentionally or carelessly in some circumstances. a True b False

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Difficulty: 3 QuestionID: 04-1-07 Topic: Introduction Skill: Recall Answer: a. True 8. Fabio is a small-time criminal. In order to rob Gigi's house, he called her on the telephone, pretended to be a police officer, and falsely told her that her son had been admitted to a hospital with a lifethreatening injuries. When she frantically made her way to the hospital, Fabio broke into her house and stole her valuable goods. Among the causes of action that Gigi may pursue, she likely has a good claim against Fabio for the tort that was first recognized in Wilkinson v Downton. a True b False Difficulty: 3 QuestionID: 04-1-08 Topic: Invasion of Privacy Skill: Applied Answer: a. True 9. Necessity, consent, and provocation are all classified as complete defences. a True b False Difficulty: 1 QuestionID: 04-1-09 Topic: Partial Defences Skill: Recall Answer: b. False 10. The defendant will be held liable for the tort of assault as long as the court is satisfied that the plaintiff believed that offensive bodily contact was imminent even though that belief was unreasonable. a True b False Difficulty: 2 QuestionID: 04-1-10 Topic: Assault and Battery Skill: Recall Answer: b. False 11. Cassie is an internationally famous model. Her tremendous success is due to a combination of her 3 © 2023 Pearson Canada Inc.

stunning good looks and the "clean-living" image that she has carefully cultivated. That image was dealt a devastating blow, however, after a newspaper printed a photograph of her emerging from a building, along with a caption that explained that the building belonged to Clean Horizons. The caption further explained that Clean Horizons is a support centre for people who are addicted to various types of illegal drugs. Even though Cassie was photographed in a public place, she may, according to an English court decision, successfully sue for a tort of abuse of private information. a True b False Difficulty: 3 QuestionID: 04-1-11 Topic: Invasion of Privacy Skill: Applied Answer: a. True 12. Marshall is an internationally famous musician. His wedding was one of the best publicized events of the past year. Because of his dislike of the media, however, he strictly forbade anyone other than invited guests from attending the ceremony, which was held within his tightly guarded estate. Despite the presence of dozens of security personnel, however, Kimberley, a freelance photographer, managed to sneak onto Marshall's property and capture the entire wedding on film. If these facts were analyzed from the perspective of the traditional Canadian rules in tort, in a jurisdiction without a statute that creates a tort of invasion of privacy, Kimberley would be be held liable for both a trespass to land and common law invasion of privacy. a True b False Difficulty: 2 QuestionID: 04-1-12 Topic: Invasion of Privacy Skill: Applied Answer: b. False 13. George is a famous water-skier. He uses a distinctive photograph of himself water-skiing for commercial purposes. Media Visions Inc. a public relations firm copied that photo and made a line drawing out of it. It then used that drawing in a brochure that it prepared for an organization that operated summer camps for children. The brochure did not identify George by name. Nor did it try to associate George with the camp. The brochure was merely intended to inform the public that waterskiing was one of the activities that were offered at the summer camps. Nevertheless, anyone who was familiar with George would immediately recognize that his image was on the brochure. Media Visions may be held liable to George on the basis of a tort known as misappropriation of personality. a True b False Difficulty: 1 4 © 2023 Pearson Canada Inc.

QuestionID: 04-1-13 Topic: Invasion of Privacy Skill: Applied Answer: a. True 14. Rocky sued Angela for the tort of malicious prosecution. Even if the other elements of the tort are proven, Angela will not be held liable if she satisfies the court her actions were a product of an honest, though foolish, mistake. a True b False Difficulty: 1 QuestionID: 04-1-14 Topic: False Imprisonment Skill: Applied Answer: b. False 15. The right of recaption is used by a person who wants to recover a piece of land that another person is wrongfully occupying. a True b False Difficulty: 2 QuestionID: 04-1-15 Topic: Detinue Skill: Recall Answer: b. False 16. Canadian tort law contains a general claim for invasion of privacy a True b False Difficulty: 2 QuestionID: 04-1-16 Topic: Invasion of Privacy Skill: Recall Answer: b. False 17. You may take a photo of someone without their consent and publish it in a magazine as long as they are in a public place. a True b False 5 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 04-1-17 Topic: Invasion of Privacy Skill: Recall Answer: b. False 18. Traditional torts such as trespass to land can be used to protect privacy interests a True b False Difficulty: 2 QuestionID: 04-1-18 Topic: Invasion of Privacy Skill: Recall Answer: a. True Multiple Choice Questions 1. Francisco parked his car on a street and went shopping. While he was away, Joyce damaged Francisco's car by scratching it with a set of keys. Before she did so, the car was worth $5,000. Afterwards, it was worth $4,000. Which of the following statements is TRUE? A) Joyce has committed the tort of detinue. B) A court would probably award Francisco nominal damages worth $1,000. C) Francisco should exercise a right of recaption. D) Joyce has committed the tort of battery because she made offensive contact with Francisco's personal belongings. E) Joyce has committed a tort in connection with Francisco's chattel. Difficulty: 2 QuestionID: 04-2-01 Topic: Trespass to Chattels Skill: Applied Answer: E) Joyce has committed a tort in connection with Francisco's chattel. 2. Maureen alleges that Joe committed an intentional tort against her. To succeed in that claim, Maureen must satisfy the court that A) Joe intended to cause harm. B) Joe intended to commit some tort, even if it is not the same tort that he actually committed. C) Joe knew that the tort in question existed, even if he did not intend to commit it. D) Joe intended to act in a certain way, even if he did not know that that action was wrongful. E) Joe had previously promised Maureen that he would not act in a particular way.

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Difficulty: 2 QuestionID: 04-2-02 Topic: Introduction Skill: Applied Answer: D) Joe intended to act in a certain way, even if he did not know that that action was wrongful. 3. Marco was secretly in love with Kylie, who is his roommate. Each night as she slept, he gently kissed her once on her lips. Kylie became very upset when she learned about Marco's behaviour. She had always regarded him as a good friend, but nothing more. Which of the following statements is TRUE? A) Marco has not committed the tort of battery because Kylie was asleep when he kissed her. B) Marco has not committed the tort of battery because Kylie did not suffer any physical injury as a result of being kissed. C) Marco has committed the tort of battery even though Kylie was asleep when he kissed her. D) Marco has not committed the tort of assault because Kylie did not suffer any physical injury as a result of being kissed. E) Marco has not committed any tort because Kylie was his roommate and because his actions therefore were merely normal social interaction. Difficulty: 3 QuestionID: 04-2-03 Topic: Battery Skill: Applied Answer: C) Marco has committed the tort of battery even though Kylie was asleep when he kissed her. 4. Which of the following situations would most likely allow Brian to successfully sue April for the tort of battery? A) April smashed a bottle against Brian's car while he was asleep in his bed. B) April aimed a loaded gun at the back of Brian's head without his knowledge. C) April used a knife to slice a hole in a shirt that Brian was wearing. D) After Brian was brought into a hospital in an unconscious condition, April, who is a surgeon, performed a life-saving operation that Brian would have requested if he had been conscious. E) April, who is a security guard, gently tapped Brian on his shoulder to get his attention during a consensual fight between April and Brian. Difficulty: 2 QuestionID: 04-2-04 Topic: Assault and Battery Skill: Applied Answer: C) April used a knife to slice a hole in a shirt that Brian was wearing. 5. Which of the following situations is most likely to allow Derek to successfully sue Mila for the tort of assault? A) Mila ate a peanut butter sandwich, not knowing that Derek, who was sitting nearby, was terrified 7 © 2023 Pearson Canada Inc.

because he has a life-threatening allergy to peanuts. B) Mila angrily pointed a gun at Derek, which she thought was loaded, but which Derek knew was a completely harmless toy. C) Mila put poison into Derek's meal without his knowledge. D) Mila told Derek that she would kill him at the end of one year if he did not pay $100 000 to her in the meantime. E) Mila angrily swung her fist at Derek, but did not actually hit him. Difficulty: 2 QuestionID: 04-2-05 Topic: Assault and Battery Skill: Applied Answer: E) Mila angrily swung her fist at Derek, but did not actually hit him. 6. Sandra could successfully sue Prem for the tort of A) false imprisonment if he refused to let her into his store. B) invasion of privacy by common law tort, if he told a newspaper secret information that she had disclosed to him. C) battery if he spit on her. D) trespass of image if, without her authority, he used a picture of her to attract customers to his store even though Sandra is not in any way a celebrity. E) detinue if he refused to leave her land after she asked him to do so. Difficulty: 1 QuestionID: 04-2-06 Topic: Assault and Battery Skill: Applied Answer: C) battery if he spit on her. 7. Which of the following situations would allow Dudley to successfully sue Inga for the tort of false imprisonment? A) Inga, who works as a security guard in a store, physically detained Dudley after she caught him shoplifting and Dudley consented to that detention. B) Inga, who works as a security guard in a store, verbally coerced Dudley, who thought he had no option, into remaining in a back room after she reasonably, but incorrectly, suspected him of shoplifting. C) Dudley was detained by the police after Inga, who works as a security guard in a store, honestly, but incorrectly told the police that Dudley was shoplifting. D) Inga, who works as a police officer, detained Dudley after she reasonably, but incorrectly, suspected him of shoplifting. E) Inga, a bus driver, refused to make an unscheduled stop for Dudley, even though she easily could have done so. Difficulty: 2 QuestionID: 04-2-07 8 © 2023 Pearson Canada Inc.

Topic: False Imprisonment Skill: Applied Answer: B) Inga, who works as a security guard in a store, verbally coerced Dudley, who thought he had no option, into remaining in a back room after she reasonably, but incorrectly, suspected him of shoplifting. 8. Which of the following statements is TRUE? A) A false imprisonment occurs even if the alleged victim could easily escape. B) A false imprisonment usually occurs though the victim consented to being detained. C) False imprisonment is just one type of a larger tort that is known as malicious prosecution. D) A restaurant generally has the authority to detain a customer who honestly disputes a bill. E) A storekeeper may in certain circumstances commit the tort of false imprisonment by directing the police to detain a suspected shoplifter, even if the storekeeper does not personally detain the suspect. Difficulty: 1 QuestionID: 04-2-08 Topic: False Imprisonment Skill: Recall Answer: E) A storekeeper may in certain circumstances commit the tort of false imprisonment by directing the police to detain a suspected shoplifter, even if the storekeeper does not personally detain the suspect. 9. Anna believes that Hugh has infringed her right to privacy. He took a photograph of her sunbathing on a secluded beach, and then published it in a magazine. She has sued him. Which of the following statements is TRUE? A) Hugh has committed the tort of conversion because he turned Anna's image into a profit-making scheme. B) Every province and territory in Canada has a privacy statute that would allow Anna to successfully sue Hugh for damages. C) Hugh has committed the tort of trespass to person. D) Hugh has committed the tort of false imprisonment if Anna is so embarrassed by the photograph that she refuses to leave her house. E) Unless the facts occurred in Quebec, Anna may have to persuade the court to adopt the decision in Aubry v Éditions Vice-Versa Inc. Difficulty: 2 QuestionID: 04-2-09 Topic: Invasion of Privacy Skill: Applied Answer: E) Unless the facts occurred in Quebec, Anna may have to persuade the court to adopt the decision in Aubry v Éditions Vice-Versa Inc. 10. Which of the following situations would allow Jocky to successfully sue Lydia for some type of trespass? A) Lydia took a photograph of Jocky without his permission. 9 © 2023 Pearson Canada Inc.

B) Lydia, who works for the city as a meter reader, walked into Jocky's backyard even though he had not given her permission to do so. C) Without actually entering the physical premises, Lydia painted a picture of Jocky's mansion without his permission. D) Lydia, who is a police officer, entered Jocky's house to perform a search warrant. E) Lydia installed a pool in Jocky's backyard while he was on vacation because she mistook his house for the house of his neighbour, who had requested the pool. Difficulty: 1 QuestionID: 04-2-10 Topic: Trespass to Land Skill: Applied Answer: E) Lydia installed a pool in Jocky's backyard while he was on vacation because she mistook his house for the house of his neighbour, who had requested the pool. 11. Anoop owns and operates a movie theatre. Which of the following situations would most likely allow Anoop to successfully sue Samantha for the tort of trespass to land? A) Samantha, who works for a utility company, walked around the property during the day while the theatre was not open, and without Anoop's knowledge, in search of a gas meter. B) Samantha, who had shown her ticket to one of Anoop's employees when she entered the theatre, refused to show her ticket again when leaving the theatre. C) Samantha talked very loudly during a movie, disrupting the showing of the movie to the extent the movie show could not carry on. Then she refused to leave after Anoop lawfully asked her to do so and offered to refund the price of her ticket to her. D) Samantha, who had purchased a ticket, refused to accept a refund and leave after Anoop asked her to do so because he objected to her religious beliefs. E) Samantha walked up to the front of the theatre to see the movie posters even though Anoop had not expressly given his permission for her to do so. Difficulty: 2 QuestionID: 04-2-11 Topic: Trespass to Land Skill: Applied Answer: C) Samantha talked very loudly during a movie, disrupting the showing of the movie to the extent the movie show could not carry on. Then she refused to leave after Anoop lawfully asked her to do so and offered to refund the price of her ticket to her. 12. Elliot and Margaret are neighbours. Elliot built a swimming pool in his backyard at a cost of $10 000. That pool increased the value of Elliot's property by $15 000. One side of that pool extends 1 metre onto Margaret's property. It would cost $7000 to rebuild the pool so that it does not touch Margaret's land. Which of the following statements is TRUE? A) Margaret is entitled to compensatory damages of $15 000. B) Margaret is entitled to compensatory damages of $10 000. C) Margaret is entitled to compensatory damages of $7000. 10 © 2023 Pearson Canada Inc.

D) Margaret is entitled to receive an injunction even if she consented to the location of Elliot's pool. E) Even though Elliot's pool trespasses on Margaret's property, a court will likely not award an injunction to Margaret, especially if Elliot did not deliberately commit the tort and Elliot agrees to rebuild the pool to remove the trespass. Difficulty: 2 QuestionID: 04-2-12 Topic: Trespass to Land Skill: Applied Answer: E) Even though Elliot's pool trespasses on Margaret's property, a court will likely not award an injunction to Margaret, especially if Elliot did not deliberately commit the tort and Elliot agrees to rebuild the pool to remove the trespass. 13. Which of the following statements is TRUE? A) Chattels are immoveable forms of personal property. B) A trespass to chattels requires proof that the plaintiff's property was damaged. C) The tort of conversion usually leads to a forced sale in that the defendant is compelled to pay damages to the victim equal to the market value of the property converted. D) The tort of detinue can never be committed unless the plaintiff first asks the defendant to voluntarily return the disputed property. E) The right of recaption only applies to the recovery of land. Difficulty: 1 QuestionID: 04-2-13 Topic: Conversion Skill: Recall Answer: C) The tort of conversion usually leads to a forced sale in that the defendant is compelled to pay damages to the victim equal to the market value of the property converted. 14. Johan owns an antique chair that has been in his family for generations. During a party at his house, Esther carved her initials into the underside of the chair's seat. She did so because she felt publicly humiliated after Johan had refused to dance with her. The chair has not been destroyed, but it will cost $10 000 to repair the damage. Johan would like to repair and retain the chair. Which of the following statements is TRUE? A) For remedial purposes, Johan should sue for the tort of detinue. B) For remedial purposes, Johan must sue for the tort of conversion. C) For remedial purposes, Johan should sue for the tort of trespass to chattels. D) Johan should ask the court to award an injunction. E) Because the damage can be repaired, Esther cannot be held liable for punitive damages. Difficulty: 2 QuestionID: 04-2-14 Topic: Trespass to Chattels Skill: Applied 11 © 2023 Pearson Canada Inc.

Answer: C) For remedial purposes, Johan should sue for the tort of trespass to chattels. 15. Yvonne used Benoit's bicycle. Which of the following factors would best support Benoit's action in detinue? A) Yvonne honestly believed that the bike belonged to her. B) Yvonne used the bike only once and only because there was an emergency. C) Yvonne did not cause any damage to the bike. D) Yvonne has refused to return the bike to Benoit even though he has sued her for its return. E) Benoit had intended to sell the bike to his brother. Difficulty: 1 QuestionID: 04-2-15 Topic: Detinue Skill: Applied Answer: D) Yvonne has refused to return the bike to Benoit even though he has sued her for its return. 16. Bridget borrowed a book from Stefano. She later refused to return it to him when he asked. Which of the following statements is TRUE? A) If Stefano wants to get the book back, he should sue for the tort of recaption. B) If Stefano sues for the tort of detinue, he will receive damages only if Bridget damaged the book in some way. C) If Stefano sues for the tort of detinue, the court may order Bridget to pay damages equal to the value of the book. D) If Stefano sues for the tort of conversion, he will succeed only if Bridget claimed to be the true owner of the book. E) If Stefano sues Bridget for both conversion and detinue, he may be entitled to receive compensatory damages representing twice the book's value. Difficulty: 1 QuestionID: 04-2-16 Topic: Detinue Skill: Applied Answer: C) If Stefano sues for the tort of detinue, the court may order Bridget to pay damages equal to the value of the book. 17. Which of the following statements is TRUE? A) The right of recaption cannot be used if it would require the use of any force whatsoever. B) A business cannot exercise the right to remove an unwelcome customer if it would require the use of any force whatsoever. C) The tort of false imprisonment always involves a tort of battery as well. D) The tort of false imprisonment can only be committed by a police officer or a security guard. E) Even if it did not commit a false imprisonment, a defendant may be liable for malicious prosecution if, for some improper and malicious purpose, it wrongly persuaded the government to bring criminal 12 © 2023 Pearson Canada Inc.

proceedings against the plaintiff. Difficulty: 1 QuestionID: 04-2-17 Topic: False Imprisonment Skill: Recall Answer: E) Even if it did not commit a false imprisonment, a defendant may be liable for malicious prosecution if, for some improper and malicious purpose, it wrongly persuaded the government to bring criminal proceedings against the plaintiff. 18. The Supreme Court of Canada's decision in Aubry v Editions Vice-Versa Inc supports the proposition that A) a man may be awarded compensation if, without permission, a company reveals that it surgically attached a hairpiece to his scalp. B) a company that publishes photographs may need to secure consent of a person who appears in a photograph taken in Quebec. C) damages may be awarded if a company creates an advertisement that uses a celebrity's image without permission. D) a newspaper may be held liable for printing a photograph of a celebrity and truthfully explaining that it was shot as he was leaving a drug rehabilitation facility. E) a person who commits the crime of voyeurism can also be held liable for the tort of invasion of privacy. Difficulty: 3 QuestionID: 04-2-18 Topic: Invasion of Privacy Skill: Recall Answer: B) a company that publishes photographs may need to secure consent of a person who appears in a photograph taken in Quebec. 19. Roark Construction Inc built a new high-rise apartment building on a piece of land that it called Randville. Six months after the building was completed, Cooper, the owner of the neighbouring property, proved on the basis of records and documents at the land titles office that Roark's new building extended 1 metre over the boundary between the two properties, and therefore is partially located on Cooper's property. Roark was entirely unaware of that fact during the construction process. Which of the following statements is TRUE? A) Cooper cannot successfully sue for damages because it did not notify Roark of the problem until after the building was completed. B) A court almost certainly will grant an injunction that requires Roark to demolish its building and start the construction project over again. C) Roark may be held liable for an intentional tort even though it did not intend to commit any tort at all. D) Roark will be held liable for a trespass to land only if it unreasonably failed to check the documents at the land titles office. E) Because Roark committed an honest, though foolish, mistake the court will likely award punitive damages to Cooper. 13 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 04-2-19 Topic: Introduction, Trespass to Land Skill: Applied Answer: C) Roark may be held liable for an intentional tort even though it did not intend to commit any tort at all. 20. Gary successfully sued Nomi for the tort of battery. That is most likely to be TRUE if A) Nomi threatened to kiss Gary against his wishes, but did not actually do so. B) Nomi saved Gary's life by performing a blood transfusion. Although Nomi had no way of knowing Gary's wishes, his religious beliefs actually prohibit blood transfusions. C) Nomi threw a cup of hot coffee on a jacket that Gary had hung on a coat rack. D) Nomi verbally abused Gary to the point where he tried to kill himself in order to get some relief. E) Nomi shot Gary in broad daylight, as he walked into her house without previous invitation, even though he obviously was so drunk that he was harmless. Difficulty: 1 QuestionID: 04-2-20 Topic: Provocation Skill: Applied Answer: E) Nomi shot Gary in broad daylight, as he walked into her house without previous invitation, even though he obviously was so drunk that he was harmless. 21. Nick was severely injured after he was physically pulled out of a store called Discount Sound. Which of the following statements is TRUE on the basis of those facts? A) Nick cannot possibly succeed in an action for battery if he was trespassing in Discount Sound at the time of injury. B) Nick cannot possibly succeed in an action for battery if he was physically pulled from the store by a police officer. C) Nick can succeed in an action for false imprisonment if he was removed from Discount Sound by an employee of the store who had wrongfully accused Nick of trying to steal a CD. D) Nick cannot possibly succeed in an action for battery if the person who pushed him out of Discount Sound made contact with Nick's jacket but not with his skin. E) Nick may be entitled to collect damages even if a store employee used reasonable force in removing him from the premises. Difficulty: 3 QuestionID: 04-2-21 Topic: Trespass to Land Skill: Applied Answer: E) Nick may be entitled to collect damages even if a store employee used reasonable force in removing him from the premises. 14 © 2023 Pearson Canada Inc.

22. Joe walked into JP's Pets, picked up a hamster that he had fallen in love with during a previous visit to the store, and walked out without even stopping at the cash register. Which of the following statements is TRUE? A) If the store sues for the tort of conversion, the court will automatically order Joe to return the hamster. B) If an employee of the store ran after Joe and grabbed the hamster, that employee will have committed an act of recaption. C) If the store wants to recover the hamster, rather than the value of the hamster, it should sue for the tort of trespass. D) If Joe accidentally hurts the hamster while running away from the store, he will be held liable for battery. E) The store has accused Joe of "detinue," which is from the French word "detenure," which refers to animals that were taken from nature. Difficulty: 2 QuestionID: 04-2-22 Topic: Detinue Skill: Applied Answer: B) If an employee of the store ran after Joe and grabbed the hamster, that employee will have committed an act of recaption. 23. Svend works for Save-the-Forest, a non-profit organization aimed at stopping logging operations in the interior of British Columbia. The organization has said that it will use "any means necessary" to achieve its goals. One common tactic is to steal, damage, or destroy logging trucks and equipment. Svend recently was caught carrying out acts of sabotage against equipment that belongs to Xarol Logging Inc. Which of the following statements is TRUE? A) If Svend destroyed a machine belonging to Xarol, he may be liable for the tort of trespass to chattels or for the tort of conversion. B) Svend can be held liable for the tort of conversion only if he converted the equipment to his own use by taking it with the intention of keeping it. C) Svend cannot be held liable for trespass to chattels if he took equipment that he found on public land, rather than private property. D) Svend may be held liable for the tort of detinue if he destroyed equipment by setting it on fire. E) If Xarol sues for interference with chattels, Svend will entirely escape liability under the defence of provocation if he proves that he was genuinely worried about the forest. Difficulty: 2 QuestionID: 04-2-23 Topic: Interference with Chattels Skill: Applied Answer: A) If Svend destroyed a machine belonging to Xarol, he may be liable for the tort of trespass to chattels or for the tort of conversion. 24. Until recently, Aranxta earned a living by taking customers for rides in her vintage biplane. She was 15 © 2023 Pearson Canada Inc.

forced to give up that business, however, after Nadil, who was her primary business competitor, deliberately destroyed her biplane. Which of the following statements is TRUE? A) A court would likely order Nadil to transfer ownership of his biplane to Aranxta. B) Nadil has committed the tort of detinue. C) Nadil may be held liable for both compensatory and punitive damages. D) Aranxta may sue for trespass but not for conversion. E) Aranxta will likely receive nominal damages if she takes her case to court. Difficulty: 2 QuestionID: 04-2-24 Topic: Trespass to Chattels Skill: Applied Answer: C) Nadil may be held liable for both compensatory and punitive damages. 25. Nelson borrowed a computer, free of charge, from Compu-Rent Inc. After Nelson became insolvent, a receiver took control of everything that she found on Nelson's premises, including the computer. CompuRent has demanded possession of the computer, but the receiver has refused. Compu-Rent therefore claims that the receiver has committed a tort. Which of the following statements is TRUE? A) The receiver is not liable for conversion unless she claims that she personally owns the computer. B) The receiver committed the tort of conversion as soon as she touched the computer. C) If the receiver has committed the tort of conversion against the computer, it will likely be treated as if she had purchased the thing. D) If Compu-Rent sues for the tort of trespass to chattels, a judge will almost certainly order the receiver to return the computer to the plaintiff. E) If Compu-Rent asks for a right of recaption, the court will order the receiver to return the computer to the plaintiff. Difficulty: 3 QuestionID: 04-2-25 Topic: Conversion Skill: Applied Answer: C) If the receiver has committed the tort of conversion against the computer, it will likely be treated as if she had purchased the thing. 26. Walter is an experienced and highly successful gambler. He is most successful when betting on horse races. Until recently, he frequently placed bets at the Scarborough Downs Race Track. The track's manager, however, ordered her employees to deny Walter entry to the premises. The manager decided that Walter was winning too much money. Which of the following statements is TRUE? A) The race track has no right to exclude Walter from its premises. B) As long as it is owned by a private company, the race track has the right to exclude Walter from its premises, even if it does so because it objects to the colour of his skin. C) Once the race track invites Walter onto its premises, it can ask him to leave only if he commits a crime. D) If Walter sneaks into the premises, the race track can remove him using whatever force is required to accomplish the task. 16 © 2023 Pearson Canada Inc.

E) If Walter is told not to enter the premises and continues to sneak into the race track, a judge might award an injunction against him. Difficulty: 3 QuestionID: 04-2-26 Topic: Trespass to Land Skill: Applied Answer: E) If Walter is told not to enter the premises and continues to sneak into the race track, a judge might award an injunction against him. 27. In R v Asante-Mensah, the Supreme Court of Canada held that A) a trespass to land occurs only if the visitor committed a crime. B) because trespass to land is an equitable tort, the plaintiff may be entitled to an injunction. C) the tort of false imprisonment requires proof that the defendant did not have a reasonable means of escape. D) an occupier may be entitled to use reasonable force to arrest a trespasser. E) the tort of trespass to land may be committed if the defendant psychologically detains the plaintiff. Difficulty: 2 QuestionID: 04-2-27 Topic: Trespass to Land Skill: Recall Answer: D) an occupier may be entitled to use reasonable force to arrest a trespasser. 28. Jorge bought a ticket to see the Blue Jays in the SkyDome. During the game, he left his seat and visited a restaurant in the stadium. When he left the restaurant and tried to return to his seat, he was asked by one of the team's attendants to show his ticket. He refused. The dispute escalated. He was then arrested by one of the team's security guards. That arrest purportedly occurred under the Trespass to Property Act. That Act states that an offence is committed if a person who is "not acting under a right or authority conferred by law" refuses to leave a property after being asked to do so. Jorge subsequently sued the baseball team in tort. The main issue at trial was whether or not Jorge was entitled to remain in the stadium without showing his ticket. Which of the following statements is TRUE? A) Jorge will likely be held liable for nominal damages and punitive damages. B) The arrest was lawful as long as the security guard reasonably believed that Jorge was a trespasser. C) The team will be liable for the tort of false imprisonment if it wrongfully prevented Jorge from returning to his seat. D) Jorge did not commit a tort by refusing to show the attendant his ticket. E) If the court finds that Jorge was a trespasser, he cannot possibly recover damages unless the defendant's behaviour caused him to suffer physical injuries. Difficulty: 3 QuestionID: 04-2-28 Topic: Trespass to Land Skill: Applied 17 © 2023 Pearson Canada Inc.

Answer: D) Jorge did not commit a tort by refusing to show the attendant his ticket. 29. Fabrizio works at the Silk Nights Lingerie Shop in Polo Park Shopping Mall in Winnipeg. Despite being the store's leader in sales, he was not Silk Nights's most highly paid employee. In an effort to draw public support for his demand for higher wages, Fabrizio staged a picket inside of the mall when he was not working. Susana, who is employed by the mall as a security guard, was directed to remove Fabrizio from the premises. When he refused to leave voluntarily, she firmly took hold of his arm and led him out onto the street. Which of the following statements is TRUE? A) Susana is liable for the tort of battery. B) Susana was entitled to use reasonable force to remove Fabrizio from the premises. C) Fabrizio cannot be held liable for the tort of trespass to land because he is an employee of Silk Nights. D) Fabrizio was entitled to use reasonable force to resist Susana's efforts to remove him from the premises. E) Susana, as a security guard, generally has the same rights and responsibilities as a police officer. Difficulty: 3 QuestionID: 04-2-29 Topic: Trespass to Land Skill: Applied Answer: B) Susana was entitled to use reasonable force to remove Fabrizio from the premises. 30. Regulations are in place at Toronto's Pearson Airport to control the operation of taxi cabs. Daniel simply ignored those regulations. He was a persistent "scooper" who routinely picked up passengers at the airport even though he did not have a permit. He was charged more than 20 times with trespassing, but he simply shrugged off the fines. The airport authorities therefore decided to take more drastic measures. During one of Daniel's frequent visits, an airport inspector attempted to make a citizen's arrest. A scuffle occurred after the inspector put his hand on Daniel's shoulder and tried to detain him. Daniel knocked the inspector down and fled the scene. The airport inspector had acted under section 9(1) of the Trespass to Property Act, which says that a "police officer, or the occupier of premises, or a person authorized by the occupier may arrest without warrant any person he or she believes on reasonable and probable grounds to be on the premises" improperly. That provision does not expressly allow a citizen to use force during an arrest. In these circumstances, a court will say that A) since the legislation did not expressly allow for the use of force, Daniel was entitled to forcefully resist the attempted arrest. B) the airport inspector committed the tort of battery. C) the airport inspector briefly committed the tort of false imprisonment. D) because of the existence of the statute, the common law rules of tort are irrelevant. E) the case is governed by R v Asante-Mensah. Difficulty: 3 QuestionID: 04-2-30 Topic: Trespass to Land Skill: Applied Answer: E) the case is governed by R v Asante-Mensah. 18 © 2023 Pearson Canada Inc.

31. Jack and his friends were dining at Daniel's Kentucky Home restaurant. Along with the meal, Jack had ordered several bottles of alcohol for his friends and him to share. When the clock struck midnight, Louella, the waitress who had served Jack's table, correctly informed Jack that she was required by law to remove a bottle of whisky that had been opened but not consumed. Jack initially protested, but eventually was persuaded by his friends to give up possession of the bottle. He became very angry, however, when Louella returned a few minutes later with the bottle (which she had recapped) and a bill that included a charge for the whisky in question. Jack angrily refused to pay for the disputed bottle. He stuck his business card onto the bottle with a piece of tape, paid for the rest of the meal, and began to leave. Before he could get out of the restaurant, however, Louella directed several other employees to lock the door. Jack and his friends were able to leave only after the police arrived about an hour later. Which of the following statements is TRUE? A) Jack is guilty of the tort of conversion as a result of his actions with the bottle. B) Louella is liable for the tort of false imprisonment. C) Louella was entitled to detain Jack until he paid the entire bill. D) Louella is liable for the tort of assault. E) Louella almost certainly is liable for malicious prosecution. Difficulty: 2 QuestionID: 04-2-31 Topic: False Imprisonment Skill: Applied Answer: B) Louella is liable for the tort of false imprisonment. 32. The Scholar's Diner is located at the edge of a college campus in Ontario. Not surprisingly, most of its customers are college students. And most of those students are law-abiding patrons. There is, however, a substantial number of students who frequently "dine-and-dash." They sneak out the restaurant's back door after they have eaten, but before they have paid for their meals. Lily is one of those students. Which of the following statements is TRUE? A) If Lily is caught sneaking out the back door, the restaurant will be entitled to sue her for breach of contract, but it will not be entitled to detain her. B) If Lily is convicted of a crime, she cannot also be held liable in private law. C) If Lily is caught sneaking out the back door, she may be arrested by a police officer but not by one of the restaurant's employees. D) If Lily is held liable in tort, she cannot later be charged with a crime in connection with the same events. E) If Lily is caught sneaking out the back door of the diner, she may be lawfully arrested by one of the restaurant's employees or by another diner. Difficulty: 3 QuestionID: 04-2-32 Topic: False Imprisonment Skill: Applied Answer: E) If Lily is caught sneaking out the back door of the diner, she may be lawfully arrested by one of the restaurant's employees or by another diner. 19 © 2023 Pearson Canada Inc.

33. Shaniqua successfully sued Goldie for false imprisonment. That may be TRUE if A) Goldie, a security expert at an airport, detained Shaniqua and searched through her carry-on luggage, even though Shaniqua was not actually carrying anything improper. B) Goldie, a car park attendant, refused to let Shaniqua drive her car out of the parking lot, even though Shaniqua had demonstrated that she had lost her wallet and did not have any money to pay the parking fee. C) Goldie, a practical joker, tricked Shaniqua into a boat, and then cut the boat loose from the dock and thereby causing it to quickly drift into deep water, despite knowing that Shaniqua could not swim. D) Goldie, the foreman at a construction site, would not send an elevator up to collect Shaniqua at the top of a construction platform until the time for a coffee break arrived, even though Shaniqua wanted to quit her job immediately. E) a police officer arrested Shaniqua, even though she did not actually commit any crime, after Goldie, a store manager, honestly stated a set of facts that led her to believe that Shaniqua had stolen something. Difficulty: 2 QuestionID: 04-2-33 Topic: False Imprisonment Skill: Applied Answer: C) Goldie, a practical joker, tricked Shaniqua into a boat, and then cut the boat loose from the dock and thereby causing it to quickly drift into deep water, despite knowing that Shaniqua could not swim. 34. Like many students, Dahlia has financial problems. And like many students, she tries to find ways to make her money go further. Some of her strategies are better than others. She recently was detained by a security guard after she switched price tags on two pairs of pants, and tried to buy the more expensive pair with the less expensive tag on it. Which of the following statements is TRUE? A) Dahlia has committed a crime. B) Dahlia was lawfully entitled to resist the security guard's attempt to detain her. C) Dahlia committed the tort of trespass to chattels as soon as she touched the pair of pants. D) Courts usually award injunctions in this sort of case. E) Dahlia can avoid liability in tort as long as she pays the proper price before the court delivers judgment in her case. Difficulty: 3 QuestionID: 04-2-34 Topic: False Imprisonment Skill: Applied Answer: A) Dahlia has committed a crime. 35. During a recent incident at a shopping centre, Munier grabbed hold of Ishtla and held her until a police officer arrived. Which of the following statements is TRUE? A) If Munier is a security guard, he cannot be held liable for false arrest as long as he reasonably believed that Ishtla had committed a crime, even if Ishtla had not done so. B) If Munier is a police officer, he will be held liable for a false arrest unless Ishtla actually committed a 20 © 2023 Pearson Canada Inc.

crime. C) If Munier was another shopper, he cannot be held liable for false arrest, even if Ishtla had not committed a crime, as long as he reasonably believed that she had committed a crime and she was being pursued by a police officer. D) If Munier owned a store, and he reasonably believed that Ishtla had stolen some of his merchandise, he cannot be held liable for false arrest, even if Ishtla had not committed a crime. E) Munier will be held liable for malicious prosecution as long as a court decides, after a full trial, that Ishtla did nothing wrong. Difficulty: 3 QuestionID: 04-2-35 Topic: False Imprisonment Skill: Applied Answer: C) If Munier was another shopper, he cannot be held liable for false arrest, even if Ishtla had not committed a crime, as long as he reasonably believed that she had committed a crime and she was being pursued by a police officer. 36. Tom and Niki were both bright and ambitious young analysts with Premier Investments Inc. The president announced that they were both under consideration for promotion to vice-president and a hefty increase in salary. Given recent scandals in the financial world, Tom knew that the president was anxious to uphold the company's reputation for honesty. Tom therefore concocted an allegation that Niki had wrongfully diverted client funds to her own personal use. The president immediately fired Niki upon hearing the allegation. It eventually became clear, however, that Tom's allegation was totally false and that Niki had never acted improperly. Niki then sued Tom for malicious prosecution, but her claim was rejected. The judge might properly have found in favour of Tom on the basis that A) Tom's primary motivation was to hurt Niki rather than help himself. B) the truth came to light before Niki had been charged with any crime and no criminal charges were filed. C) company records showed that Tom was a better employee than Niki. D) Niki had committed fraud while working for another company years earlier, even though Tom knew that she was not guilty of the crime that he alleged. E) Tom's primary motivation was to help himself and not to hurt Niki. Difficulty: 3 QuestionID: 04-2-36 Topic: False Imprisonment Skill: Applied Answer: B) the truth came to light before Niki had been charged with any crime and no criminal charges were filed. 37. The elements of malicious prosecution include proof that A) the defendant had committed the crime that the plaintiff had been accused of committing. B) the defendant was a police officer or an officer of the court. C) the defendant either wrongfully detained the plaintiff or caused the police to wrongfully detain the plaintiff. 21 © 2023 Pearson Canada Inc.

D) the defendant maliciously caused the plaintiff to be sued. E) the plaintiff was acquitted of the alleged crime. Difficulty: 2 QuestionID: 04-2-37 Topic: False Imprisonment Skill: Recall Answer: E) the plaintiff was acquitted of the alleged crime. 38. After enjoying a meal on the outdoor veranda of a restaurant, Heena paid the amount stated on the bill, put a leash on Pierre, her miniature Chihuahua, and began to leave. At that point, Gaston, the waiter, dashed over to her table and asked why Heena had not left a tip. Heena agreed that the service and food had been excellent, but explained that she is cheap and never leaves a tip. Gaston then grabbed Pierre and refused to give him back unless Heena left a tip. Heena became very distraught, but still refused to leave a tip. The scene lasted for nearly an hour. Heena felt psychologically only able to leave the restaurant after Pierre snapped at Gaston and jumped into Heena's arms. Diners are expected but not legally required, to leave tips if they enjoy their meals. Which of the following statements is most likely TRUE? A) Gaston acted lawfully as long as he reasonably believed that Heena was legally obligated to leave a tip. B) Gaston committed the tort of false imprisonment against Heena. C) Because he grabbed a living creature, rather than an inanimate object, Gaston cannot be held liable for trespass to chattels, conversion, or detinue. D) By remaining on the premises after she had finished her meal, Heena committed the tort of trespass to land. E) To prove the tort of false imprisonment, Heena must show, amongst other things, that she did not commit any crime or tort during the entire episode. Difficulty: 2 QuestionID: 04-2-38 Topic: False Imprisonment Skill: Applied Answer: B) Gaston committed the tort of false imprisonment against Heena. 39. Raja owns a corner store. Because he had suffered a great deal of theft in recent months, he was eager to catch a thief. He therefore kept an eye on Francine, a young homeless person, after she entered his store and began wandering around in a suspicious manner. Raja immediately summoned a police officer, JD Copper, who was passing nearby. Raja said that he had seen Francine put a pack of gum in her pocket, and he insisted that Francine must be arrested. Because JD (1) knew that Raja had been the victim of numerous thefts, (2) reasonably believed that Raja was telling the truth, and (3) reasonably agreed that Francine was acting in a suspicious manner, JD walked up to Francine and put hand-cuffs on her. Despite her pleas of innocence, Francine was detained at the front of the store, in front of other customers, for fifteen minutes while JD ran a police check on her. JD eventually released Francine after he realized that she had no police record and no stolen merchandise in her pockets. Which of the following statements is most likely to be TRUE? 22 © 2023 Pearson Canada Inc.

A) Raja may be held liable to Francine for malicious prosecution. B) Raja may be held liable to Francine for false imprisonment even though he personally never touched or talked to her. C) JD may be held liable to Francine for false arrest. D) JD may be held liable to Francine for battery. E) Raja may be liable to JD for malicious prosecution. Difficulty: 3 QuestionID: 04-2-39 Topic: False Imprisonment Skill: Applied Answer: B) Raja may be held liable to Francine for false imprisonment even though he personally never touched or talked to her. 40. Which of the following statements is TRUE with respect to the concept of invasion of privacy? A) Although privacy rights may be indirectly protected in certain circumstances, the Supreme Court of Canada has not yet recognized a general tort of invasion of privacy that applies across the country. B) Although a number of Canadian legislatures have considered the possibility, none have created a statutory action for invasion of privacy. C) Statutes that create causes of action for invasion of privacy usually impose liability only if the defendant knew, or should have known, that it was violating the plaintiff's privacy rights. D) The Canadian Charter of Rights and Freedoms creates a cause of action for invasion of privacy. E) A distinct tort of invasion of privacy can be created by a legislature but not by a court. Difficulty: 3 QuestionID: 04-2-40 Topic: Invasion of Privacy Skill: Recall Answer: A) Although privacy rights may be indirectly protected in certain circumstances, the Supreme Court of Canada has not yet recognized a general tort of invasion of privacy that applies across the country. 41. Within the context of defences, which of the following statements is entirely TRUE? A) All of the defences that are available in response to a claim for an intentional tort operate by proving that the defendant lacked the required intent. B) Because the intentional torts require proof of the tortfeasor's intention, defendants most often avoid liability by pleading the defence of mistake. C) Although both may be used in response to the plaintiff's aggression, self-defence is a complete defence but provocation is a partial defence. D) Contributory negligence, consent, and necessity are all complete defences. E) The defence of contributory negligence is available in response to a claim in negligence, but not to a claim for an intentional tort. Difficulty: 2 QuestionID: 04-2-41 23 © 2023 Pearson Canada Inc.

Topic: Defences to Intentional Torts Skill: Recall Answer: C) Although both may be used in response to the plaintiff's aggression, self-defence is a complete defence but provocation is a partial defence. 42. Dawn parked her car on the street outside of her house, but forgot to lock the door. During the night, a habitual criminal named Dick opened the door of Dawn's car and stole some property that was in the glove compartment. The next day, Dick used that stolen property to perform a contract with Serge. Serge had no way of knowing that Dick was a thief. To perform that contract, one of the parties handed over money and the other handed over an iPad. Which of the following statements is most likely to be TRUE? A) As long as he honestly had no reason to believe that Dick was a thief, Serge cannot be held liable to Dawn. B) Even if he honestly had no reason to believe that Dick was a thief, Serge can be held liable to Dawn if the property that Dick stole from Dawn's car was the iPad. C) Even if he honestly had no reason to believe that Dick was a thief, Serge can be held liable to Dawn if the property that Dick stole from Dawn's car was the cash. D) Even if he honestly had no reason to believe that Dick was a thief, Serge can be held liable to Dawn whether the property that Dick stole from Dawn's car was either the iPad or the cash. E) Even if both men committed torts, Dawn is entitled to sue Dick or Serge, but not both. Difficulty: 3 QuestionID: 04-2-42 Topic: Conversion Skill: Applied Answer: B) Even if he honestly had no reason to believe that Dick was a thief, Serge can be held liable to Dawn if the property that Dick stole from Dawn's car was the iPad. 43. Justin recently came into physical contact with Sophie. As a result, she has sued him for the tort of battery. With respect to the defence of consent, which of the following statements is most likely to be TRUE? A) If the physical contact consisted of sexual intercourse, Justin will be held liable unless he proves consent, even if he and Sophie were married at the time of the event. B) If the physical contact consisted of life-saving surgery, Justin cannot be held liable, even if Sophie refused to consent to the operation, because the law holds that life is always sacred. C) If the physical contact consisted of rough play during a soccer match, Justin cannot possibly be held liable as long as Sophie freely chose to participate in the game. D) If the physical contact consisted of medical treatment, Justin cannot be held liable as long as most reasonable people in Sophie's position would have consented to the procedure. E) Because the law considers freedom of choice to be of the utmost importance, Justin can escape liability on the basis of the defence of consent only if Sophie expressly agreed to accept the physical and legal risks associated with the circumstances. Difficulty: 3 QuestionID: 04-2-43 24 © 2023 Pearson Canada Inc.

Topic: Complete Defences Skill: Applied Answer: A) If the physical contact consisted of sexual intercourse, Justin will be held liable unless he proves consent, even if he and Sophie were married at the time of the event. 44. Conor is a notoriously angry and violent man. He recently became involved in a disagreement with his neighbours regarding loud, drunken parties that he frequently hosts in his house. During an argument about that issue, Joanna, who lives next door to Conor, cracked the back of his head with a garden hoe. As a result, Conor has sued Joanna for the tort of battery. Which of the following statements is most likely to be TRUE? A) Joanna will be protected by the defence of legal authority as long as Conor was on her property and she had previously asked him to leave. B) If Joanna successfully argues self-defence, the court will award damages against her after it apportions blame between her and Conor. C) Joanna can successfully plead self-defence only if she feared that Conor was likely to hurt her personally. D) Joanna may have a complete defence if she honestly, but mistakenly, believed that Conor was about to injure her husband. E) If the court decides that Conor provoked Joanna, his claim must fail entirely. Difficulty: 3 QuestionID: 04-2-44 Topic: Defences to Intentional Torts Skill: Applied Answer: D) Joanna may have a complete defence if she honestly, but mistakenly, believed that Conor was about to injure her husband. 45. Michelle works at a bank in a small town. During her lunch breaks, she enjoys searching for her old high school classmates on the Internet. Last week, for a change of pace, she decided to search the bank's computer files instead. By doing so, she learned that her first boyfriend, Brian, had fallen on hard times. When he failed to pay his mortgage, the bank foreclosed on his house. He is hopelessly overdrawn on his chequing account and he appears to be on the verge of bankruptcy. Consequently, although they had not spoken in twenty years, Michelle telephoned Brian and asked why his life had fallen apart. Brian is furious with Michelle and wants to sue her in tort. Which of the following statements is most likely to be TRUE? A) Michelle's behaviour amounts to the tort of assault as long as it caused Brian to fear that his financial records might be made public. B) Michelle's behaviour in viewing Brian's records amounts to the tort of voyeurism according to s 162 of the Criminal Code. C) Michelle's behaviour amounts to the tort of intrusion upon seclusion according to the case of Jones v Tsige. D) Michelle's behaviour amounts to the tort of conversion. E) Michelle's behaviour amounts to the tort of misappropriation of personality if she pretended to be Brian in order to access his records. 25 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 04-2-45 Topic: Invasion of Privacy Skill: Applied Answer: C) Michelle's behaviour amounts to the tort of intrusion upon seclusion according to the case of Jones v Tsige. 46. Michelle was sitting in a coffee shop in downtown Montreal. A well-known photographer took at a photo of the coffee shop for a magazine feature on cool places to eat. Michelle learns through a friend that her face is prominently shown in the photograph. The photographer had not asked her consent. Will Michelle be able to recover for the tort of invasion of privacy? A) Yes, because you must always ask before taking someone's photo B) Yes, because the magazine published the photo without her consent. C) No, because she was in public. D) No, because freedom expression in more important that the right to privacy. E) No if the court decides that taking the photo was in her best interests. Difficulty: 3 QuestionID: 04-2-46 Topic: Defences to Intentional Torts Skill: Applied Answer: B) Yes, because the magazine published the photo without her consent. Essay Questions 1. Antonia, a businesswoman, was held liable to Romeo for committing an intentional tort. She is very frustrated by that verdict. Discuss the nature of "intention" in the context of intentional torts. Explain why the concept of "intention" creates special problems from a risk management perspective. Difficulty: 3 QuestionID: 04-3-01 Topic: Introduction Skill: Applied Answer: An intentional tort can be committed as long as the defendant intended to act in a particular manner. For instance, the tort of trespass to land may be committed as long as the defendant intended to step onto a particular piece of ground. Significantly, the defendant can be held liable even if she did not intend to cause any harm to the plaintiff, and even if she did not intend to act in a wrongful way. Consequently, trespass to land may be committed even if the defendant believed that the land upon which she was walking was her own. This definition of "intention" creates special problems from a risk management perspective because the defendant may be held liable without knowing that it was doing anything wrong at all. In the business context, a striking example can occur when a business person buys goods that she honestly and reasonably believes 26 © 2023 Pearson Canada Inc.

belonged to the apparent seller. If, in fact, the apparent seller was a thief, the purchaser will be liable in conversion to the true owner of the goods. 2. Seamus sat drinking in Kitty's Bar for several hours. When Kitty noticed that he had become drunk, she wanted him to leave. Is Kitty entitled to exclude Seamus from her bar if she initially invited him in for a drink? If so, is she entitled to use force to remove him? Difficulty: 3 QuestionID: 04-3-02 Topic: Assault and Battery, Trespass to Land Skill: Applied Answer: This question requires students to discuss two separate torts. First, it requires students to identify the issue of trespass to land. The facts state that Kitty initially invited Seamus into her establishment. In fact, unless there is evidence to the contrary, it is assumed that a commercial establishment implicitly extends an invitation to the general public. However, the owner or occupier of premises is generally entitled to revoke that invitation at any time. Kitty therefore has the right to tell Seamus to leave. If he refuses to do so, he becomes a trespasser. Second, students are expected to address the issue of Seamus's actual removal from the premises. As a general rule, an owner or occupier should first ask an unwanted visitor to leave voluntarily. If he refuses to comply, then reasonable force can be used to eject him. The issue of reasonableness is assessed having regard to all of the circumstances. A court would consider the danger posed by the trespasser, the potential for an escalation in violence, the size and strength of the trespasser, and so on. If excessive force is used, the trespasser will be entitled to sue for battery. 3. Serge quickly left a busy sporting goods store looking suspicious and clutching his jacket closed. Myriam approached him and said, "Unless you accompany me back into the store to talk to the manager, we're going to have a real problem." Serge complied with Myriam's request even though she never actually touched him. Myriam later learned that Serge had not stolen anything from the store, nor had he committed any other crime. Can Serge successfully sue Myriam for false imprisonment? Do you require any more information before you answer that question? Difficulty: 2 QuestionID: 04-3-03 Topic: False Imprisonment Skill: Applied Answer: One additional piece of information is required before the question can be properly answered: it must be known whether Myriam was a police officer on the one hand, or a private citizen on the other. Myriam would fall into the latter category even if she owned the store or worked as a security guard. - A police officer can arrest anyone who is reasonably suspected of: (i) being in the act of committing a crime, or (ii) having committed a serious crime in the past. If that test is satisfied, the police officer does no wrong, even if the person who was arrested was actually innocent. Consequently, since Serge was acting in a suspicious manner, Myriam would be relieved of liability as long as she did in fact reasonably suspect him of being in the 27 © 2023 Pearson Canada Inc.

act of committing a crime. - The rules are much narrower for private citizens. As a general rule, a private citizen can only arrest someone who is actually committing a crime. If, in fact, no crime was being committed, the arrest is unjustified. Consequently, if Myriam fell into this category, she would be guilty of false imprisonment. That would be true even if she acted honestly and reasonably. The law generally favours a customer's freedom of movement over a store's desire to protect its property. Finally, students should recognize that if the elements of the tort are otherwise established, Myriam may be held liable for false imprisonment even if she never actually touched Serge. The courts have recognized that an arrest or detention may be achieved psychologically. A court in this case would be required to determine whether Serge voluntarily complied with Myriam's request, or whether, for instance, he did so only for fear of public embarrassment. 4. Explain why tort law has been reluctant to create a general tort of invasion of privacy. Difficulty: 2 QuestionID: 04-3-04 Topic: Invasion of Privacy Skill: Recall Answer: Tort law must often balance competing social values. On the one hand, there is a desire to protect privacy. In many ways, the law recognizes that there are some things that we all prefer to keep private. Consequently, it may be possible, for instance, to sue for breach of confidence if a secret is improperly disclosed. Likewise, several provinces have enacted legislation specifically for the purpose of allowing one person to sue another for wilfully violating another person's privacy. On the other hand, there are several policy reasons that militate against the creation of a general tort of invasion of privacy. - Proof This type wrongdoing often creates a loss or injury (such as embarrassment) that is difficult to quantify in monetary terms for the purpose of awarding damages. Such injuries are also relatively easy to fake. An x-ray can prove that a bone is broken, but there is no way for a court to determine whether the plaintiff's actually has suffered the type of intangible injury that often results form an invasion of privacy. - Freedom of Speech Much more importantly, the law has always placed a high value on freedom of information and freedom of speech. It therefore is reluctant to create a tort that would deter people from investigating and discussing matters, particularly if those matters are of public importance. - Standards It is difficult to identify issues that the community as a whole accepts should remain private. For instance, some people, at least, believe that they are justified in wanting to know about the personal habits and social activities of politicians, athletes, and entertainers. Others consider such information to be irrelevant or "out of bounds." The creation of a general tort of invasion of privacy may require a court to decide broad public policy issues that are better left to democratic debate and consequent legislation action or inaction. 5. Herman has committed the tort of trespass to land against Sonia. Explain the nature of trespass to land, list four remedies that Sonia might receive, and briefly identify situations in which each remedy would be appropriate. Difficulty: 2 QuestionID: 04-3-05 28 © 2023 Pearson Canada Inc.

Topic: Trespass to Land Skill: Applied Answer: A trespass to land occurs when the defendant improperly interferes with the plaintiff's land. That definition covers a wide range of situations. A trespass to land may be committed by a violent burglar or by a child who refuses to leave a store after being asked to do so. Consequently, it supports a variety of remedies. Each remedy is designed to reflect the nature of the wrong that the defendant actually committed. - Compensation The usual remedy for trespass to land is compensation. Herman could be ordered to pay damages to Sonia with respect to any losses that she suffered. For instance, if Herman committed the tort by throwing a brick through her window, he would be required to pay to have the window fixed. - Nominal Damages Many trespasses cause no harm at all. For instance, Herman may have committed the tort by simply sleeping in Sonia's backyard without her knowledge. Since trespass is actionable per se, Sonia would be entitled to a verdict in her favour. However, since she suffered no actual loss, she might be limited to nominal damages. Such damages are awarded in a small sum (eg $10) and are intended to merely symbolize the fact that the defendant committed a wrong against the plaintiff. (As discussed in Chapter 3, nominal damages may constitute a Pyrrhic victory. Because judges do not like to waste time on trivial matters, they sometimes award costs against the party to whom they awarded nominal damages. Consequently, in the final analysis, the plaintiff might actually lose money.) - Punitive Damages Sonia might be entitled to punitive damages if Herman committed the tort in a particularly harsh, vindictive, high-handed, reprehensible, or malicious way. The text cites the case of Horseshoe Bay Retirement Society v SIF Development Corp, in which the defendant land developer cut down a row of trees on the plaintiff's land in order to enhance the view from, and hence value of, its own property. - Injunction Finally, a court may award an injunction to prevent the continuation or recurrence of a trespass. That might be true, for instance, if Herman built a structure on Sonia's land. The court might order him to remove it. Likewise if he persistently cut across Sonia's lawn on his way to work. The court might order him to refrain from doing so in the future. If Herman refused to comply with an injunction, he would be in contempt of court and could be fined or imprisoned (in addition to being held liable to Sonia for damages of some sort). 6. Which tort leads to the remedy of a "forced sale"? What is the justification for that remedy? Difficulty: 2 QuestionID: 04-3-06 Topic: Conversion Skill: Recall Answer: The remedy of "forced sale" occurs in connection with the tort of conversion. It means that the plaintiff is entitled to receive compensatory damages that are calculated on the basis of the value of the chattel at the time of conversion. In exchange, the defendant is entitled to retain the chattel (if, in fact, the defendant still has possession of it). That remedy is justified because the tort of conversion consists of the actions that are inconsistent with the plaintiff's right of ownership or right to possession. By denying the plaintiff's rights to the chattel, the defendant is taken to have purchased them. 7. What is the right of recaption? When does it arise? What special risk management problem does it create? Difficulty: 1 29 © 2023 Pearson Canada Inc.

QuestionID: 04-3-07 Topic: Detinue Skill: Recall Answer: The right of recaption arises when a chattel is taken from a person who was in lawful possession of it. That party has the right to take the property back without a court order. However, great caution must be exercised in such circumstances. The person who is entitled to possession is only entitled to use reasonable force in re-acquiring possession. The law does not want minor property disputes to escalate into violent confrontations. The use of excessive force may result in the commission of the tort of battery or assault. Likewise, the tort of trespass to land may be committed if the person who is trying to exercise the right of recaption improperly enters upon someone else's property. 8. Jessica and Nick recently broke off their relationship after living together for a few months. While their separation has been largely amicable, Nick is very upset that Jessica took his dog, Blue, with her when she moved out of the house that they had shared. The evidence clearly indicates that Nick had adopted Blue even before he met Jessica, and that both parties considered Blue to be Nick's dog. Jessica nevertheless refuses to part with the animal, although she is willing to buy Nick another dog. Nick intends to sue Jessica for the tort of interference with chattels. If he wants to get Blue, rather than the monetary value of Blue, which tort should he focus upon? What would Nick have to prove to succeed in his claim? Difficulty: 1 QuestionID: 04-3-08 Topic: Detinue Skill: Applied Answer: As a general rule, the only tort that allows a judge to order a defendant to give back property, rather than merely the value of property, is detinue. In order to succeed in his claim, Nick would first have to prove that Jessica has committed that tort. Detinue consists of the wrongful detention of a chattel. And because the focus is on detention, the plaintiff normally must prove that the defendant refused a request to return the chattel and is wrongful possession of the chattel. Even if Nick proves that Jessica committed the tort of detinue, the court presumptively will award damages. In order to persuade the court to order Jessica to give up possession of Blue, Nick would have to additionally prove that money would not be an adequate remedy. He may be able to do so by proving that he had a special relationship with Blue and that no other dog would be the same. 9. List and briefly explain the elements of the tort of malicious prosecution. Difficulty: 2 QuestionID: 04-3-09 Topic: False Imprisonment Skill: Recall Answer: Malicious prosecution occurs when the defendant improperly causes the plaintiff to be prosecuted. The focus is not on the plaintiff's detention or imprisonment, but rather on the fact that they were subject to criminal proceedings. That might be true, for instance, if a business concocted a story about shoplifting and 30 © 2023 Pearson Canada Inc.

persuaded the government to lay charges against the plaintiff. Malicious prosecution is, however, difficult to prove. The court has to be satisfied that: - the defendant started the proceedings - the defendant did so * out of malice, or for some improper purpose, and * without honestly believing on reasonable grounds that a crime was committed - the plaintiff was eventually acquitted of the alleged crime. 10. Tobias, a college student, was waiting in line to purchase a textbook at his campus bookstore. He first noticed Marnie, who was standing in a nearby aisle of books, because she is stunningly beautiful. As he watched her, however, he noticed that she was placing a book into her jacket pocket. It seemed to Tobias that Marnie was stealing the book. Xavier, a security guard who works in the store, saw Marnie and thought the same thing. Xavier immediately called over a police officer and explained his suspicion. The police officer then approached Marnie and told her that she was under arrest for theft. When she began to loudly protest her innocence, the officer asked the people in line if they had seen anything unusual. Tobias stepped forward, looked at Marnie, and said sweetly, "Now why would an angel come down here and steal a book?" Marnie, who resents constantly being the focus of unwanted male attention, snapped at Tobias, "Stay out of this, creep!" When it became clear that he would not be winning a date with Marnie, Tobias turned to the police officer and said, "Well, I can't be sure, but it looked to me like she was stealing something." Marnie was then charged with theft. Before the case could get to trial, however, she proved to the police that she had previously purchased the book in question, and that she had never stolen anything from the store. Marnie now wants to sue Tobias for malicious prosecution. She is embarrassed by the whole episode and deeply resents his role in her arrest. Explain whether or not she will succeed in that action. Difficulty: 2 QuestionID: 04-3-10 Topic: False Imprisonment Skill: Applied Answer: Marnie will not succeed in her claim of malicious prosecution against Tobias. That tort occurs when the defendant improperly causes the plaintiff to be prosecuted. The focus is not on the plaintiff's detention or imprisonment, but rather on the fact that they were subject to criminal proceedings. Malicious prosecution is difficult to prove. The court has to be satisfied that (i) the defendant started the proceedings, (ii) out of malice, or for some improper purpose, and (iii) without honestly believing on reasonable grounds that a crime had been committed, and that (iv) the plaintiff was eventually acquitted of the alleged crime. Given these facts, Marnie can prove the final element but not the other three. (i) Tobias did not start any criminal proceedings against Marnie. He merely responded to a question that the police officer had asked. (ii) While he may have been embarrassed by Marnie's comment toward him, it will be difficult to prove that he acted out of malice. His conduct is at least equally consistent with having provided the police officer with his honest opinion. (iii) While he clearly was wrong, Tobias did honestly form his suspicion on reasonable grounds. The reasonableness of his belief that Marnie was stealing a book is supported by the fact that Xavier, the security guard, drew the same conclusion from Marnie's actions.

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11. Orson is one of Hollywood's most successful movie producers. Lana is one of Hollywood's most popular actresses. Naturally, when the couple announced their plans to be married in Orson's palatial home, there was great interest in the wedding. Orson and Lana decided to profit from that interest by selling the rights to photograph the ceremony to Hi! Magazine. Both the magazine and the newlyweds were therefore very upset, two days after the ceremony and a full week before Hi! Magazine was scheduled to runs the photos, to see a set of wedding photos in a rival publication, Okay! Magazine. Okay! Magazine had obtained those photos from a freelance photographer named Cesar. Cesar had sneaked into the wedding, uninvited, by dressing up as a priest. He caught the entire ceremony on film by using a small camera that he had hidden in his priestly robe. Orson now wants to sue the parties that he believes are responsible for ruining "one of the greatest days of my life." Explain whether he can successfully sue for any of the torts discussed in Chapter 4. Difficulty: 2 QuestionID: 04-3-11 Topic: Invasion of Privacy Skill: Applied Answer: Orson will be able to successfully sue for trespass to land and possibly breach of confidence. Cesar personally committed a trespass to land by sneaking into Orson's mansion without permission. While the law may recognize an implied consent to enter a person's house in some circumstances, that rule would not apply here because, given the circumstances, it was clear that Orson did not want uninvited intruders on his property. According to an English case discussed in the text (dealing with Michael Douglas and Catherine Zeta-Jones), Cesar and Okay! Magazine are both liable for breach of confidence. Given the circumstances, they knew that Orson wanted images from his wedding to be kept secret until photos were published in Hi! Magazine. The real gist of Orson's complaint is that Cesar and Okay! Magazine invaded his privacy. As the law currently stands in Canada, however, there is no independent tort of that name and to be successful in this action for breach of confidence Orson would need to have the court follow the English precedent. 12. Canadian common law does not yet recognize a general, independent tort of invasion of privacy. As Chapter 4 explained, however, several other torts can be used, in certain circumstances, to indirectly protect privacy interests. Identify and briefly explain those torts. Difficulty: 2 QuestionID: 04-3-12 Topic: Invasion of Privacy Skill: Recall Answer: Depending upon the circumstances, seven torts may be used to protect privacy interests. - Trespass to land may be used if the defendant entered onto the plaintiff's property. That may be true, for instance, if a photographer sneaked into a celebrity's mansion in order to capture a few candid shots. - Breach of confidence may be used if the defendant disclosed confidential information about the plaintiff without the plaintiff's permission. That may be true, for instance, if a former employee publishes a book that 32 © 2023 Pearson Canada Inc.

contains previously unknown details of a celebrity's private life. - Intentional infliction of mental distress was recognized as an independent tort in Wilkinson v Downton. It requires proof that the defendant (1) acted in an outrageous or unjustified manner, (2) either intending to cause emotional distress or callously disregarding that possibility, and (3) caused the plaintiff to suffer a serious emotional injury. - Abuse of information is a tort that has been recognized by English courts (though Canadian courts have not yet expressly followed this precedent). That tort prohibits a defendant from making improper use of private information. In the leading case, a British newspaper ran a photo of a famous model walking out of a building, and explained that the building belonged to Narcotics Anonymous. It had not previously been publicly known that the model was in therapy for drug abuse. - Misappropriation of personality occurs when the defendant commercially exploits the plaintiff's image, without the plaintiff's permission. In the leading case, a company made unauthorized use of an immediately recognizable image of a famous water-skier in order to advertise its summer camps. - Negligence is a broad tort that imposes liability if the defendant carelessly caused an injury to the plaintiff. (Chapter 7 is devoted to the tort of negligence.) Negligence sometimes may be used to indirectly protect privacy interests. That may be true, for instance, if a newspaper improperly discloses the identity of an undercover police officer who had been sexually assaulted. - Intrusion Upon Seclusion is a sub-species of invasion of privacy that the Ontario Court of Appeal recognized in Jones v Tsige. That cause of action requires the plaintiff to prove that the defendant (1) intentionally (2) invaded the plaintiff's private affairs without legal justification (3) in a way that a reasonable person would consider highly offensive. As long as those three elements are satisfied, it does not matter that the plaintiff did not suffer any economic harm. The tort is aimed at preventing distress, humiliation, or anguish. Other courts occasionally have imposed liability without recognizing a general tort of invasion of privacy. That was true, for instance, when an unfriendly neighbour installed a surveillance camera on the side of his house and aimed it at his neighbours' backyard. He did so for the exclusive purpose of spoiling his neighbours' use of their backyard. In another case, Aubry v Editions Vice-Versa Inc, the Supreme Court of Canada held that in Quebec a photographer must obtain consent from a person who appears in a shot, if it is reasonable and possible to do so. (That decision was rendered under the private law of Quebec, rather than the common law.) - Privacy statutes have been enacted in some provinces. (At the time of writing, the list included British Columbia, Manitoba, Newfoundland and Labrador, and Saskatchewan.) Those statutes create a statutory tort that prohibits the willful violation of another person's privacy. In one case, for instance, a television station was held liable for the embarrassment that a man experienced after it aired a story that showed the man receiving a hair graft. Prior to that program appearing on television, it was not widely known that the man had undergone that procedure. 13. Prem bought a radio from Hedy for $75. He paid with a cheque rather than with cash. When Hedy tried to obtain payment, however, the bank refused to cash the cheque. The bank explained that the cheque was invalid because it was so poorly written that it was largely illegible. Rather than contact Prem, Hedy immediately called the police and said that Prem had committed the crime of fraud by deliberately writing an ineffective cheque. She also suggested that Prem was likely to leave town soon, and that his crime should therefore be addressed promptly. The next day, the bank unexpectedly contacted Hedy and explained that, following its own investigations, it was clear that the defective nature of the cheque was due to Prem's sloppiness, rather than any intentional wrongdoing. Hedy thought about passing that information along to the police, but because she was still angry at Prem for causing such a hassle, she decided to remain silent. Later that same day, a police officer arrived at Prem's house, put 33 © 2023 Pearson Canada Inc.

him into handcuffs, drove him to a police station, charged Prem with fraud, and locked him into a cell to await bail. Prem was released several hours later after convincing the arresting officer that while he has dreadful handwriting, he is not a criminal. The police dropped the charges in that they did not forward the charges to crown counsel for approval. Upset and embarrassed by the episode, Prem now wants to sue Hedy in tort. Explain whether or not Hedy had committed any of the torts discussed in Chapter 4. Difficulty: 3 QuestionID: 04-3-13 Topic: False Imprisonment Skill: Applied Answer: Prem can rely upon two torts: malicious prosecution and false imprisonment. The tort of malicious prosecution occurs when the defendant improperly causes the plaintiff to be prosecuted for a crime. The focus is not on the plaintiff's detention or imprisonment, but rather on the fact that he was subject to criminal proceedings. Malicious prosecution is, however, difficult to prove. The court has to be satisfied that (1) the defendant started the proceedings, (2) out of malice, or for some improper purpose, and (3) without honestly believing on reasonable grounds that a crime had been committed, and that (4) the plaintiff was eventually acquitted of the alleged crime. In this case, Prem should be able to establish all of those elements. While Hedy presumably acted appropriately when she first contacted the police, her failure to correct the erroneous perception that Prem had committed the tort of fraud was based on her malicious desire to hurt Prem, rather than on an honest and reasonable belief in his guilt. Furthermore, the proceedings against Prem were discharged in his favour when the police dropped the charges. Prem could also succeed in an action for false imprisonment. The imprisonment occurred when Prem was taken into police custody and held in a jail cell for several hours. By the time that those events occurred, Hedy knew that her accusations against Prem were false. And finally, while the arrest and detention was performed by the police, this is not a case in which the defendant simply provided facts to the police and then allowed them to exercise their own judgment, after an investigation, into the plaintiff's supposed guilt. Instead, Hedy directed the police to apprehend Prem and mislead the police about the true facts. 14. Identify, explain, and compare the different torts that fall under the heading of "interference with chattels." Difficulty: 2 QuestionID: 04-3-14 Topic: Interference with Chattels Skill: Recall Answer: Chattels are moveable forms of tangible property, such as cars and cows. Tort law protects possession of chattels primarily through three torts: trespass to chattels, conversion, and detinue. While there is considerable overlap between those three torts (with the result that the plaintiff sometimes has the option of suing for more than one), each tort is, in some respects, unique.

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Trespass to chattels occurs when the defendant interferes with chattels in the plaintiff's possession. The element of interference is satisfied if the defendant damages, destroys, takes, or uses the plaintiff's goods. The amount of protection that the tort provides depends upon the circumstances. While trespass would not be committed if the defendant merely touched the plaintiff's brick, the tort might be committed if the defendant touched the plaintiff's painting, which is ancient, valuable, and fragile. Moreover, the tort may be committed even if the defendant believed that they were dealing with their own property. It is sufficient that the defendant intended to commit the relevant act with respect to a particular chattel. The general remedy for trespass to chattels is compensatory damages. If the plaintiff's chattel is destroyed, the defendant must pay the full value of the thing (after accounting for the fact that, if the thing is old, it may have depreciated in value over time). If the plaintiff's chattel is merely damaged, the defendant may be required to pay either the replacement value or the repair value. The tort of conversion occurs when the defendant interferes with the plaintiff's chattels in a way that is serious enough to justify a forced sale. That may be true if the defendant takes, detains, uses, buys, sells, damages, or destroys the plaintiff's property. If so, the defendant will be required to buy the item by paying the market value that the chattel had at the time of the tort. In exchange for that payment, the defendant acquires the property. The central difficulty with the tort of conversion lies in the need to determine whether or not the defendant's interference was so serious as to justify a forced sale. It once again is clear that the tort may be committed even if the defendant thought that it was dealing with its own property. Beyond that, the courts consider all of the facts, including: (1) the extent to which the defendant exercised ownership or control over the chattel, (2) the extent to which the defendant intended to assert a right that was inconsistent with the plaintiff's right to the property, (3) the duration of the defendant's interference, and (4) the expense and inconvenience caused to the plaintiff. The tort of detinue occurs when the defendant fails to return a chattel that the plaintiff is entitled to possess. The word "detinue" is derived from the old French word "detenue," which means detention. Because the tort is based on a wrongful detention, the plaintiff is normally required to demand possession of the property before bringing an action. That requirement is removed, however, if the demand would obviously be refused. The fact that detinue consists of a wrongful detention also affects the remedies that may be available to a plaintiff. First, the tort comes to an end as soon as the defendant returns the property to the plaintiff. At that point, the plaintiff is normally limited to compensation for losses that it suffered during the detention, as well as for any harm done to the item. Second, if the property has not been returned by the time of trial, the plaintiff can ask the court to compel the defendant to do so. The court usually gives the defendant the option of either giving the property back or paying damages. However, the judge may require the property to be returned if it is special or if damages would not satisfy the plaintiff. Finally, Chapter 4 also discussed the concept of recaption. Recaption is not a tort, but rather a self-help remedy. It allows the plaintiff to physically re-acquire possession of a chattel that the defendant had unjustifiably taken, as long as that re-acquisition can be done without using unreasonable force. 15. The Sports Gambling Network (SGN) is a network of radio stations targeted at the growing number of people who are interested in sports or betting or both. Because it is quite new, SGN does not have the financial resources that are available to some of its competitors. The network consequently tries to minimize expenses whenever possible. It recently formulated a plan for broadcasting live sporting events without paying licensing fees to the teams, leagues, and organizations that are involved in those events. SGN's goal is to acquire (either by purchasing or leasing) properties located near outdoor stadiums and 35 © 2023 Pearson Canada Inc.

race tracks, to erect observation towers on those properties, and to then broadcast live transmissions of those events. The Association of Professional Sporting Leagues (the APSL) has learned of SGN's plan and intends to vigorously oppose it. The Association is worried that if SGN is able to broadcast sporting events without first obtaining licences from the relevant teams or leagues, other broadcasters would not be willing to pay substantial amounts for the right to broadcast those same games. The APSL's position is based in part on its argument that SGN's plan necessarily involves the commission of several torts. Is that true? Explain whether or not, in carrying out its plan, SGN would commit any of the torts discussed in Chapter 4. Difficulty: 3 QuestionID: 04-3-15 Topic: Trespass to Land, Interference with Chattels, Invasion of Privacy Skill: Applied Answer: It does not appear that SGN's plan would necessarily involve any of the torts discussed in Chapter 4. APSL's arguments would focus on three sets of torts. - Trespass to land would not be committed by SGN as long as the network operated from premises that it either leased or purchased for itself. That is true even though SGN would be describing the events that it observed occurring on other parties' properties. The tort of trespass to land requires proof that the defendant either physically entered upon the plaintiff's land or caused something to do so. - Interference with Chattels would not be committed either. The torts of trespass to chattels, conversion, and detinue require proof that the plaintiff interfered with an object to which the plaintiff was entitled to possess. Those sorts of torts cannot be committed with respect to ideas or events, such as the state of play in a football game. - Invasion of privacy does not yet exist as an independent tort in Canada. Even if that tort existed in Canada, it is unlikely to prohibit SGN's proposed activities. As explained in the text (at the text accompanying note 4), one of the leading common law cases on privacy expressly held that no tort was committed when the defendant broadcast horse races that it observed, from its own property, occurring on the plaintiff's land. The courts are reluctant to restrict people from simply watching and talking. Moreover, it is at least arguable that the activities that SGN plans to describe could be considered "private." 16. Explain how Jones v. Tsinge allowed the tort of intrusion on seclusion to be applicable to information privacy. Difficulty: 1 QuestionID: 04-3-16 Topic: Invasion of Privacy Skill: Recall Answer: The plaintiff and the defendant worked at separate branches of the Bank of Montreal (BMO). The plaintiff had a personal bank account at the same branch where the defendant worked. Although the parties did not know each other, the defendant was romantically involved with the plaintiff's ex-husband. Over a four-year period, the defendant abused her position with BMO to view the details of the plaintiff's bank account 174 times. When the bank confronted the defendant about the issue, she admitted that she had no legitimate reason for looking at the plaintiff's information. Her only explanation was that she wanted to see if her boyfriend—the plaintiff's ex-husband—was paying child support to the plaintiff. She apologized and promised not to 36 © 2023 Pearson Canada Inc.

misbehave again. The plaintiff, however, believed that she was entitled to more. She sued the defendant for invasion of privacy and demanded compensatory and punitive damages. The trial judge rejected the claim and the Ontario Court of Appeal agreed that the plaintiff could not bring her claim within any existing tort. That, however, was not the end of the story. Sharpe JA said that the time had come to create a new cause of action to protect informational privacy. The tort of intrusion on seclusion occurs if: the defendant intentionally or recklessly invades the plaintiff's private affairs without legal justification in a way that a reasonable person would consider highly offensive and that causes distress, humiliation, or anguish. Interestingly, the tort does not depend on proof of any economic harm. The action is aimed, more broadly, at preventing improper intrusions on private information. While accepting that the defendant was remorseful, the court stressed that her repeated intrusions into the plaintiff's private data were shocking and deliberate. It awarded damages of $10,000.

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Managing the Law, 6e (McInnes) Chapter 05: Miscellaneous Torts Affecting Business True/False Questions 1. The tort of intimidation always requires proof that the defendant used a threat to cause a third party to act in a way that hurt the plaintiff. a True b False Difficulty: 1 QuestionID: 05-1-01 Topic: Intimidation Skill: Recall Answer: b. False 2. Jerome worked for Kerasic Corp. He left that job, however, when he received the promise of better pay from Goldshlager Inc. Goldshlager may be liable to Kerasic as long as, among other things, Goldshlager should have known that Jerome had a contract of employment with Kerasic. a True b False Difficulty: 2 QuestionID: 05-1-02 Topic: Interference with Contractual Relations Skill: Applied Answer: b. False 3. Under the unlawful means tort, the plaintiff must prove, among other things, that the defendant committed a civilly actionable wrong against a third party. a True b False Difficulty: 2 QuestionID: 05-1-03 Topic: Unlawful Means Tort Skill: Recall Answer: a. True 4. The tort of conspiracy always requires proof that the conspirators committed a crime. a True b False

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Difficulty: 1 QuestionID: 05-1-04 Topic: Conspiracy Skill: Recall Answer: b. False 5. Salvatore and Carolyn conducted lengthy negotiations that led to her purchase of his business. At the start of those negotiations, Salvatore made a number of statements regarding the business's profitability. Those statements were accurate when they were made. However, before the sale was finalized, the facts changed such that the earlier statements were no longer true. Salvatore knew of that change, but he intentionally did not provide Carolyn with the updated truthful information and allowed Carolyn to think that the previous, now untrue information, was the true information. Consequently, he may be held liable to her under the tort of deceit. a True b False Difficulty: 2 QuestionID: 05-1-05 Topic: Deceit Skill: Applied Answer: a. True 6. Sarah made several statements to John. Because he acted in reliance upon those statements, John suffered a loss. Assuming that the other elements of the tort are established, Sarah may be held liable for deceit as long as John proves that she carelessly failed to realize that her statements were false. a True b False Difficulty: 2 QuestionID: 05-1-06 Topic: Deceit Skill: Applied Answer: b. False 7. A person cannot be held liable for occupiers' liability unless he or she owned the premises upon which the plaintiff was injured. a True b False Difficulty: 1 QuestionID: 05-1-07 Topic: Occupier's Liability Skill: Recall 2 © 2023 Pearson Canada Inc.

Answer: b. False 8. Jessica was injured while trespassing on Zach's land. Under the modified common law rules for occupiers' liability, a court will use the standard of common humanity in determining whether or not Zach exercised sufficient care with respect to a Jessica. a True b False Difficulty: 2 QuestionID: 05-1-08 Topic: Occupier's Liability Skill: Applied Answer: a. True 9. Joel was injured while walking on Maureen's property. Under the statutory rules, it will generally be necessary for a court to determine Joel's precise status as a visitor before choosing the appropriate standard of care. a True b False Difficulty: 2 QuestionID: 05-1-09 Topic: Occupier's Liability Skill: Applied Answer: b. False 10. An action for the tort of nuisance can succeed only if the plaintiff and the defendant occupied neighbouring pieces of land. a True b False Difficulty: 3 QuestionID: 05-1-10 Topic: Nuisance Skill: Recall Answer: b. False 11. Suki used her property in a way that interfered with the ability of her neighbour, Dick, to enjoy his property. If that interference is sufficiently severe, Suki may be held liable even if her actions in interfering with her neighbour's ability to enjoy his property were not unreasonable. a True b False 3 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 05-1-11 Topic: Nuisance Skill: Applied Answer: b. False 12. The defence of statutory authority applies only if a nuisance was the inevitable result of the defendant's performance of a statutorily authorized activity. a True b False Difficulty: 2 QuestionID: 05-1-12 Topic: Nuisance Skill: Recall Answer: a. True 13. Mohana visited Ian's home. She was injured when his pet wolverine escaped from its cage and bit her while she sat in his kitchen. Under the traditional approach to the tort of Rylands v Fletcher, Ian may be held liable to Mohana. a True b False Difficulty: 3 QuestionID: 05-1-13 Topic: The Rule in Rylands v Fletcher Skill: Recall Answer: b. False 14. During recent proceedings, a member of Parliament stood in the House of Commons and made an outrageously defamatory statement about the prime minister. The prime minister will not be able to successfully sue for the tort of defamation because the statement in question is protected by the defence of absolute privilege. a True b False Difficulty: 2 QuestionID: 05-1-14 Topic: Defamation Skill: Applied Answer: a. True 4 © 2023 Pearson Canada Inc.

15. Casey published an untrue, unfounded, and unfavourable statement about Acme Corp, but not about any of its employees. He nevertheless may be held liable if the statement would tend to make reasonable people have a lower opinion of the corporation. a True b False Difficulty: 3 QuestionID: 05-1-15 Topic: Defamation Skill: Applied Answer: a. True 16. In the tort of deceit a court will try to place the plaintiff as if the defendant's statement had been true. a True b False Difficulty: 3 QuestionID: 05-1-16 Topic: Deceit Skill: Recall Answer: b. False Multiple Choice Questions 1. Emily was involved in a business dispute with Jacob. During a private conversation with Jacob, Emily threatened to spread a rumour that he was having an affair with her unless he agreed to sign a certain document. She knew that that rumour was entirely untrue, but she also knew that Jacob was afraid of upsetting his wife, who is very jealous. On the basis of those facts alone, which of the following statements is TRUE? A) Emily is liable to Jacob for the tort of nuisance. B) Emily is liable to Jacob for the tort of interference with contractual relations. C) Emily is liable to Jacob for the tort of defamation. D) Emily is liable to Jacob for the tort of deceit. E) Emily is not liable to Jacob. Difficulty: 3 QuestionID: 05-2-01 Topic: Defamation Skill: Applied Answer: E) Emily is not liable to Jacob. 2. Because Katelyn has a disability, she receives daily care from her neighbour, Savannah. Savannah 5 © 2023 Pearson Canada Inc.

provides that care out of the goodness of her heart. She does not have a contract of any sort with Katelyn. Caleb held a grudge against Katelyn as a result of a business dispute. He wanted to find some way of hurting her. He therefore told Savannah that he would burn her house down if she continued to care for Katelyn. Caleb's plan backfired. Savannah told Katelyn of the threat, and together they reported Caleb to the police. He was convicted of a crime. Katelyn, however, also wants to sue him for the tort of intimidation. The claim in intimidation will fail because A) Caleb cannot be subject to both criminal prosecution and tort liability for the same act. B) the intimidation was unsuccessful in that Katelyn did not give into the threat C) Caleb did not threaten Emily directly. D) Caleb was motivated by a desire to hurt Emily, rather than by a desire to benefit himself. E) Caleb cannot be sued for intimidation because he did not act on behalf of the government. Difficulty: 2 QuestionID: 05-2-02 Topic: Intimidation Skill: Applied Answer: B) the intimidation was unsuccessful in that Katelyn did not give into the threat 3. Alan had purchased all of his business supplies from Alpha Supplies Inc for almost two decades. He became angry with the company, however, after it refused to repair a widget that it had sold to him. Alan knew that the company was not legally obligated to do the repairs, but he believed that he should have received preferential treatment after so many years. He consequently switched all of his business to Omega Ltd. Alpha Supplies is devastated. It acknowledges that it did not have any contractual right to Alan's business, but it has proof that Alan knew that he accounted for nearly 75 percent of its sales and that his decision would force Alpha Supplies out of business. Now that it has indeed ceased to operate, Alpha Supplies wants to sue in tort. Which of the following statements is most likely to be TRUE? A) Alan is liable for the tort of intimidation as long as Alpha Supplies proves that he wanted to cause harm. B) Alan is liable for interference with contractual relations as long as Alpha Supplies reasonably expected that it would continue to receive his business. C) Alan will not be held liable even if acted with the intention of driving Alpha Supplies out of business. D) Omega Ltd is liable for the tort of interference with contractual relations as long as it knew that it was receiving business that Alan otherwise would have given to Alpha Supplies. E) Alan and Omega Ltd are liable for the tort of conspiracy as long as they both knew that their actions would hurt Alpha Supplies. Difficulty: 2 QuestionID: 05-2-03 Topic: Intimidation Skill: Recall Answer: C) Alan will not be held liable even if acted with the intention of driving Alpha Supplies out of business. 4. Juan entered into a contract with Makayla, under which he promised to add a solarium on to her house for $25,000. After starting the project, he threatened to abandon the job unless she agreed to pay 6 © 2023 Pearson Canada Inc.

him an additional $5,000. Makayla did not agree to pay the additional $5,000. Juan did not finish the work. Makayla wants to sue Juan for the tort of intimidation. Which of the following statements is TRUE? A) That claim will probably fail because Makayla did not give into the intimidation. Makayla should sue for breach of contract. B) If that claim is successful, Makayla will actually receive damages in both tort and contract. C) That claim will probably fail because the tort of intimidation is recognized in England but not in Canada. D) If that claim is successful, Makayla will probably receive an injunction that would force Juan to complete the job in exchange for the additional price. E) The tort of intimidation has an unusually short limitation period. Difficulty: 2 QuestionID: 05-2-04 Topic: Intimidation Skill: Applied Answer: A) That claim will probably fail because Makayla did not give into the intimidation. Makayla should sue for breach of contract. 5. Connor and Sierra operated competing garages. Most of the work at Sierra's garage was performed by Vanessa, who was an excellent mechanic. One evening, Connor saw Vanessa at a bowling alley. He waited for the right moment and then deliberately dropped a bowling ball on her hand. Vanessa suffered a severe and permanent injury that will prevent her from working as a mechanic. Sierra wants to sue Connor for the unlawful means tort. To succeed in that action, Sierra must prove that A) Connor's act was a crime. B) Connor benefitted by taking away customers that Sierra no longer could serve as a result of Vanessa's injury. C) Connor knew the details of Vanessa's employment contract with Sierra. D) Connor intended to profit by stealing away Sierra's customers. E) Connor intended to cause Sierra to suffer economic harm, he succeeded in that respect, and he may be held liable to Vanessa. Difficulty: 3 QuestionID: 05-2-05 Topic: Unlawful Means Tort Skill: Applied Answer: E) Connor intended to cause Sierra to suffer economic harm, he succeeded in that respect, and he may be held liable to Vanessa. 6. Which of the following statements is TRUE with respect to the tort of interference with contractual relations? A) Liability will never be imposed unless the defendant was a party to the contract in question. B) Liability will never be imposed unless the defendant intended to hurt the plaintiff. C) Liability will never be imposed unless the defendant also committed a crime. D) If the defendant is held liable for the tort, it will always be held liable for breach of contract as well. 7 © 2023 Pearson Canada Inc.

E) Liability will never be imposed unless the defendant's actions actually caused a breach of contract. Difficulty: 2 QuestionID: 05-2-06 Topic: Interference with Contractual Relations Skill: Recall Answer: E) Liability will never be imposed unless the defendant's actions actually caused a breach of contract. 7. Omar and Caitlin own competing computer software companies. The success of Caitlin's business was due largely to the work of her chief designer, Mia. During a recent party, Omar asked Mia if she was happy working for Caitlin. Mia answered, "It's okay, I guess." Omar then spent the next hour explaining to Mia how she would earn a great deal more money, and how she would be involved in much more interesting projects, if she worked for him instead. Which of the following statements is most likely TRUE? A) To successfully sue Omar for interference with contractual relations, Caitlin must prove (among other things) that she had to pay Mia's replacement a higher salary than she had paid Mia. B) If Mia does leave her job with Caitlin and begins to work for Omar, Caitlin will certainly be entitled to receive damages from Omar. C) Omar cannot be held liable to Caitlin for the tort of interference with contractual relations if the court is satisfied that he provided Mia with information about his organization, but did not actually persuade her to leave her job and break her contract of employment with Caitlin. D) Omar cannot be held liable to Caitlin for the tort of interference with contractual relations unless he committed some other tort, such as intimidation, against Mia. E) Because he knew that Mia worked for Caitlin, he automatically will be liable for punitive damages if the court finds that a tort has been committed. Difficulty: 3 QuestionID: 05-2-07 Topic: Interference with Contractual Relations Skill: Applied Answer: C) Omar cannot be held liable to Caitlin for the tort of interference with contractual relations if the court is satisfied that he provided Mia with information about his organization, but did not actually persuade her to leave her job and break her contract of employment with Caitlin. 8. Alpha Inc, Beta Inc, and Gamma Inc all produced and sold widgets. Alpha and Beta entered into an agreement that lasted for two years. Under that agreement, Alpha agreed to sell widgets only in the western provinces and Beta agreed to sell widgets only in the eastern provinces. The parties also agreed, for the two-year period, to sell their widgets for a price that was below their own costs. That agreement violated the Competition Act. As a result of the performance of that agreement, Gamma suffered enormous financial losses. Which of the following statements is TRUE? A) Alpha and Beta have committed the tort of interference with contractual relations. B) Alpha and Beta have committed the tort of conspiracy only if the primary intention of their agreement was to hurt Gamma. C) Alpha and Beta have committed the tort of intimidation. 8 © 2023 Pearson Canada Inc.

D) Alpha and Beta may be held liable for the tort of conspiracy as long as they should have known that their agreement would cause Gamma to suffer a loss. E) The tort of conspiracy cannot be committed without intimidation. Difficulty: 2 QuestionID: 05-2-08 Topic: Conspiracy Skill: Applied Answer: D) Alpha and Beta may be held liable for the tort of conspiracy as long as they should have known that their agreement would cause Gamma to suffer a loss. 9. Which of the following statements is TRUE with respect to the tort of conspiracy? A) The plaintiff is always entitled to punitive damages. B) Liability can be imposed upon individuals but not on organizations. C) The tort is harder to prove if the defendants conspired to commit a lawful act than if they conspired to commit an unlawful act because the former case requires proof that the defendants' primary purpose was to harm the plaintiff. D) The defendants will be held liable only if the conspiracy caused someone to break a contract with the plaintiff. E) The tort requires at least two plaintiffs. Difficulty: 1 QuestionID: 05-2-09 Topic: Conspiracy Skill: Recall Answer: C) The tort is harder to prove if the defendants conspired to commit a lawful act than if they conspired to commit an unlawful act because the former case requires proof that the defendants' primary purpose was to harm the plaintiff. 10. Brandon intended to start a new company. He issued a public statement regarding the proposed business venture. That document contained a false statement to the effect that Brandon had received government authorization to use nuclear power for his venture. In fact, authorization had not yet been granted and, indeed, was eventually refused. After reading Brandon's public statement, Abigail invested in the company. She later lost her investment when the company folded. She then sued Brandon for the tort of deceit. Which of the following statements is TRUE? A) Brandon may be held liable even if he honestly believed that he had received government authorization to use nuclear power. B) Brandon may be held liable if a reasonable person would have relied upon his statement, even if Abigail did not do so when she made her investment. C) If Brandon is held liable, damages will be calculated to reflect the position that Abigail would have enjoyed if she had not been deceived, but they will not be calculated to reflect the position Abigail would have enjoyed if Brandon's statement had actually been true. D) Brandon may be held liable even if he did not intend to deceive Abigail, as long as he did in fact deceive her. 9 © 2023 Pearson Canada Inc.

E) The tort of deceit usually causes a court to award an injunction. Difficulty: 3 QuestionID: 05-2-10 Topic: Deceit Skill: Applied Answer: C) If Brandon is held liable, damages will be calculated to reflect the position that Abigail would have enjoyed if she had not been deceived, but they will not be calculated to reflect the position Abigail would have enjoyed if Brandon's statement had actually been true. 11. Dylan committed the tort of deceit against Hilary. He tricked her into investing $5,000 in his business. If his statement had been true, her investment would now be worth $8,000. However, because his statement was untrue, her investment has fallen in value to $4,000. How much will Hilary probably receive in compensatory damages? A) $5,000 B) $4,000 C) $8,000 D) $1,000 E) $3,000 Difficulty: 2 QuestionID: 05-2-11 Topic: Deceit Skill: Applied Answer: D) $1,000 12. Alejandro and Chloe were involved in negotiations for the purchase and sale of her business. She may be held liable for the tort of deceit if A) Alejandro decided to create the contract after Chloe had told him that income tax returns proved that the business would be profitable in the future, even though she knew that those records contained false information that concealed the fact that the business was destined to lose money. B) she offered an opinion about the profitability of the business that was based on information that he provided to her. C) she refused to make a prediction about the profitability of the business even though she had sufficient information with which to do so. D) she provided accurate information to his lawyer, which the lawyer misinterpreted before advising Alejandro on the sale. E) she misled Alejandro, even if she did not intend to do so, by making an innocent mistake about some of the information concerning the business. Difficulty: 1 QuestionID: 05-2-12 Topic: Deceit Skill: Applied 10 © 2023 Pearson Canada Inc.

Answer: A) Alejandro decided to create the contract after Chloe had told him that income tax returns proved that the business would be profitable in the future, even though she knew that those records contained false information that concealed the fact that the business was destined to lose money. 13. Jasmine operated a small chalet in a mountain region. Isaiah rented one of her rooms for the night. Under the traditional common law rules regarding the tort of occupiers' liability, he would best be classified as A) a trespasser. B) an invitee. C) a licencee. D) a contractual entrant. E) a covenantor. Difficulty: 1 QuestionID: 05-2-13 Topic: Occupier's Liability Skill: Applied Answer: D) a contractual entrant. 14. Generally speaking, there are three sets of rules for the tort of occupiers' liability: the traditional common law rules, the judicially modified common law rules, and the statutory rules. The concept of common humanity is relevant if the plaintiff is A) a trespasser under the traditional common law rules. B) a trespasser under the modified common law rules. C) a trespasser under the statutory rules. D) either an invitee or a licencee under the traditional common law rules. E) either an invitee or a licencee under the statutory rules. Difficulty: 2 QuestionID: 05-2-14 Topic: Occupier's Liability Skill: Recall Answer: B) a trespasser under the modified common law rules. 15. Dakota sued Mariah for the tort of occupiers' liability in a jurisdiction that still used the traditional common law rules (as opposed to the judicially modified common law rules). The court held that Mariah was required to protect Dakota from unusual dangers that Mariah should have known about. It therefore is most likely that Dakota was classified as a A) trespasser. B) licencee. C) invitee. D) contractual entrant. E) co-occupier. 11 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 05-2-15 Topic: Occupier's Liability Skill: Applied Answer: C) invitee. 16. Generally speaking, there are three sets of rules for the tort of occupiers' liability: the traditional common law rules, the judicially modified common law rules, and the statutory rules. Which of the following statements is TRUE? A) Under the traditional common law rules, an occupier was merely required to refrain from intentionally or recklessly injuring a licencee. B) Under the judicially modified common law rules, an occupier must protect both licencees and invitees from unusual dangers. C) Under the traditional common law rules, a licencee was a person who had permission to be on the premises and whose presence on the premises furthered the occupier's economic interests. D) Under the statutory rules, there is no need to classify a visitor when determining the precise content of an occupier's duty of care. E) No duty of care is owed to a trespasser under the new statutory rules. Difficulty: 3 QuestionID: 05-2-16 Topic: Occupier's Liability Skill: Recall Answer: B) Under the judicially modified common law rules, an occupier must protect both licencees and invitees from unusual dangers. 17. The rules that apply under occupiers' liability statutes are different from the traditional common law rules in a number of ways. Which of the following statements is TRUE? A) A person who rents a property may be considered to be an occupier under the statutory rules but not under the traditional common law rules. B) A landlord could be held liable for premises occupied exclusively by a tenant under the traditional common law rules but not under the statutory rules. C) An occupier may be held liable for the activities of a third party on the property under the statutory rules, but generally not under the traditional common law rules. D) The reason for the plaintiff's presence on the occupier's premises is relevant under the traditional common law rules but not under the statutory rules. E) The new statutory rules are the same in every province because the relevant statute was enacted by Parliament. Difficulty: 2 QuestionID: 05-2-17 Topic: Occupier's Liability Skill: Recall 12 © 2023 Pearson Canada Inc.

Answer: C) An occupier may be held liable for the activities of a third party on the property under the statutory rules, but generally not under the traditional common law rules. 18. Ethan lives next door to Destiny. Which of the following activities might be considered a non-intrusive nuisance? A) Ethan consistently plays loud music at night. B) Ethan operates a pig farm that creates a foul odour. C) Ethan sells drugs out of his house and thereby attracts criminals to the neighbourhood. D) Ethan operates a metal press that causes Destiny's house to vibrate. E) Ethan operates a chemical business that causes poisonous substances to seep underground into his neighbours' properties. Difficulty: 2 QuestionID: 05-2-18 Topic: Nuisance Skill: Applied Answer: C) Ethan sells drugs out of his house and thereby attracts criminals to the neighbourhood. 19. Isaac lives next door to Gabrielle. He operates a gun shop and firing range on his property. Gabrielle complains that Isaac's business creates a nuisance. In deciding whether or not Isaac's use of his own land is unreasonable, a court would be most influenced by which of the following factors? A) the profitability of Isaac's business B) the time of day when the firing range is open for business C) the fact that bullets from the firing range occasionally shoot across Gabrielle's land D) the number of employees that work for Isaac's business E) the fact that Isaac has a criminal record Difficulty: 1 QuestionID: 05-2-19 Topic: Nuisance Skill: Applied Answer: C) the fact that bullets from the firing range occasionally shoot across Gabrielle's land 20. The Northwest Utility Co (NUC) received statutory permission from the government to lay electrical cables under residential properties. Ariana suffered severe injuries when she struck a buried cable while gardening. If Ariana sues for the tort of nuisance, NUC will be able to avoid liability on the basis of the defence of statutory authority A) only if a nuisance was the inevitable result of performing the statutorily authorized activity. B) as long as a nuisance was the probable result of performing the statutorily authorized activity. C) as long as a nuisance was a reasonably foreseeable result of performing the statutorily authorized activity. D) as long as it did not intentionally create a nuisance when performing the statutorily authorized activity. E) only if Ariana knew of the statute when she was injured. 13 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 05-2-20 Topic: Nuisance Skill: Applied Answer: A) only if a nuisance was the inevitable result of performing the statutorily authorized activity. 21. Bryce consistently commits the tort of nuisance against Aaliyah. She wants an injunction to stop him from doing so. Which of the following statements is TRUE? A) Aaliyah has an absolute right to an injunction if Bryce's nuisance causes physical damage to her property. B) Aaliyah cannot receive both an injunction and compensatory damages. C) An injunction is never available with respect to a nuisance. D) A court will grant an injunction only if Bryce's nuisance is intrusive. E) A court may grant an injunction, but is a discretionary remedy Difficulty: 2 QuestionID: 05-2-21 Topic: Nuisance Skill: Applied Answer: E) A court may grant an injunction, but is a discretionary remedy 22. Faith lives next door to Alphonse. He has sued her for committing the tort of nuisance. Which of the following statements is TRUE? A) Alphonse's claim will fail if Faith proves that he consented to her activities in that he did not merely fail to complain but he encouraged the activities. B) Faith cannot be held liable unless she actually caused something to touch Alphonse's property. C) Because nuisance is a strict liability tort, the law is concerned with Faith's motivation for acting as she did D) The claim in nuisance will probably be successful if Faith decorated her house in a way that detrimentally affected the market value of Alphonse's property. E) Nuisance is a strict liability tort to which there are no defences. Difficulty: 3 QuestionID: 05-2-22 Topic: Nuisance Skill: Applied Answer: A) Alphonse's claim will fail if Faith proves that he consented to her activities in that he did not merely fail to complain but he encouraged the activities. 23. Rex has sued Regina for the tort of Rylands v Fletcher. ONE of the elements that he must prove in order to win the case is that A) Regina acted either carelessly or intentionally. 14 © 2023 Pearson Canada Inc.

B) he was injured while visiting Regina's property. C) the injury that he suffered was an inevitable result of the manner in which Regina used her property. D) he and Regina occupy property in the same neighbourhood. E) something escaped from Regina's property. Difficulty: 3 QuestionID: 05-2-23 Topic: The Rule in Rylands v Fletcher Skill: Applied Answer: E) something escaped from Regina's property. 24. Winona has sued Ramon for the tort of Rylands v Fletcher. The court is most likely to impose liability if A) Winona consented to the manner in which Ramon used his property. B) Winona's injury was the inevitable result of the fact that Ramon performed a statutorily authorized activity. C) Winona's injury was caused by a malicious act by a third party that Ramon could not have prevented. D) Winona's injury was caused by a force of nature that Ramon could not have prevented. E) Winona was injured even though Ramon used all reasonable care. Difficulty: 2 QuestionID: 05-2-24 Topic: The Rule in Rylands v Fletcher Skill: Recall Answer: E) Winona was injured even though Ramon used all reasonable care. 25. Cornelius recklessly stored a large box of fireworks on his residential property. The fireworks ignited when he carelessly threw a cigarette on them. Some of the fireworks shot off his property and struck a neighbouring house, which belonged to Cherilyn. Cherilyn's house was badly damaged by fire. Although she could not recover compensation more than once for the same loss, she would probably be able to successfully sue Cornelius in tort for A) Rylands v Fletcher and occupiers' liability and nuisance. B) Rylands v Fletcher and occupiers' liability but not nuisance. C) Rylands v Fletcher and nuisance but not occupiers' liability. D) Rylands v Fletcher but not nuisance or occupiers' liability. E) nuisance but not Rylands v Fletcher or occupiers' liability. Difficulty: 2 QuestionID: 05-2-25 Topic: The Rule in Rylands v Fletcher, Nuisance Skill: Applied Answer: C) Rylands v Fletcher and nuisance but not occupiers' liability.

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26. Brad made a false and unflattering statement about Concettina. He has been sued for defamation. That action can succeed only if the court is satisfied that A) Brad knew that his statement was false. B) Brad made his statement without first carefully checking the facts. C) Brad's false statement mentioned Concettina by name. D) Brad knew Concettina's identity. E) Concettina is still alive when the statement is made. Difficulty: 2 QuestionID: 05-2-26 Topic: Defamation Skill: Applied Answer: E) Concettina is still alive when the statement is made. 27. Which of the following statements is TRUE with respect to the tort of defamation? A) If the plaintiff applies in a timely manner, a court will automatically grant an injunction to prevent the defendant from making a statement that may be defamatory. B) The court may award compensatory damages but not punitive damages. C) The requirement of publication is satisfied if the defendant communicates a false and unflattering statement to the plaintiff, as long as the plaintiff suffers a loss as a result. D) Because the tort of defamation is concerned with the protection of reputations, liability may be imposed for a false statement that was made about a person, but not for a false statement that was made about a corporation. E) The tort of defamation may be committed every time that the defamatory statement is repeated. Difficulty: 3 QuestionID: 05-2-27 Topic: Defamation Skill: Applied Answer: E) The tort of defamation may be committed every time that the defamatory statement is repeated. 28. Which of the following is the name of a defence to the tort of defamation? A) honesty B) due diligence C) pseudo justification D) qualified comment E) public interest responsible journalism Difficulty: 1 QuestionID: 05-2-28 Topic: Defamation Skill: Recall Answer: E) public interest responsible journalism 16 © 2023 Pearson Canada Inc.

29. Which of the following statements is TRUE? A) Because they are actionable per se, neither the tort of deceit nor the tort of conspiracy require proof that the plaintiff actually suffered a loss. B) The torts of intimidation and conspiracy have one thing in common: they both always require proof that the defendant committed an unlawful act in addition to committing the tort. C) Liability under Rylands v Fletcher requires proof that the defendant was careless but not that he intentionally committed a wrong. D) "Slander" refers to defamatory words that are written and "libel" refers to defamatory words that are spoken. E) A person may be liable for a tort as a result of making a harmful and false statement about the plaintiff's business, rather than about the plaintiff. Difficulty: 2 QuestionID: 05-2-29 Topic: Injurious Falsehood Skill: Recall Answer: E) A person may be liable for a tort as a result of making a harmful and false statement about the plaintiff's business, rather than about the plaintiff. 30. Which of the following statements is TRUE? A) The tort of injurious falsehood always requires proof that the defendant made a false statement about the quality of the plaintiff's products. B) Liability for the tort of deceit may arise only if the defendant made a statement to the plaintiff. C) If the plaintiff cannot sue for the tort of private nuisance, then it also will be impossible to sue for the tort of public nuisance. D) The defence of absolute privilege does not apply if the defendant maliciously made a defamatory statement. E) Liability may be imposed under the tort of intimidation even if the defendant's primary purpose was to benefit itself, rather than hurt the plaintiff. Difficulty: 2 QuestionID: 05-2-30 Topic: Intimidation Skill: Recall Answer: E) Liability may be imposed under the tort of intimidation even if the defendant's primary purpose was to benefit itself, rather than hurt the plaintiff. 31. Brewster and Constance are neighbours. They both live near the outdoor stadium that hosts sporting events and concerts in their city. For many years, Brewster and Constance both earned a great deal of money by using their lawns as parking lots during stadium events. Recently, however, attendance at stadium events has plummeted and there are not enough customers to keep both Brewster and Constance happy. The two therefore began to compete for business. In a desperate bid to win the competition, Constance threatened motorists who appeared to be headed for Brewster's property. ONE of the 17 © 2023 Pearson Canada Inc.

elements that Brewster must prove in order to hold Constance liable for the unlawful means tort is that A) his property shares a legal boundary with her property. B) a reasonable person in Constance's position would have realized that her behaviour violated Brewster's rights. C) Constance was motivated by a desire to earn greater profits. D) Constance committed a crime when she threatened Brewster's potential customers. E) Constance committed a tort against Brewster's potential customers when she threatened them. Difficulty: 3 QuestionID: 05-2-31 Topic: Unlawful Means Tort Skill: Applied Answer: E) Constance committed a tort against Brewster's potential customers when she threatened them. 32. Which of the following statements is TRUE? A) The tort of conspiracy always requires proof that the defendant intended to hurt the plaintiff. B) The tort of deceit always requires proof that the defendant acted with the intention of gaining an economic benefit. C) The unlawful means tort always requires proof that the defendant committed a civilly actionable wrong against someone other than the plaintiff. D) The tort of interference with contractual relations always requires proof that the defendant acted with the primary intention of hurting the plaintiff. E) The tort of intimidation always requires proof that the defendant threatened the plaintiff. Difficulty: 3 QuestionID: 05-2-32 Topic: Unlawful Means Tort Skill: Applied Answer: C) The unlawful means tort always requires proof that the defendant committed a civilly actionable wrong against someone other than the plaintiff. 33. The unlawful means tort A) is one of the oldest torts. B) was recently rejected by the Supreme Court of Canada. C) requires proof that, among other things, the defendant also committed some other tort against the plaintiff. D) requires proof that, among other things, the defendant acted with an intention to cause the plaintiff to suffer economically. E) is a subset of the tort of interference with contractual relations. Difficulty: 2 QuestionID: 05-2-33 Topic: Unlawful Means Tort Skill: Recall 18 © 2023 Pearson Canada Inc.

Answer: D) requires proof that, among other things, the defendant acted with an intention to cause the plaintiff to suffer economically. 34. Sweety Cola and Bubbly Cola are competitors in the cola market. Both companies spend a great deal of money on advertising in an attempt to lure customers away from the competitor. Those advertisements, however, occasionally backfire. A court recently held Sweety Cola liable to Bubbly Cola under the tort of injurious falsehood. That decision is most likely to have been delivered if Sweety Cola A) falsely claimed that its own beverages contain zero calories. B) created a dishonest advertising campaign that caused one restaurant chain to break its contract to purchase beverages from Bubbly Cola. C) honestly, but incorrectly, said that Bubbly Cola's beverages contain inferior ingredients. D) caused some consumers to believe that Sweety Cola products were manufactured by Bubbly Cola. E) persistently claimed that its beverage tasted better than Bubbly Cola's beverage, even taste is entirely a personal preference. Difficulty: 2 QuestionID: 05-2-34 Topic: Injurious Falsehood Skill: Applied Answer: B) created a dishonest advertising campaign that caused one restaurant chain to break its contract to purchase beverages from Bubbly Cola. 35. Brownie Inc and Chewy Ltd are competitors in the chocolate bar market. Brownie has developed a four-part strategy in an effort to win the "trade war" with Chewy. First, Brownie's advertisements falsely claim that its product are calorie-free. Second, those advertisements also state that Chewy's products are manufactured from third-rate ingredients. Third, those advertisements also say that Chewy's products are proven to cause cancer. And fourth, Brownie occasionally packages its products in such a way as to make consumers believe that they are buying Chewy products. Which of the following statements is TRUE? A) If Brownie's products are not calorie free, Brownie will be held criminally liable for misleading advertising. B) Brownie may be held liable for injurious falsehood if Chewy's products are not made from third-rate ingredients, if Brownie's statement to the contrary was made maliciously, and if Chewy suffered a loss of sales as a result of that statement. C) If Chewy's products do not cause cancer, Brownie may be held liable under the tort of deceit as long as it should have known that its statement was false. D) The court will find a crime was committed every time that Brownie packaged its products to trick customers into thinking that they were actually buying Chewy's products. E) Brownie cannot be held liable for injurious falsehood unless it knew that it was committing a tort when it made a particular statement. Difficulty: 3 QuestionID: 05-2-35 Topic: Injurious Falsehood 19 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) Brownie may be held liable for injurious falsehood if Chewy's products are not made from thirdrate ingredients, if Brownie's statement to the contrary was made maliciously, and if Chewy suffered a loss of sales as a result of that statement. 36. Which of the following statements is TRUE with respect to the tort of injurious falsehood? A) It requires proof that the defendant's statement caused the plaintiff to suffer a loss. B) It always consists of a slander of title. C) It may be established on the basis of proof that the defendant should have known that the statement in question was false. D) It is another name for the tort of defamation. E) Because it requires proof of malice, it always results in punitive damages being awarded to a successful plaintiff. Difficulty: 2 QuestionID: 05-2-36 Topic: Injurious Falsehood Skill: Recall Answer: A) It requires proof that the defendant's statement caused the plaintiff to suffer a loss. 37. The trial judge's decision in Baglow v Smith is important because it held that A) liability may be imposed under the rule in Rylands v Fletcher even if nothing escaped from the defendant's property. B) the publication requirement under the tort of defamation is not satisfied when the operator of an online message board allows another person to post a comment. C) a claim for the tort of nuisance will be defeated by the defence of statutory authority as long as the court is satisfied that a statute allowed the defendant to perform the act that injured the plaintiff. D) because different rules and expectations apply to different types of media, a statement that is defamatory when it is made on television may not be characterized as defamatory if it is made online. E) a corporation that has been defamed may be awarded compensatory damages, but not punitive damages, because corporations do not have feelings. Difficulty: 2 QuestionID: 05-2-37 Topic: Defamation Skill: Recall Answer: D) because different rules and expectations apply to different types of media, a statement that is defamatory when it is made on television may not be characterized as defamatory if it is made online. 38. Simon, who is nine years old, was recently injured after he wandered onto Regina's land. Simon was infected with a disease after he stepped barefoot on a syringe. The evidence indicates that Regina's land is routinely used by drug addicts to "shoot up." Regina was aware of that fact, but did nothing to stop it or post warning signs. Simon has sued Regina under the tort of occupiers' liability. Which of the following 20 © 2023 Pearson Canada Inc.

statements is TRUE? A) If a court concludes that Simon's injury was caused by an activity on Regina's land, rather than the condition of Regina's land, then Regina may be held liable under statutory rules but not under the traditional common law rules. B) If the common law rules apply to the facts, then it will be necessary to classify Simon as a trespasser, licensee, invitee, or contractual entrant. C) The tort of occupiers' liability has been abolished in most provinces. D) If the statutory rules apply, then Regina will be held liable only if she created the danger that caused Simon's injury. E) If the statutory rules apply, then the court will apply the doctrine of common humanity. Difficulty: 2 QuestionID: 05-2-38 Topic: Occupier's Liability Skill: Applied Answer: A) If a court concludes that Simon's injury was caused by an activity on Regina's land, rather than the condition of Regina's land, then Regina may be held liable under statutory rules but not under the traditional common law rules. 39. Rande was injured by an accident that occurred on land belonging to the Acme Chemical Company. The company may be held liable A) under the tort of trespass to land if a toxic chemical drifted off its land and injured Rande while he waited for a bus on a public sidewalk. B) under the tort in Rylands v Fletcher if Rande fell into an unmarked pit on the company's land. C) under the tort of nuisance if a chemical drifted off the company's land and ruined the paint on Rande's car, even if that vehicle was parked on public property. D) under the unlawful means tort if the company committed a crime by allowing toxic materials to accumulate on its property and if Rande was injured as a result of coming into contact with those materials while he was visiting the company's land. E) under the strict liability tort of nuisance if Rande was injured as a result of the company's reasonable actions. Difficulty: 2 QuestionID: 05-2-39 Topic: Nuisance Skill: Applied Answer: C) under the tort of nuisance if a chemical drifted off the company's land and ruined the paint on Rande's car, even if that vehicle was parked on public property. 40. Which of the following factors is relevant to a judge's decision as to whether or not a party accused of the tort of nuisance used its property in a reasonable manner? A) the personal happiness that the defendant receives from the activity in question B) the nature of the damage that the plaintiff suffered C) the fact that the plaintiff rents, but does not own, the property that it occupies. 21 © 2023 Pearson Canada Inc.

D) the fact that the plaintiff and the defendant are closely related E) the fact that the defendant has property insurance. Difficulty: 1 QuestionID: 05-2-40 Topic: Nuisance Skill: Recall Answer: B) the nature of the damage that the plaintiff suffered 41. The municipal government announced that it was accepting bids on a new project. Kareem is the CEO of Aladdin Contracting. He knew that Aladdin's main competitor, Jafar Construction, intended to submit a bid. Kareem therefore called the CEO of Jafar and told him that if Jafar won the project by bidding less than Aladdin, Aladdin would sabotage Jafar's construction projects for the next year. Which of the following statements is most likely to be TRUE? A) If Kareem persuaded Jafar to not submit a bid, then both Jafar and Aladdin committed the tort of conspiracy against the municipal government as long as they agreed that only Aladdin would submit a bid. B) Aladdin has committed the tort of interference with contractual relations against the municipal government if Kareem's threat caused Jafar to not submit a bid. C) Aladdin has committed the tort of two-party intimidation against the municipal government. D) Aladdin has committed the unlawful means tort against Jafar because Kareem's threat amounted to both a tort and a crime. E) Aladdin has committed the tort of two-party intimidation against Jafar if Kareem's threat caused Jafar to not submit a bid. Difficulty: 2 QuestionID: 05-2-41 Topic: Intimidation Skill: Applied Answer: E) Aladdin has committed the tort of two-party intimidation against Jafar if Kareem's threat caused Jafar to not submit a bid. 42. While looking to buy a car, Yanni saw Isabella's ad. That ad stated that Isabella's car was a 1999 Sunfire with less than 100 000 km on it. It also said that the car was great for long road trips with friends. Yanni bought the car and took it on a road trip. After 150 km, however, the car broke down. When Yanni brought the car to a mechanic, he was told that the car's odometer had been rolled back and the car had actually been driven close to 300 000 km when Yanni purchased it. Which of the following statements is true? A) Isabella is liable for the tort of deceit because the car was not actually great for long road trips. B) As long as a reasonable person in Isabella's position would have known that the odometer had been rolled back, she is liable for the tort of deceit. C) This is a case of caveat emptor and Yanni has no way to recover his money. D) Isabella is liable for the tort of deceit only if she knew that the car had been driven more than 100 000 km. 22 © 2023 Pearson Canada Inc.

E) Isabella is liable for the unlawful means tort because she committed the tort of deceit in order to persuade him to purchase her car. Difficulty: 3 QuestionID: 05-2-42 Topic: Deceit Skill: Applied Answer: D) Isabella is liable for the tort of deceit only if she knew that the car had been driven more than 100 000 km. 43. You invited your friend Suri to your apartment for dinner. Since you knew that she would arrive first, you gave her your key and told her to let herself in. When she entered, however, a burglar jumped out and cracked her skull with a vase. Suri suffered a concussion. The burglar was also injured. As a practical joke, you had tied a string between the kitchen doorway, hoping that Suri would tumble over when she entered the room. In fact, it was the burglar who was tripped up. He broke his wrist as a result of the fall. Both Suri and the burglar have sued you under the tort of occupiers' liability. Assuming that the traditional common law rules apply, which of the following statements is most likely to be TRUE? A) You are only liable to Suri because she is an invitee. B) You are only liable to Suri because she is a licencee. C) You are only liable to Suri because you had no protection against burglars. D) You are only liable to the burglar because you recklessly injured him. E) You are liable to both Suri and the burglar. Difficulty: 2 QuestionID: 05-2-43 Topic: Occupier's Liability Skill: Applied Answer: D) You are only liable to the burglar because you recklessly injured him. 44. Etienne rents an apartment in an older building that has many structural problems. One of those problems is that there are exposed electrical wires in Etienne's kitchen. Etienne repeatedly asked for the problem to be fixed, but the landlord does not enjoy dealing with wiring and the problem still has not been fixed. Etienne therefore warned Crystal about the wires when she visited his apartment for dinner. Unfortunately, Crystal accidentally touched the wires and received a terrible shock. She has sued both Etienne and the landlord for occupiers' liability. Assuming that the statutory rules apply, which of the following statements is most likely to be TRUE? A) Etienne is liable because he did not use reasonable care to protect Crystal. B) The landlord is liable for failing to make repairs under the lease. C) Since Etienne invited Crystal to his apartment, she is classified as an invitee and therefore she will not win against either defendant unless she proves that the dangerous wires were hidden from her view. D) The landlord is not liable because it is the tenant, rather than the landlord, that has control of the premises under a lease. E) The landlord is liable for failing to satisfy the requirements of common humanity.

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Difficulty: 2 QuestionID: 05-2-44 Topic: Occupier's Liability Skill: Applied Answer: B) The landlord is liable for failing to make repairs under the lease. 45. Caitlyn is building a treehouse for her son in her back yard. Although the project is only half completed, it already is quite large. Caitlyn's neighbour, Vikram is doubly upset. First, he is unhappy because he enjoyed sitting on his front porch and watching the sun set every evening. The treehouse now completely blocks his view of the sunset. Second, Vikram is angry that Caitlyn often works on the treehouse until midnight. The sound of her hammering and sawing prevents Vikram from getting to sleep at night. Which of the following statements is most likely to be TRUE? A) If Vikram sues for the tort of nuisance, Caitlyn will be held liable for the late-night noise, but not Vikram's inability to watch sunsets. B) If Vikram sues for the tort of nuisance, Caitlyn will be held liable for preventing Vikram from watching sunsets, but not for the late-night noise. C) Because sound waves travel, Caitlyn will be held liable for trespass to Vikram's land. D) Because construction noises are seldom heard at night in residential areas, Caitlyn will be held liable to Vikram under the rule in Rylands v Fletcher. E) If Caitlyn received a municipal permit to build the treehouse, she would certainly have a complete defence if Vikram sued for nuisance. Difficulty: 2 QuestionID: 05-2-45 Topic: Nuisance Skill: Applied Answer: A) If Vikram sues for the tort of nuisance, Caitlyn will be held liable for the late-night noise, but not Vikram's inability to watch sunsets. 46. Sarah wants to ensure her boyfriend Tom does not accept a lucrative athletic scholarship at a prestigious university. She accesses his email in order to delete the university's unconditional offer so that Tom is unaware that he received it and sends a note to the university rejecting the offer. A year later Tom runs into the coach of the university that offered the scholarship. Upon investigating the matter further, he figures out what Sarah has done. Tom's cause of action in tort will most likely be: A) negligence. B) interference with business relations. C) defamation. D) deceit. E) intentional tort. Difficulty: 2 QuestionID: 05-2-46 Topic: Deceit Skill: Applied 24 © 2023 Pearson Canada Inc.

Answer: D) deceit. 47. Don, a well-respected doctor, died earlier this year. His nephew Roger never liked him and wrote a scathing obituary online stating how he was a terrible doctor that mistreated his patients. This statement is completely false. However, Roger's obituary has been reposted by several other websites. Don's wife Devina wants to sue for defamation. Will she succeed? A) Yes, against Roger and anyone that reposts the material, since Roger's constitutes defamatory libel B) Yes, but against Roger only. The reposting of links without actually repeating the defamatory content is not considered publication. C) No, defamation applies to living persons. D) No, because the defamatory statement was libel and not slander. E) It depends on whether Roger's remarks are deemed fair comment. Difficulty: 2 QuestionID: 05-2-47 Topic: Defamation Skill: Applied Answer: C) No, defamation applies to living persons. 48. The City of Toronto has started construction on an airport close to a residential neigbourhood. The residents bring an action for nuisance and the court agrees that the noise from the construction is unreasonably interfering with the plaintiff's land. The most likely explanation for a court NOT imposing liability in this case would be that: A) the City of Toronto is acting under statutory authority. B) the City of Toronto's right to build an airport supersedes the right to the resident's use and enjoyment of their land. C) the case has been overturned on appeal. D) the airport would only take three months to build. E) construction only took place during normal business hours. Difficulty: 2 QuestionID: 05-2-48 Topic: Nuisance Skill: Applied Answer: A) the City of Toronto is acting under statutory authority. Essay Questions 1. "To succeed in an action for intimidation, the plaintiff must prove that the defendant threatened to commit an unlawful act. Depending upon the circumstances, it may be sufficient if the plaintiff proves that the defendant threatened to commit a breach of contract." Explain the circumstances in which this statement is or is not true.

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Difficulty: 3 QuestionID: 05-3-01 Topic: Intimidation Skill: Recall Answer: It is necessary to distinguish between two forms of the tort of intimidation. Two-party intimidation occurs when the plaintiff is directly coerced by the defendant into suffering a loss. For instance, the defendant may extract a payment from the plaintiff by threatening the plaintiff with the crime of murder or the tort of battery. A breach of contract is also an unlawful act. However, the cases indicate that the tort of intimidation is not established if the defendant merely threatened to breach a contract with the plaintiff. In that situation, the plaintiff is expected to bring a contractual, rather than a tortious, action against the defendant. A contractual claim is possible because both the plaintiff and the defendant are parties to the agreement. Three-party intimidation occurs when the defendant coerces a third party into acting in a way that hurts the plaintiff. For instance, the defendant may use a threat of murder or battery to persuade a third party into inflicting a loss upon the plaintiff. The tort may also be committed if the defendant threatens to break a contract with the third party unless the third party inflicts some loss upon the plaintiff. The plaintiff is entitled to rely upon the defendant's threat to breach a contract in that situation because the plaintiff is not a party to the relevant agreement. The agreement exists exclusively between the defendant and the third party. Consequently, there is no way for the plaintiff to take action on the contract itself. And unless the plaintiff was allowed to sue in tort, it would not have any claim against the defendant. 2. Amarjeet and Doris were competitors in the widget industry. In an over-exuberant effort to take over her business, Amarjeet told Doris that he would spread false and unflattering rumours about her unless she sold her company to him. Doris was quite frightened by Amarjeet's behaviour but she did not sell her company to Amarjeet. She has now sued him for the tort of intimidation. Amarjeet has argued in defence that he acted solely for the purpose of furthering his own financial interests, and not out of a desire to hurt Doris. The evidence indicates that he is telling the truth in that respect. He also resists liability on the basis that he never actually did defame Doris as he had threatened to do. Will either of those defences protect Amarjeet from liability? Is there any other basis upon which he can avoid liability? Explain your answers. Difficulty: 3 QuestionID: 05-3-02 Topic: Intimidation Skill: Applied Answer: Amarjeet cannot avoid liability on the basis of either of the arguments that he has made. - Motive Irrelevant As long as the other elements of the tort are established, it is irrelevant that he was motivated by a desire to profit, rather than by a desire to hurt Doris. - Threat Only It is also irrelevant that he did not actually carry through on his threat to defame Doris. Indeed, the tort of intimidation is useful largely because it allows the plaintiff to sue on the basis of the threat, rather than an actual commission, of an independently actionable tort. If Amarjeet had, in fact, spread false and unflattering rumours about Doris, she could have sued him for defamation. (In that situation, she might have 26 © 2023 Pearson Canada Inc.

been able to sue him for both intimidation and defamation. The loss attributable to each might be different. The tort of defamation would have damaged her reputation. The tort of intimidation, if it occurred, would have caused her to sell her business to Amarjeet.) There is, however, another reason why Amarjeet would not be liable to Doris. The tort of intimidation occurs only if the defendant's threat actually caused the plaintiff to suffer a loss. The tort only occurs if the plaintiff gives in to the intimidation. In this case, Doris resisted Amarjeet's intimidation. She ultimately refused to sell her business to him. Doris cannot successfully sue Amarjeet for intimidation. 3. You and I are competitors in the publishing business. You and I both know that Mysty is my best employee and that much of my success is due to her efforts. You want to find some way of causing Mysty to stop working for me and, if possible, to start working for you. You have persuaded her to meet with you for a discussion of her future employment. You intend to tell her that I am a lousy employer. Identify and explain the risk management issues that you should bear in mind as you prepare for that meeting. Difficulty: 2 QuestionID: 05-3-03 Topic: Defamation, Interference with Contractual Relations Skill: Applied Answer: You are at risk of committing two torts. First, you must be careful to not defame me. That could occur if you made a false statement to Mysty that could cause a reasonable person to have a lower opinion of me. You could avoid liability, however, if your statements were all justified. The defence of justification applies with respect to statements that are true; meaning not just the statement is true but the statement is true in all of the innuendo that is reasonably flows from the statement. Second, you must be careful to not commit the tort of interference with contractual relations. You would be held liable if you persuaded Mysty to quit her job with me by disparaging me (regardless of whether or not you also persuaded her to take a job with you). Consequently, as a matter of risk management, you should carefully limit yourself to providing information regarding the relative benefits of working for you and me. You must leave the decision with her. You should not go further and actually suggest that she should breach her contract with me. 4. Johanna was employed by Raouf. Willie caused her to breach that employment contract. Raouf is trying to decide whether or not to sue Willie for interference with contractual relations. He therefore wants to know what facts he would be required to prove in order to succeed in such a claim. Difficulty: 1 QuestionID: 05-3-04 Topic: Interference with Contractual Relations Skill: Applied Answer: This is a case of direct inducement of breach of contract. Raouf would be required to prove four elements: - Knowledge: Willie must have known about Johanna's contract with Raouf. - Intention: Willie must have intended to cause Johanna to break her contract with Raouf. 27 © 2023 Pearson Canada Inc.

- Cause: Willie must have actually caused Johanna to break her contract with Raouf. - Loss: Raouf must have suffered a loss as a result of those events (eg he lost the benefit of Johanna's services, he incurred expenses and loss in hiring a replacement worker). 5. Slobodan and Ashraf allegedly committed the tort of conspiracy against Vanessa. She is trying to decide whether or not she will sue them. She therefore wants to know what facts she would be required to prove in order to succeed in such a claim. In that respect, why is it important for her to determine whether the act that Slobodan and Ashraf conspired to commit was unlawful in itself? Difficulty: 2 QuestionID: 05-3-05 Topic: Conspiracy Skill: Applied Answer: The tort of conspiracy is committed when two or more people collaborate to cause injury to the plaintiff. The elements of the claim differ somewhat, however, depending upon whether the act upon which the defendants conspired was lawful in itself (eg because it involved a consumer boycott of the plaintiff's products) or unlawful in itself (eg because they agreed to commit a crime or an independently actionable tort, or because they violated a regulatory scheme). If Slobodan and Ashraf conspired to commit an otherwise lawful act, then Vanessa would be required to prove that the conspirators' primary purpose was to inflict an injury upon her. In contrast, if Slobodan and Ashraf conspired to commit an otherwise unlawful act, then Vanessa would merely be required to prove that the conspirators should have known that their actions might be harmful to her. 6. As a general rule, the tort of deceit is not committed if the plaintiff suffered a loss as a result of relying upon an opinion, prediction, or puff that the defendant made, even if that statement was incorrect or inaccurate. Identify and briefly explain the reason for that general rule. Difficulty: 1 QuestionID: 05-3-06 Topic: Deceit Skill: Recall Answer: To succeed in an action for deceit, the plaintiff must prove that he or she suffered a loss as a result of reasonably relying on a false statement of fact by the defendant. As a general rule, however, a reasonable person only relies upon statements of past or existing facts. It is usually unreasonable to rely on a prediction because a prediction, by its very nature, pertains to the future and therefore may or may not actually occur –it is not a fact. Likewise, it is usually unreasonable to rely on another person's personal opinion. A reasonable person usually forms their own opinions based on facts. And finally, it is usually unreasonable to rely on a puff, which is mere sales talk. Reasonable customers realize that sales people often somewhat exaggerate the benefits and qualities of their products. The situation may be different, however, if the defendant, expressly or by implication, makes a false statement of fact upon which the prediction, opinion, or puff is based. In that situation, the plaintiff may succeed in the 28 © 2023 Pearson Canada Inc.

tort of deceit by proving that they suffered a loss by reasonably relying upon that underlying misstatement of fact. 7. Rachel owned the right to mine for gold on a particular piece of property. Because she lacked immediate financial resources, she issued a statement that was designed to attract investors. That statement was, as Rachel knew, false. It claimed that the land held considerably more gold than it actually did. Relying upon the truth of the information contained in Rachel's statement, Siddharth invested $100 000 in her mining project. On the basis of the statement, he expected to earn a net profit of $250 000. In fact, he earned a much more modest profit of $10 000. Siddharth has sued Rachel for the tort of deceit. If he succeeds, how much will he receive as compensatory damages? Explain your answer. Difficulty: 2 QuestionID: 05-3-07 Topic: Deceit Skill: Applied Answer: Siddharth will not succeed in his action against Rachel and he will not receive any compensatory damages. The tort of deceit is not actionable per se. It is committed only if the plaintiff suffers a loss as a result of relying upon the defendant's false statement. The idea of a "loss" can be defined in different ways in different parts of private law. In the law of contract, the plaintiff may suffer a loss if an event turns out to be less profitable than the defendant promised. A breach of contract therefore supports compensation in the form of expectation damages. The plaintiff is entitled to be placed in the position that they would have enjoyed if the contract had unfolded as promised. In this case, Siddharth expected to receive a net profit of $250 000. His actual net profit was only $10 000. He therefore has been disappointed by the amount of his return not being $240 000. A claim in deceit is not, however, a claim for breach of contract. Siddharth therefore is not entitled to have his expectations monetarily fulfilled. (He might, of course, be entitled to receive expectation damages if he establishes a concurrent action for breach of contract.) In tort, "loss" is reckoned not with regard to the position that the plaintiff expected to enjoy in the future, but rather with regard to the position that they enjoyed before the wrongful event. Tort damages, in other words, are backward-looking, rather than forward-looking. Siddharth's current position is not, however, worse than his original position. It is, to the contrary, better by $10 000. He therefore cannot succeed in his claim for deceit and he is not entitled to receive compensatory damages in tort. 8. Khalid was injured while trespassing on property owned and occupied by Charisse. He has sued her for the tort of occupiers' liability. Describe the relevant standard of care under: (i) the traditional common law rules, (ii) the modified common law rules, and (iii) the statutory rules. Difficulty: 3 QuestionID: 05-3-08 Topic: Occupier's Liability Skill: Applied

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Answer: Under the traditional common law rules, an occupier was merely required to refrain from intentionally or recklessly injuring a trespasser. Under the modified common law rules, an occupier must do more than simply refrain from intentionally or recklessly hurting a trespasser. The law now uses a duty of common humanity that strikes a balance between the parties. The occupier's obligations are determined by a number of factors, including: (i) the age of the trespasser, (ii) the reason for the trespass, (iii) the nature of the danger that caused the injury, (iv) the occupier's knowledge of that danger, and (v) the occupier's cost of removing that danger. Under the statutory rules, an occupier generally owes the same basic duty to all visitors: the occupier must use as much care as is reasonable in the circumstances. The precise content of that standard depends, in any particular case, on a number of factors, including: (i) the potential danger to the visitor, (ii) the occupier's cost of removing the danger, (iii) the purpose of the visit, and (iv) the nature of the premises. The plaintiff's status as a trespasser may be relevant, especially to the third factor. Some jurisdictions have special statutory rules that apply with respect to trespassers. For instance, in Alberta, an occupier is not required to protect adult trespassers from danger. They are merely prohibited from willfully or recklessly hurting them. In contrast, reasonable care must be taken to protect child trespassers that the occupier knows, or ought to know, are on the property. Likewise, an occupier in Ontario or Prince Edward Island does not have to use reasonable care to protect some types of trespassers. It is enough to simply refrain from intentionally hurting them. A similar rule applies in Manitoba, but only to trespassing snowmobilers. 9. Zeno was injured while he was either a licensee or an invitee on property owned and occupied by Kavita. He has sued her for the tort of occupiers' liability. Describe the relevant standard of care under: (i) the traditional common law rules, (ii) the modified common law rules, and (iii) the statutory rules. Difficulty: 2 QuestionID: 05-3-09 Topic: Occupier's Liability Skill: Applied Answer: A licensee is a person who has permission to be on another's premises, but who does not further the occupier's economic interests. In contrast, an invitee's presence does further the occupier's economic interests. Under the traditional common law rules, Kavita would be required to protect Zeno from hidden dangers about which she actually knew if he was a licensee. In contrast, if he was an invitee, she would be required to protect him from unusual dangers, whether or not they were hidden, about which she knew or should have known. Under the modified common law rules, Kavita's duty would be much the same whether Zeno was a licensee or an invitee. In either event, she would be required to protect him from unusual dangers, whether or not they were hidden. However, while the law remains somewhat unsettled, it may be that she would be liable for dangers that she should have, but did not actually know about, only if Zeno was an invitee. Under the statutory rules, an occupier generally owes the same basic duty to all visitors: the occupier must use as much care as is reasonable in the circumstances. The precise content of that standard depends, in any particular case, on a number of factors, including: (i) the potential danger to the visitor, (ii) the occupier's cost of 30 © 2023 Pearson Canada Inc.

removing the danger, (iii) the purpose of the visit, and (iv) the nature of the premises. Zeno's status as a licensee or an invitee may be relevant to the third factor. 10. Briefly explain the difference between the tort of private nuisance and the tort of public nuisance. Difficulty: 3 QuestionID: 05-3-10 Topic: Nuisance Skill: Recall Answer: This question requires a very careful reading of the chapter. Although hints exist elsewhere in the text, the answer is found in footnote 52. A private nuisance occurs when the defendant unreasonably interferes with the plaintiff's use and enjoyment of its own land. The tort of public nuisance occurs when the defendant commits the crime of common nuisance against the public, but creates a special loss for the plaintiff: Criminal Code, RSC 1985, c C-46, s 180(2). For instance, that tort may arise if the defendant creates a hazard on a street that not only interferes with the general public's right to use that roadway, but also causes the plaintiff to be injured in a traffic accident: Ryan v Victoria (City) (1999) 168 DLR (4th) 513 (SCC). 11. Bouba received special permission under the Radio and Satellite Signal Reception Act to erect a radio beacon on his property. The statute specified a number of technical requirements, but it did not impose requirements or restrictions regarding the height, shape, size, or location of the beacon. Bouba built a very tall beacon at the edge of his property, about 10 metres from a house that belonged to Virginia on the neighbouring piece of land. That beacon toppled over during a snowstorm and crashed through Virginia's roof. She has sued Bouba for the tort of nuisance. He argues, however, that he is protected by the defence of statutory authority. Is he correct? Explain your answer. Difficulty: 1 QuestionID: 05-3-11 Topic: Nuisance Skill: Applied Answer: The defence of statutory authority will not protect Bouba. That defence applies only if the nuisance that occurred was the inevitable result of Bouba performing the statutorily authorized act. The damage to Virginia's house was not inevitable. Although Bouba received permission to build a radio beacon, he was given a great deal of discretion as to the structure's height, shape, size, and location. He clearly could have built a beacon in a way that did not imperil Virginia. Depending upon the facts, he could have built it on another part of his property, he could have built it more sturdily, and so on. 12. Identify and briefly explain the considerations that will influence a court's decision to grant an injunction to stop an ongoing nuisance. Difficulty: 2 31 © 2023 Pearson Canada Inc.

QuestionID: 05-3-12 Topic: Nuisance Skill: Recall Answer: The courts exercise a great deal of discretion in deciding whether or not to award an injunction to stop an ongoing nuisance. As always, a claim in nuisance requires a court to resolve a tension between the way in which the plaintiff wants to use its property and the way in which the defendant wants to use its property. Within that context, a court will be influenced by a number of factors. - Nature of Damage Perhaps most significantly, a court will be much more inclined to grant an injunction if the defendant's conduct creates a threat of physical damage to a person or to property. - Surrounding Circumstances A court will also have regard to (i) the nature of the neighbourhood, (ii) the time of the nuisance, (iii) the intensity and duration of the nuisance, (iv) the social utility of the defendant's conduct, and (v) the defendant's motivation for creating the nuisance. - Damages Adequate A court will generally refuse to grant an injunction if the plaintiff could be adequately compensated through an award of compensatory damages. In deciding whether or not to exercise its discretion to grant an injunction, a court may also consider factors beyond the interests of the immediate parties and consider the interests of the community as a whole. For instance, a court would be reluctant to award an injunction that stopped the defendant's nuisance but that also forced the defendant to close down a factory that employs a substantial number of people. A claim in nuisance always requires an appropriate balance to be struck between the utility or not of the nuisance creating activity and the harm caused to its victims. 13. Siegfried owns a rattlesnake that he keeps in his office in a large, locked aquarium. Bianca was severely injured during a recent meeting at Siegfried's office after she was bitten by the snake. She has sued for the tort of Rylands v Fletcher. Siegfried claims that he should not be held liable because he took every reasonable precaution in placing the snake in a locked aquarium. He also argues that it was entirely unforeseeable that the lock would spontaneously spring open and release the snake from its cage. (The manufacturer of the lock went out of business several years ago and cannot be sued.) The judge has accepted the factual truth of those arguments, but has not yet decided upon their legal significance. Can Siegfried avoid liability under Rylands v Fletcher on the basis that he neither carelessly nor intentionally injured Bianca? Is there any other basis upon which he might avoid liability? Explain your answers. Difficulty: 2 QuestionID: 05-3-13 Topic: The Rule in Rylands v Fletcher Skill: Applied Answer: Siegfried cannot avoid liability on the basis that he neither intentionally nor carelessly injured Bianca. Rylands v Fletcher is a strict liability tort. That means that Siegfried may be held liable even if he took every conceivable precaution. However, the tort of Rylands v Fletcher generally requires proof that the defendant brought onto his property a special and unusual danger that escaped and injured the plaintiff. A rattlesnake certainly qualifies as a special 32 © 2023 Pearson Canada Inc.

and unusual danger. Such creatures are extremely dangerous and they are very seldom found in office environments. Bianca will have a problem, however, proving the element of escape. Although the snake escaped its aquarium, it did not escape from Siegfried's property. The tort of Rylands v Fletcher is normally committed when something leaves the boundaries of the defendant's land. That did not happen here. There are, however, cases in which, as a matter of intuitive fairness and rough justice, the courts have ignored the element of escape in order to allow the plaintiff recovery. That might occur in this case. 14. What interest is the tort of defamation intended to protect? How is the requirement of publication related to that interest? Difficulty: 1 QuestionID: 05-3-14 Topic: Defamation Skill: Recall Answer: The purpose of the tort of defamation is intended to protect reputations. Defamation occurs when the defendant makes a statement that could lead a reasonable person to have a lower opinion of the plaintiff. Justification is a defence that must be proved by the defendant. The requirement of publication means that the tort of defamation is not committed unless a defamatory statement regarding the plaintiff is communicated by the defendant to a third party. The need for publication is directly related to the goal of protecting reputations. The plaintiff's reputation is based on what other people think of them. Other people will not think less of the plaintiff unless the defendant communicates the defamatory statement to them. Consequently, the tort of defamation is not committed if the defendant merely communicates a defamatory statement to the plaintiff as part of a private conversation or argument. Although the plaintiff may be upset by such a statement, their reputation has not been damaged if a third party was not present to receive the communication of the statement. 15. What is the defence of justification? To which tort does it apply? Difficulty: 1 QuestionID: 05-3-15 Topic: Defamation Skill: Recall Answer: The defence of justification applies to the tort of defamation. Defamation occurs when the defendant makes a statement that could lead a reasonable person to have a lower opinion of the plaintiff. The defence of justification applies if the defendant's statement was actually true–that is true not just literally but in all its innuendo. The defendant has the burden of proof of a defence of justification. The plaintiff need only prove that a defamatory statement was made. The plaintiff does not have the burden to prove the statement was false. It is up to the defendant to justify the defamatory statement. 16. Marcus wrote a defamatory story about Mavis online. Tyler provided internet users with a hyperlink to that story. Under what circumstances will Tyler be liable for defamation? Difficulty: 1 33 © 2023 Pearson Canada Inc.

QuestionID: 05-3-16 Topic: Defamation Skill: Recall Answer: In Crookes v Newton, the Supreme Court of Canada established three rules: (i) the person who put the story online is liable for publishing the defamatory material, (ii) I am not liable for merely providing a hyperlink, which is not considered "publication," but (iii) I can be held liable if I went further by actually repeating defamatory content from the hyperlinked page. So in order for Tyler to be held liable for defamation, he would have to repeat the story written by Marcus.

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Managing the Law, 6e (McInnes) Chapter 06: Negligence True/False Questions 1. Bettina works as a financial advisor. Cory had hired Bettina to help him prudently invest money that he had inherited from his parents. Unfortunately, very little of that money remains. Cory claims that he suffered substantial financial losses as a result of following Bettina's careless advice. Because the dispute arose between a professional advisor and her client, Cory must sue Bettina for the tort of professional negligence rather than the general tort of negligence. a True b False Difficulty: 1 QuestionID: 06-1-01 Topic: Introduction Skill: Applied Answer: b. False 2. As a general rule, liability cannot be imposed under the tort of negligence if the defendant carelessly made a statement that caused the plaintiff to suffer a physical injury. a True b False Difficulty: 2 QuestionID: 06-1-02 Topic: Proximity Skill: Recall Answer: b. False 3. Omikron Ltd hired Mekhi, a recent graduate from law school, to act as its lawyer in a business transaction. Omikron suffered a substantial financial loss as a result of a mistake that Mekhi made. Nevertheless, Mekhi cannot be held liable for the tort of negligence if he acted as a reasonable person with similarly little experience would have acted, even if a more experienced lawyer probably would have acted differently. a True b False Difficulty: 2 QuestionID: 06-1-03 Topic: The Standard of Care for Professionals—Professional Negligence Skill: Applied Answer: b. False 1 © 2023 Pearson Canada Inc.

4. Shakira was injured by the explosion of a widget that was manufactured by Delta Corp. The evidence indicates that Delta was not careless with respect to the manufacture or design of the widget. Nevertheless, Delta may be held liable to Shakira on the basis of the tort of negligence if the company negligently failed to warn Shakira of the danger of explosion where that danger was a reasonable foreseeable risk of the intended use of the widget. a True b False Difficulty: 3 QuestionID: 06-1-04 Topic: The Standard of Care for Manufactured Products—Product Liability Skill: Applied Answer: a. True 5. Maura was injured by the unexpected explosion of a widget that was manufactured by Theta Ltd. As a general rule, it will be easier for Maura to prove a claim in negligence against Theta if the explosion was caused by the negligent manufacture, rather than the negligent design, of the widget. a True b False Difficulty: 2 QuestionID: 06-1-05 Topic: The Standard of Care for Manufactured Products—Product Liability Skill: Applied Answer: a. True 6. Aisha suffered a stroke after consuming allergy medicine manufactured by Upsilon Inc. The evidence indicates that the stroke was caused by the combined effect of the medicine and Aisha's poor diet. The evidence also indicates that the stroke would not have occurred unless both of those factors were present. Finally, the evidence indicates that the medicine was 40 percent to blame for the stroke, while Aisha's poor diet was 60 percent to blame. The court held that Upsilon negligently failed to warn Aisha of the risk that its medicine could cause a stroke to people who have a diet like Aisha. If the total value of Aisha's losses is $100,000, she will be entitled to receive $100,000 from Upsilon. a True b False Difficulty: 3 QuestionID: 06-1-06 Topic: Causation of Harm Skill: Applied Answer: a. True

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7. Maritza suffered a heart attack after consuming cold medicine manufactured by Omega Inc. The evidence indicates that there is a 75 percent chance that Maritza's heart attack was caused by the medicine and a 25 percent chance that it was caused by Maritza's poor diet. The court held that Omega negligently failed to warn Maritza of the risk that its medicine could cause a heart attack. If the total value of Maritza's losses is $100,000, she will be entitled to receive $75,000 in damages from Omega. a True b False Difficulty: 2 QuestionID: 06-1-07 Topic: Causation of Harm Skill: Applied Answer: b. False 8. Alpha Corp recently suffered two losses. First, as a result of the carelessness of its financial adviser, Jewel, it lost $100,000 when it invested in worthless shares. Second, in a separate incident, it lost $50,000 when its lawyer, Maia, failed to file a certain document at the land registry office on time. Both Jewel and Maia are liable to Alpha for the tort of negligence. The doctrine of joint and several liability always applies if two or more tortfeasors are liable to the plaintiff. Alpha is entitled to claim $150,000 from Jewel, and Jewel would then be entitled to claim $50,000 in contribution from Maia. a True b False Difficulty: 2 QuestionID: 06-1-08 Topic: Causation of Harm Skill: Applied Answer: b. False 9. Ocala Corp operated a factory that caused corrosive particles to drift in the air and land on a building that was owned by Broderick Inc. Those particles damaged the roof of the building. The damage could have been repaired immediately at a cost of $250,000, but Broderick did not have the money necessary to do so. It therefore sued Ocala in negligence. By the time the trial ended several years later, inflation had run rampant and the cost of repairing Broderick's roof has increased to $900,000. Because of the modern approach to the "thin wallet" rule, Ocala cannot possibly be held liable for more than $250,000. a True b False Difficulty: 3 QuestionID: 06-1-09 Topic: Remoteness Skill: Applied Answer: b. False 3 © 2023 Pearson Canada Inc.

10. Jane carelessly caused an accident that resulted in Perry's leg being broken. Perry subsequently suffered a broken arm when he fell down a flight of stairs. Perry satisfied the judge, on the basis of expert evidence, that it is common for people who are wearing leg casts to fall more often than usual. That is true even for people who reasonably take extra precautions while wearing leg casts. Jane consequently may be held liable for Perry's broken leg and his broken arm. a True b False Difficulty: 2 QuestionID: 06-1-10 Topic: Remoteness Skill: Applied Answer: a. True 11. The thin skull doctrine applies to the case in which the plaintiff eventually would have suffered the same injury even if the defendant did not act carelessly. That doctrine imposes liability, but only to the extent that the defendant's carelessness caused the plaintiff to suffer the injury early. a True b False Difficulty: 2 QuestionID: 06-1-11 Topic: Remoteness Skill: Recall Answer: b. False 12. The defence of contributory negligence may apply even if the plaintiff carelessly contributed to the severity of the injuries that were suffered, but not to the actual occurrence of the accident that caused those injuries. a True b False Difficulty: 2 QuestionID: 06-1-12 Topic: Contributory Negligence Skill: Recall Answer: a. True 13. Danica was injured as a result of an accident that also involved Elmer and Lloyd. The judge found that all three parties had acted carelessly, and that Elmer and Lloyd were jointly and severally liable. The judge also found that Danica was 50 percent to blame for her injuries, while Elmer was 30 percent to blame and Lloyd was 20 percent to blame. Compensation for Danica's injuries is valued at a total of 4 © 2023 Pearson Canada Inc.

$100,000. Danica may be able to recover more than $30 000 from Elmer if Lloyd is unable to pay anything because of his extreme poverty. a True b False Difficulty: 3 QuestionID: 06-1-13 Topic: Contributory Negligence Skill: Applied Answer: a. True 14. After Mustaffa paid a price of $50 to X-Adventure Inc, the company allowed him to jump off a low bridge while tied to a bungee cord. He was injured when the bungee cord broke and he fell to the ground. X-Adventure denies liability on the basis of a document that Mustaffa carefully read and signed before jumping from the bridge. The relevant portion of that document said that Mustaffa accepted "only the physical risk of injury." A court will probably reject Mustaffa's claim in negligence on the basis of the defence of voluntary assumption of risk. a True b False Difficulty: 2 QuestionID: 06-1-14 Topic: Voluntary Assumption of Risk Skill: Applied Answer: b. False 15. In determining whether or not the defendant can escape liability on the basis of the defence of illegality, a court is most influenced by the extent to which the plaintiff's illegal act involved violence or the threat of violence. a True b False Difficulty: 1 QuestionID: 06-1-15 Topic: Illegality Skill: Recall Answer: b. False 16. Pregnant women in Canada owe a duty of care to their unborn children. a True b False Difficulty: 1 5 © 2023 Pearson Canada Inc.

QuestionID: 06-1-16 Topic: Duty of Care Skill: Recall Answer: b. False 17. The test of reasonable foreseeability is subjective as it depends on the facts of the case. a True b False Difficulty: 1 QuestionID: 06-1-17 Topic: Duty of Care Skill: Recall Answer: b. False Multiple Choice Questions 1. Chantal has sued Phi Corp for negligence. Which of the following statements is TRUE with respect to the duty of care? A) Since it is based on the reasonable person test, a duty of care can be owed by a person to a corporation but not by a corporation to a person. B) A duty of care will be imposed on Phi Corp unless it proves that Chantal was not a reasonably foreseeable victim of its carelessness. C) A duty of care will not be recognized unless Chantal suffered a physical injury. D) A duty of care will be recognized only if Phi Corp and Chantal had a pre-existing relationship. E) The court will conduct a full inquiry into the existence of a duty of care only if the facts of the case do not fall within a recognized category. Difficulty: 1 QuestionID: 06-2-01 Topic: Duty of Care Skill: Applied Answer: E) The court will conduct a full inquiry into the existence of a duty of care only if the facts of the case do not fall within a recognized category. 2. Andreas has sued Kathryn for negligence. Kathryn argues that she did not owe a duty of care to Andreas. Which of the following statements is TRUE? A) The court cannot recognize a duty of care if Andreas was injured as a result of Kathryn's omission, rather than by her action. B) The court may refuse to recognize a duty of care even if it was reasonably foreseeable that Andreas might be injured as a result of Kathryn's carelessness, on grounds that public policy does not permit the extension of the duty of care to this relationship. C) A court may recognize a duty of care even if it was not reasonably foreseeable that Andreas might be 6 © 2023 Pearson Canada Inc.

injured as a result of Kathryn's carelessness. D) The court cannot recognize a duty of care if Kathryn was Andreas's mother. E) The court cannot recognize a duty of care if Andreas and Kathryn were parties to the same contract. Difficulty: 2 QuestionID: 06-2-02 Topic: Duty of Care Skill: Applied Answer: B) The court may refuse to recognize a duty of care even if it was reasonably foreseeable that Andreas might be injured as a result of Kathryn's carelessness, on grounds that public policy does not permit the extension of the duty of care to this relationship. 3. The case of Donoghue v Stevenson established the concept of A) a general duty of care based on the "neighbour principle." B) the learned intermediary rule. C) market share liability. D) contributory negligence. E) professional negligence. Difficulty: 1 QuestionID: 06-2-03 Topic: Duty of Care Skill: Recall Answer: A) a general duty of care based on the "neighbour principle." 4. Careless statements are different than careless acts because A) people are almost always more careful with words than with actions. B) careless statements can never support a duty of care, but careless acts often involve a duty of care. C) careless statements seldom cause substantial losses. D) careless statements always result in pure economic losses, whereas careless acts may cause pure economic losses, property damage, or personal injury. E) careless statements can often be repeated in a way that careless acts cannot and are usually more "volatile" than deeds. Difficulty: 2 QuestionID: 06-2-04 Topic: Proximity Skill: Recall Answer: E) careless statements can often be repeated in a way that careless acts cannot and are usually more "volatile" than deeds. 5. Luke sued Michelle for negligence. In formulating the standard of care, the court will properly consider whether or not 7 © 2023 Pearson Canada Inc.

A) Michelle has liability insurance. B) Luke has personal injury insurance. C) there was great social utility to the act that Luke was performing when he was injured. D) Michelle took precautions against reasonable foreseeable risks. E) a reasonable person in Luke's position would have realized that Michelle's actions might cause damage. Difficulty: 1 QuestionID: 06-2-05 Topic: Breach of the Standard of Care Skill: Applied Answer: D) Michelle took precautions against reasonable foreseeable risks. 6. Which of the following statements is TRUE with respect to the standard of care in negligence? A) A child is never required to meet the standard of a reasonable adult. B) The standard of care never takes account of the defendant's subjective characteristics. C) The defendant can never escape liability by proving a mental disability. D) The sudden peril doctrine recognizes that even reasonable people sometimes make mistakes during emergencies. E) The standard of care is always met if the defendant followed an approved practice within a particular industry. Difficulty: 2 QuestionID: 06-2-06 Topic: Breach of the Standard of Care Skill: Recall Answer: D) The sudden peril doctrine recognizes that even reasonable people sometimes make mistakes during emergencies. 7. The Iota Corp sued Araceli for negligence. It claims that it suffered a loss as a result of her careless performance of a professional service. Which of the following statements is TRUE with respect to the issue of breach? A) Araceli cannot possibly be held liable if she complied with a practice that was approved by her professional body. B) Araceli cannot possibly be held liable if she did not realize that her services were careless when she performed them. C) Araceli cannot possibly be held liable if she did her best, but her best was not good enough because she had received very poor training in school. D) Araceli cannot possibly be held liable if Iota Corp should have realized that she was incompetent but did not take reasonable precautions to investigate the competence of Araceli. E) Araceli may not be held liable for an error in judgment even if another professional in her position would have acted differently. Difficulty: 2 QuestionID: 06-2-07 8 © 2023 Pearson Canada Inc.

Topic: Breach of the Standard of Care Skill: Applied Answer: E) Araceli may not be held liable for an error in judgment even if another professional in her position would have acted differently. 8. Chyna acted as Evan's accountant. In the course of her professional duties, she made a mistake that caused Evan to lose $100,000. Evan has sued Chyna for negligence. She claims, however, that she did not breach the standard of care. Chyna can avoid liability by proving that A) her carelessness occurred while she was performing a contractual obligation. B) she was inexperienced at the time of the mistake and by proving that a reasonable novice accountant might have made the same mistake. C) although some professional accountants would have avoided the mistake that she committed, she merely committed an error of judgment. D) she was not really a qualified accountant, even though she had told Evan that she was. E) Evan paid her less than the market rate. Difficulty: 2 QuestionID: 06-2-08 Topic: Breach of the Standard of Care Skill: Applied Answer: C) although some professional accountants would have avoided the mistake that she committed, she merely committed an error of judgment. 9. Jennet bought a widget that the Lamda Corp had manufactured. After the widget caused her to suffer an injury, she sued the company for failing to warn her about the risks associated with the product. Lamda Corp seeks to avoid liability on the basis of the learned intermediary rule. The learned intermediary rule A) is usually considered in connection with the duty of care. B) is usually considered in connection with the issue of causation. C) applies only if Jennet had trained other people about the safe use of widgets even before she purchased the widget from Lamda Corp. D) applies only if Lamda Corp actually knew of the risk that led to Jennet's injury, and only if it had learned about that risk from a learned professional. E) applies only if Lamda Corp delivered the widget to a professional who then delivered it to Jennet, and only if the company provided that professional with a warning that the professional should have passed on to Jennet. Difficulty: 2 QuestionID: 06-2-09 Topic: Breach of the Standard of Care Skill: Applied Answer: E) applies only if Lamda Corp delivered the widget to a professional who then delivered it to Jennet, and only if the company provided that professional with a warning that the professional should have passed on 9 © 2023 Pearson Canada Inc.

to Jennet. 10. You work as a risk management advisor for Sigma Ltd. Sigma Ltd intends to place a new type of widget on the market. It wants to know what steps it should take with respect to warning people about the dangers associated with that type of widget. Which of the following statements is TRUE? A) Sigma Ltd only needs to issue a warning to people who purchase widgets. B) Sigma Ltd only needs to issue a warning with respect to dangers that it is aware of before the widgets are sold. C) Sigma Ltd only needs to issue a warning with respect to dangers that arise when a widget is used for its intended purpose. D) Sigma Ltd is not required to warn about every possible danger that it knows about when a widget is sold. The warning must be reasonable. E) As the manufacturer, Sigma Ltd is the only party that could be required to issue a warning. Difficulty: 2 QuestionID: 06-2-10 Topic: The Learned Intermediary Rule Skill: Applied Answer: D) Sigma Ltd is not required to warn about every possible danger that it knows about when a widget is sold. The warning must be reasonable. 11. Which of the following statements most accurately describes the but-for test for causation? A) The defendant may be held liable if the answer to the but-for test is "no." B) The defendant may be held liable if the answer to the but-for test is "yes." C) The but-for test requires proof on a balance of reasonable doubts. D) The but-for test compares the actual events with the events that would have occurred if the defendant had breached the standard of care. E) The but-for test is relevant to the issue of negligence but not to the issue of contributory negligence, because plaintiffs do not owe a duty of care to themselves. Difficulty: 1 QuestionID: 06-2-11 Topic: Causation of Harm Skill: Recall Answer: A) The defendant may be held liable if the answer to the but-for test is "no." 12. Which of the following statements is TRUE with respect to the issue of factual causation in negligence? A) The issue of factual causation is always decided on the basis of the but-for test. B) Liability cannot be imposed if the defendant's carelessness was only a cause, and not the only cause, of the plaintiff's losses. C) Liability cannot be imposed if the defendant's carelessness was only a cause, and not the most important cause, of the plaintiff's losses. D) The issue of factual causation is decided on the basis of the reasonable person test. 10 © 2023 Pearson Canada Inc.

E) The doctrine of joint and several liability applies if different defendants caused the plaintiff to suffer a single injury. Difficulty: 2 QuestionID: 06-2-12 Topic: Causation of Harm Skill: Recall Answer: E) The doctrine of joint and several liability applies if different defendants caused the plaintiff to suffer a single injury. 13. Selena has cancer. She has sued the Tau Corp for negligence. She claims that her condition was caused by fumes that the Tau Corp carelessly allowed its factory to emit. Which of the following statements is TRUE with respect to the issue of causation? A) If Selena proves that there is a 75 percent chance that her condition was caused by Tau Corp's carelessness, she will receive 75 percent of her damages. B) If Selena proves that there is a 50 percent chance that her condition was caused by Tau Corp's carelessness, she will receive 100 percent of her damages. C) If Selena proves that there is a 25 percent chance that her condition was caused by Tau Corp's carelessness, she will receive 25 percent of her damages. D) If Selena proves that there is a 51 percent chance that her condition was caused by Tau Corp's carelessness, Selena will recover 100 percent of her damages. E) If Selena proves that there is a 50 percent chance that her condition was caused by Tau Corp's carelessness, she will receive 50 percent of her damages. Difficulty: 1 QuestionID: 06-2-13 Topic: Causation of Harm Skill: Applied Answer: D) If Selena proves that there is a 51 percent chance that her condition was caused by Tau Corp's carelessness, Selena will recover 100 percent of her damages. 14. Diana and Naomi both carelessly shot in Randall's direction at the same time. He was struck by one bullet. He can prove that the bullet came from either Diana's gun or from Naomi's gun, but he has no way of determining which woman shot him. Which of the following statements is TRUE? A) Neither woman will be held liable because Randall cannot prove, on a balance of probabilities, which one fired the bullet that hit him. B) Randall's claim will be decided by the concept of market share liability. C) Under an exception to the but-for test, Diana and Naomi will be held jointly and severally liable even though Randall cannot prove causation in the usual way. D) The difficulty in this case involves the issue of remoteness of damage. E) The court most likely will impose liability upon one defendant only. Difficulty: 1 QuestionID: 06-2-14 11 © 2023 Pearson Canada Inc.

Topic: Causation of Harm Skill: Applied Answer: C) Under an exception to the but-for test, Diana and Naomi will be held jointly and severally liable even though Randall cannot prove causation in the usual way. 15. The concept of remoteness A) arises for consideration under concept of duty of care. B) asks whether a person in the plaintiff's position could have reasonably foreseen that loss that occurred because of a breach of care. C) is relevant only if the defendant in fact carelessly caused the plaintiff's loss. D) is treated as a defence to the action in negligence. E) is most closely connected to the concept of the standard of care. Difficulty: 1 QuestionID: 06-2-15 Topic: Remoteness Skill: Recall Answer: C) is relevant only if the defendant in fact carelessly caused the plaintiff's loss. 16. Kendra suffered a broken back as a result of Duncan's carelessness. Duncan has argued, however, that Kendra's injury is remote from his carelessness, and that he therefore cannot be held liable. Which of the following statements is TRUE? A) Duncan cannot be held liable unless the manner in which Kendra suffered her injury was reasonably foreseeable. B) Duncan cannot be held liable unless the type of harm that Kendra suffered was reasonably foreseeable. C) If Kendra was unusually vulnerable to a back injury, Duncan cannot be held liable unless the severity of Kendra's injury was reasonably foreseeable. D) Duncan cannot be held liable unless Kendra's injury was likely to occur as a result of his carelessness. E) Duncan will be held liable only if Kendra's injury was a direct result of his carelessness. Difficulty: 2 QuestionID: 06-2-16 Topic: Remoteness Skill: Applied Answer: B) Duncan cannot be held liable unless the type of harm that Kendra suffered was reasonably foreseeable. 17. Which of the following statements is TRUE with respect to the concept of remoteness? A) The concept of remoteness is part of the test for a duty of care. B) The concept of remoteness is based mostly on statutes. C) The concept of remoteness has been rejected as a test in thin skull cases. D) The concept of remoteness has been rejected as a test in cases of intervening acts. E) The concept of remoteness includes the thin skull doctrine, the crumbling skull doctrine, and the thin 12 © 2023 Pearson Canada Inc.

wallet doctrine. Difficulty: 1 QuestionID: 06-2-17 Topic: Remoteness Skill: Recall Answer: E) The concept of remoteness includes the thin skull doctrine, the crumbling skull doctrine, and the thin wallet doctrine. 18. The concept of a crumbling skull A) does not exist in Canadian law. B) is exactly the same as the concept of a thin skull. C) allows the plaintiff to recover damages for the full extent of a loss, as long as it was reasonably foreseeable that the defendant's carelessness would cause a normal person to suffer some injury. D) allows the plaintiff to recover some damages when the defendant's carelessness hastens the occurrence of a loss that the plaintiff eventually would have suffered in any event. E) states that a defendant with an intellectual disability cannot be expected to meet the general standard of care. Difficulty: 3 QuestionID: 06-2-18 Topic: Remoteness Skill: Recall Answer: D) allows the plaintiff to recover some damages when the defendant's carelessness hastens the occurrence of a loss that the plaintiff eventually would have suffered in any event. 19. Jamari negligently hit Samantha on the head with a stick. A reasonable person would expect the normal victim to suffer a simple bruise in that situation. A simple bruise would require compensation of $200. Samantha, however, actually suffered brain damage because she had an unusually fragile skull. Her losses have been valued at $5 million. Which of the following statements is TRUE? A) Jamari is liable for $5 million in damages payable to Samantha. B) Jamari is liable for $200. C) Jamari is not liable for any damages because the actual consequences of his negligence were not reasonably foreseeable. D) Jamari is liable for $5 million only if he actually knew that Samantha had a fragile skull before he hit her. E) Jamari is liable for $5 million only if Samantha knew that she had a fragile skull before the accident occurred. Difficulty: 2 QuestionID: 06-2-19 Topic: Remoteness Skill: Applied

13 © 2023 Pearson Canada Inc.

Answer: A) Jamari is liable for $5 million in damages payable to Samantha. 20. Psi Co owned a ship called The Greek that was worth $15 million. It intended to use that ship to perform a contract with Omega Inc that required it to deliver Omega's widgets from Vancouver to Los Angeles. Wilson negligently created a fire that destroyed The Greek. Psi Co wanted to buy a replacement ship, called The Athenian, for the purpose of performing its contract with Omega, but it could not immediately afford the full purchase price. Psi Co therefore rented a ship, called The Canadian, for $2 million and used it to perform its contract with Omega. After being paid by Omega, Psi Co bought The Athenian for $15 million. Psi Co has successfully sued Wilson for negligence. The court agrees that Psi Co is entitled to $15 million for the loss of its original ship. Psi Co, however, claims that it is also entitled to $2 million, representing the money that it was required to pay in order to rent The Canadian. Which of the following statements is TRUE with respect to Psi Co's claim for $2 million? A) That claim is properly decided under the concept of an intervening act. B) That claim will probably fail because there was a lack of factual causation. C) That claim will probably fail because there was no duty of care. D) That claim traditionally would have failed because the relevant loss is partially attributable to the plaintiff's own impecuniosity. E) That claim will be decided by the crumbling skull rule. Difficulty: 3 QuestionID: 06-2-20 Topic: Remoteness Skill: Applied Answer: D) That claim traditionally would have failed because the relevant loss is partially attributable to the plaintiff's own impecuniosity. 21. Oprah suffered a broken collarbone as a result of Sheldon's negligence. She later suffered a broken foot as a result of Tom's negligence. Tom dropped a heavy box on Oprah's foot while she was getting out of her car at her physiotherapist's office. She was visiting her physiotherapist for rehabilitation of her collarbone. She would not have been in that parking lot, and therefore would not have suffered a broken foot, if Sheldon had not negligently caused the first injury. Which of the following statements is most likely TRUE? A) Tom is liable for contributory negligence because he added to Oprah's list of injuries. B) A court will deny damages on the basis that Oprah voluntarily assumed the risk of being injured in the parking lot. C) Tom did not owe a duty of care to Oprah because she was already injured. D) If Oprah's injuries cause her to miss work, she will be able to recover full damages from Tom and again from Sheldon. E) The court will use the doctrine of intervening acts in order to decide whether Sheldon is liable for Oprah's broken foot. Difficulty: 2 QuestionID: 06-2-21 Topic: Remoteness Skill: Applied 14 © 2023 Pearson Canada Inc.

Answer: E) The court will use the doctrine of intervening acts in order to decide whether Sheldon is liable for Oprah's broken foot. 22. The Town of Sussex Corner owned a bridge. Ruby negligently damaged the bridge by ramming it with a boat. At that point, it would have cost $30 000 to repair the bridge. Before the town could do so, however, Oswald negligently rammed the bridge in a different spot with his own boat. The town had the damage from both incidents repaired at the same time for a total cost of $50 000. Which of the following statements is most likely to be TRUE? A) Oswald's conduct falls under the heading of contributory negligence. B) Sussex Corner has the option of recovering $50 000 from either Ruby or Oswald. C) Ruby and Oswald are jointly and severally liable for the full loss. D) Ruby will not be held liable at all because Oswald's negligence is an intervening act. E) Oswald may be held liable for some damages even though Ruby had already damaged the bridge. Difficulty: 3 QuestionID: 06-2-22 Topic: Causation of Harm Skill: Applied Answer: E) Oswald may be held liable for some damages even though Ruby had already damaged the bridge. 23. Peter has sued Calista and Lailani for negligence. The evidence indicates that Peter's injury was caused by the combined effect of negligent acts by himself, Calista, and Lailani. That injury would not have occurred at all if any one of the three parties had acted carefully. The judge held that Calista and Lailani are jointly and severally liable. The judge also apportioned responsibility for the injury on the following basis: Peter 60 percent, Calista 30 percent, and Lailani 10 percent. The value of the loss that Peter suffered as a result of his injury is $100,000. Which of the following statements is TRUE? A) Peter can collect a total of $100,000 from Calista and Lailani. B) Peter can collect $40,000 from Lailani. C) Peter cannot collect any damages from either Calista or Lailani because he was responsible for more than half of the loss that he suffered. D) Peter can collect $60,000 from Calista. E) Peter can collect $60,000 from Calista and Lailani combined. Difficulty: 3 QuestionID: 06-2-23 Topic: Causation of Harm Skill: Applied Answer: B) Peter can collect $40,000 from Lailani. 24. Chloe sued Vincent for negligence. He has relied on the defence of contributory negligence. That defence may be successful only if the evidence proves that A) it was reasonably foreseeable that a careless act by Chloe might inflict a loss upon Vincent. B) Chloe actually knew that she might injure herself if she acted carelessly. 15 © 2023 Pearson Canada Inc.

C) Chloe's carelessness created one injury and Vincent's carelessness caused a different injury. D) Chloe failed to act like a reasonable person would have acted in her circumstances. E) Chloe and Vincent cooperated in creating the actual accident that injured Chloe. Difficulty: 3 QuestionID: 06-2-24 Topic: Contributory Negligence Skill: Applied Answer: D) Chloe failed to act like a reasonable person would have acted in her circumstances. 25. Dashawn was severely injured while participating in a "fitness challenge" that was organized and operated by Zeta Inc. He has sued for negligence. Zeta relies on the defence of voluntary assumption of risk. In support of that defence, Zeta has produced a "Disclaimer of Liability" that Dashawn signed. Which of the following statements is most likely to be TRUE? A) As a result of the Supreme Court of Canada's decision in Crocker v Sundance Northwest Resorts Ltd, the exclusion clause is presumed to be valid unless Zeta Inc was guilty of gross negligence. B) Zeta Inc will be relieved of liability only if the disclaimer clause applied to both the physical risk of injury and legal risk of injury, and only if it is contractually enforceable. C) Because of general contractual principles, the disclaimer clause would have protected Zeta Inc if Dashawn had sued for breach of contract, but it cannot protect the company from his claim in negligence. D) As a general rule, the disclaimer clause is effective only if Dashawn carelessly contributed to his own loss. E) If the defence applies, the court will reduce liability only to the extent that is fair, so that Dashawn will still recover some damages. Difficulty: 2 QuestionID: 06-2-25 Topic: Voluntary Assumption of Risk Skill: Applied Answer: B) Zeta Inc will be relieved of liability only if the disclaimer clause applied to both the physical risk of injury and legal risk of injury, and only if it is contractually enforceable. 26. Demarcus sued Marguerite for negligence. She has relied on the defence of illegality. Which of the following statements is TRUE? A) That defence allows for the apportionment of responsibility between the parties. B) That defence may apply if the recovery of damages would allow Demarcus to avoid a criminal penalty. C) That defence will not apply if it would re-enforce a criminal penalty. D) That defence could apply only if Demarcus committed a crime that was punishable by imprisonment. E) The Supreme Court of Canada has abolished the defence of illegality on the basis that it often creates unfair results. Difficulty: 3 QuestionID: 06-2-26 16 © 2023 Pearson Canada Inc.

Topic: Illegality Skill: Applied Answer: B) That defence may apply if the recovery of damages would allow Demarcus to avoid a criminal penalty. 27. Which of the following is a defence to the tort of negligence? A) strict liability B) mental incapacity C) inexperience D) res ipsa loquitur E) volenti Difficulty: 1 QuestionID: 06-2-27 Topic: Defences Skill: Recall Answer: E) volenti 28. Which of the following statements is TRUE? A) The effect of a thin skull is usually considered in the context of the breach of the standard of care. B) The concept of reasonable foreseeability requires proof beyond a reasonable doubt that the plaintiff would likely be injured by the defendant's carelessness. C) Product liability in Canadian tort law is strict. D) An "error in judgment" is always a breach of the standard of care, but the court will reduce damages on the basis of the defendant's honesty. E) The defence of contributory negligence may apply even if the plaintiff's carelessness contributed to the extent of the plaintiff's injury but not the creation of the accident. Difficulty: 2 QuestionID: 06-2-28 Topic: Contributory Negligence Skill: Recall Answer: E) The defence of contributory negligence may apply even if the plaintiff's carelessness contributed to the extent of the plaintiff's injury but not the creation of the accident. 29. Which of the following statements is TRUE? A) The test for the recognition of a new duty of care requires a court to consider proximity, reasonable foreseeability, and policy. B) The effect of an intervening act is usually considered in the context of the standard of care. C) Canadian law does not include the learned intermediary rule. D) Product liability may arise from a careless act in the manufacture of a product or carelessness in the design of a product but not from a careless failure to warn of the risks associated with a product. E) Contributory negligence was originally a partial defence. 17 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 06-2-29 Topic: Duty of Care Skill: Recall Answer: A) The test for the recognition of a new duty of care requires a court to consider proximity, reasonable foreseeability, and policy. 30. The concept of reasonable foreseeability is directly relevant to A) the duty of care and the standard of care but not remoteness. B) the standard of care but not the defence of contributory negligence. C) factual causation. D) the duty of care. E) both the but-for test and the concept of an intervening act. Difficulty: 2 QuestionID: 06-2-30 Topic: Duty of Care Skill: Recall Answer: D) the duty of care. 31. Halle wants to create a new accounting company. She is, however, concerned about the possibility of incurring liability under the tort of negligence if she acts carelessly. Restricting yourself to the possibility of liability for negligent statements, which of the following statements is TRUE with respect to Halle's proposed business? A) Under the tort of negligence, the same rules are applied in exactly the same way whether an allegation of negligence arises in connection with a careless statement or a careless action. B) Canadian courts are guided by the fact that "deeds are more volatile than words." C) Halle's concerns would fall under the tort of professional negligence, which is different than the tort of negligence. D) Canadian judges apply precisely the same approach whether careless words cause physical injury or pure economic loss. E) Canadian judges do not apply special rules if the defendant's careless statement led to the plaintiff's physical injury. Difficulty: 3 QuestionID: 06-2-31 Topic: Proximity Skill: Applied Answer: E) Canadian judges do not apply special rules if the defendant's careless statement led to the plaintiff's physical injury. 32. Dinar has sued Alpha Inc under the tort of negligence. The court must decide whether or not the 18 © 2023 Pearson Canada Inc.

company owed a duty of care to Dinar. Which of the following statements is TRUE? A) The judge will require proof that someone within the company actually realized, as a matter of reasonable foreseeability, that someone might be hurt in the way that Dinar was hurt. B) If the relationship between Dinar and Alpha Inc falls within a recognized category of the duty of care, there is no need for the court to analyze the duty of care on a principled basis. C) The judge will require proof that the accident that injured Dinar was an inevitable outcome of the company's activities. D) While policy considerations may affect the measure of damages, it cannot affect the existence of a duty of care. E) Dinar must sue a person associated with Alpha Inc, rather than suing the company itself. Difficulty: 3 QuestionID: 06-2-32 Topic: Duty of Care Skill: Applied Answer: B) If the relationship between Dinar and Alpha Inc falls within a recognized category of the duty of care, there is no need for the court to analyze the duty of care on a principled basis. 33. A Canadian court will determine the existence of a duty of care by examining the factors of A) reasonable foreseeability, proximity, and policy. B) proximity and reasonable expectations. C) proximity, policy, and intention. D) reasonable foreseeability, policy, and intention. E) precedent, policy, and practicality. Difficulty: 1 QuestionID: 06-2-33 Topic: Duty of Care Skill: Recall Answer: A) reasonable foreseeability, proximity, and policy. 34. Zoe was injured last New Year's Eve in a traffic accident that was caused by Miles. The accident would not have occurred if Miles had not been drunk. Because Miles has no assets and is not worth suing, Zoe has instead sued Thelonious, who was in control of the premises where Miles became drunk. The judge must determine whether or not Thelonious owed a duty of care to Zoe. A duty is less likely to be imposed if A) without Thelonious' knowledge, Zoe had also been drinking alcohol immediately before the accident. B) Thelonious knew, on the basis of past experience, that Miles was likely to drive himself home after becoming drunk. C) Zoe was a regular customer at Thelonious' sports bar. D) Miles became drunk at Thelonious' sports bar after being served by an employee who has liability insurance. E) Miles became drunk while visiting Thelonious at home, rather than if Miles became drunk while visiting Thelonious' sports bar. 19 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 06-2-34 Topic: Proximity Skill: Applied Answer: E) Miles became drunk while visiting Thelonious at home, rather than if Miles became drunk while visiting Thelonious' sports bar. 35. Nelson has sued Shaniqua under the tort of negligence. A duty of care is most likely to be recognized by a court if A) Nelson was injured by Shaniqua's carelessness while she carried him during pregnancy. B) Nelson suffered a pure economic loss as a result of relying upon a financial statement that Shaniqua had prepared for private use by another person. C) Nelson was injured by a driver who had become obviously intoxicated while drinking to excess at Shaniqua's tavern. D) Nelson lost his entire retirement fund because Shaniqua, who had been appointed by the government to regulate investment brokers, carelessly failed to notice that Nelson's broker was dishonest. E) despite being a complete stranger to Nelson, Shaniqua easily could have saved him from nearly dying by drowning. Difficulty: 1 QuestionID: 06-2-35 Topic: Duty of Care Skill: Applied Answer: C) Nelson was injured by a driver who had become obviously intoxicated while drinking to excess at Shaniqua's tavern. 36. Which of the following statements is TRUE with respect to the test that Canadian judges apply to determine the existence of a duty of care? A) Policy concerns usually relate to the relationship between the parties. B) Proximity concerns usually relate to the effect that a duty of care would have on society generally. C) Canadian judges now use a three-part test, but they previously used a two-part test. D) The fear of opening the floodgates is usually addressed under the heading of reasonable foreseeability. E) The fear of interfering with political decisions is usually addressed under the heading of proximity. Difficulty: 3 QuestionID: 06-2-36 Topic: Duty of Care Skill: Recall Answer: C) Canadian judges now use a three-part test, but they previously used a two-part test. 37. Arsenio was injured by a product that had been manufactured by Magic Enterprises Inc. Which of the following statements is TRUE with respect to Arsenio's claim against the company for product 20 © 2023 Pearson Canada Inc.

liability? A) Because liability for defective products in Canada is strict, Arsenio does not have to prove that Magic acted carelessly. B) It will be easier for Arsenio to win if his claim is based on an allegation of careless manufacture, rather than an allegation of careless design. C) If Arsenio's injury occurred after he used the company's product in an improper way, there is no chance that the company will be held liable. D) The learned intermediary rule will apply if Arsenio uses a lawyer to bring his claim against the company. E) The company may be held liable in contract, but never in tort, if Arsenio bought the harmful product directly from the company. Difficulty: 1 QuestionID: 06-2-37 Topic: The Standard of Care for Manufactured Products—Product Liability Skill: Applied Answer: B) It will be easier for Arsenio to win if his claim is based on an allegation of careless manufacture, rather than an allegation of careless design. 38. Sarah sued Jerry and Tom in negligence. A court held that Jerry and Tom were jointly and severally liable. This means that A) Jerry and Tom must have acted together to create a single danger. B) Sarah must collect her damages from assets that Jerry and Tom own together. C) Sarah must have suffered at least two distinct injuries. D) Sarah must collect some of her damages from Jerry and the rest from Tom. E) Sarah is entitled to collect all of her damages from Tom, even if Jerry had acted with greater carelessness in causing her injuries. Difficulty: 2 QuestionID: 06-2-38 Topic: Causation of Harm Skill: Applied Answer: E) Sarah is entitled to collect all of her damages from Tom, even if Jerry had acted with greater carelessness in causing her injuries. 39. Which of the following statements is TRUE with respect to the standard of care that is applied to professionals? A) The standard of care is raised with respect to experienced professionals and lowered with respect to beginners. B) A professional may be held liable despite acting in compliance with an approved practice. C) An error of judgment always constitutes a breach of the standard of care. D) A judge will always hold that the defendant acted carelessly if the defendant injured the plaintiff while committing a breach of a statute. E) Because there is no separate tort of breach of a statutory duty, a court cannot consider the effect of a 21 © 2023 Pearson Canada Inc.

statute when it formulates the standard of care. Difficulty: 2 QuestionID: 06-2-39 Topic: The Standard of Care for Professionals—Professional Negligence Skill: Recall Answer: B) A professional may be held liable despite acting in compliance with an approved practice. 40. Kirsten recently went through breast implant surgery. As a result of a rare occurrence, one of the implants ruptured and leaked harmful fluid into her body. Kirsten has sued the manufacturer of the implant under the tort of negligence. That manufacturer A) cannot be held liable unless the implant was carelessly designed. B) might not be held liable if it issued a warning of the relevant risk to Kirsten's physician, even if it did not warn Kirsten herself. C) can escape liability under the learned intermediary rule if it can prove that Kirsten could have discovered the risk if she had done sufficient research on the Internet. D) will not be held liable to Kirsten unless she purchased the implant directly from the manufacturer. E) is subject to strict liability because its products are so dangerous. Difficulty: 3 QuestionID: 06-2-40 Topic: Failure to Warn Skill: Applied Answer: B) might not be held liable if it issued a warning of the relevant risk to Kirsten's physician, even if it did not warn Kirsten herself. 41. Pishoy recently graduated from medical school and established a general practice in a small town. Unfortunately, one of his patients, named Rick, has been diagnosed with late-stage colon cancer. Pishoy could have discovered that condition much earlier by instructing Rick to undergo a colonoscopy. In accordance with standard practice, however, Pishoy generally instructs his male patients to undergo that type of test only after they turn 40. Rick has sued Pishoy for negligence. Which of the following statements is most likely to be TRUE? A) Pishoy will be held liable because did not act as a reasonable professional would have acted. B) Because Pishoy is a relatively new physician, the court will lower the standard of care. C) The content of the standard of care would be the same whether Pishoy was a general practitioner or a specialist in colon cancer. D) in applying the standard of care, the court will be influenced by the quality of the medical school that Pishoy attended. E) Rick's claim will fail because Pishoy acted as a reasonable general practitioner would have acted. Difficulty: 2 QuestionID: 06-2-41 Topic: The Standard of Care for Professionals—Professional Negligence Skill: Applied 22 © 2023 Pearson Canada Inc.

Answer: E) Rick's claim will fail because Pishoy acted as a reasonable general practitioner would have acted. 42. Henry negligently caused June to fall and break her leg. Because of her injury, June's leg was in a cast for many weeks. Even with crutches, she found it difficult to move around. June's lack of mobility led to additional injuries. First, while slowly crossing a street, she was knocked over by a careless cyclist. While she escaped that incident without serious harm, June did lose her two front teeth as a result of that accident. The second episode occurred while June was attending a party. One of her friends had strung a rope between two large trees and invited June to try walking on the rope. June broke her arm after falling off the rope. Which of the following statements is most likely to be TRUE? A) Henry's liability for June's lost teeth and broken arm depends entirely on the but-for test. B) Henry is not liable for the broken arm because it was not reasonably foreseeable that his original negligence would cause that injury. C) Henry is not liable for June's front teeth because the cyclist's carelessly broke the chain of causation between Henry's original negligence and that injury. D) Henry is liable for June's lost teeth ad her broken arm because, as a matter of law, his original negligence caused her to have a thin skull. E) Henry is not liable for June's broken arm because she voluntarily assumed the risk of injury when she accepted her friend's invitation to rope walk. Difficulty: 3 QuestionID: 06-2-42 Topic: Remoteness Skill: Applied Answer: B) Henry is not liable for the broken arm because it was not reasonably foreseeable that his original negligence would cause that injury. 43. Remy invited his friend, Fabiola, to ride on his handlebars as he cycled down a large hill. Fabiola initially refused because neither she nor Remy had ever tried that stunt before. Remy, however, was persistent. He told her that he had seen plenty of people riding on handlebars and he said that it did not look particularly difficult. Fabiola finally agreed. Halfway down the hill, the pair crashed and Fabiola suffered significant injuries. She has sued Remy for negligence. On what basis is Remy most likely to avoid or reduce his potential liability? A) Fabiola committed contributory negligence when she placed herself in a dangerous situation. B) Fabiola committed an illegal act because there is a law that prohibits riding on a bike's handlebars. C) Fabiola voluntarily assumed the risk because she freely chose to sit on Remy's handlebars despite knowing that he had no experience with that stunt. D) Fabiola was not owed a duty of care because Remy did not foresee the accident that occurred. E) Fabiola's decision to sit on the handlebars constituted an intervening act between Remy's original invitation and the accident. Difficulty: 3 QuestionID: 06-2-43 Topic: Contributory Negligence Skill: Applied 23 © 2023 Pearson Canada Inc.

Answer: A) Fabiola committed contributory negligence when she placed herself in a dangerous situation. 44. Which of the following statements is TRUE? A) While the courts are relatively reluctant to impose a duty of care if the defendant's careless statement caused the plaintiff to suffer a pure economic loss, a duty of care almost always exists if the defendant's careless act caused the plaintiff to suffer a psychological injury. B) The sudden peril doctrine falls within the standard of care issue. C) The concept of reasonable foreseeability is relevant to the issues of causation and standard of care, but not to the issue of duty of care. D) Because life and health are more important than dollars and cents, the standard of care is not influenced by the amount of money that the defendant would have to spend in order to reduce the risk of injury to the plaintiff. E) "Joint liability" means that the defendant has been held liable for causing two or more accidents. Difficulty: 2 QuestionID: 06-2-44 Topic: Breach of the Standard of Care Skill: Recall Answer: B) The sudden peril doctrine falls within the standard of care issue. 45. Aher is legally classified as an "infant" because he has not yet reached the age when a person is considered an adult. That does not mean, however, that he is a toddler. In fact, although he is in junior high, he is as tall and as muscular as many of his male teachers. Unfortunately, Aher recently inflicted a serious physical injury on his neighbour, Sofia. She has sued him under the tort of negligence. Which of the following statements is most likely to be TRUE? A) If the court finds that Aher is negligently responsible for Sofia's injury, it will also hold his parents vicariously liable for Aher's tort. B) Because he is not an adult, the court will hold that Aher did not owe a duty of care to Sofia. C) If Aher injured Sofia while carelessly driving a vehicle, the standard of care will not be affected by the fact that Aher is a child. D) Because Aher is a child, Sofia must sue Aher's parents rather than Aher himself. E) If Aher is Sofia's son, the court will apply a policy rule and refuse to recognize a duty of care. Difficulty: 3 QuestionID: 06-2-45 Topic: Breach of the Standard of Care Skill: Applied Answer: C) If Aher injured Sofia while carelessly driving a vehicle, the standard of care will not be affected by the fact that Aher is a child. 46. Under Canadian law, a person who wants to sue in tort for products liability must use the action in A) strict liability. B) negligence. 24 © 2023 Pearson Canada Inc.

C) breach of duty. D) intentional tort. E) breach of the standard of care. Difficulty: 3 QuestionID: 06-2-46 Topic: Product liability Skill: Recall Answer: B) negligence. 47. What is the difference between legal and factual causation? A) Factual causation is a determination on whether the defendant's carelessness in fact caused the plaintiff's loss. Legal causation determines whether liability should be imposed as a matter of law. B) Factual causation is based on probable cause and legal causation is based on actual cause. C) Factual causation is based on a balanced of probabilities. D) Legal causation must be determined by a court. E) Factual causation in usually negotiated out of court. Difficulty: 3 QuestionID: 06-2-47 Topic: Remoteness Skill: Recall Answer: A) Factual causation is a determination on whether the defendant's carelessness in fact caused the plaintiff's loss. Legal causation determines whether liability should be imposed as a matter of law. 48. Ortho Iron Inc manufactures hip replacements for the medical profession. If a patient is harmed by Ortho Iron Inc's product and they are not liable, the most likely explanation is that: A) the strict liability rule did not apply. B) the company warned the doctor if the risks of their product and relied on the learned intermediary rule. C) the patient's damages was deemed too remote to impose a duty of care. D) the company was a distributor. E) the product was lawfully sold. Difficulty: 3 QuestionID: 06-2-48 Topic: Product liability Skill: Applied Answer: B) the company warned the doctor if the risks of their product and relied on the learned intermediary rule. Essay Questions 1. Identify and briefly explain the primary social tension that the cause of action in negligence attempts to 25 © 2023 Pearson Canada Inc.

resolve. How is the flexibility of the action in negligence related to the resolution of that tension? Difficulty: 2 QuestionID: 06-3-01 Topic: Introduction Skill: Recall Answer: The law of negligence is often pulled in opposite directions. - Compensation for Loss On the one hand, it is desirable to compensate the plaintiff for losses that they have suffered. That statement has obvious normative appeal. Moreover, without compensation, the plaintiff may not be able to be a fully functioning and productive member of society. - Freedom of Action On the other hand, it is desirable to treat defendants fairly and to protect socially useful activities from liability. A defendant should not be held liable unless it can justly be blamed for the plaintiff's loss. Moreover, there is a danger that some socially useful, though admittedly dangerous, activities may be eliminated if liability is imposed too readily. Rational actors will avoid such activities for fear of being held responsible. In extreme cases, when the risk of liability is particularly pronounced, liability insurance may be prohibitively expensive or simply unavailable. The cause of action in negligence is well-suited to allowing judges to resolve that tension. Although the tort invariably requires proof of four elements (duty of care, breach, causation of harm, and damages), it relies heavily upon tests and concepts that are flexible enough to generally allow courts to arrive at appropriate solutions on a case-by-case basis. That is particularly true with respect to the notion of "reasonable foreseeability," which is used, in one form or another, with respect to the duty of care, the standard of care, and remoteness of damage. The notion of reasonable foreseeability is highly malleable and consequently, with proper application, it can be used to resolve the tensions inherent in a negligence action in a rational and principled manner. 2. Gamma Corp carelessly allowed its factory to spew toxic chemicals into the environment. Gamma Corp's factory is located near a park. Mary often visited that park while she was pregnant with Antonio. Antonio was born with a severe disability. That disability was caused by one of two factors: the toxic chemicals that Gamma Corp's factory emitted or the cigarettes that Mary smoked during her pregnancy. Mary chose to chain-smoke during her pregnancy despite knowing the risks that her behaviour presented for her unborn child. Can Antonio recover compensatory damages if the evidence proves that his disability was caused by Gamma Corp? Can he recover compensatory damages if the evidence proves that his disability was caused by his mother's smoking? Provide the best explanation for your answer. Difficulty: 2 QuestionID: 06-3-02 Topic: Duty of Care Skill: Applied Answer: This question requires students to appreciate the role that policy factors play in the recognition of a duty of care. The short answer to the question is that Gamma Corp can be held liable if its carelessness caused Antonio's disability, but liability cannot be imposed on Mary if Antonio's disability is attributable to her decision to smoke 26 © 2023 Pearson Canada Inc.

during pregnancy. There is no difference between the two cases in terms of reasonable foreseeability. Indeed, if anything, the claim may be stronger in that regard against Mary than it is against Gamma Corp. However, as discussed in Ethical Perspective 6.1, the Supreme Court of Canada held in Dobson v Dobson that a duty of care may be owed toward a child who is subsequently born with a disability by anyone in the world except his mother. The Court in Dobson decided that it would be unfair and improper to subject a pregnant woman to constant scrutiny during pregnancy. Because everything that a pregnant woman does may affect her unborn child, the recognition of a duty of care arguably would impose an intolerable burden. That consideration does not apply, however, with respect to third parties, like Gamma Corp. 3. Leia was injured in a car accident with Hakim. At trial, Hakim admits that he crashed into Leia's vehicle, but he insists that he should not be held liable because, at the time of the accident, he was suffering from a form of mental illness that deprived him of control over his actions. The expert evidence supports Hakim's version of events, but it also reveals that Hakim is now fully cured of his illness. Will Hakim be held liable to Leia? Difficulty: 3 QuestionID: 06-3-03 Topic: Breach of the Standard of Care Skill: Applied Answer: As a general rule, the standard of care requires the defendant to act as the reasonable person would act in similar circumstances. As a result of that general rule, it normally is impossible for the defendant to escape liability by proving that, as a result of a mental disability, they were unable to meet the usual standard of care. However, an exception to that rule sometimes applies if the defendant suffered from a metal illness that was so severe as to deprive them of the ability to control their actions. That is true in this case. Moreover, because the issue of breach is assessed at the time of the accident, and not at the time of trial, it is irrelevant that Hakim has now recovered from his illness. Hakim may not be liable in the tort of negligence however it must be recognized this is a narrow and rare exception. 4. Explain the two-fold significance of the decision in Donoghue v Stevenson. Difficulty: 1 QuestionID: 06-3-04 Topic: Duty of Care Skill: Recall Answer: Donoghue v Stevenson is significant for two related reasons. First, it created a generalized duty of care for negligence. Historically, the plaintiff could succeed in an action for negligence only if the facts fell within a previously recognized category of duty of care (eg physicianpatient, innkeeper-traveller, railway-passenger). In Donoghue v Stevenson, however, Lord Atkin drew the general principle from those categories and held that the plaintiff could succeed if it satisfied the neighbour 27 © 2023 Pearson Canada Inc.

principle. That principle states that reasonable care must be taken to avoid acts or omissions that could hurt someone who might, with reasonable foreseeability, be hurt by one's carelessness. Second, Donoghue v Stevenson firmly established the proposition that the manufacturer of a defective product owed a duty of care not only to a customer, but also to a consumer. Earlier cases indicated that the victim of a defective product could recover compensatory damages only if the victim contractually purchased the item. Donoghue, however, held that relief may be available, regardless of privity of contract, to anyone injured by a defective product. 5. Jinyan wants to start a new Internet service provider business. Before she does so, however, she wants to ensure that she will be able to afford liability insurance premiums. In that regard, she wants to know how the test of reasonable foreseeability affects the issue of risk management. She has heard conflicting statements. Some suggest that the concept of reasonable foreseeability protects business people from liability. Others suggest that the same concept can unexpectedly lead to the imposition of liability. Which statement is true? Explain your answer. Difficulty: 3 QuestionID: 06-3-05 Topic: Duty of Care, Breach of the Standard of Care, Remoteness Skill: Applied Answer: Both statements are true. The concept of reasonable foreseeability pertains to the issues of duty of care, standard of care, and remoteness of damage. It can both help and hurt a business. On the positive side, the concept of reasonable foreseeability means that Jinyan will not be liable for every loss that she inflicts, even if she acts carelessly. For instance, she is not liable in negligence, as long as she does not owe a duty of care to an injured person. Likewise, even if she owed a duty of care, breached the standard of care, and in fact caused a plaintiff to suffer a loss, she will be relieved of liability if the plaintiff's type of harm was too remote. She is responsible only to the extent that the plaintiff's loss was a reasonably foreseeable consequence of her conduct. On the negative side, the concept of reasonable foreseeability can be unforgiving. As long as the notion of reasonable foreseeability is satisfied, Jinyan may be held liable even if she honestly did her best. For instance, as a novice Internet service provider, she may not be aware of the various ways in which her business can harm others. She nevertheless may be held liable if a reasonable Internet service provider would have recognized the danger. The notion of reasonable foreseeability is objective, and therefore does not generally make allowances for the defendant's subjective inadequacies. Finally, it should be noted, from a risk management perspective, that the reasonable foreseeability test is openended and consequently somewhat unpredictable. The prudent approach therefore is either to act with all reasonable caution, and acquire adequate liability insurance coverage. 6. Identify and briefly explain three ways in which careless statements are significantly different, in a legal sense, than careless actions. Difficulty: 2 28 © 2023 Pearson Canada Inc.

QuestionID: 06-3-06 Topic: Duty of Care Skill: Recall Answer: The courts are much more reluctant to impose a duty of care with respect to careless statements, than with respect to careless actions. The most significant reason for that caution is the fear of "opening the floodgates of litigation," by imposing a duty of care in circumstances that will lead an intolerable number of plaintiffs to claim relief. That fear, in turn, is based on three differences between careless statements and careless actions. Hidden Dangers Since the dangers associated with physical conduct are usually obvious, the need for precautions is normally clear as well. In contrast, since the risks associated with statements are often hidden, the need for care is less apparent. Consequently, people tend to speak loosely, especially in social settings. Volatility As said in Hedley Byrne & Co v Heller & Partners Ltd, "[w]ords are more volatile than deeds." In most situations, the risk created by a careless action is limited in time and space. The threat created by a drunk driver is generally limited to the motorists and pedestrians in his path. Furthermore, they will likely be stopped once an accident occurs. In contrast, if a duty of care exists for a careless statement, there is a danger of "liability in an indeterminate amount for an indeterminate time to an indeterminate class". For instance, a financial report created for personal purposes may be mistakenly distributed to the public. If it contains inaccurate information, many people may later reasonably rely upon it and suffer financial loses when they make bad investments. Pure Economic Loss Finally, careless actions usually result in property damage or personal injuries. A negligent driver may crash through a fence or run down a pedestrian. Careless statements, in contrast, usually result in pure economic losses that are not tied to any property damage or personal injuries. For example, if a person follows a stockbroker's negligent advice and makes a poor investment, the only result will be the loss of money. And significantly, the law is more reluctant to provide compensation for pure economic losses, than for property damage or personal injuries. 7. Under the terms of a contract, Abigail provided accounting services to Theta Inc. Those services culminated in the production of a financial statement. Unfortunately, Abigail did her job carelessly and the financial statement was inaccurate. Raekwon, who is a shareholder in Theta Inc, suffered a loss after relying upon the financial statements that Abigail prepared. He has sued her for negligence. Identify and briefly explain the factors that a court will consider in deciding whether or not Abigail owed Raekwon a duty of care. Difficulty: 3 QuestionID: 06-3-07 Topic: Duty of Care for Professional Statements Skill: Applied Answer: Raekwon's claim will be governed by Hercules Management Ltd v Ernst & Young, which was discussed in Case Brief 6.2. The existence of a duty of care depends in this case upon two factors: reasonable 29 © 2023 Pearson Canada Inc.

foreseeability and policy considerations. However, because the claim is based on a negligent statement giving rise to a pure economic loss, the court will proceed with caution in imposing a duty of care. The first part of the test requires proof that it was reasonably foreseeable that Raekwon would suffer a loss as a result of Abigail's careless production of a financial statement. A duty of care is more likely to be imposed with respect to a statement in the following situations. - Special Knowledge Abigail possessed, or claimed to possess, special knowledge. That seems to be true because she was hired to provide accounting services. She presumably was an accountant. - Serious Occasion Abigail's statement was communicated on a serious occasion. That is true because it was contained within a financial statement. - Response to Inquiry Abigail's statement was made in response to an inquiry. That was true because it was rendered pursuant to a contractual request. - Financial Benefit Abigail received a financial benefit in exchange for the statement. That presumably was true because the statement was rendered pursuant to a contract. - Statement of Fact Abigail communicated a statement of fact, or an opinion or prediction based on fact, rather than a purely personal opinion. That presumably was true of the financial statement. In contrast, a duty of care is less likely to be imposed in the following situation. - Disclaimer Abigail issued a disclaimer along with her statement. Such a disclaimer might have been contained in her contract with Theta Inc. and then repeated on the financial statement. Given the facts of the case, it probably was reasonably foreseeable that Raekwon might suffer a loss as a result of relying upon Abigail's carelessly prepared financial statement. At the second stage of the duty of care analysis, a court would be concerned about indeterminate liability and the prospect of opening the floodgates of litigation. It would recognize a duty of care only if two factors are met. - Intended Audience Abigail knew that Raekwon (either individually or as a member of a defined group) might rely upon the statement, and - Intended Purpose Raekwon relied upon that statement for its intended purpose. The first branch of that test could probably be satisfied. There are insufficient facts, however, to determine whether or not the second branch could be met. In that regard, a court would have to know the purpose for which Abigail prepared the financial statement. 8. Shamar works as a financial adviser. He was recently asked by the Upsilon Corp to produce a report. Because Upsilon Corp is involved in a highly complex and highly volatile field, Shamar is very concerned about making a mistake and being held liable to the company. The company is sympathetic to that concern, and is therefore willing to make some concessions in its contract with Shamar. Assuming that he wants to perform the project, what should he do, from a risk management standpoint, to avoid the possibility of liability to the company. Provide the single best answer to that question. Difficulty: 1 QuestionID: 06-3-08 Topic: Duty of Care for Professional Statements Skill: Applied

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Answer: Shamar should protect himself by inserting a disclaimer clause or waiver of liablity clause, into his contract with Upsilon Corp. That clause would relieve him of liability even if he owed a duty of care, breached the standard of care, and thereby caused the company to suffer a loss. 9. Tyrek has sued Cassandra for negligence. The only issue at trial is whether or not Cassandra breached the standard of care. The parties agree that the court must use the reasonable person test, but they cannot agree on the identification of the reasonable person. Is it Tyrek? Cassandra? The judge? Explain your answer and indicate why the law provides that answer. Difficulty: 2 QuestionID: 06-3-09 Topic: Breach of the Standard of Care Skill: Applied Answer: The reasonable person is not Tyrek, Cassandra, or the judge. It is a fictional character that the courts use to determine whether or not the defendant acted with requisite care with respect to the plaintiff. The reasonable person test is objective, rather than subjective. That means that while it will reflect the circumstances and facts of the particular events in issue, it generally will not make allowances for Cassandra's idiosyncrasies. It will require her to live up to any special training or expertise that she claimed to have. The objective reasonable person test is used to strike a fair balance between the parties' interests. - Unforeseeable Risk It would be unfair to hold Cassandra liable for every injury that she inflicted upon Tyrek no matter how careful she was. More specifically, it would be improper to hold her liable for an injury that was not reasonably foreseeable. She would not have any practical means of protecting herself against liability in such circumstances. There is no way of knowing how to avoid an unforeseeable risk. Nor is there any way of sensibly arranging liability insurance. - Personal Shortcomings At the same time, it would be unfair to subject Tyrek to Cassandra's personal shortcomings. Tyrek is entitled to assume that members of the community, like Cassandra, will at least live up to the standard of the reasonable person. Her deficiencies should not be his problem. 10. Tallal sued Fiona for negligence. She admits that she owed him a duty of care and that she caused his injury. She insists, however, that she cannot be held liable because she did not breach the standard of care. While she committed an act that would, in normal circumstances, be considered clearly careless, she did so while suffering from a severe mental illness. Is it possible for Fiona to escape liability on that basis? Explain your answer. Difficulty: 3 QuestionID: 06-3-10 Topic: Breach of the Standard of Care Skill: Applied Answer: The reasonable person test is used to determine the standard of care. That test is primarily objective. While it reflects the circumstances of the case, it generally does not make allowances for the plaintiff's idiosyncrasies. Consequently, if Fiona merely suffered from a mild or moderate mental illness, she could still be held liable to Tallal. She would not be permitted to place the burden of her own inadequacies upon him. He is entitled to assume that every one in the community will act reasonably. 31 © 2023 Pearson Canada Inc.

As mentioned in footnote 25 of the text, however, an exception may be made if Fiona's mental illness is so severe as to deprive her of any control over her actions. In such circumstances, it is thought to be unjust to impose liability upon a person who effectively was without any volition. 11. Samir has sued Beatrice for the negligent performance of a professional service. How is Beatrice's status as a professional person relevant to the standard of care? Would it matter if she was a novice at the time of the accident? What if she was an expert? What if she falsely claimed to be an expert? Explain your answers. Difficulty: 2 QuestionID: 06-3-11 Topic: The Standard of Care for Professionals—Professional Negligence Skill: Applied Answer: In one sense, the standard of care is always the same: the defendant must act as a reasonable person would act in similar circumstances. The italicized words, however, introduce an element of flexibility that allows a court to tailor the contents of the standard of care to the actual facts of a case. Consequently, as a professional person providing a professional service, Beatrice must have done more than would be expected of a reasonable layperson. She must have acted as the reasonable professional would have acted in the circumstances of the case. Generally, the reasonable person test does not make allowances for the professional's subjective inadequacies. A customer is entitled to expect services of a reasonably professional. Consequently, Beatrice could not escape liability by proving that she satisfied the standard of a reasonable novice. Her inexperience is not Samir's problem. On the other hand, if Beatrice was an expert, she would be required to live up to that elevated standard. Finally, the same would be true if Beatrice falsely claimed to be an expert. As a reasonable person, she must expect that Samir would rely upon the purported expertise that she communicates to others. 12. Indira has informed the Bogus Corp that she intends to sue it for product liability, but she has not yet provided details of her claim. The company is curious as to whether she is claiming negligent manufacture or negligent design. What is the factual difference between those two possibilities? What is the legal difference? Which type of claim do courts approach more carefully? Difficulty: 2 QuestionID: 06-3-12 Topic: The Standard of Care for Manufactured Products—Product Liability Skill: Applied Answer: Negligent manufacture occurs when the defendant committed an act of carelessness in the actual day to day creation of designed products. For instance, in Donoghue v Stevenson, a snail was allowed to crawl into a bottle of ginger beer before capping.

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Negligent design occurs when the defendant committed an act of carelessness when drawing up the plans for a product or otherwise designing the produce. For example, if a car manufacturing company objectively unreasonably failed to realize that the gas tank on a particular model of vehicle was susceptible in the event of an accident to being punctured by a nearby bolt; the design would be negligent. Both forms of negligence can result in liability. The courts are more cautious, however, in imposing liability for negligent design. The reason turns, in part, on the fear of opening the floodgates of litigation. An instance of negligent manufacture is relatively less likely to affect every item that the defendant manufactures the produce. There is no evidence, for instance, that every bottle of Mr Stevenson's ginger beer contained a snail. (Indeed, it has long been rumored that there never was a snail, and that the parties simply concocted the facts in order to get the case before the House of Lords.) In contrast, there is a strong possibility that negligent design will affect every item that the defendant produced. After all, every item presumably was built to the same, careless specifications. The probability and severity of harm will be balanced against the expense of using an alternative design in determining the standard of care for negligent design. 13. "Liability in negligence is an all-or-nothing proposition." Is that statement true? How is that statement related to the concept of a "balance of probabilities"? Explain your answers. Difficulty: 1 QuestionID: 06-3-13 Topic: Causation of Harm Skill: Recall Answer: The opening statement is generally true. Subject to the effects of the defence of contributory negligence, the plaintiff in a negligence action recovers damages with respect to either all or none of its recognized losses. The right to recovery depends upon proof of the elements of the cause of action in negligence (duty of care, breach, causation of harm, and damages) on a balance of probabilities. If there is at least a 51 percent chance that the defendant's negligence caused the plaintiff's loss, then the court will award damages for all of that loss. In contrast, if there is less than a 51 percent chance that the defendant's negligence caused the plaintiff's injury, then the court will not award damages for any of that loss. 14. Thalia has sued Pi Inc for negligence. The company admits liability, but can prove that most of Thalia's damages stemmed from the fact that she could not financially afford to mitigate her losses in a timely manner. The company therefore insists that it should not be held liable for those losses. How would a modern court resolve that issue? Difficulty: 3 QuestionID: 06-3-14 Topic: Remoteness Skill: Applied Answer: The facts raise the thin wallet rule. That rule is related to the thin skull rule. Both concepts fall under 33 © 2023 Pearson Canada Inc.

the concept of remoteness. The thin skull rule applies when the defendant acts carelessly and the plaintiff suffers to an unusual extent because they were unusually vulnerable to injury. That would be true, for instance, if the plaintiff literally had a thin skull, with the result that they suffered brain damage, rather than merely the sort of bruising that would be reasonably expected, when the defendant hit them with a stick. The general rule is that the plaintiff is entitled to receive damages with respect to the full extent of their injury, as long as it was reasonably foreseeable that a normal person would suffer some loss as a result of the defendant's carelessness. The defendant takes their victim as they find them. Traditionally, however, the courts refused to extend that reasoning by analogy and to adopt a thin wallet rule. In other words, the defendant was not responsible for losses that the plaintiff suffered because the plaintiff was, in an economic sense, unusually vulnerable to loss. The typical case involves a situation in which the defendant carelessly inflicted a loss that a normal victim would immediately pay money in order to mitigate. The plaintiff suffered an unusually large loss, however, because it was unable to afford mitigation. The losses flowing from the defendant's carelessness consequently continued to grow because of the plaintiff's impecuniosity not directly as a result of the negligence. More recently, however, the courts have begun to subsume the thin wallet cases into the general rules for remoteness of damage. Consequently, Thalia may be entitled to recover damages to the extent that her losses were reasonably foreseeable to Pi Inc before the company acted carelessly and the fact that she cannot financially afford to mitigate would be reasonably foreseeable. 15. What is the difference between a complete defence and an apportionment defence? Provide an example of each. Explain your answer. Difficulty: 2 QuestionID: 06-3-15 Topic: Defences Skill: Recall Answer: Voluntary assumption of risk and illegality are complete defences. The statutory form of contributory negligence is an apportionment defence. If effective, a complete defence precludes the plaintiff from recovering any damages. In contrast, if effective, an apportionment defence allows the court to split the plaintiff's loss between the parties. The plaintiff is not invariably denied all recovery because of what may be, in the circumstances, a relatively insignificant consideration. The defences of voluntary assumption of risk and illegality have been very narrowly confined by the Supreme Court of Canada. Those defences apply only in exceptional circumstances. Contributory negligence, in contrast, is applied quite often. It can be argued that there is a trend towards compensation to innocent victims in circumstances where compensation was previously denied or limited. 34 © 2023 Pearson Canada Inc.

16. Explain the difference between legal and factual causation. Difficulty: 1 QuestionID: 06-3-16 Topic: Causation Skill: Recall Answer: Causation is often divided into two parts: factual causation and legal causation. The but-for test generally determines whether the defendant's carelessness in fact caused the plaintiff's loss. The remoteness test determines whether, as a matter of law, it would be fair to hold the defendant responsible for the plaintiff's loss. In negligence, the basic issue is whether the type of harm that the plaintiff suffered was a reasonably foreseeable result of the defendant's carelessness. As always, the phrase "reasonably foreseeable" does not mean "probable" or "likely." It simply refers to a possibility that is not far-fetched. Furthermore, if the type of harm that the plaintiff suffered was reasonably foreseeable, it is irrelevant that the manner in which it occurred was not.

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Managing the Law, 6e (McInnes) Chapter 07: The Nature and Creation of Contracts True/False Questions 1. In order to decide whether the parties intended to create a legally enforceable agreement, the courts apply a subjective "reasonable person" test. a True b False Difficulty: 1 QuestionID: 07-1-01 Topic: Intention to Create Legal Relations Skill: Recall Answer: b. False 2. Agreements created between family members or friends are never legally enforceable. a True b False Difficulty: 1 QuestionID: 07-1-02 Topic: Intention to Create Legal Relations Skill: Recall Answer: b. False 3. Anita was required to enter her co-worker's office to get a file. When she was there, she saw the draft of an email message on the screen of her co-worker's computer. The message was addressed to Anita, but it had not yet been sent. In the message, the co-worker offered to sell Anita her leather jacket for $100. Once Anita saw the email, she was entitled to accept the offer. a True b False Difficulty: 2 QuestionID: 07-1-03 Topic: Communication of an Offer Skill: Applied Answer: b. False 4. An offer, that is not an option contract, is always automatically revoked if either the offeror or the offeree dies before acceptance. a True b False 1 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 07-1-04 Topic: The Life of an Offer Skill: Recall Answer: b. False 5. On June 1, Sasha agreed to sell a car to Elaine for $10,000. Under the terms of that agreement, she was required to pay the price to him on June 10 and he was required to transfer ownership in the car to her on the same day. Once Sasha and Elaine do so, their contractual relationship will be terminated for all purposes. a True b False Difficulty: 2 QuestionID: 07-1-05 Topic: Introduction Skill: Applied Answer: b. False 6. As a general rule, the courts will not enforce an agreement that is not in writing. a True b False Difficulty: 1 QuestionID: 07-1-06 Topic: Introduction Skill: Recall Answer: b. False 7. Simon owns 10,000 shares in ABC Inc. He wanted to sell half of them in order to raise $20,000 in cash. He therefore wrote separate letters to Bronwyn and Gwyneth on June 1. In each case he said, "I will sell 5,000 shares in ABC Inc to you for $20,000. Please respond by any reasonable means within one week." Bronwyn replied on June 3 with a letter that said: "I accept your offer." Simon received that letter on June 5. On June 6, he received a fax from Gwyneth that said, "I accept your offer." Simon then informed Gwyneth by telephone that he had already sold the shares to Bronwyn. In that situation, there is no contract between Simon and Gwyneth. a True b False Difficulty: 3 QuestionID: 07-1-07 Topic: Nature of an Offer 2 © 2023 Pearson Canada Inc.

Skill: Applied Answer: b. False 8. An advertisement in a newspaper is usually considered an offer if it contains a clear description of the product and a specific price. a True b False Difficulty: 2 QuestionID: 07-1-08 Topic: Invitation to Treat Skill: Recall Answer: b. False 9. A statute makes it illegal and a crime for an unlicensed individual to "offer for sale a switchblade knife." Mack, who does not hold a licence, owns a store that deals in a variety of items. The front window display case, which is visible from the street, contains a switchblade knife that has a price tag on it. Under general contractual rules, Mack has undoubtedly committed a crime because he does not hold a licence. a True b False Difficulty: 3 QuestionID: 07-1-09 Topic: Invitation to Treat Skill: Applied Answer: b. False 10. Ben has sued Alison for breach of contract. Alison denies that he breached a contract. In fact, she denies that she ever even created a contract. Nevertheless, even if she persuades the court that she never truly intended, on a subjective basis, to enter into an enforceable agreement, a contract may have been created. a True b False Difficulty: 1 QuestionID: 07-1-10 Topic: Introduction, Acceptance by Promise Skill: Applied Answer: a. True 11. A firm offer is binding upon the offeror if it was given in writing. a True 3 © 2023 Pearson Canada Inc.

b False Difficulty: 1 QuestionID: 07-1-11 Topic: The Life of an Offer Skill: Recall Answer: b. False 12. Marissa had 500 shares in XYZ Corp that she was willing to sell at a price of $10 each. She wrote a letter to Mark that said, "I will sell 500 shares in XYZ Corp to you at a price of $10 each. You can accept any time within the next month. This is a firm offer." Marissa signed and sealed that document. When he received that letter two days later, Mark decided to accept Marissa's offer. He wrote a letter to that effect, but then forgot to mail it. Two weeks later, the value of the shares increased to $20 each. Marissa therefore no longer wanted to sell them at the original price. She telephoned Mark and told him that her offer was revoked. She was entitled to do so. a True b False Difficulty: 3 QuestionID: 07-1-12 Topic: The Life of an Offer, Revocation Skill: Applied Answer: b. False 13. An option is valid only if it is placed under seal. a True b False Difficulty: 1 QuestionID: 07-1-13 Topic: The Life of an Offer, Revocation Skill: Recall Answer: b. False 14. Under the normal tendering process, a party that submits a bid may have obligations under both Contract A and Contract B. a True b False Difficulty: 2 QuestionID: 07-1-14 Topic: The Life of an Offer, Tenders 4 © 2023 Pearson Canada Inc.

Skill: Applied Answer: a. True 15. Mysty offered to sell her car to Tim for $15,000. Tim faxed a letter to her that said, "Consider it sold. I'll bring the money to you next Monday when I pick up the vehicle. Of course, for that price, I'll want you to install a new stereo in it." Tim did not hear anything more from Mysty, but he arrived at her door the following Monday with $15,000 in cash. He was delighted to find that a new stereo had been installed in the car, but disappointed when Mysty refused to accept his money or hand over the vehicle. Mysty is required to do so because there was a valid offer and acceptance. a True b False Difficulty: 3 QuestionID: 07-1-15 Topic: Acceptance by Promise, Silence Skill: Applied Answer: b. False 16. Comfort letters create legal obligations. a True b False Difficulty: 1 QuestionID: 07-1-16 Topic: Comfort letters Skill: Recall Answer: b. False Multiple Choice Questions 1. The three elements needed to create most contracts are best described as A) offer and acceptance, consideration, and a written agreement. B) an intention to create legal relations, offer and acceptance, and consideration. C) an intention to create legal relations, an exchange of value, and consideration. D) offer and acceptance, an invitation to treat, and communication of the offer. E) quid pro quo, pacta sunt servanada, and consensus ad idem. Difficulty: 2 QuestionID: 07-2-01 Topic: Introduction Skill: Recall Answer: B) an intention to create legal relations, offer and acceptance, and consideration. 5 © 2023 Pearson Canada Inc.

2. Jose and Mei entered into what appeared to be a contract for the sale of an antique automobile. Jose agreed to pay the purchase price and Mei agreed to deliver the car to Jose's garage. Secretly, however, Mei planned to keep the car for herself. Will a court enforce the agreement? A) A court will not enforce the agreement because the existence of Mei's secret plan meant that the parties did not really agree to the same thing. B) A court will not enforce the agreement because Mei expected to keep the automobile and contract law tries to protect reasonable expectations. C) A court will enforce the agreement because a reasonable person would have concluded that the parties entered into an exchange of promises for value. D) A court will enforce the agreement because Mei behaved badly and the court wants to punish that type of behaviour. E) A court will not enforce the agreement because business people must be able to rely on outward appearances. Difficulty: 3 QuestionID: 07-2-02 Topic: Intention to Create Legal Relations Skill: Applied Answer: C) A court will enforce the agreement because a reasonable person would have concluded that the parties entered into an exchange of promises for value. 3. Cindy calls David to accept his offer to trim her hedges in exchange for a haircut. Cindy is described as the A) invitee. B) contracting party. C) offeree. D) offeror. E) proposer. Difficulty: 1 QuestionID: 07-2-03 Topic: The Nature of an Offer Skill: Applied Answer: C) offeree. 4. Henrique posts a notice at the racetrack that says he is willing to sell his old horse for $5,000. When he returns to the track the next day, two people arrive at the same time to buy the horse. A court would most likely say that Henrique A) can keep the horse and refuse to sell to either person. B) must choose between the buyers and sell the horse for $5,000 to one of them. C) must sell the horse to one buyer and find another horse to sell to the other buyer. D) must sell the horse to one buyer and pay $5,000 to the other buyer. E) can accept the offer of both buyers. 6 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 07-2-04 Topic: Invitation to Treat Skill: Applied Answer: A) can keep the horse and refuse to sell to either person. 5. Wessam offers to sell Ivan a bicycle for $100. Ivan asks to think about it for a couple days. The next day, Wessam tells him that she has increased the price to $150. Wessam has A) lost her capacity to enter into a contract. B) rejected the offer. C) allowed a reasonable time to lapse. D) revoked her original offer. E) made a counter offer. Difficulty: 2 QuestionID: 07-2-05 Topic: The Life of an Offer, Revocation Skill: Applied Answer: D) revoked her original offer. 6. Morris posted a notice promising to pay a $50 reward to anyone who found his lost cat. Morris saw Edna, his neighbour, and drew her attention to the notice. She expressed sympathy, but said that she did not have time to help because she was rushing off to work. When she returned home early that afternoon, however, she went to Morris's house to tell him that she would look for the cat. Although he was not at home, she searched the area, found the animal, and returned it to his house. Morris now refuses to pay Edna the $50. A court would most likely say that Edna is entitled to A) nothing because Morris is entitled to revoke his offer at any time. B) payment because a contract was created through her act of acceptance in acting on the offer. C) nothing because she was required to communicate her acceptance in writing. D) payment because the offeree decides whether an offer has been open for a reasonable period. E) nothing because she rejected Morris's offer when she said she had to rush to work. Difficulty: 3 QuestionID: 07-2-06 Topic: Acceptance by Performance Skill: Applied Answer: B) payment because a contract was created through her act of acceptance in acting on the offer. 7. Joan wants to buy a prime piece of real estate from Guiaumme, but she is waiting to find out whether the bank will give her a loan. In order to make sure that Guiaumme does not sell the land to anyone else, Joan gives him $5,000 in exchange for his promise that, for a certain period of time, she alone has the right to accept his offer to sell. This type of agreement is called 7 © 2023 Pearson Canada Inc.

A) a firm offer. B) a tender. C) a conditional offer. D) an option. E) a proposal. Difficulty: 2 QuestionID: 07-2-07 Topic: The Life of an Offer, Revocation Skill: Applied Answer: D) an option. 8. By submitting a tender, a party normally A) creates an enforceable contract, called an option, to create another contract in the future. B) prevents the other party from revoking its bid. C) accepts an offer to enter into a contract for services. D) creates an invitation to treat. E) accepts an offer to enter into a fair bidding process. Difficulty: 3 QuestionID: 07-2-08 Topic: The Life of an Offer, Tenders Skill: Applied Answer: E) accepts an offer to enter into a fair bidding process. 9. Lori offers to sell her season pass to the ballet for $200. Her co-worker, Alan, says that he will buy the pass for $150. Alan has provided A) an option. B) a counter offer. C) a firm offer. D) a tender. E) a trust. Difficulty: 1 QuestionID: 07-2-09 Topic: Counter-Offer Skill: Applied Answer: B) a counter offer. 10. A battle of the forms usually occurs when A) each party claims to have entered into a contract on the basis of its own standard form contract, but the two standard form contracts have the same terms. B) the offeree signs two copies of a written offer, but the two documents do not contain the same terms. 8 © 2023 Pearson Canada Inc.

C) each party insists upon using the offeror's standard form contract for every transaction. D) each party claims to have entered into a contract on the basis of its own standard form contract, but those two documents do not have the same terms. E) each party insists upon using the offeree's standard form contract for every transaction. Difficulty: 2 QuestionID: 07-2-10 Topic: Battle of the Forms Skill: Recall Answer: D) each party claims to have entered into a contract on the basis of its own standard form contract, but those two documents do not have the same terms. 11. The parties are involved in a battle of the forms. The court needs to decide which set of terms, if either, will govern the contract. In making that decision, the court is most likely to be influenced by A) the likelihood of future dealings between parties. B) the existence of a duty of care in negligence. C) the availability of insurance. D) the parties' subjective intentions. E) the usual practice in the industry. Difficulty: 1 QuestionID: 07-2-11 Topic: Battle of the Forms Skill: Recall Answer: E) the usual practice in the industry. 12. Gordon sends a letter to Thomas that says, "I will buy your diesel engine for $7,000." At exactly the same time, Thomas sends a letter to Gordon that says, "I will sell my diesel engine to you for $7,000." Which of the following statements is TRUE? A) This situation is described as a "cross-acceptance." B) This situation involves a meeting of the minds. C) Both letters respond to an offer. D) This situation creates a bilateral contract. E) Each letter contains an offer, but neither contains an acceptance. Difficulty: 2 QuestionID: 07-2-12 Topic: Acceptance by Promise Skill: Applied Answer: E) Each letter contains an offer, but neither contains an acceptance. 13. In early March, Mathilde offered to rent her cottage to Tom for the first two weeks of July at a price of $1,200. Mathilde did not impose any restrictions on acceptance. Tom did not yet know when his 9 © 2023 Pearson Canada Inc.

vacation was scheduled, so he did not immediately respond to Mathilde's offer. At the end of June, Tom learned that he was entitled to vacation during the first two weeks of July. He therefore arrived at the cottage on July 1st and told Mathilde for the first time that he was accepting her offer. Which of the following statements is most likely TRUE? A) Tom has the right to stay at the cottage because he accepted Mathilde's offer by silence. B) Tom has the right to stay at the cottage because he accepted Mathilde's offer by conduct. C) Tom does not have the right to stay at the cottage because Mathilde's offer lapsed after being open for acceptance for a reasonable length of time. D) Tom has the right to stay at the cottage because Mathilde created an enforceable option when she made an offer without any restrictions on acceptance. E) Tom has the right to stay at the cottage because Mathilde's offer remained open for acceptance until she revoked it, or until Tom either accepted it or rejected it. Difficulty: 3 QuestionID: 07-2-13 Topic: Lapse Skill: Applied Answer: C) Tom does not have the right to stay at the cottage because Mathilde's offer lapsed after being open for acceptance for a reasonable length of time. 14. "Contract law represents the pathology of commerce." Which of the following statements best explains that quotation? A) Most contracts eventually develop problems that require a judge's help. B) Since most contracts are performed without problems, business people should never waste money on lawyers until problems actually do arise. C) Most of the problems that affect commercial contracts are unpredictable and unavoidable. D) A business person should go to court every time that a commercial contract develops a problem. E) Legal issues usually arise only if a commercial relationship becomes unhealthy. Difficulty: 3 QuestionID: 07-2-14 Topic: Introduction Skill: Applied Answer: E) Legal issues usually arise only if a commercial relationship becomes unhealthy. 15. Which of the following statements is TRUE? A) An intention to create legal relations always exists in a commercial context. B) An intention to create legal relations never exists in a family context. C) The courts use a subjective test when determining whether or not there is an intention to create legal relations. D) When dealing with the intention to create legal relations, courts apply presumptions that cannot be rebutted. E) The existence of an intention to create legal relations is usually readily apparent.

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Difficulty: 1 QuestionID: 07-2-15 Topic: Intention to Create Legal Relations Skill: Recall Answer: E) The existence of an intention to create legal relations is usually readily apparent. 16. Which of the following statements best explains why the courts use an objective test to determine whether or not there is an intention to create legal relations? A) It would not be fair to recognize a contract unless both parties actually intended to be bound by that contract. B) The law of contracts is intended to protect reasonable expectations. C) The reasonable person test is only useful for determining subjective intentions. D) The courts are confident that people do not lie in court. E) An objective test is used if a party is a company, while a subjective test is used if a party is a human being. Difficulty: 2 QuestionID: 07-2-16 Topic: Intention to Create Legal Relations Skill: Applied Answer: B) The law of contracts is intended to protect reasonable expectations. 17. ABC Inc and XYZ Ltd entered into a written agreement for the purchase and sale of paper products. That agreement contained a clause that said: "This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to the jurisdiction of the Law Courts or in any other way be enforceable by law." ABC Inc wants the paper products, but XYZ Ltd refuses to deliver them. Which of the following statements is most likely TRUE? A) The agreement is legally enforceable because the clause in question is inconsistent with the rules of offer and acceptance. B) The agreement is legally unenforceable because the clause in question was an invitation to treat, rather than an offer. C) The agreement is legally enforceable because the clause in question demonstrates that the parties had a meeting of the minds. D) The agreement is legally unenforceable because the parties did not intend to create legal relations. E) The agreement is legally enforceable because an intention to create legal relations is irrebuttably presumed when two businesses become involved in a commercial arrangement. Difficulty: 3 QuestionID: 07-2-17 Topic: Intention to Create Legal Relations Skill: Applied Answer: D) The agreement is legally unenforceable because the parties did not intend to create legal relations.

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18. Which of the following statements is TRUE? A) An offer is automatically terminated as soon as it is accepted by one person. B) An invitation to treat indicates that the offeror is willing to receive an acceptance. C) A comfort letter is used if at least one party does not have an intention to create legal relations. D) The courts use a subjective test to determine whether a statement is an offer or an invitation to treat. E) An invitation to treat indicates that the offeree is willing to receive an acceptance. Difficulty: 2 QuestionID: 07-2-18 Topic: Intention to Create Legal Relations Skill: Applied Answer: C) A comfort letter is used if at least one party does not have an intention to create legal relations. 19. Which of the following statements is TRUE? A) A firm offer can only be revoked in writing. B) An offeree may never communicate a revocation in the same way that it communicated its offer. C) The offeror cannot require acceptance to be made in writing unless the parties are buying and selling land. D) An offer that appeared in a newspaper can only be terminated by a revocation that appears in the same newspaper. E) A counter-offer destroys the original offer by acting as a revocation of that offer. Difficulty: 2 QuestionID: 07-2-19 Topic: Counter-Offer Skill: Applied Answer: E) A counter-offer destroys the original offer by acting as a revocation of that offer. 20. An offer can be revoked A) even if it was a firm offer. B) if it was made under seal. C) within a reasonable time of acceptance. D) if it is contained in an option. E) as long as the offeror communicates that intention to a judge. Difficulty: 1 QuestionID: 07-2-20 Topic: Revocation Skill: Recall Answer: A) even if it was a firm offer. 21. Simon believed that he might want to buy shares in Omega Inc from Melinda in the future. Each Omega share was worth $10 on June 1. On that same day, Simon paid Melinda $1000 in exchange for an 12 © 2023 Pearson Canada Inc.

option to purchase 5,000 Omega shares, at $10 per share, on or before October 1. Which of the following statements is TRUE? A) If the market value of the shares immediately dropped to $5 each and stayed there throughout the option period, Simon would be obligated to buy 5,000 shares from Melinda at double their actual value. B) If the market value of the shares immediately increased to $20 each and stayed there throughout the option period, Melinda might be obligated to sell 5,000 shares to Simon at half of their market value. C) If the market value of the shares immediately increased to $20 each, Melinda could revoke her offer to sell the shares any time before Simon accepted it. D) The option would not create any enforceable obligations unless and until Simon agreed to buy the shares. E) Simon will be entitled to enforce the option only if Melinda cannot find any other potential buyers for the Omega shares. Difficulty: 3 QuestionID: 07-2-21 Topic: Revocation Skill: Applied Answer: B) If the market value of the shares immediately increased to $20 each and stayed there throughout the option period, Melinda might be obligated to sell 5,000 shares to Simon at half of their market value. 22. The Town of Oxbridge wants to build a new arts centre, but it is not sure which construction company it should hire for the job. Which type of action is the town most likely to make? A) a call for tenders B) an auction C) an option D) an irrevocable bid E) a request for invitations to treat Difficulty: 1 QuestionID: 07-2-22 Topic: Tenders Skill: Recall Answer: A) a call for tenders 23. Rabby Inc is an oil exploration company that wants a sophisticated piece of equipment to be designed for its operations in northern Alberta. It therefore wants to receive bids from various engineering companies. In the context of a normal tendering process, which of the following statements is TRUE? A) Each engineering company that participates will issue an invitation to treat, an offer, and an acceptance. B) An engineering company should carefully check its cost calculations before submitting its bid because that bid will be turned into Contract A if Rabby Inc accepts it. C) The law will recognize Contract B in order to protect Rabby Inc while it evaluates the bids that it has received. D) Rabby Inc will communicate an offer to enter into a fair bidding process, issue an invitation to treat for the offers for the design contract, and accept one engineering company's offer to design the equipment. 13 © 2023 Pearson Canada Inc.

E) A tendering process will exist only if the parties satisfy a number of statutory requirements. Difficulty: 3 QuestionID: 07-2-23 Topic: Tenders Skill: Applied Answer: D) Rabby Inc will communicate an offer to enter into a fair bidding process, issue an invitation to treat for the offers for the design contract, and accept one engineering company's offer to design the equipment. 24. Which of the following statements is TRUE? A) The death or insanity of either the offeror or the offeree will always prevent acceptance. B) An option will never come to an end by the mere lapse of time. C) Neither party can revive an offer once a counter offer has been made. D) A firm offer can be accepted any time before it is terminated. E) There cannot be a "meeting of the minds" if the offeror accepts the offeree's counter offer. Difficulty: 2 QuestionID: 07-2-24 Topic: Firm Offers Skill: Recall Answer: D) A firm offer can be accepted any time before it is terminated. 25. A bilateral contract A) can occur as a result of a tendering process. B) always imposes obligations on only one party. C) must always be accepted through words rather than through conduct. D) does not require a meeting of the minds. E) always starts with an invitation to treat. Difficulty: 2 QuestionID: 07-2-25 Topic: Acceptance by Promise Skill: Recall Answer: A) can occur as a result of a tendering process. 26. The "master of the offer" A) can insist that silence will be treated as acceptance. B) can change the terms of an offer after it has been accepted. C) is a concept that occurs under a bilateral contract but not under a unilateral contract. D) is a description of the offeree, who can either accept or reject an offer. E) is always the same party that made and communicated the offer. Difficulty: 1 14 © 2023 Pearson Canada Inc.

QuestionID: 07-2-26 Topic: Acceptance by Promise Skill: Applied Answer: E) is always the same party that made and communicated the offer. 27. On March 1st, Janet, who lives in Edmonton, sent a letter to Tad, who lives in Toronto. The letter said: "I want to buy your car. I'll pay $10,000 for it. If I don't hear anything more from you, I'll assume that I can drive the car away when I'm in Toronto at the beginning of April." When he received that letter on March 5th, Tad phoned Janet. She was not home, but he left a message on her answering machine that said: "I'm willing to sell my car to you, but only if you promise to pay $15,000. I need your answer to be sent by mail within one week." Janet listened to that message on March 6. That same day, she sent a second letter to Tad that said, "I received your message. I'll pay $15,000, but not one cent more." On March 10, Tad decided that he did not want to sell the car after all. He immediately left a message on Janet's answering machine that said: "The deal is off. I'm keeping my car." An hour later, he received Janet's second letter. Which of the following statements is most likely TRUE? A) The parties do not have a contract because an offer that is received by telephone cannot be accepted by mail. B) A contract was created in Edmonton on March 6. C) The parties do not have a contract because Janet was not entitled to say that her initial offer would be accepted through silence. D) A contract was created in Toronto on March 10. E) Tad successfully revoked his offer before he received Janet's acceptance. Difficulty: 3 QuestionID: 07-2-27 Topic: Acceptance at a Distance Skill: Applied Answer: B) A contract was created in Edmonton on March 6. 28. Bentley sent a letter to Helene that said: "I'll sell 5,000 widgets to you for $50,000. This offer is open for acceptance until August 10." As soon as she received that letter on August 1, Helene replied with a letter that said: "That sounds like a good deal. I will bring the money to your office on August 15. I'll also collect the widgets at that time." When Helene arrived at Bentley's office on August 15, however, he refused to accept the money or hand over the widgets. He explained that he had not yet received her letter. He also said that he was no longer willing to do business with her. Helene's letter finally reached Bentley on August 20. By that time, the market value of the widgets had increased to $75,000. Applying the general rules for communication of acceptance, which statement is most likely TRUE? A) Bentley revoked his offer on August 15. B) A court would refuse to recognize a contract because it would be unfair to require Bentley to sell $75 000 worth of widgets for $50,000. C) A contract was created on August 1. D) Bentley's offer was terminated by lapse of time. E) A contract was created on August 20.

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Difficulty: 3 QuestionID: 07-2-28 Topic: Acceptance at a Distance Skill: Applied Answer: C) A contract was created on August 1. 29. Eric bought a house for $150,000. He paid $25,000 immediately and promised the seller that he would pay the remainder in monthly installments over the next 10 years. Eric then told his daughter, Naomi, that he would transfer the house to her if and when she paid all of the monthly payments. Naomi was reluctant to commit herself to that arrangement because she was not sure if she would always have enough money to make the payments. Eric said to her, "Well, let's see how it goes." Naomi made the monthly payments for six years. Unfortunately, she and her father then began to fight. At that point, he told her that the deal was off. Eric has offered to repay Naomi for all of the payments that she had made, but he insists that the house will always belong to him. The market value of the house has increased from $150,000 to $400,000. Which of the following statements is most likely to be TRUE? A) Eric and Naomi never had a contract because they never had an intention to create legal relations. B) Eric and Naomi never had a contract because he revoked his offer before she completed making the payments. C) Eric is required to give Naomi an opportunity to finish completing the payments, and if she does so, she is entitled to the house. D) Since the parties created a unilateral contract, Naomi still has an obligation to make the monthly payments. E) A court would not recognize a contract because no reasonable person would ever offer to sell a $400 000 house for less than half that amount. Difficulty: 3 QuestionID: 07-2-29 Topic: Acceptance by Performance Skill: Applied Answer: C) Eric is required to give Naomi an opportunity to finish completing the payments, and if she does so, she is entitled to the house. 30. The case of Carlill v Carbolic Smoke Ball Co is best known for dealing with the issue of A) tenders. B) counter-offers. C) unilateral contracts. D) options. E) insanity. Difficulty: 1 QuestionID: 07-2-30 Topic: Acceptance by Performance Skill: Recall

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Answer: C) unilateral contracts. 31. Quality Kitchens Inc operates a store that sells kitchen utensils and gadgets. In an attempt to increase sales, the store ran an advertisement in a newspaper that featured Juicy Brand Blenders for $49.99. Martha rushed to the store with the intention of buying a blender. When she arrived, however, she was told that while there were no such blenders in stock, the store did have several Swirl Brand Blenders to sell for $99.99 each. After a bit of investigation, Martha discovered that the store knew that it never had any Juicy Brand Blenders, and that it was simply hoping that shoppers would buy the Swirl Brand Blenders once they got inside the store. Which of the following statements is most likely to be TRUE? A) The store is required to sell a Swirl Brand Blender to Martha for $49.99. B) Martha can force the store to acquire a Juicy Brand Blender and sell it to her for $49.99. C) The store is guilty of a bait and switch. D) The advertisement contains an offer of a unilateral contract. E) The store's advertisement contains a firm offer. Difficulty: 3 QuestionID: 07-2-31 Topic: Invitation to Treat Skill: Applied Answer: C) The store is guilty of a bait and switch. 32. The phrase quid pro quo means A) something for something. B) agreement on point. C) professional services. D) a thing of value. E) an intention to contract. Difficulty: 1 QuestionID: 07-2-32 Topic: Introduction Skill: Recall Answer: A) something for something. 33. The phrase consensus ad idem means A) one idea in two minds. B) value for the agreement. C) agreement on that previously mentioned. D) offer of agreement. E) less than the value of that. Difficulty: 1 QuestionID: 07-2-33 Topic: Introduction 17 © 2023 Pearson Canada Inc.

Skill: Recall Answer: C) agreement on that previously mentioned. 34. In late April, Harper Corp placed an advertisement in a newspaper that said: "We cater parties. Up to 150 people for only $3,000. No hidden fees or costs." The manager of Martin Inc telephoned Harper and left a voice message that said, "We are calling to place an order to have a party for 150 people on the first of June." The next day, the manager of Harper called Martin and explained that, due to a scheduling conflict, it could not stage a party on the first of June. Martin now says that a contract had been created and that Harper has breached that agreement. Which of the following statements is most likely to be TRUE? A) Because a contract cannot be created between corporations, Harper Corp cannot be held liable to Martin Inc. B) A contract was created between the parties as soon as Martin left its message on Harper's answering machine, regardless of when Harper listened to that message. C) Because an advertisement is generally presumed to be an invitation to treat, Martin's telephone message was not a contractual acceptance. D) In classifying the nature and effect of Martin's telephone message, a judge would focus exclusively on the intention that Martin had at the time that he called. E) If it did not actually have a scheduling conflict, Harper would be obligated to satisfy Martin's order. Difficulty: 2 QuestionID: 07-2-34 Topic: Invitation to Treat Skill: Applied Answer: C) Because an advertisement is generally presumed to be an invitation to treat, Martin's telephone message was not a contractual acceptance. 35. Garfield owns and operates a wholesale, sporting goods business. He recently delivered a box of cricket balls to his twenty-year-old son, Imran, and a box of cricket outfits to another sporting goods store called Hit-for-Six. Which of the following statements is most likely to be TRUE? A) Neither transaction will be classified as a contract until money is actually paid in exchange for the balls and the outfits. B) As a matter of law, Garfield could not have had an intention to create legal relations when he entered into the transaction with Imran because Imran is his son. C) As a matter of law, the transaction with Hit-for-Six is not an enforceable contract unless it is sufficiently evidenced in writing. D) If Hit-for-Six had previously given its contractual promise that it would pay for any sporting goods that it received from Garfield and retained, a contract will be created if Hit-for-Six keeps the outfits, even if it had not asked Garfield to send them. E) Even if Garfield delivered the outfits to Hit-for-Six without any communication between himself and the store, Hit-for-Six will be contractually obligated to pay unless it returns the outfits to Garfield within a reasonable time. Difficulty: 3 18 © 2023 Pearson Canada Inc.

QuestionID: 07-2-35 Topic: Silence Skill: Applied Answer: D) If Hit-for-Six had previously given its contractual promise that it would pay for any sporting goods that it received from Garfield and retained, a contract will be created if Hit-for-Six keeps the outfits, even if it had not asked Garfield to send them. 36. An invitation to treat A) can only occur within the context of a call for tenders. B) is a type of offer. C) always occurs in response to an offer. D) is a part of some tenders. E) constitutes a significant risk when it occurs in the context of sale negotiations. Difficulty: 1 QuestionID: 07-2-36 Topic: Invitation to Treat Skill: Recall Answer: D) is a part of some tenders. 37. A firm offer is A) always supported by consideration. B) always placed under seal. C) the same thing as an option. D) freely revocable. E) always found, among other times, in a tender situation. Difficulty: 2 QuestionID: 07-2-37 Topic: Revocation Skill: Recall Answer: D) freely revocable. 38. Layton Fine Fashions had a shipment of orange ties that it wished to sell. On Monday, it placed the following advertisement in the town newspaper: "Fine silk orange ties. The season's hottest fashion trend. This week only—Come to Layton Fine Fashions and we guarantee that you'll pay no more than $35." The advertisement was such a success that almost all of the ties were sold within two days. Which of the following statements is most likely to be TRUE? A) Layton's advertisement cannot be classified as an invitation to treat because Layton wants to sell, rather than buy, goods. B) If Layton's advertisement is classified an offer, it will be revoked if Layton places a notice in the same newspaper that says: "Sorry, gentlemen–the orange silk ties are all sold out," even if some disappointed customers failed to read that notice before they came to the store. 19 © 2023 Pearson Canada Inc.

C) If Layton's advertisement is classified an invitation to treat, then a contract cannot be created unless Layton offers to sell a tie to a customer who visits the store. D) The advertisement can be properly classified as an option. E) The situation probably is governed by the special rules that apply to tenders. Difficulty: 2 QuestionID: 07-2-38 Topic: Invitation to Treat Skill: Applied Answer: B) If Layton's advertisement is classified an offer, it will be revoked if Layton places a notice in the same newspaper that says: "Sorry, gentlemen–the orange silk ties are all sold out," even if some disappointed customers failed to read that notice before they came to the store. 39. As Bennie entered The Big Table restaurant, he noticed a sign that said "All-U-Can-Eat–For One Reasonable Price." Because the restaurant was busy, and because the staff members were all busy up with other customers, Bennie found a table for himself and then began eating from the self-serve buffet. After finishing his meal, he paid an appropriate amount to the cashier and left the building. Not a word had been spoken between Bennie and the store's employees during the entire episode. Which of the following statements is most likely to be TRUE? A) While he undoubtedly was required to pay for his meal, the lack of communication means that Bennie's obligation to pay could not have arisen within the law of contract. B) Assuming that the general rules apply, no contract was formed until Bennie paid for his meal. C) If a contract existed between Bennie and The Big Table, it changed from being a unilateral contract into a bilateral contract as soon as Bennie paid for the meal. D) If a court is required to decide how much Bennie had to pay for his meal, it will rely on the concept of quantum meruit. E) Give the lack of communication between the parties, the contract that was created between the parties must have been unilateral rather than bilateral. Difficulty: 2 QuestionID: 07-2-39 Topic: Communication of an Offer Skill: Applied Answer: D) If a court is required to decide how much Bennie had to pay for his meal, it will rely on the concept of quantum meruit. 40. Professor Angie Shareef hired Hiram Brody to act as her research student for the summer. The professor had received a very large research grant, and she was required to prepare a detailed budget to explain how she intended to spend the money. On Hiram's first day on the job, Prof Shareef asked him to proofread a budget that she had drafted. Although he found the rest of the task exceptionally boring, Hiram became quite excited when he read the following statement in the document: "I will offer Hiram Brody the position of joint-investigator. That position will require him to resign from his present post as my research assistant and take a leave of absence from his current studies. Given the nature of the project and given his outstanding qualifications, Hiram will be paid $8,000 per month for a period of 20 © 2023 Pearson Canada Inc.

eighteen months." After he finished proofreading the document, Hiram tried to contact Prof Shareef, but was told that she had unexpectedly left the country to be with a sick family member. Hiram then informed the Chair of his University Department that he was resigning as Prof Shareef's research assistant and taking a two-year leave of absence from school. He also left a message on Prof Shareef's telephone answering machine: "I accept. I can't wait to begin working as your joint-investigator." When the professor returned from abroad, however, she told Hiram that she had changed her mind and that she had already hired another student to serve as her joint-investigator. Hiram is furious. He has sued Prof Shareef and claims that she had hired him for that job. Which of the following statements is most likely to be TRUE? A) The court will uphold Hiram's claim as long as Prof Shareef listened to his telephone message before telling him that she had hired another student. B) The court will reject Hiram's claim because Prof Shareef did not effectively communicate an offer. C) The court will reject Hiram's claim as long as Prof Shareef learned that he had resigned as her research assistant before she heard the telephone message in which he accepted the job as her joint-investigator. D) The court will uphold Hiram's claim because Prof Shareef created a reasonable expectation that he would be hired as her joint-investigator. E) The court will reject Hiram's claim because he communicated his acceptance by telephone even though he had received Prof Shareef's offer in writing. Difficulty: 3 QuestionID: 07-2-40 Topic: Communication of an Offer Skill: Applied Answer: B) The court will reject Hiram's claim because Prof Shareef did not effectively communicate an offer. 41. Ronan was scheduled to move out of his parents' basement and into an apartment near his college last Saturday. When he saw his friends, Siobhan and Jeff, he said, "I'll pay each of you $20 if you help me move on Saturday. What do you say? I need your answers right now so I can properly plan." Siobhan responded, "Maybe." Jeff responded, "Of course! You can always count on me." Which of the following statements is most likely to be TRUE? A) Siobhan transformed Ronan's offer of a unilateral contract into a contract if she actually showed up and helped him move on Saturday. B) A contract was created between Jeff and Ronan even if Jeff did not help with the move on Saturday. C) A contract was created between Jeff and Ronan only if Jeff actually helped with the move on Saturday. D) If a contract was created between Jeff and Ronan, the court will order Ronan to pay a quantum meruit. E) In light of the parties' friendship, a court will presume that Siobhan had an intention to create legal relations because she did not clearly reject Ronan's offer. Difficulty: 2 QuestionID: 07-2-41 Topic: Intention to Create Legal Relations Skill: Applied Answer: B) A contract was created between Jeff and Ronan even if Jeff did not help with the move on Saturday. 21 © 2023 Pearson Canada Inc.

42. Millie is Jasper's border collie. After she escaped from his yard, he posted the following notice around the neighbourhood: "$500 reward to anyone who finds Millie and returns her to me." Flo, a woman who lived on Jasper's street, saw Millie when she was walking in the nearby river valley. She returned the dog to Jasper and then headed home. After hearing about the episode during dinner, Flo's husband and children insisted that she should demand payment from Jasper. She followed that advice, but Jasper refused to pay a cent. Which of the following is most likely to be TRUE? A) A bilateral contract was created when Flo accepted Jasper's offer by returning Millie to him. B) Flo was contractually obligated to return Millie to Jasper as soon as she found the dog. C) Although a contract was created between Jasper and Flo, the court will award a reasonable amount to Flo because $500 grossly exceeds the actual value of her services. D) As long as Flo knew about the offer when she acted, she is entitled to payment even if she returned Millie to Jasper because she did not want the dog to dig up her garden and not because she wanted the money. E) Because advertisements and notices are presumed to be invitations to treat rather than offers, there is no contract between the parties because Jasper did not accept Flo's offer. Difficulty: 3 QuestionID: 07-2-42 Topic: Acceptance by Performance Skill: Applied Answer: B) Flo was contractually obligated to return Millie to Jasper as soon as she found the dog. 43. A municipal government announced that it wanted to have a bridge built and issued a call for tenders. Estey Management Inc (EMI) submitted a tender. Five other companies did the same. If the usual tendering rules are applied, which of the following statements is most likely to be TRUE? A) A separate, though similar, contract exists between EMI and each of the other parties that submitted a tender. B) By the time that construction of the bridge actually begins, a total of seven contracts will have been created. C) EMI is the offeror of Contract A. D) The municipal government issued an invitation to treat for Contract A. E) The municipal government will create a Contract B only if some other party breaches the terms of a Contract A. Difficulty: 3 QuestionID: 07-2-43 Topic: Tenders Skill: Applied Answer: B) By the time that construction of the bridge actually begins, a total of seven contracts will have been created. 44. Which of the following statements is TRUE? A) A contract is created when and where acceptance is effectively communicated even in provinces that 22 © 2023 Pearson Canada Inc.

have enacted electronic commerce statutes. B) The postal rule applies to instantaneous communications unless the parties indicate otherwise. C) An instantaneous communication is always effective as soon as it is received by the offeror. D) The postal rule states that an acceptance letter is deemed to be effective when and where the offeror puts it into the postal system. E) The Uniform Electronic Commerce Act is now binding in every province except for Quebec. Difficulty: 2 QuestionID: 07-2-44 Topic: Acceptance at a Distance Skill: Recall Answer: A) A contract is created when and where acceptance is effectively communicated even in provinces that have enacted electronic commerce statutes. 45. Pascal recently created a new business for sewing and shipping cosplay outfits. Because he does not have a formal place of business, he communicates entirely online and he works on the costumes wherever he can find space. Although he lives in Edmonton, he advertises his services across Canada and he has fulfilled orders from every province and territory except Quebec and the Yukon. Eric Gold, who lives in Vancouver, submitted an online order for a Hello Kitty costume. Pascal received it while he was visiting a friend in Toronto. Because he was not working on any other projects at the time, Pascal finished the costume and sent it to Eric before he returned home to Edmonton. Eric is delighted with the outfit, but a dispute has arisen with regard to the price. The parties agreed on a price of "$2,000 plus applicable taxes." They also agree that Pascal offered to sell the Hello Kitty costume on his website. Each of the western provinces has a statute that imposes a tax of 10% on all electronic contracts. Ontario does not have similar legislation. If the case was governed by the Uniform Electronic Commerce Act, which of the following statements would be the most likely to be TRUE? A) Eric is not required to pay the tax because the contract was created in Toronto where Pascal read the order and created the costume. B) Eric is required to pay the tax because the contract was created in Vancouver where he submitted his order. C) Eric is required to pay the tax because the contract was created in Edmonton where Pascal habitually resides. D) Eric is required to pay the tax because the contract was created in Vancouver where he received the costume. E) Eric is not required to pay the tax because the Uniform Electronic Commerce Act is a federal statute that deems that all electronic contracts are created in Ottawa. Difficulty: 3 QuestionID: 07-2-45 Topic: Electronic Contracts Skill: Applied Answer: C) Eric is required to pay the tax because the contract was created in Edmonton where Pascal habitually resides.

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46. The offeror is generally A) entitled to revoke the offer. B) required to place the offer under seal to make it a firm offer. C) allowed the option to cancel the contract. D) unable to control the offer. E) responsible for contract formation. Difficulty: 2 QuestionID: 07-2-46 Topic: Revocation Skill: Recall Answer: A) entitled to revoke the offer. 47. Minnie wants to buy a home. She contacts the owner of a potential property that she likes. While Minnie is not sure that the home is for her, she wants to prevent someone else from buying the property while she is still looking. How can she ensure the property owner does not sell to someone else while she is still deciding? A) Get the property owner to promise not to sell until the end of the week B) Sign an option agreement with the property owner C) Pay for the house in full and then cancel the contract of sale D) Ensure that the property owner commits his promise not to sell in writing E) Have her real estate agent note her interest in the property on the real estate listing database Difficulty: 2 QuestionID: 07-2-47 Topic: Revocation Skill: Recall Answer: B) Sign an option agreement with the property owner 48. If acceptance of a valid offer is made via instantaneous communication such as email, it is effective A) when and where it is received by the offeror. B) when and where it is received by the offeree. C) when the offeror hits the send key. D) when and where the offeror puts it into the postal system. E) the next business day. Difficulty: 2 QuestionID: 07-2-48 Topic: Acceptance at a Distance Skill: Recall Answer: A) when and where it is received by the offeror. Essay Questions 24 © 2023 Pearson Canada Inc.

1. How is the concept of a meeting of the minds related to the concepts of offer and acceptance? Illustrate your answer by reference to the phenomenon of a cross-offer. Difficulty: 2 QuestionID: 07-3-01 Topic: Introduction, Acceptance by Promise Skill: Recall Answer: A contract cannot be formed unless there is a meeting of the minds. The parties must have, at least according to the reasonable person test, agreed to enter into a contract on certain terms. That meeting of the minds is achieved through the concepts of offer and acceptance. The offeror indicates a willingness to enter into legally enforceable agreement on certain terms. The offeree agrees to enter an agreement on those terms by accepting them. A contract is not created on the basis of cross-offers. Cross-offers occur when both parties communicate offers to enter into a contract on the same terms. Although the parties agree on the terms, there is no meeting of the minds because neither party accepted the other's offer. Each party expected its offer to be accepted—not to be mirrored by a corresponding offer. This makes practical sense as there is a significant legal distinction between being the offeree and offeror. 2. It is presumed that people who create agreements in commercial contexts do intend to create legal relations, while people who create agreement in social or family contexts do not intend to create legal relations. Provide an explanation for each of those presumptions. Difficulty: 3 QuestionID: 07-3-02 Topic: Intention to Create Legal Relations Skill: Applied Answer: This answer does not appear directly in the text, but it should be reasonably apparent to students. (The issue is discussed further in the Additional Teaching Suggestions section of the Instructor's Manual.) Legal presumptions generally reflect the actual facts. That appears to be true in the context of intentions to create legal relations. In the commercial context, people expect that their agreements will be enforceable in law. One reason for that expectation stems from the fact that most commercial parties are unrelated and at arm's length. Moreover, their agreements are created in a competitive environment in which each party seeks to advance its own interests. Consequently, one party is normally willing to improve its own position, even at the expense of imposing a burden upon the other party. Furthermore, given the context of their agreement and the nature of their relationship, neither party can confidently rely upon informal forces–such as goodwill or compassion–for the enforcement of an agreement. Business people may not always act selfishly but they cannot be expected to honour all promises merely on moral grounds. The situation is much different in a social or family context. First, partially because the courts have not historically enforced agreements in such circumstances, the parties do not normally reasonably expect that their promises are legally enforceable. Second, the social or family context is not marked by the same sort of competitiveness and self-interest that characterizes the business world. Third, informal forces—such as goodwill or compassion—are more often effective in the social or domestic context. Fourth, the courts 25 © 2023 Pearson Canada Inc.

historically have been concerned that the general recognition of an intention to create legal relations in such circumstances would open the floodgates to petty and socially useless litigation. A promise to take out the trash or give up drinking might become the subject of a lawsuit. And finally, as discussed in the Instructor's Manual, it has occasionally been suggested that the courts traditionally refused to recognize an intention to create legal relations in domestic contexts in an effort (possibly subconsciously) to allow men to maintain control over women and children. 3. From a risk management perspective, explain why it may be better for a business to use an invitation to treat, rather than an offer, when seeking someone to buy its product. Difficulty: 1 QuestionID: 07-3-03 Topic: The Nature of an Offer, Invitation to Treat Skill: Recall Answer: The danger occurs if the business has a limited number of products that it can sell. Before it is revoked or otherwise terminated, an offer can be accepted by any number of offerees to whom it is communicated. Consequently, there is a danger that a business will receive more acceptances–and be bound to more contracts– than it has products to satisfy. In contrast, an invitation to treat is simply an invitation to receive offers. In that situation, the business remains in control of the process. It can limit the number of contracts that are created by limiting the number of acceptances that it provides in response to the offers that it received from prospective customers. 4. If you insert a coin into a vending machine and receive a chocolate bar in exchange, have you entered into a contract? If so, is that contract unilateral or bilateral? Give reasons for your answer. Difficulty: 3 QuestionID: 07-3-04 Topic: Acceptance by Performance Skill: Applied Answer: A contract has been created. The vending machine display is an offer to enter into a unilateral contract. You accept that offer by performing the stipulated act of acceptance when you insert a coin into the machine. At that point, you no longer have any obligations. There are, however, obligations on the other side of the agreement. You are entitled to receive a chocolate bar. 5. In a normal tendering process, is Contract A a unilateral contract or a bilateral contract? Is Contract B a unilateral contract or a bilateral contract? Give reasons for your answer. Difficulty: 3 QuestionID: 07-3-05 Topic: Tenders Skill: Applied Answer: Contract A is a bilateral contract. Although it is accepted by an act, that act constitutes acceptance by conduct of an offer of a bilateral contract. Contract A must be bilateral because it imposes obligations on both 26 © 2023 Pearson Canada Inc.

parties. The tenderer, for instance, is obligated to not revoke its bid while that bid is being considered. Likewise, the party that called for tenders has an obligation to treat all bids fairly. Contract B is also a bilateral contract because, once again, both parties have outstanding obligations. In most situations, one party will be required to build something and the other party will be required to pay a price for that work. That is the answer that students should provide. Curiously, however, Estey J seemed to suggest in the leading case of R v Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d) 267 (SCC) that Contract A was "unilateral." Given that Contract A imposes obligations on both parties, however, Estey J was either not using the term in its strict legal sense or he was using the phrase "unilateral contract" in an idiosyncratic manner. 6. How does the death of either the offeror or the offeree affect an offer? Provide examples to illustrate your answer. Difficulty: 1 QuestionID: 07-3-06 Topic: Death or Insanity Skill: Recall Answer: An offer is usually automatically revoked, by operation of law, if either the offeror or the offeree dies before it has been accepted. A contract requires a meeting of the minds to be achieved through the process of offer and acceptance. It is generally thought, however, that a dead person cannot participate in that process. On policy grounds, however, there is no reason why death of either party should necessarily preclude the formation of a contract unless the contract required the party to personally perform. For instance, an offer to sell land can easily be performed by either the offeror or the offeror's executor or administrator. An offer to star in a Broadway play, however, cannot sensibly be performed by the offeror's executor or administrator. 7. As a matter of risk management, how can a business avoid becoming involved in a battle of the forms? Difficulty: 2 QuestionID: 07-3-07 Topic: Battle of the Forms Skill: Applied Answer: Standard form contracts serve important purposes. They allow a business to operate more quickly and more efficiently because they obviate the need to repeatedly negotiate contracts that deal with the same subject matter. Furthermore, they provide a form of risk management. Once a business has found a form that avoids legal problems, it can use that form repeatedly in the future. However, the use of standard forms itself can create a risk management problem. A battle of the forms occurs when each party claims to have entered into a contract on the basis of its own standard form document and when those documents actually differ. The danger is heightened when the parties unthinkingly rely upon their standard form documents and simply assume that everything will proceed smoothly. From a risk management perspective, it is critically important for the parties to carefully read all of the documents that pass between them. If either party fails to do so, it may find that it is bound to terms that it did not subjectively agree to or that there is really no contract at all. Another method would be to rely on standard forms in making offers and require acceptance only by a strict method which does not deviate from the standard form terms. This can be done for purchasing for example by issuing a purchase 27 © 2023 Pearson Canada Inc.

order which must be accepted on its terms for goods and services your business purchases. Similarly sales could be made only on standard forms that not subject to variation by the customer. 8. "If a contractual offer is accepted by conduct, rather than words, the parties must have a unilateral contract, rather than a bilateral contract." Discuss that statement. Use examples to prove your answer. Difficulty: 2 QuestionID: 07-3-08 Topic: Acceptance by Promise, Acceptance by Conduct Skill: Applied Answer: The statement is not correct. A bilateral contract is created when the offeree gives a promise in exchange for the offeror's promise. That exchange of promises usually occurs when the offeree responds to the offeror's offer by saying, either orally or in writing, "I accept" or "We have a deal" or words to that effect. However, it is also possible for the offeree to give its promise, and to thereby accept the offeror's offer, by using conduct rather than words. For instance, if the offeror said, "I will pay $5,000 for your computer," the offeree might respond by nodding agreeably and shaking hands. In such circumstances, the reasonable person would likely interpret the offeree's conduct as providing a promise to sell the computer and, therefore, as acceptance of the offeror's offer. The opposite is true for unilateral contracts, where the offeror gives a promise in exchange for an act. In most situations, the offeree is required to conduct itself in a certain way (eg by finding a lost dog or by inhaling carbolic smoke dust). In some situations, however, the stipulated act of acceptance may take the form of words. That would be true, for instance, if the offeror said, "I will pay $5,000 to anyone who can tell me where I can buy an antique widget." In either case, students should focus on the nature of the contract (a promise exchanged for a promise or a promise exchanged for an act), rather than on the precise form in which the offeree accepted (eg through words or conduct). 9. You have developed a business proposal called the Law Book Club. Your intention is to send books to club members on a monthly basis. Under the proposal, each member would then be charged a price for the book unless they specifically indicated, within a one-week period, that they did not wish to purchase the selection. Discuss that proposal in terms of the rules regarding the acceptance of offers. Difficulty: 2 QuestionID: 07-3-09 Topic: Silence Skill: Recall Answer: The question raises the issue of silence as acceptance. As a general rule, the offeror cannot say that silence will be construed as acceptance and thereby bind an offeree to a contract on the basis of a simple lack of response. That might seem to suggest that this proposal could not work as a member would be required to purchase a book simply because they did not actively reject it. There is, however, an exception of sorts to that rule. While silence alone cannot be acceptance, silence can be acceptance if it is coupled with something else. The proposal therefore would work if members were required to agree, when they joined the Law Book Club, to 28 © 2023 Pearson Canada Inc.

pay for books that they receive and do not return within the stipulated period. Top students might also be expected to appreciate the policy considerations underlying the rules in this area. As a matter of freedom of choice, an offeree should not be held liable on the basis of mere silence. The offeror should not have the power to force the offeree to either act in a certain way or enter into a contract. That concern is absent, however, if the offeree previously exercised their freedom of choice to allow silence to be construed as acceptance. 10. Acme Corp is a widget manufacturer that carries on business in Edmonton. Until recently, it sold its products only within the province of Alberta. However, it now wants to sell to customers in Manitoba as well. It is concerned, however, about the effect of the Alberta Contracts Enforcement Act. That statute says that only specially licenced companies are entitled to sell widgets under "contracts that are made within the province of Alberta." Acme Corp is not specially licenced. The statute does not, however, affect contracts that are created outside of Alberta. Bearing in mind the general rules regarding offers and acceptances, suggest ways in which Acme Corp can go ahead with its proposal without violating the Contracts Enforcement Act. Difficulty: 3 QuestionID: 07-3-10 Topic: Invitation to Treat Skill: Applied Answer: There are at least two ways in which Acme Corp can sell its widgets in Manitoba without violating the Contracts Enforcement Act. First, Acme Corp could ensure that its newspaper and web site advertisements contain offers and not merely invitations to treat. It could then insist that acceptances be communicated by mail. Under the general rule, a posted acceptance is effective when and where it is sent. For customers in Manitoba, that would mean that the contracts would be created in that province rather than in Alberta. Second, Acme Corp could ensure that its newspaper and web site advertisements contain invitations to treat and not offers. Any communications that it received from customers in Manitoba therefore would be offers that would be open to its own acceptance. It could then communicate its acceptance in an instantaneous manner (eg by telephone or perhaps fax). Under the general rule, an acceptance communicated by instantaneous communication is effective when and where it is received. With respect to offerors in Manitoba, that would mean that the contracts would be created in that province and not in Alberta. 11. On June 1, Maureen sent a letter to Joel that offered to sell 10 000 shares in Tadpole Inc (a computer software company) for $5 each. Her letter did not require Joel to respond by any particular date. On June 3, Tadpole Inc publicly announced that its engineers had perfected a new technology that would revolutionize the electronic commerce industry. By June 4, the price of a single share in the company had increased to $100. On June 6, Joel returned from his cottage and learned of both Maureen's offer and the price of Tadpole Inc shares. He promptly sent a letter to Maureen that said, "I accept your offer. I will pay a total of $50 000 for 10 000 shares in Tadpole Inc." Maureen obviously no longer wants to sell her shares under the price that she quoted in her offer. Discuss the factors that a court would consider in deciding whether or not she and Joel had created a contract. Difficulty: 2 29 © 2023 Pearson Canada Inc.

QuestionID: 07-3-11 Topic: Lapse Skill: Applied Answer: This question does not require students to come to a specific substantive answer. Rather, it merely requires them to identify the operative test and to list the relevant factual considerations. As master of the offer, the offeror is entitled to place a time limit on the life of the offer. Maureen did not do so in this case. Nevertheless, as a matter of law, her offer is only open for a "reasonable period." The length of that period would be decided by using the reasonable person test and by looking at all of the circumstances of the case. On these facts, the court undoubtedly would be influenced by the apparent volatility of the market. That would be especially true if the fluctuation in the price of Tadpole Inc's shares was not entirely unexpected and if similar swings previously had occurred with respect to other companies' shares. The court would also be influenced by general trade practices. It may be that, at least in the high-tech industry, because of the volatility of share prices, offers generally are open only for a short period (eg two or three days). On the other hand, the court might be influenced by the fact that Maureen communicated her offer by mail. If an offer is intended to be open only for a short period, it normally would not be advisable to send it by post, especially since a posted offer is open to a posted acceptance. The delivery of two letters can sometimes take a considerable amount of time. 12. Explain what it means to say that the offeror is the "master of the offer." Provide examples to support your answer. Difficulty: 1 QuestionID: 07-3-12 Topic: Revocation, Lapse, Acceptance by Promise, Postal Rule Skill: Recall Answer: The offeror is the master of the offer in the sense that they can generally control the effect of an offer. First, as master of the offer, the offeror most importantly is entitled to determine the contents of the offer. They can determine the subject matter of the proposed transaction, the price required from the offeree, and the terms of the proposed contract. Second, as master of the offer, the offeror is not required to communicate an offer except as the offeror wishes. If an offer is communicated, the offeror is generally entitled to revoke it any time before acceptance (as long as the offer was not provided under an option contract). Third, as master of the offer, the offeror can require acceptance to be given in a certain form–eg through written document. Fourth, the offeror can also vary the general rules regarding acceptance. For instance, while the postal rule states that a mailed acceptance is usually effective when and where it is sent, the offeror can demand that a mailed acceptance will be effective only when and where it is received. 13. Rosie placed an advertisement in a newspaper that said: "Five purebred Siamese kittens for sale. 30 © 2023 Pearson Canada Inc.

$200 each. First come/first served. Respond in person or by email to Rosie@netmail.com." Gig saw the advertisement and immediately sent an email message that said, "I will pay $1000 for the five kittens." However, when Gig arrived at Rosie's door with the cash in hand, she refused to hand over the kittens. She explained that while Gig's message was the only reply that she had received in response to her advertisement, she had changed her mind and had decided to keep the kittens for herself. Provide an argument on behalf of Gig that would support the creation of a contract with Rosie. Difficulty: 2 QuestionID: 07-3-13 Topic: Invitation to Treat Skill: Applied Answer: As a general rule, a newspaper advertisement is merely an invitation to treat, rather than an offer. The policy behind that rule is that an offeror should not be unfairly exposed to a potentially unmanageable number of contracts. That concern arises because an offer generally is open for acceptance unless and until it is terminated–even if the offeror has already sold the subject matter of the proposed contract. For instance, if Rosie had simply placed an advertisement that said, "Purebred Siamese kittens for sale–$200 each," she might have received more valid acceptances than she had kittens to sell. In this case, however, the situation is somewhat different. As master of the offer, Rosie has limited the offeree's ability to accept her offer by saying "First come/first served." That phrase would prevent an offeree from accepting her offer after she had already sold the kittens. For that reason, a court might–but not necessarily would–decide that her advertisement contained an offer, rather than an invitation to treat. 14. List five ways in which an offer can be terminated. Difficulty: 1 QuestionID: 07-3-14 Topic: The Life of an Offer Skill: Recall Answer: An offer can be terminated by (i) revocation of the offer by the offeror before acceptance, (ii) lapse of either a stipulated time or a reasonable time, (iii) death or insanity of either the offeror or the offeree, (iv) rejection of the offer by the offeree, and (v) counter offer by the offeree to the offer. 15. Gigagar Inc manufactures computer components. It wants to develop a new line of product, but realizes that it cannot do so without a complicated device known as a "digital phalange finger." It has tried to design that devise itself, but has failed. It therefore sent a letter to Katenben Ltd, another hightech company, that said: "We are willing to pay $100 000 for the design of a digital phalange finger." Katenben Ltd responded by saying that it believed that it might be able to design the device. However, it also indicated that it could not guarantee its results and said that it did not want to commit itself to a potentially impossible project. Gigagar Inc then wrote back in a letter that said: "We understand your concerns. We do not require any guarantee of success. We also appreciate that, given the complexity of the project, you may decide to drop the matter after some preliminary investigations. Nevertheless, our offer stands–we will pay $100,000 if you successfully design a digital phalange finger." Katenben Ltd spent the next six months and a great deal of money trying to design the device. As it neared successful completion, however, Gigagar Inc announced that its own engineers had experienced an unexpected 31 © 2023 Pearson Canada Inc.

breakthrough and had successfully created a digital phalange finger. Gigagar Inc therefore told Katenben Ltd that its offer of $100,000 was revoked. Three days later, Katenben Ltd also successfully produced a working digital phalange finger. It now demands payment of $100,000. Is it entitled to that money? Give reasons for your answer. Difficulty: 3 QuestionID: 07-3-15 Topic: Bilateral or Unilateral? Skill: Applied Answer: Courts generally prefer bilateral contracts, rather than unilateral contracts, as a way of protecting the expectations of both parties. Nevertheless, it seems clear on these facts that Gigagar Inc gave an offer of a unilateral contract. That interpretation is supported by the fact that Katenben Ltd did not want to be obligated to carrying out the project, as it presumably would be under a bilateral agreement. Generally speaking, an offer can be revoked any time before it is accepted. Furthermore, an offer for a unilateral contract is accepted only once the offeree has fully completed the stipulated act of acceptance. In this case, the stipulated act of acceptance was the successful creation of a digital phalange finger. It therefore would appear that Gigagar Inc communicated its revocation before Katenben Ltd completed its act of acceptance. However, a court might be persuaded to avoid a result that would deprive Katenben Ltd of any reward for its efforts and, indeed, its success. A court therefore might find that Gigagar Inc implicitly made two offers for two unilateral contracts. The main contract would contain a promise to pay $100,000 in exchange for the successful design of the device. The second contract would contain a promise to not revoke the offer for the first contract in exchange for work aimed at accepting the first contract. In other words, once Katenben Ltd began to work on the design of the device, Gigagar Inc could not revoke its offer. However, this is a theoretical argument that may not reflect the objective intentions of the parties and may therefore not succeed. 16. You go shopping at the mall for a handbag visiting several stores. You see a bag that you like and you ask the store clerk to hold it for you until the end of the day. The store clerk agrees and notes your name. You return a few hours later and learn that the clerk has sold the bag to someone else. Describe why the store clerk's promise is unenforceable. What could you have done differently so that the store clerk would have been legally required to hold the item for you? Difficulty: 3 QuestionID: 07-3-16 Topic: Revocation of an Offer Skill: Applied Answer: The clerk's promise was unenforceable because it was entirely gratuitous. The customer had not provided anything of value in exchange for the promise to hold his offer open until the end of the day. To ensure that the customer had the option to purchase the bag at the end of the day, the customer should have exchanged something of value (eg $1). This would have required the store clerk to keep the bag until the end of the day.

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Managing the Law, 6e (McInnes) Chapter 08: Consideration and Privity True/False Questions 1. A gratuitous promise is generally not enforceable. a True b False Difficulty: 2 QuestionID: 08-1-01 Topic: Consideration Skill: Recall Answer: a. True 2. Alpha Corp entered into an agreement with Beta Inc. Alpha promised to transfer certain equipment to Beta and Beta promised to pay $50 000 to Gamma Ltd. Alpha has provided sufficient consideration but Beta has not. a True b False Difficulty: 2 QuestionID: 08-1-02 Topic: Sufficient and Adequate Consideration Skill: Applied Answer: b. False 3. Epsilon Inc and Delta Ltd entered into an agreement. Epsilon promised to pay $10 000 to Delta in March. Delta promised to deliver a piece of machinery to Epsilon in June. Epsilon paid the money in March. It is now April. The parties do not yet have a contract because while Delta has given a promise, it has not yet performed that promise. a True b False Difficulty: 2 QuestionID: 08-1-03 Topic: Consideration Skill: Applied Answer: b. False 4. Dina threatened to sue Chris for $25,000 unless he immediately paid her $10,000. Chris paid $10,000. He will be entitled to recover that money as long as he later proves that Dina honestly and mistakenly thought she had the right to sue Chris for $25,000. 1 © 2023 Pearson Canada Inc.

a True b False Difficulty: 2 QuestionID: 08-1-04 Topic: Forbearance to Sue Skill: Applied Answer: b. False 5. Luke threatened to sue Leia for $50,000 unless she immediately paid $30,000 to him. Leia paid $30,000 as requested. Luke is entitled to keep that money even if Leia later proves that he never honestly believed in the validity of the lawsuit that he threatened. a True b False Difficulty: 2 QuestionID: 08-1-05 Topic: Forbearance Skill: Applied Answer: b. False 6. In late May, Lovin was excited about his upcoming graduation ceremonies. Because he wanted to look his best, he visited a tailor and agreed to pay $500 for a new suit. The contract required Lovin to pay the full price on June 1 and entitled him to collect the finished product on June 10. As promised, Lovin paid the full amount on the first of June. At that point, it can be said that he gave "past consideration" in support of the contract. a True b False Difficulty: 1 QuestionID: 08-1-06 Topic: Past Consideration Skill: Applied Answer: b. False 7. Tracey is a police officer. While she was on vacation, she agreed to act as a security guard at a concert in exchange for payment of $500. She performed the work, but the concert promoter refuses to pay her. He is entitled to do so because the law wants to discourage public servants like Tracey from improperly taking advantage of their special skills for private gains. a True b False Difficulty: 2 2 © 2023 Pearson Canada Inc.

QuestionID: 08-1-07 Topic: Pre-Existing Obligation Skill: Applied Answer: b. False 8. Canadian courts consistently hold that a promise to perform a pre-existing contractual obligation cannot provide consideration under a new contract with the same party. They apply that rule because it always reflects commercial reality. a True b False Difficulty: 2 QuestionID: 08-1-08 Topic: Pre-Existing Obligation Skill: Recall Answer: b. False 9. Zeta Corp was contractually obliged to pay $25,000 cash to Omega Inc on June 15. On June 1st, Omega agreed to discharge the entire debt if Zeta immediately gave a cheque worth $15,000. Zeta did so. Nevertheless, on June 15th, Omega demanded payment of another $10,000. It is entitled to receive that amount. a True b False Difficulty: 2 QuestionID: 08-1-09 Topic: Promise to Forgive an Existing Debt Skill: Applied Answer: b. False 10. The Canadian government announced its plan to create and circulate a new $100 bill. Because Marta knew that Bernie was an avid collector of currency, she promised to give him the first new $100 bill that she received from her work at a flea market. The agreement was placed in writing and Bernie applied his seal to the document. Shortly after the government released the new $100 bills, Marta received one from a customer at the flea market. She is required to deliver it to Bernie. a True b False Difficulty: 3 QuestionID: 08-1-10 Topic: Seals Skill: Applied

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Answer: b. False 11. Hofflehass Architectural Ltd was hoping to persuade the Town of Buchanan to create a new beachfront resort. Buchanan said that it was not yet willing to commit itself to such a project. However, it also said that it would likely agree to any proposal that met certain specifications. On that basis, Hofflehass spent $150,000 in creating a proposal that met all of the town's specifications. It presented the proposal and further explained that it would charge $2 million to actually undertake the construction project. The town's officials, however, said that they were no longer interested in a beachfront resort. Although Hofflehass cannot force Buchanan to pay it $2 million to create the proposed resort, it can use the doctrine of promissory estoppel to recover its expenses of $150 000. a True b False Difficulty: 3 QuestionID: 08-1-11 Topic: Promissory Estoppel Skill: Applied Answer: b. False 12. The doctrine of promissory estoppel operates only if the representor promised that an existing right would not be strictly enforced. a True b False Difficulty: 2 QuestionID: 08-1-12 Topic: Promissory Estoppel Skill: Recall Answer: a. True 13. A statutory assignment is "subject to the equities." That means that even if the requirements for a statutory assignment have been satisfied, it will be enforced only if a court believes that, in light of all of the circumstances, it would be fairer for the assignee, rather than the debtor, to win the case. a True b False Difficulty: 2 QuestionID: 08-1-13 Topic: Taking an Assignment Subject to the Equities Skill: Recall Answer: b. False 14. Gareth recently graduated with the highest GPA of any student in Business. He has been hired by a 4 © 2023 Pearson Canada Inc.

prestigious bank in London, but that job will not start for three months. To fill the time and to make a little extra money, Gareth posted an advertisement around campus: "Top Flight Tutorials–Learn from the Best–$100 Per Hour–Minimum of Ten Sessions." Reva is a struggling student in the first year of the Business program. Desperate to improve her grades, she signed a contract with Gareth and paid $1,000 for ten tutorials. That agreement, which Gareth personally drafted, expressly states: "This agreement is subject to the usual rules regarding assignments." After the first tutorial, Reva was delighted with Gareth's services. She found him extraordinarily arrogant, but also very smart. For the second tutorial, however, she was surprised when Evan, a mediocre second-year student, showed up instead of Gareth. As Evan explained, Gareth decided that he wanted to travel, rather than deliver tutorials, in the time before his bank job started. Gareth therefore assigned his role under the contract to Evan. Reva has no basis for complaint because she expressly agreed to abide by the general law of assignments. a True b False Difficulty: 2 QuestionID: 08-1-14 Topic: Vicarious Performance Skill: Applied Answer: b. False 15. As a wedding anniversary present for himself and his wife, Louisa, Mario entered into an agreement with Stanislaus, a world famous pianist. Under the terms of that agreement, Mario promised to pay Stanislaus $52,000. Stanislaus promised that he would provide weekly lessons for one year for both Mario and Louisa. After two weeks of lessons, Mario completely lost interest, but Louisa is eager to continue. Stanislaus, however, refuses to go on. Louisa has the right to demand the remainder of the lessons from Stanislaus because the courts generally assume that if one party (such as Mario) enters into a contract for the benefit of another person (such as Louisa), the promise provided by the other contractual party (such as Stanislaus) is held on trust. a True b False Difficulty: 2 QuestionID: 08-1-15 Topic: Trusts Skill: Applied Answer: b. False 16. Consideration must be sufficient, but it does not have to be adequate. a True b False Difficulty: 1 QuestionID: 08-1-16 Topic: Sufficient and Adequate Consideration 5 © 2023 Pearson Canada Inc.

Skill: Recall Answer: a. True 17. Mark was an independent contractor hired to construct a pavilion at Emily's home. Although the work was what was agreed, Emily was dissatisfied with the work. She threatens legal proceedings. If Mark agrees to pay Emily not to sue him in these circumstances, the agreement will be invalid. a True b False Difficulty: 2 QuestionID: 08-1-17 Topic: Forbearance to Sue Skill: Applied Answer: b. False 18. A contract made under seal can be binding in the absence of consideration. a True b False Difficulty: 2 QuestionID: 08-1-18 Topic: Pre-existing Obligation Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following statements is TRUE? A) Consideration must be adequate but it does not have to be sufficient. B) A person can provide consideration by making a promise that will either create a benefit for itself or impose a detriment upon the other party. C) A party seeking to receive the benefit of a promise does not have to provide consideration if it placed its seal upon a document in which the promise is contained. D) Love and affection can serve as consideration if a contract is created between family members. E) To place a contract under seal, a person may either apply a seal or write the word "seal" on a document. Difficulty: 3 QuestionID: 08-2-01 Topic: Seals Skill: Recall Answer: E) To place a contract under seal, a person may either apply a seal or write the word "seal" on a document. 6 © 2023 Pearson Canada Inc.

2. A gratuitous promise A) occurs when one party promises to provide two benefits in exchange for the receipt of one benefit. B) is usually enforceable even though it is not given in exchange for consideration. C) is not enforceable even if it is placed under seal. D) is enforceable as long as it is supported by love and affection. E) is a promise that is not given in exchange for consideration. Difficulty: 2 QuestionID: 08-2-02 Topic: Consideration Skill: Recall Answer: E) is a promise that is not given in exchange for consideration. 3. Patricia and Charlie entered into a written agreement. Patricia promised to pay $5000 to Haden, who is Charlie's brother. Charlie placed his seal on the document, but Patricia did not do so. Three days later, Charlie promised that he would design a new computer program for Bethany, Patricia's sister, in exchange for Patricia's promise. Which of the following statements is the most accurate? A) Patricia's promise is not enforceable because each party to a contract must provide a benefit to the other party of that contract. B) Patricia's promise is enforceable because Charlie placed his seal on his agreement with her. C) Charlie's promise is enforceable because it was given in exchange for Patricia's promise to pay $5,000. D) Patricia's promise is not enforceable because it was not given in exchange for consideration. E) Patricia must pay $5,000 to Haden if Charlie actually does design a new computer program for Bethany. Difficulty: 3 QuestionID: 08-2-03 Topic: Seals Skill: Applied Answer: D) Patricia's promise is not enforceable because it was not given in exchange for consideration. 4. Because he was in love with her, Noriel promised to sell his car to Marina for $500 and Marina agreed to pay $500 for the car. At the time of that agreement, Marina stressed that the deal was purely commercial and made it clear that she did not share Noriel's hopes for an intimate relationship. Before the sale was performed, Noriel fell in love with another woman, Valerie. He therefore now refuses to transfer the car to Marina. The actual market value of the car is $7,500. Which of the following statements is TRUE? A) Marina cannot enforce Noriel's promise because her promise did not provide adequate consideration. B) Marina cannot enforce Noriel's promise to transfer the car because that promise was only supported by past consideration in the sense that it was based on the fact that Noriel was previously in love with Marina. C) Marina cannot enforce Noriel's promise because love and affection are not good consideration. D) Marina can enforce Noriel's promise to transfer the car, but only if she pays the actual market value of the car. 7 © 2023 Pearson Canada Inc.

E) Noriel and Marina exchanged consideration even though he has not transferred the car to her and she has not paid the money to him as they exchanged mutual promises. Difficulty: 3 QuestionID: 08-2-04 Topic: Past Consideration Skill: Applied Answer: E) Noriel and Marina exchanged consideration even though he has not transferred the car to her and she has not paid the money to him as they exchanged mutual promises. 5. In exchange for Miles's promise to pay $10,000 to the Society for Prevention of Cruelty to Animals, Fran promised to give up eating meat for one year. Which of the following statements is TRUE? A) Fran's promise is gratuitous because Miles does not receive anything of value from her. B) Fran has not given consideration because she has only suffered a detriment. C) Because neither party will receive a direct benefit, a contract was created only if the parties' agreement was placed under seal. D) The facts demonstrate a mutual exchange of value. E) The facts demonstrate the doctrine of promissory estoppel. Difficulty: 2 QuestionID: 08-2-05 Topic: Consideration Skill: Applied Answer: D) The facts demonstrate a mutual exchange of value. 6. Which of the following statements is TRUE? A) The courts generally do not require adequate consideration because they believe that each person can look after their own interests by deciding how much to demand under a contract. B) Promissory estoppel can be used as a sword but not as a shield. C) Consideration is unnecessary as long as the word "seal" was printed on a form that a contractual party read. D) Because of the significance of the privity of contract doctrine, exceptions can only be created by the legislature, and not by the courts. E) Consideration can never consist of a promise to perform a pre-existing obligation. Difficulty: 2 QuestionID: 08-2-06 Topic: Sufficient and Adequate Consideration Skill: Recall Answer: A) The courts generally do not require adequate consideration because they believe that each person can look after their own interests by deciding how much to demand under a contract. 7. Mohana promised Ian that she would pay $10,000 to him on his birthday. Ian gave nothing in exchange 8 © 2023 Pearson Canada Inc.

for that promise and neither party placed a seal on the document containing Mohana's promise. Ian demanded payment on his birthday. Mohana refused, primarily on the basis that she had recently become quite annoyed with him. Ian then threatened to start a lawsuit. He also offered to settle that lawsuit in exchange for payment of $7,500. Mohana accepted that offer in an attempt to avoid paying the full $10,000. Several weeks after paying $7,500, however, she learned that her initial promise was not actually legally enforceable. She also learned that Ian, who was a lawyer, was aware of that fact all along and made the threat knowing that there was no meritorious lawsuit which he could bring against Mohana. Which of the following statements is the most accurate? A) Mohana cannot recover $7,500 from Ian because she paid that money in exchange for his forbearance to sue. B) Mohana can recover her $7,500 because Ian did not give consideration in exchange for her initial promise to pay $10,000. C) Mohana can recover $7,500 from Ian because his threat to sue her for payment of $10,000 was not made honestly. D) Mohana would have been required to pay $10,000 to Ian if he had placed his seal on the document that contained her promise. E) Mohana can recover only the difference between the sum that she paid ($7,500) and the sum that she originally promised to pay ($10,000). Difficulty: 3 QuestionID: 08-2-07 Topic: Forbearance to Sue Skill: Applied Answer: C) Mohana can recover $7,500 from Ian because his threat to sue her for payment of $10,000 was not made honestly. 8. Fred owed a debt of $10,000 to Regina. Because he had lost his job and was experiencing financial difficulties, he hoped that she would take pity on him and would not insist upon payment. Fred therefore said to Tyra, who was Regina's colleague, "If you can get her to drop the matter, I'll make it worth your while." Tyra felt sorry for Fred and said that she would do her best. A week later, she called Fred and explained that Regina had agreed under seal to forgive the $10 000 debt. Fred replied by saying, "Many thanks. Come by my house and I'll pay you $500 for your effort." Which of the following statements is most likely to be TRUE? A) Although Regina is no longer entitled to receive $10,000 from Fred, she can still recover a reasonable amount from him. B) Regina can still recover $10,000 from Fred because he did not use his own seal. C) Tyra would not be entitled to any payment from Fred if he did not state the specific amount of $500. D) The agreement between Tyra and Fred is enforceable because Fred's promise to pay $500 is past consideration. E) Regina cannot sue under the agreement that was created between Tyra and Fred as she was not privy to that agreement. Difficulty: 3 QuestionID: 08-2-08 Topic: Privity of Contract 9 © 2023 Pearson Canada Inc.

Skill: Applied Answer: E) Regina cannot sue under the agreement that was created between Tyra and Fred as she was not privy to that agreement. 9. Which of the following situations best illustrates the rule that a promise to perform a pre-existing public duty does not constitute consideration? A) Pam has threatened to sue Dave for $10,000. She is quite sure that she would win the case in a public court. However, because she is very fond of him, she has also generously offered to settle the matter for $6,000. B) Pam, who is a fire fighter employed by the city, agreed to extinguish a fire that was destroying Dave's house, which is located in the city, only after he promised to pay $10,000 to her in exchange for her services. C) Pam placed an advertisement in a newspaper that promised to pay $10,000 to anyone who returned her lost cat to her. D) In exchange for his promise to pay $5, Pam promised Dave that she would guard a parking lot in which his car was located during a sporting event. Several minutes later, she promised Earl, who had also parked there, that she would guard the same parking lot during the same sporting event if he promised to pay her $7. E) Pam asked Dave, who is a real estate agent, to locate a house in which she could operate a small accounting business. After he directed her attention to such a house, she promised to pay $10 000 to him. Difficulty: 2 QuestionID: 08-2-09 Topic: Pre-Existing Public Duty Skill: Applied Answer: B) Pam, who is a fire fighter employed by the city, agreed to extinguish a fire that was destroying Dave's house, which is located in the city, only after he promised to pay $10,000 to her in exchange for her services. 10. Parker Inc promised to pay $100,000 cash to Coltrane Ltd in exchange for a shipment of widgets. The widgets were delivered on October 1st and the price was to be paid on October 15. On October 13, Parker informed Coltrane that it would not be able to afford to pay any more than $75,000. Which of the following statements is TRUE? A) Coltrane will be able to recover the full contract price even if it promises under seal to accept $75,000 in complete satisfaction of Parker's debt. B) Coltrane will not be able to recover the full contract price if it agrees to accept $75,000 from Parker to be paid on October 14 in complete satisfaction of the $100,000 debt, that was to be paid on October 15. C) If the parties are located in Alberta, Ontario, British Columbia, Manitoba, the Northwest Territories, Nunavut, Saskatchewan, or the Yukon, Coltrane will be able to recover the full contract price even if it has accepted Parker's offer to pay $75,000 in complete satisfaction of the $100 000 debt. D) Coltrane will be able to recover the full contract price even if it accepts Parker's offer to satisfy the $100,000 debt by both paying $75,000 in cash and delivering a used truck to Rollins Corp, which is another company with which Coltrane has close ties. 10 © 2023 Pearson Canada Inc.

E) There is no mutuality of consideration, and therefore the contract is invalid, because Coltrane actually delivered the widgets before Parker was required to pay the purchase price. Difficulty: 3 QuestionID: 08-2-10 Topic: Promise to Forgive an Existing Debt Skill: Applied Answer: B) Coltrane will not be able to recover the full contract price if it agrees to accept $75,000 from Parker to be paid on October 14 in complete satisfaction of the $100,000 debt, that was to be paid on October 15. 11. Sarah was an orphan. Her uncle Rocco agreed to act as her guardian until she became an adult. In that role, he borrowed money to pay for her education. She promised to repay him when she became an adult. Sarah later became an adult and married Stepan. Stepan also promised to repay Rocco for the money that he had spent on Sarah's education. Sarah and Stepan, however, now refuse to pay the money. Rocco has sued Stepan on his promise. Which of the following statements is most likely TRUE? A) Sarah and Stepan and jointly and severally liable to Rocco. B) Stepan has privity to the contract that was created between Sarah and Rocco. C) Stepan is liable to Rocco. D) Sarah became liable to Rocco only after Stepan made his promise to Rocco. E) Stepan's promise to Rocco involves the concept of past consideration and is unenforceable. Difficulty: 3 QuestionID: 08-2-11 Topic: Past Consideration Skill: Applied Answer: E) Stepan's promise to Rocco involves the concept of past consideration and is unenforceable. 12. Maria went on vacation in May. She expected that her garden would be fine because May is normally a very rainy month. In fact, it did not rain at all during May. Her neighbour, Hector, therefore watered her garden because he knew that she would not want her plants to die. When she returned from her vacation in early June, she thanked Hector and promised to pay him $200 for his time and effort. Which of the following statements is most likely to be TRUE? A) Hector is not entitled to payment because his services were not given in return for Maria's promise. B) Maria is contractually liable, but if the market value of her services is less than $200, then Hector is entitled to collect only the lesser amount. C) The concept of past consideration does not apply because Hector never gave any sort of promise. D) Maria's promise would be unenforceable even if it was placed under seal. E) Maria is contractually liable as long as a reasonable person in her circumstances would have agreed to pay for Hector's services. Difficulty: 2 QuestionID: 08-2-12 Topic: Past Consideration Skill: Applied 11 © 2023 Pearson Canada Inc.

Answer: A) Hector is not entitled to payment because his services were not given in return for Maria's promise. 13. Which of the following situations involves the creation of a contractually enforceable promise? A) Suneeta promised to pay $5,000 to a firefighter who responded to a routine call to extinguish a fire at her house. B) Suneeta promised to pay $500 to her father for a birthday present that she had received from her parents two weeks earlier. C) Suneeta had a contract with a construction company to build a deck in her backyard. Halfway through the project, the cost of materials suddenly increased. Although the original agreement did not require her to do so, Suneeta agreed to pay an additional $2,000 to the construction company to off-set the additional expenses that it would encounter in the remainder of the project. D) Suneeta borrowed money from a bank. Under the terms of that agreement, she was required to pay the bank $10,000 cash on June 1. On May 28, she explained to the bank that she would not be able to pay the full amount on schedule. On the same day, she also persuaded the bank to accept a cheque for $7,500 in satisfaction of the full debt. E) Suneeta's brother, Arvid, had long promised that he would pay $10,000 to her when she turned 21. She was always skeptical, but a few weeks before her 21st birthday, she wanted to be sure that he would honour his promise. Suneeta therefore persuaded Arvid to write his promise on a piece of paper, and then she added her signature and seal to that document. Difficulty: 3 QuestionID: 08-2-13 Topic: Promise to Forgive an Existing Debt Skill: Applied Answer: D) Suneeta borrowed money from a bank. Under the terms of that agreement, she was required to pay the bank $10,000 cash on June 1. On May 28, she explained to the bank that she would not be able to pay the full amount on schedule. On the same day, she also persuaded the bank to accept a cheque for $7,500 in satisfaction of the full debt. 14. Which of the following best explains why a court will not enforce an agreement that was created on the basis of a pre-existing public duty? A) The performance of a public duty does not confer a benefit upon anyone. B) As a matter of public policy, it would be undesirable if a public official with a pre-existing public duty was motivated to perform for wealthy citizens but not poor citizens. C) Because public duties usually concern very serious matters, such as police investigations and firefighting, there is nothing that a citizen could give that would provide adequate consideration for a promise to perform a pre-existing public duty. D) Citizens should not have to pay for services that public officials, like police officers and firefighters, perform while they are off-duty. E) A promise by a public official is binding only if it is placed under seal. Difficulty: 3 QuestionID: 08-2-14 Topic: Pre-Existing Public Duty 12 © 2023 Pearson Canada Inc.

Skill: Recall Answer: B) As a matter of public policy, it would be undesirable if a public official with a pre-existing public duty was motivated to perform for wealthy citizens but not poor citizens. 15. Rande promised to provide a series of lectures on tort law to a group of professional athletes in exchange for payment of $10,000. Shortly before the lectures were scheduled to take place, Rande promised to provide a publishing company with a recorded set of lectures on tort law in exchange for $15,000. The publishing company agreed that Rande's planned lecture for the group of professional athletes would be the subject of the recording. Which of the following statements is TRUE? A) Rande does not have a contract with the publishing company because a pre-existing contractual obligation cannot be re-used for the purpose of supporting a new contract. B) If Rande fails to provide the lecture as promised, he may be held liable for breach of contract to both the group of professional athletes and the publishing company. C) Rande does not have a contract with the group of professional athletes because he re-used his promise to provide a lecture in order to support his contract with the publishing company. D) Rande's promise to the publishing company would be enforceable only if it was made under seal. E) Although Rande has contracts with both the group of professional athletes and the publishing company, he can only demand payment from one of them. Difficulty: 3 QuestionID: 08-2-15 Topic: Pre-Existing Obligation Owed to a Third Party Skill: Applied Answer: B) If Rande fails to provide the lecture as promised, he may be held liable for breach of contract to both the group of professional athletes and the publishing company. 16. Which of the following statements is TRUE? A) As a general rule, a promise to perform a pre-existing public duty can provide consideration for a new contract. B) As a general rule, a promise to perform a pre-existing contractual duty to one party cannot provide consideration for a new contract with a different party. C) As a general rule, a promise to perform a pre-existing contractual duty to one party can provide the consideration for a new contract with that same party for a lesser contractual duty. D) As a general rule, a creditor's promise to accept a lesser sum in complete discharge of a larger debt is unenforceable. E) As a general rule, a promise that is not supported by valuable consideration is enforceable only if both parties have applied their ceremonial wax seals. Difficulty: 2 QuestionID: 08-2-16 Topic: Promise to Forgive an Existing Debt Skill: Recall Answer: D) As a general rule, a creditor's promise to accept a lesser sum in complete discharge of a larger debt 13 © 2023 Pearson Canada Inc.

is unenforceable. 17. Which of the following propositions is TRUE in the context of the doctrine of promissory estoppel? A) The representee cannot rely on the representor's gratuitous promise if the representor was guilty of inequitable behaviour. B) Once legal rights are affected by the doctrine of promissory estoppel, they can never be revived. C) Promissory estoppel can only be based on representations of existing or past facts. D) Promissory estoppel can be used as a sword but not as a shield. E) The doctrine of promissory estoppel is relevant if the representor already has existing rights that can be enforced against the representee. Difficulty: 2 QuestionID: 08-2-17 Topic: Promissory Estoppel Skill: Recall Answer: E) The doctrine of promissory estoppel is relevant if the representor already has existing rights that can be enforced against the representee. 18. JB Inc sold a piece of equipment to SubSurf Ltd for a total price of $240,000. Under the terms of their contract, SubSurf was required to pay $10,000 on the first day of each month for 24 months. The contract also stated that if SubSurf was late on any single payment, JB was entitled to demand immediate payment of the entire outstanding amount. SubSurf made the first four payments on time. For the next six months, however, it was habitually late by at least one week. JB did not object to receiving those late payments. However, when SubSurf did not pay the eighth instalment on the first day of the next month, JB demanded immediate payment of the entire outstanding amount. Which of the following statements is TRUE? A) SubSurf must immediately make a lump sum payment of $240,000 to JB. B) The parties' contract is invalid because SubSurf's promise to immediately pay the entire outstanding amount if it failed to perfectly comply with the repayment schedule was a gratuitous promise. C) The doctrine of promissory estoppel is inapplicable because JB did not make an effective representation or statement. D) The doctrine of promissory estoppel is inapplicable because it can only be used as a sword. E) JB is estopped from complaining about the late payments as long as SubSurf can prove that it relied upon the fact that the first 10 payments were accepted without objection. Difficulty: 2 QuestionID: 08-2-18 Topic: Promissory Estoppel Skill: Applied Answer: C) The doctrine of promissory estoppel is inapplicable because JB did not make an effective representation or statement. 19. Mason renovated Reece's shop in exchange for the promise of $75,000. Reece had enough money to pay the entire bill, but simply did not want to do so. Reece much preferred to cheat Mason out of the 14 © 2023 Pearson Canada Inc.

contract price it had agreed to pay. That possibility existed because Reece knew that Mason's financial situation was very weak. In fact, Mason it might be forced into bankruptcy if it did not receive at least $25,000 for its work. Reece therefore offered to pay $25,000 in full satisfaction of the outstanding debt. Because of the circumstances, Mason accepted that offer and promised that it would not demand payment of the additional $50,000. Reece paid $25,000 to Mason. However, Mason has now sued Reece for $50,000. Which of the following statements is TRUE? A) Reece will win the lawsuit because all of Mason's work has become past consideration. B) Mason will win the lawsuit only if he provides some new benefit to Reece. C) Reece will win the lawsuit because the contract ceased to exist once Mason agreed to receive $25 000 in full satisfaction of the contractual debt. D) Reece cannot rely on the principle of promissory estoppel because his behaviour was inequitable. E) The doctrine of promissory estoppel is inapplicable because Mason's representation concerned a past fact (the value of the work that it performed for Reece). Difficulty: 3 QuestionID: 08-2-19 Topic: Promissory Estoppel Skill: Applied Answer: D) Reece cannot rely on the principle of promissory estoppel because his behaviour was inequitable. 20. Bruce and Rosie entered into an agreement. He promised to transfer a necklace to her mother and she promised to deliver a computer to his father. Which of the following statements is most likely to be TRUE? A) There is no contract between Rosie and Bruce because neither her mother nor his father is a party to the agreement. B) As long as Bruce's father relies upon the terms of the existing contract, and as long as he does not act inequitably, he can use the doctrine of promissory estoppel to compel Rosie to transfer the computer to him. C) As long as Bruce transfers the necklace to Rosie's mother, Bruce's father can demand delivery of the computer from Rosie. D) There is no contract between Bruce and Rosie because there was no mutuality of consideration. E) Even if neither Bruce nor Rosie has yet performed, a valid contract exists on the basis of their mutual exchange of promises to perform. Difficulty: 3 QuestionID: 08-2-20 Topic: Past Consideration Skill: Applied Answer: E) Even if neither Bruce nor Rosie has yet performed, a valid contract exists on the basis of their mutual exchange of promises to perform. 21. Dunlop sold tires to Mew. The parties' contract prohibited Mew from reselling the tires unless its subbuyer agreed to abide by Dunlop's list price for the tires. Mew resold the tires to Selfridge. Under its contract with Mew, Selfridge agreed to (1) abide by Dunlop's list price, and (2) pay $50 to Dunlop for 15 © 2023 Pearson Canada Inc.

each tire that it sold in violation of that list price. Selfridge resold 10 of the tires to its own customers for less than Dunlop's list price. Which of the following statements is most likely to be TRUE? A) Selfridge is required to pay $500 to Dunlop only if Selfridge's contract with Mew is under seal. B) Selfridge is required to pay $500 to Mew. C) Selfridge is required to pay $500 to Dunlop. D) As a result of the contract between Mew and Selfridge, privity of contract exists between Dunlop and Selfridge. E) Dunlop is not entitled to any payment from Selfridge because Dunlop was not privy to the agreement between Selfridge and Mew. Difficulty: 3 QuestionID: 08-2-21 Topic: Privity of Contract Skill: Applied Answer: E) Dunlop is not entitled to any payment from Selfridge because Dunlop was not privy to the agreement between Selfridge and Mew. 22. Which of the following statements is TRUE? A) An assignee under an equitable assignment acquires its rights "subject to the equities," but an assignee under a statutory assignment does not. B) If the parties have tried, but failed, to create a statutory assignment, they cannot rely on an equitable assignment. C) An equitable assignment is valid only if it is unconditional and complete. D) An assignment of contractual rights sometimes is created by operation of law and without regard to the assignor's intention. E) The doctrine of vicarious performance is a type of assignment. Difficulty: 2 QuestionID: 08-2-22 Topic: Assignments by Operation of Law Skill: Recall Answer: D) An assignment of contractual rights sometimes is created by operation of law and without regard to the assignor's intention. 23. ABC Construction agreed to build a pool for Carmen in exchange for $100,000. The pool was to be built during the month of May, but payment was not due until the end of August. The pool was completed on schedule. However, because it was experiencing financial difficulties, ABC orally assigned its contractual rights against Carmen to Miranda in early June. In July, Carmen discovered that the pool leaked. Because ABC denied responsibility, Carmen had the problem fixed by another company at a cost of $20,000. The evidence now indicates that the problem was in fact caused by ABC's breach of contract. ABC failed to use appropriate materials when it constructed the pool. Which of the following statements is TRUE? A) The assignment may be statutory, but it cannot be equitable. B) The assignment may be equitable, but it cannot be statutory based on the existing state of the statute law. 16 © 2023 Pearson Canada Inc.

C) Miranda can collect $100,000 from Carmen regardless of when she received notice of the assignment. D) Miranda can collect $100,000 from Carmen only if it notified her of the assignment before the pool began to leak in July. E) Because of the assignment, Carmen can sue Miranda on the basis of ABC's breach of contract. Difficulty: 3 QuestionID: 08-2-23 Topic: Assignment Skill: Applied Answer: B) The assignment may be equitable, but it cannot be statutory based on the existing state of the statute law. 24. Bentley Inc operates a sporting goods store. In January, it purchased a shipment of baseball bats from Tadpole Manufacturing Ltd for $20,000. In February, Tadpole orally assigned its rights under that contract to J&H Collections. In May, Bentley purchased a shipment of footballs from Tadpole for $15,000 under a separate contract. Immediately after delivery, Bentley discovered that the footballs were defective. They had been improperly treated with a chemical that destroyed their leather exterior. The footballs consequently are completely worthless. Both contracts between Bentley and Tadpole required payment to be made by the end of June. Which of the following statements is TRUE? A) J&H can collect $20,000 from Bentley as long as it notified Bentley of its assignment before the end of June. B) Because the assignment is equitable, J&H can collect $20,000 from Bentley regardless of when it notified Bentley of the assignment. C) Because the assignment is statutory, J&H can sue Bentley without joining Tadpole as a party to that action. D) Even if Bentley paid for the baseball bats as soon as they were delivered (even though payment was not required until the end of June), it will have to pay the price a second time to J&H, if J&H provides written notice of the assignment before the end of June. E) The assignment may be equitable, but it cannot be statutory because it is not in writing. Difficulty: 3 QuestionID: 08-2-24 Topic: Assignment Skill: Applied Answer: E) The assignment may be equitable, but it cannot be statutory because it is not in writing. 25. Which of the following rules applies to an equitable assignment? A) The assignment must be written. B) The assignment must be placed under seal. C) The assignment must be unconditional. D) The assignment is valid only once the debtor is given written notice. E) The assignee takes the assignor's rights subject to the equities. Difficulty: 1 17 © 2023 Pearson Canada Inc.

QuestionID: 08-2-25 Topic: Equitable Assignments Skill: Recall Answer: E) The assignee takes the assignor's rights subject to the equities. 26. Which of the following statements is TRUE? A) As long as the required formalities are satisfied, any contractual obligation can be assigned by using either a statutory assignment or an equitable assignment. B) All common law provinces and territories allow statutory assignments, but only some of them allow equitable assignments. C) An assignee acquires rights against the debtor only if it provides new consideration to the debtor. D) If there are two assignees of the same debt, a court will always favour the assignee that received its assignment first. E) The parties to a contract may agree at the outset that the rights that arise under their agreement cannot be the subject of assignment. Difficulty: 2 QuestionID: 08-2-26 Topic: Assignment Skill: Recall Answer: E) The parties to a contract may agree at the outset that the rights that arise under their agreement cannot be the subject of assignment. 27. Carlos entered into a contract with Keisha. He promised to design a computer system for her business and she promised to pay $50,000 to his brother, Mikey. When that contract was created, Keisha agreed that Carlos would receive her promise on trust for Mikey. Which of the following statements is TRUE? A) Because of the trust, Mikey is entitled to enforce Keisha's promise even though he did not provide any consideration. B) Because Carlos and Keisha agreed to create a trust, their contract is valid even without consideration. C) Keisha is the trustee of a trust. D) The facts illustrate the concept of vicarious performance. E) Carlos is the beneficiary of a trust. Difficulty: 2 QuestionID: 08-2-27 Topic: Trusts Skill: Applied Answer: A) Because of the trust, Mikey is entitled to enforce Keisha's promise even though he did not provide any consideration. 28. The employment exception to the privity doctrine A) was created by statute. B) allows an employer to acquire rights in a contract that was created between a customer and an employee. 18 © 2023 Pearson Canada Inc.

C) may be applied in a case that involves vicarious performance. D) is usually necessary because the employer did not provide consideration to the customer. E) is a form of equitable assignment. Difficulty: 1 QuestionID: 08-2-28 Topic: Employment, Vicarious Performance Skill: Recall Answer: C) may be applied in a case that involves vicarious performance. 29. Sentinel Safety Inc entered into a contract with Glengarry Shopping Mall to provide security. The parties' contract contained a clause that said: "Neither Sentinel nor its employees or agents shall be held liable in an amount that exceeds $10,000 for any loss or damage that may be caused in the performance of this agreement." Elaine works as a security guard for Sentinel. As part of her job, she regularly patrols the Glengarry Shopping Mall. Which of the following statements is TRUE? A) Elaine could not be held liable for more than $10,000 if she caused property damage to Glengarry Shopping while shopping there on her day off. B) If Elaine negligently damaged Glengarry's property while she was working at the mall, she would be protected by the limitation clause, but only if she agreed to provide consideration to Glengarry. C) If Elaine carelessly damaged part of the mall's property while on patrol, she would be protected by a statutory exception to the privity of contract doctrine. D) Because of the decision in London Drugs Ltd v Kuhne & Nagel International Ltd, Elaine may be protected by the contractual clause even though she is not privy to that agreement. E) The facts involve the contractual concepts of privity of contract, promissory estoppel, and mutuality of consideration. Difficulty: 2 QuestionID: 08-2-29 Topic: Employment Skill: Applied Answer: D) Because of the decision in London Drugs Ltd v Kuhne & Nagel International Ltd, Elaine may be protected by the contractual clause even though she is not privy to that agreement. 30. The decision in London Drugs Ltd v Kuehne & Nagel International Ltd is the leading authority for which of the following propositions? A) A trust can be used to avoid the consequences of the privity of contract doctrine only if the parties actually intended to create a trust. B) Forbearance to sue may be sufficient consideration even if the underlying claim was not actually valid. C) In certain circumstances, an employee is entitled to enforce an exclusion clause that is contained in a contract that was created between an employer and a customer. D) A promise to perform a pre-existing contractual obligation that is owed to one party may provide consideration under a new contract with a different party. E) Sufficient consideration may consist of either a benefit provided to another person or a detriment to oneself. 19 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 08-2-30 Topic: Employment Skill: Recall Answer: C) In certain circumstances, an employee is entitled to enforce an exclusion clause that is contained in a contract that was created between an employer and a customer. 31. In which of the following situations is a statute most likely to provide an exception to the privity doctrine? A) employment B) income tax C) life insurance D) marriage E) divorce Difficulty: 2 QuestionID: 08-2-31 Topic: Privity of Contract, Statute Skill: Recall Answer: C) life insurance 32. The word "estop" means A) "to prove." B) "to deny." C) "to prevent." D) "to guess." E) "to promise." Difficulty: 1 QuestionID: 08-2-32 Topic: Promissory Estoppel Skill: Recall Answer: C) "to prevent." 33. The traditional doctrine of estoppel, rather than promissory estoppel, requires proof A) of either consideration or seals from both parties. B) of a statement regarding a past or present fact. C) of detrimental reliance by the representor. D) that one of the parties acted inequitably. E) of an intention to create a new contract. Difficulty: 3 20 © 2023 Pearson Canada Inc.

QuestionID: 08-2-33 Topic: Promissory Estoppel Skill: Recall Answer: B) of a statement regarding a past or present fact. 34. The contractual rule that requires an exchange of value A) is best explained through the doctrine of privity. B) generally requires proof that each party provided sufficient consideration, but it does not also require proof that each party provided adequate consideration. C) can be satisfied by the use of a seal because a seal is itself a form of valuable consideration. D) is based on the need for clear evidence of an agreement and therefore does not apply if the parties' agreement is written, rather than oral. E) cannot be satisfied by the provision of love and affection because that rule requires each party to provide a physical benefit, rather than services or actions. Difficulty: 1 QuestionID: 08-2-34 Topic: Sufficient and Adequate Consideration Skill: Recall Answer: B) generally requires proof that each party provided sufficient consideration, but it does not also require proof that each party provided adequate consideration. 35. Lewis is a wealthy entertainer. While watching a telethon that was aimed at raising money for medical research, he was overwhelmed by a sense of grief and sorrow. He consequently picked up the telephone, dialed the number on the screen, and promised to donate $5 million within one month. The volunteer on the other end of the line thanked Lewis and assured him that "the money will be put to good use." Two days later, before Lewis had sent in a cheque, the telethon organizers announced that, because of the public's overwhelmingly positive response, and in particular because of Lewis's generous promise, their organization would be able to build a research facility that they previously believed was beyond their budget. They also announced that they would name the facility the Jerry Medical Research Park, after Thomas Jerry, a local surgeon who recently had died. Lewis became very angry. He had long hated Jerry and he was horrified at the thought of paying for a building named in his enemy's honour. He therefore informed the telethon organizers that he had changed his mind and that he would not be sending any money. The telethon organizers have now sued for breach of contract. Which of the following statements is TRUE? A) Lewis is contractually obliged to honour his promise if the telethon organizers can prove that, in reliance upon his promise, they already have hired architects and contractors to build the new facility. B) Lewis is required to honour his promise as a result of the doctrine of promissory estoppel. C) There is no contract in this case because Lewis merely promised to pay, and did not actually pay any money, and therefore did not provide consideration. D) Lewis will be contractually obliged to honour his promise as long as the telethon organizers agree to drop Thomas Jerry's name from the new research park. E) Lewis is not required to pay because his promise was a gratuitous promise.

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Difficulty: 3 QuestionID: 08-2-35 Topic: Consideration Skill: Applied Answer: E) Lewis is not required to pay because his promise was a gratuitous promise. 36. As a result of her participation in a telemarketing scheme, Susan was charged with several counts of fraud. Because she knew that the courts had recently started to take a much harsher approach to such crimes, and because she already had been convicted for similar offences in the past, she was anxious to "beat the rap." She therefore called Anqwaan, her brother-in-law, who was also a lawyer, and begged for his help. Anqwaan initially hesitated. He already was very busy with his practice. Furthermore, although they were related, Anqwaan had met Susan only a few times and he did not know her well. He did, nevertheless, eventually agree to take on the case. As a result of his excellent services, Susan was acquitted on all charges. A few days after the trial ended, Anqwaan sent Susan a bill for his legal services: $15,000. As a family courtesy, Anqwaan had, in fact, charged Susan only half of his usual hourly rate. Susan nevertheless is very upset. As she correctly notes, she and Anqwaan had never discussed his fee and she had never actually promised to pay him anything. Which of the following statements is most likely to be TRUE? A) Because the parties never discussed Anqwaan's fee, they could not have created a contract. B) Even though neither party mentioned money before Susan was acquitted, a court will find that the parties impliedly created a contract at the outset because Anqwaan impliedly promised to act and Susan impliedly promised to pay on a quantum meruit basis. C) If Susan had promised to pay $15,000 immediately after the trial ended, and before Anqwaan raised the subject of his fee, Susan's promise necessarily would be seen by a judge as past consideration. D) There cannot be a contract on these facts because, given his relationship to Susan, Anqwaan already had a family obligation to act on her behalf. E) A court will find that the parties created a contract, but since neither party mentioned a price at the outset, Anqwaan is only entitled to receive the amount that Susan believes is reasonable in the circumstances. Difficulty: 2 QuestionID: 08-2-36 Topic: Past Consideration Skill: Applied Answer: B) Even though neither party mentioned money before Susan was acquitted, a court will find that the parties impliedly created a contract at the outset because Anqwaan impliedly promised to act and Susan impliedly promised to pay on a quantum meruit basis. 37. Laetitia agreed to provide certain services to Hans in exchange for a payment of $10,000. Although Laetitia fully performed her side of the agreement, Hans refuses to pay anything. He insists that Laetitia does not have a right to sue for breach of contract because, in performing the services, she was merely doing something that she had become obliged to do even before she entered into her agreement with Hans. Hans's position is correct if Laetitia's pre-existing obligation was A) some type of public duty. 22 © 2023 Pearson Canada Inc.

B) supported by a seal rather than by consideration. C) a private obligation owed to a third party. D) for some reason unenforceable. E) subject to a quantum meruit. Difficulty: 2 QuestionID: 08-2-37 Topic: Pre-Existing Public Duty Skill: Applied Answer: A) some type of public duty. 38. Frank entered into a contract with Paradise Equestrian Services (PES). The purpose of the contract was to allow Frank's child, Sonny, to learn to ride horses. The situation was somewhat complicated by the fact that while Frank lived in Prince Edward Island, Sonny was starting college in British Columbia, where PES was also located. In an attempt to make it easier for Sonny to take action on the contract, if any problems arose, Frank made sure that the agreement contained Paragraph 13, which says, "The promises that PES gives under this contract are given to Frank to hold for the benefit of Sonny." Which of the following statements is most likely to be TRUE? A) Paragraph 13 is null and void under the decision in Vandepitte v Preferred Accident Insurance Co. B) PES is a trustee under the contract. C) Frank is a beneficiary under the contract. D) Sonny is a trustee under the contract. E) Frank is a trustee under the contract. Difficulty: 2 QuestionID: 08-2-38 Topic: Trust Skill: Applied Answer: E) Frank is a trustee under the contract. 39. Cookie and Muhammad created a contract. Muhammad promised to pay $25,000 to Cookie; Cookie promised to install a modified engine in Muhammad's speedboat. Jane vicariously performed part of the contract. Which of the following statements is most likely to be TRUE? A) Jane almost certainly vicariously performed on behalf of Cookie. B) One of the parties undoubtedly breached the contract. C) Vicarious performance occurs only under an assignment. D) Vicarious performance will be recognized by a court of equity but not by a court of law. E) If Jane performed carelessly, and if the party that received Jane's services suffered a loss as a result, that party is entitled to sue Jane, but not the other contractual party. Difficulty: 3 QuestionID: 08-2-39 Topic: Vicarious Performance Skill: Applied 23 © 2023 Pearson Canada Inc.

Answer: A) Jane almost certainly vicariously performed on behalf of Cookie. 40. Sid and Nancy entered into a contract. Sid assigned part of that contract to Johnny. Which of the following statements is most likely to be TRUE? A) The contract required Nancy to perform services for Sid. B) Sid was able to assign part of the contract to Johnny even though Nancy strongly objected to Johnny being involved in the contract. C) As a result of a statutory assignment, Johnny is entitled to receive half of the money that Nancy owed to Sid under the contract. D) Johnny is now required to perform services for Nancy. E) If the contract required Susan to make payment to Sid, and she paid Sid before learning of the assignment, she will have to pay Johnny as well. Difficulty: 2 QuestionID: 08-2-40 Topic: Equitable Assignments Skill: Applied Answer: B) Sid was able to assign part of the contract to Johnny even though Nancy strongly objected to Johnny being involved in the contract. 41. Indira owed $5,000 to Patrice. On a different matter, Juan owed $5,000 to Indira. In an attempt to be clear of both situations, Indira equitably assigned her rights against Juan to Patrice. Which of the following statements is most likely to be TRUE? A) The assignment will not come into existence until Patrice notifies Juan. B) If Indira learns that she has a defence against Patrice, and if that defence arose from the same contract that required Indira to pay $5,000 to Patrice, then Juan is not required to pay anything to Patrice under the assignment. C) The assignment is invalid unless it is evidenced in writing. D) If Juan pays $5,000 to Indira after Patrice has notified Juan about the assignment, Juan will have to pay $5,000 to Patrice. E) For the purposes of the assignment, Patrice is the creditor, Juan is the debtor, and Indira is the assignor. Difficulty: 2 QuestionID: 08-2-41 Topic: Equitable Assignments Skill: Applied Answer: C) The assignment is invalid unless it is evidenced in writing. 42. Under a contract of carriage, Bravo Shipping promised to deliver Alpha Manufacturing's widget from Vancouver to Miami. That contract was subject to the Hague Rules and a Himalaya Clause. A stevedore hired by Bravo negligently damaged the widget during the journey. The damage is valued at $25,000. Which of the following statements is most likely to be TRUE? A) Alpha is not entitled to receive $25,000 from either Bravo or the stevedore. 24 © 2023 Pearson Canada Inc.

B) Although Bravo effectively enjoys the benefit of an exclusion clause, Alpha is entitled to receive $25,000 from the stevedore. C) Although Bravo is not liable, Alpha is entitled to receive $25,000 from Bravo's insurance company. D) As a result of the Hague Rules, Bravo and the stevedore are jointly and severally liable for Alpha's loss. E) Alpha is entitled to receive $25,000 from the stevedore unless Bravo assigns its rights to that stevedore. Difficulty: 2 QuestionID: 08-2-42 Topic: Himalaya Clause Skill: Applied Answer: A) Alpha is not entitled to receive $25,000 from either Bravo or the stevedore. 43. Which of the following statements is TRUE? A) A Himalaya Clause creates a true exception to the privity rule. B) The decision in Vandepitte v Preferred Accident Insurance Co creates a special exception to the privity rule for employees. C) The decision in London Drugs Ltd v Kuehne & Nagel International Ltd is the reason why assignments are "subject to the equities." D) A contractual right can be transferred from one person to another because that right is classified as a chose in action, which is a type of property. E) If a person who holds a contractual right dies, that right automatically is transferred to a "trustee for performance." Difficulty: 3 QuestionID: 08-2-43 Topic: Trusts Skill: Recall Answer: D) A contractual right can be transferred from one person to another because that right is classified as a chose in action, which is a type of property. 44. Which of the following statements is TRUE? A) Under the doctrine of consideration, a contract exists only if both parties receive some type of benefit. B) The "peppercorn theory" demonstrates that consideration must be sufficient, but it does not have to be adequate. C) The "peppercorn theory" demonstrates that consideration must be adequate, but it does not have to be sufficient. D) The decision in Gilbert Steel Ltd v University Construction Ltd stands for the proposition that a person cannot give good consideration for a new contract by promising to perform a pre-existing obligation that is owed to a third party. E) The phrase "quantum meruit" (which means "you get what you deserve") is used in a case of promissory estoppel to explain that equity will not provide assistance to a person who acted inequitably. Difficulty: 2 QuestionID: 08-2-44 25 © 2023 Pearson Canada Inc.

Topic: Sufficient and Adequate Consideration Skill: Recall Answer: B) The "peppercorn theory" demonstrates that consideration must be sufficient, but it does not have to be adequate. 45. Which of the following statements is TRUE? A) The doctrine of promissory estoppel can be used to create a new contract between parties who do not have any pre-existing relationship. B) The decision in London Drugs Ltd v Kuehne & Nagel International Ltd requires proof that the relevant contractual clause expressly refers to the employee. C) The decision in Central London Property Ltd v High Trees House Ltd created a new equitable doctrine that allows for the enforcement of some gratuitous promises. D) The decision in Pao On v Lau Yiu Long stands for the proposition that a contract may exist if a person gives an implied promise to pay when requesting the provision of goods or services. E) An equitable assignment is possibly only if the parties created a contract that is valid in equity, but not in law. Difficulty: 2 QuestionID: 08-2-45 Topic: Promissory Estoppel Skill: Recall Answer: C) The decision in Central London Property Ltd v High Trees House Ltd created a new equitable doctrine that allows for the enforcement of some gratuitous promises. 46. You see a gardener cutting your neighour's lawn and you ask him if he would be willing to cut your lawn also. After the gardener finishes your lawn, you promise to pay $200. Later you change your mind. Are you liable to pay? A) No, because the lawn cutting was past consideration B) No, because the contract was not in writing C) No, because you honestly believed it was a free trial. D) No, because the work was done before the promise was made E) Yes, because your original request included an implied promise to pay Difficulty: 3 QuestionID: 08-2-46 Topic: Past Consideration Skill: Applied Answer: E) Yes, because your original request included an implied promise to pay 47. Chloe had been renting her property to Landon for the past 5 years for $1,000 per month. When Landon lost his job due to the COVID-19 pandemic, Chloe agreed to rent the property at $500 per month as a gesture of kindness. After the pandemic was over Chloe brought an action to charge the original rent of $1,000. Will the court decide in her favour? 26 © 2023 Pearson Canada Inc.

A) No, because the rent was no consideration for the promise B) No, because the agreement should have been in writing C) No, because the agreement should have been under seal D) No, because of the doctrine of promissory estoppel E) Yes, because of past consideration Difficulty: 3 QuestionID: 08-2-47 Topic: Promissory Estoppel Skill: Applied Answer: D) No, because of the doctrine of promissory estoppel 48. Max purchased has purchased a life insurance policy naming his wife Maxine as beneficiary. When Max dies can Maxine enforce the policy? A) No, because of privity of contract B) No, because the agreement should have been in writing C) No, because she has not provided adequate consideration D) Yes, because of the doctrine of promissory estoppel E) Yes, because the privity rule does not apply to insurance contracts Difficulty: 3 QuestionID: 08-2-48 Topic: Privity of Contract Skill: Applied Answer: D) Yes, because of the doctrine of promissory estoppel Essay Questions 1. "The law of contract assumes that people are generally capable of looking after their own interests. An agreement therefore may be enforceable even if the parties do not exchange things of equal value." Discuss that statement. Illustrate your answer with three business law examples. Difficulty: 3 QuestionID: 08-3-01 Topic: Sufficient and Adequate Consideration, Pre-Existing Obligation, Promise to Forgive an Existing Debt, Seals, Promissory Estoppel Skill: Applied Answer: This question asks students, in a fairly open-ended manner, to reflect on the role of consideration and the nature of "bargains." An agreement is generally enforceable only if it is supported by consideration. The courts, however, only require consideration to be sufficient–it does not have to be adequate. As a result, a contract will normally be enforced even if one party gains a much greater benefit than the other. There are many illustrations of that proposition. First, forbearance to sue is sufficient consideration even if the 27 © 2023 Pearson Canada Inc.

underlying action was not valid. Consequently, a party may be bound by a payment (or a promise of payment) even though the action threatened by the other party was actually worthless. (The situation is different, however, if the other party knew that the claim was worthless.) In such circumstances, there generally is some benefit to the payor because that party is not put to the trouble and expense of court proceedings. However, that benefit is less valuable than the value of the payment (or promised payment). Second, sufficient consideration may consist of a promise to perform a pre-existing obligation that is owed to a different party. In a sense, the promisor is getting more than it is giving. On the basis of a promise to do one thing, it is able to bind two other parties to two other contracts. (At the same time, however, the promisor is, in a sense, giving up two things–it is accepting exposure to liability to two different parties under two different contracts.) Third, a promise to perform a pre-existing obligation to the same party generally is not sufficient consideration. Exceptions exist, however, if the promisor promises to do something slightly different–even if that slight difference does not have the same objective value as the promise that is received in exchange. For instance, as long as the creditor agrees to such an arrangement, a debtor can discharge an obligation to pay $100,000 by merely paying $50,000 one day early or by cheque rather than by cash or with an additional benefit (e.g. a computer worth $3,000). Many provinces also have legislation that allows a debt to be discharged upon the actual payment (and not just the promise of payment) of a lesser sum if the creditor agrees to such an arrangement. Fourth, a promise may be enforceable, without the support of any consideration at all, if it is placed under seal by the party making the promise. In that situation, the formalities associated with a seal draw the promisor's attention to the fact that it is likely giving up something without getting anything in return. The law assumes that a party that has gone through the requisite formalities is capable of looking after its own interests. Fifth, the doctrine of promissory estoppel may compel a party to give something to another party if certain conditions are met. Finally, consideration can consist of either a benefit (or a promise of a benefit) or a detriment (or a promise of a detriment). Furthermore, a benefit may be sufficient even if it is enjoyed by a third party. Consequently, one party may be bound to a promise even if it is not entitled to receive a benefit from the other. The other party may provide consideration simply by giving up something (such as smoking or drinking) or by conferring a benefit on a third party. 2. Explain the relationship between offer and acceptance on the one hand and consideration on the other. Your answer should focus on the concepts of cross offers and mutuality of consideration. Difficulty: 3 QuestionID: 08-3-02 Topic: Past Consideration Skill: Applied Answer: This question requires students to combine their knowledge of Chapter 7 and Chapter 8. As discussed in Chapter 7, a contract is created through the process of offer and acceptance. There must be a meeting of the minds in which one party offers to enter into a contract on certain terms and the other party agrees. 28 © 2023 Pearson Canada Inc.

Consequently, there is no contract in a case of cross offers––that is, in a case in which both parties offer to enter into an agreement on identical terms. Since neither party agreed to the other's proposal, there is no meeting of the minds. There were simply two minds that, coincidentally, were entertaining the same idea and made the same offer to each other at the same time. The notion of mutuality of consideration operates along similar lines. Consideration is effective only if it was provided in return for consideration from the other party. Consequently, past consideration is no consideration at all because it was not given in exchange for the other party's consideration. There is no mutuality, which is analogous to "the meeting of the minds." 3. Sebastien Johan is a music critic known for his ill-tempered manners. In a recent newspaper article, he harshly criticized a classical recording that was released shortly after the death of Glenn Klavier, its featured performer. Johan's review attacked Klavier's music, which was not unusual. However, the review also attacked Klavier personally. It unfairly and inaccurately suggested that Klavier had intentionally stolen all of his ideas from another pianist. Klavier's widow sued Johan under the tort of defamation on the basis that the review tended to make people think less of her late husband. She threatened to sue for $500,000 unless she immediately received payment of $100,000. Although Johan normally would have simply ignored the matter, he recently had experienced a number of financial setbacks. He therefore realized that while he would prefer to pay nothing, he could afford $100,000, but would be ruined if he was ever required to pay $500,000. He therefore promised to pay $100,000 within one year to Klavier's widow in exchange for her promise to drop the lawsuit. Six months later, however, Klavier's widow was reliably informed that her lawsuit certainly would have failed if it had been brought before a judge. The law of defamation states that a person cannot be held liable for making derogatory comments about a dead person. Johan therefore now refuses to fulfill his promise to pay $100,000. Is he entitled to do so? Explain your answer. Difficulty: 1 QuestionID: 08-3-03 Topic: Forbearance to Sue Skill: Applied Answer: Johan is required to pay $100,000 to Klavier's wife even though they both now realize that he could not possibly be liable under the tort of defamation. The parties entered into an enforceable settlement contract. He promised to pay her $100,000 and she promised to drop her lawsuit against him–ie she gave her forbearance to sue. It is irrelevant that the lawsuit was actually invalid. (It would be different, however, if Klavier's widow knew at the time that she threatened litigation that her claim was invalid.) The promise provided by Klavier's widow did not actually release Johan from any actual existing legal liability. Nevertheless, it did provide him with a benefit because it relieved him of the expense and effort of defeating a nuisance lawsuit. Moreover, the courts generally recognize forbearance to sue as sufficient consideration in order to encourage settlements and create finality to litigation. 4. "Depending upon the circumstances, a promise to pay a specific sum of money may or may not be enforceable if that promise is given in response to services that have already been received." Explain whether or not that statement is accurate.

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Difficulty: 2 QuestionID: 08-3-04 Topic: Past Consideration Skill: Applied Answer: This question requires students to draw a distinction between a promise that is simply given in response to rendered services on the one hand and a promise that provides evidence of an earlier agreement to pay on the other hand. The former is past consideration and therefore cannot support an enforceable contract. Past consideration lacks the element of mutuality. It is given in response to the services that have been rendered, but those services were not given in response to the promise to pay. And since a contract requires an exchange of value, the courts will not get involved. In contrast, the courts will enforce a promise of a specific sum that was given after services were rendered, but which also provides evidence of an earlier agreement to pay a reasonable price. In that situation, the consideration is not past consideration because it was given, at least implicitly, at the same time that the other party provided (or agreed to provide) the services in question. The subsequent promise therefore does not create the consideration–it merely specifies the value of that consideration. Consequently, there is mutuality of consideration. 5. Under the Electronic Home Business Administration Act, any citizen that pays a $50 fee is entitled to receive a licence to operate a certain type of business from home. Donna, who wished to operate such a business, sought information over the telephone from Duncan, a government official who was responsible for issuing licences under the legislation. Duncan agreed to provide a licence to Donna, but only if she promised to pay an additional fee of $25 to him directly. Although Duncan was not actually entitled to demand that extra sum, he honestly believed that he was acting within his rights. Because she was anxious to receive the licence, Donna promised to pay $75. However, she now regrets her decision to do so. How much must she pay Duncan in order to receive a licence? Explain your answer. Difficulty: 1 QuestionID: 08-3-05 Topic: Pre-Existing Public Duty Skill: Applied Answer: Donna only has to pay $50 for the licence. In effect, her promise to pay the additional amount was given in response to Duncan's promise to perform his pre-existing public duty. Donna therefore did not receive any consideration for her promise to pay $25 to him. Duncan gave nothing in exchange for that promise because he was already obliged to issue a licence to Donna in return for the flat fee of $50. Furthermore, as a matter of public policy, the courts would not recognize consideration moving from Duncan because they would want to discourage public officials from improperly demanding extra benefits for the performance of public obligations. 6. "A promise to perform a pre-existing contractual obligation cannot provide consideration for a new contract. That rule is based on the fact that it would be undesirable if party A could threaten to break an existing contract in order to get party B to enter into a second agreement at a higher price." Is that statement true: (1) if the existing contract was created between A and B, or (2) if the existing contract was created between A and C? In each instance, provide two reasons for your answer.

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Difficulty: 2 QuestionID: 08-3-06 Topic: Pre-Existing Obligation Skill: Applied Answer: The question is phrased in abstract terms to test the students' understanding of the underlying principles. The statement is true in situation (1) but not in situation (2). As a general rule, a promise to perform a pre-existing contractual obligation does not provide consideration for a new contract between the same parties. One reason is that, in such circumstances, B does not receive fresh consideration for its promise to provide a new benefit to A. That is true because A is merely repeating its earlier promise to act in a certain way. B already received that promise under the existing contract. Another reason is that the courts do not want to encourage A to threaten to break its original contract with B unless B provides some new benefit. In such circumstances, B may be especially vulnerable and easily coerced into creating a new contract for fear of losing the benefit of the existing contract. The same concerns do not arise, however, in situation (2). As a general rule, a promise to perform a pre-existing contractual obligation does provide consideration for a new contract between different parties. Even though A previously promised C that it would act in a certain way, B is receiving that promise from A for the first time. Consequently, from B's perspective, A does provide fresh consideration for the new contract. Furthermore, as a matter of public policy, there is far less need to worry that A might use a threat to break its contract with C in order to coerce a new contract out of B. Given the circumstances, B is not unusually vulnerable to such a threat. After all, B normally does not care whether or not A performs its agreement with C. 7. What is the essential purpose of a seal? Difficulty: 1 QuestionID: 08-3-07 Topic: Seals Skill: Recall Answer: As a general rule, a promise is enforceable only if it was given in exchange for consideration. In other words, a promise is normally effective only if it was purchased. The law of contracts is based on that commercial paradigm. And within that paradigm, the courts are not concerned with the adequacy of consideration–as long as there is sufficient consideration, the courts are willing to assume that each party was capable of protecting its own interests. A gratuitous promise (ie one that is not supported by consideration), of course, stands outside of that paradigm. Such a promise nevertheless is enforceable if the promisor placed it under seal. A seal is not consideration, but it provides a sufficient proxy for consideration. While they have been reduced in modern times, the formalities associated with a seal alert the promisor to the fact that it may be giving up something for nothing. A party is entitled to act in that way, but the courts insist upon the presence of a seal to ensure that the promisor appreciates that the promisee may acquire a benefit without paying for it. 8. Briefly describe the requirements that must exist before a promissory estoppel will arise. Difficulty: 1 31 © 2023 Pearson Canada Inc.

QuestionID: 08-3-08 Topic: Promissory Estoppel Skill: Recall Answer: The doctrine of promissory estoppel is generally premised upon four requirements. First, the representor must clearly state, to the representee, that it will not enforce its rights against the representee. Second, the representee must rely upon the representor's statement in such a way that it would be unfair to allow the representor to resile from its representation. (Often, however, the representor can revive its original rights with respect to the future by providing the representee with notice of its intention to do so.) Third, the representee must not be guilty of inequitable behaviour. And fourth, the representor's statement must be made within the context of an existing legal relationship. Promissory estoppel can vary or suspend existing rights, but it cannot create new rights. In other words, it can be used as shield but not as a sword. 9. Betta Corp, a manufacturer, sold widgets to Splendens Inc, a wholesaler. Under the terms of that agreement, Splendens was entitled to resell the widgets to a retailer, but only if its contract with the retailer (1) required the retailer to sell the widgets to its own customers at a list price established by Betta, and (2) required the retailer to pay $500 to Betta for every widget that it sold to a customer at a price that was below the list price established by Betta. Splendens in fact sold the widgets to Siamese Fish Ltd, a retailer. Siamese then sold ten of the widgets to its own customers for less than Betta's list price. Is Siamese required to pay $5,000 to either Betta or Splendens? Explain your answer. Difficulty: 2 QuestionID: 08-3-09 Topic: Privity of Contract Skill: Applied Answer: Although the answer may be contrary to normal commercial instincts, the general rules suggests that Siamese is likely not required to pay $5,000 to either Splendens or Betta. Splendens is not entitled to the money because it was not entitled to that money under the terms of its agreement with Siamese. Splendens merely used that contract to require Siamese to pay money to a third party beneficiary–ie Betta. Moreover, since Betta was not a party to that agreement, it probably is not entitled to receive the money from Siamese either. A party can normally sue on a contract only if it has privity of contract. 10. Paradise Publishing Inc entered into a contract with Carol Chambers, a successful author, for the writing of two novels. Under the terms of that agreement, Carol was entitled to payment of $50,000 six months after the submission of each novel. Carol submitted the first novel on the first day of January. As she found the first phase of the contract to be exhausting, she wanted to immediately take a vacation. She 32 © 2023 Pearson Canada Inc.

asked Paradise for payment of $50,000, but it pointed to the terms of their contract and denied her request. Carol purported to sell her contractual rights regarding the first novel to Nigel. Under that arrangement, Nigel immediately paid $35,000 to Carol in exchange for her right to receive $50,000 from Paradise on the first day of July. With the money that she received from Nigel, Carol took an extended vacation to Costa Rica. While relaxing on the beach, she met Jose, an aspiring author who explained that he was finding it difficult to break into the publishing world. Carol then proposed an arrangement under which he would pay $10,000 to her in exchange for the right to write her second contract for Paradise. Jose agreed. In the middle of May, Paradise learned about Carol's agreements with Nigel and Jose. It insists that both of those arrangements are invalid. Is it correct? Explain your answer. Difficulty: 2 QuestionID: 08-3-10 Topic: Vicarious Performance Skill: Applied Answer: Paradise is half right and half wrong. Unless its contract with Carol prohibited such an arrangement, she was entitled to assign her rights under that agreement. She therefore was entitled to immediately sell her right to receive $50,000 on July 1 to Nigel. The law generally allows an assignment of contractual rights because it should not matter to the debtor (Paradise) to whom it is obliged to pay. In contrast, as a general rule, contractual obligations cannot be assigned. An exception exists that allows for vicarious performance if an obligation is non-personal–ie if it does not matter who exactly performs it. That is usually true, for instance, when a contractor arranges for a sub-contractor to install plumbing in a new house. The homeowner does not care precisely who undertakes the various tasks associated with the project. Vicarious performance is not allowed, however, if the identity of the performing party is significant. That would be true in the present case. Paradise can legitimately object to receiving a novel written by Jose, rather than Carol. The publisher presumably contracted with Carol because it had a favourable impression of her abilities. Carol therefore cannot assign her obligation to write the second novel to Jose. 11. Koln Enterprises Ltd is a music publisher that manufactures compact discs. In January, it agreed to record a jazz concert for Jade Nagoya, a pianist, in exchange for payment of $25,000. The recording was to take place in April. Under the terms of that agreement, Jade would then be entitled to sell the CDs to her own customers for her own profit. As soon as that contract was created, Koln orally assigned its rights to Bremen Collection Inc. In February, Koln breached a separate contract that it had with Jade. As a result of that breach, it became indebted to her for $5000. It has not yet paid that amount to her. In March, Bremen notified Jade of the assignment that it had received from Koln. Koln recorded the concert in April and pressed it onto a set of CDs. When Jade received those discs, however, she noticed that while the sound quality was acceptable, the packaging did not satisfy the terms of her January agreement with Koln. As a result of the shoddy packaging, Jade lost $3,000 on the re-sale of the CDs to her own customers. How much money is Bremen entitled to collect from Jade? Explain your answer. Difficulty: 2 QuestionID: 08-3-11 Topic: Assignment 33 © 2023 Pearson Canada Inc.

Skill: Applied Answer: The assignment is presumably a valid equitable assignment. Contractual rights are generally assignable unless prohibited by the underlying agreement. There is no reason to believe that such a prohibition existed under the January agreement involving Koln and Jade. (The assignment must be an equitable assignment because it was oral, rather than written.) An assignment is generally "subject to the equities." That means that the debtor (Jade) may be able to assert against the assignee (Bremen) any defences or counterclaims that she could have asserted against the assignor (Koln). In this case, Koln assigned to Bremen the right to collect $25,000 from Jade. Jade, however, has two matters to plead by way of counterclaim to the assignment of the debt. First, as a result of Koln's breach of a different transaction, it owes her a debt of $5,000. Second, as a result of Koln's breach of the same transaction, it owes her a debt of $3,000. The debtor (Jade) is entitled to assert against the assignee (Bremen) any defence or counterclaim arising out of the same transaction that it has against the assignor (Koln) regardless of when the assignee provides notice. Consequently, regardless of when Bremen notified Jade of the assignment, she could reduce the amount payable to it by $3,000. The debtor (Jade) is entitled to assert against the assignee (Bremen) any defence or counterclaim arising out of the different transaction that it has against the assignor (Koln) only if that defence or counterclaim arose before receiving notice from the assignee. In this case, Jade's right to receive $5,000 from Koln under the different transaction arose in February. She only received notice of the assignment from Bremen, however, in March. Consequently, she can also reduce the amount payable to it by an additional $5,000. (Bremen clearly should have notified Jade of the assignment more promptly.) In the final analysis, Jade therefore must pay Bremen $17,000 ($25,000 − $3,000 − $5,000 = $17,000). 12. Dawn Sumi hosts a national call-in radio program. On a number of occasions, when the on-air discussion concerned computers and electronic devices, she spoke very favourably about the merchandise manufactured by Rabby Electronics Inc. As a result of those compliments, Rabby's business increased dramatically. Rabby was both delighted and surprised: delighted because it was making larger profits and surprised because it had never asked Sumi for the endorsements. As a gesture of thanks, the president of Rabby wrote to Sumi and promised to pay him $25,000 within six weeks. In reliance upon that promise, Sumi immediately entered into a contract with a builder to add a sun deck to her home at a cost of $25,000. Sumi never would have entered into that contract if she had not received Rabby's promise. A week later, however, the president of Rabby changed his mind and told Sumi that she would not be receiving the money after all. Is Rabby entitled to do so? Did a contract exist between the parties? If no contract existed between the parties, is Rabby nevertheless obliged to fulfill its promise? Explain your answer. Difficulty: 3 QuestionID: 08-3-12 Topic: Past Consideration, Promissory Estoppel Skill: Applied

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Answer: Sumi is not entitled to the money, or indeed any payment, from Rabby. First, there is no contract between the parties. Although Rabby promised to pay $25,000 to Sumi, her only consideration for that promise was past consideration. She previously had helped Rabby's business by speaking well of its products. And since her compliments were not given in exchange for Rabby's promise, there was no mutuality of consideration. Second, the doctrine of promissory estoppel does not apply. Admittedly, the first three requirements may appear to be met: Rabby made a representation, Sumi detrimentally relied upon that representation, and Sumi was not guilty of inequitable behaviour. However, in Canada, promissory estoppel can only be used as a shield and not as a sword. It can vary or suspend rights within an existing legal relationship, but it cannot create new rights. On the facts, there was no prior legal relationship between Sumi and Rabby. The doctrine therefore is inapplicable. 13. "A trust provides am exception to the privity of contract doctrine. The contract is enforced by the person to whom the contractual promise was intended to benefit." Explain the meaning of that statement and indicate whether or not it is true. Difficulty: 3 QuestionID: 08-3-13 Topic: Trusts Skill: Applied Answer: The privity of contract doctrine states that only a person who is a party to a contract can sue or be sued on it. A trust does not provide a true exception to that doctrine. In a trust situation, one contractual party gives a promise to another contractual party. The party that receives that promise, however, receives it as trustee on behalf of the third party, who is the beneficiary under the trust. Even though that beneficiary did not receive the contractual promise directly, it did receive the promise indirectly–ie through a contractual party that acted as a trustee. Consequently, in that indirect fashion, the beneficiary can enforce the promise but that enforcement occurs as a matter of the law of trusts, not contracts. 14. Identify and explain two situations in which legislation allows a stranger to sue on a contract that was made for its benefit. Difficulty: 2 QuestionID: 08-3-14 Topic: Statute Skill: Recall Answer: Two such situations were identified in the text. First, if the owner of an automobile purchases insurance, the insurance company is required (at least in some circumstances) to provide benefits with respect to accidents that occur without the owner's direct participation (eg when the car owner's daughter is involved in an accident while driving the vehicle with consent). Second, even though it is a stranger to the creation of the contract, the beneficiary under a life insurance policy can sue the insurance company for benefits. Those exceptions reflect practical reality. As a matter of social policy, it is desirable for automobile insurance to extend beyond the actual parties to the insurance contract. Accidents frequently occur without any participation 35 © 2023 Pearson Canada Inc.

by the vehicle's owner. Nevertheless, there is a need to provide compensation for losses. Likewise, the primary point of life insurance is to provide a benefit to a stranger after the insured party dies. It would be absurd if the insurer nevertheless could refuse to pay a benefit on the basis that the beneficiary is a stranger to the contract. 15. Identify the circumstances in which an employee can take advantage of an exclusion clause that is contained in a contract that was created between an employer and a customer. Difficulty: 1 QuestionID: 08-3-15 Topic: Employment Skill: Recall Answer: As a general rule, an employee cannot take advantage of a contract created between an employer and a customer. That is because the employee is not a party to that agreement. According to the test established by the Supreme Court of Canada in London Drugs Ltd v Kuehne & Nagel International Ltd, however, an employee is protected by an exclusion clause that is contained in such an agreement if two conditions are met. First, it must have been clear to the parties to the contract at the time of contract formation that the employees would perform work under the contract. Second, the employees must have been acting in the course of their employment when the accident occurred. This exception to the privity doctrine is based in part on practical considerations. In the typical situation, the employees are in need of protection since they will actually be performing the work in question. Moreover, the contractual parties normally expect that the exclusion clause will protect the employees therefore, as a matter of law, the court is enforcing the reasonable expectations of the parties to the contract. Finally, the presence of an exclusion clause signals to the customer the need to arrange insurance against losses. The customer therefore is not unfairly prejudiced if it is precluded from suing both the employer and the employee. 16. You see a painting company working on your neighbour's house. Impressed with the results, you ask the company to paint your home as well. The company agrees to do so, but neither of you say anything about payment. After the company finishes painting your house, you promise to pay $1,500. Later, however, you change your mind. When the company complains, you say that since the work occurred before your promise, it is only past consideration. Are you correct? Difficulty: 1 QuestionID: 08-3-16 Topic: Implied Promise Skill: Applied Answer: That is not correct. A contract was created at the outset. A reasonable person would have interpreted your original request to include an implied promise to pay for the company's services. As a result, you are liable for a quantum meruit or "reasonable price." If you had not subsequently promised to pay $1,500, the court would have decided how much you owe. But since you did promise to pay $1,500, the court might treat that as an appropriate amount. In either event, the company's services were good consideration rather than past consideration. They were provided in return for your implied promise that you would pay. They were part of a bargaining process.

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Managing the Law, 6e (McInnes) Chapter 09: Representations and Terms True/False Questions 1. Pre-contractual representations are always part of the terms of all contracts. a True b False Difficulty: 1 QuestionID: 09-1-01 Topic: Pre-Contractual and Contractual Statements Skill: Recall Answer: b. False 2. A contractual representation that is used to induce a contract must not be deliberately false. a True b False Difficulty: 3 QuestionID: 09-1-02 Topic: The Nature of Misrepresentation Skill: Recall Answer: a. True 3. A misstatement of the law is identical to a misstatement about the existing factual consequences of the application of that law. a True b False Difficulty: 2 QuestionID: 09-1-03 Topic: Misstatement of Fact Skill: Recall Answer: b. False 4. Cavell is selling his CD burner to an acquaintance. Cavell knows that the CD burner has a defect, generating CDs that skip. The acquaintance asks Cavell for his opinion of the machine just before the purchase is to take place. All Cavell says is "I personally like it, but I am not too picky about quality. You should try the machine out before you buy it." Cavell has made a misrepresentation about the quality of the machine. a True b False 1 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 09-1-04 Topic: Misstatement of Fact Skill: Applied Answer: b. False 5. Steve, Sheryl's doctor, is selling some of the artwork from his office. Sheryl says she has always been interested in his Thomson piece and asks how much he wants for it. Although the painting is not actually a Thomson original, Steve knows which one she means and tells her that he paid $3,000 but will take $1,000. (That much is true, but he doesn't say anything at all to indicate that it is NOT a Thomson original). By his silence, Steve has engaged in actionable misrepresentation. a True b False Difficulty: 3 QuestionID: 09-1-05 Topic: Silence as a Misrepresentation Skill: Applied Answer: a. True 6. Damages for actionable misrepresentation may be available depending on the type of misrepresentation that was made. a True b False Difficulty: 1 QuestionID: 09-1-06 Topic: Types of Misrepresentations Skill: Recall Answer: a. True 7. A person who investigates a condition or state of facts for themselves, rather than relying on a precontractual statement of the other side, will usually succeed in an action for misrepresentation whenever the investigation that they made turns out to be untrue. a True b False Difficulty: 2 QuestionID: 09-1-07 Topic: Inducement Skill: Recall

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Answer: b. False 8. If Vasaliki is induced to enter into a contract as a consequence of a statement made by Lampros with reckless indifference as to its truth, Vasaliki has an automatic right to rescission and may also get damages if the statement is fraudulent. a True b False Difficulty: 3 QuestionID: 09-1-08 Topic: Fraudulent Misrepresentation Skill: Applied Answer: b. False 9. Restitution requires both sides to be returned to their pre-contractual positions. a True b False Difficulty: 1 QuestionID: 09-1-09 Topic: Rescission Skill: Recall Answer: a. True 10. Restitution is always possible for any misrepresentation regardless of the circumstances. a True b False Difficulty: 1 QuestionID: 09-1-10 Topic: Rescission Skill: Applied Answer: b. False 11. Negligent misrepresentation occurs when a person deliberately lies about a material fact inducing a contract. a True b False Difficulty: 2 QuestionID: 09-1-11 Topic: Negligent Misrepresentation Skill: Applied 3 © 2023 Pearson Canada Inc.

Answer: b. False 12. Parol evidence cannot be used to resolve ambiguous terms of a written contract. a True b False Difficulty: 1 QuestionID: 09-1-12 Topic: Proof of Express Terms Skill: Recall Answer: b. False 13. The proof of a collateral contract not in contradiction to the written contract is an exception to the parol evidence rule. a True b False Difficulty: 2 QuestionID: 09-1-13 Topic: Proof of Express Terms Skill: Applied Answer: a. True 14. The golden rule always requires an adoption of the contextual approach to contractual interpretation. a True b False Difficulty: 2 QuestionID: 09-1-14 Topic: Interpretation of Express Terms Skill: Applied Answer: b. False 15. Someone who signs a document in a hurry is never bound by his signature. a True b False Difficulty: 2 QuestionID: 09-1-15 Topic: Signed Forms Skill: Recall

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Answer: b. False 16. "This beer is probably the best beer in the world" is a representation. a True b False Difficulty: 2 QuestionID: 09-1-16 Topic: Pre-contractual Statements Skill: Applied Answer: b. False 17. "Our whisky is 40% proof" is a representation. a True b False Difficulty: 2 QuestionID: 09-1-17 Topic: Pre-contractual Statements Skill: Applied Answer: a. True Multiple Choice Questions 1. A contractual term A) is made with the intention to induce a contract. B) is a promissory statement. C) does not impose a contractual obligation. D) is a form of misrepresentation. E) allows either party to terminate a contract early. Difficulty: 2 QuestionID: 09-2-01 Topic: Pre-Contractual and Contractual Statements Skill: Recall Answer: B) is a promissory statement. 2. A pre-contractual representation A) creates a legally enforceable obligation. B) is a promissory statement. C) will always induce a contract. D) is a voluntary agreement to do something in the future. E) can be made by words or conduct. 5 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 09-2-02 Topic: Pre-Contractual and Contractual Statements Skill: Recall Answer: E) can be made by words or conduct. 3. A misrepresentation is A) a kind of mistake. B) an opinion that turns out to be untrue. C) actionable whenever it turns out to be false. D) actionable if it induces a contract by falsely stating an existing fact. E) actionable if it induces a contract by misdescribing another's future action. Difficulty: 2 QuestionID: 09-2-03 Topic: The Nature of Misrepresentation Skill: Recall Answer: D) actionable if it induces a contract by falsely stating an existing fact. 4. Reeni was interested in purchasing a car. After searching the classified ads, she found a car in which she was interested, being sold by Ethan, whom she had never met. Ethan knew that his car was in need of new tires, a new muffler, and would soon need a new clutch and a brake job. Consequently, he was hoping that, when they met, Reeni would not ask too many questions. When she wanted to go for a test drive, Ethan gave her the keys and said that he trusted her to go alone and that doing so would allow her to test it in a less inhibited fashion. Really, he just did not want her to ask about any of the car's problems. Reeni took the car by herself and, on the basis of its performance, bought it at Ethan's listed price, no questions asked. Which of the following statements is most likely to be TRUE? A) Ethan is not required to disclose the car's problems during pre-contractual negotiations if Reeni does not ask about them. B) Silence can never amount to a misrepresentation. C) Ethan owed Reeni a special duty to disclose the problems with his car. D) By failing to accompany Reeni in the test drive, Ethan breached a duty of utmost good faith. E) Reeni would succeed in an action against Ethan for misrepresentation. Difficulty: 3 QuestionID: 09-2-04 Topic: Silence as a Misrepresentation Skill: Applied Answer: A) Ethan is not required to disclose the car's problems during pre-contractual negotiations if Reeni does not ask about them. 5. When will silence distort a previous assertion? 6 © 2023 Pearson Canada Inc.

A) whenever a change in circumstances occurs B) whenever a change in circumstances does not affect the accuracy of a representation C) when a contract requires a duty of utmost good faith D) when a change in circumstances affects the accuracy of an earlier pre-contractual representation E) when a statutory provision requires disclosure Difficulty: 2 QuestionID: 09-2-05 Topic: Silence as a Misrepresentation Skill: Recall Answer: D) when a change in circumstances affects the accuracy of an earlier pre-contractual representation 6. The possible consequences of actionable misrepresentation include A) a damage award for breach of contract. B) the remedy of rescission. C) the remedy of an injunction. D) the remedy of an incision. E) a fine for breach of contract. Difficulty: 2 QuestionID: 09-2-06 Topic: The Legal Consequences of Misrepresentation Skill: Recall Answer: B) the remedy of rescission. 7. In order to get Susannah to buy his cottage, Paul tells her that he has recently spent $100 000 in repairs that make its foundations flawless. In love with the cottage and in reliance on Paul's representation, Susannah impulsively trades her condo in the city for the cottage without asking for a home inspection. Two months after she moves into the cottage, Susannah hears a creaking noise during a windy evening. The next morning, she has a home inspector over to take a look. He tells her that there have been no repairs on the house in the last 20 years and that the foundation is in a dangerous state of disrepair. She calls Paul to try to get her condo back but finds out that he has sold the unit and has moved to Bermuda with all of his assets. In seeking orders for rescission and restitution, A) Susannah will most likely succeed in obtaining rescission and restitution, as Paul's misrepresentation is clearly actionable and the parties can be put back their same position by evicting the person to whom Paul sold the condo. B) Susannah will likely succeed, and the court will therefore award damages for breach of contract, which is the usual award granted when a party seeks rescission. C) Susannah will most likely fail, as Paul's misrepresentation is clearly not actionable. D) Susannah will most likely fail because her living in the cottage for two months is an affirmation of Paul's misrepresentation. E) Susannah will most likely fail because courts are unlikely to grant rescission when the rights of third parties are affected.

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Difficulty: 3 QuestionID: 09-2-07 Topic: Rescission Skill: Applied Answer: E) Susannah will most likely fail because courts are unlikely to grant rescission when the rights of third parties are affected. 8. Which of the following cannot result in a damage award? A) innocent misrepresentation B) negligent misrepresentation C) fraudulent misrepresentation D) breach of contract E) silence that distorts a previous assertion Difficulty: 2 QuestionID: 09-2-08 Topic: Types of Misrepresentations Skill: Recall Answer: A) innocent misrepresentation 9. Samuel and Ben are negotiating the sale of a sailboat. Samuel expresses an interest in the boat but emails Ben a list of five questions that he wants answered before agreeing to purchase it. Ben responds with full answers to four of the questions. Samuel emails back and says he will buy the boat on Saturday as long as his remaining question (about the state of its hull) checks out okay. Ben promises to check with his boat mechanic and respond before they are scheduled to meet on Saturday. Both men get busy. Ben checks with his mechanic but innocently forgets to report back to Samuel that there is a crack in the hull. Samuel forgets that there was one question outstanding. Saturday comes and the transaction takes place. If it turns out that there is a significant problem with the hull of the boat, which of the following is TRUE? A) If he sues, Samuel will likely obtain a damage award. B) If he sues, Samuel will likely succeed in a tort action. C) Samuel is certainly stuck with the boat. D) Ben may have to take the boat back and return Samuel's money. E) Ben may seek to get his boat back even if Samuel wants to keep it. Difficulty: 3 QuestionID: 09-2-09 Topic: Types of Misrepresentations Skill: Applied Answer: D) Ben may have to take the boat back and return Samuel's money. 10. Diamond Dave decides to sell his donut franchise to Fast Freddie. Freddie has a number of questions about the receivables. Diamond Dave says that all of the answers to his questions can be found in the 8 © 2023 Pearson Canada Inc.

corporate ledger. Instead of inspecting the ledger, Fast Freddie hires an accounting firm to do a forensic audit of the business. Relying on the audit, Freddie buys the business. Which of the following explains why Freddie would fail to obtain rescission if he later decided he did not like the transaction? A) Freddie affirmed Dave's misrepresentation. B) Freddie did not rely on the fraudulent misrepresentation that Dave made. C) Diamond Dave was not careless with his ledger, but by not conducting his own forensic audit Diamond Dave misled Freddie into thinking he needed to conduct a forensic audit; however, this was not the cause of Freddie's damages. D) Diamond Dave made an innocent misrepresentation, but it is impossible to restore the parties to their previous positions. E) Diamond Dave did not make any misrepresentation in any way, and Freddie relied entirely upon his own investigations. Difficulty: 2 QuestionID: 09-2-10 Topic: Inducement Skill: Applied Answer: E) Diamond Dave did not make any misrepresentation in any way, and Freddie relied entirely upon his own investigations. 11. Contracts of utmost good faith A) arise when one party is uniquely situated to know the material facts, as in the case of an insurance contract. B) are the only contracts that do not require any kind of disclosure. C) do not require notification of any changes to previously supplied information. D) have no bearing on the law of misrepresentation. E) allow parties to lie to each other prior to entering into a contract without any legal consequence attaching to those lies. Difficulty: 2 QuestionID: 09-2-11 Topic: When the Contract Requires a Duty of Utmost Good Faith Skill: Recall Answer: A) arise when one party is uniquely situated to know the material facts, as in the case of an insurance contract. 12. Which of the following is NOT an example of a disclosure required by statute? A) disclosure of a serious medical condition when obtaining life insurance B) disclosure of material facts by a financial officer of a publically traded corporation C) disclosure of significant liabilities that exist when making a domestic (family law) contract D) disclosure of material facts pertaining to the sale of securities E) disclosure of material facts by an accountant when she sells her car to one of her clients Difficulty: 1 9 © 2023 Pearson Canada Inc.

QuestionID: 09-2-12 Topic: When a Statutory Provision Requires Disclosure Skill: Recall Answer: E) disclosure of material facts by an accountant when she sells her car to one of her clients 13. Kara and Randall created a contract. After a dispute arose, a court interpreted the agreement and found that it contained a term that neither party had expressly mentioned during negotiations. With respect to that term, which of the following statements is most likely to be TRUE? A) One of the parties must have expressly affirmed the term in court. B) Both parties must have expressly affirmed the term in court. C) The term must have been implied. D) The court must have made a mistake because every term must be expressly created by the parties. E) A term can be implied only if it is required by some form of legislation. Difficulty: 3 QuestionID: 09-2-13 Topic: Implied Terms Skill: Applied Answer: C) The term must have been implied. 14. An express term A) is only enforceable if one of the parties agrees to it in writing. B) is a statement made by one of the parties to the other party of a contract that a reasonable person would believe was intended to create an enforceable obligation. C) is a statement made by one party to induce the other party to enter into an agreement. D) sometimes arises as a result of an operation of law. E) is a term made by the court ascertaining the industry custom when interpreting the contract. Difficulty: 2 QuestionID: 09-2-14 Topic: Express Terms Skill: Recall Answer: B) is a statement made by one of the parties to the other party of a contract that a reasonable person would believe was intended to create an enforceable obligation. 15. Business people often sign written agreements on the oral assurance that some of the terms of the written agreement will not be enforced. To sign under written agreements in these circumstances is imprudent because of A) the golden rule. B) the parol evidence rule. C) the contra proferentum rule. D) the absurdity rule. E) the fact that oral terms of contracts are never enforceable. 10 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 09-2-15 Topic: Proof of Express Terms Skill: Recall Answer: B) the parol evidence rule. 16. Ejay wants a court to consider oral evidence about a written contract in order to resolve a dispute about an ambiguous term in one of her client's contracts. She decides that she will characterize the facts as giving rise to a collateral contract. Which of the following is TRUE? A) Ejay is doing this because the collateral contract doctrine is the only way to have her oral evidence heard. B) Ejay is a doing this because a collateral contract can never circumvent the rule preventing oral evidence from being used to prove the terms of a written contract. C) Ejay is doing this because the collateral contract doctrine was overturned years ago. D) Ejay is likely mistaken because there is a more direct method of having the court consider her oral evidence under the circumstances as oral evidence is often admissible to interpret written but ambiguous terms of a contract, without a collateral contract being proved. E) Once a contract is in writing, oral evidence is never admitted to interpret the contract. Difficulty: 3 QuestionID: 09-2-16 Topic: Proof of Express Terms Skill: Applied Answer: D) Ejay is likely mistaken because there is a more direct method of having the court consider her oral evidence under the circumstances as oral evidence is often admissible to interpret written but ambiguous terms of a contract, without a collateral contract being proved. 17. Parol evidence is not admissible to A) rectify a mistake in a contractual document. B) resolve ambiguities in a contractual document. C) enforce a promise that was made during negotiations but was not included in the written document. D) prove that a contract is defective. E) demonstrate that a document does not contain the parties' complete contract. Difficulty: 2 QuestionID: 09-2-17 Topic: Proof of Express Terms Skill: Recall Answer: C) enforce a promise that was made during negotiations but was not included in the written document. 18. Which of the following does not provide a rule or an approach that a court may rely upon for the interpretation of a contractual document? 11 © 2023 Pearson Canada Inc.

A) the literal approach B) the contextual approach C) the recidivist approach D) the contra proferentum rule E) the golden rule Difficulty: 2 QuestionID: 09-2-18 Topic: Interpretation of Express Terms Skill: Recall Answer: C) the recidivist approach 19. Which of the following is NOT true of the contra proferentum rule? A) It is a rule of contractual interpretation. B) It is always the best means of resolving an ambiguous term. C) It attributes to a term the meaning least favourable to its author. D) It provides an incentive for the author of a term to draft it in clear and unambiguous language. E) It applies to contracts where the other side did not draft the contract nor have any meaningful input into the contractual terms. Difficulty: 2 QuestionID: 09-2-19 Topic: Interpretation of Express Terms Skill: Recall Answer: B) It is always the best means of resolving an ambiguous term. 20. Which of the following best describes an implied term? A) It is a statement expressed by one of the parties. B) It is sometimes inserted into a contract by a court. C) It cannot create an enforceable legal obligation. D) It can be used to rectify a mistake in a contractual document. E) It is always based on the standard in the industry that the parties are engaged in. Difficulty: 2 QuestionID: 09-2-20 Topic: Implied Terms Skill: Recall Answer: B) It is sometimes inserted into a contract by a court. 21. Even if a lease does not expressly say that the item leased must come back in the same condition in which it went out (subject to reasonable wear and tear), a court will imply such a term. The court is most likely to do so on the basis that such a term A) was clearly intended by both parties. 12 © 2023 Pearson Canada Inc.

B) was required as a matter of law. C) would improve the contract. D) reflects standard practice within the industry, such as heavy equipment rentals, that the parties created their contract. E) is found in some leases. Difficulty: 2 QuestionID: 09-2-21 Topic: Terms Implied by a Court Skill: Recall Answer: D) reflects standard practice within the industry, such as heavy equipment rentals, that the parties created their contract. 22. A court will find an implied term A) when it is necessary to bring the contract in accordance with the objectively reasonable intentions of the parties. B) in order to rewrite the contract so that it is a better deal. C) only if the parties had expressed it but forgot to write it down. D) only if a statute tells it to do so. E) whenever it wants and whatever term the court thinks would be useful. Difficulty: 2 QuestionID: 09-2-22 Topic: Implied Terms Skill: Recall Answer: A) when it is necessary to bring the contract in accordance with the objectively reasonable intentions of the parties. 23. Denise is a farmer in Prince Edward Island. She recently purchased a new tractor from her local dealer. Although her contract of sale contains a large number of standard terms and conditions, it does not guarantee that the tractor would function properly, and it does not contain any exclusion clauses. Unfortunately, the tractor malfunctioned soon after it was delivered. Denise wants to sue for breach of contract. Which of the following is most likely to be TRUE? A) Denise must fail unless an express term is breached. B) Denise must fail unless she signed a standard form contract. C) Denise will fail unless she can prove a collateral contract. D) Denise will fail no matter what. E) Denise will succeed on the basis of a term that implied by a statute governing the purchase and sale of goods. Difficulty: 3 QuestionID: 09-2-23 Topic: Terms Implied by Statute Skill: Applied 13 © 2023 Pearson Canada Inc.

Answer: E) Denise will succeed on the basis of a term that implied by a statute governing the purchase and sale of goods. 24. Consumer protection laws in several jurisdictions including Manitoba, Northwest Territories, and the Yukon A) make it a crime to sell used goods. B) make it a tort to sell used goods. C) imply a term in consumer transactions that goods being sold are new unless otherwise described. D) imply a term that goods being sold are used unless otherwise described. E) have been repealed. Difficulty: 2 QuestionID: 09-2-24 Topic: Terms Implied by Statute Skill: Recall Answer: C) imply a term in consumer transactions that goods being sold are new unless otherwise described. 25. Standard form agreements A) always balance the interests of both parties. B) are rarely offered on a take-it-or-leave-it basis. C) often are more time-consuming than negotiating the terms of a new contract. D) often contain language that has been refined and tested over the years. E) are not binding if the party signing them does not bother to read them. Difficulty: 2 QuestionID: 09-2-25 Topic: Standard Form Contracts Skill: Applied/Recall Answer: D) often contain language that has been refined and tested over the years. 26. Asha sells bottled spring water. Unlike other water vendors who purify their water, Asha is marketing her product to those who want to drink spring water in its natural state. Although her water source is pure and clean, she is concerned that some consumers might have allergic reactions to trace elements in the unpurified water, so she designs a clause to exclude her company from liability. The clause indicates that, by opening and drinking the water, consumers are indicating that they have read and understood the warning that the water has not been purified and, as such, waive all liability claims against the company for any allergic reactions resulting from drinking the water. Which of the following is most likely to be TRUE of Asha's strategy? A) It will fail because it is never possible to exclude tort liability by way of contract. B) It will only succeed if the distributor personally points out to the consumer that by drinking the water they are waiving their right to sue. C) Regardless of any other fact, the exclusion clause will apply if consumers are given reasonable notice. D) The exclusion clause will be enforceable only if it is unambiguous, only if there was reasonable notice, 14 © 2023 Pearson Canada Inc.

and only if the plaintiff objectively agreed to it. E) Exclusion clauses are not enforceable in a court of law. Difficulty: 3 QuestionID: 09-2-26 Topic: Standard Form Contracts Skill: Applied Answer: D) The exclusion clause will be enforceable only if it is unambiguous, only if there was reasonable notice, and only if the plaintiff objectively agreed to it. 27. In order for a standard form contract to be enforceable, the party that signed it must have received independent legal advice A) whenever a signature is required. B) only when its terms are onerous or unusual. C) only when its terms are on the back of a ticket. D) only in the case of exclusion clauses. E) not in any circumstances. Difficulty: 3 QuestionID: 09-2-27 Topic: Standard Form Contracts Skill: Applied Answer: E) not in any circumstances. 28. A ticket contract is A) never enforceable. B) enforceable only if the terms on the back of the ticket have actually been read by the customer. C) enforceable only if the customer knew about the terms on the back of the ticket. D) enforceable only if the terms on the back of the ticket are initialed by the customer. E) enforceable only if reasonable notice of the terms was given when the contract was created. Difficulty: 2 QuestionID: 09-2-28 Topic: Ticket Contracts Skill: Recall Answer: E) enforceable only if reasonable notice of the terms was given when the contract was created. 29. Molly decides to sell her house by way of a private sale. After advertising and showing the house, she receives a written offer from an interested purchaser using a standard form document assembled from a do-it-yourself legal kit. Molly studied the offer and wished to change two of its terms. The interested purchaser agreed to the changes and reflected those changes in the document. Molly signed the document and cashed the down payment cheque. Two days later, Molly spotted an extremely onerous and somewhat unusual term that was not brought to her attention when reading the document. As a result, 15 © 2023 Pearson Canada Inc.

Molly wishes to cancel the contract. Which of the following is most likely TRUE? A) Molly will fail because she is bound by her signature to the written agreement. B) Molly will fail, but only because she cashed the cheque. C) Molly will succeed because the term was onerous and unusual. D) Molly will succeed because she was not given reasonable notice of the onerous and unusual term. E) Molly will succeed unless the purchaser expressly drew her attention to the clause. Difficulty: 3 QuestionID: 09-2-29 Topic: Signed Forms Skill: Applied Answer: A) Molly will fail because she is bound by her signature to the written agreement. 30. Which of the following statements is FALSE? The use of plain language instead of legalese A) can reduce the amount of time a company spends answering questions from customers about confusing terminology. B) is required by the official Communications Policy of the Government of Canada. C) can be mandated by law. D) makes it more difficult for businesses to enforce contracts. E) was strategically avoided in the past. Difficulty: 1 QuestionID: 09-2-30 Topic: Using Plain Language in Contracts Skill: Recall Answer: D) makes it more difficult for businesses to enforce contracts. 31. The BEST way for a company to manage the risk associated with standard form agreements is to A) frequently redesign the standard form agreement to ensure that customers must read through the form each time they sign it. B) teach employees the meaning of onerous and ambiguous contract terms. C) require customers to clearly indicate their specific agreement to be bound by any onerous or unusual terms. D) conceal ambiguous language at the end of the agreement to avoid customer confusion. E) draft the form in a manner which is ambiguous to your customers but could be literally interpreted in your favour by a clever lawyer. Difficulty: 2 QuestionID: 09-2-31 Topic: Signed Forms Skill: Recall Answer: C) require customers to clearly indicate their specific agreement to be bound by any onerous or unusual terms. 16 © 2023 Pearson Canada Inc.

32. Which of the following statements is TRUE with respect to misrepresentations? A) An innocent misrepresentation may trigger an award of damages. B) A fraudulent misrepresentation may trigger rescission but not damages. C) A negligent misrepresentation may trigger damages but not rescission. D) An innocent misrepresentation may be rescinded. E) A pre-contractual misrepresentation may trigger relief in contract but not relief in tort. Difficulty: 1 QuestionID: 09-2-32 Topic: Types of Misrepresentations Skill: Recall Answer: D) An innocent misrepresentation may be rescinded. 33. An exception to the parol evidence rule may arise if A) both parties want to rescind the contract. B) the plaintiff will not be able to successfully claim damages otherwise. C) the judge is convinced that the contract would be more effective if it contained additional terms. D) evidence from outside of the document is required for the purpose of rectifying a mistake in the document. E) the wording of the document is unfair to one of the parties. Difficulty: 2 QuestionID: 09-2-33 Topic: Proof of Express Terms Skill: Recall Answer: D) evidence from outside of the document is required for the purpose of rectifying a mistake in the document. 34. Which of the following statements is TRUE with respect to a contractual clause that protects one party from the consequences of breach (exclusion or limitation of liability clauses)? A) Such clauses are enforced only if they are the product of equal bargaining power. B) Such clauses may reduce or limit liability, but they cannot entirely exclude liability. C) Such clauses are enforced only if they appear in written and signed contracts. D) Depending upon the circumstances, such clauses may be enforced even if the party who wants to sue for breach did not read the clause. E) Such clauses are invalid if they are written in language that is difficult for a consumer to understand. Difficulty: 1 QuestionID: 09-2-34 Topic: Ticket Contracts Skill: Recall Answer: D) Depending upon the circumstances, such clauses may be enforced even if the party who wants to 17 © 2023 Pearson Canada Inc.

sue for breach did not read the clause. 35. Jacqui purchased a business from Dickie. During the pre-contractual negotiations, Dickie said that the business' records indicate that it earns a least $1,000,000 each and every year. That statement was true when it was made. However, a short time later, but before the contract was signed, Dickie learned that the manufacturer that supplied his business with the materials that it needed was going out of business. Dickie realized that the need to obtain supplies from another manufacturer would reduce the profitability of the business. Whether he or Jacqui was in charge, the business would earn only $700,000 per year. Afraid that the new information news would scare off Jacqui, Dickie decided to keep it to himself. Jacqui completed the purchase of Dickie's business, but was very disappointed when it earned only $700,000 in its first year. She now wants to sue Dickie. Which of the following statements is most likely to be TRUE? A) While Jacqui probably is entitled to damages, she cannot possibly receive rescission because the contract has already been completed. B) Dickie cannot be held liable because his statement was an opinion about the future. C) Dickie cannot be held liable because Jacqui ought to have independently confirmed his statements. D) Jacqui cannot successfully sue unless she can prove that Dickie's statements regarding the business's profits became a term of their contract. E) Dickie may have made a misrepresentation because, given the change in circumstances, his silence distorted his previously accurate statement. Difficulty: 3 QuestionID: 09-2-35 Topic: When Silence Would Distort a Previous Assertion Skill: Applied Answer: E) Dickie may have made a misrepresentation because, given the change in circumstances, his silence distorted his previously accurate statement. 36. Leilani purchased a business from Troy. She is now interested in the possibility of taking legal action on the basis of an alleged misrepresentation that occurred during the negotiations leading up to the contract. Which of the following statements is TRUE? A) The contract can be rescinded only if Troy made a fraudulent misrepresentation. B) If Troy made a negligent misrepresentation, and if Troy owed a duty of care to Leilani in making that representation, Leilani may choose to sue in tort rather than rescind the contract. C) Because the courts will not punish a person who did not breach an obligation, rescission is not available if Troy merely made an innocent misrepresentation D) Because the purpose of rescission is to reverse the effects of a transaction, Leilani will not be able to receive court costs if she rescinds the agreement. E) Leilani cannot obtain rescission because she can only sue in tort. Difficulty: 3 QuestionID: 09-2-36 Topic: Types of Misrepresentations Skill: Applied

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Answer: B) If Troy made a negligent misrepresentation, and if Troy owed a duty of care to Leilani in making that representation, Leilani may choose to sue in tort rather than rescind the contract. 37. Asif purchased a business from Olga. During negotiations leading up to the contract, Olga made an innocent misrepresentation. As a result of that statement, Asif has discovered that the business is far less valuable than he expected. Which of the following statements is most likely to be TRUE? A) Asif is not entitled to rescind the contract if, before entering into the contract, he carelessly failed to discover the error contained in Olga's innocent misrepresentation. B) Rescission is not available for an innocent misrepresentation. C) Asif is entitled to rescission even if, before entering into the contract, he investigated the true state of affairs that Olga addressed in her innocent misrepresentation. D) Asif is not entitled to rescission unless he can prove that Olga's innocent misrepresentation was the only, or at least the most important, reason for him entering into the contract. E) The only legal remedy available to Asif is rescission. Difficulty: 3 QuestionID: 09-2-37 Topic: Types of Misrepresentations Skill: Applied Answer: E) The only legal remedy available to Asif is rescission. 38. Ranjit purchased a complex computer system from Compu-Less. Although Compu-Less had specially manufactured the computer to Ranjit's personal specifications, the sale was created on the basis of a standard form agreement that the company uses when customers buy mass-produced computer units. A dispute has now arisen between Ranjit and Compu-Less. Which of the following statements is most likely to be TRUE? A) The strict terms of the contract will not be enforced if, before Ranjit signed the agreement, the company's sales manager said, "Don't worry about the legal mumbo-jumbo. We stand behind our products." B) Because of the parol evidence rule, the parties' contract will not include the warranties contained in the Sale of Goods Act unless the contract either repeats those warranties or at least refers to them. C) Neither party can enforce a term of the contract unless that party proves that the other party had read the term. D) The court may refuse to add an implied term to the contract even if that term would make the contract, in the court's opinion, fairer to Ranjit. E) The golden rule of contract interpretation states that an ambiguous term must be interpreted in the way that most benefits the party that drafted the contract. Difficulty: 3 QuestionID: 09-2-38 Topic: Implied Terms Skill: Applied Answer: D) The court may refuse to add an implied term to the contract even if that term would make the contract, in the court's opinion, fairer to Ranjit. 19 © 2023 Pearson Canada Inc.

39. Preetpal purchased a ticket to ride on a train from Toronto to Ottawa. After she had boarded the train, she was asked if she wished to place her outerwear and backpack into a storage unit on the train. Because she did not want to be encumbered during her journey, she accepted the offer. She was given a "small baggage claims" ticket before handing over her coat and belongings. When the train arrived in Ottawa, and Preetpal tried to collect her coat, she was told that it could not be found. When she threatened to sue, the person who was representing the train told Preetpal that the back of the "small baggage claims" ticket that she received contained a term that excluded liability for lost or stolen goods. Assuming these are the only exclusions, Preetpal can be bound by the exclusion clause only if A) she actually read it. B) it was written in a font that was larger than the font that otherwise appeared on the ticket. C) the clause was written in a language that she can read. D) it was explained to her when she first bought her train ticket. E) she was given reasonable notice of the terms on the back of the ticket before or at the time that she received the ticket. Difficulty: 2 QuestionID: 09-2-39 Topic: Ticket Contracts Skill: Applied Answer: E) she was given reasonable notice of the terms on the back of the ticket before or at the time that she received the ticket. 40. Justice Howe, a member of the Supreme Court of Canada, is deciding a case that deals with a complicated commercial agreement between two sophisticated and experienced companies. The resolution of the case depends upon the interpretation of several clauses in that agreement. Which of the following statements is TRUE? A) The general rules governing the interpretation of contracts do not apply in the Supreme Court of Canada because that court is expected to arrive at the fairest result regardless of the rules of law. B) In order to decide the case, the judge may need to know which party drafted the agreement. C) The contextual approach to interpretation requires a particular clause to be interpreted exclusively by reference to its own terms. D) The golden rule of interpretation, which says "do unto others as you would have others do unto you," requires the judge to adopt whichever interpretation of the contract that favours both parties equally. E) Given the nature of the parties and the contract, Justice Howe cannot decide that their agreement contains implied terms. Difficulty: 2 QuestionID: 09-2-40 Topic: Interpretation of Express Terms Skill: Applied Answer: B) In order to decide the case, the judge may need to know which party drafted the agreement. 41. An investor named Orson was trying to decide between entering the futures markets and creating a 20 © 2023 Pearson Canada Inc.

forward contract. His broker said, "I think I might have found a great opportunity for you, Orson. If events play out as I hope, this forward contract will earn you a lot of money." Orson took that advice, but the forward contract did not perform and Orson lost everything. What should Orson do? A) Sue his broker for negligence. B) Sue his broker for misrepresentation. C) Sue his broker for deceit. D) Orson has no remedy; his broker was stating an opinion. E) Orson has no remedy; his broker was making a statement of future conduct. Difficulty: 2 QuestionID: 09-2-41 Topic: Misstatement of Fact Skill: Applied Answer: D) Orson has no remedy; his broker was stating an opinion. 42. Tyra was looking to buy her first motorcycle. She saw one listed online and contacted Graham, the owner. Graham knew that the transmission was faulty and the bike often failed to shift properly. He decided not to mention that problem, however, because it did not happen all the time. He also decided that he did not want to deal with any of Tyra's questions. He therefore asked her to come by, for her test dive, when he knew that he would be out of the house but his mother would be home. Tyra enjoyed the test ride, did not ask any questions, and bought the bike for the full price. Which of the following statements is most likely to be TRUE? A) Silence can never be misrepresentation. B) Graham's silence was misrepresentation because the contract required utmost good faith. C) Graham's actions constituted a misrepresentation because he was not present for the test drive, which means that he was actively concealing the damage. D) Graham's silence constituted a half-truth. E) Graham was not required to disclose the problem in pre-contractual relations. Difficulty: 3 QuestionID: 09-2-42 Topic: Silence as a Misrepresentation Skill: Applied Answer: E) Graham was not required to disclose the problem in pre-contractual relations. 43. Because he was considering buying Susanne's car, Logan asked two questions: (a) Does the car have new tires? (b) Has the car suffered any structural damage? Susanne answered the first question immediately and truthfully, but she was unsure of the second answer. She therefore told Logan that she would have it inspected would get back to him regarding the second question. Over the next few days, however, Susanne forgot about the inspection. When Logan called to ask about structural damage, she simply lied and said that the inspector told her that the car was in perfect condition. Logan then bought the car. If it turns out that the car did have structural damage before the sale, which of the following statements is most likely to be TRUE? A) At most, Susanne may have to take the car back and return Logan's money. 21 © 2023 Pearson Canada Inc.

B) Logan is stuck with the car. C) Susanne may be entitled to get the car back even if Logan wants to keep it. D) Susanne may be sued for damages in tort. E) Susanne has committed innocent misrepresentation. Difficulty: 3 QuestionID: 09-2-43 Topic: Types of Misrepresentations Skill: Applied Answer: D) Susanne may be sued for damages in tort. 44. Nate wanted to rent a car. The attendant gave him a standard form agreement to sign. She asked him to sign three places. She indicated that his signatures were concerned with exclusion clauses, but she did not explain the content of those clauses. Nate signed without anything else being said. If Nate breeches one of these exclusion clauses, which of the following is most likely to be TRUE? A) Since the document contains the parties' contract, the exclusion clauses would be enforceable against Nate even if he did not sign. B) Regardless of any other facts, the exclusion clauses became enforceable as soon as Nate signed the document. C) A court may refuse to enforce the exclusion clauses even though Nate signed beside them. D) The exclusion clauses will be enforced unless neither party personally knew about their details. E) To prevent unfairness, the courts never enforce exclusion clauses that are contained in standard form contracts. Difficulty: 2 QuestionID: 09-2-44 Topic: Standard Form Contracts Skill: Applied Answer: C) A court may refuse to enforce the exclusion clauses even though Nate signed beside them. 45. Which of the following statements regarding boilerplate clauses is most likely to be TRUE? A) The phrase "boilerplate clause" refers to the very strong and durable sheets of metal that were used to print newspapers in the first half of the twentieth century. B) A force majeure clause is used to indicate which of the two parties is the "major power" in the contract and therefore responsible for drafting the written agreement. C) The phrase "boilerplate clause" refers to the case in which the courts first approved of such contractual terms: Boilerplate Union 505 (New York) v T Malloy Inc. D) An "entire agreement clause" indicates that a contract contains only one promise by each of the parties. E) The phrase "boilerplate clause" refers to the fact that water constantly changes its shape when it is heated over a hot plate. Difficulty: 3 QuestionID: 09-2-45 Topic: Boilerplate Clauses 22 © 2023 Pearson Canada Inc.

Skill: Recall Answer: A) The phrase "boilerplate clause" refers to the very strong and durable sheets of metal that were used to print newspapers in the first half of the twentieth century. 46. Which of the following statements regarding puff statements is most likely to be TRUE? A) Puff statements are pre-contractual statements that have no legal consequences B) Puff statements can lead to representations in certain circumstances C) Puff statements can result it contractual terms in certain circumstances D) Puff statements are form part of the "entire agreement clause" which indicates that a contract contains only one promise by each of the parties. E) The phrase puff statement is not a pre-contractual statement Difficulty: 3 QuestionID: 09-2-46 Topic: Pre-contractual statements Skill: Recall Answer: A) Puff statements are pre-contractual statements that have no legal consequences Essay Questions 1. What does it mean to say that a pre-contractual representation is NOT promissory in nature? Difficulty: 2 QuestionID: 09-3-01 Topic: Pre-Contractual and Contractual Statements Skill: Applied Answer: A statement that is promissory in nature describes an undertaking generally to take place in the future. A pre-contractual representation, by definition, is non-promissor concerning what a party will do in the future as part of its contractual undertakings. Rather, it describes a present or future state of affairs which are the subject matter of the contractual undertaking. It is a statement of fact and, as such, is either true or false. The purpose of a pre-contractual statement is not to make a future undertaking but to induce another person to enter into a contract based on representations as to the factual state of affairs in the past, present or future. In this sense only, a pre-contractual statement is non-promissory. 2. Personal opinions are not usually treated as misrepresentations. Very briefly explain why they are not and describe a situation where it is risky to offer a personal opinion. Difficulty: 2 QuestionID: 09-3-02 Topic: Misstatement of Fact Skill: Applied Answer: In order for a statement to be considered a misrepresentation it must be capable of being false. 23 © 2023 Pearson Canada Inc.

Personal opinions are statements of judgment or belief and are therefore not usually thought of as true or false. However, some statements that are couched as opinions run the risk of being considered misrepresentations. For example, if I have certain expertise in a subject (say I know a lot about cars) and you have none, and I offer my opinion about the car in a way that induces you to buy it, my opinion, if it is false, will be treated as a misrepresentation. Likewise, if a court determines that I could not possibly have believed the statement myself, they will treat it as a misrepresentation. 3. A purchaser explains to his real estate agent that he wants to buy a house containing a suite that would generate rental income. The agent showed and sold to him a house with a basement suite. After taking possession of the house, the purchaser discovered that the previous owner had been renting the basement unlawfully. No permit to build the suite had been obtained, nor could it have been obtained because the ceiling was too low and the lot too small. It turned out that the agent knew about these legal requirements and knew that they had not been met. She said nothing. Is the law of misrepresentation actionable? Explain your reasoning. Difficulty: 2 QuestionID: 09-3-03 Topic: Silence as a Misrepresentation Skill: Applied Answer: Because the agent knew that the purchaser intended to use the basement to generate income and also knew that it was impossible to get a permit because of the low ceiling, the failure to disclose would likely be seen as a fraudulent misrepresentation. 4. Zhou listed a commercial lot for sale, describing the land as being zoned for commercial/residential occupation. Dalvi, who was looking to build a funky billiards bar with condos above, inquired about Zhou's lot. Throughout their negotiations Zhou maintained that the law would allow the purchaser to use the lot for both commercial and residential purposes, and understood that the consequences of the zoning law were critical to Dalvi's business plan. Induced by this, Dalvi subsequently decided to buy the property. After buying the property, Dalvi learned that the land was not zoned as residential and that he was not permitted to build condos above the billiards bar. He sued Zhou, arguing that the inducing statement was actionable as misrepresentation. Will Dalvi succeed in his action? Why? Difficulty: 3 QuestionID: 09-3-04 Topic: Misstatement of Fact Skill: Applied Answer: Because everyone is presumed to know the law, the issue in this case turns on whether Zhou simply misstated the law or whether he made representations about the consequences of the law. On the facts, Zhou did not merely list the property as commercial/residential. He also made representations saying what the zoning bylaw would allow the purchaser to do with the lot. As such, there is a good argument that the statement misrepresented the consequences of the law. Such statements are actionable because they relate to a matter of fact, rather than a matter of law. There is no presumption that people know the consequences of the law. On this basis, Dalvi is likely to succeed.

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5. Why do insurance contracts require a duty of utmost good faith? Difficulty: 2 QuestionID: 09-3-05 Topic: Silence as a Misrepresentation Skill: Recall Answer: The duty of utmost good faith arises because the person seeking insurance is the only one in a position to know the material facts. The insurance industry can only function if insurers are able to determine the likelihood of a specific kind of loss occurring. In order to be able to assess the risk of insuring against the happening of that event, insurance companies need to know a lot about the party seeking insurance. This can only be assured if those persons owe a duty to disclose those facts even if they are not regularly asked about any changes in their situation. The insurance company also owes a duty of good faith to the insured to adjust the insured's claim in good faith. 6. A purchaser bought an oil painting from a private collector who promised that it was painted by one of the members of the Group of Seven, a promise that was held to be one of the terms of the contract. The painting quickly became the purchaser's favourite. He took it home and built a special room for its viewing, with an expensive lighting system. Five years later, after having grown somewhat tired of the room, the purchaser decided to sell the painting. In so doing, he discovered much to his chagrin that the painting was worth much less than he had thought as it was, in fact, done by a less famous American painter, who worked in a style similar to the Group of Seven. The purchaser decided to try to get his money back. He sued the private collector who sold it to him, asking the court to rescind the contract on the ground that there had been an innocent misrepresentation. What are the most plausible grounds upon which the court might decide not to rescind? Difficulty: 2 QuestionID: 09-3-06 Topic: Affirmation Skill: Applied Answer: The court would likely hold that after five years of enjoying the painting and building a special room for it, the buyer had lost the right to reject the sale. The significant lapse of time between a delivery and its rejection would be understood as an affirmation of the original contract. 7. "It is imperative that all business contracts be in writing." Assess this statement. Is it accurate from a legal perspective? It is accurate from the perspective of risk management? Explain your reasoning. Difficulty: 1 QuestionID: 09-3-07 Topic: Proof of Express Terms Skill: Recall Answer: It is not legally accurate to say that all business contracts must be in writing. In many circumstances, oral contracts are enforceable. The above statement was likely made with difficulties of proof in mind. When it comes to proving the terms of a contract, it is much easier to do so if those terms are expressed in writing and 25 © 2023 Pearson Canada Inc.

signed by both parties. From the perspective of risk management, setting the terms in writing also ensures that the other party will not be in a position to incorporate statements made orally during negotiations: the parol evidence rule only works in favour of parties with written contracts. In addition to issues of proof, the process of putting an agreement into writing is also useful to clarify the agreement between the parties. When forced to write down the terms, parties tend to contemplate the terms more carefully, and accordingly it is hoped that they then understand more clearly the obligations contemplated by the contract. 8. Name a shortcoming of the literal approach to contractual interpretation. Provide an example to illustrate your point. How might this difficulty be overcome? Difficulty: 3 QuestionID: 09-3-08 Topic: Interpretation of Express Terms Skill: Applied Answer: The most obvious shortcoming of the literal approach is that attributing to words their plain, ordinary meaning can, on occasion, lead to absurd results. Because language is open textured and words are often subject to more than one interpretation, it is often necessary to look beyond the ordinary meaning of a word or phrase. To take a famous example, the ordinance "No vehicles in the park" would, if taken literally, exclude bicycles, skateboards, wheelchairs, etc. Given that it is unlikely that all of these vehicles were meant to be excluded from the park, a literal interpretation of the ordinance could yield absurd results if followed to the letter. The way that this difficulty can be overcome is by applying a contextual approach, ie considering the intentions of those who drafted the words from within the circumstances of what they were trying to achieve. To continue the example from above, the drafter probably intended to exclude motorized vehicles, vehicles that interfere with others' enjoyment of the park, or vehicles that otherwise pose a safety risk in a park setting. This contextual approach allows interpreters to go beyond the plain ordinary meaning and achieve an understanding that reflects the objective intentions of those who made the statement or drafted the terms. 9. Can an express term ever be overridden by an implied term? Explain your reasoning and provide an example. Difficulty: 2 QuestionID: 09-3-09 Topic: Implied Terms Skill: Applied Answer: Express terms can be overridden by terms implied by a court or a statute. The fact that two parties agree to something does not always result in the enforceability of those terms. For example, you and I might agree to a contract where I provide you money in exchange for some illegal act. Even if we express the term in writing, it will not be enforceable. More typical examples are where the legal characteristic of a particular contract will result in an implied term by the court. Reasonable notice before dismissal in the employment law context is one example. Likewise, a statute might override terms expressed by the parties. You and I might agree to the sale for a particular piece of farming equipment without any guarantee concerning the functions or capabilities of the implement, but statutes 26 © 2023 Pearson Canada Inc.

in some provinces [Farm Implement Acts, SA 1982, cF-4-1 (Alta)] will imply such a guarantee in any event. 10. In what sense might a standard form agreement be beneficial to consumers? Briefly explain the downside of standard forms. Difficulty: 2 QuestionID: 09-3-10 Topic: Standard Form Agreements Skill: Recall Answer: The economic strategy of a standard form agreement is to offer the sale of goods or services at the lowest possible price by reducing the transactions costs associated with negotiating specific terms, and to allow the vendor to control the terms of sale and the contractual risks it undertakes in each sale. By setting out the terms of a contract in advance, a business using a standard form is able to pass savings on to consumers for transaction costs to some extent. The downside is that goods or services are offered on a take-it-or-leave-it basis with no opportunity for customers to negotiate special terms. For this reason, few customers actually bother reading standard form documents and often do not know all of their rights and obligations. Sometimes the terms of a standard form contract come as an unpleasant surprise to the party who has entered into that contract. 11. What is an exclusion clause? Why would a business want one included in a contract? Difficulty: 1 QuestionID: 09-3-11 Topic: Exclusion Clauses Skill: Applied Answer: An exclusion clause is a contractual term that seeks to protect one party from various sorts of legal liability. Often a business offering goods or services will incur certain risks in doing so. The idea of an exclusion clause is to eliminate or limit that risk. Without the exclusion clause, that business would have to factor the cost of the risk into the price of the goods or services. Thus exclusion clauses are one way to lower prices. Of course, this comes at a certain expense to the end user, who is forced to suffer the risk if they agree to exclude or limit liability of the vendor or service provider. 12. What is meant by the contra proferentum rule? Difficulty: 2 QuestionID: 09-3-12 Topic: Interpretation of Express Terms Skill: Applied Answer: The contra proferendum rule is a default rule of contractual interpretation. This means that if a contractual term is ambiguous, and if the ambiguity is not resolved either by a construing the ambiguous term in relation to the document as a whole, considering extrinsic evidence of the circumstances pertaining at the time the contract was entered into; then the court may simply interpret the contract against that party who drafted the 27 © 2023 Pearson Canada Inc.

contract. This rule generally only applies where one party drafts the contract without the opportunity for the other party to amend or negotiate the terms of the contract. The rational of the rule is that a party who drafts a contract should not have an incentive to use ambiguous language. This rule provides an incentive to a drafting party not to use ambiguous language as an ambiguity may be interpreted against the drafting party. 13. What is the rationale for holding people to their signatures even when they have not read or understood the contract? Difficulty: 1 QuestionID: 09-3-13 Topic: Signed Forms Skill: Recall Answer: By signing a document the customer indicates a willingness to be bound by the terms. And the act of signing is often relied upon by those who have asked for the signature. Where it is reasonable for people to rely on a signature, for example, where the terms are clear and the signor has had a sufficient opportunity to read the terms, the signatures are binding. This is because businesses often alter their financial positions on reliance of the signature. The signature is understood as a kind of promise to abide by the terms of the document. A party to a contract should not be excused from performing what they agreed to do by their contract in writing, simply because they were careless and did not bother to read what they were signing. 14. Jane was at the international terminal of the airport when she realized that she had forgotten to purchase travel insurance for her trip. After checking-in early, Jane was browsing at some of the shops and happened upon a vending machine selling travel insurance. On the outside of the machine was a sign that indicated "Full coverage for $2 per day." Jane plugged in three toonies to cover herself for the weekend. Out from the machine dropped a standard form agreement. After boarding the plane, Jane examined the fine print and noticed that the coverage was limited to travel within Canada. Like every other potential customer in the international terminal of the airport, Jane was not travelling within Canada. Concerned that she would not be covered, as soon as the plane landed Jane used her cellphone to dial the 1-800 number on the back of the printed form. All she got was a recorded message. If Jane got injured while traveling in the United States, will the exclusion clause prevent her from making a successful claim? Difficulty: 3 QuestionID: 09-3-14 Topic: Signed Forms Skill: Applied Answer: As the machine represented that the policy provided "full coverage," the term on the actual policy limiting coverage to Canada was onerous and unusual. This term was even more of a surprise when one considers that the vending machine was situated in a terminal where no one was traveling within Canada. Following only the Tilden case, a party that seeks to enforce onerous and unusual terms must bring such terms to the attention of the party at the time the contract is created. A failure to do so will render such terms unenforceable. In this case, there was no one to bring the terms to Jane's attention.

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Because the transaction was automated, the contract was completed long before Jane ever had a chance to read the terms and conditions. Given that the only term Jane was given notice of at the time she entered into the contract was that she would be provided with full coverage, it is possible that a court would not enforce the exclusion clause. However recent cases, such as the decision of the Supreme Court of Canada in Tercon have broadened the application of exclusion clauses, and Tilden may no longer be good authority. 15. Why are boilerplate provisions of potential value to businesses generating standard form agreements? Difficulty: 1 QuestionID: 09-3-15 Topic: Boilerplate Clauses Skill: Recall Answer: Boilerplate provisions often allocate the legal risk incurred by people doing business and therefore play a crucial role in determining the nature of the relationship between contracting parties, including their potential liabilities to each other and to third parties. Moreover, such provisions generally have been interpreted by the courts or are drafted based on specific precedent; therefore, such provisions provide predictability to the outcome of contractual relationships–obviating potential disputes.

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Managing the Law, 6e (McInnes) Chapter 10: Contractual Defects True/False Questions 1. Across Canada, the age of majority is 19, which is a federal law. a True b False Difficulty: 1 QuestionID: 10-1-01 Topic: Minors Skill: Recall Answer: b. False 2. The reason contracts for necessaries are enforceable is to ensure that minors do not avoid contracts with suppliers for perishable goods. a True b False Difficulty: 1 QuestionID: 10-1-02 Topic: Minors Skill: Recall Answer: b. False 3. Sina employs Joe, who is 16. The terms of the employment contract are to Joe's benefit. Still, Joe wants to walk away from his obligations. Joe can do so whenever he wants because the contract was always void. a True b False Difficulty: 1 QuestionID: 10-1-03 Topic: Minors Skill: Applied Answer: b. False 4. A minor's contract for necessaries of life is not voidable on the grounds of capacity. a True b False Difficulty: 1 1 © 2023 Pearson Canada Inc.

QuestionID: 10-1-04 Topic: Minors Skill: Recall Answer: a. True 5. The Statute of Frauds eliminates the writing requirements of the common law. a True b False Difficulty: 1 QuestionID: 10-1-05 Topic: Statute of Frauds Skill: Recall Answer: b. False 6. Sarah bought a stereo system in Vancouver under a payment plan that must be completed within two years. Technically speaking, the contract is enforceable only if it is evidenced in writing. a True b False Difficulty: 3 QuestionID: 10-1-06 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Applied Answer: b. False 7. The form and content requirements of the Statute of Frauds requires a signature from each of the parties. a True b False Difficulty: 1 QuestionID: 10-1-07 Topic: Writing Requirements Skill: Recall Answer: b. False 8. While Indian bands generally have the same contractual capacity as corporations, individual Aboriginals are subject to several special restrictions. a True b False

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Difficulty: 2 QuestionID: 10-1-08 Topic: Indian Bands and Aboriginal Persons Skill: Applied Answer: a. True 9. Cy and Kelly negotiate the sale of "Indian art" over the Internet. Because of an electronic miscommunication, Cy thinks he is buying art from Calcutta. But it turns out upon delivery that Kelly was selling Inuit art all along. Because the mistake was material and prevented the creation of a shared contractual intent, Cy will be able to claim the contract was defective and may have a remedy. a True b False Difficulty: 2 QuestionID: 10-1-09 Topic: General Principles Skill: Applied Answer: a. True 10. Svetlana paid an advance under a contract of sale for a unique antique in Ontario, but the performance of the contract was rendered impossible because of a terrible accident that happened during delivery. Because the seller incurred expenses while trying to deliver the antique, the court is permitted to allow the seller to keep some of the advance towards those expenses. a True b False Difficulty: 3 QuestionID: 10-1-10 Topic: The Doctrine of Frustration Skill: Applied Answer: a. True 11. The plea of non est factum allows a person to avoid a signed contract whenever they are mistaken about a key term or condition even if they do not bother to read the contract. a True b False Difficulty: 2 QuestionID: 10-1-11 Topic: Documents Mistakenly Signed Skill: Recall Answer: b. False 3 © 2023 Pearson Canada Inc.

12. The notion of public policy is somewhat vague as it is difficult for a judge to decide what the public policy is in a democratic society. a True b False Difficulty: 1 QuestionID: 10-1-12 Topic: The Doctrine of Public Policy Skill: Recall Answer: a. True 13. Tandindar was holding a shipment of goods that belonged to Todd and threatened not to release them unless he agreed to sign a contract to buy two more shipments over five years. Todd did not need the goods, but he decided to go through with the contract and agree to Tandindar's terms. This is an instance of economic duress. a True b False Difficulty: 3 QuestionID: 10-1-13 Topic: Duress Skill: Applied Answer: b. False 14. Whenever parties of unequal bargaining powers transact, undue influence is always presumed but can be rebutted. a True b False Difficulty: 2 QuestionID: 10-1-14 Topic: Undue Influence Skill: Recall Answer: b. False 15. Unconscionable transactions can be characterized as one-sided transactions obtained by unfair use of power. a True b False Difficulty: 1 QuestionID: 10-1-15 4 © 2023 Pearson Canada Inc.

Topic: Unconscionable Transactions Skill: Recall Answer: a. True 16. Capacity to contract required a specific level of intellectual ability a True b False Difficulty: 1 QuestionID: 10-1-16 Topic: Incapacity to contract Skill: Recall Answer: b. False Multiple Choice Questions 1. The concept of capacity A) means the legal power that we all have just to walk away from any contractual obligation on the basis that we did not understand the contract that we signed or otherwise entered into. B) means that the law requires parties who enter into contracts to have a legal capacity to enter into contracts, and not everyone in society necessarily has that capacity. C) refers to when one party is mistaken about the terms of a contract. D) refers to pre-contractual statements. E) requires all contracts to be in writing. Difficulty: 2 QuestionID: 10-2-01 Topic: Incapacity to Contract Skill: Applied Answer: B) means that the law requires parties who enter into contracts to have a legal capacity to enter into contracts, and not everyone in society necessarily has that capacity. 2. Which of the following contracts will not be enforced even if the purchaser is a minor? A) purchase of groceries B) retainer for legal services C) a beneficial employment contract D) a video game sale E) payment for a medical prescription Difficulty: 2 QuestionID: 10-2-02 Topic: Minors Skill: Applied 5 © 2023 Pearson Canada Inc.

Answer: D) a video game sale 3. Just moments ago, you created five different contracts with five different parties. Which of those contracts is least likely to be enforced? A) Arvid—you did not notice anything unusual about him, but a court had declared him to be mentally incompetent B) Brynn—who was slightly impaired, but not really drunk, after having several martinis C) CeeCee—you assumed that she was about 16 years old, but she is really 20 D) Deacon—who appeared to be ancient, but is really 76 years old E) Eugenia—who told you that she was acting on behalf of the Topiary Association Difficulty: 2 QuestionID: 10-2-03 Topic: Personal Incapacity Skill: Applied Answer: A) Arvid—you did not notice anything unusual about him, but a court had declared him to be mentally incompetent 4. Lawrence and Jane were negotiating a contract, for the purchase and sale of widgets, over cocktails. Jane believed that Lawrence was completely intoxicated and she was hoping to take advantage of his condition to get the best possible deal for herself. Lawrence, however, knew what Jane was trying to do because he was really only slightly impaired. He therefore manipulated the situation to sign two contracts. The first was to his advantage and the second benefitted Jane. Lawrence believed that he would be entitled to enforce the first, but walk away from the second. Which of the following is most likely to be TRUE? A) Both deals are enforceable because Lawrence was not truly incapacitated. B) Neither deal is enforceable because Jane believed Lawrence to be intoxicated and therefore could not have reasonably expected to enforce either transaction. C) A court will enforce the first contract, but not the second, because Jane tried to take advantage of Lawrence before he tried to take advantage of her. D) A court will enforce the second contract, but not the first, because Lawrence knew the true facts, but Jane did not. E) Neither contract is enforceable because even a person who pretends to be intoxicated does not have contractual capacity. Difficulty: 3 QuestionID: 10-2-04 Topic: Intoxication Skill: Applied Answer: A) Both deals are enforceable because Lawrence was not truly incapacitated. 5. Which of the following distinguishes a chartered corporation from a statutory corporation? A) Chartered corporations have a limited contractual capacity, but statutory corporations do not. 6 © 2023 Pearson Canada Inc.

B) Statutory corporations are treated the same as individuals of a majority age, but chartered corporations are not. C) Statutory corporations cannot be said to act ultra vires, but chartered corporations can. D) Statutory corporations are indistinguishable from chartered corporations in terms of contractual capacity. E) Chartered corporations generally have full capacity and consequently are not subject to the ultra vires rule, but statutory corporations have limited capacity and consequently are subject to the ultra vires rule. Difficulty: 2 QuestionID: 10-2-05 Topic: Business Corporations Skill: Recall Answer: E) Chartered corporations generally have full capacity and consequently are not subject to the ultra vires rule, but statutory corporations have limited capacity and consequently are subject to the ultra vires rule. 6. Unincorporated associations A) are always treated the same way as corporations. B) are not legal entities and therefore do not have contractual capacity unless a statute says otherwise. C) generally have the capacity to contract. D) are independent legal entities. E) no longer exist in Canadian society. Difficulty: 1 QuestionID: 10-2-06 Topic: Associations Skill: Recall Answer: B) are not legal entities and therefore do not have contractual capacity unless a statute says otherwise. 7. An Aboriginal person named Joe was born and raised on a Native reserve. Upon reaching the age of majority, however, he abandoned the reserve and moved to Calgary so that he could better develop a career as an artist. Ten years later, Joe was asked to participate in a major exhibition of his work. Most of Joe's art depicts life on his reserve. Which of the following is most likely to be TRUE? A) Joe is unable to sell his art anywhere other than the reserve. B) The profits from Joe's sales will be held by the Crown. C) Joe's art could be used as security for a credit transaction if the art is not on his reserve. D) Joe has only a limited capacity to contract. E) Joe lacks the capacity to contract. Difficulty: 3 QuestionID: 10-2-07 Topic: Indian Bands and Aboriginal Persons Skill: Applied Answer: C) Joe's art could be used as security for a credit transaction if the art is not on his reserve.

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8. Having recently made a fortune by inventing and selling a new piece of software, Matt heard that his friend, Lois, was having a hard time obtaining a bank loan. Matt therefore generously promised the bank that he would be responsible for the debt if Lois failed to repay a loan. That promise will be enforceable against Matt if A) he provides a notarized copy to the bank. B) Lois repeats Matt's promise in a document that she signed. C) he provides it to the bank in a signed document. D) the promise is contained in a document that Lois and the bank signed. E) either Lois or the bank provides some positive benefit to Matt personally. Difficulty: 3 QuestionID: 10-2-08 Topic: Types of Contracts That Must Be Evidenced in Writing Skill: Applied Answer: C) he provides it to the bank in a signed document. 9. The difference between a guarantee and an indemnity is that A) indemnities need to be in writing to be enforceable. B) a guarantee is a conditional promise and an indemnity is not. C) a guarantee is a promise to assume another's debt. D) the Statute of Frauds applies to indemnities but not to guarantees. E) a guarantee is given to a bank and an indemnity is given to a party that is not a bank. Difficulty: 2 QuestionID: 10-2-09 Topic: Guarantees Skill: Recall Answer: B) a guarantee is a conditional promise and an indemnity is not. 10. Which of the following is LEAST LIKELY to be understood by a court as a contract for the sale of an interest in land? A) the purchase of a home B) the lease of a farm C) the short-term lease of a residential apartment D) the lease of mineral rights in an oilfield E) the purchase of lakefront property Difficulty: 2 QuestionID: 10-2-10 Topic: Contracts for the Sale of an Interest in Land Skill: Applied Answer: C) the short-term lease of a residential apartment

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11. Which of the following statements regarding the Statute of Frauds is TRUE? A) The signature requirement may be satisfied by a name on letterhead. B) The statute generally requires the document to be signed by the person who wants to enforce the agreement. C) The writing requirements must always be satisfied by a single document–a court will not consider several documents together. D) Because of the importance of the subject matter, Parliament enacted a Statute of Frauds that applies across Canada. E) The Statute of Frauds was first created in Canada, but it has been copied in other countries as well. Difficulty: 2 QuestionID: 10-2-11 Topic: Writing Requirements Skill: Recall Answer: A) The signature requirement may be satisfied by a name on letterhead. 12. Ariel pays Newton a $17,000 deposit as part performance of an oral contract for the sale of land and that Ariel takes possession of the land at the time of possession. According to the terms of their agreement, Ariel is to pay the balance 30 days after taking possession, failing which Newton is allowed to keep the deposit and Ariel must vacate. Suppose that the contract of sale does not complete as Newton fails to provide a transfer of title even though Ariel tenders the whole amount on the thirtieth day after possession was taken by Ariel. Which of the following is TRUE in most Canadian jurisdictions? A) Ariel can enforce the contract of sale against Newton. B) Newton has a defence to enforcement of the contract based on the Statute of Frauds. C) Newton can refund the deposit and take the money back because the parties' actions were not part performance of a contract. D) Ariel can only sue for return of the deposit. E) Ariel will lose the deposit, she must pay rent to Newton for the month of possession, and she must then vacate the land. Difficulty: 3 QuestionID: 10-2-12 Topic: Effect of Non-Compliance Skill: Applied Answer: A) Ariel can enforce the contract of sale against Newton. 13. For which of the following lists would the Statute of Frauds require ALL THREE contracts to be evidenced in writing in most Canadian jurisdictions? A) a five-year commercial property lease agreement; the sale of a house; a mortgage of a condominium B) a guarantee to assume someone's debt upon default; an indemnity agreement; the sale of a $2,000 leather sofa C) a four-year financing agreement secured by goods but not land; purchase of a $2,000 leather sofa; the sale of a house D) an agreement to rake your neighbour's leaves; the sale of a house; an indemnity agreement 9 © 2023 Pearson Canada Inc.

E) a contract to buy a stereo; a contract to buy a car; and a contract to buy a new pair of blue jeans Difficulty: 2 QuestionID: 10-2-13 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Applied Answer: A) a five-year commercial property lease agreement; the sale of a house; a mortgage of a condominium 14. Which of the following statements is TRUE? A) The doctrine of non est factum is not available if a person failed to read a contract simply because her glasses were broken. B) The phrase "non est factum" is a Latin phrase that means "I cannot find the document." C) The doctrine of non est factum was developed in law and not in equity. D) The doctrine of non est factum can lead to rescission, but it cannot be used for the purpose of rectification. E) The doctrine of non est factum is available only under a statute. Difficulty: 2 QuestionID: 10-2-14 Topic: Documents Mistakenly Signed Skill: Applied Answer: A) The doctrine of non est factum is not available if a person failed to read a contract simply because her glasses were broken. 15. Which of the following mistakes is most likely to prevent the creation of a contract? A) As a result of a mistake regarding the future value of a technology company, a stock broker buys stock in that company. B) In January, a person agrees to pay $10,000 for the right to occupy a lakeside cottage during July and August. When both parties go to the lake on July 1, however, they discover that the cottage burned to the ground several weeks earlier. C) A grocery supplier fills an order for 5,000 cans of beans but mistakenly sends only 500 cans. D) A bean wholesaler ships 5,000 cans of golden wax beans to a customer who thought that he was ordering 5,000 cans of corn. E) A person agrees to a standard form contract on the Internet by clicking the mouse on the "I Agree" icon. Difficulty: 2 QuestionID: 10-2-15 Topic: Mistakes Rendering Impossible the Purpose of a Contract Skill: Applied Answer: D) A bean wholesaler ships 5,000 cans of golden wax beans to a customer who thought that he was ordering 5,000 cans of corn.

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16. Shogun Used Cars Ltd supposedly sold a car to Alan Rogue. Shogun, however, has discovered that Rogue was not who he pretended to be and the company wants the court to declare that the apparent contract is invalid because of the mistake of identity. A judge will agree A) even if Shogun would have created the same contract if it had known Rogue's true identity. B) only if Rogue knew that Shogun acted under a material mistake. C) only if Rogue has paid at least part of the price. D) only if Rogue has tried to re-sell the car to a third party. E) only if Shogun took every possible precaution to verify Rogue's identity. Difficulty: 2 QuestionID: 10-2-16 Topic: Mistaken Identity Skill: Applied Answer: B) only if Rogue knew that Shogun acted under a material mistake. 17. The doctrine of frustration applies if A) after a contract is created, some unexpected event either makes it impossible for the parties to perform or radically undermines the purpose of their agreement. B) the defendant repeatedly refuses to perform despite being able to do so. C) the contracting parties are unable to reach an agreement and are forced to abandon negotiations. D) the parties attempted to create a contract in ignorance of some fact that would make it impossible for the parties to eventually perform. E) both parties agree to not perform the contract. Difficulty: 2 QuestionID: 10-2-17 Topic: The Doctrine of Frustration Skill: Recall Answer: A) after a contract is created, some unexpected event either makes it impossible for the parties to perform or radically undermines the purpose of their agreement. 18. Selma recently signed a contractual document with Olaf. She now believes, however, that she should be entitled to walk away from the agreement as a matter of fairness. She has phrased her argument in terms of the doctrine of non est factum. A court is most likely to agree with that argument A) if, even though Selma was not careless, there is a radical difference between what the document contains and what Selma thought it contained. B) if the document contains an exclusion clause that Olaf did not expressly draw to Selma's attention. C) if Selma failed to notice that the document did not reflect the agreement that she had reached with Olaf, even if Selma simply chose not to read the document. D) if the document contained a space for Selma's signature, but she forgot to sign. E) only if Olaf promised Selma that the agreement would not be legally enforceable even if she signed the document. Difficulty: 2 11 © 2023 Pearson Canada Inc.

QuestionID: 10-2-18 Topic: Documents Mistakenly Signed Skill: Applied Answer: B) if the document contains an exclusion clause that Olaf did not expressly draw to Selma's attention. 19. Common law illegality A) is an attempt to regulate conduct through an administrative regime. B) aims to punish individuals who make agreements contrary to public policy. C) requires a determination of legislative intent. D) causes agreements that are contrary to public policy to be unenforceable. E) requires proof that one party is involved in an actual crime in entering into the contract. Difficulty: 2 QuestionID: 10-2-19 Topic: Common Law Illegality Skill: Recall Answer: D) causes agreements that are contrary to public policy to be unenforceable. 20. Nora was furious that his neighbours allowed their dog, Asta, to bark long into the night. She therefore hired Nick to steal Asta. Nora paid Nick according to the terms of the contract, but he did not follow through with his end of the bargain. Can Nora get her money back? A) No. The contract is defective because it was not in writing. B) No. The contract is defective because it is illegal. C) No. The contract is defective because it is a restraint on trade. D) Yes. The parties will be returned to their pre-contractual position. E) Yes. The lawsuit can be brought in small claims court. Difficulty: 2 QuestionID: 10-2-20 Topic: Common Law Illegality Skill: Applied Answer: B) No. The contract is defective because it is illegal. 21. Which of the following examples of a covenant in restraint of trade is most likely to be contrary to public policy and therefore invalid? A) A high-tech firm requires its engineers to contractually promise that, during their terms of employment, they will not reveal any information about patents to any other high-tech, communications, or pharmaceutical companies. B) Partners in an advertising agency contractually promise that, during their time with the partnership, they will engage in advertising sales exclusively for the agency. C) A contract for the sale and purchase of a business prohibits the vendors from directly competing with their former company for a period of two years. D) A contract for the sale and purchase of a bakery requires the sellers to promise that they will never own 12 © 2023 Pearson Canada Inc.

or operate another bakery anywhere in the world. E) A franchisor requires a franchisee to conduct the franchise operations solely in accordance with the written franchise agreement and not in any other manner. Difficulty: 3 QuestionID: 10-2-21 Topic: Covenants in Restraint of Trade Skill: Applied Answer: D) A contract for the sale and purchase of a bakery requires the sellers to promise that they will never own or operate another bakery anywhere in the world. 22. How do courts regard restrictive covenants? A) Courts will assume that unless there was unfairness during the bargaining process, restrictive covenants should be upheld because the parties have freedom to contract. B) Courts will find all restrictive covenants to be against public policy. C) Courts will presume restrictive covenants to be against public policy unless the party seeking to enforce the covenant demonstrates that the restriction is reasonable. D) Courts will presume restrictive covenants to be reasonable unless the party seeking to avoid the covenant demonstrates that the restriction is against public policy. E) Courts will rewrite all restrictive covenants to make them reasonable and therefore enforceable. Difficulty: 2 QuestionID: 10-2-22 Topic: Covenants in Restraint of Trade Skill: Recall Answer: C) Courts will presume restrictive covenants to be against public policy unless the party seeking to enforce the covenant demonstrates that the restriction is reasonable. 23. Economic duress A) occurs whenever one party puts another party under financial pressure. B) occurs when the victim could not reasonably resist improper pressure. C) is assumed to exist once the victim of duress commences legal proceedings against the party exerting duress. D) is impossible to prove unless the victim of duress protested at the time the duress was exerted. E) occurs when a victim of duress seeks independent legal advice and that advice is wrong. Difficulty: 1 QuestionID: 10-2-23 Topic: Duress Skill: Recall Answer: B) occurs when the victim could not reasonably resist improper pressure. 24. Duress is distinguishable from undue influence in that 13 © 2023 Pearson Canada Inc.

A) duress always involves an inequality of bargaining power, whereas undue influence is concerned with physical pressure. B) duress may arise from a threat to a person's property, whereas undue influence generally involves excessive manipulation or persuasion. C) the receipt of independent legal advice is relevant to duress, but not to undue influence. D) duress involves the application of improper pressure, whereas undue influence focuses on improvident bargains. E) duress causes a contract to be void, whereas undue influence renders a contract voidable. Difficulty: 3 QuestionID: 10-2-24 Topic: Duress Skill: Recall Answer: B) duress may arise from a threat to a person's property, whereas undue influence generally involves excessive manipulation or persuasion. 25. Constance and Rosemary are in a fiduciary relationship. This fact is relevant to a claim of unfairness during bargaining because A) it means that the two of them will never be allowed to contract with each other as a result of the conflict of interest. B) it means that Connie could never enforce her contract with Rosemary. C) the court will presume that a contract between them was founded on the basis of duress. D) the court will presume that a contract between them was founded on the basis of undue influence. E) the court will presume that a contract between them was founded on the basis of an unconscionable transaction. Difficulty: 3 QuestionID: 10-2-25 Topic: Undue Influence Skill: Applied Answer: D) the court will presume that a contract between them was founded on the basis of undue influence. 26. Wilma had worked for Acme Inc for more than ten years. Unfortunately, she fell out of favour with the company after she began to complain, on behalf or herself and her co-workers, about working conditions. Eventually, the relationship became intolerable and Wilma reluctantly agreed to leave. Acme provided a severance package, but only after Wilma contractually promised that she would not sue the company in connection with her dismissal. Wilma now believes that her employment was improperly terminated. She cannot sue the company, however, unless she can escape from the severance contract. Which of the following statements is most likely to be TRUE? A) Because of the relationship that always exists between an employer and an employee, a court will assume that Wilma was subject to undue influence unless Acme can prove otherwise. B) The concept of duress of goods has been extended to situations in which a person has been improperly fired and therefore cannot afford to buy the necessities of life. C) If Wilma sues for economic duress, she is more likely to win if she signed the severance contract 14 © 2023 Pearson Canada Inc.

without receiving independent legal advice. D) The facts reveal a clear case of an unconscionable transaction. E) To succeed in a claim for economic duress, Wilma would have to prove that Acme Inc was motivated primarily by the desire to enjoy a financial advantage as a result of terminating Wilma's employment. Difficulty: 2 QuestionID: 10-2-26 Topic: Duress Skill: Applied Answer: C) If Wilma sues for economic duress, she is more likely to win if she signed the severance contract without receiving independent legal advice. 27. A fiduciary relationship A) is exclusive to the law of corporations. B) is exclusive to the law of employment. C) exists whenever there is an inequality in the bargaining power of contracting parties. D) must be established in order to prove undue influence. E) exists when one party is in a position of dominance over another, for example a trustee and a beneficiary, a lawyer and a client, or a doctor and a patient. Difficulty: 2 QuestionID: 10-2-27 Topic: Undue Influence Skill: Recall Answer: E) exists when one party is in a position of dominance over another, for example a trustee and a beneficiary, a lawyer and a client, or a doctor and a patient. 28. An unconscionable transaction A) is a contract that was created when at least one party was unconscious or otherwise lacked capacity. B) always requires proof that one party violated a statute. C) will exist if either the bargain was improvident or the parties did not have equal bargaining power. D) requires proof of either an improper threat or excessive coercion. E) is a doctrine that was developed in equity rather than law. Difficulty: 2 QuestionID: 10-2-28 Topic: Unconscionable Transactions Skill: Recall Answer: E) is a doctrine that was developed in equity rather than law. 29. Which of the following is most likely an improvident bargain? A) An elderly woman assigns all of her assets to a powerful business in exchange for the promise to take care of her in the future. 15 © 2023 Pearson Canada Inc.

B) An elderly woman assigns all of her assets to a convicted fraudster in exchange for the fraudster's promise to take care of her grandson in the future. C) An elderly woman trades her farm in Manitoba for a condo in Florida. D) An elderly woman trades her cottage in Nova Scotia for blue chip stocks. E) An elderly woman goes to play bingo for the third time in a week. Difficulty: 2 QuestionID: 10-2-29 Topic: Unconscionable Transactions Skill: Applied Answer: B) An elderly woman assigns all of her assets to a convicted fraudster in exchange for the fraudster's promise to take care of her grandson in the future. 30. Which of the following is TRUE? A) A transaction may be unconscionable only if an inequality of bargaining power between the parties results in an improvident bargain for the weaker party. B) A transaction can be unconscionable only if the bargain is not improvident. C) A transaction can be unconscionable only if the presumption of unconscionability is rebutted. D) A transaction can be unconscionable only if a fiduciary duty exists between the parties. E) Any contract in which a large company enjoys a benefit over an individual consumer is an unconscionable transaction. Difficulty: 2 QuestionID: 10-2-30 Topic: Unconscionable Transactions Skill: Applied Answer: A) A transaction may be unconscionable only if an inequality of bargaining power between the parties results in an improvident bargain for the weaker party. 31. Which of the following have limited capacity to contract for the necessities of life? A) minors and people who have been declared mentally incompetent by the courts B) Aboriginals and the elderly C) public authorities and Indian bands D) corporations and alcoholics E) minors Difficulty: 1 QuestionID: 10-2-31 Topic: Minors Skill: Recall Answer: E) minors 32. Where is exists, the Statute of Frauds imposes a writing requirement on 16 © 2023 Pearson Canada Inc.

A) all contracts of employment. B) all loans and all guarantees. C) all contracts with a government and all contracts for the sale of interests in land. D) all enforceable contracts created by minors. E) guarantees and contracts that cannot be performed within one year. Difficulty: 3 QuestionID: 10-2-32 Topic: Types of Contracts That Must Be Evidenced in Writing Skill: Recall Answer: E) guarantees and contracts that cannot be performed within one year. 33. Pam entered into a contract with Dave. A court will declare that the contract was frustrated if A) Dave promised to keep Pam's sidewalks clear of snow for a flat fee of $500 for the winter, but now wants to escape the contract because the city has already been hit by six major blizzards and it is only the middle of January. B) Pam repaired Dave's truck, but before he could resume possession, the vehicle was destroyed by a fire of unknown origin. C) both parties performed as promised, but neither party is satisfied with the end result. D) Dave stored Pam's household goods while she was attended school in Spain for a year, but he now refuses to allow her to take possession of the property unless she pays storage fees. E) neither party realized, when they created the contract, that they would both have to pay a tax on the transaction. Difficulty: 2 QuestionID: 10-2-33 Topic: The Doctrine of Frustration Skill: Applied Answer: B) Pam repaired Dave's truck, but before he could resume possession, the vehicle was destroyed by a fire of unknown origin. 34. A force majeure clause A) allows a frustrated contract to be rescinded. B) overrides the effect of an event that normally would constitute frustration. C) is important primarily because of the possibility of duress or undue influence. D) means that if there is a dispute regarding the effect of a contract, and there are more than two parties to the contract, the majority view will prevail. E) provides protection against the possibility of unconscionable conduct. Difficulty: 1 QuestionID: 10-2-34 Topic: The Doctrine of Frustration Skill: Recall

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Answer: B) overrides the effect of an event that normally would constitute frustration. 35. Salvatore contractually agreed to by a shipment of widgets from Acme Corp. A dispute has arisen in connection with that agreement and Acme claims the protection of a force majeure clause. Which of the following statements is most likely to be TRUE? A) The company has discovered that Salvatore is under the age of majority. B) Salvatore has argued that the contract is unenforceable because it is not evidenced in writing. C) Salvatore is upset because the widgets were destroyed by a typhoon while they were in transit, and because he mistakenly believed that the widgets were protected by an insurance policy. D) The company wants to escape from the contract on the grounds of frustration. E) Salvatore has argued that he entered into the contract as a result of undue influence. Difficulty: 3 QuestionID: 10-2-35 Topic: The Doctrine of Frustration Skill: Applied Answer: C) Salvatore is upset because the widgets were destroyed by a typhoon while they were in transit, and because he mistakenly believed that the widgets were protected by an insurance policy. 36. Adrian and Darah entered into a contract. After the agreement was partially performed, Adrian successfully claimed that the contract is voidable. Which of the following statements is most likely to be TRUE? A) Adrian, who is an Aboriginal living on reserve land, had created a contract to sell that land to Darah. B) Adrian, who is 17 years old, had entered into a contract to purchase a set of computer games from Darah. C) Adrian, who has been declared mentally incompetent by a court, entered into a contract to purchase food and shelter from Darah. D) Adrian, who is an Aboriginal living in Toronto, entered into a contract to purchase recreational sporting goods from Darah. E) Adrian, who is 17 years old, entered into a contract to obtain life-saving medical services from Darah. Difficulty: 2 QuestionID: 10-2-36 Topic: Minors Skill: Applied Answer: B) Adrian, who is 17 years old, had entered into a contract to purchase a set of computer games from Darah. 37. Tajeash and Faye entered into a contract. Before either party began to perform, however, Tajesh successfully claimed that the contract is void. Which of the following statements provides the best explanation for that outcome? A) Faye was drunk when the contract was created. B) Tajesh is the name of a chartered corporation, and the contract dealt with non-essential goods. C) Faye sold a shotgun to Tajesh even though Tajesh, who is a minor, lacked the necessary licence to 18 © 2023 Pearson Canada Inc.

purchase a shotgun. D) Tajesh, a 82 year-old, sometimes acts unreasonably, as Faye knew when the parties signed the contract. E) Tajesh is not a citizen of Canada, and the contract was made in this country. Difficulty: 3 QuestionID: 10-2-37 Topic: Illegality Skill: Applied Answer: C) Faye sold a shotgun to Tajesh even though Tajesh, who is a minor, lacked the necessary licence to purchase a shotgun. 38. Malkit sold a house to Amanda. The evidence indicates that Amanda owed fiduciary obligations to Malkit both before and after the agreement was signed. Which of the following statements is TRUE? A) Amanda has an absolute right to have the contract set aside. B) The court will presume that Malkit entered into the contract as a result of Amanda's undue influence. C) In order to set aside the contract, Malkit must prove that the agreement is unfair to him. D) The contract will be set aside unless Amanda proves that she was unaware of her fiduciary obligations. E) Malkit is entitled to receive Amanda's performance even though he is not required to perform his obligations under the agreement. Difficulty: 2 QuestionID: 10-2-38 Topic: Undue Influence Skill: Applied Answer: B) The court will presume that Malkit entered into the contract as a result of Amanda's undue influence. 39. Maeve entered into a contract with Tyler. The parties had equal bargaining power and Tyler did not pressure Maeve into the agreement. Although she does not suffer from a mental illness or intellectual disability, and although she is an adult, Maeve is easily victimized in some commercial dealings. She is naive, immature, and unsophisticated. As a recent immigrant to Canada, she speaks English reasonably well, but she cannot read or write in English. She now wants to set aside her contract with Tyler on the basis that it is an unconscionable transaction. Which of the following statements is most likely to be TRUE? A) A judge may enforce the contract even if it is an improvident bargain from Maeve's perspective. B) The contract will be set aside unless Tyler proves that the agreement benefits Maeve more than it benefits himself. C) A court will presume that the transaction is unconscionable as soon as it hears evidence of Maeve's disadvantages. D) The contract cannot be enforced unless Maeve received independent legal advice. E) The contract will be set aside only if Maeve proves that Tyler exercised undue influence over her. Difficulty: 2 QuestionID: 10-2-39 19 © 2023 Pearson Canada Inc.

Topic: Unconscionable Transactions Skill: Applied Answer: A) A judge may enforce the contract even if it is an improvident bargain from Maeve's perspective. 40. Napoleon wanted to borrow money from the Bank of Winnipeg. The bank, however, was not entirely convinced that he would be able to repay the debt. It therefore wanted some assurance from Napoleon's friend, Josephine, that she would repay the loan if Napoleon did not. Which of the following statements is most likely to be TRUE? A) If it was not evidenced in writing, Josephine's promise will certainly be enforceable if it was a guarantee, but it may not be enforceable if it was an indemnity. B) If Josephine's promise must be evidenced in writing in order to be enforceable, the bank may be able to satisfy that requirement by combining several documents, even if those documents do not refer to each other. C) If Josephine's promise is not evidenced in writing, and if such writing is required by statute, then neither Josephine nor Napoleon needs to repay the loan. D) If Josephine's promise must be evidenced in writing in order to be enforceable, then the contract will be unenforceable unless both Josephine and the bank sign the relevant document. E) If Josephine's promise is properly classified as an indemnity, then the bank cannot demand payment from her unless Napoleon has first refused to pay. Difficulty: 3 QuestionID: 10-2-40 Topic: Writing Requirements Skill: Applied Answer: B) If Josephine's promise must be evidenced in writing in order to be enforceable, the bank may be able to satisfy that requirement by combining several documents, even if those documents do not refer to each other. 41. On Tony's 21st birthday, he spent the afternoon in a pub with his friends and then visited a car dealership. Although Tony exhibited clear signs of intoxication, the dealership persuaded him to sign a contract to buy an expensive new car. Which of the following is most likely to be TRUE? A) A signed contract is never void or voidable. B) The contract is voidable if Tony repudiates the contract by contacting the dealership within a reasonable time after regaining capacity. C) The contract is fully enforceable because Tony is of the age of majority, which means he is held fully accountable in law. D) The contract is voidable if Tony does not do anything to affirm the contract. E) The contract is voidable only if it can be proven that the dealership inflated the price of the car. Difficulty: 2 QuestionID: 10-2-41 Topic: Incapacity to Contract Skill: Applied

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Answer: B) The contract is voidable if Tony repudiates the contract by contacting the dealership within a reasonable time after regaining capacity. 42. Jerry and four of his friends form the Inventor's Club, a private club that allows inventors to get together and share new ideas. This organization is A) a chartered corporation, meaning that it shares the same legal rights as someone who has reached the age of majority. B) an association, meaning that it shares the same legal rights as someone who has reached the age of majority, but still cannot contract. C) an association, meaning that all contracts will have to be created by Jerry or one of his friends. D) a chartered corporation, meaning that it must have someone contract for its benefit. E) a statutory corporation, meaning that it can contract, but has limited contractual capacity. Difficulty: 3 QuestionID: 10-2-42 Topic: Associations Skill: Applied Answer: C) an association, meaning that all contracts will have to be created by Jerry or one of his friends. 43. Stewart is a fifteen-year-old boy who comes from a very wealthy family. Throughout his life, Stewart has been given expensive jewelry. In May, he and his mother got into an argument and he decided to sell some of his jewelry at Frank's Pawnshop. Excited about the collection they were about to receive, the pawnshop clerk immediately entered into a contract with Stewart to complete the transaction. Which of the following statements is most likely to be TRUE? A) The contract is fully enforceable as long as the pawnshop paid fair market value. B) The contract is enforceable as long Frank, or someone else in the pawnshop, provided Stewart with legal advice before he signed the agreement. C) Stewart can avoid the contract at any point in the future as long as he repays the money that he received. D) The contract is voidable, but Stewart must elect to avoid it in a timely manner. E) The contract is illegal and therefore void. Difficulty: 3 QuestionID: 10-2-43 Topic: Minors Skill: Applied Answer: D) The contract is voidable, but Stewart must elect to avoid it in a timely manner. 44. Jane is interested in purchasing a condominium property from Full House Real-Estate Group. She recently graduated college, so she does not have much of a credit record. Knowing this, she goes to Version Bank with her wealthy cousin, Ted, who previously agreed to assist her in buying a house. Which statement is most likely to be TRUE? A) Ted can indemnify the bank loan as an unconditional promise to pay only when Jane defaults on her payments. B) Ted can guarantee the bank loan as an unconditional promise to pay only when Jane defaults on her 21 © 2023 Pearson Canada Inc.

payments. C) Ted can guarantee the bank loan as a conditional promise to pay only when Jane defaults on her payments. D) Ted can indemnify the bank loan as a conditional promise to pay only when Jane's obligations become due. E) Ted can indemnify the bank loan, but the indemnification is only enforceable if the indemnity is signed under a notary public seal according to the Indemnification Acknowledgments Act. Difficulty: 2 QuestionID: 10-2-44 Topic: Guarantees Skill: Applied Answer: C) Ted can guarantee the bank loan as a conditional promise to pay only when Jane defaults on her payments. 45. Because she was moving to Calgary, Lucy wanted to sell the furniture store that she had created in Edmonton. Chas was interested in buying the business, but he insisted that the contract must include a non-compete clause. Lucy agreed, the contract was created, and Chas became the new owner of the store in Edmonton. A year later, however, he learned that Lucy had opened a new furniture store in Calgary and was doing great business. Chas then sued Lucy for breaking the non-compete clause. Which of the following statements is most likely to be TRUE? A) The non-compete clause will be enforced unless Lucy can prove that the process leading up to the contract was defective in some way. B) All non-compete clauses are contrary to public policy and therefore void. C) As long as Lucy received independent legal advice before she signed the contract, the non-compete clause will be enforced. D) The non-compete clause may be enforced as long as it is reasonable in terms of the geographical area and the time period that it covers. E) The non-compete clause will be enforced as long as Lucy received special consideration in exchange for it. Difficulty: 2 QuestionID: 10-2-45 Topic: Covenants in Restraint of Trade Skill: Applied Answer: D) The non-compete clause may be enforced as long as it is reasonable in terms of the geographical area and the time period that it covers. 46. Jim and his partner obtain a mortgage to purchase their new home. As they are recent graduates, the bank is concerned they will not able to satisfy their loan obligations. As a condition of the loan, Jim's parents promise to step in and pay the loan if Jim and his partner default. This arrangement is referred to as A) a guarantee. B) an indemnity. 22 © 2023 Pearson Canada Inc.

C) the Statute of Frauds. D) a protected mortgage. E) an unconscionable contract. Difficulty: 2 QuestionID: 10-2-46 Topic: Covenants in Restraint of Trade Skill: Applied Answer: D) a protected mortgage. Essay Questions 1. What is the difference between voidable and enforceable contracts? Provide an example of each in the context of whether a minor has the capacity to contract. Difficulty: 2 QuestionID: 10-3-01 Topic: Minors Skill: Recall Answer: Many contracts are voidable if the minor so elects within a reasonable period of time. This means that, upon election, the minor is able to avoid contractual obligations. An example of a voidable contract is a contract for the sale of land. There are, however, some kinds of contracts that a minor cannot elect to avoid. These are enforceable contracts. Courts will enforce contracts made by minors for "necessaries," so long as the contract is to the minor's benefit. Necessaries are items such as food, clothing, and education that are necessary to the minor's station in life. Minors' contracts of employment are also enforceable. Examples of enforceable contracts are a contract for sale of groceries or an agreement to provide instruction in a trade. 2. Charlie has bipolar disorder (also known as manic-depression). Usually, medication helps to control her disorder. Lately, Charlie stopped taking her medication and started drinking heavily. During a manic (up) phase, she dressed in an elegant suit, went to a BMW dealership and signed a contract for the purchase of a new sports car. She financed the transaction by putting a large deposit on her credit card, and drove the car off the lot that same day. Charlie's family became very concerned. Describe the law as it pertains to Charlie's capacity to contract. What should Charlie do? What should the car dealer do? Difficulty: 3 QuestionID: 10-3-02 Topic: Mental Incapacity, Intoxication Skill: Applied Answer: Mentally disabled adults who are unable to appreciate the nature and consequences of their acts do not have capacity to contract. Courts will consider whether the other party was aware of the mental deficiency at the time that the agreement was struck, or whether the other party willfully disregarded the disabled person's condition.

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Persons who enter contracts while intoxicated will only be able to avoid liability if they prove that the state of inebriation rendered that person incapable of knowing or appreciating what they were doing, and that the other party was aware of this incapacity but entered into the contract anyway. The party seeking to avoid the transaction must make a prompt election to avoid it once sober. Charlie (with the help of her family) should attempt to return the car and rescind the contract immediately, explaining that Charlie lacked the capacity to contract because of her manic state, exacerbated by the alcohol. If the car dealer does not allow her to avoid the deal and sues for breach of contract, Charlie can raise her mental illness and intoxication in an attempt to avoid the contract. She may also try to demonstrate that the transaction was unconscionable if she can show that the dealer took advantage of her condition. Lack of mental capacity is a risk that businesses must assume and guard against. Charlie has a compelling case to obtain a declaration that no contract was formed as a result of lack of capacity to contract. 3. Elsa is a member of an active neighbourhood association. The association runs frequent community events, issues a monthly newsletter to residents, lobbies municipal government, and engages in fundraising. Recently, they have decided to create a staff position to coordinate their efforts. Their advisory committee has been discussing whether or not to incorporate. Outline how the association's ability to enter contracts in conducting its activities might impact its decision about incorporation. Difficulty: 2 QuestionID: 10-3-03 Topic: Associations, Business Corporations Skill: Applied Answer: The community association's regular activities demand the capacity to contract with many parties for things such as venues for their events, printers for their newsletter, donors to their funding campaign, and staff. An unincorporated association must have someone who is willing to enter contracts on its behalf and to accept all liability. Parties they contract with may be wary about extending credit in these circumstances because of the possibility that the person contracting is not able to make good on the contractual obligations. If they incorporate, the association will have the capacity to enter into contracts on its own behalf (with signing authorities) and there is less risk involved for members of the board of directors of incurring personal liability as agents of a fictitious principal. 4. How should your business manage risk when contracting with an unincorporated association? Difficulty: 2 QuestionID: 10-3-04 Topic: Associations Skill: Recall Answer: First, we should see whether there exists legislation in the relevant jurisdiction that provides the association a capacity to contract. If so, then risk management is identical to contracting with a statutory corporation. If not, it is important to determine whether the person contracting on behalf of the association is in 24 © 2023 Pearson Canada Inc.

a financial position to assume personal responsibility, is willing to perform the obligations under the contract on the organization's behalf, and confirms that they understand that they are personally responsible for performance of the contract. 5. List three types of contracts that must be evidenced in writing in most jurisdictions. Provide one example of each. Difficulty: 1 QuestionID: 10-3-05 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Recall Answer: (i) Guarantees to assume another person's debt if they default. For example, guaranteeing a mortgage for a family member if that family member is unable to pay. (ii) Contracts for the sale of an interest in land. For example, selling a house, or assigning the right to take crops or minerals from land. (iii) Contracts that are not executed within one year. For example, a long-term agreement to supply a hospital with linens. 6. Ling is about to enter into a contract that will be carried out over the next year and a half. Is it safe for her to assume that the contract will not be enforced if it is not evidenced in writing in a jurisdiction where the Statute of Frauds applies? Difficulty: 2 QuestionID: 10-3-06 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Applied Answer: This is not a safe assumption for Ling to make. Because the Statute of Frauds has been given a liberal and remedial construction by the courts, it can catch parties by surprise. For example, the court might very well say that the contract is not caught by the Statute if, on the facts, the contract could possibly be performed within one year. 7. Tinh agrees to purchase a block of land that Ed plans to sever from his property. Tinh pays a large cash deposit to Ed, the closing date is set for six months away, and they shake hands on the deal. Ed falls on hard times and he realizes he cannot subdivide his land since he cannot afford to lose any equity or the bank will foreclose on his mortgage. On the agreed closing date, he sends Tinh an email to back out of the deal. Worse still, Ed lost the cash deposit at the horsetrack, and cannot afford to pay Tinh back. Ed feels terrible and avoids Tinh's calls. Tinh sues Ed for breach of contract and specific performance. How will the Statute of Frauds be applied in this case? What is the legal effect of Tinh and Ed's deal? Difficulty: 2 QuestionID: 10-3-07 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Applied Answer: Pursuant to the Statute of Frauds, any contract for the sale of an interest in land must be evidenced in writing in order to be enforceable. Since there is no written evidence of their deal, Tinh will not be able to force 25 © 2023 Pearson Canada Inc.

Ed to sell him the land, but the court will likely compel Ed to refund the deposit so the parties are placed in the same position they were in before they entered into the unenforceable contract. 8. From the perspective of risk management, what practices should be adopted by businesses transacting in jurisdictions that have a Statute of Frauds? Difficulty: 2 QuestionID: 10-3-08 Topic: Types of Contracts That Must be Evidenced in Writing Skill: Recall Answer: First, risk managers will need to know precisely which kinds of contracts must be evidenced in writing, what the writing requirements are and what are the legal consequences of non-compliance. Second, they should adopt the general habit of reducing all contracts to writing whenever possible and requiring the signature of the counter-party to the contract in writing. This will mitigate uncertainty and will prevent unnecessary debate between the parties about the terms and conditions of their contracts. 9. Explain the distinction between the effects of a mistake that prevents the creation of a contract and a mistake that renders the purpose or performance of a contract impossible. Provide an example of each. Difficulty: 2 QuestionID: 10-3-09 Topic: Mistake About Subject Matter, Mistake About Existence of Subject Matter Skill: Recall Answer: A mistake that prevents the creation of a contract is a mistake that fundamentally undermines the contract formation process by rendering a meeting of the minds impossible. For example, a grocer agrees to buy a shipment of canned corn, but finds out when it arrives that he has bought several boxes of compact disks by a band called Korn. Some mistakes, such as mistake as to the existence of the subject matter, will render the purpose of a contract impossible. For example, a person accepts an offer to buy a business in order to obtain its databases. Unbeknownst to either party, a computer virus had deleted the entire business' information system, making the business worthless to the buyer and in effect requiring the vendor to transfer nothing of value. 10. Rosa immigrated to Canada as a teenager. She worked her whole life to support her family and never received a formal education. While her spoken English is good, her ability to read English is limited. An elderly woman now, Rosa lives in a care facility. A representative of the facility presented her with several pieces of paper to sign. He said that they were simply standard forms that every resident had to sign. She took the forms and returned them signed the following week. Later, she mentioned to her son, Paulo that she had signed some forms, but had been too ashamed to admit that she could not read them. The forms required Rosa to give permission to the facility, evidenced by her signature, to make automatic withdrawals from Rosa's bank accounts. Rosa is not comfortable with this. Will Rosa be bound to her signature? Why? Describe the defence she is most likely to raise and explain whether it is likely to succeed. 26 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 10-3-10 Topic: Documents Mistakenly Signed Skill: Applied Answer: The general rule is that, absent fraud or misrepresentation, people are bound by the documents that they sign. This rule is not applied in some circumstances, such as where the signor is not afforded proper time to read the document, and it contains an onerous or unusual term that has not been brought to the attention of the signor. In this case, Rosa is likely to be bound by her signature as she had ample time to review the documents or get help. By signing, she indicated her intention to be bound. Rosa may try to plead the defence of non est factum. That defence, however, is applicable only when there is a radical difference between what a person signed and what she thought she was signing. Rosa knew that she was signing forms to do with administration and fees for her stay at the facility. Although the plea of non est factum originated as a way to protect illiterate people from being taken advantage of, Rosa could speak English perfectly well and read it to an extent. She could have asked for help or indicated to the counter-party that she could not read English. It is likely that the people at the facility had no idea that she hadn't known what she was signing. Given that she had spent most of her life in Canada, Rosa would have had the resources, including asking Paulo, to ensure that she knew what she was signing. For these reasons it is unlikely that the plea will succeed. 11. In 1824, Justice Burrough said, "Public policy ... is a very unruly horse and once you get astride it you never know where it will carry you." In 1971, Lord Denning MR said that with a good judge "in the saddle, the unruly horse can be kept in control. It can jump over obstacles. It can leap the fences put up by fictions and come up on the side of justice." Explain what each judge meant in the above quote. State which judge, in your opinion, is correct. Substantiate your answer with a brief discussion of the relevant concepts from the text. Difficulty: 3 QuestionID: 10-3-11 Topic: The Doctrine of Public Policy Skill: Applied Answer: Burrough J is providing a warning to judges who render decisions outside the confines of the decided law on grounds of public policy. In his view, courts are not the best organizations to be making decisions on public policy. This is best left to the legislatures so that judges are not tempted to create their own brand of justice. Denning MR, on the other hand, argues that legal rules, if strictly adhered to, can lead to injustice. Denning MR sees public policy as a flexible instrument that can be used by judges to modernize the law. Some students will side with Burrough J. The basic point they will try to make is that what is against public policy is often subjective and difficult to apply. The restraint on trade doctrine provides a useful example. If both parties agree to restrict their ability to trade or compete–so long as they both consent and neither party is exerting undue pressure then it should be up to the parties to make their own bargains. Students in this camp 27 © 2023 Pearson Canada Inc.

will champion the idea of freedom to contract and a free market. Other students will side with Denning MR, arguing that the subjectivity of the public policy doctrine is what is required to achieve justice in particular instances. Without the doctrine, people would be able to enter into all sorts of agreements that undermine the very principles the State sanctions through the law of contract. Students who support this view might use a broadly drafted restraint on trade clause, eg a clause that prevents a person for working for anyone else, as coming dangerously close to slavery. Some students might take a moderate stance recognizing some merit in both positions. Other students may argue that it is undemocratic for broad matters of public policy to be decided by appointed judges presiding on fact specific individual, private, lawsuits; as opposed to legislatures which are elected and are accountable to the democratic will of the people in deciding public policy. 12. As part of a large multinational corporation, you are working on a deal to buy a small company from a group of young upstarts who will all benefit handsomely from the transaction. It is your custom to include a restrictive covenant in such contracts to prevent such young upstarts from directly competing with the company they just sold. Explain the approach taken by courts to covenants in restraint of trade and then provide an example of a restrictive covenant that is likely to be upheld if challenged in court, and an example of one that is likely to be struck down if challenged in court. Difficulty: 2 QuestionID: 10-3-12 Topic: Covenants in Restraint of Trade Skill: Applied Answer: Any covenant in restraint of trade will be presumed contrary to public policy unless the party seeking to enforce it can prove that it is reasonable. An example of a covenant that is likely to be upheld will merely restrict the upstarts, individually or as a group, from using their knowledge in the field to develop a new company that is identical or almost identical to the one they have sold for a period of two years. An example of a covenant that is likely to be struck down will restrict the members of the selling company from obtaining work in a related field ever again, in any part of the world. 13. Define "fiduciary relationship" and provide an example. How would a business person who has a fiduciary relationship best conduct a transaction so as to avoid legal problems? Difficulty: 2 QuestionID: 10-3-13 Topic: Undue Influence Skill: Applied/Recall Answer: In a fiduciary relationship, one person is in a position of dominance, or power or control, over the other. Such relationships are usually based on trust or confidence, for example, parent-child, lawyer-client, doctor-patient, financial advisor-client, and trustee-beneficiary. Fiduciaries owe a duty to act in the best interests of the trusting party. Business persons would best avoid legal problems by not entering into business deals with those to whom they owe fiduciary duties. If business transactions cannot be avoided, fiduciaries must 28 © 2023 Pearson Canada Inc.

ensure a fair bargaining process (including putting the other parties' interests ahead of their own), and provide adequate opportunity for independent legal advice. 14. Outline three situations where a court might set aside a contract because of unfairness during bargaining. What are the requirements to prove each, and who has the onus to prove what in court? Difficulty: 2 QuestionID: 10-3-14 Topic: Duress, Undue Influence, Unconscionability Skill: Recall Answer: Economic Duress: Courts will sometimes set aside contracts where a person enters into a contract after being threatened with financial harm. The party alleging economic duress must prove that it was coerced into a contract by someone who acted on its fear of impending financial injury. To succeed, it should be able to demonstrate that (a) the pressure was exerted in bad faith; (b) the pressure to agree could not reasonably have been resisted and was therefore acted on; (c) legal proceedings were commenced as soon as possible; (d) it protested when pressured into the agreement; and (e) it was not afforded independent legal advice. Undue Influence: Courts will set aside a contract when one party uses pressure to overpower the will of a weaker party and thereby induce an agreement. The victim can prove undue influence in two ways. First, the victim can prove that the parties where in a fiduciary relationship. Where this can be proved, the court will presume undue influence in any transaction between them. Then, the fiduciary must rebut the presumption by showing that the deal was fair, and that there was an opportunity for the other party to seek independent legal advice. Second, if there is no fiduciary relationship, there is no presumption of undue influence. In such a case, the party seeking to avoid the contract must prove that undue pressure was in fact applied. Unconscionable Transactions: Courts will set aside a contract where parties make an agreement that no rightminded person would ever offer and no fair-minded person would ever accept in circumstances of unequal bargaining power, where the unfair exercise of that bargaining power is used to create the contract. The weaker party must prove that there was an improvident bargain (one made without any proper regard to one's future or rights) and an inequality of bargaining power between the parties. 15. Contracts are part of private law. A key concept of private law is that parties are at liberty to create and define the legal obligations they owe to one another. Discuss whether you agree that judges should be able to step in and set aside certain transactions on the basis that they think an agreement is unjust. Does this interfere with the core concept of private law? Explain your answer. Difficulty: 3 QuestionID: 10-3-15 Topic: General Principles Skill: Applied Answer: Agree: Those who agree will argue that judges should continue to set aside transactions where there has been a material mistake, fraud, or unfairness during bargaining. To hold parties to their contracts one hundred percent of the time is not practical in these situations. Judges should not interfere with "unwise" or "imprudent" bargains, but if the bargaining process is so flawed that it cannot plausibly be said that the parties 29 © 2023 Pearson Canada Inc.

truly consented to the arrangement, courts should strike down such deals. The purpose of freedom to contract is to ensure that people are making voluntary undertakings. Disagree: Those who disagree will argue that anyone who enters into a contract does so because they perceive it to their advantage to do so. Because each person can choose whether to enter into the agreement or not, the system of commerce and free enterprise should not be compromised just because things do not go the way of one party as opposed to the other. This view, they will argue, is crucial for commercial stability. Business cannot succeed unless parties are able to rely on their contracts being enforced by the courts without minute inquiries into the fairness of the process by which those contracts are obtained. A free enterprise system is premised on some parties have advantages that other parties do not, and some businesses being wealthier and more powerful than others. The courts cannot interfere with this system by changing freely bargained contracts.

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Managing the Law, 6e (McInnes) Chapter 11: Discharge and Breach True/False Questions 1. Alpha Corp breached its contract with Beta Inc. If Beta discharges the contract on the basis of that breach, the contract no longer will be at all relevant to the relationship between the parties. a True b False Difficulty: 1 QuestionID: 11-1-01 Topic: Effect of Discharge Skill: Applied Answer: b. False 2. It is common for one party to waive a strict requirement that generally applies when the other party attempts to discharge a contract through payment. a True b False Difficulty: 2 QuestionID: 11-1-02 Topic: Tender of Payment Skill: Recall Answer: a. True 3. Jasper owed $5,000 to Miranda under the terms of a contract. He brought that amount of cash to her office during regular business hours. Because she was in a bad mood at the time, however, Miranda slammed the door in his face. As a result, Jasper no longer has to make payment under the contract. a True b False Difficulty: 2 QuestionID: 11-1-03 Topic: Tender of Payment Skill: Applied Answer: b. False 4. Hector agreed to apply three coats of paint to the exterior of Ruth's house. Although he only applied two, the evidence indicates that a third coat was really unnecessary. Hector nevertheless has breached the contract. a True 1 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 11-1-04 Topic: Discharge for Breach of Condition Skill: Applied Answer: a. True 5. Halle was required to pay $100 to Barry under the terms of a contract. She arrived at his door and gave him fifty $2 coins. Barry was entitled to reject that money. a True b False Difficulty: 2 QuestionID: 11-1-05 Topic: Tender of Payment Skill: Applied Answer: a. True 6. Casey purchased a 12-month cable television package from CanVid Inc. Under the terms of that contract, Casey received an option to terminate the agreement immediately if he found another cable provider who offered a better price. Three months later, Casey discovered that Videotech Ltd offered the same cable package at a price that was 10 percent less than CanVid's. Casey's contract with CanVid therefore is automatically terminated. a True b False Difficulty: 3 QuestionID: 11-1-06 Topic: Option to Terminate Skill: Applied Answer: b. False 7. The difference between a condition precedent and a true condition precedent is that a condition precedent is really a condition subsequent. a True b False Difficulty: 3 QuestionID: 11-1-07 Topic: Conditional Contract Skill: Recall

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Answer: b. False 8. ABC Corp and XYZ Inc entered into a contract that is subject to a condition subsequent. In order to determine whether or not the parties' agreement will come to an end as a result of that condition, it is necessary to determine whether or not either party has been substantially deprived of the expected benefit of the contract. a True b False Difficulty: 3 QuestionID: 11-1-08 Topic: Condition Subsequent Skill: Applied Answer: b. False 9. A contract existed between David and Tawny. Although the agreement was fully executed from his perspective, it was still partially executory from her perspective. The parties nevertheless agreed that the agreement should be brought to an end. That new agreement is enforceable as long as David puts his seal on it, even if Tawny does not do likewise. a True b False Difficulty: 2 QuestionID: 11-1-09 Topic: Release Skill: Applied Answer: a. True 10. An accord and satisfaction is effective only if both parties provide fresh consideration. a True b False Difficulty: 1 QuestionID: 11-1-10 Topic: Accord and Satisfaction Skill: Recall Answer: a. True 11. Because consideration is not received in return, a waiver of contractual rights is effective only if it is placed under seal. a True b False

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Difficulty: 2 QuestionID: 11-1-11 Topic: Waiver Skill: Recall Answer: b. False 12. Chan was contractually obliged to pay $10,000 to Olivia, but failed to do so. For the next eight years, she pestered him for payment on a monthly basis, and he consistently and silently ignored her. Olivia is not barred by the statute of limitations because she has continually pressed her claim on Chan. a True b False Difficulty: 2 QuestionID: 11-1-12 Topic: Lapse of Limitation Period Skill: Applied Answer: b. False 13. It is necessary to consider all of the circumstances of a case before determining whether or not an innocent party is entitled to discharge a contract on the basis of a breach of warranty. a True b False Difficulty: 2 QuestionID: 11-1-13 Topic: Discharge for Breach of Condition Skill: Recall Answer: a. True 14. Birinder contractually promised to sell 10,000 tons of steel to Maria. Because he honestly believed that he had a total of 25,000 tons of steel in stock, he sold 15 000 tons of steel to Boris under a separate contract. After doing so, however, he discovered that he originally had only 20,000 tons of steel in stock. Because he has only 5,000 tons of steel remaining, and because he had acted honestly throughout, his contract with Maria is discharged on the basis of frustration. a True b False Difficulty: 2 QuestionID: 11-1-14 Topic: Frustration Skill: Applied Answer: b. False 4 © 2023 Pearson Canada Inc.

15. In some circumstances, the innocent party will not be able to discharge a contract, regardless of whether the other party breached a condition, a warranty, or an intermediate term. a True b False Difficulty: 2 QuestionID: 11-1-15 Topic: Factors Affecting the Right to Discharge Skill: Recall Answer: a. True 16. Time is of the essence means that a contract may be terminated if one party fails to perform on time. a True b False Difficulty: 2 QuestionID: 11-1-16 Topic: Time of performance Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following statements defines in part the effect of "discharge of contract"? A) The parties' contract is contained in a written document. B) Each party provides a promise in order to create an enforceable agreement. C) A contract is entered into by a minor. D) Neither party is held responsible for past actions, but both must perform the contract in the future. E) A contract that is discharged for breach continues to exist for some purposes. Difficulty: 1 QuestionID: 11-2-01 Topic: Discharge by Performance, Effect of Discharge Skill: Recall Answer: E) A contract that is discharged for breach continues to exist for some purposes. 2. Which of the following statements is TRUE with respect to a contractual obligation that is discharged through payment by a debit card? A) Debit cards use the same rules and procedures as credit cards. B) Unlike payment by cash, payment by debit card is conditional rather than final. C) A debit card operates by allowing the card holder to purchase an item by promising to pay the vendor later. 5 © 2023 Pearson Canada Inc.

D) Because of the need for commercial certainty, the holder of a debit card is liable for all purchases, even if, for example, a criminal uses a gun to force the card holder to use the card. E) Payment by debit card is final and irrevocable, unlike a credit card transaction. Difficulty: 2 QuestionID: 11-2-02 Topic: Payment by Debit Card Skill: Recall Answer: E) Payment by debit card is final and irrevocable, unlike a credit card transaction. 3. Kitten Inc was contractually obliged to pay $5000 to Mavitten Ltd on June 1, but failed to do so. It is now June 3. Assuming that general contractual rules apply, which of the following statements is TRUE? A) Mavitten cannot discharge the contract unless it notified Kitten that the time of payment is a contractual condition and time is of the essence. B) Mavitten is entitled to discharge the contract for breach. C) Kitten has breached a condition subsequent by failing to pay even after the scheduled date for payment has passed. D) As a result of Kitten's behaviour, the terms of the contract have been varied. E) Kitten has committed a serious breach of contract because time is of the essence. Difficulty: 2 QuestionID: 11-2-03 Topic: Time of Performance Skill: Applied Answer: A) Mavitten cannot discharge the contract unless it notified Kitten that the time of payment is a contractual condition and time is of the essence. 4. Miguel filled his shopping cart with groceries and proceeded to the cashier. The total bill came to $40. Which of the following forms of payment must the cashier accept? A) 20 two-dollar coins B) 40 one-dollar coins C) a cheque D) a debit card E) a credit card Difficulty: 3 QuestionID: 11-2-04 Topic: Tender of Payment Skill: Applied Answer: A) 20 two-dollar coins 5. Sasha owed $350 to Nicole. Under the terms of their contract, he was required to pay that amount to her at her office on March 31. Which of the following statements is TRUE? 6 © 2023 Pearson Canada Inc.

A) If it is inconvenient and unreasonable for Sasha to travel to Nicole's office on March 31 because he is sick, he is entitled to pay on April 1 without breaching the contract. B) If Nicole unjustifiably rejects a payment that satisfies the terms of the contract, Sasha no longer has an obligation to pay. C) If Sasha provides four $100 bills to Nicole at her office on March 31, she must accept that payment and give change as long as a reasonable person in her circumstances would do so. D) If Nicole rejects a proper tender, she can no longer insist upon receiving payment at her office. E) If Nicole rejects a proper tender, she is still entitled to receive payment with interest calculated from March 31, but she must compensate Sasha for his inconvenience. Difficulty: 2 QuestionID: 11-2-05 Topic: Tender of Payment Skill: Applied Answer: D) If Nicole rejects a proper tender, she can no longer insist upon receiving payment at her office. 6. Which of the following rules applies with respect to a tender of payment? A) The creditor must tender payment even if the debtor has not asked for it. B) A creditor that rejects a proper tender cannot later demand payment of the same debt. C) If a debtor pays more than is actually due, the creditor generally must provide "change" for the difference, as long as the "change" does not exceed the limits set by the Currency Act. D) A creditor generally must accept any reasonable form of payment, such as cash, credit card, or cheque. E) A creditor that rejects a proper tender may be unable to claim interest on the unpaid amount. Difficulty: 2 QuestionID: 11-2-06 Topic: Tender of Payment Skill: Recall Answer: E) A creditor that rejects a proper tender may be unable to claim interest on the unpaid amount. 7. Pavel agreed to build a yacht for Dixie. The yacht was to be delivered to Dixie on July 15 and Pavel was to be paid the total price of $100,000 on the same day. Which of the following statements is TRUE? A) If Pavel delivers the yacht, and Dixie pays the price, on July 15, she will be required to provide him with a signed document called a "novation" that signifies his proper completion of the agreement. B) If Pavel delivers the yacht on July 15, but has not stenciled the name Sea Bird on the back of the boat as he had promised to do, Dixie is certainly entitled to refuse delivery and withhold the purchase price. C) If the parties created an entire contract, then, unless and until he completes the project, Pavel will not be entitled to any payment, even if spent $75,000 trying to perform his obligations. D) If Pavel delivers the frame of the yacht, together with the materials that will be required to actually complete construction of the boat, he is entitled to have the contract discharged on the basis of "substantial performance" as long as he compensates Dixie for the price that she will have to pay to have another person finish the project. E) If Pavel completes construction of a yacht on July 1, only to see it destroyed by a hurricane the next day, the contract must be discharged on the basis of self-induced impossibility if Pavel does not have enough 7 © 2023 Pearson Canada Inc.

time to build another yacht for Dixie by July 15. Difficulty: 3 QuestionID: 11-2-07 Topic: Entire Contract Skill: Applied Answer: C) If the parties created an entire contract, then, unless and until he completes the project, Pavel will not be entitled to any payment, even if spent $75,000 trying to perform his obligations. 8. Corrie contractually agreed to build a house for Ed in exchange for $250,000. After completing about 75 percent of the project, Corrie ran out of resources and informed Ed that she could not continue. She therefore abandoned the job, as well as a substantial amount of materials at the work site. After Corrie left, Ed used the abandoned materials to finish the job himself. Which of the following statements most likely is TRUE? A) Corrie is entitled to partial payment on the basis of the doctrine of substantial performance. B) Although she is not entitled to be paid for her services, Corrie is entitled to sue on the contract in order to be paid for the materials that Ed used to complete the project. C) Because Ed completed the job, Corrie is entitled to have the contract discharged on the basis of performance. D) If the court classifies the parties' agreement as an entire contract, then Ed is liable for the materials that he used in completing the project, but he is not liable for the work that Corrie performed. E) Because Corrie did not complete the project, the parties never actually had a contract. Difficulty: 2 QuestionID: 11-2-08 Topic: Entire Contract Skill: Recall Answer: D) If the court classifies the parties' agreement as an entire contract, then Ed is liable for the materials that he used in completing the project, but he is not liable for the work that Corrie performed. 9. As part of a larger business plan, Ronald and Margaret devised an arrangement that would involve the shipment of widgets to the Abuc Islands in the Caribbean. They are concerned, however, that their plan might violate the Trading with Enemy Islands Act, which prohibits the export of goods to certain Caribbean nations. Ronald and Margaret nevertheless want to immediately draft a document that sets up a structure for the shipment of widgets to the Abuc Islands, but that will not expose them to liability if, after seeking government approval for their plan, they learn that widgets cannot legally be sent to Abuc. As a matter of risk management, which of the following statements provides the best advice? Ronald and Margaret should insert A) a condition precedent to performance into their agreement. B) a true condition precedent into their agreement. C) a condition subsequent into their agreement. D) an option to terminate into their agreement. E) an exclusion clause into their agreement.

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Difficulty: 3 QuestionID: 11-2-09 Topic: True Condition Precedent Skill: Applied Answer: B) a true condition precedent into their agreement. 10. Wilf agreed to purchase a business from Celine. The parties' contract stated that the deal was to close on June 1, when Wilf would pay $250 000 to Celine and she would transfer the appropriate documents to him. The parties' contract also said: "This sale is conditional upon Wilf's ability to arrange suitable financing from a lending institution." On June 1, Celine called for payment of the purchase price, but Wilf explained that he had not been able to receive financing. Which of the following statements is most likely to be TRUE? A) Because the contract was "conditional," the parties never had an enforceable agreement. Consequently, Wilf cannot be held liable even if he made no effort to secure financing B) Wilf is liable for breach of the quoted condition if he did not make any attempt to secure financing. C) Wilf is liable for breach of a subsidiary obligation if he did not make any attempt to secure financing. D) Although the parties' agreement referred to a "condition," a court will find that that agreement was really subject to an option to terminate. E) The result in this case will depend upon whether or not the "condition" that the parties referred to was really a warranty. Difficulty: 3 QuestionID: 11-2-10 Topic: Condition Precedent Skill: Applied Answer: C) Wilf is liable for breach of a subsidiary obligation if he did not make any attempt to secure financing. 11. Which of the following techniques for discharging a contract does not require fresh consideration? A) performance in full by both parties B) waiver C) variation D) accord and satisfaction E) novation Difficulty: 1 QuestionID: 11-2-11 Topic: Waiver Skill: Recall Answer: B) waiver 12. Acme Corp entered into a complex agreement with Coyote Inc for the design and delivery of various types of widgets. After several months, however, Acme received an offer to perform a similar service for 9 © 2023 Pearson Canada Inc.

the government under a more lucrative contract. Acme could not possibly perform both agreements. It therefore conducted some research and discovered that another company, Geococcyx Ltd, was able and eager to complete the deal with Coyote. Which of the following statements is likely to be TRUE? A) Because of the circumstances, Acme likely has the right to use the process of waiver to escape its contract with Coyote. B) The parties could use the process of novation to allow Geococcyx to assume Acme's role under the original agreement with Coyote. C) Because of the circumstances, the contract between Acme and Coyote is frustrated. D) Geococcyx can use the legal process of repudiation in order to discharge the contract between Acme and Coyote. E) The contract between Acme and Coyote can be described as "fully executed." Difficulty: 3 QuestionID: 11-2-12 Topic: Novation Skill: Applied Answer: B) The parties could use the process of novation to allow Geococcyx to assume Acme's role under the original agreement with Coyote. 13. Tippi and Alfred entered into a contract for the sale of birds. Under the terms of that agreement, she was to provide him on a weekly basis with 10 lovebirds for his pet store, and he was to pay her $500 on a weekly basis. The agreement also stated that the contract would be in force for one year. For six weeks, each party performed as promised. At the beginning of the seventh week, however, Tippi telephoned Alfred and said that she wanted to bring their agreement to an immediate end. Which of the following statements is most likely to be TRUE? A) The parties cannot use the process of rescission to discharge the contract because they have already performed part of the agreement. B) The parties can use the process of rescission to discharge the contract, but only if Alfred seals his agreement to Tippi's proposal. C) Tippie and Alfred can provide consideration in order to bring the original contract to an end if both agree to give up their existing rights. D) The parties' contract will automatically be discharged through the process of novation if neither Tippi nor Alfred ever try to enforce it. E) The contract can be brought to an end through the process of release only if Tipi provides fresh consideration or the release is made by Tippi affixing her seal. Difficulty: 2 QuestionID: 11-2-13 Topic: Rescission Skill: Applied Answer: C) Tippie and Alfred can provide consideration in order to bring the original contract to an end if both agree to give up their existing rights. 14. Kate and Ben entered into a contract. She promised to transfer 1000 shares in XYZ Corp to him; he 10 © 2023 Pearson Canada Inc.

promised to personally draft architectural plans to certain specifications for her. Kate transferred the shares to Ben as promised, but he later discovered that he simply lacked the ability to uphold his end of the bargain. Which of the following statements is TRUE? A) If Kate promises to give up her right to demand architectural plans from Ben in exchange for his promise to create a computer program for her, the parties can solve their problem through accord and satisfaction. B) Since neither party promised to pay money, the original contract is unenforceable because it is not supported by legal tender. C) A seal is necessary for the purposes of an accord and satisfaction. D) The contract would be unenforceable under the statute of limitations only if the parties had originally agreed that Ben would have more than six years to complete the architectural plans. E) Rescission provides the simplest way in which the parties can bring their contract to an end. Difficulty: 2 QuestionID: 11-2-14 Topic: Accord and Satisfaction Skill: Applied Answer: A) If Kate promises to give up her right to demand architectural plans from Ben in exchange for his promise to create a computer program for her, the parties can solve their problem through accord and satisfaction. 15. Which of the following statements is TRUE? A) A contract will be discharged on the basis of substantial performance only if the recipient of the incomplete performance agrees to accept monetary damages for the shortfall. B) A contract generally will be discharged on the basis of anticipatory breach only if the innocent party chooses to relieve the party in breach of the need to perform the contract. C) An option to terminate can only be exercised by one party if the other party has breached the contract. D) A true condition subsequent will prevent a contract from being created unless a certain event occurs. E) A contractual obligation is executory if it has been performed. Difficulty: 2 QuestionID: 11-2-15 Topic: Anticipatory Breach Skill: Recall Answer: B) A contract generally will be discharged on the basis of anticipatory breach only if the innocent party chooses to relieve the party in breach of the need to perform the contract. 16. Ranjit and Samantha, who are both business students, entered into a contract. He promised to tutor her in the law of negotiable instruments, and she promised to type his handwritten notes for him after each class. The contract was to start on September 1 and was to last for one academic year. Before the beginning of September, however, Samantha learned that she was enrolled in a course on mortgages, rather than a course on negotiable instruments. Furthermore, Ranjit received a laptop computer as a present from his parents. Ranjit and Samantha therefore have agreed that the original terms of their contract no longer make much sense. They also agree that it would be preferable if he tutored her in the 11 © 2023 Pearson Canada Inc.

law of mortgages and she designed a database that will allow him to most effectively use the lectures notes that he types for himself in class. Which of the following processes would best suit the parties' needs? A) rescission B) variation C) discharge by performance D) release E) waiver Difficulty: 2 QuestionID: 11-2-16 Topic: Accord and Satisfaction Skill: Applied Answer: B) variation 17. Which of the following situations best demonstrates the concept of self-induced impossibility? A) Seven years ago, Alpha became contractually indebted to pay Beta $10 000. Since Beta has not yet taken any action against Alpha, Beta probably can no longer collect upon the debt. B) Alpha agreed to transfer a particular vehicle to Beta. The transfer was to occur on June 1. On May 15, however, Alpha sold the same car to Gamma, who was entirely unaware of the contract between Alpha and Beta. C) On May 15, Alpha agreed to transfer a certain painting to Beta. The transfer was to occur on June 1. In fact, although neither party realized it when they created their agreement that painting had been destroyed by fire on May 1. D) On May 1, Alpha agreed to transfer a motorcycle to Beta. The transfer was to occur on June 1. On May 15, Alpha informed Beta that it intended to break the contract and keep the motorcycle for itself. E) Alpha was contractually obliged to pay $1,000 to Beta, at Beta's place of business, on June 1. On June 1, Alpha went to Beta's place of business and tried to discharge the debt by giving ten $100 bills to Beta. Beta refused to take the money. Because Beta refused a proper tender, Alpha no longer is required to actively repeat its tender. Difficulty: 2 QuestionID: 11-2-17 Topic: Self-Induced Impossibility Skill: Applied Answer: B) Alpha agreed to transfer a particular vehicle to Beta. The transfer was to occur on June 1. On May 15, however, Alpha sold the same car to Gamma, who was entirely unaware of the contract between Alpha and Beta. 18. Boris purchased confidential information from Natasha for a price of $100,000. Under the terms of that contract, he was required to pay $5,000 on the first day of each month for twenty consecutive months. He was also required, on the first day of each month, to pay 7.5 percent interest on the total amount of the debt that was outstanding. After paying $5,000 plus interest for the first month, Boris explained to Natasha that he had suffered a financial setback in his other business ventures. He therefore asked if she would be willing to relieve him of the need to pay interest in the future. Which of the 12 © 2023 Pearson Canada Inc.

following statements is TRUE? A) If Natasha says that she will not insist upon the payment of interest in the future, but that promise is not supported by fresh consideration, there is no way that Boris can hold Natasha to her promise. B) If Boris fails to pay interest in the future, the contract will be frustrated unless Natasha agreed to relieve Boris of the need to pay interest. C) If Natasha says that she will not insist upon the payment of interest in the future, the doctrine of waiver may later prevent her from changing her mind. D) The doctrine of waiver would apply in this case only if Natasha promised under seal that she would relieve Boris of the need to pay interest in the future. E) Since waiver is an equitable doctrine, it would apply to the facts only if a court found that Natasha had acted inequitably or unfairly. Difficulty: 3 QuestionID: 11-2-18 Topic: Waiver Skill: Applied Answer: C) If Natasha says that she will not insist upon the payment of interest in the future, the doctrine of waiver may later prevent her from changing her mind. 19. Which of the following statements is TRUE? A) Bankruptcy always relieves a contractual party from the need to satisfy any obligation that arose under a contract. B) The doctrine of frustration applies in favour of the innocent party if the other party to a contract intentionally makes it impossible to perform the contract. C) Because electronic records are easy to create and store, the general limitation period for breach of contract recently was increased to ten years. D) The breach of an intermediate term sometimes allows the innocent party to discharge the contract. E) In contrast to the doctrine of promissory estoppel, there is no possibility of retraction and resumption of rights under the doctrine of waiver. Difficulty: 2 QuestionID: 11-2-19 Topic: Intermediate Terms Skill: Recall Answer: D) The breach of an intermediate term sometimes allows the innocent party to discharge the contract. 20. Which of the following statements is TRUE? A) The doctrine of frustration applies only if the circumstances have changed so that performance, as originally intended, has become absolutely impossible. B) Because of its effect upon the parties, bankruptcy always leads to frustration of a contract. C) The doctrine of waiver may apply in connection with a condition, but not a warranty or an innominate term. D) Bankruptcy always discharges a person from performing a contractual obligation. E) Limitation periods exist, in part, because it is undesirable for courts to rely upon evidence that is old and 13 © 2023 Pearson Canada Inc.

perhaps unreliable. Difficulty: 2 QuestionID: 11-2-20 Topic: Lapse of Limitation Period Skill: Recall Answer: E) Limitation periods exist, in part, because it is undesirable for courts to rely upon evidence that is old and perhaps unreliable. 21. Zinedine entered into a contract with Sporting Press Inc to write an instructional book about soccer. Under the terms of that agreement, he was required to deliver the manuscript of the book to the company by December 31. On October 1, however, Zinedine telephoned Sporting Press and explained to the editor that, due to other commitments, he would not be able to perform his obligations on schedule. Which of the following statements is TRUE? A) Zinedine has committed an anticipatory breach B) Unless the parties agreed otherwise, the time of Zinedine's performance was of the essence. C) Sporting Press is entitled to demand performance, but it cannot force Zinedine to pay damages. D) If Sporting Press does not respond to Zinedine's statement, a court will assume that the contract has been discharged. E) Sporting Press must discharge the contract now or never, since it is not entitled to wait until December 31 before it makes its decision. Difficulty: 3 QuestionID: 11-2-21 Topic: Anticipatory Breach Skill: Applied Answer: A) Zinedine has committed an anticipatory breach 22. Jonah entered into a contract with Sporting Videos Inc to appear in an instructional video about rugby. Under the terms of that agreement, he was required to participate in a filming session on March 1. Two weeks before that date, however, he telephoned Sporting Videos and explained to the company's president that he no longer was interested in the project. Which of the following statements is TRUE? A) Jonah has committed an anticipatory breach of a warranty. B) Sporting Videos ultimately will be held liable if it immediately insists upon performance, but finds, on March 1, that it cannot perform even though Jonah has changed his mind and is ready to perform. C) If Sporting Video does not respond to Jonah's statement within six weeks, the contract will be discharged under the statute of limitations. D) Jonah has rescinded the contract. E) The contract has been frustrated. Difficulty: 2 QuestionID: 11-2-22 Topic: Anticipatory Breach Skill: Applied 14 © 2023 Pearson Canada Inc.

Answer: B) Sporting Videos ultimately will be held liable if it immediately insists upon performance, but finds, on March 1, that it cannot perform even though Jonah has changed his mind and is ready to perform. 23. Evan owns a business that produces various forms of marketing and promotional materials. Andrea entered into a contract with him. He was required to design a website for her business by June 1; she was required to pay $100 000 to him on July 1. Because of an administrative error, however, Evan confused Andrea's order with the order of another customer. Consequently, by June 1, he had printed 10 000 copies of a glossy magazine for another customer, but he had not even started work on Andrea's website. Although it is not yet July 1, Andrea has changed her mind and she no longer wants to pay $100 000 to Evan in exchange for a website. Which of the following statements is TRUE? A) Evan is entitled to discharge the contract because Andrea committed a breach of a contractual warranty that substantially deprived him of the expected benefit of the contract. B) Andrea is entitled to discharge the contract because Evan committed a breach of a contractual warranty that substantially deprived her of the expected benefit of the contract. C) Evan is entitled to discharge the contract because Andrea committed a breach of a contractual condition that substantially deprived him of the expected benefit of the contract. D) Andrea is entitled to discharge the contract because Evan committed a breach of a contractual condition that substantially deprived her of the expected benefit of the contract. E) Because Evan has not performed and because Andrea no longer wants his performance, the contract has been discharged by frustration. Difficulty: 2 QuestionID: 11-2-23 Topic: Condition Skill: Applied Answer: D) Andrea is entitled to discharge the contract because Evan committed a breach of a contractual condition that substantially deprived her of the expected benefit of the contract. 24. Which of the following statements is TRUE with respect to the contractual concept of deviation that applies when goods are shipped? A) Deviation usually allows a contract to be discharged on the basis of substantial performance. B) Deviation is a type of anticipatory breach. C) Although the concept of deviation applies when goods are placed on board a ship, a different set of rules applies when goods are transported by rail or by road. D) The practical consequences of deviation are usually small because the party in breach is protected by insurance. E) Deviation is a form of contractual breach. Difficulty: 1 QuestionID: 11-2-24 Topic: Deviation Skill: Recall Answer: E) Deviation is a form of contractual breach. 15 © 2023 Pearson Canada Inc.

25. AJ contractually agreed to repair Shirley's car within one week. Three days later, however, he informed her that he would not be able to complete the job because he had lost all of his tools in a poker game. The facts most clearly demonstrate the concept of A) deviation. B) breach of a warranty. C) novation. D) bankruptcy. E) self-induced impossibility. Difficulty: 2 QuestionID: 11-2-25 Topic: Self-Induced Impossibility Skill: Applied Answer: E) self-induced impossibility. 26. Pym had an idea for an invention. Campbell agreed to purchase a share of that invention, but only if it was approved within one week by two specific engineers, who were independent of the parties. One of the engineers gave his approval, but the other, who was on vacation, did not. Pym nevertheless claimed that Campbell was required to proceed with the anticipated purchase. Which of the following statements is most likely to be TRUE? A) Pym's argument will succeed on the basis of the concept of self-induced impossibility. B) Pym's argument will fail because the contract was subject to a condition precedent that was not satisfied. C) Pym's argument will succeed because Campbell has breached a term of the contract. D) Pym's argument will fail because the parties' agreement was subject to a true condition subsequent. E) Pym's argument will fail because the parties' agreement was frustrated. Difficulty: 2 QuestionID: 11-2-26 Topic: Condition Precedent Skill: Applied Answer: B) Pym's argument will fail because the contract was subject to a condition precedent that was not satisfied. 27. Svetlana, a carpenter, agreed to make 100 maple bats for Dexter, a professional baseball player. The total price of $10,000 was to be paid one week after delivery of the bats. When Svetlana delivered the bats to Dexter, he noticed that they were made out of wood from pine trees rather than maple trees. Despite being disappointed, he reluctantly agreed to accept the shipment and promised to pay as required by the contract. After using the bats for two days, however, he found that they considerably reduced his ability to hit home runs. He also learned that Jorge, another carpenter, was willing to produce 100 maple bats at a price of $5,000. There is a common belief among baseball players that maple bats are far superior to pine bats. Which of the following statements is most likely to be TRUE? A) Since Svetlana breached a warranty, Dexter never enjoyed the option of discharging the contract. B) The facts illustrate the contractual doctrine of deviation in delivery. 16 © 2023 Pearson Canada Inc.

C) Svetlana committed an anticipatory breach of contract. D) Even if Dexter exercises a right of discharge, the contract will continue to exist for some purposes. E) Since the bats can still be used, the facts illustrate the doctrine of substantial performance. Difficulty: 3 QuestionID: 11-2-27 Topic: The Effect of Discharge Skill: Applied Answer: D) Even if Dexter exercises a right of discharge, the contract will continue to exist for some purposes. 28. Depp Designs Inc is a landscaping and topiary company. Roger owns a house that is surrounded by various types of shrubbery. He entered into a contract with Depp under which the company was required to sculpt the various shrubs into the shapes of dogs. Because of an error, however, Depp actually sculpted the shrubs into the shapes of cats. Which of the following statements is TRUE? A) Because of the circumstances, Roger cannot discharge the contract even though there has been a breach of condition, but Roger may sue for damages. B) Because of its error, Depp has rescinded the contract. C) Because of its error, Depp has frustrated the contract. D) Roger's performance is clearly defective. E) Because the parties already had an existing contract that required them to perform, it is impossible to classify Depp's actions as a breach of a "condition." Difficulty: 3 QuestionID: 11-2-28 Topic: Factors Affecting the Right to Discharge Skill: Applied Answer: A) Because of the circumstances, Roger cannot discharge the contract even though there has been a breach of condition, but Roger may sue for damages. 29. Part of the law's response to a breach of contract is best explained by the fact that A) a breach of condition will usually substantially deprive the party in breach of the expected benefit of the contract. B) some terms cannot be classified as either a "condition" or a "warranty" at the outset. C) a breach of a warranty will usually deprive the party in breach of the expected benefit of the contract. D) a breach of a condition will prevent a contract from being formed. E) an unaccepted repudiation is effective to discharge a contract. Difficulty: 2 QuestionID: 11-2-29 Topic: Intermediate Terms Skill: Applied Answer: B) some terms cannot be classified as either a "condition" or a "warranty" at the outset.

17 © 2023 Pearson Canada Inc.

30. The existence of intermediate terms is best explained by the fact that A) contractual parties sometimes do not specify whether a term should be considered a condition precedent or a condition subsequent. B) the innocent party sometimes should receive damages for some of its losses, but not others. C) some terms are more difficult to breach than warranties but easier to breach than conditions. D) it is sometimes appropriate to wait and see how a breach actually affects the parties before determining whether or not the right to discharge should arise. E) the courts are willing to mediate a dispute between some contractual parties, but not others. Difficulty: 2 QuestionID: 11-2-30 Topic: Intermediate Terms Skill: Applied Answer: D) it is sometimes appropriate to wait and see how a breach actually affects the parties before determining whether or not the right to discharge should arise. 31. Which of the following sets of concepts (as discussed in Chapter 11) represent ways in which the terms of a contract can be varied without the supply of fresh consideration? A) rescission and waiver B) release and waiver C) release and novation D) variation, waiver, and novation E) waiver, release, and rescission Difficulty: 1 QuestionID: 11-2-31 Topic: Release, Waiver Skill: Recall Answer: B) release and waiver 32. Which of the following statements is TRUE with respect to various uses of the word "condition" as that word was used in Chapter 11? A) A condition subsequent suspends the creation of a contract until a certain event has occurred. B) A party who fails to perform a condition subsequent may be held liable for damages. C) If a condition subsequent is not satisfied, then the contract is rescinded. D) A party who fails to perform a condition may be held liable for damages. E) A true condition precedent always leads to the existence of secondary obligations. Difficulty: 2 QuestionID: 11-2-32 Topic: Condition Skill: Recall Answer: D) A party who fails to perform a condition may be held liable for damages. 18 © 2023 Pearson Canada Inc.

33. Which of the following statements is TRUE with respect to the word "rescission"? A) Rescission always arises as a result of a contractual defect. B) Rescission is the name of the process that allows a contract to be discharged after one party has breached a serious term of the contract. C) Depending upon the circumstances, rescission may involve either a bilateral agreement to discharge a contract or a unilateral decision to terminate a contract. D) Rescission eliminates the need to perform outstanding primary obligations, but it does not affect secondary obligations. E) Rescission always requires the supply of fresh consideration. Difficulty: 3 QuestionID: 11-2-33 Topic: Rescission Skill: Recall Answer: C) Depending upon the circumstances, rescission may involve either a bilateral agreement to discharge a contract or a unilateral decision to terminate a contract. 34. An "innominate term" is a term that A) is unimportant and, if breached, leads only to damages. B) must be satisfied to activate the primary obligations under a contract that is subject to a condition precedent. C) one party has nominated, or chosen, to sue upon after the other party breached two or more contractual terms. D) is unnamed because it is not called either a condition or a warranty. E) leads to nominal damages if it is breached. Difficulty: 1 QuestionID: 11-2-34 Topic: Intermediate Skill: Recall Answer: D) is unnamed because it is not called either a condition or a warranty. 35. Pina contractually agreed to purchase a shipment of canned beans from Jerry. The beans were to be delivered on June 15. A court recently held that Pina is entitled to discharge the contract because Jerry did not perform as required by the agreement. Assuming that the general rules of contract are all applicable in this case, which of the following statements is most likely to be TRUE? A) The contract was subject to an unfulfilled true condition precedent. B) Jerry delivered the beans on schedule, but refused to get out of bed when Pina attempted to pay him at 2:00 am on June 15. C) Jerry delivered on schedule, but he did not follow the route stipulated in the contract. D) Jerry delivered the beans on schedule, but breached a warranty by delivering beans in large bags rather than in cans. E) Jerry breached the contract in a way that the court described as de minimis non curat lex. 19 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 11-2-35 Topic: Deviation Skill: Applied Answer: C) Jerry delivered on schedule, but he did not follow the route stipulated in the contract. 36. Rande contractually agreed to purchase his electricity, for two years, from Metro Power Inc. Six months after that contract was signed, Metro Power increased its prices by ten per cent, as it was permitted to do under the agreement. It then insisted that Rande pay at the new rate for the remaining time under the contract. Although Rande realized that Metro Power had acted in accordance with the law, he is very upset about the price hike. Assuming that the default rules of contract apply, A) Rande is entitled to protest by paying his monthly bill with any number of coins he happens to have on hand. B) Rande is entitled to protest by paying his monthly bill with a dozen or more cheques which add up to the correct amount. C) Rande is entitled to protest by paying only when a representative from Metro Power has come to his house to collect payment on his monthly bills. D) Rande is entitled to protest by paying his monthly bills with foreign currency. E) Rande must pay as promised, even though he is unhappy with Metro Power's actions. Difficulty: 1 QuestionID: 11-2-36 Topic: Tender of Payment Skill: Applied Answer: E) Rande must pay as promised, even though he is unhappy with Metro Power's actions. 37. Brock contractually agreed to build a deck on the back of Moira's house in exchange for $20,000. It is now two years later and that contract has been brought to court. The judge applied the doctrine of substantial performance. This means that A) Brock performed all of the warranties, but not all of the conditions, in the contract. B) neither party is entitled to damages. C) the contract has been discharged for performance. D) Moira must pay $20,000 to Brock. E) Brock remains obligated to perform the remainder of the contract. Difficulty: 2 QuestionID: 11-2-37 Topic: Substantial Performance Skill: Applied Answer: C) the contract has been discharged for performance. 38. Madeleine entered into a contract with Blue Water Inc. That contract required the company to install 20 © 2023 Pearson Canada Inc.

a swimming pool in her backyard at a price of $15,000, and to then landscape the rest of Madeleine's backyard at a cost of $3,000. The parties' transaction has now been brought into court. The judge has applied the entire contract doctrine. This most likely means that A) Blue Water breached the contract in a way that deprived Madeleine of every benefit that she expected to receive under the contract. B) Madeleine is not required to pay even though Blue Water performed much of the work that they to promised to complete. C) in order to reach a fair result, the judge ignored the parties' intentions and split the single contract into two distinct contracts. D) the parties rescinded the original agreement and created a new one in its place. E) in order to reach a fair result, the judge ignored the parties' intentions and joined two distinct contracts into one single contract. Difficulty: 3 QuestionID: 11-2-38 Topic: Entire Contract Skill: Applied Answer: B) Madeleine is not required to pay even though Blue Water performed much of the work that they to promised to complete. 39. Green Thumb Inc contractually agreed to provide a "complete lawn care package" to Benjamin. The parties' contract required the company to perform a long list of tasks on a weekly basis during the summer months. While the company performed most of those tasks flawlessly, Benjamin was very upset to discover that one of his seven small flower beds had not been weeded one week. The company explained that the task had been overlooked by an employee during her first week on the job, and offered to extend their services one week into the fall season free of charge. Because he had come to regret entering into the contract in the first place, Benjamin rejected the company's explanation and offer. He announced instead that he was "terminating" the contract and that he no longer would allow company employees on his property. Which of the following statements is most likely to be TRUE? A) Green Thumb is guilty of deviation. B) The company is entitled to discharge the contract. C) Benjamin breached a warranty of the contract. D) The contract has been frustrated. E) The court will Benjamin to end the contract as long as he waives Green Thumb's breach. Difficulty: 2 QuestionID: 11-2-39 Topic: Substantial Performance Skill: Applied Answer: B) The company is entitled to discharge the contract. 40. Samuel entered into a contract with AE Lukey Inc. That contract required both parties to perform services. It is now six months later. The contract is executed on one side and executory on the other. Which of the following statements is most likely to be TRUE? 21 © 2023 Pearson Canada Inc.

A) One of the parties has sued, but the other party has not. B) If the parties wish to modify the terms of their contract, they may effectively do so by using the process of accord and satisfaction but not the process of rescission. C) One party satisfied a subsidiary obligation under a conditional contract. D) One party has signed the contractual documents, but the other party has not done so. E) If the parties wish to modify the terms of their contract, they may effectively do so by using the processes of variation or novation without new consideration. Difficulty: 3 QuestionID: 11-2-40 Topic: Accord and Satisfaction Skill: Applied Answer: B) If the parties wish to modify the terms of their contract, they may effectively do so by using the process of accord and satisfaction but not the process of rescission. 41. A homebuilder, Jim, accepts an entire contract from Mark to build a house for $500,000 on his property. Half way through the job, the builder's material and money run out and Jim is unable to finish the job. He chooses to leave the worksite indefinitely. A year later, Jim returns to find the house on Mark's property fully completed. Jim then asks Mark to pay for the work that he completed before leaving the worksite. Mark refuses to pay. Which of the following is true? A) Mark has to pay Jim $250,000 for the substantial performance. B) Mark can use his discretion to decide how much to pay Jim, but the amount must be under $500 000. C) Mark owes Jim $0 for the work he did on the house, but he may owe Jim for using his building materials. D) Mark has to pay Jim $500,000 for the substantial performance. E) Mark owes Jim $0 because $500,000 would be considered an unreasonable price. Difficulty: 2 QuestionID: 11-2-41 Topic: Entire Contract Skill: Applied Answer: C) Mark owes Jim $0 for the work he did on the house, but he may owe Jim for using his building materials. 42. Which of the following statements regarding methods of payment is TRUE? A) PayPal is known as a 3PPS. B) PayPal is easy to use, but it is dangerous because it requires you to disclose personal banking details to a vendor each time you purchase online. C) As its developers intended, the PayPal system operates on exactly the same principles and rules as traditional cheques. That explains why it is so popular with consumers. D) In order to use PayPal with a particular online vendor, you must first provide that vendor with a void cheque from your bank. E) PayPal operates like a credit card, except that the Government of Canada guarantees that you will be repaid if the online vendor fails to deliver as promised. 22 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 11-2-42 Topic: Payment by PayPal Skill: Recall Answer: A) PayPal is known as a 3PPS. 43. Which of the following statements regarding methods of payment is TRUE? A) A debit card operates by allowing the cardholder to borrow the purchase price of an item from a bank. B) Because it withdraws funds from a bank account, a credit card can be used only if that account contains sufficient funds. C) Once a credit card transaction has been authorized by the issuer, the cardholder cannot revoke payment even if the merchant delivered defective goods. D) In contrast to credit cards and debit cards, a cheque operates by unconditionally discharging a contractual debt. E) Even after a transaction has been processed, the holder of a debit card can countermand payment if the merchant provided defective goods. Difficulty: 3 QuestionID: 11-2-43 Topic: Payment by Credit Card Skill: Recall Answer: C) Once a credit card transaction has been authorized by the issuer, the cardholder cannot revoke payment even if the merchant delivered defective goods. 44. Morgan acquired a credit card for Usury Unlimited Inc (UUI). While on vacation, Morgan used his card to purchase $25 000 soapstone sculpture by a famous Inuit artist. When he arrived home and had the piece appraised, however, the expert told Morgan that the sculpture was fraud, that the artist was unknown, and that the piece was worth $500 at most. Which of the following statements is most likely to be TRUE? A) Morgan should issue a stop payment order as soon as possible to ensure that the merchant does not receive payment from UUI. B) Because of the fraud, this case involves a contract between the cardholder and the card issuer, and a contract between the merchant and the card holder, but no contract between the merchant and the card issuer. C) Because of the costs associated with the risk of fraud, UUI is entitled to charge Morgan any amount of interest that Morgan agreed to pay under their contract. D) By using his credit card to purchase the sculpture, Morgan effectively asked UUI to pay the merchant on his behalf, and he promised UUI that he would repay that same amount. E) UUI would not have allowed Morgan to use his card for the purchase unless he had paid the full balance of his credit card bill at the end of the previous month. Difficulty: 3 QuestionID: 11-2-44 23 © 2023 Pearson Canada Inc.

Topic: Payment by Credit Card Skill: Applied Answer: D) By using his credit card to purchase the sculpture, Morgan effectively asked UUI to pay the merchant on his behalf, and he promised UUI that he would repay that same amount. 45. Ralph recently had his house re-roofed by Red Roofing Co (RRC). The company accepted Ralph's cheque as payment. Which of the following statements is most likely to be TRUE? A) If Ralph's bank refuses to honour his cheque, RRC can sue Ralph for the price of the roof, even though it already received his cheque. B) A cheque can be used for payment only if Ralph and RRC have accounts at the same bank. C) If Ralph discovers that his new roof is defective, he should immediately instruct his bank to refuse RRC's request for payment, which will result in his cheque being overdrawn. D) Ralph's cheque will be countermanded if the bank refuses to honour it because his account does not contain enough credit. E) If the situation unfolds as expected, Ralph's bank will credit his account and RRC's bank will debit the roofer's account. Difficulty: 2 QuestionID: 11-2-45 Topic: Payment by Cheque Skill: Applied Answer: A) If Ralph's bank refuses to honour his cheque, RRC can sue Ralph for the price of the roof, even though it already received his cheque. 46. Carlos agreed to design a website for Roger by April 1. The contract contains a time is of the essence clause. Which one of the following statements is TRUE about the contract? A) If Carlos completes the work by April 2, Roger is owed damages. B) If Carlos completes the work by April 2, Roger can treat the contract as discharged. C) If Carlos completes the work by April 2, they will need a new contract. D) If Carlos completes the work by April 2, the contract is void. E) Carlos must complete the work by April 1. Difficulty: 2 QuestionID: 11-2-46 Topic: Time of the Essence Skill: Applied Answer: C) If Carlos completes the work by April 2, they will need a new contract. Essay Questions 1. "If a contract is discharged for breach, it no longer has any effect." Is that statement correct? Explain your answer.

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Difficulty: 2 QuestionID: 11-3-01 Topic: The Effect of Discharge Skill: Applied Answer: A contract that has been discharged for breach is not void. Discharge simply relieves the parties of the need to perform their primary obligations under the agreement. Discharge does not terminate the parties' agreement for other purposes. For instance, even though a contract has been discharged for breach, it is still capable of supporting the innocent party's right to claim relief (usually in the form of expectation damages). Likewise, even if a contract is discharged for breach, the innocent party will normally still be entitled to enforce an exclusion clause or limitation clause that is contained in it. In other words, a contract that has been discharged for breach continues to exist for remedial purposes because it continues to govern the parties' rights that arise as a consequence of that breach. 2. Thelonius agreed to purchase an antique piano from Ruby. He was required to pay the purchase price of $100 000 by cheque on June 1, and she was required to deliver the instrument on June 15. On June 1, Thelonius appeared at Ruby's place of business with a cheque for $100 000. However, because she was having second thoughts about actually delivering the piano to Thelonius, Ruby refused to accept his cheque. Explain the consequences of that refusal in terms of Thelonius's obligation to make payment. Difficulty: 2 QuestionID: 11-3-02 Topic: Tender of Payment Skill: Applied Answer: As a general rule, a party that is obliged to pay money under a contract has the duty to tender payment. In other words, that party has the obligation to seek out and properly pay the other party. Thelonius has done so in this case. (Although the party to whom payment is to be made generally has the right to insist upon cash, Thelonius and Ruby specifically agreed that payment was to be made by way of cheque.) Because Ruby improperly rejected Thelonius's tender of payment, he is relieved of the need to actively repeat his effort. He is, of course, still required to make the payment, but the obligation is now on Ruby to seek him out. Furthermore, because she improperly rejected Thelonius's tender, Ruby is not entitled to interest in the outstanding payment. 3. Harlan received a bill for $500 from Oxford Power Inc, with which he had a contract for the supply of electricity. The amount of the bill, which was much larger than Harlan expected, was attributable to the fact that Oxford's own costs had recently increased. Although Harlan initially refused to pay anything, he was eventually convinced by Oxford's representative that he was contractually liable for the entire $5,000. As a sign of protest, he collected $500 in pennies, placed them in a large wheelbarrow, and proceeded to Oxford's main office to make payment. Oxford, however, refused payment. Was it entitled to do so? Explain your answer. Difficulty: 1 QuestionID: 11-3-03 Topic: Tender of Payment 25 © 2023 Pearson Canada Inc.

Skill: Applied Answer: As a contractual debtor, Harlan is required to tender payment. Under the Currency Act, however, there are limits on the number of coins that can be provided by way of legal tender. More specifically, a contractual creditor, like Oxford, is not obliged to accept more than 25 pennies. 4. Identify a situation in which a party is entitled to have a contract discharged on the basis of performance, even though that performance constitutes a breach of the contract. Difficulty: 2 QuestionID: 11-3-04 Topic: Substantial Performance Skill: Applied Answer: The question refers to the idea of substantial performance. Substantial performance occurs when a party provides most, but not all, of what it was expected to provide. The shortfall may be a defect in performance (as when a fence is painted one shade of white, when a slightly different shade was actually expected under the agreement) or a lack of performance (as when a home builder completes almost all of the structure, but fails to hang a few doors on their hinges). The contract will be discharged on the basis of that performance, even if the recipient of the substantial performance would prefer to insist upon complete performance. However, the innocent party is also entitled to damages for any loss that it suffers as a result of the breach. 5. Explain the difference between a "condition," a "condition subsequent," a "condition precedent," and a "true condition precedent" as those terms have been used in this chapter. Which of those types of conditions can be breached? Explain your answer. Difficulty: 2 QuestionID: 11-3-05 Topic: Conditional Contracts, Condition Skill: Recall Answer: A "condition" is a term of a contract which, if breached, will substantially deprive the innocent party of the expected benefit of the contract. If a condition is breached, the innocent party generally has the option of either continuing on with the contract and claiming damages or discharging the contract and claiming damages. A "condition subsequent" is an event which, if it transpires, will automatically cause an existing contract to come to an end. Under a condition subsequent, the parties have a contract unless and until the event occurs. A "true condition precedent" is an event which, if it transpires, will cause a contract to come into existence. Under a true condition precedent, the parties do not have a contract unless and until the event occurs. A "condition precedent" is an event which, if it transpires, will require the parties to perform the primary obligations that they have under an existing contract. A condition precedent does not directly affect the existence of a contract, but it does suspend the parties' obligations to perform under that existing agreement. 26 © 2023 Pearson Canada Inc.

It is only possible to breach the first type of condition. The other types of conditions cannot be breached because they do not themselves place any obligations on the parties. A breach assumes that a party was required to do one thing, but actually did something else. Significantly, however, a breach may arise in connection with a condition precedent. While a condition precedent suspends the parties' duty to immediately perform their primary obligations, it may also support the existence of a subsidiary obligation. A subsidiary obligation requires one of the parties to do something to help bring about the event contained in the condition precedent. For instance, a contract for the sale of a house that is subject to a condition precedent pertaining to the buyer's ability to secure financing likely entails a subsidiary obligation that requires the buyer to attempt to satisfy the condition. 6. Ichiro and Emily discussed the possibility that he might buy a painting from her at a price of $100 000. Both parties wanted the sale to occur, and both were confident that Ichiro would be able to secure bank financing for the transaction. However, the parties also agreed that neither should have any obligations unless and until such financing was arranged. Explain how Ichiro and Emily can best achieve that result. Difficulty: 3 QuestionID: 11-3-06 Topic: True Condition Precedent Skill: Applied Answer: The question requires students to recognize the difference between a condition precedent and a true condition precedent. If the parties used a condition precedent, a contract would immediately be created. Furthermore, by its very nature, a contract imposes obligations upon the parties even if, as in this situation, the need to perform the primary obligations would be suspended pending satisfaction of the condition. Consequently, while Ichiro would not have to pay the price, and Emily would not have to transfer the painting, unless and until financing was arranged, obligations would exist. Furthermore, unless the parties clearly excluded such a possibility, a court might imply a subsidiary obligation that required Ichiro to immediately attempt by reasonable steps to secure financing. The parties therefore should use a true condition precedent. In that situation, there would be no contract, and hence no obligations, unless and until the condition was satisfied. Once the condition was satisfied, however, a contract for performance of the primary obligations would automatically arise. 7. "Even if the parties did not agree to such an arrangement when they created their contract, they may agree to bring their contract to an early end without relying upon consideration." Identify two situations in which this is true. Difficulty: 3 QuestionID: 11-3-07 Topic: Release, Waiver Skill: Applied

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Answer: This question requires students to recognize that a contract may be brought to an end in a variety of ways: some involve prior agreement, some involve breach, some involve factors that operate by law and without regard to their agreement (such as frustration). Quite often, the parties may agree to bring their agreement to an end. When they do so, they usually rely upon consideration. That is true in cases of rescission, accord and satisfaction, variation, and novation. However, it is also possible for a contract to be brought to an end through agreement of the parties, but without consideration. That is possible if a promise to release contractual rights is placed under seal. A seal is not consideration, but it can act as a substitute for consideration. It is also possible to bring a contract to an end without consideration through the process of waiver. One party may be held to a representation that it would not enforce its contractual rights. (Often, however, waiver is subject to retraction upon reasonable notice, so long as the representee would not be unfairly prejudiced.) 8. Briefly describe three ways in which a contract may be discharged by operation of law. Difficulty: 1 QuestionID: 11-3-08 Topic: Frustration, Lapse of Limitation Period, Bankruptcy Skill: Recall Answer: A contract is said to be discharged by law when it is automatically brought to an end for reasons that do not arise directly from the parties' intentions. First, a frustrated contract is automatically discharged. That is true when a contract becomes impossible to perform or when performance would be something much different than what the parties reasonably expected. Second, in some jurisdictions a contract will be discharged under a statute of limitation by the lapse of time. Upon the expiration of a limitation period, the party that suffered a breach is usually prevented from successfully suing that party in breach. However, the contract in some jurisdictions may continue to exist and the right to sue may be revived, even after the expiration of the limitation period, if the party in breach acknowledges the outstanding debt. Third, a contract may be discharged by reason of bankruptcy. 9. Pierette entered into a contract with Hugo. She agreed to deliver a shipment of gold to his jewellery store each week for a year. He agreed to pay a specific price. The contract also said: "The buyer shall have the right to terminate this contract in the event of a substantial change in the market price of gold." After delivering gold to Hugo for several months, Pierette refused to go on with the contract. Her decision to do so was based on the fact that while her contract with Hugo contained a specific price, the market value of gold had suddenly increased a substantial amount. Consequently, she realized that her contract with Hugo no longer made good financial sense from her perspective. Would a court accept that argument from Pierette? Explain your answer. Difficulty: 2 QuestionID: 11-3-09 Topic: Option to Terminate 28 © 2023 Pearson Canada Inc.

Skill: Applied Answer: Pierette's argument would not be successful. The contract contained an option to terminate, but that option was available only to Hugo (the buyer). Pierette therefore did not have the right to discharge the contract when the market value of gold increased. This is not a case of frustration. Although performance has become much more expensive for Pierette, she is still capable of performing. She simply entered into a very bad bargain. 10. Woogles Inc manufactured widgets in Winnipeg. It contractually agreed to sell 5000 widgets to Peja in Halifax for a price of $100,000. Because the Province of Manitoba is concerned about the export of widgets, it requires all such sales to be licenced. Such licences are easily obtained if the seller fills out a simple application form. Because of that requirement, the contract between Woogles and Peja contained a clause that said, "Performance of this agreement is conditional upon the acquisition of an export licence." Shortly after entering into its contract with Peja, Woogles received an offer from another buyer, who was located within Manitoba, to pay $125,000 for 5,000 widgets. Woogles accepted that offer, even though it only had a total of 5,000 widgets to sell. It then simply refused to apply for the export licence that was necessary for its contract with Peja. Can Woogles escape all responsibility to Peja in that way? Explain your answer. Difficulty: 3 QuestionID: 11-3-10 Topic: Condition Precedent Skill: Applied Answer: The contract between Woogles and Peja is subject to a condition precedent. As a result, while their contract immediately came into existence, neither party was required to perform their primary obligation (ie either pay $100,000 or deliver the widgets) unless and until an export licence was obtained. Since the licence was not obtained, the duty to perform does not arise. However, in such circumstances, while Woogles would not be required to perform its primary obligation under the contract (ie deliver the widgets), it almost certainly was subject to a subsidiary obligation that it was required to immediately perform. That subsidiary obligation would require it to reasonably attempt to obtain an export licence. Since it failed to do so, it could be held liable to Peja. Peja therefore probably would not be entitled to the widgets, but he would be entitled to damages. 11. Gretchen, who lived in Calgary, entered into a contract with Matt, who lives in Edmonton. He paid $2500 to her at the outset and she promised that she would edit a book that he was in the process of writing. After completing slightly more than half of the job, however, Gretchen received an offer to act in a play on Broadway. Since acting had always been her dream, she pleaded with Matt to let her go to New York without finishing her project with him. She also pleaded with him to retain the $2,500 that she had received from him because she needed a great deal of money to make the move. Since he was fond of Gretchen, Matt agreed. She then sold almost all of her belongings, including her computer, and moved to New York. A week later, however, Matt changed his mind when he learned that Gretchen was acting in Cats, a Broadway production that he disliked very much. He therefore now insists that she must fulfill the rest of her contractual obligations. Is he correct? Explain your answer. 29 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 11-3-11 Topic: Waiver Skill: Applied Answer: Matt is not correct. Generally speaking, a promise to relieve a party from the need to perform a contract is enforceable only if it is supported by consideration. Gretchen, however, gave no consideration for Matt's promise. (Since he had already paid the full price of $2,500, she could not provide consideration by relieving him of the need to perform part of the agreement.) Matt nevertheless is bound by his promise due to the doctrine of waiver. He represented that he would not enforce his rights. Moreover, Gretchen detrimentally relied upon that promise by selling her computer (which she would need to perform the contract) and moving to New York. Finally, although waiver is sometimes retractable upon reasonable notice, retraction is not available in this case because it would create an inequitable hardship for Gretchen, given the extent of her detrimental reliance upon Matt's promise and representation. 12. Describe the process of novation. Explain whether or not the process requires consideration. If so, explain how consideration is provided. Difficulty: 1 QuestionID: 11-3-12 Topic: Novation Skill: Recall Answer: Novation is a process in which an existing contract is discharged and another contract is introduced in its place. The new contract may contain substantially different terms than the original contract, or it may introduce a new party in the place of an original party. In either event, novation can only happen with the consent of all of the affected parties. Furthermore, novation requires consideration. Consideration is provided, however, by the fact that the original parties agree that they will not enforce their rights under that agreement (as discussed in Chapter 3, consideration can consist of a detriment to oneself) and often by the fact that they agree to assume new obligations under the new agreement. In a three-party situation, the new party also provides consideration by agreeing to assume obligations under the new agreement. 13. Explain why a breach of contract supports the right of discharge in some situations, but not others. Difficulty: 2 QuestionID: 11-3-13 Topic: Intermediate Skill: Recall Answer: It often is said that there are three types of contractual terms: conditions, warranties, and intermediate (or innominate) terms.

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A "condition" is a term which, if breached, will substantially deprive the innocent party of the expected benefit of the contract. A "warranty" is a term which, if breached, will not substantially deprive the innocent party of the expected benefit of the contract. An "intermediate term" is a term which, if breached, may or may not substantially deprive the innocent party of the expected benefit of the contract. With respect to an intermediate term, a court will wait-and-see how breach affects the innocent party. On the basis of those consequences, it will be treated as either a condition or a warranty. A breach of a warranty (or a breach of an intermediate term that, in the circumstances is treated as a warranty) does not support the option of discharge (although it does support the right to damages). Since the innocent party has not been substantially deprived of the expected benefit of the contract, it is not unfair for the law to require that party to carry on with the contract. A breach of a condition (or a breach of an intermediate term that, in the circumstances is treated as a condition) generally does support the option of discharge (in addition to the right to damages). Since the innocent party has been substantially deprived of the expected benefit of the contract, it is unfair for the law to require that party to carry on with the contract. (The right of discharge, however, may be lost if, for instance, the innocent party either has chosen to carry on with the agreement or has received a benefit that cannot be returned to the party in breach.) As can be seen, it is slightly misleading to say that there are three types of contractual terms. In truth, there are only two types of terms: conditions and warranties. An intermediate (or innominate) term is not a different type of term. Every intermediate term is ultimately characterized as either a condition or a warranty. An intermediate term is different merely in the timing of that characterization exercise. Whereas conditions and warranties are classified as of the time when the contract s created, an intermediate term is a "wait-and-see" term. It is classified after the breach has occurred and its consequences can be assessed. 14. As a result of her independent work as a research scientist, Zoe had confidential information concerning a new process for manufacturing light bulbs. She entered into a contract under which she promised to sell her information exclusively to Lampadina Inc, a light bulb manufacturer. Under the terms of that agreement, she was to provide the information on June 1 and Lampadina was to pay $250 000 within six weeks after that. On March 31, however, Zoe fell in love with Hans, the president of Gluhlampe Inc, another light bulb manufacturer. Two weeks later, she disclosed her confidential information to Hans. She then told Lampadina that since she could no longer provide "confidential information," their contract was at an end and she no longer owed any obligations to them. Is she correct? Explain your answer. Difficulty: 2 QuestionID: 11-3-14 Topic: Self-Induced Impossibility Skill: Applied

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Answer: Zoe's position is not correct. Although her contract with Lampadina can no longer be performed as expected (because the information is no longer confidential), she cannot simply walk away from that agreement. The contract was not frustrated. Instead, Zoe is guilty of self-induced impossibility. Consequently, she will be liable for breach of contract. (Depending upon the circumstances, she, Hans, and Gluhlampe may also be liable for infringing upon Lampadina's intellectual property rights in the information that it had already purchased— though not received—from Zoe.) 15. Identify two policy reasons why contractual rights may become unenforceable under a statute of limitation. Difficulty: 1 QuestionID: 11-3-15 Topic: Lapse of Limitation Period Skill: Recall Answer: First, after a considerable lapse of time, evidence is apt to be lost and witnesses' memories are apt to falter. Consequently, the courts do not want to deal with stale claims. Second, even if reliable evidence is available, a party should, at some point, be free of the fear of liability.

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Managing the Law, 6e (McInnes) Chapter 12: Contractual Remedies True/False Questions 1. In the context of contractual damages, there is only one measure of relief. a True b False Difficulty: 2 QuestionID: 12-1-01 Topic: Introduction Skill: Recall Answer: b. False 2. While damages in tort are always backward-looking, damages in contract are always forward-looking. a True b False Difficulty: 2 QuestionID: 12-1-02 Topic: Reliance Damages Skill: Recall Answer: b. False 3. Because of the need for commercial certainty, a court will award expectation damages only if the value of the plaintiff's loss can be calculated with precision. a True b False Difficulty: 2 QuestionID: 12-1-03 Topic: Difficulty of Calculation Skill: Recall Answer: b. False 4. Penelope contractually agreed to repair Don's roof with a specific type of tile for a price of $10,000. After she completed the job, Don noticed that she had not used the type of tile that was required by the contract. She had used a lower grade of tile. Consequently, Don's roof was worth $3,000 less than he had expected. It will cost $5,000 to remove the tiles that Penelope used and to put the proper type of tiles in their place. If a court awards cost of cure damages to Don, he will be required to use that money to actually replace the existing tiles with the tiles that he expected to receive under his contract with Penelope. 1 © 2023 Pearson Canada Inc.

a True b False Difficulty: 3 QuestionID: 12-1-04 Topic: Cost of Cure or Loss of Value Skill: Applied Answer: b. False 5. Dina entered into a contract with George. She agreed to decorate his office; he agreed to pay her $10,000. She spent $3,000 performing her obligations under the agreement. He has paid her $2,000, but refuses to pay any more. Under the concept of reliance damages, George must now pay $8,000 to Dina. a True b False Difficulty: 2 QuestionID: 12-1-05 Topic: Reliance Damages Skill: Applied Answer: b. False 6. On June 1, Sergei contractually agreed to purchase a widget from Marisa. The total price was $15,000. Sergei paid $5,000 immediately and promised to pay the remainder upon delivery. Although Marisa was required to deliver on July 15, she refused to do so. The market value of the widget was $15,000 on June 1, but $22,000 on July 15. Sergei is entitled to receive $12,000 in expectation damages. a True b False Difficulty: 3 QuestionID: 12-1-06 Topic: Expectation Damages Skill: Applied Answer: a. True 7. On October 15, Madeleine contractually agreed to sell a widget to Hugh. The total price was $20,000. Hugh paid $4,000 immediately and promised to pay the remainder upon delivery. Madeleine delivered the widget to Hugh on November 2, as required by the contract. He refused to accept it, however, because its market value had dropped from $20,000 to $10,000. Madeleine is entitled to receive $6,000 in expectation damages. a True b False Difficulty: 3 2 © 2023 Pearson Canada Inc.

QuestionID: 12-1-07 Topic: Expectation Damages Skill: Applied Answer: a. True 8. On March 26, Sanjeev agreed to sell a widget to Anita for $50,000. She paid $10,000 immediately and promised to pay the remainder when he made delivery on August 30. Sanjeev breached the contract, however, by refusing to deliver the widget. On August 30, its market value had dropped to $47,000. Anita cannot recover expectation damages, but she can recover a maximum of $3,000 in reliance damages. a True b False Difficulty: 3 QuestionID: 12-1-08 Topic: Reliance Damages Skill: Applied Answer: b. False 9. On September 1, Mira agreed to sell a shipment of beans to Marco for a total price of $20,000. He paid the price immediately and the contract required her to make delivery on December 1. She failed to do so. By that time, the market value of the beans had increased to $27,000. Although Marco could have arranged to receive a shipment of beans from another supplier almost immediately, he actually waited three weeks before entering into such a contract with Hector. By that time, the market value of the beans had increased to $30,000. Marco is entitled to expectation damages of $30,000 as long as a reasonable person could have predicted the full price increase on December 1. a True b False Difficulty: 3 QuestionID: 12-1-09 Topic: Expectation Damages Skill: Applied Answer: b. False 10. The courts often award cost of cure damages in order to punish the defendant for acting outrageously. a True b False Difficulty: 1 QuestionID: 12-1-10 Topic: Cost of Cure or Loss of Value Skill: Recall 3 © 2023 Pearson Canada Inc.

Answer: b. False 11. Imran contractually agreed to sell a widget to Juanita for a total price of $200,000. Juanita paid $50,000 immediately and promised to pay the remainder upon delivery. However, Imran refused to ever deliver a widget. Between the time that the contract was created and the time of breach, the value of the widget dropped from $200,000 to $100,000. Juanita nevertheless is entitled to get back her payment of $50,000. a True b False Difficulty: 3 QuestionID: 12-1-11 Topic: Unjust Enrichment Skill: Applied Answer: b. False 12. A court will award punitive damages only if the plaintiff is not entitled to expectation damages. a True b False Difficulty: 1 QuestionID: 12-1-12 Topic: Punitive Damages Skill: Recall Answer: b. False 13. Brown's Construction Co agreed to renovate a lecture hall at Moosehead University. The contract required the work to be completed between July 1 and September 1 so that classes would not be disrupted. The contract also stated that Brown's Construction would be required to pay the university $10,000 for each week that the project ran over schedule. That provision was intended to allow Moosehead to rent other premises for the purpose of holding classes off-campus if Brown's Construction failed to perform on time. The amount of $10,000 per week was the parties' genuine estimate of the cost of leasing lecture space off-campus. In fact, the renovations were finished six weeks late. Because of an unexpected downturn in the economy, however, the university only had to pay a total of $20,000 to hold classes off-campus during the delay. Brown's Construction nevertheless may be required to pay $60,000. a True b False Difficulty: 2 QuestionID: 12-1-13 Topic: Liquidated Damages Skill: Applied

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Answer: a. True 14. If defendants in a private law case refuse to obey orders for specific performance, they can be sent to jail for contempt of court. a True b False Difficulty: 1 QuestionID: 12-1-14 Topic: Specific Performance Skill: Recall Answer: a. True 15. If the plaintiff proves an enrichment, a corresponding deprivation, and a juristic reason for the enrichment, it will be entitled to the remedy of restitution. a True b False Difficulty: 3 QuestionID: 12-1-15 Topic: Unjust Enrichment Skill: Recall Answer: b. False 16. Expectation damages represent the monetary value of the benefit that the plaintiff expected to receive under the contract a True b False Difficulty: 1 QuestionID: 12-1-16 Topic: Damages Skill: Recall Answer: a. True Multiple Choice Questions 1. Susan contractually agreed to sell a particular computer to Davor for $5,000. Although Davor paid the money, Susan refuses to actually give him the computer. A court will likely award monetary damages, rather than specific performance, to Davor because A) judges do not have the authority to force the defendant to act in a particular way. B) Davor has already paid the purchase price. C) Susan has not committed a serious breach of contract. 5 © 2023 Pearson Canada Inc.

D) monetary damages will provide Davor with an adequate remedy. E) the loss of the computer is too remote. Difficulty: 2 QuestionID: 12-2-01 Topic: Damages Skill: Applied Answer: D) monetary damages will provide Davor with an adequate remedy. 2. Savannah agreed to buy a car from Rhett for $10,000. Savannah paid the price, but Rhett refused to perform the contract after he discovered that the vehicle was really worth $17 000. At the time that the contract was created, neither he nor Savannah was aware of the vehicle's actual value. Which of the following statements is TRUE? A) The court will likely award expectation damages based on the profit that Rhett expected to receive under the contract. B) The court will likely award specific performance because of the significant difference between the contract price and the actual value of the car. C) Savannah cannot get expectation damages for $17,000 because she did not expect to receive a car of that value when she entered into the contract. D) Savannah will be entitled to receive a total of $7,000 in expectation damages because that is the profit that she should have received under the contract. E) Even though he breached the contract, Rhett may not be liable for the full difference between the contract price and the market value if Savannah could have purchased a similar car from a third party for less than $17,000. Difficulty: 3 QuestionID: 12-2-02 Topic: Mitigation of Damages Skill: Applied Answer: E) Even though he breached the contract, Rhett may not be liable for the full difference between the contract price and the market value if Savannah could have purchased a similar car from a third party for less than $17,000. 3. Which of the following statements is TRUE? A) Damages in contract are always forward-looking. B) Damages in contract are always backward-looking. C) In deciding whether or not damages in contract should be forward-looking or backward-looking, a court will be influenced by whether or not the defendant's breach was deliberate. D) Damages in contract are usually forward-looking because the courts want to protect the fact that promises are valuable only if they will be kept in the future. E) Expectation damages compensate the plaintiff for expenses that it actually paid in reliance upon the contract. Difficulty: 3 6 © 2023 Pearson Canada Inc.

QuestionID: 12-2-03 Topic: Expectation Damages Skill: Recall Answer: D) Damages in contract are usually forward-looking because the courts want to protect the fact that promises are valuable only if they will be kept in the future. 4. Luis contractually agreed to sell a widget to Monica for $20,000. Monica accepted delivery of the widget, but has paid only $13,000. Although neither party realized it when they created their contract, the widget is actually worth $23,000. A court will order Monica to pay Luis A) $10,000. B) $7,000. C) $20,000. D) $13,000. E) $23,000. Difficulty: 3 QuestionID: 12-2-04 Topic: Expectation Damages, Reliance Damages Skill: Applied Answer: B) $7,000. 5. Joshua contractually agreed to sell a widget to Maya for $50,000. Before the sale was completed, however, Maya announced that she no longer wanted the widget. She therefore refused to accept delivery of it or to make any payment. The widget is really worth $55,000. There are several other parties who are willing to buy it from Joshua at that price. At the time of entering into his contract with Maya, however, Joshua thought that the widget was worth $60,000. He therefore thought that he would earn a profit of $10,000 under the contract. A court is most likely to order Maya to pay Joshua A) $5,000. B) $50,000. C) $10,000. D) $55,000. E) $1. Difficulty: 3 QuestionID: 12-2-05 Topic: Nominal Damages Skill: Applied Answer: E) $1. 6. Armand contractually agreed to sell a widget to Melanie for $100,000. However, she refused to accept delivery of the widget or to pay the contract price because the widget is really worth $80,000. Britt then offered to buy the widget from Armand for $80,000, but he rejected that offer. If Armand claims expectation damages, a court will order Melanie to pay him 7 © 2023 Pearson Canada Inc.

A) $100,000. B) $20,000. C) $40,000. D) $80,000. E) $0. Difficulty: 3 QuestionID: 12-2-06 Topic: Expectation Damages, Mitigation Skill: Applied Answer: B) $20,000. 7. The victim of a breach of contract is entitled to A) claim expectation damages for remote losses. B) enforce a contractual term regarding liquidated damages but not penalties. C) compel the party in breach to mitigate the losses. D) insist upon receiving cost of cure damages. E) recover damages for intangible losses only if the defendant deliberately breached the contract. Difficulty: 2 QuestionID: 12-2-07 Topic: Liquidated Damages Skill: Recall Answer: B) enforce a contractual term regarding liquidated damages but not penalties. 8. The amount awarded as expectation damages may be affected by A) the concept of disgorgement. B) the concept of esperanto. C) the profit that the defendant unreasonably expected to receive under the contract. D) the fact that the party in breach became depressed following the breach. E) the fact that the innocent party entered into the contract for "peace of mind." Difficulty: 1 QuestionID: 12-2-08 Topic: Intangible Losses and Emotional Distress Skill: Recall Answer: E) the fact that the innocent party entered into the contract for "peace of mind." 9. Which of the following statements is TRUE? A) Cost of cure damages will never be awarded unless the plaintiff has already spent money to cure the defect in the defendant's performance. B) Cost of cure damages will always be less than loss of value damages. C) Cost of cure damages will always be awarded if the plaintiff's only loss is intangible. 8 © 2023 Pearson Canada Inc.

D) Cost of cure damages are more likely to be awarded if the innocent party has a reasonable and legitimate reason for wanting to have a defect actually cured. E) Cost of cure damages are a form of reliance damages. Difficulty: 2 QuestionID: 12-2-09 Topic: Cost of Cure or Loss of Value Skill: Recall Answer: D) Cost of cure damages are more likely to be awarded if the innocent party has a reasonable and legitimate reason for wanting to have a defect actually cured. 10. Woody entered into a contract with Jezebel. She promised to pay $10,000 and he promised to build a sun deck in her backyard. The contract contained specific terms regarding the quality of the materials that Woody would use. Woody built a sun deck, but many of the materials that he used fell below the standard required by the contract. As a result of that breach, the deck is worth $1,000 less than Jezebel expected. It will cost $9,000 to replace the defective materials with materials that satisfy the terms of the contract. Which of the following statements is TRUE? A) A court will always award cost of cure damages if the defendant deliberately used materials that did not satisfy the terms of the contract. B) A court will probably refuse to award cost of cure damages because the difference between Jezebel's loss of value and the expense of repairing the defect is very large. C) If Jezebel is awarded cost of cure damages, she must use that money to cure the defect. D) Cost of cure damages are classified as a form of punitive damages because they often require the defendant to pay for more than the plaintiff's actual loss of value. E) If Woody deliberated breached the contract by using inferior materials, Jezebel will receive total damages worth $18 000. Difficulty: 2 QuestionID: 12-2-10 Topic: Cost of Cure or Loss of Value Skill: Applied Answer: B) A court will probably refuse to award cost of cure damages because the difference between Jezebel's loss of value and the expense of repairing the defect is very large. 11. An intangible loss A) is a loss that has market value. B) traditionally resulted in expectation damages. C) usually triggers the remedy of an account of profits. D) usually leads to reliance damages. E) may be the subject of damages if the contract was intended to provide "peace of mind" to the plaintiff. Difficulty: 1 QuestionID: 12-2-11 Topic: Intangible Losses and Emotional Distress 9 © 2023 Pearson Canada Inc.

Skill: Recall Answer: E) may be the subject of damages if the contract was intended to provide "peace of mind" to the plaintiff. 12. Harold agreed to sell a widget to Sheila for $10,000. Sheila paid the purchase price immediately and Harold was required to deliver the widget on June 1. In fact, Harold did not deliver the widget until June 21. As a result, Sheila was unable to perform a contract for ABC Inc on June 19 that would have paid her $15,000. Which of the following statements is TRUE? A) Sheila is entitled to recover $15,000 in damages from Harold as long as she knew, or should have known, that late delivery would cause her to lose her contract with ABC Inc. B) Sheila's loss of $15,000 is best described as an intangible loss. C) Sheila is liable to Harold for $15,000 as long as he knew, or should have known, of the possibility of that loss when he breached the contract. D) Damages will be reduced to the extent that Harold failed to mitigate the loss that was caused by the breach. E) Depending upon the facts, Sheila's damages may be reduced on the basis of both the concept of remoteness and the concept of mitigation. Difficulty: 3 QuestionID: 12-2-12 Topic: Remoteness, Mitigation of Damages Skill: Applied Answer: E) Depending upon the facts, Sheila's damages may be reduced on the basis of both the concept of remoteness and the concept of mitigation. 13. The concept of remoteness A) allows recovery for losses that were not reasonably foreseeable. B) is related to the risks that the parties accepted when they created their contract. C) always applies if the plaintiff mitigated the loss that was caused by the defendant's breach. D) is based on facts that the defendant knew, or should have known, at the time of committing the breach of contract. E) applies only if the plaintiff's loss was caused by a combination of the defendant's breach and the actions of a third party. Difficulty: 2 QuestionID: 12-2-13 Topic: Remoteness Skill: Recall Answer: B) is related to the risks that the parties accepted when they created their contract. 14. Widgets are manufactured by very few companies and they are often difficult to locate. On January 1, Alpha Corp contractually agreed to sell a widget to Beta Inc. Beta paid the total purchase price of $30 000 immediately. The contract required Alpha to deliver the widget on April 1. On March 25, Alpha 10 © 2023 Pearson Canada Inc.

contacted Beta and announced that it would not be able to deliver the widget. By that time, the cost of a widget had increased to $50,000. On March 28, Beta paid $2,000 to an independent firm to locate an alternative widget supplier. That firm suggested Gamma Ltd. On March 30, Beta paid $50 000 to Gamma Ltd to deliver a widget by April 1. A court would probably order Alpha to pay Beta A) $2,000. B) $52,000. C) $22,000. D) $50,000. E) $30,000. Difficulty: 3 QuestionID: 12-2-14 Topic: Mitigation of Damages Skill: Applied Answer: B) $52,000. 15. On June 1, Lauto Inc contractually agreed to buy a Pupmobile LX from Dos Motors Ltd for $25,000. Payment of the price and delivery of an appropriate vehicle were scheduled to occur on July 15. On July 1, however, Dos informed Lauto that it had carelessly crushed its only Pupmobile LX with an industrialsized garbage bin. Dos apologized profusely and explained that it did not have another one in stock. It also informed Lauto that, because a Pupmobile LX had recently appeared in a highly successful movie, such cars were in great demand. "If you still want one," said the manager at Dos, "you had better act quickly. I'll expect that they will start to go up in value very quickly." Between July 1 and July 10, Lauto could have agreed to purchase a Pupmobile LX from another dealer for $30,000. Nevertheless, Lauto waited until July 11 before buying a Pupmobile LX from Tertius Motors Ltd for $35,000. By July 15, the market value of such vehicles had increased to $40,000. A court would probably order Dos to pay Lauto A) $15,000. B) $10,000. C) $25,000. D) $5,000. E) $30,000. Difficulty: 3 QuestionID: 12-2-15 Topic: Mitigation of Damages Skill: Applied Answer: D) $5,000. 16. Dave was contractually required to deliver a widget to Pam by July 1. He failed to do so. At that point, Pam predicted that she would suffer a loss of $100,000 during the next six months because her factory cannot operate efficiently without a widget. Which of the following statements is TRUE? A) Because she is under a duty to mitigate, Pam cannot receive any damages unless she purchases a widget from another supplier. B) Because she is under a duty to mitigate, Pam will be denied damages to the extent that she could 11 © 2023 Pearson Canada Inc.

reasonably avoid a loss flowing from Dave's breach. C) Because he is under a duty to mitigate, Dave will be held liable for $100,000 unless he takes reasonable steps to help Pam purchase a widget from another supplier. D) Because Dave is under a duty to mitigate, the damages that he must pay will be reduced to the extent that he reasonably spends money trying to help Pam purchase a widget from another supplier. E) Because she is under a duty to mitigate, Pam must do everything possible to acquire a widget from another supplier. Difficulty: 2 QuestionID: 12-2-16 Topic: Mitigation of Damages Skill: Applied Answer: B) Because she is under a duty to mitigate, Pam will be denied damages to the extent that she could reasonably avoid a loss flowing from Dave's breach. 17. Alexi agreed to sell a particular type of car to Carole for $15,000. He breached the contract by refusing to deliver the car and complete the sale. She bought another car of the same type from Ivan for $18,000. These facts most clearly illustrate the concept of A) remoteness. B) mitigation. C) cost of cure. D) loss of value. E) intangible losses. Difficulty: 1 QuestionID: 12-2-17 Topic: Mitigation of Damages Skill: Applied Answer: B) mitigation. 18. Shinji contractually agreed to record a concert for Keith. The concert was to occur on November 8 and Keith was to pay a price of $10,000 on the same day. On October 15, Shinji informed Keith that he would not be able to record the concert. On November 2, Keith entered into a contract with his good friend, Manfred. Under the terms of that agreement, Manfred was required to record the concert on November 8 and Keith was required to pay $25,000. The evidence indicates that Keith could have easily hired someone other than Manfred for $17,000. Which of the following statements is TRUE? A court would probably order Shinji to pay Keith A) $25,000. B) $17,000. C) $15,000. D) $10,000. E) $7,000. Difficulty: 2 12 © 2023 Pearson Canada Inc.

QuestionID: 12-2-18 Topic: Mitigation of Damages Skill: Applied Answer: E) $7,000. 19. Sammy Productions Inc wanted to hold an open-air concert on September 30. On February 1, it entered into a contract with Maxine, a wealthy landowner. Under the terms of that agreement, Maxine agreed to let the concert be held on her property and Sammy agreed to pay her 10 percent of its gross revenues from the concert. The parties agreed to calculate the price that way because they did not have any way of knowing how many people would attend the concert. Attendance would depend upon a large number of factors, including the weather and the general state of the economy. Based on past experience, however, Sammy and Maxine agreed that the event would certainly be profitable. After signing its contract with Maxine, Sammy spent $75,000 on advertising. It also passed up an opportunity to organize a Canada Day celebration in Ottawa, for which it would have received $100,000 in net profits from the government of Canada. Maxine was aware that Sammy was sacrificing sacrificed that opportunity even before she signed the contract. On August 1, however, Maxine abruptly announced that she would not allow the concert to be held on her land. She offered Sammy $50 000 as compensation for its losses. It is not possible for Sammy to arrange another site for its concert given the late date. A court would most likely order Maxine to pay Sammy A) $50,000. B) $100,000. C) $75,000. D) $175,000. E) $0. Difficulty: 3 QuestionID: 12-2-19 Topic: Reliance Damages Skill: Applied Answer: D) $175,000. 20. Which of the following statements is TRUE? A) If a court awards nominal damages, it will always award costs against the party that breached the contract. B) Canadian judges award punitive damages more often than American judges. C) Nominal damages are usually worth more than punitive damages. D) Punitive damages are intended to compensate the plaintiff for losses that it unexpectedly suffered as a result of the defendant's deliberate breach of contract. E) An account of profits normally is not available even if the defendant earned a large profit as a result of committing a breach of contract against the plaintiff. Difficulty: 1 QuestionID: 12-2-20 Topic: Account of Profits 13 © 2023 Pearson Canada Inc.

Skill: Recall Answer: E) An account of profits normally is not available even if the defendant earned a large profit as a result of committing a breach of contract against the plaintiff. 21. Brianna contractually agreed to sell a widget to Oren. She was required to deliver the item on June 1 and he was required to pay $75,000 on the same day. Paragraph 21 of the contract said that if Brianna breached the contract by refusing to deliver the item, Oren would be entitled to a payment of $20,000. Brianna did, in fact, refuse to deliver the widget. Oren therefore has not yet paid the price. Which of the following statements is most likely to be TRUE? A) If Oren suffered a loss of $15,000 as a result of Brianna's breach, he will be entitled to payment of that amount if paragraph 21 of the contract was a penalty. B) If Oren suffered a loss of $10,000 as a result of Brianna's breach, he will be entitled to payment of $20,000 if paragraph 21 of the contract was a penalty. C) If Oren suffered a loss of $30,000 as a result of Brianna's breach, he will be entitled to payment of that amount if paragraph 21 of the contract was for liquidated damages. D) If Oren suffered a loss of $10,000 as a result of Brianna's breach, he will be entitled to payment of that amount and no more if paragraph 21 of the contract was for liquidated damages. E) If Oren suffered a loss of $20,000, and the court classified paragraph 21 as liquidated damages, then Brianna would be liable to pay $95,000. Difficulty: 3 QuestionID: 12-2-21 Topic: Liquidated Damages Skill: Applied Answer: A) If Oren suffered a loss of $15,000 as a result of Brianna's breach, he will be entitled to payment of that amount if paragraph 21 of the contract was a penalty. 22. Which of the following statements is TRUE? A) Liquidated damages are always available if the defendant breached a contract for the sale of land. B) Liquidated damages are enforceable if they represent a genuine estimate of the losses that the plaintiff might have suffered as a result of the defendant's breach. C) A judge will award more than a liquidated damages clause provides for, but only if the plaintiff suffered a larger loss as a result of the defendant's breach. D) The plaintiff cannot recover the full amount of liquidated damages if it suffered a smaller loss as a result of the defendant's breach. E) Because of the risk of unfairness, liquidated damages are never allowed unless the defendant received independent legal advice at the time that the contract was created. Difficulty: 2 QuestionID: 12-2-22 Topic: Liquidated Damages Skill: Recall Answer: B) Liquidated damages are enforceable if they represent a genuine estimate of the losses that the 14 © 2023 Pearson Canada Inc.

plaintiff might have suffered as a result of the defendant's breach. 23. Mayo committed a breach of contract against Dirk. After ordering Mayo to compensate Dirk for the losses that he suffered, the judge also ordered Mayo to pay an additional $10 000 to Dirk. These facts most likely demonstrate the concept of A) nominal damages. B) liquidated damages. C) a penalty clause in the contract. D) punitive damages. E) equitable relief. Difficulty: 1 QuestionID: 12-2-23 Topic: Punitive Damages Skill: Applied Answer: D) punitive damages. 24. As a general rule, punitive damages will not be awarded for a breach of contract unless A) monetary damages would not adequately compensate the plaintiff. B) the plaintiff committed an independently actionable wrong. C) the contract expressly allows for such relief. D) the plaintiff seeks equitable relief. E) as a result of that breach, the defendant obtained a benefit that exceeded the value of the plaintiff's loss. Difficulty: 2 QuestionID: 12-2-24 Topic: Punitive Damages Skill: Applied Answer: B) the plaintiff committed an independently actionable wrong. 25. Katarzyna contractually agreed to sell a painting to Trent. She promised to deliver it on June 1 and he promised to pay $10,000 on the same day. On May 15, Katarzyna discovered that the painting is really worth $25,000. She therefore has told Trent that she does not intend to fulfill the contract. Which of the following statements is most likely to be TRUE? A) Since specific performance is an equitable remedy, Trent is entitled to receive the painting only if he agrees to pay $25,000 to Katarzyna. B) A court will grant an injunction to Trent, but it will not award specific performance against Katarzyna. C) If specific performance is not available, Trent will probably be entitled to receive $25,000 from Katarzyna. D) A court will probably give Trent specific performance and reliance damages. E) Trent probably is not entitled to specific performance if Katarzyna is under the age of majority. Difficulty: 2 QuestionID: 12-2-25 15 © 2023 Pearson Canada Inc.

Topic: Specific Performance, Mutuality Skill: Applied Answer: E) Trent probably is not entitled to specific performance if Katarzyna is under the age of majority. 26. Which of the following statements is TRUE? A) A court will refuse to award specific performance if monetary damages are inadequate. B) The requirement of mutuality means that specific performance will not be awarded unless both parties provided consideration under a contract. C) Specific performance is not available if the defendant has "dirty hands" when it comes to court. D) Because it is an equitable remedy, specific performance is always available even if the plaintiff waits a long time before suing the defendant. E) Although the courts traditionally awarded specific performance for a contract to sell a piece of land, the plaintiff will now receive damages unless a piece of land is somehow special or unique. Difficulty: 2 QuestionID: 12-2-26 Topic: Specific Performance, Adequacy of Damages Skill: Recall Answer: E) Although the courts traditionally awarded specific performance for a contract to sell a piece of land, the plaintiff will now receive damages unless a piece of land is somehow special or unique. 27. Iago contractually agreed to sell a particular piece of land to Desdemona. He later changed his mind and decided to keep the property for himself. Which of the following statements is most likely to be TRUE? A) A court would not award an order for specific performance because it would not be willing to supervise the transfer of land. B) Since the contract dealt with a sale of land, Desdemona will certainly receive an order for specific performance. C) Desdemona probably is not entitled to an order for specific performance if the land is not unique or special. D) Desdemona will be entitled to receive an order for specific performance only if she grants an injunction to Iago. E) Desdemona will receive specific performance only if Iago comes to court with unclean hands. Difficulty: 2 QuestionID: 12-2-27 Topic: Adequacy of Damages Skill: Applied Answer: C) Desdemona probably is not entitled to an order for specific performance if the land is not unique or special. 28. Silvio agreed to perform as a cellist with the Moose Jaw Symphony Orchestra (the MJSO). His contract with the orchestra contained two important clauses. One required him to perform with the 16 © 2023 Pearson Canada Inc.

MJSO four times per month for three years. The other prohibited him from "acting in any musical capacity for any other employer" during the same period. After a short time, Silvio grew dissatisfied with the MJSO. He therefore announced his intention to quit the MJSO and to join the Thunder Bay Orchestra (the TBO). Which of the following statements is TRUE? A) Because Silvio has special skills, a court would certainly grant an order of specific performance to the MJSO. B) Silvio is entitled to quit the MJSO and join the TBO because a contract for personal services can never be subject to specific performance or an injunction. C) A court might grant an injunction to the MJSO to prevent Silvio from performing for the TBO if it is reasonably possible for Silvio to earn a living without violating the terms of his contract. D) Since an injunction is an equitable remedy, such relief is available only if the contract between Silvio and the MJSO was under seal. E) A court would not grant either specific performance or an injunction because the requirement of mutuality could not possibly be satisfied on the facts. Difficulty: 2 QuestionID: 12-2-28 Topic: Injunctions Skill: Applied Answer: C) A court might grant an injunction to the MJSO to prevent Silvio from performing for the TBO if it is reasonably possible for Silvio to earn a living without violating the terms of his contract. 29. Eleni agreed to act as an investment adviser for Gnuhigh Ltd. After completing her first project for Gnuhigh, she asked for payment of $10,000, as calculated under the terms of the parties' agreement. Gnuhigh refused to pay. In support of its position, it pointed to the Financial Industry Standards Act, which says that a contract for investment advice is unenforceable unless it is registered with a government official. The agreement between Eleni and Gnuhigh is not registered. Eleni is most likely entitled to receive A) $10,000 as restitution for unjust enrichment. B) $10,000 as reliance damages. C) $10,000 as liquidated damages. D) $10,000 as expectation damages. E) an order for specific performance. Difficulty: 2 QuestionID: 12-2-29 Topic: Unjust Enrichment Skill: Applied Answer: A) $10,000 as restitution for unjust enrichment. 30. Manny contractually agreed with Akio Inc to present a series of ten lectures to that company's employees. The total price of $5,000 was to be paid after the last lecture. The work turned out to be far more complicated and far more expensive than Manny first expected. He nevertheless carried on with the agreement because he did not want to damage his reputation for reliability and professionalism. Manny 17 © 2023 Pearson Canada Inc.

spent $12,000 preparing and delivering five lectures. It would have cost the same amount to prepare and deliver the remaining lectures. At that point, however, Akio breached the contract and prevented Manny from completing the contract. Which of the following statements is TRUE? A) Manny is entitled to receive $5,000 as expectation damages. B) Manny is entitled to receive $12,000 as reliance damages. C) Manny is entitled to receive an order for specific performance. D) Manny is entitled to receive $12,000 as restitution. E) Manny is not entitled to any remedy. Difficulty: 3 QuestionID: 12-2-30 Topic: Unjust Enrichment Skill: Applied Answer: D) Manny is entitled to receive $12,000 as restitution. 31. Which of the following sets of remedies are both equitable? A) punitive damages and nominal damages B) restitution and punitive damages C) specific performance and injunction D) liquidated damages and rescission E) account of profits and reliance damages Difficulty: 1 QuestionID: 12-2-31 Topic: Equitable Relief Skill: Recall Answer: C) specific performance and injunction 32. Which of the following concepts limits the availability of specific performance? A) mutuality B) remoteness C) mitigation D) penalty E) cost of cure Difficulty: 1 QuestionID: 12-2-32 Topic: Mutuality Skill: Recall Answer: A) mutuality 33. Which of the following statements is TRUE with respect to reliance damages? A) The plaintiff is entitled to recover both reliance damages and expectation damages. 18 © 2023 Pearson Canada Inc.

B) They are available only to the extent that the plaintiff entered into a bad bargain. C) The plaintiff is entitled to spend the damage award as it chooses. D) Because contractual promises look to the future, reliance damages are forward-looking. E) They are intended to allow the plaintiff to complete any work that the defendant did not perform. Difficulty: 2 QuestionID: 12-2-33 Topic: Reliance Damages Skill: Recall Answer: C) The plaintiff is entitled to spend the damage award as it chooses. 34. Restitution is A) a cause of action that sometimes is available in a contractual context. B) a remedy that may require the defendant to give up a benefit that it acquired from a third party as a result of committing a wrong against the plaintiff. C) a more appropriate name for an account of profits. D) never able to exceed the value of expectation damages. E) available as a remedy for unjust enrichment. Difficulty: 2 QuestionID: 12-2-34 Topic: Unjust Enrichment Skill: Recall Answer: E) available as a remedy for unjust enrichment. 35. On May 1, George contractually agreed to purchase a painting from Laura for $50,000. On that date, George prepaid half of the purchase price and promised to pay the other half upon delivery. Laura promised to deliver the painting to George on June 1. In anticipation of receiving the painting, George spent $10,000 building a special display case in his home. On May 15, the artist who created the painting died and the value of the painting immediately increased to $75,000. Laura therefore refused to deliver the painting to George. George is entitled to receive A) no more than $10,000 as reliance damages. B) $25,000 in expectation damages. C) $50,000 in expectation damages. D) $75,000 in expectation damages. E) $35,000 in expectation damages. Difficulty: 3 QuestionID: 12-2-35 Topic: Expectation Damages Skill: Applied Answer: C) $50,000 in expectation damages.

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36. On August 1, Brian contractually agreed to purchase a diamond from Mila for $100,000. On that date, Brian prepaid half of the purchase price and promised to pay the other half upon delivery. Mila promised to deliver the diamond to Brian on October 1. The diamond has a unique size and shape. In anticipation of receiving it, Brian spent $25,000 on a custom-made ring that could accommodate the diamond. On September 1, political revolutions in several diamond producing countries disrupted the flow of diamonds. The diamond that was the subject of Brian and Mila's contract consequently increased in value to $150,000. Mila therefore refused to deliver the diamond to Brian. Which of the following is an accurate statement? A) Brian is entitled to receive restitution of $100,000. B) Brian is entitled to receive restitution of $150,000. C) Brian is entitled to receive reliance damages of $25,000. D) Brian is entitled to receive reliance damages of $75,000. E) Brian is entitled to receive expectation damages of $150,000. Difficulty: 3 QuestionID: 12-2-36 Topic: Reliance Damages Skill: Applied Answer: D) Brian is entitled to receive reliance damages of $75,000. 37. On March 1, Joe contractually agreed to purchase an antique family heirloom from his cousin, Maureen, for $40,000. Joe paid half of that price immediately and promised to pay the other half upon delivery. Maureen promised to deliver the heirloom on May 1. On April 1, another member of the family discovered that the heirloom had not belonged to a famous ancestor, as everyone had believed, but rather to that person's half-brother. The market value of the heirloom consequently dropped to $10,000. Maureen nevertheless refuses to deliver it as promised. Which of the following is an accurate statement? A) Joe is entitled to receive expectation damages of $40,000. B) Joe is entitled to receive expectation damages of $10,000. C) Joe is entitled to receive expectation damages of $30,000. D) Joe is entitled to receive reliance damages of $20,000. E) Joe is entitled to receive restitution of $20,000. Difficulty: 2 QuestionID: 12-2-37 Topic: Unjust Enrichment Skill: Applied Answer: E) Joe is entitled to receive restitution of $20,000. 38. Munchable Catering Company contractually agreed to cater Indira's wedding for a price of $25,000. Because Indira was anxious for everything to go just right on her wedding day, she insisted that the agreement contain a clause that said that if Munchable breached the contract, it would be required to pay damages of $250,000. Tarik, the owner-operator of Munchables, agreed to the insertion of that clause because he was new to the business, very confident that he would perform exactly as required, and easily persuaded. Two weeks before the wedding, however, disaster struck. Tarik was hospitalized with a 20 © 2023 Pearson Canada Inc.

mysterious illness. He immediately called Indira and explained that he would not be able to fulfill the contract. Indira became hysterical and demanded payment of $250,000. She eventually calmed down and was able to hire a replacement caterer at a price of $35,000. The wedding then occurred precisely as Indira had long hoped. She nevertheless still wants to sue Tarik for as much money as possible. Which of the following statements is most likely to be TRUE if a judge decides the case? A) If Indira paid $25,000 to Tarik at the outset, she is now entitled to receive $35,000. B) Indira is entitled to receive $250,000 from Tarik. C) Tarik must pay $25,000 to Indira. D) Tarik is liable for punitive damages. E) The judge will classify the contractual clause that requires the payment of $250,000 as a nominal damages clause. Difficulty: 3 QuestionID: 12-2-38 Topic: Expectation Damages Skill: Applied Answer: A) If Indira paid $25,000 to Tarik at the outset, she is now entitled to receive $35,000. 39. Mountain City Construction Company (M3C) contractually agreed to build a recreational complex for Valley City. The City agreed to pay $20 million upon completion of the project. Shortly after starting the project, M3C realized that it had entered into a very bad bargain. It would have to provide $40 million in services and materials in order to build the recreational complex. It decided to nevertheless fulfill its obligations. After M3C had finished 75 per cent of the project, at a total cost of $30 million, a new mayor was elected. True to the new mayor's campaign promise, the City immediately locked M3C out of the work site. The City then hired Valley City Construction Incorporated (VCCI) to complete the recreational complex at a cost of $10 million. The City refuses to pay anything to M3C. M3C therefore has discharged the contract and taken its case to court. A judge most likely would award A) expectation damages worth $40 million. B) reliance damages worth $30 million. C) restitution worth $30 million. D) an account of profits worth $10 million. E) expectation damages worth $30 million. Difficulty: 2 QuestionID: 12-2-39 Topic: Unjust Enrichment Skill: Applied Answer: C) restitution worth $30 million. 40. Alpha Corp has sued Beta Inc for breach of contract. The judge imposed liability after applying a test that addressed issues concerning interpretation, unconscionability, and policy. The case must have dealt with A) punitive damages. B) unjust enrichment. 21 © 2023 Pearson Canada Inc.

C) an exclusion clause. D) liquidated damages. E) an injunction. Difficulty: 1 QuestionID: 12-2-40 Topic: Exclusion Clauses Skill: Applied Answer: C) an exclusion clause. 41. Yuri enters into a contact for the purchase of an antique table for $300. He has a buyer willing to pay $2,000 for the same table. Yuri pays before receiving the table. The seller breaches the contract when he realizes the table is worth more. Yuri can recover A) $300. B) $1,700. C) $2,000. D) $2,300. E) $0. Difficulty: 2 QuestionID: 12-2-41 Topic: Expectation Damages Skill: Applied Answer: C) $2,000. 42. Remington Construction created a contract with Royal Condominiums. Royal was to pay a total of $5,000,000; Remington was to build a fitness centre. Remington began its performance by pouring foundations at a cost of $250,000. Royal then breached the contract and refused to allow Remington back on the property. Which of the following is most likely to be TRUE? A) Remington is entitled to receive reliance damages. B) Remington is entitled to receive an account for profits. C) Remington is limited to receiving nominal damages. D) Remington's expectation damages will be limited to $250,000. E) Remington has no right to damages because the cost of the foundations is too remote. Difficulty: 2 QuestionID: 12-2-42 Topic: Reliance Damages Skill: Applied Answer: A) Remington is entitled to receive reliance damages. 43. Judy organized a large fund-raising project for a charity. She believes that Craig contractually promised to participate in the project, but broke his promises. Judy and the charity did not lose anything 22 © 2023 Pearson Canada Inc.

as a result of the breach, but Judy intends to sue for symbolic purposes. If the dispute is resolved by a judge, Craig is most likely to be held liable for A) liquidated damages. B) punitive damages. C) nominal damages. D) reliance damages. E) account for profits. Difficulty: 2 QuestionID: 12-2-43 Topic: Nominal Damages Skill: Applied Answer: C) nominal damages. 44. Millennium Properties created a contract to purchase land from Oxford Management. Unfortunately, Oxford has a poor reputation for reliability. Millennium therefore insisted upon the inclusion of the following contractual clause: "If either party breaches this contract by failing to perform as required, the innocent party shall be entitled to receive $650,000 as compensation." As feared, Oxford did refuse to fulfill its contractual obligations. As a result, Millennium suffered a loss of $1,200,000. If the dispute is resolved by a judge, which of the following statements is most likely to be TRUE? A) Millennium will receive $1,200,000 in damages. B) Millennium will receive $650,000 in liquidated damages. C) Millennium will receive $1,200,000 in penalties. D) Millennium will receive $650,000 in penalties. E) Oxford will be given the choice of either paying $650,000 or transferring the land to Millennium. Difficulty: 3 QuestionID: 12-2-44 Topic: Liquidated Damages Skill: Applied Answer: B) Millennium will receive $650,000 in liquidated damages. 45. Joel rented his business premises from Crow Enterprises at a rate of $10,000 per month. Joel intended to deliver last month's rent to Crow, but as a result of a clerical error, the money went instead to Crow's neighbour, Tom. After the mistake came to light, Joel paid another $10,000 to Crow and asked Tom for repayment. Tom refuses. If the dispute is resolved by a judge, which of the following statements is most likely to be TRUE? A) Tom will be ordered to make restitution to Joel. B) Joel will be entitled to receive an account of profits from Tom. C) Joel will receive an injunction that requires Tom to repay the money. D) Joel will receive an order for specific performance that requires Tom to repay the money. E) Tom was not unjustly enriched by the payment because the contract between Joel and Crow Enterprises provides a juristic reason for the error.

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Difficulty: 2 QuestionID: 12-2-45 Topic: Unjust Enrichment Skill: Applied Answer: A) Tom will be ordered to make restitution to Joel. 46. The monetary value of a benefit that the defendant obtained committing a breach of contract is referred to as A) an account of profits or disgorgement. B) quantum meruit C) nominal damages. D) punitive damages suffered as a result of the defendant's deliberate breach of contract. E) restitution. Difficulty: 1 QuestionID: 12-2-46 Topic: Account of Profits Skill: Recall Answer: A) an account of profits or disgorgement. 47. If a court finds that a breach of contract did not create any loss for the plaintiff or gain for the defendant, the symbolic damage award is referred to as A) an account of profits or disgorgement. B) quantum meruit. C) nominal damages. D) punitive damages suffered as a result of the defendant's deliberate breach of contract. E) restitution. Difficulty: 1 QuestionID: 12-2-47 Topic: Nominal damages Skill: Recall Answer: C) nominal damages. 48. Damages that represent the monetary value of the benefit that the plaintiff expected to receive under the contract are referred to as: A) an account of profits or disgorgement. B) quantum meruit. C) nominal damages. D) punitive damages suffered as a result of the defendant's deliberate breach of contract. E) restitution. Difficulty: 1 24 © 2023 Pearson Canada Inc.

QuestionID: 12-2-48 Topic: Expectation damages Skill: Recall Answer: A) an account of profits or disgorgement. Essay Questions 1. Provide four reasons as to why courts generally award monetary damages, rather than specific performance, if one party breaks a sales contract by refusing to make delivery. Difficulty: 2 QuestionID: 12-3-01 Topic: Damages Skill: Recall Answer: First, courts of law—as opposed to courts of equity—historically lacked jurisdiction or authority to award anything other than damages. Second, judges traditionally were drawn from the senior ranks of successful lawyers, and those individuals overwhelmingly tended to be men who had done well in commercial law. They consequently tended to view contracts in terms of commercial arrangements. And at the risk of caricature, for business people, everything can be reduced to money. Third, at least in commercial contexts—which account for the vast bulk of contract cases that are considered important enough to proceed all the way to judgment—the parties similarly are content to view agreements in financial terms. Reasonable expectations can be reduced to dollars and cents. Finally, specific performance tends to inhibit the free flow of commerce. If there is a realistic possibility that the plaintiff is entitled to specific performance, the defendant will be required to retain a particular item pending the outcome of the trial. In the meantime, the defendant will not be able to sell that same item to another party. While that situation occasionally is justifiable, it would be intolerable if effectively fungible assets—eg iPads— had to be sterilized and set aside in te event of litigation. By the time the case was decided, years after the dispute initially arose, the asset will have lost value. 2. "Reliance damages cannot be used to escape the consequences of a bad bargain." Explain the meaning of that statement. Explain the justification for that rule. Provide an example that illustrates your answers. Difficulty: 2 QuestionID: 12-3-02 Topic: Reliance Damages Skill: Applied Answer: After suffering a breach of contract, the plaintiff is normally entitled to choose between expectation damages and reliance damages. However, reliance damages are not available to the extent that the contract was 25 © 2023 Pearson Canada Inc.

unprofitable from the plaintiff's perspective. That rule is based on the allocation of risk that the parties voluntarily accept when they create a contract. A contract is usually a gamble in the sense that each party knows that it may receive more or less than the value that it is providing under the agreement. The law respects and enforces the choices that the parties have made for themselves. Accordingly, if the plaintiff entered into a bad bargain, it must live with the consequences of that fact. It can still recover reliance damages with respect to expenses that were expended as a result of the defendant's breach. It cannot, however, recover reliance damages with respect to expenses that it would have lost in any event as a result of being on the losing end of an uneven deal. The text provided an example in which the plaintiff agreed to pay $14,000 for a shipment of flour that was really only worth $10,000. The plaintiff paid $5,000 in advance, but the defendant refused to deliver the flour. The plaintiff's claim for reliance damages was limited to $2,000. Even if the contract had been fully performed, the plaintiff would have made $3,000 on the deal. Consequently, although it had paid $5,000 in reliance upon the contract, it could only recover $2,000. The court respected and enforced the fact that the plaintiff had entered into a bad bargain. (As the text also indicates, however, the full $5,000 could be recovered as restitution under the cause of action in unjust enrichment.) 3. "The idea of compensation usually means that the plaintiff is entitled to get back something that it previously enjoyed, but that it lost because of the defendant's bad conduct. Although they are considered compensatory, expectation damages do not work in exactly the same way." Explain the meaning of that statement. Provide a justification for awarding expectation damages to the victim of a breach of contract. Difficulty: 3 QuestionID: 12-3-03 Topic: Expectation Damages Skill: Applied Answer: Expectation damages are not compensatory in the normal sense. Compensation usually allows the plaintiff to get back something that it had, but lost. Expectation damages, in contrast, allow the plaintiff to get something that it never had before, but that it expected to get under its contract with the defendant. In other words, while compensation is usually backward-looking, expectation damages are forward-looking. They are not intended to reverse the consequences of the defendant's bad conduct. Instead, they are intended to provide the monetary equivalent of the consequences that would have occurred if the defendant had acted properly. Expectation damages nevertheless are justifiable. In essence, a contract is almost always about the future. The parties exchange promises to act in certain ways at a later date. Moreover, contracts are generally valuable in a commercial sense only if the parties can be reasonably sure of getting either the thing, or the value of the thing, that they expected to get. If damages were limited to allowing the plaintiff to get back what it had, but lost (ie reliance damages), then a contract would lose its capacity to protect parties interests in future performance. For instance, the plaintiff would not be willing to enter into contracts with third parties on the basis of its contract with the defendant unless it could be sure that the defendant's promise would be fulfilled (either directly through actual performance or indirectly through the substitute of monetary damages). 4. A distinction is often drawn between cost of cure damages and loss of value damages. Which of those possibilities is closer to the remedy of specific performance? Explain your answer.

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Difficulty: 3 QuestionID: 12-3-04 Topic: Cost of Cure or Loss of Value Skill: Applied Answer: Depending upon one's perspective, specific performance may seem to be more closely linked to either cost of cure damages or loss of value damages. A strong argument can be made that cost of cure damages are closer to specific performance. Specific performance requires the defendant to actually perform a contractual undertaking, such as an obligation to level land after a mining operation. Cost of cure damages provide the plaintiff with enough money to have that task completed by a third party. Furthermore, the courts sometimes refuse to award such damages unless the plaintiff has already incurred expenses to cure the defect in the defendant's performance or has a legitimate reason for doing so in the future. However, it is also true that once cost of cure damages are awarded, they do not actually have to be used for the purpose of curing the defect in the defendant's performance. Consequently, for instance, even if the plaintiff receives $60 000 because that is the price that a third party would charge to level a piece of land after a mining operation, the plaintiff is not required to actually use the money for that purpose. It can leave the land in an un-level state and pocket the $60,000. If so, the plaintiff will be in a much different, and much better, position that it would have enjoyed if the defendant had properly performed. Loss of value damages do not provide the plaintiff with the amount of money that a third party would charge the plaintiff to cure the defect in the defendant's performance. Instead, loss of value damages simply compensate the plaintiff for the loss that it actually suffered as a result of the defendant's deficient performance. Such damages nevertheless are related to specific performance because they monetarily place the plaintiff in the same position that it would have enjoyed if the contract had been properly performed. 5. "Compensation is normally not available for intangible losses. Recently, however, Canadian courts have begun to award compensation in such circumstances if one of the purposes of the contract was to protect the plaintiff's peace of mind. In one case, for instance, an elderly couple was awarded damages for the grief that they suffered after their beloved dog was suffocated in an airplane's cargo hold. The couple had stressed to the airline, at the outset, how much the dog meant to them." On the basis of such cases, it has been suggested that compensation is available for intangible losses if they are not too remote from the defendant's breach. Formulate an argument that supports that statement. Difficulty: 3 QuestionID: 12-3-05 Topic: Intangible Losses and Emotional Distress Skill: Applied Answer: This is a difficult question that requires students to combine the fundamental concepts underlying two different areas of contractual damages: intangible losses and remoteness. There are several reasons as to why the courts traditionally refused to award compensation for intangible losses. To begin, such losses are, by their very nature, difficult to quantify in monetary terms. Furthermore, intangible losses come in many forms. They range from mere annoyance to psychological devastation. For that reason, there is also a fear that a more generous rule will open the floodgates to frivolous litigation. It is usually true 27 © 2023 Pearson Canada Inc.

that a breach of contract creates a sense of disappointment, at least to some extent. Most significantly, however, compensation for intangible losses may not be justifiable because they are too remote. Leaving aside complaints based on mere annoyance and disappointment, it usually is not known or foreseeable that a breach of contract will wreak emotional havoc on the plaintiff. That is especially true in commercial contexts. However, the courts have awarded compensation for intangible losses. If an elderly couple clearly and emphatically explains to an airline that they are concerned about the safety of their beloved pet, the airline knows that a breach of contract will likely create a great emotional hardship. Likewise in the other example that was cited in the text. The purpose of taking a holiday is to enjoy peace of mind. A breach of contract by the travel agency therefore is likely to prove particularly upsetting for the disappointed vacationer. (The facts of both of these cases are more fully explained in the Case Brief section of the Instructor's Manual.) An argument therefore can be made that compensation may be available for intangible losses, if those losses are not too remote from the defendant's breach. As a matter of fairness, it is appropriate to hold the defendant liable in such circumstances because it knew, at the time of voluntarily creating the contract, that a breach might cause such losses. 6. What are nominal damages? Why is it sometimes dangerous to sue for breach of contract and claim nominal damages? Difficulty: 1 QuestionID: 12-3-06 Topic: Nominal Damages Skill: Recall Answer: Nominal damages are awarded in very small amounts to signify that the defendant committed a wrong against the plaintiff by breaching a contract, but did not actually cause the plaintiff to suffer any loss. They are available because the cause of action for breach of contract is actionable per se. In other words, the defendant's breach is wrong in itself, regardless of the consequences that it has for the plaintiff. Although the plaintiff is technically entitled to claim at least nominal damages every time that the defendant commits a breach of contract, it may be dangerous to do so. The courts do not want to waste time on trivial matters and sometimes have little interest in helping the plaintiff to secure a "principled victory." Consequently, while awarding nominal damages to the plaintiff, the court may also award costs against that party. In other words, while collecting, say, $10 in nominal damages that signify that the defendant did indeed breach the contract, the plaintiff may be required to pay part of the defendant's costs of litigation. The courts occasionally award costs in that manner as a way of discouraging frivolous litigation. 7. When will punitive damages be available for a breach of contract? Difficulty: 1 QuestionID: 12-3-07 Topic: Punitive Damages Skill: Recall Answer: Punitive damages are an extraordinary remedy. Contrary to popular perception (based largely on 28 © 2023 Pearson Canada Inc.

American news reports and television programs), punitive damages are rarely available in Canada, especially under the cause of action for breach of contract. (They are somewhat more readily available for some torts and for the equitable wrong of breach of fiduciary duty.) Punitive damages are not intended to compensate the plaintiff for a loss. They are awarded in addition to the usual measure of damages. Punitive damages are intended, instead, to express societal disapproval of the defendant's outrageous conduct. The Supreme Court of Canada generally states that punitive damages can be awarded for breach of contract only if two requirements are met. First, the defendant's breach of contract must be "harsh, vindictive, reprehensible and malicious." Those adjectives offer little concrete guidance. It nevertheless is clear that the defendant must have acted very badly in a way that justifies punishment. Second, the defendant must have committed an "independently actionable wrong." A single breach of contract therefore is usually not enough to attract punitive damages. (As explained in the Case Brief for Royal Bank of Canada v W Got & Associates Electric Ltd, that rule is not always applied.) The defendant also must have, as part of the same event underlying the plaintiff's claim for breach of contract, committed a tort or another breach of contract against the plaintiff. (It was often previously thought that the "independent actionable wrong must have been something other than another breach of contract. As explained in the Case Brief for Whiten v Pilot Insurance Co, however, the Supreme Court of Canada has now held that the independent actionable wrong may be another breach of contract.) 8. "A contractual term for liquidated damages relieves the court of the need to carefully calculate the plaintiff's losses. A contractual term for a penalty does not have the same effect." Explain the meaning of that statement. Explain whether or not that statement is true. Difficulty: 1 QuestionID: 12-3-08 Topic: Liquidated Damages Skill: Applied Answer: The statement is true. A contractual term for liquidated damages represents an honest attempt by the parties, at the time of creating their contract, to estimate the loss that might occur as a result of a breach. The value of such a term is that, in the event of breach, it eliminates the need for protracted litigation regarding the extent and value of the plaintiff's loss. The defendant is simply required to pay to the plaintiff the agreed upon amount, no more and no less. That is true even if the plaintiff's loss is more or less than the parties' initially expected. A penalty, in contrast, is not an honest attempt to estimate the losses that may be caused by a breach of contract. Instead, it is a contractual term that requires the defendant, in the event of breach, to pay an exorbitant amount of money to the plaintiff. The intention behind such a term is usually to coerce the defendant into a certain form of behaviour and to gouge the defendant if the contract is breached. A court will not enforce a penalty clause. Instead, they will, in the event of breach, calculate damages in the usual way by investigating the actual extent of the plaintiff's loss. Courts do not enforce private penalties. 9. Why are the courts willing to award injunctions more often than orders for specific performance? Difficulty: 1 29 © 2023 Pearson Canada Inc.

QuestionID: 12-3-09 Topic: Injunctions Skill: Recall Answer: The answer turns on the ideas of freedom of choice and freedom of action. An injunction normally prohibits a person from doing something. While that person is not doing the prohibited act, it can, of course, still do anything else. In contrast, an order for specific performance requires a person to do something. And while that person is doing one thing, it cannot do anything else. Those ideas are especially important when they are applied to contractual obligations regarding the defendant's services. If the defendant is prevented by an injunction from working for a competitor in a particular field, they can still work in other fields. In contrast, specific performance for a positive obligation to provide personal services for the plaintiff not only would greatly limit the defendant's freedom of action, it would come close to imposing a form of slavery. If the defendant did not work for the plaintiff, as ordered by the court, they could be held in contempt of court (and therefore, in theory at least, be imprisoned). The legal system will not tolerate such a situation. 10. On December 16, Ludwig agreed to sell an antique piano to Elise for $100,000. She paid $20,000 immediately and promised to pay the remainder on March 26, when he was required to deliver the instrument. Prior to the delivery date, however, Ludwig realized that the piano was really worth $175,000. He therefore refused to perform the contract. Is Elise entitled to specific performance? Identify and explain the factors that affect your answer. If Elise is entitled to specific performance, is Ludwig entitled to receive anything from her in return? If Elise is not entitled to specific performance, how much, if anything, will she receive in damages? Explain your answer. Difficulty: 2 QuestionID: 12-3-10 Topic: Specific Performance, Adequacy of Damages, Expectation Damages Skill: Applied Answer: Specific performance is generally limited to circumstances in which monetary damages would not adequately compensate the plaintiff for her loss. That may be true in this case because the parties' contract dealt with an antique piano. If the piano is sufficiently special, no amount of money will allow Elise to purchase a substitute from a third party. A court therefore might want to award specific performance to ensure that her expectations under the contract are fulfilled. (The court will also consider a number of other factors. For instance, it would not award specific performance if Elise delayed an unreasonable length of time before suing Ludwig, nor if she was guilty of bad conduct.) Of course, if a court did award specific performance to Elise, it would also allow Ludwig to collect the remainder of the purchase price. If Elise wants the contract performed, she must be willing to perform it herself. She therefore would be required to pay another $80,000 to Ludwig. (He is only entitled to the contract price, and not the actual value of the piano. He must accept responsibility for entering into a bad bargain.) If specific performance was not available, Elise would be entitled to expectation damages that would monetarily fulfill her expectations under the contract. She started the contract with $100,000 in value (all in the form of money). Although she may not have fully realized it at the time of creating the contract, she expected to end up with $175,000 in value (in the form of a piano). Since she already paid $20,000 of the total purchase price of 30 © 2023 Pearson Canada Inc.

$100,000, she still has $80,000. She therefore is entitled to receive $95,000 from Ludwig. Together, those two amounts will fulfill her expectations ($80,000 $95,000 = $175,000). 11. Pascal, who is 15 years old, entered into a contract with Wagers Antique Shop. He promised to trade his services as a computer programmer for an antique Bible. Under the terms of that agreement, he was required to begin work as a computer programmer as soon as Wagers delivered the book to him two weeks later. The next day, however, Wagers informed Pascal that it decided to keep the book for itself. Since Pascal is anxious to acquire the book, which is unique, he wants to bring a claim for specific performance. Explain why that claim may fail. Provide two (related) reasons for your answer. Difficulty: 2 QuestionID: 12-3-11 Topic: Specific Performance, Mutuality Skill: Applied Answer: The availability of specific performance is subject to a number of limitations. One such limitation is the requirement of mutuality. That requirement states that specific performance generally will not be awarded to a party, unless it could also be awarded against that same party. After all, it would be unfair if one party could insist upon specific performance and at the same time force the other party to accept mere monetary damages. The requirement of mutuality cannot be satisfied on the facts. Since Pascal is only 15 years old, he is a minor. A contract generally cannot be enforced against a minor. (As we saw in Chapter 5, there are exceptions dealing with the necessities of life, but those exceptions do not apply here.) Consequently, since the contract could not be enforced against him, it cannot be enforced in his favour either. The same point arises again because Pascal agreed to trade his personal services in exchange for the Bible. As a general rule, however, the courts will not order specific performance to compel a person to provide personal services. Such an order would look too much like slavery. Consequently, the requirement of mutuality once again is not met. Since Pascal could not be forced to work as a computer programmer for Wagers, Wagers cannot be forced to hand over the book. (Wagers nevertheless has breached the contract and therefore could be held liable for damages.) 12. On March 1, Shoshanah agreed to manufacture and sell a widget to Marshall for a total price of $50,000. He paid $20,000 immediately and promised to pay the remainder on June 15. The contract required Shoshanah to deliver the widget to Marshall on June 1. On April 15, Marshall spent $10,000 altering his production plant in a way that would accommodate the widget that he expected to receive from Shoshanah. On May 20, Shoshanah informed Marshall that she would not be able to deliver as promised. On June 1, the market value of a widget was $65,000. Marshall can acquire a similar widget for that amount, but he will have to once again spend $10,000 in renovations to his production plant to accommodate that substitute. (No two widgets are exactly alike and each one has unique requirements.) Is Marshall entitled to receive expectation damages? If so, on what basis and in what amount? Is Marshall entitled to receive reliance damages? If so, on what basis and in what amount? Is Marshall entitled to receive restitution? If so, on what basis and in what amount? If Marshall has an option between several types of damages, which one should he choose?

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Difficulty: 2 QuestionID: 12-3-12 Topic: Expectation Damages, Reliance Damages, Unjust Enrichment Skill: Applied Answer: Marshall can claim expectation damages under the cause of action for breach of contract. He started with value of $50,000 and expected to receive value worth $65,000. Since he paid $20,000 to Shoshanah, he was left with $30,000. His contractual expectations therefore will be fulfilled if Shoshanah pays $35,000 to him($30,000 $35,000 = $65,000). That same figure can be calculated in a slightly different way. Marshall expected to receive a widget for $50,000. After paying $20,000 to Shoshanah, he still has $30,000. Given his contractual expectation, he should not be required to spend any more of his own money to get a widget. A substitute widget is available in the marketplace for $65,000. Marshall can be expected to spend $30,000 of his own on that widget, but Shoshanah must come up with the remainder of the purchase price (ie $35,000). After all, she effectively promised him that he would get a widget if he paid a total of $50,000 out of his own pocket. Marshall can alternatively claim reliance damages under the cause of action in breach of contract. In reliance upon the contract, he paid $20,000 to Shoshanah and $10,000 to a third party to renovate his premises. Those expenses were wasted under the contract because Shoshanah did not actually deliver the widget. Marshall therefore can claim $30,000 in reliance damages. (He could not claim the second payment of $10,000 in renovations costs, if he incurred that expense, because that payment would not be wasted as a result of Shoshanah's breach of contract. Rather, it would be necessary once the substitute widget was delivered by the third party.) Marshall could receive restitution under the cause of action in unjust enrichment. Shoshanah was enriched by the receipt of $20,000. Marshall suffered a corresponding deprivation because that payment came from him. And there is no juristic reason for the enrichment because it was provided under a contract that has been discharged for breach. Shoshanah is therefore required to give back the benefit that she received from Marshall: $20,000. Marshall will choose expectation damages ($35,000) over either reliance damages ($30,000) or restitution ($20,000). 13. Berner Building Inc agreed to build a house to certain specifications for Kendra. The total contract price was . A term in that contract required Berner to use marble from a certain region in northern Italy in the main bathroom. By mistake, Berner used marble from a region in southern Italy instead. The value of the marble was the same in either event. Kendra nevertheless is unhappy. Because she had once enjoyed a wonderful honeymoon in northern Italy, she was very upset that her demands were not met. She insists that Berner should be required to renovate her bathroom using proper materials. That job would cost $25,000 and it would not increase the value of the house at all. Is Kendra entitled to any remedy? Explain your answer. Difficulty: 2 QuestionID: 12-3-13 Topic: Cost of Cure or Loss of Value Skill: Applied 32 © 2023 Pearson Canada Inc.

Answer: The question is focused on the difference between loss of value damages and cost of cure damages. On the facts, the former would be nil because, despite Berner's breach, Kendra's house is worth the same amount as it would be if the contract had not been breached. Cost of cure damages, in contrast, would allow Kendra to demand $25,000 from Berner because that is the amount that it would cost to fit the bathroom with the sort of marble specified in the contract. It is highly unlikely, however, that a court would award that amount. The discrepancy between the cost of cure and the consequences of actually undertaking the cure is too great. It would be wasteful to spend $25,000 to affect repairs that would not have any effect on the value of the house. As in the House of Lords' decision in Ruxley Electronics & Construction Ltd v Forsyth, however, a court might be persuaded to award a smaller amount of money (say, $7,000) to compensate Kendra for suffering an intangible loss (or, as the House said, the "loss of amenity"). A contractual party should be entitled to be picky. Although the market is indifferent as between marble from northern and southern Italy, Kendra had some reason to prefer the former. Since she did not receive what she expected, substantial damages may be available to repair her disappointment. As a final resort, Kendra would be entitled to nominal damages to reflect the fact that Berner breached the contract, even though she did not suffer any loss as a result. 14. Slodder Construction Co entered into a contract with the City of Lowey. It agreed to build a tunnel under city hall in exchange for a total price of $5 million. Shortly after beginning the project, Slodder realized that it had entered into a very bad bargain. The job was much more difficult than initially expected. It would cost $15 million to complete. Slodder nevertheless carried on in order to protect its reputation. Somewhat surprisingly, however, after half the tunnel had been finished, Lowey breached the contract by refusing to give Slodder access to the worksite. At that point, the city had already paid $2.5 million to Slodder, and Slodder had already spent $7.5 million on the project. Before trial, another construction company completed the tunnel under a separate contract with the city. Is Slodder entitled to receive any more money from the city in the form of expectation damages or reliance damages? Explain your answer. Is there any other basis upon which Slodder can claim a remedy from Slowey? If so, how much will that remedy be worth? Explain your answer. Difficulty: 3 QuestionID: 12-3-14 Topic: Expectation Damages, Reliance Damages, Unjust Enrichment Skill: Applied Answer: These facts are based on the case of Lodder v Slowey, which appears in the Case Briefs in the Instructor's Manual. The contract was entirely unprofitable from Slodder's perspective. It expected to spend $15 million and to be paid $5 million. It cannot recover anything by way of expectation damages because it did not expect to enjoy a profit from the agreement. Furthermore, since the contract was unprofitable to the extent of $10 million, Slodder cannot claim anything by way of reliance damages for the $7.5 million that it spent on the project. Under the cause of action in breach of contract, Slodder must accept responsibility for the fact that it entered into a disastrously bad deal. However, since the contract has been discharged on the basis of Slowey's breach of a condition, Slodder enjoys 33 © 2023 Pearson Canada Inc.

an option. First, it can bring an action for breach of contract and claim contractual relief. As we have seen, that is a pointless exercise. Second, it can bring an action for unjust enrichment: (i) Slowey was enriched by the receipt of services worth $7.5 million, (ii) Slodder suffered a corresponding deprivation of $7.5 million because it provided those services, and (iii) there is no juristic reason for the enrichment because the contract under which they were provided has been discharged for breach. Once Slodder establishes the cause of action in unjust enrichment, it is entitled to receive restitution. Slowey must give back the value of the enrichment that it received from Slodder. That enrichment is quantified by reference to its true market value. It is not limited to the contractual price. Slowey therefore is required to pay Slodder $7.5 million. Since it has already paid $2.5 million, it must pay an additional $5 million. 15. A man and his elderly aunt entered into an oral contract. He promised to provide services to her for the rest of her life and she promised to leave a specific house to him under her will. That house was worth $10,000. The nephew performed his end of the bargain by spending $3,000 to care for his aunt before she died. He was disappointed upon her death, however, to learn that her will did not leave the house to him. The nephew thought about suing his aunt's estate for breach of contract. His lawyer has explained, however, that that action will fail because while the contract is valid, it is also unenforceable. It deals with an interest in land, but contrary to the Statute of Frauds, it was not evidenced in writing. It was entirely oral. Is there any basis upon which the nephew can successfully sue his aunt's estate? If so, will the expectations that the nephew had under the contract be fulfilled? Or will some other measure of relief be available to him? Explain your answers. Difficulty: 2 QuestionID: 12-3-15 Topic: Unjust Enrichment Skill: Applied Answer: These facts are based on the case of Deglman v Guaranty Trust Co of Canada, which appears in the Case Briefs in the Instructor's Manual. Since the contract is unenforceable, the nephew cannot claim any sort of contractual relief. He therefore cannot recover expectation damages (which would give him the monetary value of the house), reliance damages (which would compensate him for the costs that he incurred under the agreement), nominal damages (which would give him a small amount of money to signify the fact that the aunt breached the contract), punitive damages (which would punish the aunt for breaking her promise), or specific performance (which would give him the house itself). However, since the contract is unenforceable, the plaintiff can choose to bring a cause of action in unjust enrichment. He would prove that (i) the aunt was enriched by the receipt of his services, (ii) he suffered a corresponding deprivation by providing those services, and (iii) there was no juristic reason for the aunt's enrichment because he gave it to her only on the assumption that she would leave a house to him under her will. Once the nephew established that cause of action, the court would award restitution. The nephew therefore would "get back" the value of the enrichment that he gave to his aunt. The value of that remedy would be $3,000. Notice that the action in unjust enrichment leads to restitution which only allows the nephew to get back what 34 © 2023 Pearson Canada Inc.

he gave to his aunt. Restitution looks backward. Consequently, it cannot look forward and fulfill the nephew's expectation of getting either the house (through specific performance) or the value of the house (through expectation damages).

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Managing the Law, 6e (McInnes) Chapter 13: Special Contracts: Sale of Goods True/False Questions 1. Because of the need for commercial certainty, it generally is not possible for the parties to a sale of goods contract to exclude the terms implied by the Sale of Goods Act. a True b False Difficulty: 1 QuestionID: 13-1-01 Topic: The Sale of Goods Act Skill: Recall Answer: b. False 2. On May 1, Sheila entered into a contract with Brian. She promised to pay $500 to him on June 1 and he promised to deliver a television to her on the same day. Because the Sale of Goods Act applies to sales contracts, the parties' agreement will be governed by the statute even before the parties perform on June 1. a True b False Difficulty: 2 QuestionID: 13-1-02 Topic: The Sale of Goods Act Skill: Applied Answer: a. True 3. Marianna agreed to rent a generator to Denzel for a six-month period. The Sale of Goods Act will apply to the parties' agreement as long as Denzel actually takes possession of the generator. a True b False Difficulty: 2 QuestionID: 13-1-03 Topic: Sale Skill: Applied Answer: b. False 4. Although the Sale of Goods Act does not apply to land, it does apply to every form of personal property. a True 1 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 13-1-04 Topic: A Sale of Goods Skill: Recall Answer: b. False 5. Helene operates a beauty salon. She cut Bentley's hair in exchange for the payment of $25. She also gave him a small bottle of shampoo as a gift sampler. The parties' transaction is not governed by the Sale of Goods Act. a True b False Difficulty: 2 QuestionID: 13-1-05 Topic: Sale of Goods Skill: Applied Answer: a. True 6. Sunni purchased a stereo system from an electronics store. The total purchase price was $3,000. He paid $2,000 with a cheque and $1,000 with a credit card. That transaction is governed by the Sale of Goods Act. a True b False Difficulty: 2 QuestionID: 13-1-06 Topic: Sale of Goods for Money Skill: Applied Answer: a. True 7. Marlene agreed to purchase a specific dress from Julian's shop. Although she paid the total price of $750 immediately, she insisted that Julian raise the hemline one inch before delivering it to her house. He agreed to that arrangement. Julian altered the dress as requested. However, before he could deliver the garment to Marlene, the dress was stolen by a thief. Marlene suffers the loss because the risk passed to her as soon as the hemline was raised. a True b False Difficulty: 3 QuestionID: 13-1-07 Topic: Passing of Property 2 © 2023 Pearson Canada Inc.

Skill: Applied Answer: b. False 8. Jana entered into an arrangement with Chauds Refrigerators Inc. It delivered a freezer to her restaurant so that she could determine whether or not it was appropriate for her needs. The parties agreed that she would pay $4,000 for the freezer if she kept it. Jana used the freezer for six months, but never bothered to communicate with Chauds. The unit was then stolen. Jana probably suffers the burden of that theft because property and risk had already passed to her. a True b False Difficulty: 3 QuestionID: 13-1-08 Topic: Passing of Property Skill: Applied Answer: a. True 9. Merckx Cycle displayed five identical bicycles in its front window. Eddie looked at the five bikes and said, "I'll take one for $750. Pick one and set it aside for me. I'll collect it from you next week." He then paid the entire purchase price and left. The owner of the shop picked one of the five bikes and moved it to a backroom. Two days later, the bike was stolen. Eddie certainly suffers the burden of that theft because property and risk has passed to him. a True b False Difficulty: 3 QuestionID: 13-1-09 Topic: Passing of Property Skill: Applied Answer: b. False 10. Dawn wanted to buy 10 cricket bats to use to teach the game of cricket to her students. She visited Bradman's Cricket Manufacturing's factory and was shown several types of bats. She selected one of the models and asked Bradman's to send ten copies of that model to her house. When the bats arrived at Dawn's house, the company's representative asked her if she wanted to test them, but she said, "No, I'm in too much of a hurry right now." A week later, she found the time to inspect the bats and discovered that the handles were manufactured in a way that made them impossibly painful to use. The model that she chose at Bradman's factory had not suffered from the same defect. Dawn is entitled to reject the bats. a True b False Difficulty: 3 QuestionID: 13-1-10 3 © 2023 Pearson Canada Inc.

Topic: Sample Skill: Applied Answer: b. False 11. Pavel bought a widget from Anna. He is disappointed because the widget is both unmerchantable and unfit for its intended purpose. Anna does not normally deal in widgets. As a result, Pavel can successfully sue on the basis of one of his complains, but not the other. a True b False Difficulty: 2 QuestionID: 13-1-11 Topic: Merchantable Quality, Fitness for Intended Purposes Skill: Applied Answer: b. False 12. Elin agreed to buy 100 cartons of widgets from Eldrick at a price of $100,000. He actually delivered 110 cartons of widgets. Elin is entitled to keep that entire shipment, as long as she pays the contract price of $100,000. a True b False Difficulty: 2 QuestionID: 13-1-12 Topic: Delivery and Payment Skill: Applied Answer: b. False 13. There is a common element to the seller's right to exercise a lien, a stoppage in transit, or a repossession. In each case, the remedy is available only if the buyer is insolvent or bankrupt. a True b False Difficulty: 2 QuestionID: 13-1-13 Topic: Special Remedies for the Seller, Lien Skill: Recall Answer: b. False 14. Chuck agreed to sell a widget to Tawny. Under the terms of that contract, she was required to pay $50,000 on May 1 and he was required to deliver the widget to her by June 1. The contract also stated that, regardless of possession, property in the widget would not pass to Tawny until she paid the full 4 © 2023 Pearson Canada Inc.

price. Tawny failed to pay $50,000 on May 1. However, on May 2, she introduced Chuck to Brandi, who was willing to buy the same widget for $45,000. Chuck insists that Tawny is still required to pay $50,000. Tawny, in contrast, argues that she only has to pay $5,000 and that Chuck is required to act reasonably by selling the widget to Brandi for $450,000. Chuck's argument is correct and Tawny's argument is incorrect. a True b False Difficulty: 3 QuestionID: 13-1-14 Topic: Action for the Price Skill: Applied Answer: a. True 15. James agreed to sell a widget to Claire for $10 000. She intended to use that item for her personal use. Under the terms of the contract, James agreed to deliver the widget to her on July 1 and Claire promised to pay the full price on the same day. James delivered the widget to Claire, but she did not pay the price as promised. If Claire is insolvent, James is entitled to either exercise a lien over the property or exercise the right of repossession under the Bankruptcy and Insolvency Act. a True b False Difficulty: 3 QuestionID: 13-1-15 Topic: Lien, Repossession Skill: Applied Answer: b. False Multiple Choice Questions 1. Because the sale of goods is subject to a codified statute, A) the rules contained in the statute always apply to a sale of goods. B) the courts cannot rely on cases that occurred before codification. C) many business transactions can be more easily created. D) the need for risk management is virtually eliminated. E) the same statute applies in every common law province and territory. Difficulty: 2 QuestionID: 13-2-01 Topic: The Sale of Goods Act Skill: Applied Answer: C) many business transactions can be more easily created.

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2. Which of the following can be the subject of a "sale of goods"? A) a cow B) a house that has already been built C) a debt D) a haircut E) a boat rental Difficulty: 2 QuestionID: 13-2-02 Topic: Sale of Goods Skill: Recall Answer: A) a cow 3. Aidan gave a $100 watch to Marian as a birthday present. The watch was made of cheap metal that gave Marian a rash. Which of the following statements is TRUE? A) The Sale of Goods Act applies because a gift is a special type of contract. B) The Sale of Goods Act applies because Marian expected that the watch would be of merchantable quality. C) Given the value of the watch, the Sale of Goods Act applies if, but only if, the transaction was evidenced in writing. D) The Sale of Goods Act does not apply as between Aidan and Marian because Marian did not pay a price for the goods. E) The Sale of Goods Act applies as long as Marian is willing to pay $100 to Aidan. Difficulty: 2 QuestionID: 13-2-03 Topic: Sale of Goods for Money Skill: Applied Answer: D) The Sale of Goods Act does not apply as between Aidan and Marian because Marian did not pay a price for the goods. 4. The Sale of Goods Act may apply if you agree to A) trade a motorcycle for a car. B) fix a bicycle for a payment of $100 in cash. C) receive a bicycle as a gift. D) rent a bicycle for at least three months. E) purchase one bicycle from among an inventory of fifty bicycles, even if your bicycle is not identified at the outset. Difficulty: 2 QuestionID: 13-2-04 Topic: Passing of Property Skill: Applied

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Answer: E) purchase one bicycle from among an inventory of fifty bicycles, even if your bicycle is not identified at the outset. 5. Sigmund ordered and ate a meal at the Blue Fez restaurant. Which of the following statements is TRUE? A) The Sale of Goods Act may apply in order to create a form of consumer protection. B) The Sale of Goods Act will not apply if Sigmund's primary intention was to receive a meal, rather than to enjoy the exceptional service for which the Blue Fez is known. C) The Sale of Goods Act will not apply if Sigmund paid for his meal with a credit card. D) The Sale of Goods Act will not apply if Sigmund ate from a self-serve buffet at the Blue Fez. E) The Sale of Goods Act will apply if the restaurant provided the meal to Sigmund free of charge, as a way of improving its reputation. Difficulty: 2 QuestionID: 13-2-05 Topic: Sale of Goods, The Sale of Goods Act Skill: Applied Answer: A) The Sale of Goods Act may apply in order to create a form of consumer protection. 6. In March, Nena entered into several transactions with Hakeem. She borrowed a boat from him and promised that she would fix its engine before she gave it back. She purchased a piece of land from him for $100,000, even though it was really only worth $75,000. She received two bicycles from him as gifts and secretly intended to give him $500 on his next birthday. She paid $250 for his advice regarding her investments. She promised to pay $1,000 in June and he promised to deliver a widget to her in July. It is now April. The Sale of Goods Act may apply to the transactions regarding A) the widget and the boat, but not the others. B) the land and the investment advice, but not the others. C) the bicycles and the widget, but not the others. D) the boat and the bicycles, but not the others. E) the widget, but not the others. Difficulty: 3 QuestionID: 13-2-06 Topic: Sale of Goods Skill: Applied Answer: E) the widget, but not the others. 7. Which of the following transactions would not be decided under the Sale of Goods Act? A) Marco sold a bicycle to Tara. Although she received the bike immediately, she did not pay any money. She promised to pay $400 in cash within six months. B) Marco sold a bicycle to Tara. Although she received the bike immediately, she did not pay any money. She gave a cheque to Marco for $400. C) Marco sold a bicycle to Tara. Although she received the bike immediately, she did not pay any money. She allowed Marco to charge $400 to her credit card. 7 © 2023 Pearson Canada Inc.

D) Marco sold a bicycle to Tara. Although she received the bike immediately, she did not pay any money. She gave her old bike to Marco and promised that she would pay $300 within six months. E) Marco promised to make a gift of a bike to Tara, but he changed his mind and did not give the bike to Tara. Difficulty: 2 QuestionID: 13-2-07 Topic: Sale of Goods for Money Skill: Applied Answer: E) Marco promised to make a gift of a bike to Tara, but he changed his mind and did not give the bike to Tara. 8. Which of the following statements is TRUE as a general rule? A) Under an unconditional contract for the sale of specific goods in a deliverable state, property passes only once the buyer pays the price. B) Under a contract that requires the seller to test the goods, property passes as soon as the seller does so and notifies the buyer. C) Under a contract that requires the seller to do something to ascertain the price of the goods, property passes as soon as the price is determined. D) Under a contract "on sale or return," property passes only if the buyer pays the price. E) Under a contract that requires the seller to modify the goods in order to put them into a deliverable state, property passes only when the goods are delivered to the buyer. Difficulty: 2 QuestionID: 13-2-08 Topic: Passing of Property Skill: Recall Answer: C) Under a contract that requires the seller to do something to ascertain the price of the goods, property passes as soon as the price is determined. 9. Which of the following statements is TRUE? A) The passing of property is important for the purposes of insurance because risk usually passes with property. B) The Sale of Goods Act does not apply until property has passed from the seller to the buyer. C) Property in goods is always held by the person who has possession of the goods. D) Although the passing of property is important for some reasons, it does not affect the remedies that may be available to a seller. E) Property never passes under a sale of goods until the buyer has paid the price. Difficulty: 2 QuestionID: 13-2-09 Topic: Passing of Property Skill: Recall

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Answer: A) The passing of property is important for the purposes of insurance because risk usually passes with property. 10. Juan bought a lawn mower at Raija's garage sale. He gave her a cheque for $100 and explained that he would collect the lawn mower later the same afternoon when he had use of his friend's pickup truck. Juan then asked Raija to leave the lawn mower near her garage. When Juan came to collect the lawn mower two hours later, he discovered that it had been stolen from the place where he had told Raija to leave it. Which of the following statements is TRUE? A) Juan is entitled to a refund of $100 because he is not required to pay for a stolen lawn mower. B) Property and risk did not pass to Juan because he had not taken possession of the lawn mower. C) Property and risk did not pass to Juan unless Raija cashed his cheque before the theft occurred. D) Even if the transaction occurred in a jurisdiction that deems some oral contracts to be unenforceable, the agreement between Juan and Raija did not have to be evidenced in writing because the price had already been paid. E) Since the transaction dealt with used goods, the Sale of Goods Act does not apply and it is therefore unnecessary to determine if property passed. Difficulty: 3 QuestionID: 13-2-10 Topic: Writing Requirements Skill: Applied Answer: D) Even if the transaction occurred in a jurisdiction that deems some oral contracts to be unenforceable, the agreement between Juan and Raija did not have to be evidenced in writing because the price had already been paid. 11. Fenna bought a specific widget from Maurice. The total price was $1,000. She paid $400 immediately and promised to pay the remainder within one month. Since the widget was a floor model, Maurice agreed to clean and lubricate it for Fenna within one week. Under the terms of the contract, once he had done so, he would leave the widget behind his store and call her to pick it up. The widget was stolen before Fenna acquired possession of it. Which of the following statements is TRUE? A) Property could not have passed to Fenna as she did not pay the full price to Maurice before the theft occurred. B) Fenna will bear the burden of the loss if the theft occurred after Maurice had cleaned and lubricated the widget, and after he called her to collect the widget. C) If the risk passed to Fenna, she will not be entitled to recover her $400 payment, but she also will not be required to pay the remainder of the price. D) If property passed to Fenna, Maurice should use the remedy of repossession to demand payment of the remainder of the price. E) Even if property passed to Fenna, the risk of loss must have remained with Maurice until Fenna actually took possession of the widget. Difficulty: 3 QuestionID: 13-2-11 Topic: Passing of Property Skill: Applied 9 © 2023 Pearson Canada Inc.

Answer: B) Fenna will bear the burden of the loss if the theft occurred after Maurice had cleaned and lubricated the widget, and after he called her to collect the widget. 12. Kasper bought a truckload of gravel from Gita. The parties agreed that the price would be at least $500. Kasper therefore paid that amount later the same day. He promised to pay the remainder (which the parties estimated to be $200) after Gita weighed the gravel in order to determine its exact price. Gita returned with the truckload of gravel to her supply yard, weighed the gravel, and determined that the total contract price should be $675. Unfortunately, the gravel was stolen before Kasper actually took possession of it. Which of the following statements is TRUE? A) Risk passed to Kasper because he paid part of the price. B) Although property passed to Kasper when he paid part of the price, the risk remained with Gita until she weighed the gravel. C) Kasper will bear the burden of the theft if Gita notified him of the total price after the theft occurred. D) Property passed to Kasper as soon as the contract was created because the agreement was concerned with specific goods that were already in a deliverable condition. E) The Sale of Goods Act applies to the facts even though the subject matter of the contract is gravel, which is a substance that must be taken from land. Difficulty: 3 QuestionID: 13-2-12 Topic: Sale of Goods Skill: Applied Answer: E) The Sale of Goods Act applies to the facts even though the subject matter of the contract is gravel, which is a substance that must be taken from land. 13. Meena offered to sell a widget to Thor for use in his factory. He hesitated to accept that offer because he was not sure that the widget would be compatible with the rest of his equipment. The parties therefore agreed that Thor would take possession of the widget for the purpose of testing it at his factory. Which of the following statements is TRUE? A) Risk will pass to Thor if he keeps the widget for an unreasonably long time, even if he does not intend to purchase it. B) Since property follows possession, the risk passed to Thor as soon Meena gave the widget to him. C) Risk cannot possibly pass to Thor unless he notifies Meena that he intends to keep the widget. D) This transaction falls under Rule 5. E) In this type of case, the issue of risk is irrelevant. Difficulty: 2 QuestionID: 13-2-13 Topic: Passing of Property Skill: Applied Answer: A) Risk will pass to Thor if he keeps the widget for an unreasonably long time, even if he does not intend to purchase it.

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14. Yossuf is a carpenter who manufactures furniture. Among other things, he specializes in carving chairs out of a single block of wood. He then personalizes each chair by carving the owner's name into the backrest. Yossuf's store contains a number of such chairs. Krystelle saw the chairs, was impressed, and agreed to buy one for $1,500. Unfortunately, Yossuf's entire stock of chairs was destroyed in a fire before Krystelle could take possession of her chair. Which of the following statements is TRUE? A) Krystelle will be required to pay the price as long as Yossuf intended to carve her name into a particular chair before the fire occurred. B) Krystelle is entitled to recover any money that she paid to Yossuf as part of the price. C) The facts demonstrate that the parties' contract contained a "retention of title clause." D) This case will be decided under Rule 4. E) Because the parties agreed on the price at the outset, the risk passed to Krystelle as soon as the contract was created. Difficulty: 2 QuestionID: 13-2-14 Topic: Passing of Property Skill: Applied Answer: B) Krystelle is entitled to recover any money that she paid to Yossuf as part of the price. 15. Which of the following statements is TRUE? A) The basic distinction between conditions and warranties is the same under both the Sale of Goods Act and the general law of contracts. B) Although the parties are generally free to accept or reject parts of the Sale of Goods Act, they cannot decide to treat a statutory condition as if it was a warranty. C) If there is a breach of contract under the Sale of Goods Act, the plaintiff must use the statutory remedies rather than the remedies that are generally available for a breach of contract. D) The Sale of Goods Act always imposes an implied condition that the goods are suitable for the buyer's purpose. E) The Sale of Goods Act now classifies a number of implied obligations as innominate terms. Difficulty: 2 QuestionID: 13-2-15 Topic: Terms in Contracts of Sale Skill: Recall Answer: A) The basic distinction between conditions and warranties is the same under both the Sale of Goods Act and the general law of contracts. 16. Alison bought a computer from Hugh. The parties never actually met. Alison saw a selection of computers on Hugh's web site and ordered one by telephone. Alison will be able to bring an action against Hugh on the basis of an implied condition that the goods match their description A) if the computer is delivered two weeks later than Hugh had promised. B) only if she has already paid the purchase price. C) if the computer is not of the same quality as she expected. D) only if she intended to use the computer for personal, rather than business, purposes. 11 © 2023 Pearson Canada Inc.

E) if her complaint deals with the identity of the goods, but not if her complaint deals with the quality of the goods. Difficulty: 2 QuestionID: 13-2-16 Topic: Description Skill: Applied Answer: E) if her complaint deals with the identity of the goods, but not if her complaint deals with the quality of the goods. 17. The Sale of Goods Act implies a term that goods will match their description. Which of the following statements is TRUE with respect to that term? A) That term is a warranty. B) That term applies only if the seller is normally in the business of selling the type of goods that the buyer has purchased. C) That term does not apply if the buyer personally selected an item from a shelf. D) That term applies to the identity of goods, but not to the quality of goods. E) That term is a codification of the phrase caveat emptor. Difficulty: 2 QuestionID: 13-2-17 Topic: Description Skill: Applied Answer: D) That term applies to the identity of goods, but not to the quality of goods. 18. On March 1, Giselle saw Harlan demonstrating a new type of widget at a trade show. On April 1, she ordered one from him. Under the terms of that contract, Harlan was required to deliver the widget on May 1 and Giselle was required to pay the entire purchase price of $10,000 on June 1. Harlan did not deliver the widget until May 15. Although Giselle accepted the item and agrees that it is in good working order, she is unhappy. The late delivery caused her to lose $5,000 in profits. She should sue Harlan on the basis of his breach of an implied term A) concerning description. B) dealing with samples. C) that is classified as a condition, rather than a warranty, under the Sale of Goods Act. D) that requires fitness for purpose. E) of merchantable quality. Difficulty: 1 QuestionID: 13-2-18 Topic: Delivery and Payment Skill: Applied Answer: C) that is classified as a condition, rather than a warranty, under the Sale of Goods Act.

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19. Lucy sells bulk foods to restaurants. Jean-Paul visited her warehouse and indicated that he wanted to buy a barrel of peanuts for use at his diner, the Healthy Nut. Lucy went into a back room and returned with a small bag of unsalted peanuts. Jean-Paul agreed to buy a barrel of the same. Lucy went to a back room again and returned with a sealed barrel of peanuts. She asked Jean-Paul if he wanted to inspect the goods, but he said, "No, I'm in too much of a hurry. Just have them delivered to my restaurant this afternoon." The barrel was delivered, but when Jean-Paul opened it, he discovered that the peanuts were salted. He therefore insists that he is entitled to reject them. Which of the following statements is TRUE? A) Jean-Paul cannot reject the barrel because property passed to him when the contract was created. B) Jean-Paul cannot reject the barrel because he failed to use a reasonable opportunity to inspect the goods at Lucy's store. C) Jean-Paul is entitled to reject the barrel because the goods are unmerchantable. D) Jean-Paul is entitled to reject the barrel because the goods do not correspond to the sample. E) Jean-Paul can reject the barrel unless he is capable of mitigating his loss by reselling the goods to a third party. Difficulty: 2 QuestionID: 13-2-19 Topic: Sample Skill: Applied Answer: D) Jean-Paul is entitled to reject the barrel because the goods do not correspond to the sample. 20. If goods are sold by both description and sample, the goods must A) match the description and the sample. B) match the description, but not the sample. C) match the sample, but not the description. D) always be fit for their intended purpose. E) always be of merchantable quality. Difficulty: 2 QuestionID: 13-2-20 Topic: Sample Skill: Recall Answer: A) match the description and the sample. 21. Which of the following statements is entirely TRUE with respect to the implied term for a sale by sample and the implied term for description? A) If the seller has breached one of those implied terms, it has always breached the other as well. B) The implied term regarding a sale by sample is only concerned with fitness for purpose, and the implied term regarding description is only concerned with the identity of the goods. C) The implied term for a sale by sample may be ineffective if the buyer failed to reasonably inspect the goods at the time of delivery, but the same is not true of the implied term for description. D) Neither type of term applies unless the seller ordinarily is in the business of selling the type of goods that the buyer purchased. E) Both types of implied terms are concerned only with the identity of goods. 13 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 13-2-21 Topic: Sample Skill: Applied Answer: C) The implied term for a sale by sample may be ineffective if the buyer failed to reasonably inspect the goods at the time of delivery, but the same is not true of the implied term for description. 22. The general rule in sales is caveat emptor. Which of the following statements about that concept is TRUE? A) Caveat emptor is a Latin phrase that means that a person cannot sell more than he or she actually owns. B) Caveat emptor is a Latin phrase that means "let the seller beware." C) Because of the concept of caveat emptor, the buyer normally must pay for goods as soon as they are delivered. D) The implied term regarding merchantability is an exception to the general rule of caveat emptor. E) Caveat emptor is a Latin phrase that means that, after the codification of the Sale of Goods Act, judges should resolve disputes on the basis of the statute and not on the basis of old cases. Difficulty: 2 QuestionID: 13-2-22 Topic: Merchantable Quality Skill: Recall Answer: D) The implied term regarding merchantability is an exception to the general rule of caveat emptor. 23. Which of the following statements is TRUE with respect to the implied condition of merchantability? A) Although the buyer is not required to inspect the goods before purchase, the implied condition of merchantability is entirely inapplicable if an inspection does occur. B) Although the buyer is required to inspect the goods before purchase, the implied condition of merchantability is applicable to defects that a reasonable person would not have noticed during such an inspection. C) Goods may be considered to be of merchantable quality even if they are defective in some other way not affecting their merchantability. D) The implied condition of merchantability applies only if the buyer purchased the goods for personal use. E) The implied condition of merchantability applies only if the buyer ordinarily deals in the sorts of goods that it purchased from the seller. Difficulty: 3 QuestionID: 13-2-23 Topic: Merchantable Quality Skill: Recall Answer: C) Goods may be considered to be of merchantable quality even if they are defective in some other way not affecting their merchantability.

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24. Chuck was interested in a stereo system that he saw at Nikita's garage sale. She asked if he wanted to take it inside to her basement to test it out, but he said "no" because he felt uncomfortable with the idea of listening to music in a stranger's house. He nevertheless bought it for $100. When he got it home, however, he noticed three problems. First, there are several small scratches in the stereo's exterior finish. Second, he was disappointed to discover that the stereo does not have a radio. Nikita had not said anything about a radio, but he assumed that one was included in the unit. And third, Chuck is very upset that the CD player skips badly. Which of the following statements is TRUE with respect to the implied term of merchantable quality? A) Chuck cannot sue Nikita because he would have noticed all of the defects if he if he had reasonably inspected the stereo unit before buying it. B) Each of the problems prevents the stereo from satisfying the implied term of merchantable quality. C) Chuck cannot sue Nikita because the implied term of merchantable quality does not apply to used goods. D) Chuck cannot sue Nikita unless she normally is in the business of selling stereos. E) Chuck cannot sue Nikita unless he relied upon her advice when he decided to buy the stereo. Difficulty: 3 QuestionID: 13-2-24 Topic: Merchantable Quality Skill: Applied Answer: D) Chuck cannot sue Nikita unless she normally is in the business of selling stereos. 25. Cordelia visited Rex's paint store and explained that she wanted to paint the exterior of her house a certain shade of blue. She gave him a piece of material to demonstrate the colour that she had in mind. She also explained that she had never before painted anything, and she asked Rex whether or not he thought that she was capable of doing the job. He said, "No problem. I have 30 years of experience in this business. Just leave the details to me and you'll be fine." Cordelia then bought six buckets of paint that Rex had mixed for her in his back room. The next day, she asked her nephew to paint her house while she was at work. When she returned home at the end of the day, she was disappointed to discover that the colour was considerably different than the colour that she had given to Rex. She also learned that the paint was intended for interior use only. Cordelia can sue Rex for breach of A) the implied term regarding description and the implied term regarding fitness for purpose. B) the implied term regarding description only. C) the implied term regarding fitness for purpose only. D) the implied term regarding description, the implied term regarding fitness for purpose, and the implied term regarding merchantable quality. E) the implied term of merchantable quality only if she relied on his advice in selecting the paint. Difficulty: 3 QuestionID: 13-2-25 Topic: Description, Fitness for Intended Purposes Skill: Applied Answer: A) the implied term regarding description and the implied term regarding fitness for purpose. 26. The implied term regarding fitness for intended purpose 15 © 2023 Pearson Canada Inc.

A) applies every time that the buyer relied upon the seller's skill or judgment. B) applies only if the buyer relied upon the seller's skill or judgment and the seller knew of that reliance. C) applies only if the buyer purchased the goods for a business purpose. D) never applies if the buyer mentions the trade name for a particular type of goods. E) cannot be reduced or eliminated by a limitation clause or an exclusion clause. Difficulty: 2 QuestionID: 13-2-26 Topic: Fitness for Intended Purpose Skill: Recall Answer: B) applies only if the buyer relied upon the seller's skill or judgment and the seller knew of that reliance. 27. Naima ordered 100 spools of string from Coltrane Photographic Supplies. The total contract price was $200 ($20 per spool). Which of the following statements is TRUE? A) If Coltrane delivers 110 spools of string, Naima must accept at least 100 spools. B) If Coltrane delivers 90 spools, Naima must accept them, but she only has to pay $180. C) If Coltrane delivers 110 spools, Naima can keep them all and is only required to pay the contract price of $200. D) If Coltrane delivers 90 spools, Naima can reject them all, even if Coltrane is willing to reduce the contract price to $180. E) If Coltrane delivers 110 spools, but charges for only 100 spools, then Naima must accept delivery and pay the price. Difficulty: 2 QuestionID: 13-2-27 Topic: Delivery and Payment Skill: Applied Answer: D) If Coltrane delivers 90 spools, Naima can reject them all, even if Coltrane is willing to reduce the contract price to $180. 28. Noriko saw a painting in Kurosawa's Fine Art shop. The total price was $7000. Noriko explained to the salesperson that she loved the painting, but she also said that she was not sure if she could afford it. The salesperson said that he could not simply set it aside for her because several other customers had shown an interest in the painting. Noriko therefore agreed to provide a $500 deposit and promised that she would return within a week to pay the remainder and take possession of the painting. Two weeks later, she telephoned the salesperson and said that she simply could not afford to buy the painting. Which of the following statements is TRUE? A) Noriko can recover her $500 payment because the Sale of Goods Act does not apply to the parties' contract. B) Kurosawa is probably entitled to keep the $500 because Noriko's payment was probably a penalty. C) Noriko can exercise a lien in order to recover $500 from Kurosawa. D) The facts demonstrate the use of a contractual deposit and illustrate why parties should sometimes should use that concept. 16 © 2023 Pearson Canada Inc.

E) Noriko would be entitled to recover her $500 payment if the contract was not governed by the Sale of Goods Act. Difficulty: 2 QuestionID: 13-2-28 Topic: Liquidated Damages Skill: Applied Answer: D) The facts demonstrate the use of a contractual deposit and illustrate why parties should sometimes should use that concept. 29. Which of the following remedies can only ever be used if the buyer is insolvent? A) stoppage in transit and repossession B) an action for the price and a lien C) an action for the price, stoppage in transit, and repossession D) damages, a lien, and repossession E) a lien, stoppage in transit, and repossession Difficulty: 1 QuestionID: 13-2-29 Topic: Stoppage in Transit, Repossession Skill: Recall Answer: A) stoppage in transit and repossession 30. Honoria agreed to sell a shipment of widgets to Klaus on credit. Following the terms of the contract, Honoria delivered the widgets to an independent carrier and instructed the carrier to deliver the shipment to Klaus's warehouse. Which of the following statements is TRUE? A) Honoria still has the authority and the ability to exercise a lien in order to retain possession of the shipment until Klaus pays the full purchase price. B) Honoria can exercise the right of repossession against the independent carrier if she hears a rumor that the carrier may be insolvent. C) If Klaus becomes bankrupt, Honoria is entitled to rely on the implied condition of solvency. D) If Honoria becomes insolvent while the goods are being shipped by the carrier, Klaus should exercise a lien over the widgets. E) If Klaus becomes insolvent while the carrier still has possession of the shipment, Honoria should exercise the right of stoppage in transit. Difficulty: 3 QuestionID: 13-2-30 Topic: Stoppage in Transit Skill: Applied Answer: E) If Klaus becomes insolvent while the carrier still has possession of the shipment, Honoria should exercise the right of stoppage in transit.

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31. The phrase nemo dat quod non habet means A) things that are attached to land are part of the home. B) sales of things at sea are different than sales of things on land. C) no one can give what he or she does not have. D) risk of loss follows property. E) a person cannot own what they do not possess. Difficulty: 2 QuestionID: 13-2-31 Topic: Title to Sell Skill: Recall Answer: C) no one can give what he or she does not have. 32. Which of the following are special remedies available under the Sale of Goods Act as discussed in Chapter 13? A) stoppage in transit B) liquidation C) insolvency D) mortgage E) injunction to perform personal services Difficulty: 1 QuestionID: 13-2-32 Topic: Stoppage in Transit Skill: Recall Answer: A) stoppage in transit 33. The Sale of Goods Act implies a A) warranty that the seller has title to sell. B) warranty that delivery will occur on time. C) condition that goods will be reasonably priced. D) warranty that payment will occur on time. E) condition that the buyer will receive clear title. Difficulty: 2 QuestionID: 13-2-33 Topic: Delivery and Payment Skill: Recall Answer: D) warranty that payment will occur on time. 34. Which of the following transactions falls OUTSIDE the scope of the Sale of Goods Act? A) the exchange of a painting for a cheque B) a trade of a boat for a car 18 © 2023 Pearson Canada Inc.

C) the exchange of a diamond ring for a series of monthly cash payments D) the exchange of a new truck for $10,000 cash and an old car E) a cash purchase of crops that will be harvested Difficulty: 2 QuestionID: 13-2-34 Topic: Sale of Goods for Money Skill: Recall Answer: B) a trade of a boat for a car 35. Pepe wants to buy something from Lorna. Pepe also wants to make sure that the contract is governed by the Sale of Goods Act. Which of the following statements is TRUE? A) Even if the parties' transaction would not normally fall within the scope of the Sale of Goods Act, the statute will apply if the parties intend for it to do so. B) Because the Sale of Goods Act defines a sale of goods as a transfer of goods in exchange for "money consideration," the statute will apply only if Pepe pays with cash. C) The statute will apply if the parties create either a sale or an agreement to sell. D) Although the parties' contract may be valid, it cannot possibly be governed by the Sale of Goods Act unless it is evidenced in writing. E) The statute may apply if the parties' contract deals with manufactured goods (like cars and computers), but not if it deals with natural products (like milk and timber). Difficulty: 2 QuestionID: 13-2-35 Topic: Sale Skill: Applied Answer: C) The statute will apply if the parties create either a sale or an agreement to sell. 36. Myla became violently ill after eating a hamburger at a fast food restaurant. Assuming that the fast food restaurant operated in the usual manner, the Sale of Goods Act will be irrelevant to the legal relationship that exists between the restaurant and Myla A) because the restaurant did not provide Myla with a paper receipt for her purchase. B) because the parties' contract was focused on the provision of services, rather than the transfer of goods. C) if the hamburger that Myla ate was purchased for her by a friend. D) if Myla purchased the hamburger by using a debit card. E) unless it was evidenced in writing. Difficulty: 2 QuestionID: 13-2-36 Topic: Sale Skill: Applied Answer: C) if the hamburger that Myla ate was purchased for her by a friend.

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37. Shasta contractually agreed to purchase a crystal vase from Status Home Furnishings. However, before she was able to take possession of it, and while it was still in the store, the crystal vase fell to the ground and shattered beyond repair as a result of a small earthquake. Which of the following statements is TRUE? A) Shasta bears the cost of the accident because risk always passes to the buyer as soon as a valid sale contract is created. B) Shasta cannot possibly bear the cost of the accident if property had not yet passed to her. C) Assuming that risk passed to Shasta before the accident occurred, it could not possibly be relevant that the store had acted carelessly. D) As a general rule, if risk passed to Shasta before the accident occurred, the store was required to purchase insurance for her protection as long as the store retained possession. E) If the store was contractually required to polish the vase, then it may still bear the loss even if it had completed the task before the earthquake occurred. Difficulty: 3 QuestionID: 13-2-37 Topic: Passing of Property Skill: Applied Answer: E) If the store was contractually required to polish the vase, then it may still bear the loss even if it had completed the task before the earthquake occurred. 38. Manuela purchased a network server from Compu-Sell. After installing the server and trying to use it for several days, however, she discovered that it does not perform in the way that she expected and requires. Which of the following statements is TRUE with respect to terms under the Sale of Goods Act? A) If the server is not of merchantable quality, Manuela will not be able to sue if she did not inspect the server at the time of purchase and if the defect would have been discovered on the basis of a reasonable inspection. B) Because of the maxim caveat emptor, the parties' contract will not contain an implied term of merchantability unless the parties actually intended to include that term. C) Manuela will not be able to sue for a lack of merchantability unless it was reasonably clear to CompuSell that Manuela was relying on its expertise. D) The server may be of merchantable quality if Manuela purchased it as used, even if it would not be considered merchantable quality if Manuela purchased it new. E) The implied term of merchantability applies to the server itself, but not to its labeling and packaging. Difficulty: 1 QuestionID: 13-2-38 Topic: Merchantable Quality Skill: Applied Answer: D) The server may be of merchantable quality if Manuela purchased it as used, even if it would not be considered merchantable quality if Manuela purchased it new. 39. Good-Nite Inns, a chain of mid-quality hotels, entered into a contract with Hospitality Supply Company (HSC) for the purchase of soaps. Those soaps were intended to be provided to customers of the 20 © 2023 Pearson Canada Inc.

hotel. Shortly after receiving the first delivery, however, Good-Nite Inns discovered that the soaps caused a dry, itchy rash on even the most thick-skinned customers. The hotel chain therefore wants to sue HSC under the Sale of Goods Act. Which of the following statements is TRUE? A) There is no implied term of fitness for purpose because, given the nature of its business, Good-Nite Inns should know enough about its customers to select the correct soaps. B) There cannot possibly be an implied term of fitness for purpose if Good-Nite Inns mentioned the soap by brand name when it placed its order. C) Good-Nite Inns may be able to rely upon an implied term of merchantability even if it placed its order after selecting the soaps from among a variety of samples. D) If Good-Nite Inns selected the soaps from among a variety of samples, HSC may be held liable even if the hotel chain would have discovered the defect in the soaps if it had reasonably inspected the soaps before creating the contract. E) The Sale of Goods Act does not apply because the contract was created between two companies. Difficulty: 3 QuestionID: 13-2-39 Topic: Sample Skill: Applied Answer: C) Good-Nite Inns may be able to rely upon an implied term of merchantability even if it placed its order after selecting the soaps from among a variety of samples. 40. Sound Experience Inc sold a carton of personal CD players to Noriel. The contract requires Noriel to pay the total price of $10,000 upon delivery. The contract required Sound Experience to deliver no later than March 15. Sound Experience therefore gave the carton to an independent carrier on March 7, along with instructions for delivery to Noriel. On March 12, however, Sound Experience learned that Noriel had become insolvent and almost certainly would not be able to pay for the CD units. Which remedy should Sound Experience use? A) sue for damages B) stoppage in transit C) repossession D) lien E) action for the price Difficulty: 1 QuestionID: 13-2-40 Topic: Stoppage in Transit Skill: Applied Answer: B) stoppage in transit 41. With respect to the Sale of Goods Act, which of the following statements is TRUE? A) Aside from Quebec, every province and territory in Canada is governed by the same Sale of Goods Act. B) Even though the rules are contained in a statute, they are based on judicial decisions that accumulated over the years. C) Although the statute first appeared in 1893, its provisions have changed enormously over time to reflect 21 © 2023 Pearson Canada Inc.

shifts in modern business practices. D) Because the statute was intended to serve as consumer protection, it cannot be used by corporations. E) Every province and territory has a Sale of Goods Act, but most statutes have little in common. Difficulty: 2 QuestionID: 13-2-41 Topic: The Sale of Goods Act Skill: Recall Answer: B) Even though the rules are contained in a statute, they are based on judicial decisions that accumulated over the years. 42. Which of the following statements is TRUE with respect to writing requirements under a Sale of Goods Act? A) The Sale of Goods Act in each and every province and territory (except Quebec) requires a written contract in at least some cases. B) Under those Sale of Goods Acts that impose a writing requirement, a failure to satisfy that requirement causes the parties' contract to be null and void. C) While some Sale of Goods Acts impose writing requirements, they do so only for contracts that exceed specified price levels. D) If a Sale of Goods Act imposes a writing requirement, it does so only if the purchaser is an individual consumer rather than a business or corporation. E) Even if a Sale of Goods Act generally imposes a writing requirement, an oral contract is enforceable as long as the parties agreed on the essential terms. Difficulty: 2 QuestionID: 13-2-42 Topic: Writing Requirements Skill: Recall Answer: B) While some Sale of Goods Acts impose writing requirements, they do so only for contracts that exceed specified price levels. 43. Jasper bought a set of widgets from Kate. Although Jasper is unhappy with the widgets, Kate says that he is not entitled to rely on the Sale of Goods Act because their contract was not written. Which of the following statements is most likely to be TRUE? A) Even if the applicable Sale of Goods Act otherwise imposes a writing requirement, Jasper is entitled to rely on the statute if he received some of the widgets from Kate. B) A Sale of Goods Act never imposes a writing requirement if the parties' agreement can be sufficiently proven by other evidence. C) Because the Sale of Goods Act was intended to serve as consumer protection legislation, a writing requirement may prevent the seller from relying on the statute, but it never prevents the buyer from using the statute. D) If Jasper and Kate's contract is governed by a Sale of Goods Act that imposes a writing requirement, their contract is enforceable only if that requirement was met or Jasper paid the full price. E) If they failed to satisfy a writing requirement, Jasper will not be able to rely on the Sale of Goods Act, 22 © 2023 Pearson Canada Inc.

but Kate will still be entitled to use the statute's special remedies. Difficulty: 2 QuestionID: 13-2-43 Topic: Writing Requirements Skill: Applied Answer: A) Even if the applicable Sale of Goods Act otherwise imposes a writing requirement, Jasper is entitled to rely on the statute if he received some of the widgets from Kate. 44. Which of the following statements is TRUE with respect to the special remedies that are available under the Sale of Goods Act? A) A lien entitles an unpaid seller to have the goods seized from the buyer and sold in order to generate money to pay the price. B) Stoppage in transit entitles the buyer to prevent the seller from selling the same goods to a third party. C) Because repossession was designed to prevent fraud, it can be used against individuals, but not businesses. D) A lien generally is available only as long as the seller has possession of the goods. E) Specific performance is available for any sale of goods if the price exceeds $5000. Difficulty: 1 QuestionID: 13-2-44 Topic: Lien Skill: Recall Answer: D) A lien generally is available only as long as the seller has possession of the goods. 45. Bo bought a widget from Kathy, but he has complained that it is defective. If the parties' dispute is resolved by in court, the judge may hold Kathy liable A) on the basis that the widget does not match its description if the defect pertains to the quality of the goods. B) for selling a widget that was not fit for its intended purpose as long as Bo was ordinarily in the business of buying widgets. C) for selling unmerchantable goods if the widget that she delivered to Bo was new, but not if it was used. D) for selling an unmerchantable widget, but only if Bo proved not only the existence of a defect, but also the cause of that defect. E) if the widget is unmerchantable and if it was sold by sample. Difficulty: 3 QuestionID: 13-2-45 Topic: Sample Skill: Applied Answer: E) if the widget is unmerchantable and if it was sold by sample. Essay Questions 23 © 2023 Pearson Canada Inc.

1. "The Sale of Goods Act was intended to make commerce easier by generally implying a number of terms into contracts for the sale of goods. However, the implication of such terms also creates the need for careful risk management." Explain the meaning of that statement and describe how the relevant risks can be managed. Difficulty: 3 QuestionID: 13-3-01 Topic: The Sale of Goods Act Skill: Applied Answer: Although the Sale of Goods Act provides a great benefit to business people, it also creates a trap for the unwary and raises the need for careful risk management. The statute implies a number of conditions and warranties that operate unless the parties or the circumstances indicate the contrary. Consequently, it is possible for a contractual party to be held liable for, say, a breach of a condition of fitness for intended purpose, even though that party did not realize that it was subject to such an obligation. That sort of risk can be managed in a number of ways. First, a business person who is involved in the purchase or sale of goods (which is to say virtually every business person, some more so than others), should be familiar with the Sale of Goods Act. A risk cannot be successfully managed unless it is at least recognized. Second, in some situations, a contract should be drafted so as to expressly override the statute's implied terms. For evidentiary purposes, such changes should be placed into a written and signed document. And finally, some risks can be best managed through the use of limitation or exclusion clauses. 2. The Sale of Goods Act applies only to sales contracts. A sale includes both a sale in which the buyer immediately acquires the property, and an agreement for sale in which property passes sometime after the contract is created. Identify and briefly explain three types of transactions that are not governed by the statute. Difficulty: 2 QuestionID: 13-3-02 Topic: Sale Skill: Recall Answer: The Sale of Goods Act does not apply to a lease, a security for a loan, or a gift. Lease A lease is not a sale because while it entitles the lessee to possession of the property, it does not pass ownership. Security for a Loan Even if security for a loan may pass ownership from the debtor to the creditor, the creditor is not intended to ultimately retain ownership. The arrangement is merely intended to provide the debtor with incentive to discharge the debt and to provide the creditor with a remedy if there is a breach of contract. (Although security arrangements are discussed in greater detail in a later chapter, students would not be expected to provide an answer of this detail at this point.) In contrast, the Sale of Goods Act does apply to a conditional sales contract. In that situation, the seller retains ownership until the full price has been paid. The transaction nevertheless is caught by the Act because the ultimate purpose of the transaction is to transfer 24 © 2023 Pearson Canada Inc.

ownership to the buyer. Gift And finally, a gift is not a sale because, by definition, the donee receives something for nothing. The transfer of ownership is not supported by consideration. 3. The Sale of Goods Act applies only to the sale of goods. Goods include things like cars, cats, and cabbages. Identify and briefly explain three types of property to which the Act does not apply. Difficulty: 2 QuestionID: 13-3-03 Topic: Sale of Goods Skill: Recall Answer: For the purposes of the Sale of Goods Act, goods are defined as tangible things that can be moved. The statute therefore does not apply to a contract for the sale of land or things attached to land, or intangible property, or services. Land Although land is tangible, in the sense that it can be touched, it is not moveable and therefore is not governed by the Act. Similarly, although the materials that are used to construct a fence or house are initially goods (eg wood and nails), they cease to be goods when they become affixed to land. (The concept of fixtures is mentioned in this chapter, but is more fully explained in Chapter 15.) Intangible Property The definition of "goods" does not include personal property that is intangible, in the sense that it cannot be touched. The Act therefore does not apply to the sale of trademarks, shares, debts, or negotiable instruments. (Although some of those things are represented by tangible pieces of paper that are moveable, a sale generally pertains to the underlying intangible rights, rather than to the documentation.) Services Although services may produce goods, the Sale of Goods Act does not apply if the buyer, in essence, is seeking the performance of a service, rather than the production of a piece of moveable property. That is true, for instance, if an artist is asked to create a sculpture or if a lawyer is asked to draft a will. Some situations, however, are less obvious and the courts are required to determine the true intention of the parties' agreement. 4. Hamish entered into a contract with Shania. Under the terms of that agreement, she was required to deliver a widget to his factory within one week. As payment for that widget, Hamish immediately gave Shania a cheque for $5000 and a used widget that he no longer required. Shania intended to re-calibrate that widget and sell it to another customer for $1000. A dispute has arisen between the parties. Hamish argues that the agreement is governed by the Sale of Goods Act. Shania disagrees and in support of her position, she points to a section in the statute that says that the buyer must provide "a money consideration, called the price." And, as she reminds Hamish, he did not give any cash to her. Is the parties' contract governed by the Sale of Goods Act? Explain your answer. Difficulty: 2 QuestionID: 13-3-04 Topic: Sale of Goods for Money Skill: Applied

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Answer: Section 2(1) of the Sale of Goods Act does state: "A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a money consideration, called the price." That section does not require the buyer to pay in full with cash. Such a rule would be commercially unworkable in a way that would, contrary to the purpose of the Act, inhibit the flow of commerce. Hamish paid with a cheque. A cheque, like a credit card or a debit card, is not cash, but it is intended to result in the payment of money to the seller. It therefore satisfies the requirements of the statute. Furthermore, a sales contract may be caught by the Act even if, as in this case, the buyer pays partly with money (or a sufficient substitute, like a cheque) and partly with a trade-in of goods. 5. The passing of property under the Sale of Goods Act is important for a variety of reasons. Identify and explain the most important of those reasons. Difficulty: 2 QuestionID: 13-3-05 Topic: Passing of Property Skill: Recall Answer: The passing of property may affect the remedies that are available in the event of breach. It is also very significant if the seller has become insolvent. If the buyer has already paid for goods, it does not want to simply line up with the seller's other creditors and take cents on the dollar. Instead, it wants to be able to say that it already owns goods that are in the seller's possession. In doing so, it will avoid the need to share the seller's inadequate assets with the other creditors. The passing of property is most significant, however, because risk usually passes with property. In other words, if the goods are lost, damaged, or destroyed, the loss is borne by the party that has the property or ownership in the goods. That rule is especially important in situations where one party has property, but another has possession. For instance, although property may have passed to the buyer, the seller may still have possession of the goods for some reason. If so, the buyer may not realize that it bears the risk of any harmful events. It therefore may overlook the need to arrange insurance. 6. Lalene agreed to purchase a specific vehicle from Ritooria Motors. Under the terms of that contract, Lalene immediately provided a cheque for $10,000 and promised to pay another $15,000 within one year. Ritooria promised to prepare the car for delivery within one week (by installing a CD player and adding new tires) and to call Lalene when the work was done. Ritooria cashed the cheque the next day and prepared the car as promised within one week. Before it contacted Lalene, however, the car was struck by lightning and completely destroyed. Unfortunately, neither party had insurance on the car. Ritooria insists that it is still entitled to receive another $15,000 from Lalene. She, in contrast, insists that she is entitled to a refund of the $10,000 that she previously paid. Which party is probably correct? Explain your answer. Difficulty: 2 QuestionID: 13-3-06 Topic: Passing of Property 26 © 2023 Pearson Canada Inc.

Skill: Applied Answer: Lalene is probably correct. The contract was for the sale of specific goods and Ritooria, as the seller, was required to do something to put the vehicle into a deliverable state. In that situation, Rule 2 states that property generally does not pass until the seller performs the act in question and provides the buyer with notice of that fact. There is nothing in the facts of this particular case to displace that general rule. Consequently, property never passed from Ritooria to Lalene. Although the seller performed the necessary services to the car, lightning struck before the buyer was notified. Given the facts, students might also be expected to recognize that the passing of property was not affected by the timing of Lalene's payment to Ritooria. It is irrelevant that she provided a cheque immediately and promised to pay the remainder within one year. It is also irrelevant that Ritooria cashed the cheque before the accident occurred. 7. Crystal purchased a specific, fully functioning widget from Husker Du Inc. She promised to pay the price of $10,000 within one month. As part of a promotional campaign, Husker Du agreed to deliver the widget to her factory for free. Husker Du Inc. delays shipping the widget to Crystal's place as it forgets about the order. During that delay Husker Du's employee carelessly left its truck unlocked on the street during his lunch break. The widget was stolen from the truck and has never been recovered. Husker Du nevertheless insists that Crystal had already acquired property in the widget by the time of the theft and that she therefore was required to honour her promise to pay $10 000. Is that argument correct? Did property pass to Crystal? Is she required to pay the price? Explain your answer. Difficulty: 3 QuestionID: 13-3-07 Topic: Passing of Property Skill: Applied Answer: The parties created an unconditional contract for the sale of specific goods that were already in a deliverable state. Rule 1 therefore states that property presumptively passed to Crystal as soon as the agreement was made. It is irrelevant that she did not immediately take possession, nor that Husker Du did not immediately receive payment. Since risk generally follows property, it therefore seems that the burden of the theft falls upon Crystal. If so, while the widget is now gone, she must still pay the purchase price as promised. However, an exception to those general rules is created, however, if the seller causes a loss to occur by improperly delaying delivery. That is true in this case. The theft was the result of Husker Du's driver's negligence in leaving the unlocked delivery truck unattended. Consequently, in that situation, the burden of the theft falls upon the seller. Husker Du therefore is not entitled to receive payment from Crystal. 8. Hiram is about to agree to sell a specific antique book to Natasha for $30,000. Hiram is willing to let Natasha have possession of the goods immediately. Furthermore, he is willing to sell the book on credit and to allow her to pay in ten monthly instalments. However, he is also concerned that she might become insolvent before paying the full price. If that occurred, he would want to be able to recover the book itself, rather than simply sue Natasha. After all, if she becomes bankrupt, she will not have enough money to fully satisfy all of the claims against her. Is Hiram's position truly at risk? If so, is there anything that he can do when creating his contract with Natasha to protect himself? Explain your answer. 27 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 13-3-08 Topic: Passing of Property Skill: Applied Answer: Hiram is at risk. The parties intend to create an unconditional contract for the sale of specific goods that are in a deliverable state. Rule 1 therefore states that property will presumptively pass to Natasha as soon as the agreement is made. Consequently, if she later becomes bankrupt without paying the full price, Hiram may not be able to simply take his book back. Instead, he may be required to rely upon other remedies that are less effective. To protect himself at the outset, Hiram should insert a retention of title clause into his contract with Natasha. Although Rule 1 states that property presumptively will pass to Natasha as soon as the contract is created, it generally is possible to displace the statute's default rules. A retention of title clause would allow Hiram to retain ownership of the book until the price is fully paid. Consequently, if Natasha becomes bankrupt before fully performing her obligations, Hiram will be able to simply take his book back. 9. Discuss the significance of a buyer's reasonable opportunity to inspect goods before accepting them. Can a buyer ever be held responsible for failing to use a reasonable opportunity to inspect goods? Can a buyer ever be held responsible for failing to detect a defect while inspecting goods? Explain your answers. Difficulty: 3 QuestionID: 13-3-09 Topic: Sample, Merchantable Quality Skill: Recall Answer: The issue of inspection arises in connection with two implied conditions. First, with respect to a sale by sample, there is an implied condition that the goods that are delivered are free of any defect that would prevent them from being of merchantable quality. There is also an implied condition that the goods that are delivered match the goods that comprised the sample. Consequently, when goods are delivered, the buyer should carefully inspect them. If it fails to do so, it will not be entitled to complain if it later discovers either that the goods are unmerchantable or that they do not correspond to the sample and if those problems could have been discovered through a reasonable inspection. It is important to notice that, in that sense, there is an obligation upon the buyer to inspect. The rule applies even if the buyer does not inspect. Second, there is an implied condition that goods that are not sold by sample will also be of merchantable quality. If the buyer inspects the goods, it should do so in a reasonable manner. It will not be entitled to later complain about defects that it should have reasonably noticed during the inspection. Significantly, however, there is not a positive obligation to inspect. Although the cases are somewhat inconsistent, the general view is that the buyer will be entitled to complain even about defects that could have been discovered through a reasonable inspection if no such inspection ever occurred. Finally, in either event, the statute is only concerned with reasonable inspections. The buyer is not expected to 28 © 2023 Pearson Canada Inc.

conduct tests that are, in the circumstances, unreasonably extensive or elaborate. 10. Humbert visited Dolores's premises and saw a sample of widgets that she was offering for sale. On the basis of that sample, he agreed to buy her entire stock of ten widgets. Dolores was delighted with that sale because she had not previously dealt in widgets and she did not intend to do so again in the future. Humbert paid the price in full and Dolores delivered the widgets to his workshop the next day. Because he was busy, Humbert did not inspect the widgets when they arrived. He simply signed a receipt and placed the widgets in a storeroom. Some time later, however, he discovered that the widgets were defective. He therefore demanded a partial refund. Dolores refused that request on the basis that the defect was fairly obvious. Is Humbert entitled to complain about the defect? Explain your answer. Difficulty: 3 QuestionID: 13-3-10 Topic: Sample, Merchantable Quality Skill: Applied Answer: This question requires a very careful reading by the students of the text. The general implied condition of merchantability (like the general implied condition of fitness for intended purpose) applies only if the seller normally deals in the sort of goods that the buyer purchased. However, the implied condition of merchantability that specifically applies under a sale by sample is not similarly restricted to sales conducted by a seller who normally deals in such goods. There is a second difference between those two implied conditions. Under the general condition of merchantability, the buyer cannot complain about defects that it reasonably should have discovered during an inspection if an inspection occurred. There is not a similar bar if the buyer could have inspected the goods, but chose not to do so. In contrast, the specific condition of merchantability that applies to a sale by sample requires the buyer to inspect the goods upon delivery. If the buyer fails to conduct an inspection, it will not be entitled to later complain about defects that a reasonable inspection would have revealed. Applying those rules to the facts, Humbert is not precluded from complaining about the defect merely because Dolores did not normally deal in widgets. He is, however, precluded from complaining because he could have discovered the defect if he had conducted a reasonable inspection. He cannot rely on the fact that he chose to not inspect the widgets when they were delivered. 11. Sareena has owned and operated her own interior decorating business for several years. She was recently hired to redecorate the ballroom of the Palliser Hotel. The ballroom was located across from the hotel's swimming pool and sauna area. Sareena visited Fridman's Home Supply, explained the situation to the sales person, and said that she needed a large amount of wallpaper. The sales person took Sareena to the appropriate section of the store and asked if she required any further assistance. Sareena said, "Not really. I'm an old pro at this sort of thing. I just need something that will remain stuck to the walls even if there is high humidity." She then pointed to a particular brand of wallpaper and said, "Please just load fifty rolls of this stuff into my truck that is sitting out front." She then paid for the purchase and, over the next few days, hung the wallpaper in the hotel's ballroom. Almost immediately, however, it became apparent that the humidity from the pool and sauna was causing the wallpaper to peel. Is Sareena entitled to bring an action against Fridman's Home Supply on the basis that the wallpaper is not fit for its intended purpose? Explain your answer. 29 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 13-3-11 Topic: Fit for Intended Purposes Skill: Applied Answer: Sareena cannot sue for a breach of the implied condition that the goods will be fit for their intended purpose. Although Fridman's Home Supply normally deals with wallpaper, and although Sareena specified the purpose for which she required the wallpaper, she did not rely upon the seller's skill or judgment in selecting the wallpaper. She relied upon her own experience and expertise. 12. Beverley purchased a widget from Laskin Manufacturing Inc. She wanted the widget for personal use in her home. Like most large businesses, Laskin Manufacturing uses standard form documents for all of its transactions. The document that it used for the sale to Beverley said "The seller shall not be held liable on the basis of any implied warranties." Shortly after she brought the widget home, Beverley discovered that it was fundamentally defective. She has complained to Laskin Manufacturing, but the company says that it cannot be held liable because of the exclusion clause in the sales contract. Is the company's argument correct? Explain your answer. Difficulty: 2 QuestionID: 13-3-12 Topic: Exclusion Clauses Skill: Applied Answer: Laskin Manufacturing cannot rely upon the exclusion clause. Especially in a dispute between a large company and a small consumer, the courts tend to read an exclusion clause very narrowly and interpret it strictly according to its terms. The Sale of Goods Act imposes an implied "condition" that goods will be of merchantable quality. The exclusion clause in the sales contract only referred to "implied warranties." (As discussed in Chapter 6, there is a significant difference between a condition and a warranty. The former supports discharge of a contract, but the latter does not.) Consequently, the exclusion clause does not apply to the condition imposed by the statute. Moreover, that condition has been fundamentally breached because no reasonable person would pay full price for a widget that is fundamentally defective. 13. Zounds Sounds, a music store, ordered 20 cases of blank cassette tapes from Polymuse Inc. Each case costs $100, so that the total contract price was $2,000. In fact, Polymuse delivered 23 cases of tapes to Zounds. Is Zounds required to accept some or all of those cases? If so, what price will it be required to pay? Difficulty: 2 QuestionID: 13-3-13 Topic: Delivery and Payment Skill: Applied Answer: The Sale of Goods Act implies a condition that the seller will deliver goods that conform with the contract. That implied condition applies to the quantity of goods that the buyer ordered. In this case, Zounds ordered 20 cases of tapes at a total price of $2,000. Polymuse actually delivered 23 cases. Zounds therefore has 30 © 2023 Pearson Canada Inc.

an option. First, it can reject the entire shipment and refuse to pay any price. Second, it can accept 20 cases and pay $2,000, while rejecting the extra three cases. 14. On May 1, Suneel entered into a contract with Mathilde. She promised to deliver a widget to him on June 1 and he promised to pay the total purchase price of $10,000 on July 1. As June 1 approached, however, Suneel began to worry about giving possession of the widget to Mathilde without getting paid at the same time. He therefore wants to exercise a lien. Is he entitled to do so? Would your answer be different if Mathilde became insolvent before June 1? Explain your answers. Difficulty: 2 QuestionID: 13-3-14 Topic: Lien Skill: Applied Answer: As a general rule, the seller can exercise a lien by retaining possession of the goods until payment is received. That remedy is intended to protect the seller from the risk of parting with property and possession, and being forced to rely upon potentially ineffective personal remedies, if the buyer fails to pay the price. However, a lien is not available if the seller agreed to a contract on credit, under which the agreement allowed the buyer to acquire the goods with a promise to pay the price in the future. That is the situation as between Suneel and Mathilde. The situation would be different, however, if Mathilde became insolvent before the stipulated date of delivery. In that case, although Suneel had initially agreed to a credit arrangement, Mathilde's insolvency provides sufficient reason for the law to recognize the right of a lien. It would be harsh to require Suneel to deliver the widget to Mathilde despite knowing that she did not have enough money to pay for it or to meet her debts generally. 15. Explain the basic differences between: (i) a claim for damages following the buyer's breach of contract, and (ii) an action for the price by the seller. Difficulty: 2 QuestionID: 13-3-15 Topic: Compensatory Damages Skill: Recall Answer: There are several important differences between damages and an action for the price. Most obviously, damages are limited to compensation for the seller's loss. If the buyer's breach did not actually cause the seller to suffer any loss, then damages are not available (beyond nominal damages). In contrast, an action for the price allows the seller, regardless of any loss, to recover the total price from the buyer. (In exchange, the seller must, of course, deliver the goods). The basic difference between damages and an action for the price also means that the duty to mitigate applies under the former, but not under the latter. In contract law generally, the effect of that duty is to preclude the seller from claiming compensatory damages with respect to losses that are factually linked to the buyer's breach, but that the seller could have avoided by acting reasonably (eg by arranging to sell the same goods to another buyer). However, since an action for the price is not based on compensatory principles, it is not susceptible to 31 © 2023 Pearson Canada Inc.

the rules of mitigation. The seller can claim the full price from the buyer, even if the seller could have sold the same goods to another buyer and thereby avoided any loss. Finally, although not mentioned in the text, the concept of remoteness that applies to compensatory damages does not apply to an action for the price. Since the seller is not complaining about consequential losses flowing from the buyer's failure to pay the price, but rather about that failure itself, there is no need to ask if the seller's loss was within the parties' reasonable contemplation at the time of creating their agreement.

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Managing the Law, 6e (McInnes) Chapter 14: Special Contracts: Negotiable Instruments True/False Questions 1. A document may be a negotiable instrument even if it does not satisfy the requirements of the Bills of Exchange Act. a True b False Difficulty: 3 QuestionID: 14-1-01 Topic: Types of Negotiable Instruments Skill: Recall Answer: a. True 2. Stefan gave a cheque for $500 to his daughter, Monique, as a birthday present. Because Monique did not give any consideration in exchange for her birthday present, Stefan's bank is not permitted to honour the cheque. a True b False Difficulty: 2 QuestionID: 14-1-02 Topic: Introduction Skill: Applied Answer: b. False 3. Grant wanted to sue a car dealership for breach of contract. Carolyn agreed to work as his lawyer. To ensure that he eventually paid his bill, Carolyn required grant to sign a document in which he promised to pay her "$10,000 on December 31 if the court holds the car dealership liable for damages." That document is a promissory note that is governed by the Bills of Exchange Act. a True b False Difficulty: 2 QuestionID: 14-1-03 Topic: Types of Negotiable Instruments Skill: Applied Answer: b. False 4. Alexandra bought a snow blower from Rajeev. The price was $5,000. As payment, she gave him a document entitled "Promissory Note" that contained her unconditional promise to pay $5,000 to him 1 © 2023 Pearson Canada Inc.

"when the snow next falls." Even though that document does not satisfy the requirements of the Bills of Exchange Act, Rajeev is still entitled to receive $5,000 from Alexandra if the condition is met. a True b False Difficulty: 3 QuestionID: 14-1-04 Topic: Types of Negotiable Instruments, Introduction Skill: Applied Answer: a. True 5. A share certificate may be a type of negotiable instrument. a True b False Difficulty: 2 QuestionID: 14-1-05 Topic: Types of Negotiable Instruments Skill: Recall Answer: a. True 6. Miguel opened a chequing account at the Bank of Guelph. As part of that transaction, Miguel authorized the bank to credit his account every time that he wrote a cheque on it. a True b False Difficulty: 2 QuestionID: 14-1-06 Topic: Cheques Skill: Applied Answer: b. False 7. Beryl opened a chequing account at the Bank of Banff. As part of that transaction, she deposited ten $100 bills into her new chequing account. Technically speaking, she continues to own those bills until she writes a cheque on her account. a True b False Difficulty: 3 QuestionID: 14-1-07 Topic: Cheques Skill: Applied

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Answer: b. False 8. Kelly drew a cheque for $10,000 on her account at the Bank of Sudbury. She used that cheque to buy a widget from Joe. Joe presented the cheque to the Bank of Sudbury and received $10,000 in cash. The bank now realizes that it made a mistake because the balance in Kelly's account was never more than $2,000. The bank therefore is entitled to recover from Joe the money that it paid to him by mistake. a True b False Difficulty: 2 QuestionID: 14-1-08 Topic: Overdrawn Cheques Skill: Applied Answer: b. False 9. Elliot bought a widget from Margaret. He paid the purchase price of $5,000 by giving her a cheque that he had drawn on his account at the Bank of Yorkton. Before Margaret had an opportunity to present the cheque for payment, Elliot died. The cheque therefore is automatically considered to be certified. a True b False Difficulty: 2 QuestionID: 14-1-09 Topic: Countermanded Cheques Skill: Applied Answer: b. False 10. Karinda sold a widget to Konrad. He paid the $150,000 purchase price by giving her a bill of exchange drawn on the Klondike Trust Co. Karinda is entitled to sue the drawee if the bill is not accepted. a True b False Difficulty: 3 QuestionID: 14-1-10 Topic: Bills of Exchange Skill: Applied Answer: b. False 11. A sight draft allows the payee of a bill of exchange to receive payment immediately, whereas a demand draft only allows the payee to require the drawee to make payment within three days of presentation. 3 © 2023 Pearson Canada Inc.

a True b False Difficulty: 2 QuestionID: 14-1-11 Topic: Bills of Exchange Skill: Recall Answer: b. False 12. Analee bought a widget from Nathan. On March 1, she paid the purchase price by giving him a promissory note for $100,000. The entire payment is due on June 1, but the note contains an acceleration clause. That means that Nathan has the absolute right to receive payment before June 1 if he wants. a True b False Difficulty: 2 QuestionID: 14-1-12 Topic: Promissory Note Skill: Applied Answer: b. False 13. Bronwyn Hogg received a cheque. She endorsed in blank. At the same time, her sister, Gwyneth, wrote her own signature and the following words on the back of the cheque: "Guarantor for B Hogg." The cheque now contains both a general endorsement and an accommodation endorsement. a True b False Difficulty: 3 QuestionID: 14-1-13 Topic: General Endorsement, Accommodation Endorsement Skill: Applied Answer: a. True 14. A person can be considered to be a holder in due course even though they did not give consideration for the instrument. a True b False Difficulty: 1 QuestionID: 14-1-14 Topic: Types of Parties Skill: Recall

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Answer: a. True 15. The provisions in the Bills of Exchange Act dealing with consumer notes and bills can apply to a promissory note or to a bill of exchange, but not to a cheque because a cheque is never used for credit purposes. a True b False Difficulty: 2 QuestionID: 14-1-15 Topic: Consumer Bills and Notes Skill: Recall Answer: b. False Multiple Choice Questions 1. You and I have entered into a contract for the sale of a boat. We have agreed that I will deliver possession of the vessel to you at the same time that you pay the purchase price of $10 000. You have the option of paying with either cash or a certified cheque. Which of the following statements is TRUE? A) You would prefer to pay with a cheque because $10,000 in cash does not easily fit into your pocket. B) You would prefer to pay with cash because cash is less risky than a cheque if a theft occurs. C) I would prefer to receive a cheque because it is more difficult for me to transfer cash to a stranger. D) I would prefer to receive cash because a certified cheque would not give me any rights against the drawee bank. E) Certification of a cheque would be relevant only if I intended to negotiate the cheque to someone other than a bank. Difficulty: 3 QuestionID: 14-2-01 Topic: Introduction Skill: Applied Answer: A) You would prefer to pay with a cheque because $10,000 in cash does not easily fit into your pocket. 2. A negotiable instrument is a special type of contract. It differs from a regular contract because a negotiable instrument is enforceable A) without consideration. B) even if the only consideration that supports it is a promise to perform a pre-existing obligation to the same party. C) even if the only consideration that supports it is love and affection. D) even though the only consideration that supports it is always a pre-existing public duty. E) only if it is placed under a seal. Difficulty: 2 5 © 2023 Pearson Canada Inc.

QuestionID: 14-2-02 Topic: Introduction Skill: Recall Answer: B) even if the only consideration that supports it is a promise to perform a pre-existing obligation to the same party. 3. Martina bought a necklace from Roland. The price of the necklace was $10,000. Martina promised Roland that she would pay that amount to him. As part of the same transaction, she also gave him a cheque for that amount. Roland later bought a painting from Astral Gallery Inc. The price of the painting was $10,000. Which of the following statements is TRUE? A) Roland can pay for the painting by negotiating the cheque to Astral Gallery only if Astral Gallery and Martina have accounts with the same bank. B) Roland could pay for the painting by negotiating the cheque to Astral Gallery, but he could not pay by assigning to Astral Gallery the rights that he has against Martina under the earlier sales contract. C) Roland could pay for the painting by cashing the cheque and delivering the money to Astral Gallery, but he could not simply negotiate to Astral Gallery the cheque that he had received from Martina. D) If given a choice, Astral Gallery would probably prefer to receive an assignment of the rights that Roland has against Martina under the earlier sales contract, rather than negotiation of Martina's cheque. E) Roland is entitled to recover $10,000 from Martina under their sales contract or $10 000 from her on the basis of her cheque, but not both. Difficulty: 3 QuestionID: 14-2-03 Topic: Introduction Skill: Applied Answer: E) Roland is entitled to recover $10,000 from Martina under their sales contract or $10 000 from her on the basis of her cheque, but not both. 4. Which of the following statements is TRUE with respect to negotiable instruments? A) Technically speaking, there are only three types of negotiable instruments: cheques, bills of exchange, and promissory notes. B) The Bills of Exchange Act applies to every type of negotiable instrument. C) Unlike most contracts, a negotiable instrument is effective only if it is written and signed. D) A negotiable instrument is valid as long as it provides a mechanism that the drawer can use to determine how much the payee is entitled to receive. E) A negotiable instrument is effective only if it contains a conditional obligation to pay money. Difficulty: 2 QuestionID: 14-2-04 Topic: Types of Negotiable Instruments Skill: Recall Answer: C) Unlike most contracts, a negotiable instrument is effective only if it is written and signed.

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5. Ferdinand bought a boat from Isabelle. The price was $100,000. She required payment to be made by way of a cheque. Which of the following statements is TRUE? A) Ferdinand can create a cheque by ordering his sister, Esmeralda, to pay $100 000 to Isabelle. B) As soon as Ferdinand creates a valid cheque, Isabelle will acquire rights against the drawee. C) By writing a cheque, Ferdinand will create an order that requires the drawee to credit his bank account. D) Isabelle will not be able to cash Ferdinand's cheque unless she has a bank account. E) If Ferdinand creates a valid cheque, his bank owes him an obligation to honour that negotiable instrument. Difficulty: 2 QuestionID: 14-2-05 Topic: Cheques Skill: Applied Answer: E) If Ferdinand creates a valid cheque, his bank owes him an obligation to honour that negotiable instrument. 6. Claire gave a cheque for $5,000 to Antonio. Which of the following statements is TRUE? A) Claire has created a special type of promissory note that is drawn upon a bank. B) Claire has created a special type of bill of exchange that is drawn upon a bank. C) Antonio is entitled to receive $5,000 from Claire even if he did not provide any consideration in exchange for her cheque. D) Antonio will acquire rights against Claire only if her cheque is accepted by the drawee. E) Antonio has acquired rights that can be enforced directly against the drawee. Difficulty: 2 QuestionID: 14-2-06 Topic: Bills of Exchange Skill: Applied Answer: B) Claire has created a special type of bill of exchange that is drawn upon a bank. 7. Assume that today is March 1. On February 1, Patricia bought a guitar from Metheny's Music Shop. The price was $2,500. She gave the store a cheque for that amount that was dated June 1. Which of the following statements is now TRUE? A) The cheque is invalid because it is postdated. B) If the store presents the cheque for payment on October 1, the drawee will probably refuse to honour the instrument on the ground that it is staledated. C) Metheny's Music Shop must present the cheque to the drawee for payment on or before June 1. D) Because the cheque is dated five months after it was created, it is considered overdrawn. E) Patricia has created a postdated cheque that cannot be honoured before June 1. Difficulty: 3 QuestionID: 14-2-07 Topic: Postdated Cheques Skill: Applied 7 © 2023 Pearson Canada Inc.

Answer: E) Patricia has created a postdated cheque that cannot be honoured before June 1. 8. Raj owed $5,000 to Monica. In payment of that debt, he gave her a cheque for that amount that was drawn on his account at the Bank of Regina. In fact, his account only held $3,000 worth of credits. Which of the following statements is TRUE? A) Raj's cheque is countermanded. B) Although it is required to pay $5,000 to Monica, the Bank of Regina can sue Raj for breach of contract. C) The Bank of Regina will probably pay $3,000 to Monica. D) Raj has effectively asked the Bank for a loan which may or may not be granted. E) Raj will be entitled to sue the Bank of Regina if it pays any money to Monica. Difficulty: 2 QuestionID: 14-2-08 Topic: Overdrawn Cheques Skill: Applied Answer: D) Raj has effectively asked the Bank for a loan which may or may not be granted. 9. Wallace bought a widget from Sabrina. The price was $7,500. When he collected the widget from her warehouse, he gave her a cheque that was drawn on his account at the Bank of Windsor. When he got the widget home, however, he discovered that it was defective. He therefore went to his bank and placed a stop payment order on the cheque. Which of the following statements is TRUE? A) Wallace's cheque is overdrawn. B) When Sabrina presents the cheque for payment, the Bank of Windsor has a complete discretion to choose between honouring it and dishonouring it. C) Although he authorized the Bank of Windsor to debit his account when he wrote the cheque, Wallace's stop payment order revoked that authority. D) Sabrina can sue both Wallace and the Bank of Windsor if the bank refuses to honour the cheque. E) Sabrina is entitled to receive payment on the cheque if a court decides that Wallace was not entitled to discharge the sales contract on the basis that the goods were defective. Difficulty: 2 QuestionID: 14-2-09 Topic: Countermanded Cheques Skill: Applied Answer: C) Although he authorized the Bank of Windsor to debit his account when he wrote the cheque, Wallace's stop payment order revoked that authority. 10. Which of the following statements is TRUE with respect to certification of cheques? A) A certified cheque is usually certified at the request of either the payee or the drawee. B) The process of certification is expressly based on a detailed set of provisions in the Bills of Exchange Act. C) Certification allows the payee to receive payment even if the relevant account is overdrawn. D) After certifying a cheque, a bank normally transfers funds into a countermand account and then uses 8 © 2023 Pearson Canada Inc.

those funds to honour the cheque when it is presented for payment. E) The decision to countermand a cheque must be made by the payee or the drawee, but not by the drawer. Difficulty: 3 QuestionID: 14-2-10 Topic: Certified Cheques Skill: Recall Answer: C) Certification allows the payee to receive payment even if the relevant account is overdrawn. 11. Scott bought a widget from Gowhara. The price was $10,000. He paid with a cheque that he had drawn on his account at the Bank of Kamloops. Scott had the cheque certified before he gave it to Gowhara. In fact, Scott's account balance was only $8,000. When he discovered that fact, he went to the bank and gave instructions to have the cheque countermanded but the bank refused that request. Which of the following statements is TRUE? A) The Bank of Kamloops is required to pay Gowhara $8,000. B) The Bank of Kamloops is required to pay Gowhara $10,000. C) Scott may be entitled to countermand the cheque because it had been certified at his request, rather than at Gowhara's request. D) Regardless of certification, it is impossible to countermand a cheque that has been written on an overdrawn account. E) Because the bank certified the cheque, it must pay $10 000 to Gowhara even though Scott ultimately will have to provide only $8,000 to the bank. Difficulty: 3 QuestionID: 14-2-11 Topic: Certified Cheques Skill: Applied Answer: B) The Bank of Kamloops is required to pay Gowhara $10,000. 12. Which of the following statements is TRUE with respect to bills of exchange? A) A bill of exchange must be drawn upon a bank, a trust account, or some other financial institution. B) A bill of exchange is usually used only for relatively small domestic transactions. C) Once a bill of exchange is accepted, the drawer becomes known as the acceptor. D) Unlike a promissory note, a bill of exchange cannot be used to create a credit arrangement between the parties. E) Whereas a cheque must be drawn on a bank, a bill of exchange may be drawn on a bank or anyone else. Difficulty: 2 QuestionID: 14-2-12 Topic: Bills of Exchange Skill: Recall Answer: E) Whereas a cheque must be drawn on a bank, a bill of exchange may be drawn on a bank or anyone else. 9 © 2023 Pearson Canada Inc.

13. On June 1, Rituparna bought a widget from Joel. The price was $75,000. On that same day, she gave him a bill of exchange for that amount that was drawn on the Bank of Brandon. Which of the following statements is TRUE? A) Rituparna is the drawee, Joel is the payee, and the Bank of Brandon is the acceptor. B) A bill of exchange must be payable on demand. C) The Bank of Brandon owes Rituparna a legal duty to accept the bill if Joel's account balance is at least . D) Unlike a cheque, a bill of exchange is automatically considered to be certified unless the relevant account is overdrawn. E) June 1 is not necessarily the due date. Difficulty: 2 QuestionID: 14-2-13 Topic: Bills of Exchange Skill: Applied Answer: E) June 1 is not necessarily the due date. 14. On May 1, Emile bought a widget from Megan. The price was $15,000. On June 1, Emile paid that price by giving Megan a bill of exchange that was drawn on the Bank of Swift Current. The bill was stated to be payable "on demand." Which of the following statements is TRUE? A) Because the bill is payable on sight, Megan cannot present it to the Bank of Swift Current for acceptance B) If Megan presents the bill to the Bank of Swift Current on July 1, she is entitled to receive $15 000 immediately. C) The bill is invalid because while a promissory note can be payable on sight, a bill cannot. D) Unlike certification of a cheque, acceptance of a bill would not create rights that Megan could use against the Bank of Swift Current. E) The reason that the bill is considered to be payable "on sight" is that it was created some time after Emile and Megan created their sales contract. Difficulty: 3 QuestionID: 14-2-14 Topic: Bills of Exchange Skill: Applied Answer: B) If Megan presents the bill to the Bank of Swift Current on July 1, she is entitled to receive $15 000 immediately. 15. Which of the following statements is TRUE with respect to promissory notes? A) A promissory note always involves three different parties, called the maker, the payee, and the payer. B) Unlike a cheque or a bill of exchange, a promissory note is effective even without consideration because it consists of a promise to pay money. C) The subject matter of a promissory note can be either the payment of money or the performance of services. D) A promissory note must be payable in instalments. 10 © 2023 Pearson Canada Inc.

E) A promissory note usually requires the payment of interest, but it need not do so. Difficulty: 2 QuestionID: 14-2-15 Topic: Promissory Note Skill: Recall Answer: E) A promissory note usually requires the payment of interest, but it need not do so. 16. On January 1, Jasmine bought a speedboat from Malcolm. The purchase price was . Jasmine gave Malcolm a promissory note for $100,000. The note was payable in five monthly instalments beginning on March 1. Which of the following statements is TRUE? A) Because a promissory note must be for a "sum certain," the note that Jasmine created could not require her to pay interest on the purchase price of $100,000. B) If Malcolm is unable to recover any money under the promissory note, he must sue Jasmine on the basis of their sales contract, rather than on the basis of the promissory note itself. C) Jasmine's promissory note cannot contain an acceleration clause because it is payable in instalments. D) A promissory note, like a bill of exchange, must have a drawee. E) After each installment payment, Jasmine should make sure that Malcolm writes a receipt onto the promissory note itself. Difficulty: 2 QuestionID: 14-2-16 Topic: Promissory Note Skill: Applied Answer: E) After each installment payment, Jasmine should make sure that Malcolm writes a receipt onto the promissory note itself. 17. Natalia has a chequing account at the Bank of Victoria. It contains a balance of $3,000. Natalia bought a scooter from Edgar for $1,000. He wants to have a cheque in bearer form. That desire can be achieved if A) Natalia makes a cheque payable to Edgar and he then puts a general endorsement on the back of it. B) the cheque contains a special endorsement. C) Natalia creates a cheque and leaves the amount blank. D) Edgar persuades a banker to add a qualified endorsement. E) Natalia persuades a friend to add an accommodation endorsement. Difficulty: 2 QuestionID: 14-2-17 Topic: Methods of Negotiation Skill: Applied Answer: A) Natalia makes a cheque payable to Edgar and he then puts a general endorsement on the back of it. 18. Patrick bought a widget from Ishani. The purchase price was $25,000. He paid by giving her a cheque 11 © 2023 Pearson Canada Inc.

for that amount that was drawn on his account at the Bank of Fundy. The cheque was made payable to Ishani. By coincidence, Ishani owes $25,000 to XYZ Inc. Which of the following statements is TRUE? A) If Ishani negotiated the cheque to XYZ Inc, that company would be entitled to turn the cheque into a bearer instrument. B) If Ishani negotiated the cheque to XYZ Inc, that company could not ask the Bank of Fundy to certify the cheque. C) If Ishani wanted to negotiate the cheque to XYZ Inc, she would have to first have the cheque certified by the Bank of Fundy. D) If Ishani negotiated the cheque to XYZ Inc, that company could receive payment from the Bank of Fundy only if it first provided consideration to Patrick. E) Ishani can discharge her debt to XYZ Inc by simply delivering the cheque to the company. Difficulty: 2 QuestionID: 14-2-18 Topic: Methods of Negotiation Skill: Applied Answer: A) If Ishani negotiated the cheque to XYZ Inc, that company would be entitled to turn the cheque into a bearer instrument. 19. Alice bought a boat from Brian. The purchase price was $250,000. On February 1, she paid that price by giving him a bill of exchange drawn on her account at the Bank of Kenora. The bill was due on December 31 and it was payable to Brian. On March 1, Brian negotiated the bill to Carla. On April 1, the Bank of Kenora accepted the bill at Carla's request. On May 1, Carla placed a general endorsement on the bill and negotiated it to Dave. On June 1, Dave negotiated the bill to Edna. Every attempt at negotiation was successful. Which of the following statements is TRUE? A) Brian could not have endorsed the bill. B) A situation may arise in which Carla is entitled to recover $250 000 from Brian. C) Although she is not entitled to receive more than $250 000 in total, Edna has acquired rights against Alice, Brian, and Carla, but not the Bank of Kenora. D) Dave must have added an accommodation endorsement. E) The Bank of Kenora has the secondary liability to pay Edna. Difficulty: 3 QuestionID: 14-2-19 Topic: General Endorsement, Methods of Endorsement, Liability Skill: Applied Answer: B) A situation may arise in which Carla is entitled to recover $250 000 from Brian. 20. Jacob bought a widget from Erin for $15,000. In payment, he gave her a cheque that was payable to her. The cheque was drawn on his account at the Bank of Kitchener. Erin signed her name on the back of the cheque and delivered it to Arthur in order to discharge a debt that she owed to him. Arthur presented the instrument to the Bank of Kitchener for payment, but was refused payment because the balance for Jacob's account was only $8,000. Which of the following statements is TRUE? A) Arthur may be able to sue Jacob and Erin. 12 © 2023 Pearson Canada Inc.

B) Arthur has a right to collect $8,000 from the bank. C) If the widget that Jacob bought from Erin is defective, Arthur cannot acquire any rights against the drawer of the cheque. D) Notice of dishonour will be effective only if it is made in writing. E) Arthur should provide notice of dishonour to the bank's manager as soon as possible. Difficulty: 3 QuestionID: 14-2-20 Topic: General Endorsement, Methods of Endorsement, Liability Skill: Applied Answer: A) Arthur may be able to sue Jacob and Erin. 21. Which of the following statements is TRUE with respect to notice of dishonour? A) Notice of dishonour only needs to be provided against a party that did not endorse an instrument. B) In some circumstances, an endorser may be held liable even if it did not actually receive notice of dishonour following the dishonour of a cheque. C) Notice of dishonour is significant mainly because it relieves the drawee of a cheque of liability. D) Once notice of dishonour is given to one endorser, it is automatically effective against all prior endorsers. E) To be effective, notice of dishonour normally can be provided any time within six months of dishonour. Difficulty: 3 QuestionID: 14-2-21 Topic: Liability Skill: Recall Answer: B) In some circumstances, an endorser may be held liable even if it did not actually receive notice of dishonour following the dishonour of a cheque. 22. Ismail used a cheque to pay for a widget that he bought from Maria. Maria delivered the cheque to Geoff Gagne after writing her signature and the following words on the back of it: "To Geoff Gagne if he builds a gazebo in my backyard." After he acquired the cheque, Geoff wrote his signature and the following words on the back of it: "For deposit only." Which of the following statements is TRUE? A) The cheque contains a qualified endorsement and a restrictive endorsement. B) The cheque contains a qualified endorsement and a special endorsement. C) Geoff can negotiate the cheque to Fawn by simply delivering it to her. D) The cheque contains a conditional endorsement and a restrictive endorsement. E) Geoff can require Ismail to add an accommodation endorsement to the cheque. Difficulty: 2 QuestionID: 14-2-22 Topic: Conditional Endorsement, Restrictive Endorsement Skill: Applied Answer: D) The cheque contains a conditional endorsement and a restrictive endorsement. 13 © 2023 Pearson Canada Inc.

23. Which of the following types of endorsements can you place upon a negotiable instrument without creating any risk of liability for yourself? A) identifying endorsement and qualified endorsement B) identifying endorsement C) a restrictive endorsement but not a special endorsement D) accommodation endorsement and restrictive endorsement E) accommodation endorsement and identifying endorsement Difficulty: 3 QuestionID: 14-2-23 Topic: Restrictive Endorsement, Special Endorsement Skill: Recall Answer: C) a restrictive endorsement but not a special endorsement 24. Fenna created a promissory note for $10,000 that was payable to the order of Mark. She delivered that instrument to him. Mark is indebted to Muriel for $10,000. He wants to discharge that debt by allowing Muriel to receive payment under the note that Fenna created. Muriel is unsure whether Fenna or Mark would be capable of actually paying $10,000 if asked to do so. However, Muriel is confident that Mark's brother, Cameron, is capable of paying $10,000. Which of the following statements is TRUE? A) Mark is not entitled to negotiate Fenna's note to Muriel if that note is payable on demand. B) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an accommodation endorsement by Cameron. C) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an identifying endorsement by Cameron. D) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an accommodation endorsement by Fenna. E) Cameron cannot be held liable unless he becomes the holder of the note at some point. Difficulty: 2 QuestionID: 14-2-24 Topic: Special Endorsement, Accommodation Endorsement Skill: Applied Answer: B) Muriel's wishes can be satisfied by the creation of a special endorsement by Mark and an accommodation endorsement by Cameron. 25. Ranjit currently has possession of a cheque that was created by Maura. Although Maura created that cheque on January 1, the instrument is dated June 1. The cheque originally was payable to Nora. The cheque now bears endorsements by Nora and Shelley. Maura, Nora, Shelley, and Ranjit are the only parties that have dealt with the cheque. Which of the following statements is TRUE? A) Ranjit may be a holder in due course even if he did not personally provide consideration to anyone. B) Ranjit cannot be a holder in due course if today's date is July 1. C) Ranjit cannot be a holder in due course unless Shelley was a holder in due course. D) Ranjit cannot be a holder in due course if he received the cheque when it was in bearer form. 14 © 2023 Pearson Canada Inc.

E) Maura may be the drawee of the cheque. Difficulty: 3 QuestionID: 14-2-25 Topic: Types of Parties Skill: Applied Answer: A) Ranjit may be a holder in due course even if he did not personally provide consideration to anyone. 26. Which of the following defences may be either a defect in title defence or a real defence, depending upon the circumstances? A) minority B) material alteration C) volenti non fit injuria D) contributory negligence E) absence of delivery Difficulty: 1 QuestionID: 14-2-26 Topic: Defect in Title Defences, Real Defences Skill: Recall Answer: E) absence of delivery 27. Shoshanna drafted a complete cheque and made it payable to bearer. She placed it in her desk drawer. She intended to give it as a prize to whichever student achieved the highest grade in her business law class. The cheque, however, was stolen before Shoshanna could do so. After passing through several hands, it came into Ethan's possession. Which of the following statements is TRUE? A) Ethan can enforce the cheque against Shoshanna if he is a holder. B) Ethan can enforce the cheque against Shoshanna if he is a holder in due course and there is no real defense. C) Shoshanna merely has a personal defence as a result of the theft. D) Shoshanna has a real defence as a result of the theft. E) Ethan can enforce the cheque against Shoshanna because he has possession of the cheque and therefore is considered an immediate party. Difficulty: 2 QuestionID: 14-2-27 Topic: Types of Parties, Real Defences Skill: Applied Answer: B) Ethan can enforce the cheque against Shoshanna if he is a holder in due course and there is no real defense. 28. Tara created a cheque for $5,000 that was payable to bearer. She delivered it to Simon. Simon negotiated it to Melanie, who then negotiated it to Oscar, who then negotiated it to Mike. While Melanie 15 © 2023 Pearson Canada Inc.

had possession of the cheque, she altered it so that it now appears to be a cheque for $25,000. Which of the following statements is TRUE? A) Mike is entitled to receive $50,000 from Tara as long as Melanie acted in good faith. B) If the alteration is apparent to the naked eye, the drawee bank would be entitled to debit $25 000 from Tara if she carelessly facilitated the alteration when she drafted the cheque. C) If the alteration is not apparent to the naked eye, Mike is entitled to receive $50 000 from Oscar. D) If the alteration is apparent to the naked eye, Mike is entitled to receive payment from Tara. E) If the alteration is not apparent to the naked eye, Mike is entitled to receive $5000 from Tara if she did not carelessly facilitate the alteration when she drafted the cheque. Difficulty: 3 QuestionID: 14-2-28 Topic: Real Defences Skill: Applied Answer: E) If the alteration is not apparent to the naked eye, Mike is entitled to receive $5000 from Tara if she did not carelessly facilitate the alteration when she drafted the cheque. 29. Wendell bought a widget from Sharon and used a cheque to pay the purchase price of . Wendell made the cheque payable to Sharon personally. That cheque was drawn on Wendell's account at the Bank of Gander. A thief stole the cheque from Sharon, forged her general endorsement, and sold the cheque to Oren. Oren then endorsed the cheque and negotiated it to Abby. Which of the following statements is TRUE? A) Abby is entitled to sue Wendell because the forgery does not affect the fact that he promised to pay $10,000. B) Wendell owes a debt to Oren. C) Because forgery is a real defence, Abby cannot sue anyone except the person who committed the forgery. D) If the Bank of Gander paid $10,000 to Abby and debited Wendell's account, Wendell can force the bank to repay $10,000 into his account if he acts promptly. E) In the final analysis, the Bank of Gander will necessarily suffer the loss if it honoured the cheque and paid $10,000 to Abby. Difficulty: 3 QuestionID: 14-2-29 Topic: Real Defences Skill: Applied Answer: D) If the Bank of Gander paid $10,000 to Abby and debited Wendell's account, Wendell can force the bank to repay $10,000 into his account if he acts promptly. 30. Roxanna bought a stereo from Sound Electronics. She paid the purchase price of $7,500 by giving a promissory note to the store. The first time that Roxanna tried to operate the stereo outside of the store, it blew up due to a defect. She therefore refuses to honour the promissory note. Which of the following statements is TRUE? A) Because the note was given to a company, Roxanna does not have a personal defence that she can use 16 © 2023 Pearson Canada Inc.

against Sound Electronics if it attempts to sue her on the note. B) The provisions in the Bills of Exchange Act dealing with consumer bills and notes would not apply if Roxanna used a cheque to pay for the stereo. C) Sound Electronics was required to mark the note as a "consumer note" if Roxanna intended to use the stereo for a business purpose. D) The provisions in the Bills of Exchange Act dealing with consumer bills and notes might apply if Roxanna paid with a cheque that was postdated for 15 days. E) Even if the promissory note was used for a consumer purchase, it may not be subject to the equities if Sound Electronics negotiated it to a holder in due course without notice that it was used for a consumer purchase. Difficulty: 2 QuestionID: 14-2-30 Topic: Consumer Bills and Notes Skill: Applied Answer: E) Even if the promissory note was used for a consumer purchase, it may not be subject to the equities if Sound Electronics negotiated it to a holder in due course without notice that it was used for a consumer purchase. 31. Which of the following are most likely to be classified as types of negotiable instrument? A) promissory notes and share certificates B) cheques and cash C) bills of exchange and contracts of employment D) cheques and drivers licences E) promissory notes and airline tickets Difficulty: 3 QuestionID: 14-2-31 Topic: Types of Negotiable Instruments Skill: Recall Answer: A) promissory notes and share certificates 32. Which of the following represent types of endorsement that may be used in connection with negotiable instruments under the Bills of Exchange Act? A) special and confirming B) qualified and promissory C) identifying and restrictive D) general and relative E) conditional and wanton Difficulty: 1 QuestionID: 14-2-32 Topic: Identifying Endorsement, Restrictive Endorsement Skill: Recall 17 © 2023 Pearson Canada Inc.

Answer: C) identifying and restrictive 33. Which of the following defences may be used against a holder of a bill of exchange? A) set-off B) minority C) failure of consideration D) contributory negligence E) ultra vires Difficulty: 2 QuestionID: 14-2-33 Topic: Real Defences Skill: Recall Answer: B) minority 34. Which of the following concepts is not expressly addressed by the Bills of Exchange Act? A) countermand B) certification C) postdated D) accommodation E) drunkenness Difficulty: 3 QuestionID: 14-2-34 Topic: Certified Cheques Skill: Recall Answer: B) certification 35. Sylvain attempted to draft a cheque in payment of a stereo that he wanted to purchase. A court subsequently held that the cheque was invalid. That may be TRUE because A) Sylvain did not fill in the name of the payee. B) the cheque was postdated. C) Sylvain used a pencil rather than a pen. D) Sylvain wrote the name of a fictional person in the space allocated to the name of the payee. E) the amount was stated to be "a reasonable price for the stereo." Difficulty: 1 QuestionID: 14-2-35 Topic: Types of Negotiable Instruments Skill: Applied Answer: E) the amount was stated to be "a reasonable price for the stereo."

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36. Melinda is the holder in due course of a cheque drawn on Tyson's bank account. She therefore believes that she is entitled to receive payment from Tyson. Tyson, however, believes that he has a good defence to her claim. That will be TRUE if Tyson can prove the defence of A) minority B) drunkenness. C) non-delivery of a completed cheque. D) no authority. E) failure of consideration. Difficulty: 3 QuestionID: 14-2-36 Topic: Real Defences Skill: Applied Answer: A) minority 37. Alpha Corp appears to be the named payee of a cheque drawn by Ultimate Inc. Ultimate, however, insists that that piece of paper cannot possibly be treated as a valid cheque under the Bills of Exchange Act. That is TRUE if A) the instrument was certified before being delivered. B) the instrument had been materially altered after being drafted. C) the instrument is drawn on Lester, who is the major shareholder of ultimate. D) payment is to be made from an overdrawn account. E) the instrument is postdated. Difficulty: 2 QuestionID: 14-2-37 Topic: Cheques, Bills of Exchange Skill: Applied Answer: C) the instrument is drawn on Lester, who is the major shareholder of ultimate. 38. Hakim drafted a negotiable instrument and delivered it to Omega Ltd in payment of a debt. Before Omega actually received a monetary benefit, the instrument was formally accepted by another party. The instrument may be A) a postdated cheque. B) a cheque or a promissory note. C) a cheque that was drawn on an overdrawn account. D) a cheque for which the drawee bank placed an appropriate amount into a suspense account. E) a bill of exchange that is payable on demand. Difficulty: 2 QuestionID: 14-2-38 Topic: Bills of Exchange Skill: Applied

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Answer: E) a bill of exchange that is payable on demand. 39. Bamidele drafted a negotiable instrument and delivered it to Beta Inc in payment of a debt. That instrument contains an acceleration clause. This means that A) an enforceable obligation was created between the payee and the institution from whom payment is to be made. B) the payee must present the instrument to a third party before a certain date. C) the instrument will be worth one amount on or before a certain date, and a different amount after that same date. D) although the person who drafted the instrument intended to make payment in instalments, the payee may be entitled to demand the full amount in one payment if the acceleration clause condition is met. E) the instrument must be a bill of exchange. Difficulty: 2 QuestionID: 14-2-39 Topic: Promissory Note Skill: Applied Answer: D) although the person who drafted the instrument intended to make payment in instalments, the payee may be entitled to demand the full amount in one payment if the acceleration clause condition is met. 40. Stephania drafted a cheque that named Wilbur as the payee and the Bank of Alberta as the drawee. The cheque was certified. This must mean that A) certification was provided in response to Stephania's request. B) certification was provided in response to Wilbur's request. C) the cheque has already been dishonoured. D) the cheque has been endorsed by at least one person. E) the drawee believes that the drawer's account contains sufficient funds. Difficulty: 2 QuestionID: 14-2-40 Topic: Certified Cheques Skill: Applied Answer: E) the drawee believes that the drawer's account contains sufficient funds. 41. After buying a yacht for $1,200,000 using a cheque, Kyle has returned to the yacht dealership to demand a refund of $200,000 on the basis that he is not satisfied with the boat. Kyle argues that the yacht is really only worth $1,000,000 and that his liability on the cheque consequently was limited to that amount. Which of the following requirements of using a negotiable instrument did Kyle fail to consider? A) It must be signed and written. B) Both parties must be identified. C) There must be a certain sum of money. D) There must be a time of payment. E) There must be an unconditional obligation.

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Difficulty: 2 QuestionID: 14-2-41 Topic: Types of Negotiable Instruments Skill: Applied Answer: E) There must be an unconditional obligation. 42. On 12 January 2016 Rajiv wrote a cheque to Brett. That cheque was dated for 28 January 2016. Although Rajiv had plenty of funds in his account when he wrote the cheque, he spent virtually every cent he had during a ridiculous gambling spree in the summer of 2016. Brett, who was unaware of that fact, finally presented the cheque to the bank for payment on 29 November 2016. Given the state of Rajiv's account, however, the bank refused to honour the cheque. At that point, Rajiv's cheque can be characterized as being A) postdated, countermanded, and certified. B) certified, postdated, and staledated. C) staledated, overdrawn, and countermanded. D) postdated, staledated, and overdrawn. E) postdated, overdrawn, and certified. Difficulty: 3 QuestionID: 14-2-42 Topic: Postdated Cheques, Staledated Cheques, Overdrawn Cheques Skill: Applied Answer: D) postdated, staledated, and overdrawn. 43. Jacob Benito runs a business based in Norway that sells the steel used in hockey blades. Jacob sold $50,000 worth of steel to Wayne Lemieux of Canada on 8 August 2016. Using a bill of exchange, the two parties agreed that the $50,000 would not be due until 8 October 2016 and Wayne arranged for the payment to be made through his account at ABC Trust Company. Which of the following is true? A) Jacob is the payee, Wayne is the drawer, and ABC is the drawee. B) Jacob is the drawee, Wayne is the drawer, and ABC is the payee. C) Jacob is the drawee, Wayne is the payee, and ABC is the drawer. D) Jacob is the payee, Wayne is the drawee, and ABC is the drawer. E) Jacob is the payee, Wayne is the drawee, and ABC is the other payee. Difficulty: 2 QuestionID: 14-2-43 Topic: Bills of Exchange Skill: Applied Answer: A) Jacob is the payee, Wayne is the drawer, and ABC is the drawee. 44. Rod wanted to buy $25,000 worth of mandolins from Maggie, but there was a potential problem with payment. Although he did not have immediate access to the full price, Rod explained that he would be able to make monthly payments of $2,500 by re-selling the mandolins in his music shop. Maggie was 21 © 2023 Pearson Canada Inc.

inclined to accept those payment terms, but she was worried that if the economy experienced a downturn, Rod would find it difficult, month after month, to meet his obligations. The parties therefore agreed to a compromise: Rod would immediately deliver a negotiable instrument that entitled Maggie to (a) monthly payments of $2,500 plus interest, and (b) the full amount of the outstanding balance if Rod failed to make a monthly payment. That negotiable instrument can best be described as A) a bill of exchange with a lump sum clause. B) a certified cheque with balance in default clause. C) a bill of exchange with a fast-track clause. D) a promissory note with a notice of dishonor. E) a promissory note with an acceleration clause. Difficulty: 2 QuestionID: 14-2-44 Topic: Promissory Note Skill: Applied Answer: E) a promissory note with an acceleration clause. 45. Last October, Johnny Evers sold a gross of baseballs to Joe Tinker for $750. (Small items are often sold in a "gross." A "gross" is a dozen dozens, which is 144.) In payment for the baseballs, Tinker drew a negotiable instrument on his account at Wrigley's Bank and named Evers as the payee. On the same day that he sold the baseballs to Tinker, Evers purchased a ticket to a World Series game from Frank Chance for $750. In order to pay for that ticket, Evers turned over the negotiable instrument that he had received from Tinker, wrote the words "Pay to Frank Chance," and signed his name. At that point, the negotiable instrument most likely consisted of A) a promissory note with a transferring endorsement. B) a bill of exchange with a second-party endorsement. C) a cheque with a special endorsement. D) a cheque with a closed endorsement. E) an invalid cheque. Difficulty: 2 QuestionID: 14-2-45 Topic: Special Endorsement Skill: Applied Answer: C) a cheque with a special endorsement. Essay Questions 1. Although you agreed to sell a widget to me, you are concerned about actually receiving payment. Discuss the main advantages and disadvantages of receiving payment from me in the form of cash or a simple cheque. Difficulty: 2 QuestionID: 14-3-01 22 © 2023 Pearson Canada Inc.

Topic: Introduction Skill: Applied Answer: In many respects, cash is more desirable. A negotiable instrument merely represents the right to demand money from someone. And the value of that right depends upon the circumstances. If the drawer and the drawee of a cheque are impecunious, the cheque may not be worth the paper that it is written on. In contrast, cash is money. It does not merely represent a right to acquire some other form of value. Cash or money is the universal medium of exchange. It is value in itself. On the downside, however, because it is currency, money is more vulnerable to theft or destruction. If a cheque is lost or stolen, the drawer can countermand it and the payee can receive a replacement. In contrast, if money is lost or stolen, it is often impossible to secure any remedy because the thief or the source of the destruction will likely have disappeared. As already mentioned, a cheque is only as good as the rights that it represents. It can lead to the acquisition of value, but it is not value in itself. On the other hand, for that very same reason, it is usually safer. It is also usually more convenient. A cheque for $100,000 is more easily handled than $100,000 in cash. Furthermore, if you receive a cheque from me, you can more safely transfer it to another person or transport it to another place. 2. Identify and briefly explain three major differences between a negotiable instrument and a regular contract. Difficulty: 2 QuestionID: 14-3-02 Topic: Introduction Skill: Recall Answer: There are three main differences, each of which arises because of the desire to ensure that negotiable instruments can be used to easily and efficiently move wealth around the commercial world. Consideration: Like most contracts, a negotiable instrument is enforceable only if it is supported by consideration. However, the concept of consideration is unusually broad for a negotiable instrument. Generally speaking, a contract cannot be supported by a promise to perform a pre-existing obligation to the same contractual party. The same rule does not apply, however, to a negotiable instrument. Indeed, a negotiable instrument is usually created for the purpose of discharging an obligation created under another contract. For instance, if you sell a car to me, I may promise to pay $10,000 and you may promise to deliver the car to me. Your same promise can serve as consideration for the new contractual promise that I create when I draw a cheque in your favour. Privity: As a general rule, the only parties who can sue or be sued on a contract are the original parties to the agreement. The same requirement of privity does not apply to a negotiable instrument. An instrument generally can be enforced by any person to whom it is negotiated, even though that party was not connected to the original agreement. Assignment: As a general rule, contractual rights can be assigned. In that situation, however, the assignee acquires the assignor's contractual rights subject to the equities. In other words, the debtor can use against the assignee just about every defence or counterclaim that it could have used against the assignor. The same rule does not apply to a negotiable instrument. Indeed, a negotiable instrument is a valuable commodity in the 23 © 2023 Pearson Canada Inc.

commercial world largely because it can improve as it is transferred from one person to another. For instance, depending upon the circumstances, the current holder of a cheque may not be subject to the same defences or counterclaims that the drawer could have used against the payee. 3. Francine bought a widget from Simon. In payment of the purchase price, she gave him a cheque for $10,000 drawn on her account at the Bank of Waterloo. Because Francine's account was overdrawn, the bank dishonoured the cheque when Simon presented it for payment. Identify two grounds upon which Simon can sue Francine. Briefly explain which option is easier. Difficulty: 2 QuestionID: 14-3-03 Topic: Introduction Skill: Applied Answer: Two contracts exist between Francine and Simon. Francine is liable under the sales contract because she has not yet paid for the widget that she received from Simon. She is also liable under the contract represented by the cheque because that instrument was dishonoured. Because Francine and Simon are immediate parties, she could use the same defences and counterclaims in either event. Nevertheless, he would probably still sue on the cheque, rather than upon the sales contract directly, because it is easier to prove the existence of liability on a cheque. 4. The Bills of Exchange Act and the Sale of Goods Act both arose as codifications of judge-made rules. Furthermore, the original legislation in each case was intended to increase certainty and efficiency in the commercial world. There is, however, a major difference between the two statutes. One generally provides default rules that the parties are free to accept or reject. The other does not allow the parties to freely opt in and out of its sections. Which of the two statutes is less flexible and why? Difficulty: 3 QuestionID: 14-3-04 Topic: The Bills of Exchange Act Skill: Applied Answer: The Bills of Exchange Act is far less flexible (and far more complicated) than the Sale of Goods Act. The basic explanation for that difference stems from the fact that a sale of goods generally involves only the original parties to the sale agreement. Consequently, it usually is sufficient if the content of the contract is certain as between those two parties. Third parties usually are not concerned with the sales contract. In contrast, a negotiable instrument is intended to be negotiated (ie transferred by one of the original parties to a stranger to the original agreement). The whole point of a negotiable instrument is that it can be easily moved throughout the commercial world. That can happen only if strangers to the original agreement can immediately assess the value of an instrument simply by looking at it. It therefore is necessary to ensure that the entire story of a negotiable instrument clearly and uncontroversially appears on its face. The system could not work if, for instance, the original parties to a cheque agreed that the document meant something different than what it said and if that agreement could bind subsequent parties such as holders in due course. 5. Shauna drew a cheque on her account at the Bank of Whitehorse. That cheque passed through several people before Kyle acquired possession of it. Because Shauna's account was overdrawn, the Bank of 24 © 2023 Pearson Canada Inc.

Whitehorse dishonoured the cheque when Kyle presented it for payment. Kyle realizes that there is no point in suing Shauna because she simply does not have any money. Is there anyone else to whom Kyle can look for payment? Do you require any additional information in order to fully answer this question? Difficulty: 2 QuestionID: 14-3-05 Topic: Certified Cheques, Forms of Endorsement Skill: Applied Answer: Kyle probably cannot successfully sue the Bank of Whitehorse. Although he has rights against Shauna, as the drawer of the cheque, he does not seem to have any rights against the bank, as the drawee of the cheque. (Kyle does not have privity to the contract that was created between Shauna and the bank when she opened her account.) The situation would be different, however, if the cheque was certified. Certification is "something equivalent to money." As a result of certifying the cheque, the Bank of Whitehorse would have created a legal right that the holder of the cheque could use to demand payment. In that situation, Kyle could successfully sue the bank for the money. The facts indicate that the cheque passed through several other people before Kyle acquired it. Kyle may be able to successfully sue those people. His ability to do so would depend upon whether or not any of those people endorsed the cheque. (They probably would not have done so if the cheque was in bearer form at all times.) As a general rule, an endorser is liable to pay the amount of a dishonoured cheque. There are, however, exceptions to that rule. Some types of endorsement (eg an identifying endorsement) may not create liability. Furthermore, Kyle probably would be entitled to sue the endorsers only if he provided them with timely notice of dishonour. 6. Jordan bought a widget from Sara. He paid the purchase price of $25,000 by giving her a cheque drawn upon his account at the Bank of Saskatoon. The facts involve three contracts. Identify those contracts and briefly explain the rights that each involves. Difficulty: 2 QuestionID: 14-3-06 Topic: Introduction, Cheques Skill: Applied Answer: First, Sara and Jordan have a sales contract. She is required to transfer a widget to him and he is required to pay the price of $25,000. Second, Jordan created a second contract with Sara when he named her as payee of a cheque that he drew. That contract once again requires Jordan to pay $25,000 to Sara. In exchange, Sara relies on her pre-existing contractual obligation to transfer the widget to him. Finally, Jordan has a contract with the Bank of Saskatoon that is represented by his chequing account. When he opened that account, he entered into a contract with the bank. He provided money to the bank. In exchange, the bank promised to honour any cheques that he drew upon his account (assuming that his account was not overdrawn, his cheque was regular on its face, and so on).

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7. Briefly compare and contrast a postdated cheque and a staledated cheque. Can a cheque ever become both postdated and staledated? Difficulty: 1 QuestionID: 14-3-07 Topic: Postdated Cheques, Staledated Cheques Skill: Recall Answer: A postdated cheque is a cheque that bears a date that is later than the date upon which it is actually created. For example, a person who rents an apartment for one year may on January 1 give the landlord a series of cheques that are dated January 1, February 1, March 1, and so on. Although the landlord would get immediate possession of all 12 cheques, it could not cash a particular cheque until the relevant due date. A staledated cheque, in contrast, is a cheque that is presented for payment well after the date that appears on its face. As a general rule, a bank will not honour a cheque that is presented for payment more than six months after its due date. A cheque can become both postdated and staledated. That would be true, for instance, if the landlord in the previous example waited until November 1 before seeking payment on the cheque that was dated February 1. 8. Krystyne bought a widget from Ryan. As payment, she gave him a cheque for $10 000 that was drawn on her account at the Bank of Windsor. Because she discovered that the widget was defective, Krystyne countermanded her cheque before Ryan presented it for payment. Due to a clerical error, the bank nevertheless honoured the cheque and paid $10,000 to Ryan. Is the bank entitled to debit Krystyne's account? Do you have enough information to answer that question? Difficulty: 3 QuestionID: 14-3-08 Topic: Countermanded Cheques Skill: Applied Answer: As a general rule, a bank is entitled to debit a customer's account only if it has the customer's authorization. Krystyne created such authority when she drew the cheque in Ryan's favour. However, she subsequently revoked that authority when she countermanded the cheque before Ryan presented it for payment. Presumptively, then, the Bank of Windsor is not entitled to debit her account. Very often, however, the standard form contract created between the customer and the bank contains a provision that allows the bank to debit the customer's account if a cheque is honoured in contravention of a stop payment order, even if the bank makes the mistake. It therefore would be necessary to determine whether or not such a clause appears in the contract that Krystyne signed when she opened her chequing account at the Bank of Windsor. 9. Dina drew a cheque on her account at the Bank of Brockville and named Gary as the payee. What process could be used to make the cheque into "something equivalent to money"? Explain the nature and effect of that process.

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Difficulty: 2 QuestionID: 14-3-09 Topic: Certified Cheques Skill: Applied Answer: When a cheque is created, the drawee bank owes a contractual obligation to obey the drawer's instructions. However, the drawee bank does not owe any obligations at all to the payee. Consequently, the payee cannot sue the drawee bank for refusing to honour the cheque when it is presented for payment. However, a cheque can be made into "something equivalent to payment" through the process of certification. Certification occurs when, at the request of either the drawer or the payee (or holder), the drawee bank certifies the cheque by promising that it will be honoured when it is presented for payment. The actual process of certification sees the drawee bank immediately remove funds from the drawer's account and place them in a suspense account. The front of the cheque is then stamped with the date and the word "certified." Once a cheque is certified, the drawee bank incurs an obligation to honour it upon presentation. It therefore can be sued by the payee if it subsequently refuses to do so. That is true even if the cheque was certified in the mistaken belief that the drawer's account was not overdrawn, and even if the drawer subsequently attempts to countermand the cheque. 10. You are the manager of the York Trust Company. Nadia, one of the company's customers, has drawn a bill of exchange upon her account with the company. That bill is for $50 000 and it names Seth as the payee. The bill is due on August 31. On June 1, Seth appears at your office seeking acceptance of the bill. Describe the process and effect of acceptance. As a matter of risk management, what special precaution should you exercise if you decide to accept the bill on behalf of the trust company? Difficulty: 2 QuestionID: 14-3-10 Topic: Bills of Exchange Skill: Applied Answer: The process of acceptance of a bill is similar to the process of certification of a cheque. Before acceptance, Seth has rights against Nadia, but not against the York Trust Company. Consequently, if the bill is dishonoured, Seth could sue Nadia, but not the company. By accepting the bill, the trust company gives its enforceable promise to Seth that the bill will be honoured when it is presented for payment. Consequently, if the bill is subsequently dishonoured, Seth can sue both Nadia and the York Trust Company. The process of acceptance requires the drawee (or its representative) to write its signature on the face of the bill. It is also common for the drawee to write the word "accepted" on the bill. If you decide to accept the bill on behalf of the York Trust Company, you should carefully indicate that you are accepting on behalf of the company. If you simply write you signature and the word "accepted," you can be held personally liable as the acceptor.

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You must also make sure that Nadia has the funds to honour the bill of exchange when it is due and presented for payment. 11. What is the difference between a demand draft, a sight draft, and a time draft? Difficulty: 2 QuestionID: 14-3-11 Topic: Bills of Exchange Skill: Recall Answer: A demand draft is an instrument that is payable on demand. The drawee is required to make payment as soon as the payee (or holder) presents the instrument. A sight draft is like a demand draft except that the payee is not entitled to receive payment from the drawee until three days after the instrument is presented for payment. A time draft is an instrument that is payable on a specified date in the future. 12. What is an "acceleration clause"? When and why is such a clause inserted into a negotiable instrument? Difficulty: 1 QuestionID: 14-3-12 Topic: Promissory Note Skill: Recall Answer: An acceleration clause is often inserted into a promissory note. A promissory note is frequently used to allow the debtor to make payments over time in instalments. For instance, a note for $100 000 may entitle the payee to receive $10,000 per month for 10 consecutive months beginning on January 1. The payee's right to any particular payment generally arises only when that particular payment falls due. Consequently, if the maker of the note fails to pay the first installment, the payee could sue for $10,000 on January 1. It would then have to wait until February 1 to see if the maker would also default on that payment. Very often, however, default on a single payment clearly indicates that default will occur with respect to future payments as well. An acceleration clause therefore is used to allow the payee to accelerate the full payment of the debt. 13. Identify two types of endorsements that may be used by a person who is not the holder of a negotiable instrument. Provide an example of each. Difficulty: 2 QuestionID: 14-3-13 Topic: Identifying Endorsement, Accommodation Endorsement Skill: Recall Answer: An identifying endorsement is used to simply identify one party. Suppose that Mary Hartman holds a cheque that she wants to negotiate to Barth Gimble. Barth is reluctant to accept a negotiated cheque from Mary because he is not convinced that she is who she says she is. Perhaps he suspects that the woman in front of him 28 © 2023 Pearson Canada Inc.

is really a con artist. Barth does, however, know and trust you. You therefore might vouch for Mary's identity by adding an identifying endorsement. In effect, you are saying that you will assume liability if, but only if, Mary is not who she purports to be. An accommodation endorsement is similar in the sense that it also is used to help another party negotiate an instrument. Suppose that Louise Konigsberg holds a cheque that she wants to negotiate to Martin. Martin is reluctant to accept a negotiated cheque from Louise because, while he personally knows her, he is not sure that she has sufficient resources to honour her potential obligations as an endorser. Martin does, however, know that you have more than sufficient resources. You therefore might endorse the instrument that Louise wants to negotiate to Martin by signing your name and writing the following phrase on the back of the cheque: "Guarantor for L Konigsberg." In effect, you have promised to discharge Louise's debt if she fails to do so. 14. Chris fraudulently induced Lucianna into drawing a cheque for $10,000. Chris then negotiated the cheque to Kenneth, who is a holder in due course. Is Kenneth entitled to receive payment on the cheque? Do you need any more information before answering that question? Explain your answer. Difficulty: 3 QuestionID: 14-3-14 Topic: Defect in Title Defences, Real Defences Skill: Applied Answer: Depending upon the circumstances, fraud may be either a defect in title defence or a real defence. A defect in title defence arises if an instrument is improperly obtained. A real defence arises if there is something fundamentally wrong with the instrument itself. A defect in title defence would arise in this case if Lucianna knew that she was drawing a cheque, but was deceived as to some detail (eg the name of the payee). In contrast, a real defence would arise in this case if the deception was such that Lucianna did not even realize that she was creating a cheque (eg because, under the concept of non est factum, she was blind and she thought she was signing some other type of document). Kenneth is a holder in due course. Consequently, he can be defeated by a real defence, but not by a defect in title defence. 15. Milosz is the holder in due course of a cheque that has been negotiated several times. Identify a situation in which he may be subject to the equities if he seeks to enforce the instrument against the drawer. Difficulty: 3 QuestionID: 14-3-15 Topic: Consumer Bills and Notes Skill: Applied Answer: A holder in due course normally can be defeated only by a real defence. An exception to that rule exists, however, in the case of a consumer bill that is marked as such on its face. A consumer instrument arises if certain requirements are met: - a person buys goods or services for personal, rather than business, purposes 29 © 2023 Pearson Canada Inc.

- the goods or services are purchased from a business - the goods or services are purchased on credit (which means that the negotiable instrument must be either a promissory note or a bill or cheque that is postdated at least 31 days) In that situation, the seller is required to mark the instrument as a consumer instrument. Such an instrument is subject to the equities, even if it comes into the possession of a holder in due course. The provisions in the Bills of Exchange Act were introduced to protect consumers from unscrupulous businesses that would sell defective goods or services, and then negotiate the purchaser's cheque, note or bill to a holder in due course. The purchaser would therefore be required to pay the full amount of the instrument to the holder in due course and hope to acquire relief from the original vendor. That vendor, of course, was often a fly-by-night operator who had long-since disappeared.

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Managing the Law, 6e (McInnes) Chapter 15: Property in Land: Interests and Leases True/False Questions 1. Rio bought a piece of land from Bill. Although she now owns that property, the doctrine of privity of contract means that Bill is the only person against whom she can enforce her property rights. a True b False Difficulty: 1 QuestionID: 15-1-01 Topic: Interests in Land Skill: Applied Answer: b. False 2. The right of expropriation allows the government, for emergency purposes only, to take a piece of land from a person without payment. a True b False Difficulty: 2 QuestionID: 15-1-02 Topic: Fee Simple Skill: Recall Answer: b. False 3. Dulcy has an estate in a piece of land called Blackacre. She currently has the exclusive right to occupy Blackacre. That does not necessarily mean that she is the holder of a fee simple. a True b False Difficulty: 2 QuestionID: 15-1-03 Topic: Estates in Land Skill: Applied Answer: a. True 4. Malia owns the fee simple in a piece of land called Blackacre. She wants to create a life estate in favour of Gordon. However, she also wants to ensure that the duration of that life estate is measured by her own life rather than Gordon's life. She is entitled to do so. a True b False 1 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 15-1-04 Topic: Life Estate Skill: Applied Answer: a. True 5. Selina owned a large piece of land called Blackacre. She sold the west half to Arvid and the east half to Geoff. Geoff and Arvid therefore share ownership of Blackacre as either joint tenants or co-tenants. a True b False Difficulty: 2 QuestionID: 15-1-05 Topic: Shared Ownership Skill: Applied Answer: b. False 6. Téa and David are co-tenants of Blackacre. There are no other co-tenants. Blackacre has been leased to the Bland Corp for $50,000. That profit does not necessarily have to be split equally between Téa and David. a True b False Difficulty: 3 QuestionID: 15-1-06 Topic: Shared Ownership Skill: Applied Answer: a. True 7. As a general rule, the common areas in a condominium complex are held under co-tenancy, rather than joint tenancy, by all of the owners of the individual units. a True b False Difficulty: 2 QuestionID: 15-1-07 Topic: Condominiums Skill: Recall Answer: a. True 8. In the context of an easement or a restrictive covenant, the servient tenement is the property that is 2 © 2023 Pearson Canada Inc.

beneficially served by the easement or restrictive covenant. a True b False Difficulty: 2 QuestionID: 15-1-08 Topic: Easements, Restrictive Covenants Skill: Recall Answer: b. False 9. One difference between an easement and a licence is that an easement must be an interest in land, while a license is not an interest in land. a True b False Difficulty: 2 QuestionID: 15-1-09 Topic: Easements Skill: Recall Answer: a. True 10. There is an important similarity between a mineral lease and a profit à prendre. In neither case does the person who holds the interest have an automatic right to the subject matter of the interest (such as the minerals in a mineral lease). a True b False Difficulty: 1 QuestionID: 15-1-10 Topic: Mineral Leases, Profit áPrendre Skill: Recall Answer: a. True 11. Kiana owned the fee simple in a piece of land called Blackacre. She entered into an agreement to create a lease with Brian that was to last for "99 years or until I get married." That lease satisfies the requirement regarding the duration of a lease. a True b False Difficulty: 2 QuestionID: 15-1-11 Topic: Duration Skill: Applied 3 © 2023 Pearson Canada Inc.

Answer: a. True 12. A sublease does not have to contain exactly the same terms as the head lease. a True b False Difficulty: 1 QuestionID: 15-1-12 Topic: Assignments and Subleases Skill: Recall Answer: a. True 13. Sofia owned the fee simple in a piece of land called Blackacre. She purported to create a contract for a commercial lease in favour of Roman. That agreement said that Roman was required to pay a "reasonable amount" in rent. A lease has not actually been created because the price must be stated with more precision. a True b False Difficulty: 2 QuestionID: 15-1-13 Topic: Standard Covenants Skill: Applied Answer: b. False 14. Aaliyah owned a piece of land that she rented to Rudy under a commercial lease. Because Rudy consistently failed to pay the rent, Aaliyah exercised the right of distress. That means that she placed Rudy under pressure, or "in distress," by changing the locks on the premises as a way of encouraging him to pay the rent. a True b False Difficulty: 2 QuestionID: 15-1-14 Topic: Remedies Skill: Applied Answer: b. False 15. Although the right of distress is often important in commercial leases, it generally is not available under residential tenancies. a True b False 4 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 15-1-15 Topic: Residential Leases Skill: Recall Answer: a. True 16. The most significant feature of a joint tenancy is the right to survivorship. a True b False Difficulty: 1 QuestionID: 15-1-16 Topic: Shared ownership Skill: Recall Answer: a. True Multiple Choice Questions 1. Land is called "real" property A) because it is impossible to fake the existence of land. B) after the word "res," which means "thing" in Latin. C) because the usual remedy for a trespass to land is compensation, which provides the plaintiff with an effective remedy. D) after the word "reus," which means "action" in Latin. E) after the word "real," which means "royal" in Latin. Difficulty: 3 QuestionID: 15-2-01 Topic: Introduction Skill: Recall Answer: B) after the word "res," which means "thing" in Latin. 2. The "giant carrot theory" is used to describe A) the fact that the owner of a piece of land is entitled to any profits made on that land. B) the fact that a person who owns a profit à prendre is allowed to harvest natural products from a piece of land. C) a theory that is used in civil law systems, such as Quebec, but that has never been recognized in the common law. D) the manner in which profits are divided between co-tenants. E) the fact that, in theory, a person who owns a piece of land has rights from the centre of the Earth and up through the heavens.

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Difficulty: 2 QuestionID: 15-2-02 Topic: Introduction Skill: Recall Answer: E) the fact that, in theory, a person who owns a piece of land has rights from the centre of the Earth and up through the heavens. 3. Benjiro has an "estate" in a piece of land called Blackacre. As described in the text, that term indicates that he A) inherited Blackacre from his father. B) has the right to determine who will acquire the property after he dies. C) enjoys the right to exclusive possession for some period of time. D) is a lawyer. E) must hold the reversionary interest in connection with a life estate. Difficulty: 2 QuestionID: 15-2-03 Topic: Estates in Land Skill: Applied Answer: C) enjoys the right to exclusive possession for some period of time. 4. Midori has an "estate" in a piece of land called Blackacre. As described in the text, that term indicates that she A) may have either a fee simple or a life estate, but not a lease. B) may have a fee simple but not a life estate or a lease. C) may have a life estate, a reversion, or a remainder, but not a fee simple. D) may have a fee simple, a life estate, or a lease. E) acquired Blackacre through a contract of purchase and sale. Difficulty: 2 QuestionID: 15-2-04 Topic: Estates in Land Skill: Applied Answer: D) may have a fee simple, a life estate, or a lease. 5. Akhenaten has the fee simple in a piece of land called Blackacre. This means that he A) is, in a technical sense, the absolute owner of the property. B) acquired Blackacre directly from the government through a Crown grant. C) paid sufficient consideration when he purchased Blackacre. D) is entitled to occupy Blackacre even if he creates a life estate in favour of someone else. E) is entitled to possess it for an indefinite time. Difficulty: 3 6 © 2023 Pearson Canada Inc.

QuestionID: 15-2-05 Topic: Fee Simple Skill: Applied Answer: E) is entitled to possess it for an indefinite time. 6. Ashoka has the fee simple in a piece of land called Blackacre. Blackacre is about to be expropriated. This means that A) Ashoka has voluntarily agreed to sell his land to his neighbour. B) Ashoka has died, leaving a will that gives Blackacre to his eldest son. C) the government will take Blackacre from Ashoka in exchange for the payment of a fair price. D) Ashoka is about to renovate the buildings that are located on Blackacre. E) Ashoka is about to legally divide Blackacre into two separate properties, probably for the purpose of commercially developing them. Difficulty: 1 QuestionID: 15-2-06 Topic: Fee Simple Skill: Applied Answer: C) the government will take Blackacre from Ashoka in exchange for the payment of a fair price. 7. Bhagiratha has the fee simple in a piece of land called Blackacre. She is about to create two new interests in that property. Gallahad will receive a life estate. Adeline will receive the remainder. Which of the following statements is TRUE? A) The doctrine of waste will impose an onerous obligation on Adeline. B) Bhagiratha will eventually receive the reversion. C) Adeline will never receive possession of Blackacre if Bhagiratha dies before Gallahad. D) Gallahad will receive an estate in Blackacre. E) Adeline and Gallahad must be related. Difficulty: 2 QuestionID: 15-2-07 Topic: Life Estate Skill: Applied Answer: D) Gallahad will receive an estate in Blackacre. 8. Which of the following statements is TRUE with respect to "reversions" and "remainders," as those terms were discussed in the text? A) The doctrine of waste imposes an obligation on a person who has either a reversion or a remainder. B) A remainder is used only if one life estate is followed by another life estate. C) If a life estate is followed by a reversion, the right to sue for waste belongs to the person who created the life estate. D) Reversions and remainders are far more common in a business context than in a family context. E) A reversionary interest exists only if a person has paid to buy back a piece of land that he or she 7 © 2023 Pearson Canada Inc.

previously sold. Difficulty: 1 QuestionID: 15-2-08 Topic: Life Estate Skill: Recall Answer: C) If a life estate is followed by a reversion, the right to sue for waste belongs to the person who created the life estate. 9. Qadir has the fee simple to a piece of land called Blackacre. Patricia wants to acquire an interest in that property. Which of the following statements is TRUE? A) Patricia's interest in Blackacre necessarily will last for a shorter period of time if she acquires a lease rather than the fee simple. B) Patricia's interest in Blackacre necessarily will last for a shorter period of time if she acquires a lease rather than a life estate. C) Patricia's interest in Blackacre necessarily will last for a shorter period of time if she acquires a life estate rather than a lease. D) At least initially, Qadir will retain an interest in Blackacre if Patricia receives a lease or a life estate, but not if she receives the fee simple. E) At least initially, Qadir will be liable for waste if Patricia receives a lease of a life estate, but not if she receives the fee simple. Difficulty: 2 QuestionID: 15-2-09 Topic: Life Estate, Lease Skill: Applied Answer: D) At least initially, Qadir will retain an interest in Blackacre if Patricia receives a lease or a life estate, but not if she receives the fee simple. 10. Jamilah and Corbin share ownership of a piece of land called Blackacre. A profit of $5,000 was obtained when blueberries were harvested from Blackacre. Which of the following statements is TRUE? A) If Jamilah and Corbin are joint tenants, they must each receive $2,500 from the blueberry harvest. B) If Jamilah and Corbin are co-tenants, they must each receive $2,500 from the blueberry harvest. C) Even if Jamilah and Corbin are joint tenants, one of them may have the exclusive right to $5000 from the blueberry harvest. D) Unless there is a contract to the contrary, the $5,000 profit from the blueberry harvest belongs to the person from whom Jamilah and Corbin acquired their interests in Blackacre. E) The profits from the blueberry harvest belong to either Jamilah or Corbin, depending upon which party individually owned the section of Blackacre that contained the blueberry patch. Difficulty: 3 QuestionID: 15-2-10 Topic: Shared Ownership Skill: Applied 8 © 2023 Pearson Canada Inc.

Answer: C) Even if Jamilah and Corbin are joint tenants, one of them may have the exclusive right to $5000 from the blueberry harvest. 11. Chinthaka, Karissa, and Dora are "joint tenants" of a piece of land called Blackacre. As explained in the text, that must mean that A) they each pay an equal amount of rent to their landlord. B) they have a right of survivorship. C) if Karissa dies first, her interest will be acquired by either Chinthaka or Dora, depending upon which party is named in Karissa's will. D) they are all related. E) each person has the right to exclude the other two from at least one section of Blackacre. Difficulty: 2 QuestionID: 15-2-11 Topic: Shared Ownership Skill: Applied Answer: B) they have a right of survivorship. 12. Jaron and Golda plan to acquire shared ownership in a piece of land called Blackacre. Which of the following statements is TRUE? A) They should entirely avoid shared ownership if they are opposed to the concept of survivorship. B) They can be joint tenants even if they acquire individual ownership over separate halves of Blackacre. C) They may be tenants in common even if Jaron receives a 75 percent undivided share in Blackacre. D) They should probably acquire Blackacre as joint tenants if they intend to use it for business purposes. E) If they become joint tenants, they cannot later decide to become co-tenants instead. Difficulty: 2 QuestionID: 15-2-12 Topic: Shared Ownership Skill: Applied Answer: C) They may be tenants in common even if Jaron receives a 75 percent undivided share in Blackacre. 13. Itzhak and Eleni are joint tenants of a piece of land called Blackacre. Which of the following statements is TRUE? A) If Itzhak and Eleni grant a lease to Damian, then he will join them in a joint tenancy. B) Although their shares are undivided, Itzhak may own a 60 percent interest in the joint tenancy. C) If Eleni sells half of her interest to Eduardo, then there will be a joint tenancy between Eleni and Eduardo, but a tenancy in common between Eduardo, Eleni, and Itzhak. D) If Itzhak dies and his widow inherits his interest in Blackacre, then Eleni and the widow will own the property as joint tenants. E) If Itzhak sells his interest to Rosie, Rosie and Eleni will be co-tenants of Blackacre. Difficulty: 3 9 © 2023 Pearson Canada Inc.

QuestionID: 15-2-13 Topic: Shared Ownership Skill: Applied Answer: E) If Itzhak sells his interest to Rosie, Rosie and Eleni will be co-tenants of Blackacre. 14. Which of the following statements is TRUE with respect to a condominium? A) The word "condominium" is derived from two Latin words meaning "tricked" ("con") and "control" ("dominium"), because the member of a condominium complex appears to own more than they really do. B) The various areas contained in a condominium complex are usually split between life estates and common tenancies. C) The individual units in a condominium complex are owned by the condominium corporation. D) The expenses associated with running a condominium complex are funded by an assessment on the owners of the units that is imposed by the condominium corporation. E) In most jurisdictions, the individual units within a condominium complex must be used for residential purposes. Difficulty: 2 QuestionID: 15-2-14 Topic: Condominiums Skill: Recall Answer: D) The expenses associated with running a condominium complex are funded by an assessment on the owners of the units that is imposed by the condominium corporation. 15. Angus and Kirsty have some form of ownership in separate units within a condominium complex. Which of the following statements is TRUE? A) The concept of "flying fees" describes the fact that Angus and Kirsty must contribute to a fund that is used by their condominium corporation. B) Angus and Kirsty must be joint tenants, along with the owners of the other condominium units. C) Angus and Kirsty must live in a building that is at least five stories high. D) Angus and Kirsty can vote for directors for the condominium corporation only if they buy separate shares in that corporation. E) Angus and Kirsty may both be joint tenants with other people. Difficulty: 2 QuestionID: 15-2-15 Topic: Condominiums Skill: Applied Answer: E) Angus and Kirsty may both be joint tenants with other people. 16. Ganesh and Madonna own neighbouring pieces of land. One of those parties owns Blackacre and the other owns Whiteacre. Ganesh has a property interest that allows him to drain his reservoir into Madonna's field once a year and prohibits Madonna from erecting any impediment to the drainage ditch. 10 © 2023 Pearson Canada Inc.

Which of the following statements must be TRUE? A) Ganesh probably enjoys the benefit of a restrictive covenant. B) Ganesh must have personally paid for the right to drain his reservoir into Madonna's field. C) Madonna has granted a lease to Ganesh. D) If Whiteacre is the servient tenement, then it must belong to Madonna. E) Madonna has granted a licence to Ganesh. Difficulty: 3 QuestionID: 15-2-16 Topic: Easements Skill: Applied Answer: D) If Whiteacre is the servient tenement, then it must belong to Madonna. 17. Bogdan has the fee simple in a piece of land called Blackacre, which is located in a remote forest. He has not visited it in nearly 25 years. Tina claims that she has acquired a property interest in Blackacre as a result of the process of "prescription." Louise claims that she has acquired a property interest in Blackacre as a result of the process of "adverse possession." Which of the following statements is TRUE, assuming that the terms "prescription" and "adverse possession" are used in the same sense that they appear in the text? A) Tina claims that she is entitled to a restrictive covenant. B) Tina claims that she is entitled to an estate. C) Louise claims that she is entitled to an easement. D) Louise claims that she is entitled to an estate. E) Louise's claim is valid only if she previously held a lease over Blackacre. Difficulty: 3 QuestionID: 15-2-17 Topic: Easements Skill: Applied Answer: D) Louise claims that she is entitled to an estate. 18. Which of the following statements is TRUE? A) An easement and a licence are both non-possessory interests in land. B) A restrictive covenant is a non-possessory interest in land. C) An easement and a restrictive covenant are possessory interests in land, but a licence is not. D) An easement is a non-possessory interest in land, but a profit à prendre is not. E) An easement, a licence, and a restrictive covenant all require the existence of dominant and servient tenements. Difficulty: 2 QuestionID: 15-2-18 Topic: Restrictive Covenant Skill: Recall

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Answer: B) A restrictive covenant is a non-possessory interest in land. 19. Ace and Loretta were neighbours. He owned Blackacre and she owned Whiteacre. They purportedly created a restrictive covenant under which she promised that she would not build a pool in her backyard, and that she would prune her trees on an annual basis. Loretta sold Whiteacre to Moira. Moira wants to build a pool in her backyard and she refuses to prune her trees. Which of the following statements is TRUE? A) Because a restrictive covenant runs with the land, Moira cannot build a pool and must prune her trees. B) Moira is bound by the restrictive covenant, at least in part, even if she did not have any way of knowing about it when she bought Whiteacre from Loretta. C) Moira may be prohibited from building a pool, but she cannot be required to prune her trees. D) Ace cannot possibly enforce the restrictive covenant against Moira because she was not a party to the contract that created the restrictive covenant. E) Ace can enforce the restrictive covenant against Moira only if he provided consideration to her after she purchased Whiteacre from Loretta. Difficulty: 2 QuestionID: 15-2-19 Topic: Restrictive Covenant Skill: Applied Answer: C) Moira may be prohibited from building a pool, but she cannot be required to prune her trees. 20. Janet and Tad were neighbours. She owned Whiteacre and he owned Blackacre. They created a restrictive covenant that prohibited Tad from building a fence around his property. Janet gave Whiteacre to Helene as a gift. Tad gave Blackacre to Bentley as a gift. Which of the following statements is TRUE? A) Bentley can be prohibited from building a fence around Blackacre only if he knew of the restrictive covenant when he acquired Blackacre. B) Helene can enforce the restrictive covenant as long as she knew of the restrictive covenant when she acquired Whiteacre. C) The restrictive covenant is valid only if it was notarized by a member of the law society. D) There is no possibility of enforcement because a restrictive covenant must deal with benefits rather than burdens. E) When the restrictive covenant was created, Janet owned the dominant tenement and Tad owned the servient tenement. Difficulty: 2 QuestionID: 15-2-20 Topic: Restrictive Covenant Skill: Applied Answer: E) When the restrictive covenant was created, Janet owned the dominant tenement and Tad owned the servient tenement. 21. Teppo has the fee simple to a piece of land called Blackacre. Laila has a mineral lease that allows her 12 © 2023 Pearson Canada Inc.

to extract oil from beneath Blackacre. Which of the following statements is TRUE? A) Since the courts no longer apply the "giant carrot theory," Laila did not really need a lease in order to legally extract oil from beneath Blackacre. B) Laila probably acquired her lease from the Crown. C) Teppo can prevent Laila from extracting oil from beneath Blackacre unless he already held the fee simple when she first acquired her lease. D) Laila owns the oil in question even if she has not yet built an oil well. E) A mineral lease cannot apply to oil, which is not a mineral. Difficulty: 2 QuestionID: 15-2-21 Topic: Mineral Leases Skill: Applied Answer: B) Laila probably acquired her lease from the Crown. 22. Pedrag has the fee simple in a piece of property called Blackacre. Trish acquired a profit à prendre with respect to the annual crop of canola that grows on Blackacre. That interest will last for five years. Which of the following statements is TRUE? A) The term "profit à prendre" is derived from words that mean "profit from" ("profit à") and "hard work" ("prendre") in French. B) Trish almost certainly acquired her interest from the Crown, rather than Pedrag. C) A profit à prendre is a type of mineral lease. D) Trish owns the canola crop that grows every year, even before she actually harvests it. E) Trish may hold the profit à prendre even if she does not have title to a dominant tenement. Difficulty: 2 QuestionID: 15-2-22 Topic: Mineral Leases Skill: Applied Answer: E) Trish may hold the profit à prendre even if she does not have title to a dominant tenement. 23. Bart leased a piece of land called Blackacre to Aida for two years. Which of the following statements is TRUE? A) Bart and Aida both have estates in Blackacre. B) Aida is the landlord. C) Aida has a non-possessory interest in Blackacre. D) The lease is void unless it is evidenced in writing. E) Bart must have the fee simple in Blackacre. Difficulty: 1 QuestionID: 15-2-23 Topic: Fee Simple, Leases Skill: Applied

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Answer: A) Bart and Aida both have estates in Blackacre. 24. Kuan-yin rented a commercial property to Roger for one month. Which of the following statements is TRUE? A) The lease may be for either a fixed term or an indefinite duration. B) Roger may be liable to pay rent even if the lease did not specify the monthly price. C) If the lease is a periodic tenancy, it will expire at the end of one month unless either Kuan-yin or Roger provides notice to renew. D) The parties must set the minimum term of the lease, but they may leave the maximum term open-ended. E) If the lease is a fixed-term tenancy, it will automatically be renewed at the end of one month unless either Kuan-yin or Roger provides notice to quit. Difficulty: 2 QuestionID: 15-2-24 Topic: Standard Covenants Skill: Applied Answer: B) Roger may be liable to pay rent even if the lease did not specify the monthly price. 25. Darius rented a commercial building to Kylie under a monthly periodic tenancy. The lease took effect on June 1. As soon as Kylie took possession of the building on that day, she realized that she would be happier elsewhere. Consequently, she gave notice to quit on June 1. Assuming that the general rules apply, which of the following statements is TRUE? A) Kylie must pay rent for June and July. B) If Kylie stays in the premises during July, she will be a trespasser. C) If Kylie stays in the premises for June, she will do so under a tenancy at sufferance. D) Kylie has breached the contract and Darius therefore has the right to evict her immediately. E) Kylie merely has to provide one week's notice to quit. Difficulty: 3 QuestionID: 15-2-25 Topic: Duration Skill: Applied Answer: A) Kylie must pay rent for June and July. 26. Which of the following statements is TRUE? A) A tenancy at will usually has a fixed duration of one month. B) A tenancy at sufferance does not require a contractual agreement of any sort between the parties. C) The usual notice period for a tenancy at sufferance is one week. D) A specific amount of money, technically known as "rent," must be paid under every type of lease, including a periodic tenancy, a tenancy at will, and a tenancy at sufferance. E) If land is subject to a life estate, then a lease may be granted by the person who owns the remainder or the reversion, but not the person who owns the life estate itself. Difficulty: 2 14 © 2023 Pearson Canada Inc.

QuestionID: 15-2-26 Topic: Duration Skill: Recall Answer: B) A tenancy at sufferance does not require a contractual agreement of any sort between the parties. 27. Ansell rented a commercial property to Eleanor for a five-year term. After two years, she decided that she no longer needed the premises. Her friend, Kiki, however, is eager to use the premises for three years. Which of the following statements is TRUE? A) If the lease is assigned, Eleanor may still be liable to Ansell if Kiki does not pay the rent. B) If a sublease is created, Eleanor's obligations to Ansell will be automatically terminated. C) If the lease does not address the issue of assignment, then Ansell has the right to prevent Eleanor from assigning her interest to Kiki. D) If Eleanor wants to use the premises during the fifth year of the lease, she can assign her rights pertaining to the third and fourth years to Kiki. E) Because the relevant period is three years or less, Ansell cannot prevent an assignment even if the original lease requires the landlord's permission for an assignment. Difficulty: 2 QuestionID: 15-2-27 Topic: Assignments and Subleases Skill: Applied Answer: A) If the lease is assigned, Eleanor may still be liable to Ansell if Kiki does not pay the rent. 28. Which of the following statements is TRUE? A) A commercial lease is always granted to a corporation and a residential lease is always granted to an individual. B) If the duration of a lease is three years or less, the parties must set a specific rent at the outset, and that amount cannot be altered during the term of the lease. C) The covenant for quiet possession may apply even if both parties are deaf. D) The right of distress is used more often for residential leases than for commercial leases. E) If a residential tenant commits a breach of contract, the landlord is not expected to mitigate its losses. Difficulty: 1 QuestionID: 15-2-28 Topic: Standard Covenants Skill: Recall Answer: C) The covenant for quiet possession may apply even if both parties are deaf. 29. Which of the following statements is TRUE? A) The common law refuses to recognize non-possessory interests in land. B) True property rights can only be acquired through contract. C) Land cannot be expropriated if it is subject to a fee simple. D) A fixed-term tenancy can be terminated only through a notice to quit. 15 © 2023 Pearson Canada Inc.

E) As a general rule, a person who holds a life estate has no obligation to spend money to keep the property in good condition but has an obligation to prevent waste. Difficulty: 2 QuestionID: 15-2-29 Topic: Life Estate Skill: Recall Answer: E) As a general rule, a person who holds a life estate has no obligation to spend money to keep the property in good condition but has an obligation to prevent waste. 30. Which of the following statements is TRUE? A) Ownership of land generally does not include ownership of things attached to the land. B) A building scheme can be used to create easements but not restrictive covenants. C) To say that an easement runs with the land means that the easement applies to the entire property rather than just a part of it. D) The concept of "prescription," as explained in Chapter 14, refers to the fact that the owner of a life estate must avoid acts of waste. E) The Crown ultimately owns every piece of land in Canada. Difficulty: 1 QuestionID: 15-2-30 Topic: Fee Simple Skill: Recall Answer: E) The Crown ultimately owns every piece of land in Canada. 31. Land is sometimes called "real property" because A) it is really more important than personal property. B) traditionally, it was the real source of most wealth in England. C) the owner can recover the land itself, rather than its monetary value, if someone wrongfully occupies it. D) as a matter of reality, land was more valuable than anything else to the King of England. E) it lasts forever and therefore reflects the reality and permanence of the world. Difficulty: 1 QuestionID: 15-2-31 Topic: Introduction Skill: Recall Answer: C) the owner can recover the land itself, rather than its monetary value, if someone wrongfully occupies it. 32. The word "intestacy" refers to A) the "heart" or "guts" of a case. B) a Latin phrase that means a "test" or "battle." C) a situation in which a person died without making a will. 16 © 2023 Pearson Canada Inc.

D) the "interests" that a person receives under a will. E) a situation in which a husband kills his wife. Difficulty: 3 QuestionID: 15-2-32 Topic: Fee Simple Skill: Recall Answer: C) a situation in which a person died without making a will. 33. The word "condominium" A) is derived from Latin words meaning "joint control." B) refers to any situation in which a dwelling unit is not directly connected to the land. C) translates from Latin words meaning "(high) price" and "(small) space." D) refers to any situation in which a piece of land is owned by two or more people. E) is taken from a Latin phrase meaning "little power." Difficulty: 2 QuestionID: 15-2-33 Topic: Condominiums Skill: Recall Answer: A) is derived from Latin words meaning "joint control." 34. As explained in the text, the word "dower" refers to A) an unmarried woman. B) the sense of joy one feels upon being married. C) property that a woman was historically entitled to receive when her husband died. D) an arranged marriage. E) joint ownership of a piece of land by a husband and wife. Difficulty: 2 QuestionID: 15-2-34 Topic: Life Estate Skill: Recall Answer: C) property that a woman was historically entitled to receive when her husband died. 35. Shortly before he died, Walter drafted a will to make sure that the appropriate people enjoyed Bearsclaw, the name of his cabin in the mountains. At the time of Walter's death, his brother Herman was married to Stella. Stella also owned a cabin in the mountains, which she let Herman use. As Walter knew, however, Stella intended that after she died, her cabin would pass to her cousin. Walter's will therefore said that Bearsclaw would go to his sister, Maria, until Stella died. When Stella died, Bearsclaw would go to Herman. Which of the following can be said with respect to Bearsclaw after Walter died? A) Herman held a reversion. B) Stella enjoys a life estate. 17 © 2023 Pearson Canada Inc.

C) Maria held a remainder. D) Herman held a remainder. E) Maria held a reversion. Difficulty: 2 QuestionID: 15-2-35 Topic: Life Estate Skill: Applied Answer: D) Herman held a remainder. 36. Monique inherited a life estate in a piece of land called Noiracre. After she died, the land would pass to her brother, Pierre. Monique has largely ignored the property since she acquired it. The house that is located on Noiracre consequently has become badly run down and in urgent need of repair. Indeed, the only thing that Monique has really done to the land is cut down an historic growth of oak trees. Which of the following statements is TRUE? A) Monique committed an act of waste by failing to keep the house in good repair. B) Monique committed an act of waste by cutting down the oak trees which she was entitled to do. C) Pierre holds the reversionary interest in Noiracre. D) Because Pierre is not yet entitled to occupy the land, he cannot successfully complain about any act of waste. E) Monique's interest is best described as a remainder interest, because it was remained in the estate of the person from whom she inherited it. Difficulty: 2 QuestionID: 15-2-36 Topic: Life Estate Skill: Applied Answer: B) Monique committed an act of waste by cutting down the oak trees which she was entitled to do. 37. Matthew, Mark, Luke, and John are four brothers. They equally share ownership of a piece of land. Each brother holds an undivided quarter interest. The first three brothers inherited their interests in the land from their father. John acquired his interest by buying it from his sister, Mary. Which of the following statements is TRUE? A) If John dies first, his interest must automatically pass to Matthew, Mark, and Luke. B) If Mark earns $8,000 in profits by selling wheat that was grown on the land, Mark, Luke, and John are legally entitled to share in that money. C) Each brother is entitled by law to exclusive possession of one quarter of the entire property. D) All four brothers are joint tenants. E) Matthew may be a joint tenant with respect to Mark, but a co-tenant with respect to John. Difficulty: 3 QuestionID: 15-2-37 Topic: Shared Ownership Skill: Applied 18 © 2023 Pearson Canada Inc.

Answer: E) Matthew may be a joint tenant with respect to Mark, but a co-tenant with respect to John. 38. Winifred and Randolph jointly owned a piece of land. Because they were unable to agree on how to use that property, they went to court. The judge ordered the land to be sold and split the profits between the parties. The judge used a process known as A) severance. B) partition. C) particularization. D) foreclosure. E) de facto division. Difficulty: 1 QuestionID: 15-2-38 Topic: Shared Ownership Skill: Applied Answer: B) partition. 39. Belinda and Peter own neighbouring pieces of land. Peter's property is accessible from the highway only by driving across Belinda's land. Peter has acquired a legal right to drive across Belinda's land as a result of doing so for many years. Peter therefore benefits from the legal concept of A) adverse possession. B) habitual trespass. C) prescription. D) res ipsa loquitur. E) malum in se. Difficulty: 3 QuestionID: 15-2-39 Topic: Easements Skill: Applied Answer: C) prescription. 40. Juan owns a piece of land. Yolanda enjoys a profit à prendre with respect to Juan's land. This must mean that A) Juan has a life estate. B) Yolanda is allowed to travel across Juan's land in order to reach a neighbouring property. C) Juan's property is part of a condominium. D) Yolanda is entitled to share in the money that Juan receives after selling his property. E) Yolanda has a right to take something from Juan's land. Difficulty: 1 QuestionID: 15-2-40 Topic: Mineral Leases 19 © 2023 Pearson Canada Inc.

Skill: Applied Answer: E) Yolanda has a right to take something from Juan's land. 41. Sarah has owned a fee simple estate for more than 15 years. She has lived on the property the whole time and she has never created an interest in favour of another person. She received a letter in the mail stating that the government is expropriating her land and asking her to vacate within a specified time. Sarah A) is entitled to remain on her land despite the government request. B) is entitled to a minimum compensation of $250,000. C) has no right to retain the land despite owning the fee simple. D) will be forced to leave her land, but may take as long as she sees fit. E) is protected by the Charter of Rights and Freedoms, so the government cannot expropriate her land. Difficulty: 2 QuestionID: 15-2-41 Topic: Fee Simple Skill: Applied Answer: C) has no right to retain the land despite owning the fee simple. 42. Jack shares a joint tenancy with three friends named Lily, Petunia, and Rose. All four live in the same house on the property. After being accepted into a school on the other side of the country, Jack wants to sell his property rights to a fourth friend, named Daisy. In this case, Daisy will A) receive the same rights as Lily, Petunia, and Rose, but cannot live in the house. B) receive all of Jack's property rights in addition to her own, making her the tenant with the most rights. C) receive all of the rights that Jack possessed, including the right of survivorship. D) not be able to buy Jack's rights because an interest under a joint tenancy cannot be sold. E) receive property rights from Jack, but will become a tenant in common to Lily, Petunia, and Rose. Difficulty: 3 QuestionID: 15-2-42 Topic: Shared Ownership Skill: Applied Answer: E) receive property rights from Jack, but will become a tenant in common to Lily, Petunia, and Rose. 43. Brynn owns a large parcel of land. She sold a small section of that property, called Westworld, to Yul. As the name suggests, Westworld was located on the far western corner of Brynn's land. It is nearly one kilometer from the nearest highway, which lies to the north. To access that highway, Yul must travel north across Brynn's property. When he recently did so, Brynn has accused him of trespassing. Yul should argue that A) because he purchased part of Brynn's farmland, he is entitled to use whatever part he chooses. B) he is entitled to cross Brynn's land because he holds an implied easement. C) he is entitled to cross Brynn's land because he holds an express easement. D) he is entitled to cross Brynn's land because he holds a restrictive covenant. 20 © 2023 Pearson Canada Inc.

E) because he has a contractual relationship with Brynn, he is entitled to trespass on any part of her property as long as he pays for any damage that he causes. Difficulty: 2 QuestionID: 15-2-43 Topic: Easements Skill: Applied Answer: B) he is entitled to cross Brynn's land because he holds an implied easement. 44. Lewis held a lease to land in the countryside. Because he works in the city and seldom has a chance to visit the countryside, he assigned his interest to his sister, Carol. Unfortunately, times were tight for Carol, and after four months, she failed to pay the rent. The landlord has demanded relief from Lewis. In this situation, Lewis A) must pay the landlord because he is liable for his assignee's actions. B) must pay the landlord because Carol is related to him by blood. C) is not required to pay anything to the landlord because an assignment requires the assignee to absolutely take over all of the assignor's rights and obligations. D) cannot be compelled to pay the landlord unless and until Carol has been in default of her obligations for at least six months. E) must choose between signing a new lease or paying assignment damages. Difficulty: 3 QuestionID: 15-2-44 Topic: Assignments and Subleases Skill: Applied Answer: A) must pay the landlord because he is liable for his assignee's actions. 45. Angelo owned a small house. Last year, on the first day of June, he sold the property to a newlymarried couple. Angelo agreed that the couple would take possession at the beginning of July. The parties also agreed, however, that Angelo would be entitled to stay in the house until he found a new place to live. The couple assumed that they would have to share the space with Angelo for a couple of weeks at most. In fact, Angelo has now been in the house with the newlyweds for more than a year. The young couple are understandably annoyed. The house is small and privacy is hard to find. They consequently have told Angelo to leave on countless occasions. He, however, enjoys their company and would prefer to stay. Which of the following statements is most likely to be TRUE? A) Angelo's periodic tenancy has become a tenancy at will. B) Angelo's tenancy at will has become a tenancy at sufferance. C) Angelo's tenancy at sufferance has become a tenancy at will. D) Angelo's fixed term tenancy has become a tenancy at sufferance. E) Angelo's tenancy at sufferance remains a tenancy at sufferance. Difficulty: 3 QuestionID: 15-2-45 Topic: Duration 21 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) Angelo's tenancy at will has become a tenancy at sufferance. 46. Jack and Diana recently got married and want to purchase a home together. Which form of share ownership will most easily allow the transfer of ownership should one of them die unexpectedly. A) A joint tenancy B) A tenancy in common C) Fee simple ownership D) A life estate E) A lease Difficulty: 2 QuestionID: 15-2-46 Topic: Shared Ownership Skill: Applied Answer: A) A joint tenancy 47. Three friends, Eddie, Freddie and Mac, decide to purchase a property together as co-owners. If Mac dies suddenly, what is TRUE about his interest in the property? A) It would pass directly to Eddie and Freddie. B) It would pass to Mac children if he has any. C) It would pass to Eddie or Freddie if he is married to either of them. D) A life estate would be created. E) It does not pass automatically to Eddie or Freddie. Difficulty: 2 QuestionID: 15-2-47 Topic: Shared Ownership Skill: Applied Answer: E) It does not pass automatically to Eddie or Freddie. Essay Questions 1. Why is land sometimes called "real property"? In terms of the enforcement of legal rights, how is real property treated differently than other forms of property? Difficulty: 3 QuestionID: 15-3-01 Topic: Introduction Skill: Recall Answer: This question requires a very careful reading of the text. Real property generally consists of land and anything attached to land (such as fences and buildings). As explained in footnote 1 in the text, land is called 22 © 2023 Pearson Canada Inc.

"real" property because the owner can recover the res (which is Latin for "thing") itself. If someone wrongfully takes your house, the law will evict them and allow you to regain possession. 2. Takeo sold a piece of land called Blackacre to Suzette. Explain the personal rights and the property rights that arose as a result of that contract. Against whom can those rights be enforced? Difficulty: 2 QuestionID: 15-3-02 Topic: Interests in Land Skill: Applied Answer: Two sets of rights arose as a result of that transaction. First, the contract of purchase and sale resulted in the creation of personal rights between Takeo and Suzette. For example, Takeo was contractually required to transfer title in Blackacre to Suzette, and Suzette was required to pay the price. Because of the doctrine of privity of contract, those rights can be enforced only as between the parties themselves. Second, once Takeo transferred title to Blackacre to Suzette, she acquired property rights in that piece of land. The defining feature of a property right is that it can be enforced against the whole world, and not merely against the party from whom they were acquired. Consequently, Suzette's property rights in Blackacre allow her to exclude Takeo from the land and any other trespasser. 3. Omar, an elderly bachelor, has the fee simple to a piece of land called Blackacre. He was recently told, however, that ultimately he may not fully own that property. Is that statement correct? How does your answer affect Omar's ability to exploit the contents of the ground beneath Blackacre while he is alive? How does it affect the possible ownership of Blackacre after Omar dies? Difficulty: 3 QuestionID: 15-3-03 Topic: Fee Simple Skill: Applied Answer: For most purposes, as a result of his fee simple, Omar is the owner of Blackacre. He has the right of exclusive possession, he can (subject to exceptions) use and abuse the land as he sees fit, and he has the right to dispose of Blackacre during his lifetime or upon his death. The ultimate owner of Blackacre is the Crown. Every piece of land in Canada begins with the Crown. It can then be put into private hands through a Crown grant. Omar may have received such a grant or (more likely) he may have received it, through a series of transactions, from the person to whom a Crown grant was made many years ago. The origin of real property rights in Canada is important in at least two ways. First, Omar has the right to dispose of Blackacre, either during his life or upon his death. In the latter case, the disposition may be effected through Omar's will or through intestacy legislation if he does not have an effective will. Intestacy legislation will provide Blackacre to Omar's nearest relative. It is possible, however, that Omar, as a bachelor, has no heir. 23 © 2023 Pearson Canada Inc.

If so, and if there is no one to take the property under intestacy, the land will pass back to the Crown. After all, someone has to own Blackacre. The fact that Blackacre began with the Crown probably also affects Omar's ability to exploit the mineral content of the property. Although Crown grants initially included mineral rights, the government realized the value of mineral rights by the 1880s. Consequently, land grants after that time reserved the mineral rights to the Crown. Finally, Omar's land may be expropriated by the Crown. 4. Kimiko has the fee simple to a piece of land called Blackacre. It is sometimes said that "with rights, comes responsibility." Explain an important set of obligations that Kimiko owes to other members of the community as a result of her ownership of Blackacre, and that may result in her being held liable in damages. Difficulty: 2 QuestionID: 15-3-04 Topic: Fee Simple Skill: Applied Answer: The ownership of land creates responsibilities under a number of heads. First, Kimiko is subject to various obligations in tort law. Occupiers' Liability As a general rule, the tort of occupiers' liability imposes obligations upon the person who has control of the premises. (Kimiko might escape liability if she owns, but does not control, Blackacre.) That tort requires the occupier to protect visitors from harm. Nuisance The tort of nuisance prohibits a property from being used in a way that unreasonably interferes with a neighbour's property. For instance, if Blackacre is located in a residential area, Kimiko probably could not use it as a speedway. Rylands v Fletcher The tort of Rylands v Fletcher imposes strict liability in some circumstances if something escapes from her land and inflicts a loss upon someone. Regulations As the owner of Blackacre, Kimiko must also abide by planning, zoning, and environmental regulations. For example, if Blackacre contained a toxic waste pit, she could be held responsible for the cleanup. Easements and Restrictive Covenants If Blackacre is the servient tenement, Kimiko may also be required to abide by any obligations that were created by an easement or a restrictive covenant. 5. Explain the concept of "expropriation." Difficulty: 1 QuestionID: 15-3-05 Topic: Fee Simple 24 © 2023 Pearson Canada Inc.

Skill: Recall Answer: Expropriation is a process by which the government acquires a piece of land from a person in exchange for a fair price. Expropriation may occur even if the person who holds the fee simple adamantly objects. Expropriation is a form of compulsory purchase and sale. It is justified on the basis that the community as a whole sometimes has a great need for a particular piece of land. 6. What is the difference between a reversion and a remainder? When will each type of interest arise? Difficulty: 1 QuestionID: 15-3-06 Topic: Life Estate Skill: Recall Answer: Reversions and remainders (as those terms are used in the text) arise in connection with a life estate. A life estate entitles the right-holder to exclusive possession of a piece of land during the life of a particular person (usually the right-holder). Unlike a fee simple, however, a life estate does not entitle the right-holder to dispose of the property upon death (through a will or intestacy legislation). Once the relevant life comes to an end, the life estate also comes to an end. Land law abhors a vacuum. A property must be owned by someone at all times. The concepts of reversion and remainder determine who holds the interest in the property after the termination of the life estate. By default, the interest that exists after the termination of the life estate goes to the person who initially created the life estate. That interest, in other words, "reverts," or goes back. However, the person who created the life estate can also dispose of the interest that will take effect upon the termination of the life estate. In other words, the "remainder" can be given to someone else. 7. "A court has found that Xhosa committed an act of waste." What does that statement mean? When will a person be prohibited from committing an act of waste? Difficulty: 2 QuestionID: 15-3-07 Topic: Life Estate Skill: Applied Answer: A person with a fee simple is generally free to use or abuse the property. In contrast, while someone with a life estate is normally entitled to profits that are generated by the property, that person cannot commit an act of waste. Waste occurs when a property is changed in a way that significantly affects its value. This includes, for example, digging pits and cutting down trees. A person with a life estate who commits an act of waste can be held liable to the person who holds the reversion or remainder. The prohibition on waste, however, normally only applies to acts and not to omissions. Consequently, if you purchase a life estate from me, you cannot demolish a building without my permission, but you also are not required to spend money in order to keep that building in good condition. 8. Clyde has applied to a court for an order for partition. Assuming that that application will be successful, what type of property interest might he currently enjoy? What will be the effect when the court grants an order for partition? 25 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 15-3-08 Topic: Shared Ownership Skill: Applied Answer: The concept of partition is relevant when two or more people share ownership in a single piece of land. That shared ownership may take the form of either a joint tenancy or a co-tenancy. Partition is a process by which there is a division of either the land itself or its sale proceeds. The parties may agree among themselves as to who gets what. But if they cannot do so, they can ask a judge to resolve the matter. The courts generally have a broad discretion in deciding whether to physically divide the land, sell the land and divide the proceeds, or refuse relief altogether. 9. Dafyyd, Enid, and Gwyneth share ownership of a piece of land called Blackacre. Evan has a five-year lease that allows him to occupy Blackacre. He pays an annual rent of $60,000. On what basis will that money be divided among Dafyyd, Enid, and Gwyneth? What if they are joint tenants? What if they are co-tenants? Difficulty: 3 QuestionID: 15-3-09 Topic: Shared Ownership Skill: Applied Answer: This question requires students to appreciate that there is an important distinction between joint ownership and co-ownership. Joint ownership exists only if the parties share a joint undivided interest in a single piece of land. Because the interests of the joint tenants must be identical, Dafyyd, Enid, and Gwyneth presumably would each be entitled to one-third of the rental profit. (They might, of course, as a matter of contract, agree to distribute the profits differently once they are received.) Co-ownership exists if the parties share undivided interests in a single piece of land, but do not necessarily have exactly the same interests. Consequently, if they are co-tenants, Dafyyd, Enid, and Gwyneth may not each have a one-third share in Blackacre. For instance, Dafyyd may have a one-half share, while Enid and Gwyneth each have a one-quarter share. If so, Dafyyd would receive $30,000 from the rental profits, and Enid and Gwyneth would each receive $15,000. (Once again, they might, of course, as a matter of contract, agree to distribute the profits differently once they are received.) 10. Identify and briefly explain three ways in which a true easement can be created. Are all three methods available in all of Canada's common law jurisdictions? Explain your answer. Difficulty: 2 QuestionID: 15-3-10 Topic: Easements Skill: Recall

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Answer: An easement can be created in three ways, at least in some parts of Canada. Express: The simplest method is for the parties to expressly agree upon the creation of an easement. For example, before selling part of my land to you, I might insist that our contract recognize my right to swim in the pond that will be located on your part of the property. Implied: An easement can also arise by necessary implication. For instance, I might buy a section of your land without realizing that my new property is completely cut off from the highway. In that situation, the courts will presume, unless there is evidence to the contrary, that we implicitly agreed that I would be allowed to drive across the remaining section of your property in order to reach the highway. Prescription: The law traditionally allowed an easement to be acquired by prescription, even if there was no agreement between the parties. Prescription is generally abolished in those jurisdictions that use a land titles system of registration. The aim of that system, which is described in the next chapter, is to provide documents which make it clear, at all times, what interests exist in each particular piece of land. Interests that arise by operation of law tend to frustrate that goal because they are hidden from view. In other parts of the country, however, it is still possible to acquire an easement by prescription. An easement by prescription may be created if land is used in a particular way, for a long time (usually 20 years), without secrecy, without objection, and without permission. Suppose that I have openly used a portion of your backlot as a compost heap for many years. You have done nothing about it. The law may now recognize an easement that provides me with the right to continue dumping on your property. A public easement, or statutory easement, is not included in the preceding list because such an interest is not really an easement. An easement requires the existence of a dominant tenement (which benefits from the easement) and a neighbouring servient tenement (which bears the burden of the easement). Statutes often give utility companies and similar organizations the right to install television cables, dig sewers, and whatnot under or over privately owned land. Although such rights are often called public or statutory easements, they are not common law easements because there is no dominant tenement. The cable company need not have land in your neighbourhood in order to exercise its rights. 11. Annalie recently acquired a piece of land called Blackacre, which was already subject to a restrictive covenant. Her lawyer subsequently asked her whether or not she purchased Blackacre. With respect to the restrictive covenant, why is her answer to that question important? Difficulty: 2 QuestionID: 15-3-11 Topic: Restrictive Covenant Skill: Applied Answer: The restrictive covenant arose by agreement between a former owner of Blackacre and the owner of a neighbouring property. Contractual rights generally can be enforced only by and against the parties to the contract. The restrictive covenant is a contractual right arising from a contract to which Annalie was not a party. Nevertheless, it may be enforced against her because, unlike most contractual rights, a restrictive covenant can "run with the land" (in the sense of binding a successor in title of an original contractual party). The law, however, is reluctant to impose the burden of a contract upon a non-party. It will allow the restrictive covenant to be enforced against Annalie only if she either (i) received Blackacre as a gift or (ii) purchased Blackacre with 27 © 2023 Pearson Canada Inc.

knowledge of the existence of the restrictive covenant. Annalie's lawyer's question consequently is very important. If Annalie acquired Blackacre as a gift, she will be subject to the restrictive covenant even if she did not know about its existence at the outset. The law will not provide much protection to a "volunteer" (that is, someone who did not give consideration). In contrast, if Annalie purchased Blackacre, she will be subject to the restrictive covenant only if she knew about it at the outset. The law generally protects people who buy in good faith. 12. Explain the difference between a possessory interest in land and a non-possessory interest in land. Provide three examples of each. Provide an example of a property interest that combines a possessory element with a non-possessory element. Difficulty: 2 QuestionID: 15-3-12 Topic: Estates in Land, Non-Possessory Interests in Land Skill: Recall Answer: A possessory interest in land, as the name suggests, entitles the right-holder to possess the property in question. The text examined three such interests in detail: the fee simple, the life estate, and the lease. Each of those interests is an "estate in land," and therefore gives the person the right to exclusive possession. A non-possessory interest, again as the name suggests, is an interest in land that does not entitle the right-holder to possess the property in question. The text examined several examples. An easement allows the person with the dominant tenement to access another's land without possessing the land. Similarly, a restrictive covenant allows the person with the dominant tenement to prevent the person with the servient tenement from using that property in a particular way. A profit a prendre is another non-possessory interest in land. It allows the rightholder to take something valuable from a piece of land, but not to actually occupy that property. Finally, a mineral lease allows the right-holder to possess a piece of land. That piece of land, however, is very small. Moreover, occupation of that property is not, in itself, the primary purpose of the interest. The real purpose of the mineral lease is to allow the right-holder to extract a valuable resource from the ground. 13. Franco and Magda have experienced a changing relationship. He has the fee simple to a piece of land called Blackacre. She was initially a tenant under a periodic tenancy. She then occupied Blackacre under a tenancy at will. And now she occupies the property under a tenancy at sufferance. Explain the most likely means by which the nature of the parties' tenancy changed. Difficulty: 3 QuestionID: 15-3-13 Topic: Duration Skill: Applied Answer: It is first necessary to explain the different types of tenancy. A periodic tenancy is a lease for a fixed period that is automatically renewed at the end of each term unless one of the parties provides notice to quit. 28 © 2023 Pearson Canada Inc.

A tenancy at will exists if there is no set term and either party can terminate the lease at any time. A tenancy at sufferance occurs when a tenant continues to occupy the premises at the end of a lease without the landlord's permission. In that situation, there is not really a lease because the parties do not even have an implied agreement. Indeed, if the tenant does not vacate the property within a reasonable time after being asked to do so, it commits the tort of trespass and the landlord can take steps to obtain forced removal. There is no obligation to pay "rent" (because there is no tenancy), but the person in possession is required to pay compensation for the use and occupation of the property. The situation between Franco and Magda probably unfolded along the following lines. Franco rented Blackacre to Magda under a periodic tenancy. One of the parties served notice to quit in order to terminate that lease. When the periodic tenancy came to an end, however, Magda remained in the premises with Franco's permission, and she continued to pay rent. (If rent was received at regular intervals, however, a court might recognize the implicit creation of a new periodic tenancy.) Magda therefore occupied Blackacre under a tenancy at will. Magda overstayed her welcome. At some point, Franco withdrew his permission for her to occupy the premises. At that point, Magda became a tenant at sufferance. 14. Explain the important differences between the assignment of a lease and the creation of a sublease. Difficulty: 1 QuestionID: 15-3-14 Topic: Assignments and Subleases Skill: Recall Answer: An assignment of a lease occurs when a tenant assigns their existing interest to a third party. A sublease occurs when a tenant creates a new lease in favour of a third party. There are three important differences between the assignment of a lease and the creation of a sublease. Under an assignment, there is only ever one lease in place. The assignment merely changes the identity of the parties to that lease. In contrast, a sublease necessarily entails the existence of two leases: (i) the first between the landlord and the tenant, and (ii) the second between the tenant and the sub-tenant. Under an assignment, the third party steps into the tenant's shoes. In contrast, under a sublease, the original tenant remains the tenant under the original lease, but they also become a landlord under the sublease. An assignment must cover the entire term of the original lease. A sublease, in contrast, can apply to some or all of the original lease. There is also one important similarity between an assignment and a sublease. In either instance, (absent a contract to the contrary) the original tenant remains liable. Under an assignment, the landlord can look to the 29 © 2023 Pearson Canada Inc.

original tenant if the new tenant fails to fulfill the terms of the lease. Under a sublease, the original tenant generally remains primarily liable to the landlord. 15. Danica rented a commercial property to Goran. Goran now claims relief from forfeiture. On the basis of the materials discussed in the text, explain the circumstances that most likely have led to Goran's claim. Difficulty: 2 QuestionID: 15-3-15 Topic: Remedies Skill: Applied Answer: If a tenant breaks a lease, the landlord sometimes is entitled to exercise a right of eviction. If that right is exercised, the landlord will have the tenant removed (forcibly if necessary), and thereby re-acquire possession of the premises before the lease was initially scheduled to end. The remedy of eviction, however, often creates a hardship for a tenant. In our case, it would allow Danica to deprive Goran of the expected benefit of the lease. The nature of Goran's business may urgently require the occupation of premises. Consequently, even if Goran has committed a serious breach (for example, by repeatedly failing to pay the rent), a court may grant relief from forfeiture by allowing him to make amends and to retain possession of the property and thus not forfeit the leasehold interest.

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Managing the Law, 6e (McInnes) Chapter 16: Property in Land: Sales and Mortgages True/False Questions 1. Hiram owns a piece of land that he wants to sell to Regina. She wants to buy it for the purpose of building a shopping mall. It is not yet clear, however, whether the municipal government will give planning approval for the proposed mall. Hiram and Regina consequently will probably immediately create a contract that is subject to a condition subsequent. a True b False Difficulty: 2 QuestionID: 16-1-01 Topic: Conditional Contract Skill: Applied Answer: b. False 2. The remedy of specific performance is available only if monetary damages would be inadequate. Consequently, while that remedy is frequently available to purchasers, it is never available to vendors, who are contractually entitled to payments of money. a True b False Difficulty: 3 QuestionID: 16-1-02 Topic: Remedies Skill: Recall Answer: b. False 3. Horatio owns a piece of land called Blackacre. He contractually agreed to sell it to Bharati for $200,000. Although the sale was not scheduled to close for four weeks, Horatio required Bharati to pay $10,000 immediately. Shortly before the sale was scheduled to close, Horatio told Bharati that he had changed his mind and that he was not willing to complete the sale. If he refuses to refund her $10,000, she would be entitled to use a vendor's lien. a True b False Difficulty: 2 QuestionID: 16-1-03 Topic: Remedies Skill: Applied Answer: b. False 1 © 2023 Pearson Canada Inc.

4. As a matter of risk management, commercial lenders (such as banks) are normally willing to accept a mortgage for 100 percent of a property's current market value. That practice is based on the effects of inflation and on the fact that property values always increase no matter what happens in the economy. a True b False Difficulty: 2 QuestionID: 16-1-04 Topic: Mortgages Skill: Recall Answer: b. False 5. A mortgage under a registry system involves an immediate conveyance of title, but a mortgage under a land titles system does not. a True b False Difficulty: 1 QuestionID: 16-1-05 Topic: Registry System and Land Titles System Skill: Recall Answer: a. True 6. Jacinta owns a piece of land called Blackacre. She created a mortgage over Blackacre in favour of Simon. She then created a second mortgage in favour of Paolo. Simon has foreclosed on the property. As a result, he was able to extinguish Jacinta's title because she did not repay her loan to him. However, Simon's foreclosure cannot extinguish Paolo's second mortgage interest in Blackacre because Paolo did not receive any benefit from Simon. a True b False Difficulty: 3 QuestionID: 16-1-06 Topic: Subsequent Mortgages Skill: Applied Answer: b. False 7. The priority of mortgages is always determined by the order of registration rather than by the order of creation. a True b False

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Difficulty: 2 QuestionID: 16-1-07 Topic: Priority of Mortgages Skill: Recall Answer: b. False 8. Alexis borrowed $500,000 from Chong. As security for the repayment of the loan, she gave a mortgage over her property. The property is registered under a land titles system. Alexis has now repaid the loan and otherwise satisfied the terms of the mortgage. Nevertheless, she may not be entitled to a reconveyance of title. a True b False Difficulty: 2 QuestionID: 16-1-08 Topic: Terms of the Contract Skill: Applied Answer: a. True 9. Robert borrowed money from Yanami. As security for that loan, he gave a mortgage over his house. The parties' agreement does not contain a prepayment privilege. Consequently, if Robert repays the loan more quickly than agreed, Yanami may be entitled to a bonus. a True b False Difficulty: 2 QuestionID: 16-1-09 Topic: Terms of the Contract Skill: Applied Answer: a. True 10. A mortgage exists between Jonah and Marina with respect to a piece of property called Blackacre. The mortgage agreement contains a prepayment privilege. In normal circumstances, Jonah would want the inclusion of that clause if he is the mortgagor, but not if he is the mortgagee. a True b False Difficulty: 2 QuestionID: 16-1-10 Topic: Terms of the Contract Skill: Applied Answer: a. True 3 © 2023 Pearson Canada Inc.

11. The remedies for breach of a mortgage were developed over several centuries by both the courts of law and the courts of equity. Consequently, it has not been necessary to legislate in the area. a True b False Difficulty: 1 QuestionID: 16-1-11 Topic: Remedies for Default Skill: Recall Answer: b. False 12. A piece of land called Blackacre is subject to a mortgage in favour of Henri. The mortgage was used to secure a debt that Sophie owed to him. Sophie defaulted upon payment of that debt. Henri can extinguish her equity of redemption by exercising his right to take possession of Blackacre. a True b False Difficulty: 2 QuestionID: 16-1-12 Topic: Foreclosure Skill: Applied Answer: b. False 13. A piece of land called Blackacre was subject to a mortgage in favour of Alona. After the mortgage went into default, she asked the court for the remedy of foreclosure. She was granted an order nisi. Blackacre therefore now belongs to her and cannot be taken away. a True b False Difficulty: 2 QuestionID: 16-1-13 Topic: Foreclosure Skill: Applied Answer: b. False 14. A piece of land called Blackacre is subject to a mortgage in favour of Hal. The mortgage was created to secure a debt of $100,000 that Myriam owed to Hal. Myriam defaulted on the repayment of that debt. Blackacre is worth $250,000. Hal has announced that he intends to use the remedy of foreclosure. Because Myriam's default was negligent, a court would probably allow him to do so even if Myriam asked for an order for judicial sale instead. a True b False 4 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 16-1-14 Topic: Foreclosure Skill: Applied Answer: b. False 15. A piece of land called Blackacre is subject to a mortgage in favour of Maia. The mortgage is in default. It may be possible for Maia to enforce her security by selling Blackacre without complying with the procedures for a judicial sale. a True b False Difficulty: 2 QuestionID: 16-1-15 Topic: Sale Skill: Applied Answer: a. True 16. It is usually only necessary to trace the chain of title back 40 years. a True b False Difficulty: 2 QuestionID: 16-1-16 Topic: Land Titles Skill: Recall Answer: a. True 17. Leases are important to economic development in First Nations communities because title to reserve land cannot be transferred directly to private parties. a True b False Difficulty: 2 QuestionID: 16-1-17 Topic: Mortgages on First Nations Land Skill: Recall Answer: a. True Multiple Choice Questions

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1. Nuala recently acquired an interest in a piece of land called Blackacre. A chain of title A) is relevant only if she also wants to buy another piece of land that is located next to Blackacre. B) is relevant only if she is a mortgagee and there is at least one other mortgagee. C) is one of the three principles that form the notion of indefeasibility. D) was probably used by a surveyor to accurately measure the boundaries of Blackacre. E) need not be proved if Blackacre is located west of Manitoba. Difficulty: 2 QuestionID: 16-2-01 Topic: Registry System Skill: Applied Answer: E) need not be proved if Blackacre is located west of Manitoba. 2. Kiri bought a piece of land from Saul. Before doing so, she followed her lawyer's advice and traced a chain of title back 10 years. Which of the following statements is most likely to be TRUE? A) The land is located somewhere in western Canada. B) The land is held under a land titles system. C) In the circumstances, there was no need for Kiri to have purchased title insurance. D) The land is located in a deeds registration jurisdiction. E) The land is subject to a life estate. Difficulty: 3 QuestionID: 16-2-02 Topic: Registry System Skill: Applied Answer: D) The land is located in a deeds registration jurisdiction. 3. Ava is a scoundrel. She owned a piece of land called Blackacre, which is located in a registry system jurisdiction. On Monday, she sold it to Marlon. Two days later, on Wednesday, she sold it again to Frank. She had no right to do so. Which of the following statements is TRUE? A) Blackacre is now owned by whoever's name appears on the most recent certificate of title. B) Ava is entitled to compensation from the assurance fund. C) Marlon can become the owner of Blackacre even if he registers his interest without notice of Frank's interest. D) Because Ava already sold Blackacre to Marlon, Frank cannot acquire the fee simple as a result of registration. E) The doctrine of indefeasibility will protect Marlon. Difficulty: 3 QuestionID: 16-2-03 Topic: Registry System Skill: Applied Answer: C) Marlon can become the owner of Blackacre even if he registers his interest without notice of 6 © 2023 Pearson Canada Inc.

Frank's interest. 4. Which of the following statements is TRUE? A) A registry system is sometimes called a Torrens system. B) Every province in Canada uses both a land titles system and a registry system. C) The rules that govern a land titles system were developed by judges, rather than legislators. D) The three principles of a land titles system are the mirror principle, the curtain principle, and the indefeasibility principle. E) An unregistered short-term lease may be enforceable under either a registry system or a land titles system. Difficulty: 1 QuestionID: 16-2-04 Topic: Unregistered Interests Skill: Recall Answer: E) An unregistered short-term lease may be enforceable under either a registry system or a land titles system. 5. Kate believed that she owned a piece of land called Blackacre. She purportedly sold it to Ben. The land titles office issued a new certificate of title that named Ben as the exclusive owner of Blackacre. In fact, however, Kate was not really entitled to sell Blackacre. Although none of the parties realized it at the time of the sale to Ben, Blackacre actually belonged to Sam, and not to Kate. The official at the land titles office carelessly failed to realize that fact when the new certificate of title was issued. Which of the following statements is TRUE? A) Sam is still the owner of Blackacre because the mirror principle states that the certificate of title must reflect the actual facts. B) Sam is still the owner of Blackacre because the curtain principle required Ben to "lift the curtain" and determine the true owner of Blackacre before entering into the sale. C) Sam is entitled to compensation from the assurance fund. D) Ben is entitled to compensation from the assurance fund. E) Ben is the owner of Blackacre because Sam could have avoided any difficulties by tracing a good chain of title. Difficulty: 2 QuestionID: 16-2-05 Topic: Land Titles System Skill: Applied Answer: C) Sam is entitled to compensation from the assurance fund. 6. Which of the following statements provides the best definition for "the mirror principle"? A) The only valid interests in a piece of land are the ones that are listed in the certificate of title. B) The terms of a subsequent mortgage must reflect the mortgagor's equity of redemption. C) The interests listed in a certificate of title cannot be defeated. D) All of the interests listed in a certificate of title reflect valid interests. 7 © 2023 Pearson Canada Inc.

E) A contract for the purchase and sale of a piece of land must fully reflect the terms of the parties' agreement. Difficulty: 2 QuestionID: 16-2-06 Topic: Land Titles System Skill: Recall Answer: D) All of the interests listed in a certificate of title reflect valid interests. 7. Which of the following statements provides the best definition or description for "the curtain principle"? A) A subsequent mortgagee will lose its security if a prior mortgagee forecloses. B) The sale of a residential property usually includes anything attached to the house, such as curtain rods and dishwashers. C) An interest in land may be obtained through adverse possession if the owner does not use a "window of opportunity" to enforce its rights. D) A purchaser of land should conduct a title search to ensure that there are no hidden interests in the property. E) There is no need to look behind a certificate of title in order to identify valid interests in land. Difficulty: 2 QuestionID: 16-2-07 Topic: Land Titles System Skill: Recall Answer: E) There is no need to look behind a certificate of title in order to identify valid interests in land. 8. Which of the following statements provides the best definition for "the insurance principle," as that phrase was used in the text? A) Because of the difficulties associated with title searches in registry systems, it is often prudent for the parties to a sale of land to purchase insurance that will provide a source of compensation if the chain of title is not properly established. B) The purchaser can sue the vendor for compensation if the vendor fails to provide clear title to land. C) Because of the concept of indefeasibility, the land titles system includes a fund that will compensate people who lose their interests in land as a result of a mistake within the land title system. D) A lawyer should be hired to help in the purchase of land, partly because the lawyer will have insurance and therefore can be successfully sued if something goes wrong. E) A purchaser of land should purchase property insurance that takes effect as soon as title is transferred from the vendor. Difficulty: 2 QuestionID: 16-2-08 Topic: Land Titles System Skill: Recall

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Answer: C) Because of the concept of indefeasibility, the land titles system includes a fund that will compensate people who lose their interests in land as a result of a mistake within the land title system. 9. Which of the following interests in land is most likely enforceable despite the lack of registration? A) private easement B) licence C) public easement D) long-term lease E) chattel mortgage Difficulty: 2 QuestionID: 16-2-09 Topic: Unregistered Interests Skill: Recall Answer: C) public easement 10. Salome owned a piece of land called Blackacre. She committed the tort of nuisance against Prem by allowing noxious fumes to waft from Blackacre and onto his property. The court held her liable for $100,000 in compensatory damages. Recently, Salome sold Blackacre to Shandon for $250,000. Which of the following statements is most likely TRUE? A) Shandon's purchase of Blackacre cannot possibly be valid unless Salome has paid $100 000 to Prem. B) If Salome has not yet paid $100 000 to Prem, and if Prem filed a writ of execution with the sheriff's office before the date of the purported sale, then Shandon's purchase of Blackacre cannot possibly be valid. C) Prem can use a vendor's lien to force the sale of Blackacre if he does not receive $100 000 from Salome within 24 months from the date of judgment in the nuisance action. D) Prem can use a vendor's lien to force the sale of Blackacre if he does not receive $100 000 from Salome within 12 months from the date of judgment in the nuisance action. E) Shandon did nothing wrong and Prem does not have a registered interest on title. Nevertheless, if Blackacre is located in a jurisdiction that recognizes writs of execution as interests in land, then Shandon may lose Blackacre if he refuses to pay $100 000 to Prem. Difficulty: 3 QuestionID: 16-2-10 Topic: Unregistered Interests Skill: Applied Answer: E) Shandon did nothing wrong and Prem does not have a registered interest on title. Nevertheless, if Blackacre is located in a jurisdiction that recognizes writs of execution as interests in land, then Shandon may lose Blackacre if he refuses to pay $100 000 to Prem. 11. Suneeta wants to buy a large commercial property called Blackacre from Horst. The property contains various types of buildings. It is currently used as a television studio. Suneeta wants to use it as an Internet telecommunications centre. Which of the following statements is true as a matter of risk management? 9 © 2023 Pearson Canada Inc.

A) Suneeta should hire an appraiser to determine whether or not Blackacre is, from a technical perspective, suitable for her business purposes. B) Suneeta should hire an inspector to ensure that the property and the buildings are safe, and she should hire a lawyer to make sure the land is zoned for her intended use. C) Suneeta should hire an environmental auditor to ensure that the buildings are strong enough to withstand the worst weather conditions that might reasonably be expected to occur in the area. D) Suneeta should hire a surveyor to search the marketplace and ensure that no other suitable property is available. E) Suneeta should hire a real estate agent to ensure that the land supposedly included within Blackacre does not encroach upon a neighbouring property. Difficulty: 2 QuestionID: 16-2-11 Topic: Risk Management Skill: Applied Answer: B) Suneeta should hire an inspector to ensure that the property and the buildings are safe, and she should hire a lawyer to make sure the land is zoned for her intended use. 12. Simeon owns a piece of land called Blackacre. He has accepted Lola's offer to buy that property. The parties have created an agreement of purchase and sale. Which of the following statements is TRUE? A) Since the parties created an agreement of purchase and sale, Blackacre must be located in a registry system jurisdiction. B) Since the parties created an agreement of purchase and sale, Blackacre must be located in a land titles jurisdiction. C) As long as it includes all of the relevant terms, the agreement of purchase and sale is enforceable even if it is oral. D) Specific performance may be awarded with respect to Simeon's obligation to transfer title but not Lola's obligation to pay the price. E) Even if a contract for the sale of land is oral, it is effective as long as both parties are willing to perform. Difficulty: 2 QuestionID: 16-2-12 Topic: Agreements of Purchase and Sale Skill: Applied Answer: E) Even if a contract for the sale of land is oral, it is effective as long as both parties are willing to perform. 13. Albert owns a piece of land called Blackacre. He has accepted Dawn's offer to buy it for $200,000. That agreement of purchase and sale is, however, conditional on Dawn's ability to sell Whiteacre, a property that she currently owns. Which of the following statements is most likely TRUE? A) The parties' agreement is subject to a condition subsequent. B) If Dawn changes her mind, she is fully entitled to avoid purchasing Blackacre simply by refusing to seek a purchaser for Whiteacre. C) Albert can waive the condition and insist upon performance of the sale if Dawn is unable to find a 10 © 2023 Pearson Canada Inc.

purchaser for Whiteacre. D) Although the contract is subject to a condition, Dawn must immediately make a good faith attempt to sell Whiteacre. E) The existence of the condition means that the parties will not have a contract unless and until Dawn sells Whiteacre. Difficulty: 3 QuestionID: 16-2-13 Topic: Conditional Contract Skill: Applied Answer: D) Although the contract is subject to a condition, Dawn must immediately make a good faith attempt to sell Whiteacre. 14. Letitia contractually agreed to sell a piece of land called Blackacre to Rocco for $250 000. Closing was scheduled to occur on June 1. On May 15, however, Letitia told Rocco that she did not intend to transfer title to him. Which of the following statements is TRUE? A) If Blackacre is really worth $300,000, and if Rocco has not paid any part of the purchase price, he will be entitled to damages of $50,000. B) A court will not order specific performance if Blackacre is really worth $300,000. C) As a matter of fairness, if Blackacre is really worth $300,000, a court will order specific performance only if Rocco agrees to increase the purchase price by $50,000. D) Canadian courts no longer order specific performance of contracts for the sale of land. E) If Rocco already paid the purchase price, and if Blackacre is really worth $300,000, Letitia will be required to pay a total of $50,000 in compensatory damages. Difficulty: 2 QuestionID: 16-2-14 Topic: Remedies Skill: Applied Answer: A) If Blackacre is really worth $300,000, and if Rocco has not paid any part of the purchase price, he will be entitled to damages of $50,000. 15. Halle agreed to sell a piece of land called Blackacre to Justin for $200,000. The sale was scheduled to close on June 1. Under the terms of the contract, Justin paid $10,000 to Halle on May 1. On May 15, however, Halle told Justin that she had changed her mind and that she intended to keep Blackacre for herself. She did so even though the market value of Blackacre had dropped to $150,000. Which of the following statements is TRUE? A) Specific performance is not available to Justin because the value of the property has decreased. B) Taking into account the money that he previously paid, Justin is entitled to compensatory damages worth $140,000. C) Taking into account the money that he previously paid, Justin is entitled to compensatory damages worth $190,000. D) If Halle refuses to repay the $10,000, Justin can use a vendor's lien to force the sale of Blackacre and to take $10,000 from the sale proceeds. 11 © 2023 Pearson Canada Inc.

E) If Justin wanted to buy Blackacre simply as an investment, and if he has no special interest in acquiring, he probably will not receive specific performance. Difficulty: 3 QuestionID: 16-2-15 Topic: Remedies Skill: Applied Answer: E) If Justin wanted to buy Blackacre simply as an investment, and if he has no special interest in acquiring, he probably will not receive specific performance. 16. A registry system and a land titles system are different because A) a mortgage creates a charge under a registry system, but a conveyance of title under a land titles system. B) after the terms of a mortgage have been fulfilled, the mortgagee enjoys the benefit of a re-conveyance of title under a registry system, but a cessation of charge under a land titles system. C) the remedy of judicial sale is available under a registry system but not under a land titles system. D) the mirror principle applies under a land titles system but not under a registry system. E) unregistered interests may exist in a land titles system but not a registry system. Difficulty: 2 QuestionID: 16-2-16 Topic: Land Titles System Skill: Recall Answer: D) the mirror principle applies under a land titles system but not under a registry system. 17. Herschel borrowed $500,000 from Minah. As security for the repayment of that loan, a mortgage was created over a piece of land called Blackacre. Which of the following statements is TRUE? A) Herschel is necessarily required to pay interest on the primary debt. B) Herschel must have owned Blackacre at the outset. C) If the mortgage created a charge on Blackacre, that piece of land must have been located in a land titles system. D) Herschel must have borrowed the $500,000 from Minah for the purpose of buying Blackacre. E) If Blackacre is located in a registry system, then the mortgage should be registered only if there is a possibility that it will not be repaid within three years. Difficulty: 3 QuestionID: 16-2-17 Topic: Registry System and Land Titles System Skill: Applied Answer: C) If the mortgage created a charge on Blackacre, that piece of land must have been located in a land titles system. 18. In order to purchase an interest in piece of land called Blackacre, Rhiannon borrowed $100,000 from Nick. As security for the repayment of that loan, she entered into a mortgage over a piece of property. 12 © 2023 Pearson Canada Inc.

Which of the following statements is TRUE? A) It is possible that Rhiannon gave a mortgage over a diamond ring that she owned. B) The transaction must have occurred in a registry system. C) Rhiannon must have purchased Blackacre from Nick. D) Rhiannon must have purchased the fee simple in Blackacre. E) Blackacre must be the property that is subject to the mortgage. Difficulty: 3 QuestionID: 16-2-18 Topic: Mortgages Skill: Applied Answer: A) It is possible that Rhiannon gave a mortgage over a diamond ring that she owned. 19. Pavla is the victim of mortgage fraud in connection with a piece of land called Blackacre. Blackacre is located in a jurisdiction that uses a land titles system. Which of the following statements is TRUE? A) Pavla cannot possibly lose title to Blackacre unless she carelessly allowed the fraud to occur. B) Pavla is entitled to compensation from the assurance fund as soon as she proves that she is the victim of fraud. C) Fraud is a general exception to the traditional doctrine of indefeasibility. D) The courts usually respond to mortgage fraud by ordering the victim and the mortgagee to hold the affected property as joint tenants. E) The concept of deferred indefeasibility delays the creation of an indefeasible title until an interest is registered by a person who did not deal with the rogue. Difficulty: 3 QuestionID: 16-2-19 Topic: Mortgage Fraud Skill: Applied Answer: E) The concept of deferred indefeasibility delays the creation of an indefeasible title until an interest is registered by a person who did not deal with the rogue. 20. Alisa successfully used the remedy of foreclosure against Ivan. Which of the following statements is TRUE? A) Alisa was the mortgagor. B) Ivan was the mortgagor. C) Alisa was the borrower. D) Ivan was the lender. E) Ivan was guilty of fraud. Difficulty: 1 QuestionID: 16-2-20 Topic: Foreclosure Skill: Applied

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Answer: B) Ivan was the mortgagor. 21. Hristo created a mortgage, in favour of Tippi, over a piece of land called Blackacre. Which of the following statements is TRUE? A) If the mortgage created a charge, Blackacre must be located in a land titles system jurisdiction. B) If Hristo is entitled to create a subsequent mortgage, Blackacre must be located in a land titles system jurisdiction. C) If the mortgage is enforceable against a subsequent purchaser of Blackacre, Blackacre must be located in a registry system jurisdiction. D) If the mortgage was indicated on a certificate of title, Blackacre must be located in a registry system jurisdiction. E) Hristo must have purchased Blackacre from Tippi. Difficulty: 2 QuestionID: 16-2-21 Topic: Registry System and Land Titles System Skill: Applied Answer: A) If the mortgage created a charge, Blackacre must be located in a land titles system jurisdiction. 22. Which of the following statements is TRUE? A) The word "foreclosure" is derived from words that mean "end before payment" in Latin. B) The word "nisi" is derived from the words that mean "unless" in Latin. C) The word "mortgage" is derived from the words that mean "dead land" in Latin. D) The phrase "Torrens system" is named after an Austrian who created the registry system. E) The word "mortgagor" is derived from the words that mean "money lender" in Latin. Difficulty: 3 QuestionID: 16-2-22 Topic: Foreclosure Skill: Recall Answer: B) The word "nisi" is derived from the words that mean "unless" in Latin. 23. A court has said that Pedrag holds the equity of redemption in a piece of land called Blackacre. The other party involved in the mortgage is Clarissa. Which of the following statements is most likely TRUE? A) If the equity of redemption is the only interest that Pedrag holds in Blackacre, that piece of property is located in a land titles system jurisdiction. B) The equity of redemption is relevant only if Clarissa has obtained a final order for foreclosure. C) The concept of equity of redemption is crucial to the creation of subsequent mortgages. D) Pedrag is the mortgagee. E) The "equity" involved in the equity of redemption has the same value as the debt that has yet to repaid between Pedrag and Clarissa. Difficulty: 3 QuestionID: 16-2-23 14 © 2023 Pearson Canada Inc.

Topic: Foreclosure Skill: Applied Answer: C) The concept of equity of redemption is crucial to the creation of subsequent mortgages. 24. Randall initially owned a piece of land called Blackacre that was worth $400,000. He borrowed $200,000 from Keir and created a mortgage over Blackacre in favour of Keir. Randall then borrowed $100,000 from Ian and created a mortgage over Blackacre in favour of Ian. Randall has not repaid any part of either debt. Because of a recession, the value of Blackacre has dropped to $90,000. Which of the following statements is TRUE? A) It is possible that Ian will be treated as the initial mortgagee, and that Keir will be treated as the subsequent mortgagee, if Ian registered before Keir in a land titles system. B) Keir must be treated as the initial mortgagor regardless of whether he registered before or after Ian. C) If Randall defaults on the mortgages and Blackacre is sold for $90,000, Keir will receive $60,000 and Ian will receive $30,000, because Randall owes Keir twice as much as Ian. D) Ian still has some equity in his property so he should be able to find another mortgage lender to lend as a third mortgagee. E) By granting two mortgages over the same property, Randall has committed mortgage fraud. Difficulty: 3 QuestionID: 16-2-24 Topic: Priority of Mortgages Skill: Applied Answer: A) It is possible that Ian will be treated as the initial mortgagee, and that Keir will be treated as the subsequent mortgagee, if Ian registered before Keir in a land titles system. 25. Astrid borrowed $500,000 from Bartholomew. As security for the repayment of that loan, she created a mortgage over a piece of land called Blackacre. That mortgage was immediately registered. Which of the following statements is TRUE? A) Until Astrid repays the loan, Bartholomew will hold an equity of redemption. B) If Astrid defaults on the mortgage, and Bartholomew uses the remedy of judicial sale to sell Blackacre for $750,000, then he will be entitled to receive the amount of the mortgage debt, plus interest and costs, including the costs of sale. C) Even if Astrid defaults on the mortgage, she can obtain a decree nisi from a court, which automatically gives her the right to pay at her convenience. D) If Astrid sells Blackacre to her friend Elsa, Bartholomew will no longer be able to demand repayment of the loan from Astrid. E) Even if Astrid defaults on the mortgage, Bartholomew cannot obtain a foreclosure unless he has first obtained an order for possession. Difficulty: 3 QuestionID: 16-2-25 Topic: Sale Skill: Applied

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Answer: B) If Astrid defaults on the mortgage, and Bartholomew uses the remedy of judicial sale to sell Blackacre for $750,000, then he will be entitled to receive the amount of the mortgage debt, plus interest and costs, including the costs of sale. 26. Aidan and Nadia are parties to a contract that allows Nadia to enforce an "acceleration clause" (as that term was used in the text). Which of the following statements is most likely to be TRUE? A) Nadia borrowed money from Aidan. B) The parties' contract is subject to a condition precedent that requires Aidan to do something (such as arrange financing for the purchase) within a certain period of time. C) Nadia is concerned that Aidan may fall into a habit of failing to make loan payments on schedule, so she wanted the right to demand immediate repayment of the outstanding balance if he pays late. D) Aidan is indebted to Nadia, but he cannot possibly be a mortgagor. E) Nadia is entitled to repay a debt to Aidan more quickly than their contract contemplates. Difficulty: 2 QuestionID: 16-2-26 Topic: Terms of the Contract Skill: Applied Answer: C) Nadia is concerned that Aidan may fall into a habit of failing to make loan payments on schedule, so she wanted the right to demand immediate repayment of the outstanding balance if he pays late. 27. Zoe and Lucius are parties to a contract that allows Zoe to take the benefit of a "prepayment privilege" (as that term was used in the text). Which of the following statements is most likely to be TRUE? A) The prepayment privilege indicates that Lucius borrowed money from Zoe. B) The prepayment privilege was intended to compensate Zoe for the loss of interest on a loan. C) The prepayment privilege was intended to allow Zoe to demand repayment of a loan earlier than expected if interest rates decrease. D) Zoe, as a mortgagor, wanted the prepayment privilege, which is the right to repay the loan early without being liable to Lucius for a "bonus," which is a penalty that a lender imposes on a borrower who tries to reduce interest payments by repaying a loan early. E) The prepayment privilege indicates that Zoe has agreed to sell a piece of land to Lucius and that she is entitled to receive payment even before she transfers title to him. Difficulty: 2 QuestionID: 16-2-27 Topic: Terms of the Contract Skill: Recall Answer: D) Zoe, as a mortgagor, wanted the prepayment privilege, which is the right to repay the loan early without being liable to Lucius for a "bonus," which is a penalty that a lender imposes on a borrower who tries to reduce interest payments by repaying a loan early. 28. Ramla borrowed $100,000 from Wilhelm. As security for repayment of that loan, she created a mortgage over a piece of land called Blackacre. Which of the following statements is TRUE? 16 © 2023 Pearson Canada Inc.

A) As long as Wilhelm has registered the mortgage, he has no reason to care if Ramla does not pay the property taxes on Blackacre. B) If the mortgage contract contains a bonus clause, then Ramla will have to pay a financial penalty if she repays the loan quicker than agreed. C) Because he has both personal and property rights, Wilhelm has no reason to care if Ramla does not insure Blackacre. D) In normal circumstances, Wilhelm has the primary duty to refrain from committing an act of waste. E) In normal circumstances, Wilhelm will take possession of Blackacre immediately in order to protect the value of the security. Difficulty: 2 QuestionID: 16-2-28 Topic: Terms of the Contract Skill: Applied Answer: B) If the mortgage contract contains a bonus clause, then Ramla will have to pay a financial penalty if she repays the loan quicker than agreed. 29. Horace borrowed $100,000 from Blossom. As security for repayment of that loan, he created a mortgage over a piece of land called Blackacre. Horace has repaid part of the loan, but still owes $40,000 to Blossom. He is unable to repay the outstanding amount or make the next mortgage payment. Which of the following statements is TRUE? A) Under normal circumstances, Blossom has the right to take possession of Blackacre, but only if the land is located in a land titles system jurisdiction. B) Because the parties have both a loan contract and a mortgage, Blossom has an absolute right to sue Horace personally for $40,000, regardless of the province or territory in which Blackacre is located. C) If Blossom exercises a right to take possession of Blackacre, she cannot later use the remedy of foreclosure. D) If Blossom exercises a right to take possession of Blackacre, Horace's equity of redemption will necessarily be terminated. E) If the mortgage contract contains an acceleration clause, then Horace may be liable to immediately pay $40,000, even if the parties originally expected that he would pay half of that amount next year. Difficulty: 2 QuestionID: 16-2-29 Topic: Terms of the Contract Skill: Applied Answer: B) If the mortgage contract contains an acceleration clause, then Horace may be liable to immediately pay $40,000, even if the parties originally expected that he would pay half of that amount next year. 30. Ngari borrowed $250,000 from Phoebe. As security for the repayment of that loan, he created a mortgage over a piece of land called Blackacre. Ngari has repaid part of the loan to Phoebe, but he still owes $150,000. He is unable to repay the outstanding amount. Which of the following statements is TRUE? A) Ngari has no reason to object to the remedy of foreclosure unless the current market value of Blackacre 17 © 2023 Pearson Canada Inc.

is more than $250,000. B) The remedy of foreclosure was created by the courts of law in order to counterbalance the equity of redemption that was created by the courts of equity. C) Depending upon where Blackacre is located in Canada, Phoebe may not be entitled to exercise the right of foreclosure until after an attempt has been made to sell the property. D) If the market value of Blackacre is now $300,000, Phoebe is entitled to exercise the remedy of foreclosure, but only if she pays $50,000 to Ngari. E) The remedy of foreclosure is available only if Blackacre is located in a land titles system jurisdiction. Difficulty: 2 QuestionID: 16-2-30 Topic: Foreclosure Skill: Applied Answer: C) Depending upon where Blackacre is located in Canada, Phoebe may not be entitled to exercise the right of foreclosure until after an attempt has been made to sell the property. 31. A person who occupies a piece of land without any right or permission to do so is legally known as A) a dweller in situ. B) a sitter. C) a resident in transitu. D) a squatter. E) an indigent occupant. Difficulty: 1 QuestionID: 16-2-31 Topic: Unregistered Interests Skill: Recall Answer: D) a squatter. 32. A purchaser's lien A) is available only as long as the purchaser has possession of the property. B) is usually found within a mortgage document. C) is a form of security. D) allows a purchaser to occupy a piece of land before the full purchase price is paid. E) usually results in an order for specific performance. Difficulty: 2 QuestionID: 16-2-32 Topic: Remedies Skill: Recall Answer: C) is a form of security. 33. As used in the context of a mortgage, the legal concept of a "charge" 18 © 2023 Pearson Canada Inc.

A) means that the land is located in a part of the country that uses the land titles system. B) refers to the interest that the mortgagee must pay on the loan. C) occurs when the mortgagor demands possession of the property. D) means that the land must be subject to some pre-existing, unregistered interest. E) requires title to the property to be transferred at the outset. Difficulty: 3 QuestionID: 16-2-33 Topic: Registry System and Land Titles System Skill: Recall Answer: A) means that the land is located in a part of the country that uses the land titles system. 34. As used in the context of a mortgage, a "prepayment privilege" A) means that the lender can demand repayment of the loan sooner than expected. B) means that if the borrower misses a payment on the loan, the entire amount becomes due immediately. C) is used to allow certain payments to be made without penalty. D) arises in connection with an insurance contract. E) is prohibited in many Canadian provinces. Difficulty: 1 QuestionID: 16-2-34 Topic: Terms of the Contract Skill: Recall Answer: C) is used to allow certain payments to be made without penalty. 35. Suki was recently involved in a successful application of the insurance principle under the land titles system. This most likely means that A) the system made sure that she retained title to her land. B) she received a benefit under an insurance policy that she purchased from a private company. C) by checking the records carefully, she satisfied herself that she was at the end of a good chain of title. D) she acquired title to a new piece of land. E) the doctrine of indefeasibility has deprived her of an interest in land. Difficulty: 2 QuestionID: 16-2-35 Topic: Land Titles System Skill: Applied Answer: E) the doctrine of indefeasibility has deprived her of an interest in land. 36. Solomon recently purchased a piece of land for $200,000. A short time later, however, the land was seized by the government and sold. That is true even though Solomon never breached any obligation and always paid his debts on time. Which of the following statements may best explain this set of events? A) Solomon purchased a piece of land that contained squatters. 19 © 2023 Pearson Canada Inc.

B) The land is subject to a public easement. C) Solomon's vendor was subject to a writ of execution before Solomon acquired the land. D) Solomon exercised a purchaser's lien. E) An official at the registry office wrote Solomon's name on the wrong certificate of title. Difficulty: 2 QuestionID: 16-2-36 Topic: Unregistered Interests Skill: Applied Answer: C) Solomon's vendor was subject to a writ of execution before Solomon acquired the land. 37. Alpha Inc is interested in purchasing a particular piece of land. The company's president is, however, worried that the land may be worth less than the current owner claims. The company should therefore retain the services of A) a surveyor. B) a medical doctor C) an appraiser. D) an inspector. E) a financier. Difficulty: 1 QuestionID: 16-2-37 Topic: Risk Management Skill: Applied Answer: C) an appraiser. 38. Primus Inc has agreed to purchase a piece of land from Cherie. That agreement is subject to a "condition" (as that word was used in this context in Chapter 16). The condition reflects the fact that Primus must arrange financing through a bank in order to afford the purchase. Which of the following statements is most likely to be TRUE? A) The parties will not have a contract until the condition is satisfied. B) Neither party is required to do anything while waiting to see if the condition is satisfied. C) The condition has the effect of suspending the need for Cherie to transfer the land to Primus. D) The condition can also be called a condition subsequent. E) The land must be located in a jurisdiction that uses a registry system. Difficulty: 2 QuestionID: 16-2-38 Topic: Conditional Contract Skill: Applied Answer: C) The condition has the effect of suspending the need for Cherie to transfer the land to Primus. 39. Stanislav contractually agreed to sell a piece of land to Tien for $250,000. When the time came to 20 © 2023 Pearson Canada Inc.

transfer title, however, Stanislav refused to complete the transaction. Tien consequently refused to pay any part of the price and justifiably sued for specific performance. At that time, the market value of the land was $300 000. The case was not decided by a court for five years. The judge then held that Stanislav was liable for breach of contract. At that time, the land was worth $400,000. If the court awards damages, Tien is entitled to receive A) $250,000. B) $400,000. C) $300,000. D) $150,000. E) $50,000. Difficulty: 3 QuestionID: 16-2-39 Topic: Remedies Skill: Applied Answer: D) $150,000. 40. Hofflehaus Inc owns a large piece of land known as Schwarzermorgen. It wanted to use that land as security for loans totaling $6 million. When it explained the situation to Primus Bank, however, it was told that it qualified for a loan of only $4 million. The company accepted the offer of that loan and allowed Primus Bank to take a mortgage over Schwarzermorgen. Primus Bank did not, however, immediately register its mortgage. The next day, the company approached Deuce Bank, asked for a loan of $2 million, and offered security in the form of a mortgage over Schwarzermorgen. The company did not mention that it had already granted a mortgage to Primus Bank and Deuce Bank had no other way of knowing about that first mortgage. Deuce Bank then (1) checked the records at the land registration office and found that there were no interests registered against Schwarzermorgen, (2) loaned $2 million to the company, and (3) immediately filed its own mortgage. The next day, Primus Bank finally registered its mortgage. And later that same day, the company suffered a devastating financial loss. That loss wiped out virtually every asset that the company had, including the $6 million that it had borrowed from the two banks. The company's only remaining asset is Schwarzermorgen. The value of Schwarzermorgen has, however, dropped to $1.5 million. That land has now been sold and the only question before the court concerns the disposition of the $1.5 million in cash. Which of the following statements is TRUE? A) Each bank will receive half of the value of Schwarzermorgen. B) Primus Bank will receive $1 million and Deuce Bank will receive $500,000. C) Deuce Bank will receive $1 million and Primus Bank will receive $500,000. D) Primus Bank will receive $1.5 million and Deuce Bank must pay $4.5 million to Primus Bank. E) Deuce Bank will receive $1.5 million. Difficulty: 3 QuestionID: 16-2-40 Topic: Subsequent Mortgages Skill: Applied Answer: E) Deuce Bank will receive $1.5 million. 21 © 2023 Pearson Canada Inc.

41. Kevin owned a farm in Alberta, but until he returned last week, he had been living in Norway for five years. In his absence, he allowed his sister, Colleen, to reside on the property. Upon his return, however, he discovered that she had forged his signature and that Reginald's name now appears on the certificate of title. Which of the following is most likely to be TRUE? A) Reginald is the victim of mortgage fraud. B) Because the land is held in a registry system, Kevin's property rights have not been affected. C) Colleen will receive payment from the assurance fund. D) Because of the curtain principle, Kevin no longer owns the farm. E) Kevin will remain the owner of the land as long as he applies to a court within two weeks. Difficulty: 3 QuestionID: 16-2-41 Topic: Land Titles System Skill: Applied Answer: D) Because of the curtain principle, Kevin no longer owns the farm. 42. Yun-Fat purchased a property from Brandon. The land titles office then issued a certificate of title to Yun-Fat. Unfortunately, a month later, the land titles office realized that it had made a mistake. The land had been owned by Marilyn rather than Brandon. Which of the following statements is most likely to be TRUE? A) Yun-Fat is liable to Marilyn if he negligently failed to inspect the land registry. B) Marilyn has the right to recover the land, but only if she pays Yun-Fat the property's fair market value. C) Marilyn may receive payment from the land titles system, but only if she successfully sues it for the tort of negligence. D) If she is unable to recover the land, Marilyn may receive compensation from the assurance fund. E) The property must be located in one of the Maritime provinces. Difficulty: 2 QuestionID: 16-2-42 Topic: Land Titles System Skill: Applied Answer: D) If she is unable to recover the land, Marilyn may receive compensation from the assurance fund. 43. Jessica wants to buy Zach's house and then turn it into a hair salon. Before the agreement of purchase and sale is signed A) Jessica should demand a deposit from Zach. B) Zach should file a vendor's lien against title. C) Jessica should ensure that the property is approved for commercial zoning. D) Zach should search to see if there are any writs of execution filed against Jessica. E) the parties should share the cost of hiring a surveyor to determine whether the property contains toxic waste. Difficulty: 3 22 © 2023 Pearson Canada Inc.

QuestionID: 16-2-43 Topic: Risk Management Skill: Applied Answer: C) Jessica should ensure that the property is approved for commercial zoning. 44. Barton owns a piece of land called Finacre. On August 24, when the property was worth $1,000,000, he borrowed $200,000 from Alpha Bank and granted a mortgage over Finacre as security for repayment. Alpha registered its interest on September 18. On September 16, Barton borrowed $800,000 from Omega Bank. He granted another mortgage over Finacre as security. Omega registered its interest on September 17. The economy then collapsed. Barton has not repaid a cent on either loan and he has defaulted on both. The value of Finacre dropped to $500 000. If Finacre is subject to sale, which of the following statements is most likely to be TRUE? A) Regardless of which bank registered first, Alpha has priority over Omega because Alpha's mortgage was created first. B) Alpha has priority over Omega as long as Alpha was the first bank to notify Barton that its interest was registered. C) Neither bank will receive full repayment of its loan. D) Barton borrowed four times as much from Omega as from Alpha. The sale proceeds will be distributed in the same proportion. Omega will receive $400 000 and Alpha will receive $100 000. E) If either bank receives less than full repayment from the sale proceeds, it is entitled to compensation from the assurance fund. Difficulty: 3 QuestionID: 16-2-44 Topic: Priority of Mortgages Skill: Applied Answer: C) Neither bank will receive full repayment of its loan. 45. Vigo has agreed to buy a house and he is about to sign a mortgage contract with the Bank of Sanguis. Which of the following should Vigo not expect to see? A) A term stating that if Vigo misses a single payment, he must immediately repay the full amount of the loan. B) A term, called a bonus, that entitles to Vigo skip the final instalment on the loan if he repays the other instalments early. C) A term indicating that the bank is entitled to receive money to pay taxes. D) A term requiring fire insurance on the property. E) A term prohibiting Vigo from cutting down the trees on the property. Difficulty: 2 QuestionID: 16-2-45 Topic: Terms of the Contract Skill: Applied Answer: B) A term, called a bonus, that entitles to Vigo skip the final instalment on the loan if he repays the 23 © 2023 Pearson Canada Inc.

other instalments early. Essay Questions 1. Briefly explain the need for some form of land registration system. Difficulty: 1 QuestionID: 16-3-01 Topic: Registration Systems Skill: Recall Answer: Some form of land registration system is needed because a variety of interests may exist simultaneously, or over time, in a single piece of land: a fee simple, a life estate, a lease, an easement, a restrictive covenant, and so on. As a matter of risk management, it is necessary to keep track of all of those interests. A prospective purchaser wants to know the precise sort of interest that it is buying, as well as the sorts of interests that may attach to the title that it does acquire. Likewise, because some interests (such as restrictive covenants) are enforceable against a purchaser only if notice was provided, a person holding such an interest wants a generalized mechanism for providing notice. Some form of registration system therefore exists in all parts of Canada for the purpose of documenting the existence of interests in land. Some jurisdictions use a registry system, others use a land titles system, and a few use both. 2. Briefly explain the relationship between the mirror principle and the curtain principle in the context of a land titles system. Difficulty: 2 QuestionID: 16-3-02 Topic: Land Titles System Skill: Recall Answer: There are two types of land registration systems in common law Canada: the registry system and the land titles system. The land titles system issues a certificate of title for each piece of land. That system is based on the notion of indefeasibility of title. That means that, with very few exceptions, the interests that are listed on a certificate of title cannot be defeated. The concept of indefeasibility is supported by the mirror principle and the curtain principle. Those two principles complement each other. Mirror Principle The mirror principle states (as a general rule) that all of the interests listed in a certificate of title are valid. The certificate reflects reality. That is true even if an interest was placed upon the certificate improperly or in error.

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Curtain Principle The curtain principle states that the only valid interests in a property are the ones that are listed in the certificate of title. It is unnecessary to "lift the curtain" and look behind the certificate of title in order to determine the existence of rights in the property. (There are exceptions to that general rule. The text discussed a number of interests, such as short-term leases and writs of execution, that may be enforceable even without registration.) 3. In the context of land registration systems, what is the insurance principle? Is this principle applicable under a registry system or under a land titles system? Difficulty: 2 QuestionID: 16-3-03 Topic: Land Titles System Skill: Recall Answer: The insurance principle is applicable under a land titles system, but not under a registry system. This difference is based on the fact that a registry system merely provides people with an opportunity to inspect documents evidencing purported interests in land. It does not bestow validity on registered interests. In contrast, the land titles system is based on (generally) indefeasible certificates of title. A certificate of title does not merely record the registration of a purported interest in land. It goes further by endowing a registered interest with validity. Consequently, once an interest is placed on a certificate of title, it generally cannot be defeated, even if it was improperly included in the first place. Since a piece of land is a finite resource, the erroneous inclusion of an interest has two consequences. It improperly provides something to someone, and it improperly takes something away from someone else. For instance, if you mistakenly become registered as the owner of a piece of land that really should belong to me, you gain ownership and I lose ownership. The concept of indefeasibility means that you will be able to keep the land. The land titles system therefore includes an insurance principle that creates an assurance fund that will provide me with monetary compensation for my loss occasioned by error of the land title system in its operation. 4. Salvatore is considering buying a piece of land called Blackacre that previously contained a chemical factory. He has hired an environmental auditor. As Salvatore explained, "It's a good move from a risk management perspective. By hiring that person, I may avoid liability in the first place and I may have access to a source of compensation if something goes wrong later on." Explain the meaning of Salvatore's statement. Difficulty: 2 QuestionID: 16-3-04 Topic: Risk Management Skill: Applied Answer: Since it had previously contained a chemical factory, Blackacre may pose an environmental hazard. Noxious substances, for instance, may have seeped from the factory and into the ground, thereby contaminating a water supply. The contaminated water supply may, in turn, cause someone to suffer an illness. And a person 25 © 2023 Pearson Canada Inc.

who suffers such an illness may sue Salvatore for, say, the tort of nuisance or occupiers' liability. Furthermore, even if no one is injured by the noxious substances, the government may order Salvatore to undertake an expensive clean-up operation if it learns about the hazard. Salvatore's statement means that by hiring an environmental auditor, he has somewhat protected himself from incurring liability and he has somewhat created a compensation fund of sorts if he does incur liability. Risk Reduciton By performing his job properly, the environmental auditor should be able to determine whether or not the land is contaminated and whether or not there consequently is a risk that Salvatore will be held liable. If the risk is sufficiently high, Salvatore should not buy Blackacre. Risk Shifting If the environmental auditor improperly provides Blackacre with a clean bill of health, thereby leading Salvatore to buy the land, Salvatore may be held liable in tort to an injured person or he may be held liable for a clean-up operation. If so, he will be primarily liable for the associated expense. However, if the hazard was one that the environmental auditor should have detected, Salvatore will be able to sue that person, for breach of contract, or for the tort of negligence, or both. 5. Irene agreed to sell a piece of land called Blackacre to Noriel. That contract was subject to a condition precedent. The condition precedent was concerned with Noriel's ability to arrange suitable financing. Does a contract already exist? Is either party required to do anything immediately? If the condition is not met, can either party be held liable? Explain your answers. Difficulty: 2 QuestionID: 16-3-05 Topic: Conditional Contract Skill: Applied Answer: In most circumstances, a condition precedent does not prevent the creation of a contract. Rather, it merely suspends the parties' duty to fulfill the primary obligations. Consequently, in the present case, a contract is probably created at the outset. Irene is obliged to transfer title in Blackacre and Noriel is obliged to pay the purchase price. The performance of those obligations, however, is suspended pending satisfaction of the condition. Consequently, she does not have to convey Blackacre, and he does not have to pay money, unless and until he successfully arranges suitable financing for the sale. That does not mean, however, that the parties are both free to do nothing. While a condition precedent suspends the need to perform the primary obligations, it usually also imposes an obligation to immediately perform a secondary or subsidiary obligation. In this case, Noriel almost certainly is required to use his best efforts, or a reasonable effort, to secure suitable financing for the sale. He can satisfy that secondary obligation by making the appropriate effort, even if he ultimately is unsuccessful in securing financing. In that situation, the primary obligations would never become performable and the sales contract would simply die. In contrast, if Noriel failed to make an appropriate effort, he could be held liable for breach of the secondary obligation. That would not allow Irene to insist upon performance of the primary obligations, because the parties agreed that those obligations would be performable only if the condition in fact was satisfied. However, 26 © 2023 Pearson Canada Inc.

Noriel's breach of the secondary obligation would entitle Irene to compensatory damages. 6. On January 1, Ichiro contractually agreed to sell a piece of land called Blackacre to Mandy for $250 000. The sale was scheduled to close, and the price was expected to be paid in full on December 1. Before that date, however, the value of Blackacre increased to $350 000 because of a general increase in the real property market. Ichiro now refuses to complete the transaction by transferring Blackacre to Mandy. She admits that she wanted to purchase the property for investment purposes only. Nevertheless, she claims that if she does not receive specific performance, she will not enjoy the benefit of the contract. Will a court award specific performance? If not, is there any other way for Mandy to enjoy the benefit of the contract? Explain your answers. Difficulty: 2 QuestionID: 16-3-06 Topic: Remedies Skill: Applied Answer: Specific performance is available only if monetary damages would not provide Mandy with an adequate remedy. Traditionally, specific performance was available with respect to virtually every contract for the purchase of land. That rule was based on the belief that every piece of land is unique. And since a piece of land is unique, no amount of money would enable the plaintiff to purchase an adequate substitute. Recently, however, the Supreme Court of Canada, in Semelhago v Paramadevan modified the traditional rule. Sopinka J stated: "While at one time the common law regarded every piece of real estate to be unique, with the progress of modern real estate development this is no longer the case. Residential, business and industrial properties are all mass produced much in the same way as other consumer products. If a deal falls through for one property, another is frequently, though not always, readily available." Consequently, specific performance is available with respect to a contract for the purchase of land only if monetary damages truly would be inadequate. (This is the rule that has always been applied with respect to contracts for the purchase of things other than land.) Mandy has admitted that she wanted to buy Blackacre for investment purposes only. The land is not special or unique to her in any way. Consequently, she is not entitled to specific performance. Ichiro does not have to transfer the land to her in exchange for $250,000. That does not mean, however, that Mandy is not entitled to the expected benefit of the contract. She cannot get Blackacre, but she can get the monetary equivalent of receiving Blackacre. She can simply use the usual measure of contractual relief, expectation damages, to claim the monetary value of the bargain. 7. Pascale bought a piece of land called Blackacre from Jeff. The purchase price was $500 000. The purchase was made entirely on credit. Although Pascale has taken possession of Blackacre, she has not paid any part of the purchase price, despite being required to do so by the sales agreement. Jeff wants to have Blackacre seized and sold in order to provide a fund with which the purchase price can be paid. Unfortunately for him, he did not receive a mortgage over Blackacre. Is there any other basis upon which he can take action against Blackacre in order to receive payment? Explain your answer. 27 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 16-3-07 Topic: Remedies Skill: Applied Answer: Jeff wants to exercise some form of security that will allow him to seize Blackacre from Pascale and sell it in order to obtain payment of the purchase price. A mortgage provides one such form of security, but Jeff did not obtain a mortgage over Blackacre at the time of the sale. Nevertheless, Jeff does enjoy a security in the form of a vendor's lien. That lien allows Jeff, as the vendor, to seize and sell Blackacre in order to obtain payment of the debt owing to him. 8. On March 1, Eleanor entered into a contract to buy a piece of land called Blackacre from Hershey. The purchase price was $200,000. Eleanor paid $20,000 immediately and promised to pay the remainder when the sale closed on June 1. On June 1, however, Hershey refused to complete the sale. He also refused to refund Eleanor's $20,000. He honestly explained that while he has Blackacre, he simply does not have any money so he needs the deposit money to live on. What remedy should Eleanor use? Explain your answer. Difficulty: 2 QuestionID: 16-3-08 Topic: Remedies Skill: Applied Answer: Eleanor should exercise her rights under a purchaser's lien. A purchaser's lien arises when a person pays money toward the purchase of land without receiving a transfer of title at the same time. That lien would allow the purchaser to have the land seized and sold if title is not eventually transferred and if the payment is not refunded. In this case, the sale proceeds will be used to create a refund of for Eleanor. The remainder of the money would belong to Hershey, subject to any claims of damages that Eleanor may have for breach of contract. 9. Raj bought a piece of land called Blackacre from Erin for $200,000. In making that purchase, he created a mortgage over Blackacre. Explain a situation in which the sale and the mortgage involved only Raj and Erin. Explain a situation in which the sale and the mortgage involved Raj, Erin, plus another person. Difficulty: 1 QuestionID: 16-3-09 Topic: Mortgages Skill: Applied Answer: The sale and mortgage may have involved either two or three parties. Two-Party Mortgage In a two-party situation, Raj would have purchased Blackacre from Erin on credit. In other 28 © 2023 Pearson Canada Inc.

words, he would have received a transfer of title on the basis of his promise to pay the purchase price in the future. That contractual promise, however, would only entitle Erin to sue Raj personally. It would not allow her to enforce any rights against Blackacre itself if, for instance, Raj failed to pay as promised. Erin therefore insisted upon taking back a mortgage over the property. As a result, if Raj did not eventually pay the purchase price, she would not be limited to the usual contractual remedies. She would, instead, enjoy the special proprietary remedies that accompany a mortgage (such as the right to possession and foreclosure). Three-Party Mortgage A more common arrangement involves three parties. Erin normally would not want to extend credit to Raj. Instead, she would want to be paid the full purchase price immediately. Since he did not have $200,000 on hand, Raj borrowed money from someone else–say, the Bank of Edmonton. Raj then paid the $200,000 to Erin and promised to repay that same amount to the bank (with interest). Like Erin in the previous situation, however, the bank would not be content with the personal rights created by Raj's simple contractual promise to repay the debt. It therefore would take a mortgage over Blackacre, once title was transferred from Erin to Raj. 10. Syd borrowed $100,000 from Marnie. To secure repayment of that loan, he created a mortgage over a piece of land called Blackacre. Syd has now repaid the loan and complied with all of the terms of the mortgage. Under what circumstances will Marnie be required to complete a re-conveyance of title? Under what circumstance will she be required to complete a cessation of charge? Difficulty: 2 QuestionID: 16-3-10 Topic: Nature of Mortgages Skill: Applied Answer: The answer depends upon the type of land registration that applies in the jurisdiction in which Blackacre is located. Registry System In a registry system, a mortgage involves a conveyance of title at the outset. Consequently, when Syd borrowed from Marnie, he would have conveyed title to Blackacre to her under the terms of the mortgage. Although Syd probably remained in possession of the property, the land actually belonged to Marnie. She received the land as security for the repayment of the loan. When Syd repaid the debt and otherwise complied with the terms of the mortgage, Marnie was required to re-convey title to him. Land Titles System In a land titles system, a mortgage does not involve a conveyance of title at the outset. Instead, it involves the creation of a charge, which is a security interest that is registered on the certificate of title in the mortgagee's favour. Syd therefore remained the owner of Blackacre at all times. The charge simply would have allowed Marnie, in the event of default under the mortgage, to exercise the special remedies associated with a mortgage (such as possession and foreclosure). When Syd repaid the debt and otherwise complied with the terms of the mortgage, Marnie was required to complete a cessation of charge. That had the effect of removing the charge from the certificate of title and thereby providing Syd with clear title once again. 11. Monique owns a piece of land called Blackacre. Blackacre is worth $500 000. Monique created a mortgage in Bjorn's favour to secure repayment of a $200 000 loan that she received from him. A short time later, she created a subsequent mortgage in Mike's favour to secure repayment of a $250 000 loan that she received from him. Does the existence of two mortgages expose Monique, Bjorn, or Mike to a 29 © 2023 Pearson Canada Inc.

substantial risk of financial loss? Explain your answer. Difficulty: 2 QuestionID: 16-3-11 Topic: Subsequent Mortgages Skill: Applied Answer: A subsequent mortgage creates additional risks for the mortgagor and that mortgagee, but not for the original mortgagee. Bjorn–First Mortgage Bjorn is the original mortgagee. Barring a dramatic crash in land values, his position is safe. His first mortgage means that if Monique does not repay her loan to him, he can take action against Blackacre. He might, for instance, have the land sold. Since the land is currently worth $500,000, and since he is only owed $200,000, there is plenty of security for his loan. A sale of the land almost certainly would produce enough money to satisfy his claim. Mike–Second Mortgage Mike is in a more precarious situation for two reasons. First, his mortgage is only as good as Monique's title to Blackacre. If, for instance, Bjorn foreclosed upon Blackacre because of Monique's failure to pay her first loan, Monique no longer would own Blackacre. And if she no longer owned Blackacre, there would be no basis upon which Mike's mortgage could be effective–he would be foreclosed off title. He certainly could not take action against Bjorn's property in order to satisfy Monique's debt. Second, the cumulative burden of the two mortgages is $450,000. Blackacre is worth only $500 000. It certainly is possible that a moderate slump in the land market could reduce the value of Blackacre to, say, $400 000. And if the declining economic conditions also caused Monique to fail to repay her loans, Blackacre might be sold to satisfy her creditors' claims. That sale would generate $400,000 in proceeds. As the first mortgagee, Bjorn would be entitled to full payment of $200,000. Although Mike would be entitled to the remaining $200,000, that would leave him uncompensated to the tune of $50,000. He might be able to sue Monique personally for the deficiency, but that option is prohibited in some jurisdictions. Furthermore, even if he could sue Monique personally, she simply may not have any money or any assets. 12. Belinda owned a piece of land called Blackacre. On Monday, she used it to create a mortgage in favour of Johnny. On Tuesday, she used it to create a subsequent mortgage in favour of Humphrey. Humphrey registered his mortgage on Thursday. Johnny registered his mortgage on Friday. Explain a situation in which Johnny's mortgage has priority over Humphrey's. Explain a situation in which Humphrey's mortgage has priority over Johnny's. Difficulty: 1 QuestionID: 16-3-12 Topic: Priority of Mortgages Skill: Applied Answer: As a general rule, successive mortgages take priority on the basis of the order in which they were registered and not on the basis of the order in which they were created. Johnny's mortgage was created first 30 © 2023 Pearson Canada Inc.

(Monday rather than Tuesday), but Humphrey's mortgage was registered first (Thursday rather than Friday). Consequently, Humphrey presumably would have priority. An exception to the general rule is created, however, if the recipient of a subsequent mortgage registers with the knowledge that a prior mortgage existed. Consequently, if, before he registered his interest, Humphrey knew of Johnny's mortgage, Johnny would have priority despite registering second–if this is not a land title system jurisdiction. 13. Evan borrowed $100,000 from Joanna. As security for the repayment of that debt, he created a mortgage over Blackacre. Blackacre consists of a piece of land and a house. Explain why it is important to both parties that Blackacre is protected by insurance. Difficulty: 2 QuestionID: 16-3-13 Topic: Terms of the Contract Skill: Applied Answer: The purpose of a mortgage is to secure repayment of a debt. If the mortgagor does not personally repay the debt as promised, the mortgagee will be able to satisfy its claim by exercising a proprietary remedy against the land itself. Consequently, it is important to both parties for the land to retain its value, one way or another. Suppose, for instance, Blackacre is worth $200,000 in its current state. In that situation, it should provide ample security for repayment of the loan. If Evan defaults on his payments, Joanna can take action against the property and easily receive full payment of the outstanding debt of $100,000. The situation would be different, however, if a fire destroyed the house that is located on Blackacre. In that situation, the value of the land might decrease to, say, $80,000. Consequently, it no longer would provide sufficient protection for the repayment of the debt. Joanna might suffer a shortfall of $20,000 if, for instance, she eventually was required to exercise her right to have the land sold. She therefore might sue Evan personally for the deficiency. Furthermore, if Evan repaid the loan despite the fact that the house was destroyed, he would suffer the ultimate loss. He would, after the mortgage was discharged, once again enjoy clear title to Blackacre. That property, however, would be worth less than half of its original value. Insurance therefore would protect both parties. If Evan defaulted on the loan, and if the house was destroyed, Joanna would both be entitled to exercise her rights against what remains of Blackacre and she would benefit from the existence of the insurance policy. As to the latter point, she probably would have been named as a beneficiary of the insurance policy, so that she could collect the benefit directly. But if not, she would have some assurance that Evan, after receiving the benefit of the policy, would have enough money to discharge his obligations. 14. Identify and briefly explain why the remedy of possession often is not particularly attractive to a bank that is a mortgagee. Difficulty: 2 QuestionID: 16-3-14 31 © 2023 Pearson Canada Inc.

Topic: Possession of the Property Skill: Recall Answer: Under a registry system, the mortgagee becomes the legal owner of the property. In theory, it is therefore entitled to possession at the outset. Almost invariably, however, the parties' agreement states that the mortgagor is allowed to occupy the premises unless it is in default of its obligations under the mortgage. At least in theory, the situation is somewhat different under a land titles system because the mortgagee merely acquires a charge, rather than ownership. It therefore has no common law right to possess the land. In practice, however, the situation is much the same. The parties' agreement generally states that the borrower's right to occupy the premises may be lost in the event of default. The mortgagee's right to possession is actually far less attractive than it might seem. Mud–Not Money Most mortgagees are financial institutions that have little interest in occupying land. As a general rule, banks want money. They do not want the complications associated with the possession of real property. Responsibilities A mortgagee who takes possession assumes a number of responsibilities. It must keep the property in good repair and it cannot commit acts of waste. It must also take reasonable steps to generate income from the property. And when it does generate income (such as rent), it is generally required to use that money to reduce the mortgagor's debt. Equity of Redemption The mere fact of taking possession does not prevent the mortgagor from later exercising its equity of redemption (assuming that it is still available), repaying the amount that is due under the loan, and resuming possession of the property. 15. Identify and briefly explain four types of remedies that may be available if the mortgagor defaults on a mortgage. Difficulty: 2 QuestionID: 16-3-15 Topic: Remedies for Default Skill: Recall Answer: The text discusses four potential remedies: suing on the covenant, possession of the property, foreclosure, and sale. Depending upon the circumstances, those remedies may be available individually or in combination. Suing on the Covenant The first remedy turns on the fact that a mortgagee has both property rights and contractual rights. The property rights are enforceable against the mortgaged property. The personal rights are enforceable against the mortgagor. The text focuses on property rights. To receive satisfaction on the loan, the mortgagee is entitled to enforce the security rights that it holds in the mortgagor's land. It may, for example, foreclose. The mortgagee, however, may prefer to go after the person rather than the property. It may simply sue the 32 © 2023 Pearson Canada Inc.

mortgagor for the outstanding debt. The personal option, however, is not always available. It is subject to certain restrictions. Most significantly, in Alberta, British Columbia, and Saskatchewan, legislation prevents a mortgagee from bringing a personal action against an individual or against a corporation that has not waived its statutory protection. Possession of the Property The remedy of possession differs, at least in theory, upon the nature of the registration system. Under a registry system, the mortgagee becomes the legal owner of the property. In theory, it is therefore entitled to possession at the outset. Nevertheless, the parties' agreement almost always says that the mortgagor is allowed to occupy the premises unless the mortgage is in default. The situation is somewhat different under a land titles system. The mortgagee merely acquires a charge, rather than ownership. It therefore has no natural right to possess the land. In practice, however, the situation is much the same. The parties' agreement generally says that the borrower's right to occupy the premises may be lost in the event of default. The remedy of possession, however, is not as attractive as it may first seem. That is true for three reasons. (1) Most mortgagees are financial institutions that have little interest in occupying land. As a general rule, banks want "the money, not the mud." They do not want the problems associated with the possession of real property. (2) A mortgagee who takes possession acquires a number of responsibilities. It must keep the property in good repair and cannot commit acts of waste. It must also take reasonable steps to generate income from the property. And when it does generate income (such as rent), it is generally required to use that money to reduce the mortgagor's debt. (3) Even after the mortgagee has taken possession, the mortgagor may be able to exercise its equity of redemption (assuming that it is still available) by repaying the outstanding debt and resuming possession of the property. For those reasons, the mortgagee normally will not take possession unless the mortgagor has either abandoned the property or is acting in a way that will decrease its value. Foreclosure Under traditional mortgages, the mortgagee received title at the outset. If the loan was not repaid, the mortgagee was entitled to keep the land. That simple rule, however, often created hardship for mortgagors. Equity therefore recognized a right of redemption. A court could effectively alter the terms of the mortgage to facilitate repayment. That practice, however, became unfair to mortgagees, who could never be sure if or when they would be entitled to exercise their rights. Equity therefore created the doctrine of foreclosure (from the Latin words meaning "to close from outside"), which is a procedure for extinguishing the mortgagor's equity of redemption. Once again, the remedy tends to be more attractive in theory than in practice. The procedure tends to be quite drawn out and, surprisingly often, it lacks finality. The process requires the mortgagee to first obtain an order nisi and then, months later, a final order. Even at that point, however, the mortgagee may not be absolutely entitled to the property. As long as the lender/mortgagee still holds the land, the borrower/mortgagor can apply to the court to have the foreclosure set aside in exchange for repayment of the loan. There are two other reasons why foreclosure is often not a satisfactory remedy. (1) First, as with the remedy of possession, most mortgagees, as financial institutions, want money and not land. (2) The second reason stems 33 © 2023 Pearson Canada Inc.

from the frequent perception that foreclosure is unfair. The mortgagor loses the property and subsequent mortgagees lose their security. And, as occasionally happens, the mortgagee may be left overcompensated. For that reason, a court may insist that proceedings occur by way of sale rather than foreclosure. Sale The remedy of judicial sale occurs when the mortgaged property is sold under a judge's order. Although the rules vary from place to place, the process is carefully controlled. A judicial sale cannot take place unless the court or a government official (the registrar of titles) grants approval for the terms of the sale. In some jurisdictions, the judge or official may set the minimum price for which the land can be sold. Once a sale has taken place, the resulting funds are distributed in order. The first mortgagee receives as much money as is needed to repay the outstanding loan. If there is money left over, it is used to satisfy the claims of subsequent mortgagees. And if any money still remains at that point, it is paid to the mortgagor. If the sale proceeds are insufficient to cover all of the debts, there is a deficiency. In that situation, a mortgagee who has not been fully repaid may be entitled to personally sue the mortgagor on the remaining debt. As an alternative to seeking a court-ordered sale, the mortgagee can sometimes exercise a power of sale that is contained in the parties' agreement. A power of sale is a contractual right that allows the mortgagee itself to sell the land in order to obtain payment. The mortgagee is responsible for getting a reasonable price for the property. If it fails to do so, it can be held liable for the shortfall. Although quite common in some places (especially Ontario), that type of term is severely restricted in others (especially Alberta).

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Managing the Law, 6e (McInnes) Chapter 17: Personal Property: Bailment and Insurance True/False Questions 1. The distinction between real property and personal property consists of the fact that real property can never be physically picked up and moved from place to place, and personal property can always be physically picked up and moved from place to place. a True b False Difficulty: 2 QuestionID: 17-1-01 Topic: Introduction Skill: Recall Answer: b. False 2. Boyd lost a diamond ring in the lobby of a hotel. Carmel, a guest at the hotel, found it. Both Carmel and the hotel claim the right to possess the ring. If Boyd cannot be located, a court would probably favour Carmel over the hotel. a True b False Difficulty: 2 QuestionID: 17-1-02 Topic: Acquiring Personal Property Rights Skill: Applied Answer: a. True 3. Alameda owned a painting. The painting was totally destroyed in a fire. The law will say that he lost his property rights in the painting even if he has first party insurance. a True b False Difficulty: 3 QuestionID: 17-1-03 Topic: Losing Personal Property Rights / Personal Property, Risk Management, and Insurance Skill: Applied Answer: a. True 4. In determining whether or not a chattel has become affixed, a court is usually most influenced by the value of the chattel. a True 1 © 2023 Pearson Canada Inc.

b False Difficulty: 3 QuestionID: 17-1-04 Topic: Losing Personal Property Rights Skill: Recall Answer: b. False 5. The word "bailment" is derived from words that mean "to pay for the release" in French. a True b False Difficulty: 3 QuestionID: 17-1-05 Topic: Bailment Skill: Recall Answer: b. False 6. Kalinda parked her car on Dev's land. In deciding whether the parties have created a licence, rather than a bailment, a court would look exclusively at the price (if any) that Dev charged Kalinda. If the price was above market value, a bailment was created. Otherwise, a licence was created. a True b False Difficulty: 2 QuestionID: 17-1-06 Topic: Bailment Skill: Applied Answer: b. False 7. Taj borrowed a widget from Dhanna. Even though the relationship was a bailment, rather than a sale, both Taj and Dhanna may be required to exercise "reasonable care" in some sense. a True b False Difficulty: 2 QuestionID: 17-1-07 Topic: Liability of Bailors, Liability of Bailees Skill: Applied Answer: a. True 8. A bailee is always entitled to exercise a right of sale if a bailor does not pay a price associated with a 2 © 2023 Pearson Canada Inc.

bailment relationship. a True b False Difficulty: 3 QuestionID: 17-1-08 Topic: Liens Skill: Recall Answer: b. False 9. Kiran placed a widget with Laila under the terms of a bailment. The widget was lost while it was in Laila's possession. The burden of proof may shift, so that Laila is required to prove that the loss was not her fault, even if she was not a common carrier. a True b False Difficulty: 2 QuestionID: 17-1-09 Topic: Liability of Bailees Skill: Applied Answer: a. True 10. Trans-Geo Inc is a business that operates in a number of different ways. Most commonly, however, it moves goods for customers from one part of the country to another. It will not necessarily be classified as a common carrier when it does so. a True b False Difficulty: 2 QuestionID: 17-1-10 Topic: Common Carriers Skill: Applied Answer: a. True 11. A court has determined that Geo-Trans Ltd is a common carrier. Because of that special status, the Canada Transport Commission will prevent Geo-Trans Ltd from inserting any exclusion clauses into the contracts that it uses with its customers. a True b False Difficulty: 2 QuestionID: 17-1-11 Topic: Liability of Bailees 3 © 2023 Pearson Canada Inc.

Skill: Applied Answer: b. False 12. Meena gave a widget to Speedy Fixit Inc for repairs. She assumed, without much thought that the repairs would be done by Speedy itself. In fact, Speedy sent the widget to Niagara Repairs Ltd to have the work done. The widget was lost while it was in the possession of Niagara. If Meena agreed to a subbailment, she may be allowed to subsequently sue Niagara for the loss. a True b False Difficulty: 2 QuestionID: 17-1-12 Topic: Sub-Bailment Skill: Applied Answer: a. True 13. Tara operates a small computer design business. Her primary asset is her computer system, which she bought four years ago for $25,000. She bought property insurance with respect to that machine. Tara's computer was recently stolen. Her insurance policy covers loss by theft and the insurance company admits that it must pay a benefit to Tara. The concept of indemnification necessarily means that Tara will receive either $25,000 or the price of a new computer that is at least as good as her old computer was when it was new. a True b False Difficulty: 3 QuestionID: 17-1-13 Topic: Indemnification Skill: Applied Answer: b. False 14. Veda owned a diamond necklace. She entered into an insurance contract for coverage of the necklace. Under the terms of that contract, she was required to pay $500 per month. After Veda paid the premium for two months, the necklace was stolen. Her insurance policy covers loss by theft and the insurance company admits that it must pay a benefit to her. That policy, however, contains a "deductible." This means that the benefit that Veda is entitled to receive from the insurance company will be reduced by the amount that she actually paid as premiums: $1000. a True b False Difficulty: 1 QuestionID: 17-1-14 Topic: Indemnification 4 © 2023 Pearson Canada Inc.

Skill: Applied Answer: b. False 15. A person may have an insurable interest in a piece of property without owning that property. a True b False Difficulty: 1 QuestionID: 17-1-15 Topic: Insurable Interest Skill: Recall Answer: a. True 16. Leasing a car from a dealership is an example of a bailment. a True b False Difficulty: 1 QuestionID: 17-1-16 Topic: Bailment Skill: Applied Answer: a. True Multiple Choice Questions 1. Which of the following statements is TRUE? A) Chattels are a type of real property. B) Real property can be touched, while personal property consists of things, like debts, that cannot be touched. C) "Chose in possession" is another name for personal property, just as "chose in action" is another name for real property. D) All forms of property are tangible. E) Real property is immoveable. Difficulty: 2 QuestionID: 17-2-01 Topic: Introduction Skill: Recall Answer: E) Real property is immoveable. 2. Chiko has possession of a ring. He is entitled to keep it if A) he bought it from a thief in the honest belief that the thief was the true owner. 5 © 2023 Pearson Canada Inc.

B) he found the ring while trespassing on private property. C) he stole it. D) he found it on public property and the true owner cannot be located. E) he received it as a gift, but only if the person who gave it to him had previously acquired it by purchase. Difficulty: 2 QuestionID: 17-2-02 Topic: Acquiring Personal Property Rights Skill: Applied Answer: D) he found it on public property and the true owner cannot be located. 3. Rose and Caradoc were romantically involved for several years. During that time, she gave a necklace to him. The couple then had a terrible fight and broke up. Because he no longer wanted anything to do with Rose, Caradoc threw the necklace into a garbage can that was located in the main hall of a railway station. That station is owned by the Regional Transport Authority (RTA), but members of the public are always welcome. Francis saw the necklace in the garbage and took it home with him. All four parties (Francis, Rose, Caradoc, and the RTA) now claim the right to possession of the necklace. Which of the following statements is most likely TRUE? A) Rose is entitled to the necklace as long as she paid for it initially. B) Francis is entitled to the necklace as long as he intended to exercise control over it. C) RTA is entitled to the necklace as long as the garbage can was located on its property. D) Caradoc is entitled to the necklace as long as he has honestly changed his mind and truly does want possession of it. E) The necklace is co-owned by two of the parties. Difficulty: 2 QuestionID: 17-2-03 Topic: Acquiring Personal Property Rights Skill: Applied Answer: B) Francis is entitled to the necklace as long as he intended to exercise control over it. 4. Which of the following things does Hannah own? A) A bicycle that she bought last year but abandoned by the side of a road yesterday. B) A coat that she received as a gift from her former friend, George, who now insists that, since the friendship is over, ownership must return to him. C) A set of kitchen cupboards that she purchased and installed in an apartment that she rents. D) A litter of puppies that was created when her Great Dane, Jake, became friendly with a large poodle who lives next door. E) A fox that runs wild on a piece of land that she owns. Difficulty: 2 QuestionID: 17-2-04 Topic: Acquiring Personal Property Rights Skill: Applied 6 © 2023 Pearson Canada Inc.

Answer: B) A coat that she received as a gift from her former friend, George, who now insists that, since the friendship is over, ownership must return to him. 5. What is the difference between a chose in action and a chose in possession? A) A chose in action always pertains to land, but a chose in possession does not. B) A chose in action is a living thing, such as a plant, whereas a chose in possession is a non-living thing, like a diamond or a book. C) A chose in action can only be enjoyed through legal proceedings, whereas a chose in possession can be enjoyed through physical possession. D) Canadian law recognizes choses in possession but not choses in action. E) A chose in action is a thing that can be moved, while a chose in possession is a thing that must remain in one place. Difficulty: 3 QuestionID: 17-2-05 Topic: Acquiring Personal Property Rights Skill: Recall Answer: C) A chose in action can only be enjoyed through legal proceedings, whereas a chose in possession can be enjoyed through physical possession. 6. As used in the text, the word "chattel" A) is derived from the root word for "cattle." B) refers to a thing that cannot be held under a bailment. C) applies to the rights represented by the cheque but not to the cheque itself. D) refers to things that are affixed to land and that consequently are owned by the person who owns the land. E) applies to tangible forms of real property. Difficulty: 3 QuestionID: 17-2-06 Topic: Acquiring Personal Property Rights Skill: Recall Answer: A) is derived from the root word for "cattle." 7. Tamika rented a warehouse from Lester. During the life of the lease, she attached shelves along the interior walls. The lease has expired. Each party claims to own the shelves, which are still in place. In deciding the case, a judge would be MOST influenced by A) the fact that the shelves are attached to the walls with strong glue, even though large bolts are normally used for that purpose. B) the fact that the parties' lease grants ownership to one of the parties, even if the general law on fixtures would favour the other party. C) the fact that Lester is better able to suffer a loss without experiencing hardship. D) the fact that Tamika genuinely wants to use the shelves in another warehouse. 7 © 2023 Pearson Canada Inc.

E) the fact that Lester's next tenant will want to use the shelves. Difficulty: 2 QuestionID: 17-2-07 Topic: Losing Personal Property Rights Skill: Applied Answer: B) the fact that the parties' lease grants ownership to one of the parties, even if the general law on fixtures would favour the other party. 8. Chinthaka received a widget from Melissa. A true bailment was created if A) he stole it from her. B) he rented it from her. C) he found it after she misplaced it. D) she gave it to him as a gift. E) she sold it to him. Difficulty: 2 QuestionID: 17-2-08 Topic: Bailment Skill: Applied Answer: B) he rented it from her. 9. The creation of a bailment requires proof that A) the bailee delivered something to the bailor. B) the bailor was in the business of dealing with the type of goods in question. C) the bailor delivered something to the bailee. D) the parties intended to transfer ownership. E) at least one of the parties owned the property at all times. Difficulty: 2 QuestionID: 17-2-09 Topic: Bailment Skill: Recall Answer: C) the bailor delivered something to the bailee. 10. Chasya rented a widget from Alec. During the rental period, the widget was involved in an accident. Which of the following statements is TRUE? A) The parties' rights with respect to the accident are probably governed by the Sale of Goods Act. B) Since the transaction was not intended to transfer title, Alec could not have been required to warn Chasya with respect to the use of the widget. C) If the widget was damaged during the accident, Chasya necessarily will be treated as an insurer. D) If the accident was caused by the fact that the widget was defective, Chasya may be entitled to recover damages for personal injuries that she suffered during the accident, but only if Alec actually knew of the 8 © 2023 Pearson Canada Inc.

defect before providing Chasya with possession of the widget. E) If Alec sues for the damage done to the widget, the court may shift the burden of proof by requiring Chaysa to prove that the damage was not her fault. Difficulty: 2 QuestionID: 17-2-10 Topic: Liability of Bailees Skill: Applied Answer: E) If Alec sues for the damage done to the widget, the court may shift the burden of proof by requiring Chaysa to prove that the damage was not her fault. 11. A bailment relationship was created between Vijay and Amanda. It was intended to last for two weeks. That period has expired. Amanda now claims that she is entitled to exercise a lien. Which of the following statements is most likely to be TRUE? A) Amanda was probably the bailor. B) A lien can exist only if it was created by statute. C) If Amanda is entitled to enforce a lien, she is also entitled to exercise a right of sale. D) A lien does not exist if the goods were legitimately returned to their owner at the end of the bailment. E) Amanda must be a common carrier. Difficulty: 2 QuestionID: 17-2-11 Topic: Liens Skill: Applied Answer: D) A lien does not exist if the goods were legitimately returned to their owner at the end of the bailment. 12. A bailment was created between Owen and Padma. The bailment involved the storage of a widget for 12 months. The price for storage was $1,000 per month. At the end of the year, only $5,000 had been paid in total. The widget was worth $10,000. It was sold for that amount under a lien and right of sale. Ignoring the costs associated with the enforcement of the lien and the right of sale, when the sale proceeds are distributed, the bailee will be entitled to receive A) $5,000. B) $3,000. C) $7,000. D) $10,000. E) $12,000. Difficulty: 2 QuestionID: 17-2-12 Topic: Liens Skill: Applied Answer: C) $7,000. 9 © 2023 Pearson Canada Inc.

13. Darcy received a widget from Rachel under a bailment. The widget was damaged while it was in his possession. As a result, Rachel has sued Darcy. Which of the following statements is TRUE with respect to Darcy's liability? A) If Darcy is a common carrier, then he may be relieved of liability if the damage was caused by an act of God. B) Darcy will be treated as an insurer if the bailment was both gratuitous and for his benefit. C) Once Rachel proves that the widget was damaged while in Darcy's possession, the burden of proof necessarily will shift. D) If the burden of proof shifts to Darcy, he cannot possibly avoid liability by merely proving that he exercised reasonable care. E) If the bailment was for Rachel's benefit, Darcy cannot be held liable. Difficulty: 3 QuestionID: 17-2-13 Topic: Common Carriers Skill: Applied Answer: A) If Darcy is a common carrier, then he may be relieved of liability if the damage was caused by an act of God. 14. If property is lost or damaged during a bailment, the burden of proof may shift. Which of the following statements is TRUE with respect to that rule? A) If the burden of proof shifts, it moves from the bailor to the bailee. B) The rule allowing the burden of proof to shift was originally based on the desire to discourage unwarranted lawsuits. C) The burden of proof shifts only if the bailment involved a common carrier. D) The burden of proof shifts only if neither party can explain how the property became lost or damaged during the bailment. E) The usual effect of shifting the burden is to transform the transaction from a rental into a sale. Difficulty: 2 QuestionID: 17-2-14 Topic: Liability of Bailees Skill: Recall Answer: A) If the burden of proof shifts, it moves from the bailor to the bailee. 15. Rohan created a bailment by providing goods to Hi-way Transport Co (HTC), which is a common carrier. The goods were damaged during the bailment. Which of the following statements is TRUE? A) The bailor is treated as an insurer. B) HTC can be held liable only if there is proof that it was at fault. C) Given the nature of the parties' relationship, HTC cannot be protected by an exclusion clause. D) HTC cannot be considered a common carrier if it occasionally turns away business because it lacks space. E) If Rohan's goods are covered by first party insurance, his insurer may eventually be entitled to receive 10 © 2023 Pearson Canada Inc.

money from HTC. Difficulty: 3 QuestionID: 17-2-15 Topic: Subrogation Skill: Applied Answer: E) If Rohan's goods are covered by first party insurance, his insurer may eventually be entitled to receive money from HTC. 16. Pan-Canada Delivery Inc is a common carrier. It accidentally damaged an expensive shipment of goods. Nevertheless, it cannot possibly be held liable if A) it exercised as much care as possible. B) the damage was caused by a rainstorm. C) the shipping contract contains a clause that says that "liability will not be imposed for lost goods, whether or not the loss was caused by the carrier's carelessness or fault" and no more. D) the goods were damaged by an inherent vice. E) the shipper provided consideration in exchange for Pan-Canada's services. Difficulty: 2 QuestionID: 17-2-16 Topic: Common Carriers Skill: Applied Answer: D) the goods were damaged by an inherent vice. 17. Which of the following statements is TRUE with respect to sub-bailments? A) Because of the doctrine of privity, it is possible to have a sub-bailment, but not a sub-sub-bailment. B) A sub-bailment must be contractual in origin. C) A sub-bailment can occur with the bailor's implied or express consent. D) A sub-bailee is always considered an insurer for the purposes of the standard of care. E) Every person who is a bailor must also be a bailee. Difficulty: 2 QuestionID: 17-2-17 Topic: Sub-Bailment Skill: Recall Answer: C) A sub-bailment can occur with the bailor's implied or express consent. 18. Anna wanted goods moved from Vancouver to Halifax. For that purpose, she gave them to Boris, who operates an independent trucking business. When Boris reached Winnipeg, his truck broke down. To fulfill his contract with Anna, he gave possession of the goods to Carl, with instructions to deliver them to Halifax. The goods were destroyed while they were in Carl's possession. Which of the following statements is TRUE? A) Even though he did not own the property, Boris may sue Carl, but if the court awards damages, then 11 © 2023 Pearson Canada Inc.

Boris must receive that money on behalf of Anna. B) If Anna consented to Carl's possession of the goods, she can successfully sue him even if he had no way of knowing that the goods belonged to someone other than Boris. C) If Boris and Carl are both common carriers, Boris will be treated as an insurer, but Carl will not, because only Boris dealt directly with Anna. D) If the contract between Boris and Carl contained an exclusion clause, there is no way that Anna can be bound by it. E) If Anna did not consent to Carl's possession of the goods, Boris can successfully sue Carl and retain the damages for himself. Difficulty: 3 QuestionID: 17-2-18 Topic: Sub-Bailment Skill: Applied Answer: A) Even though he did not own the property, Boris may sue Carl, but if the court awards damages, then Boris must receive that money on behalf of Anna. 19. Adrienne wanted to place her jewels, which were valued at $100,000, in safe storage while she was on vacation. For that purpose, she gave them to Saul, a jeweler. Since Saul did not actually have safekeeping facilities, he gave Adrienne's jewels to Jeannie. Since Jeannie did not have safekeeping facilities either, she simply placed the jewels in her desk drawer. The jewels were stolen from that drawer by an unknown thief. The evidence indicates that Saul knew that Jeannie did not have proper safekeeping facilities. Adrienne had the jewels fully insured against loss or theft under a policy that she purchased from Rideau Insurance Co. Saul has liability insurance that he bought from Wellington Insurance Ltd, but Jeannie does not have any insurance. The evidence indicates that both Saul and Jeannie acted carelessly. Which of the following statements is most likely to be TRUE? A) Adrienne will likely receive $100,000 from Saul and $100,000 from Jeannie. B) Adrienne will receive $300,000, consisting of $100,000 from Saul, $100,000 from Jeannie, and $100,000 from Rideau Insurance Co. C) If Saul and Jeannie are both successfully sued, Rideau Insurance Co will be entitled to receive a total of $100,000, entirely from one, or part from each. D) If Saul and Jeannie are both successfully sued, they both will be personally required to pay $60,000 to Adrienne. E) If Adrienne claims a benefit under her insurance policy, she will receive $100,000, plus the amount that she paid to Rideau Insurance Co in premiums. Difficulty: 3 QuestionID: 17-2-19 Topic: Sub-Bailment Skill: Applied Answer: C) If Saul and Jeannie are both successfully sued, Rideau Insurance Co will be entitled to receive a total of $100,000, entirely from one, or part from each. 20. Gig Shipping, which is based in Winnipeg, offered to deliver "anything, anywhere anytime." Rosie 12 © 2023 Pearson Canada Inc.

entered into a contract with Gig Shipping to send an antique phonograph from Portage La Prairie to Brockville. The phonograph was lost in transit. Rosie claimed the value of the phonograph under a policy that she had purchased from The Pas Insurance Co. Despite the loss, Gig Shipping feels protected from the effects of liability by a policy that it purchased from Brandon Insurance Co. Which of the following statements is most likely TRUE? A) Gig Shipping can be held liable only if it deliberately or carelessly damages the phonograph. B) If one insurance company is compelled to pay a benefit, the other could not possibly be compelled to pay a benefit. C) The Pas Insurance Company sold a first part insurance policy. D) Gig Shipping acted as a bailor. E) Rosie purchased a third party insurance policy. Difficulty: 3 QuestionID: 17-2-20 Topic: Personal Property, Risk Management, and Insurance Skill: Applied Answer: C) The Pas Insurance Company sold a first part insurance policy. 21. Acme Corp owns an expensive widget. Which of the following statements is TRUE? A) If Acme Corp intentionally abandons the widget, you will be entitled to keep it for yourself only if you take possession of it without actual knowledge that it had been abandoned. B) If a thief steals the widget and sells it to you, you will be liable to Acme Corp for the tort of conversion only if you actually knew that the widget was stolen. C) If Acme Corp loses the widget, and you find it but are unable to determine its true owner, you will be able to sue me for the tort of conversion if I forcibly take it from you. D) If a thief steals the widget, and I buy it from the thief without knowing about the theft, then the Acme Corp and I will share ownership of the widget. E) If Acme Corp created the widget, then the widget will not have an owner unless and until someone buys it from the company. Difficulty: 3 QuestionID: 17-2-21 Topic: Acquiring Personal Property Rights / Personal Property, Risk Management, and Insurance Skill: Applied Answer: C) If Acme Corp loses the widget, and you find it but are unable to determine its true owner, you will be able to sue me for the tort of conversion if I forcibly take it from you. 22. Which of the following statements is TRUE with respect to property insurance? A) A benefit paid by an insurer to an insured is called a premium. B) Property insurance is called third party coverage if one person buys insurance with respect to property that is owned by another person. C) Property insurance is called first party coverage only if the insurer sold the policy to a human being, rather than a corporation. D) A benefit may be paid under a property insurance policy even if the insured is entitled to sue a third 13 © 2023 Pearson Canada Inc.

party for causing the loss or damage in question. E) Property insurance is available for real property, but not personal property. Difficulty: 1 QuestionID: 17-2-22 Topic: Subrogation Skill: Recall Answer: D) A benefit may be paid under a property insurance policy even if the insured is entitled to sue a third party for causing the loss or damage in question. 23. Sandor bought property insurance from Athena Insurance Corp five years ago. A dispute has arisen between the parties regarding the duty of utmost good faith. That most likely means that A) the policy may be invalid if Sandor was not entirely candid with the insurer when he bought the policy. B) special rules apply because the policy was purchased with respect to sacred religious objects. C) Athena Insurance Corp denies that it received a cheque for the payment of Sandor's annual premium. D) Sandor is not entitled to receive a benefit for loss that did not occur. E) Athena Insurance Corp is not really an insurance company. Difficulty: 3 QuestionID: 17-2-23 Topic: Personal Property, Risk Management, and Insurance Skill: Applied Answer: A) the policy may be invalid if Sandor was not entirely candid with the insurer when he bought the policy. 24. The concept of indemnification A) means that the benefit paid under a policy is always large enough to allow the insured to buy a new piece of property as replacement for the one that was damaged or lost. B) applies only if the premiums that the insured paid are equal to the value of the property that was lost or damaged. C) usually leaves the insured with a small profit. D) is important to the concept of an insurable interest. E) is relevant to third party coverage but not first party coverage. Difficulty: 2 QuestionID: 17-2-24 Topic: Indemnification, Insurable Interest Skill: Recall Answer: D) is important to the concept of an insurable interest. 25. Gamma Ltd owns a widget. It purchased property insurance from Atlantic Insurance Co. The widget was recently destroyed by a fire. It was worth $75 000, and it will cost that much to replace it. Both parties agree that that loss falls within the terms of the policy. Nevertheless, a dispute has arisen 14 © 2023 Pearson Canada Inc.

regarding a $5,000 deductible. That most likely means that A) Gamma Ltd failed to pay a premium worth $5,000. B) Atlantic Insurance Co claims that the fire was caused by a third party and that Gamma Ltd must sue that third party in tort instead of claiming a benefit under the policy. C) Atlantic Insurance Co claims that Gamma Ltd is entitled to receive $70,000. D) if Atlantic Insurance Co sues a third party in tort for causing the fire that destroyed the widget, the costs of that litigation will be deducted from the benefit that Gamma Ltd is entitled to receive. E) the benefit that Gamma Ltd is entitled to receive under the policy will be reduced to the extent that the widget can be sold for scrap material. Difficulty: 2 QuestionID: 17-2-25 Topic: Indemnification Skill: Applied Answer: C) Atlantic Insurance Co claims that Gamma Ltd is entitled to receive $70,000. 26. The concept of an insurable interest A) is aimed at avoiding moral hazards. B) prevents an insurance company from selling a policy to anyone other than the owner of a piece of property. C) creates an important general exception to the general rule of indemnification. D) is relevant only in cases of co-insurance. E) was abolished by the Supreme Court of Canada's decision in Kosmopoulos v Constitution Insurance Co. Difficulty: 1 QuestionID: 17-2-26 Topic: Insurable Interest Skill: Recall Answer: A) is aimed at avoiding moral hazards. 27. Theta Ltd owned a widget worth $50,000. It purchased "full coverage" property insurance from Atlantic Insurance Co. It also bought "full coverage" property insurance from Pacific Insurance Co. The widget was destroyed by a fire. Theta Ltd received a $50,000 benefit from Atlantic Insurance Co. Atlantic Insurance Co has now sued Pacific Insurance Co. The best explanation for that action lies in the concept of A) subrogation. B) co-insurance. C) contribution. D) deductible. E) fidelity. Difficulty: 2 QuestionID: 17-2-27 Topic: Excessive and Insufficient Insurance 15 © 2023 Pearson Canada Inc.

Skill: Applied Answer: C) contribution. 28. Naomi owned an inventory of widgets worth $100,000. She purchased $40,000 worth of property insurance from Huron Insurance Co. That policy contained a co-insurance clause that required at least 80 percent coverage. A flood caused extensive damage to Naomi's widgets. Naomi will be entitled to receive a benefit of $20,000 if the flood caused damage worth A) $20,000. B) $30,000. C) $40,000. D) $60,000. E) $80,000. Difficulty: 3 QuestionID: 17-2-28 Topic: Excessive and Insufficient Insurance Skill: Applied Answer: C) $40,000. 29. Zelig owns a widget worth $25,000. He purchased property insurance from Superior Insurance Co. The widget was irreparably damaged as a result of an accident that was caused by Zoe. Zoe has a liability insurance policy from Erie Insurance Co. Which of the following statements is most likely to be TRUE? A) Zelig cannot claim a benefit from Superior Insurance Co unless Zoe caused the accident in a way that exposed her to liability in tort. B) If it is required to pay a benefit of $25,000 to Zelig, Superior Insurance Co can claim the same amount of money from Erie Insurance Co even if Zoe could not be held liable to Zelig for damaging the widget. C) If Superior Insurance Co sues Zoe, it will do so on the basis of the concept of contribution. D) The concept of subrogation means that if Zelig successfully sues Zoe in tort, she will be able to claim a benefit from Superior Insurance Co. E) If Superior Insurance Co pays a benefit to Zelig, it will be entitled to exercise subrogated rights against Zoe. Difficulty: 2 QuestionID: 17-2-29 Topic: Subrogation Skill: Applied Answer: E) If Superior Insurance Co pays a benefit to Zelig, it will be entitled to exercise subrogated rights against Zoe. 30. Which of the following statements is most likely to be TRUE? A) Hacker insurance provides protection from losses that may be caused by computer viruses. B) Business interruption insurance is generally used to hire and train a replacement if a key member of an organization dies unexpectedly. 16 © 2023 Pearson Canada Inc.

C) A surety bond generally provides coverage if an employee steals something from a business or its customer. D) A fidelity bond is generally used to assure a customer that compensation will be available if a project is not completed on schedule. E) Key person insurance usually applies if a business incurs an unexpected expense, such as when security issues cause a business to cut a new set of keys for is employees. Difficulty: 1 QuestionID: 17-2-30 Topic: Other Forms of Business Insurance Skill: Recall Answer: A) Hacker insurance provides protection from losses that may be caused by computer viruses. 31. As defined in Chapter 16, a "licence" A) is an obligation to act reasonably. B) allows a person to act in a way that otherwise would be considered wrongful. C) is always granted by a government official. D) always applies with respect to an interest in land. E) is a right to inflict a financial loss upon another party. Difficulty: 1 QuestionID: 17-2-31 Topic: Bailment Skill: Recall Answer: B) allows a person to act in a way that otherwise would be considered wrongful. 32. Which of the following statements is TRUE with respect to statutory liens that apply in the context of bailments? A) The legislation provides a lien to every type of bailee, as long as the bailment is not gratuitous. B) A statutory lien always provides a right to retain possession, but not a right of sale. C) Statutory liens are restricted to "common callings," such as innkeepers and common carriers. D) If goods are sold under a statutory lien, any money not required to discharge the debt is paid to the bailor. E) Statutory liens are effective regardless of who has possession of the relevant property. Difficulty: 2 QuestionID: 17-2-32 Topic: Liens Skill: Recall Answer: D) If goods are sold under a statutory lien, any money not required to discharge the debt is paid to the bailor. 33. The phrase "nemo dat quod non habet " 17 © 2023 Pearson Canada Inc.

A) applies to real property, but not to personal property. B) is generally ineffective with respect to money. C) applies only in equity. D) is a concept that arises only in insurance law. E) means that a person who has possession of property under a bailment must use reasonable care. Difficulty: 3 QuestionID: 17-2-33 Topic: Personal Property, Risk Management, and Insurance Skill: Recall Answer: B) is generally ineffective with respect to money. 34. Which of the following statements is most likely to be TRUE with respect to insurance? A) First party insurance and third party insurance may both apply to the same set of events. B) The phrase "third party insurance" refers to the fact that an insurance company used an agent to sell a policy to a customer. C) The phrase "first party insurance" refers to the fact that the insured party must immediately contact the insurance company after being sued for a type of loss that the insurance policy covers. D) Liability insurance imposes a duty of utmost good faith on the insured party, but property insurance does not. E) The phrase "self-insure" refers to the fact that a company has purchased an insurance company that covers all of its employees, rather than requiring those employees to individually insure themselves. Difficulty: 2 QuestionID: 17-2-34 Topic: Personal Property, Risk Management, and Insurance Skill: Recall Answer: A) First party insurance and third party insurance may both apply to the same set of events. 35. Alan purchased a piece of land from Zirka. He used a cheque to pay for the price. Which of the following statements is TRUE? A) The piece of paper that Zirka received is a chose in action. B) The land that Alan purchased is a type of chose in possession. C) The rights represented by the cheque are a type of intangible property. D) The rights represented by the cheque are a type of chattel. E) The land is a chose in action. Difficulty: 1 QuestionID: 17-2-35 Topic: Introduction Skill: Applied Answer: C) The rights represented by the cheque are a type of intangible property.

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36. Aziz abandoned a bicycle by the side of the road with the intention of never seeing it again. Brian saw the bike a short time later and took possession of it with the intention of keeping it. When he was not riding it, Brian regularly left the bike on the sidewalk in front of his apartment building. One night while he slept, Celeste took the bike, with the intention of keeping it for herself. A week later, however, Dharma grabbed the bike from out of Celeste's hands. When she complained, Dharma said that since she had stolen the bike, she had no rights in it. Which of the following statements is TRUE? A) The bike is still owned by Aziz. B) Brian has the best right to the bike. C) Dharma has a better right to the bike than Celeste. D) Aziz has a better right to the bike than Celeste. E) Since none of the other parties paid for the bike, Aziz is entitled to recover ownership rights if he relies upon the maxim of nemo dat quod non habet. Difficulty: 3 QuestionID: 17-2-36 Topic: Losing Personal Property Rights Skill: Applied Answer: B) Brian has the best right to the bike. 37. Melanie brought a box full of old clothes to Second Hand Duds (SHD). SHD agreed to sell the clothes on consignment. This means that A) SHD accepted the clothes as payment of a debt that Melanie owed to it. B) SHD has become a bailor. C) Melanie will own the clothes until they are sold by SHD to a customer. D) Melanie must be an employee of SHD. E) SHD and Melanie have become co-owners of the clothes. Difficulty: 2 QuestionID: 17-2-37 Topic: Bailment Skill: Applied Answer: C) Melanie will own the clothes until they are sold by SHD to a customer. 38. Dominion Carriage Inc (DCI) is a common carrier. In exchange for payment of a price, it agreed to transport Milo's widgets from Halifax to Vancouver. DCI's ship was to head south along America's east coast, pass through the Panama Canal, and then head north along America's west coast. The goods unfortunately were damaged en route. Because he has suffered a loss of $100,000, Milo has sued. DCI seeks to avoid or limit liability on various grounds. Which of the following statements is most likely to be TRUE? A) Under the concept of "inherent vice," Milo's claim will fail if his widgets were unavoidably dangerous because they could easily explode. B) If the parties' contract contains an exclusion clause, that clause must have the approval of the Canadian Transport Commission. C) Under the concept of "shipper's fault," DCI will be held liable if it carelessly caused the widgets to be 19 © 2023 Pearson Canada Inc.

damaged. D) DCI would not be liable if the widgets were damaged as a result of an act of God, such as an earthquake. In contrast, the company cannot possibly avoid liability if the widgets were damaged by acts of war because Panama was experiencing a revolution when the ship passed through. E) Because the terms of a contract between a common carrier and a customer are determined by legislation, the contract that Milo and DCI created cannot have an exclusion clause. Difficulty: 3 QuestionID: 17-2-38 Topic: Common Carriers Skill: Applied Answer: B) If the parties' contract contains an exclusion clause, that clause must have the approval of the Canadian Transport Commission. 39. Acme Moving Inc contractually agreed to move Jed's property from Vancouver to Halifax. When the property arrived in Halifax, it was badly damaged. Jed has sued Acme, claiming compensation for his loss. Acme believes, however, that it has an effective defence to that claim. Jed disagrees. Which of the following statements is most likely to be TRUE? A) The defence of "inherent vice" will apply only if Jed's property was something like heroin that is illegal to possess. B) Because of the potential for abuse, Acme may rely upon a contractual clause that reduces liability, but not a contractual clause that entirely eliminates liability. C) Acme may be held liable eve if Jed's property was damaged by an act of God. D) The concept of "shipper's fault" means that Acme cannot escape liability if it deliberately damaged Jed's property. E) Acme cannot possibly avoid liability on the basis of a defence because, for policy reasons, companies in its position are absolutely liable for any damage that they cause. Difficulty: 3 QuestionID: 17-2-39 Topic: Common Carriers Skill: Applied Answer: C) Acme may be held liable eve if Jed's property was damaged by an act of God. 40. Solace Insurance Company (SIC) sold an insurance policy to Kelly. As a result of certain events, the concept of subrogation has become relevant. This most likely means that A) Kelly breached her obligation of utmost good faith. B) although SIC is liable to pay for most of the loss, Kelly is required to pay for a small part of that loss. C) a tortfeasor damaged property that Kelly had insured. D) Kelly purchased two different insurance policies, from two different insurance companies, with respect to the same risk of loss. E) SIC has discovered that Kelly does not have an insurable interest in certain property. Difficulty: 2 20 © 2023 Pearson Canada Inc.

QuestionID: 17-2-40 Topic: Subrogation Skill: Applied Answer: C) a tortfeasor damaged property that Kelly had insured. 41. Every night for two weeks, a cat hung around Xavier's back door. Since the cat did not seem to have a home, Xavier decided to keep it. Which of the following is most likely to be TRUE? A) If the cat belongs to someone else, Xavier has no property rights. B) Xavier has property rights in the cat, but only if it is not wearing any tags. C) If the cat arrived at Xavier's house after wandering away from its owner, then Xavier has good property rights against everyone in the world except that original owner. D) Xavier has an absolute right to possess the cat under the rule that states "finders keepers, losers weepers." E) Xavier cannot have property rights over a living thing. Difficulty: 2 QuestionID: 17-2-41 Topic: Acquiring Personal Property Rights Skill: Applied Answer: C) If the cat arrived at Xavier's house after wandering away from its owner, then Xavier has good property rights against everyone in the world except that original owner. 42. Because he was new to the city, Pierce was looking for a house to buy. After seeing an "Open House" sign on the lawn of a lovely bungalow, he stopped and took a tour through the property. Just as Pierce got to the backyard, Quincy (the owner) pointed at the in-ground pool and said, "We are, of course, taking that with us." Pierce laughed. He laughed alone, but he simply assumed that Quincy has a very dry sense of humour. Impressed with what he saw, Pierce bought the house. When the sale closed and Pierce took possession, however, he was horrified to discover that the backyard consisted of a huge excavation site. The pool was gone. It seems that Quincy wasn't joking after all. Which of the following statements is most likely to be TRUE? A) Pierce was entitled to the pool because it was a fixture. B) Quincy was entitled to the pool as long as he removed it before he sold the house. C) Quincy was entitled to the pool as long as he reduced the price of the house accordingly. D) Pierce has no right to damages because of the rule of caveat emptor. E) Quincy was entitled to the pool unless Pierce can prove that he intended to abandon it. Difficulty: 2 QuestionID: 17-2-42 Topic: Losing Personal Property Rights Skill: Applied Answer: A) Pierce was entitled to the pool because it was a fixture. 43. Before she left for a one-month trip to Europe, Inez asked her brother, Edgar, if she could park her 21 © 2023 Pearson Canada Inc.

car on his driveway. When he said "yes," she gave him her keys, but told him that no one was allowed to drive the vehicle under any circumstances. She also said that she would collect the car as soon as she returned home. A judge most likely would find that Inez created A) a bailment for reward. B) a consignment. C) a reversion interest. D) a license. E) a lease. Difficulty: 3 QuestionID: 17-2-43 Topic: Bailment Skill: Applied Answer: D) a license. 44. Just before the Labour Day weekend, Aimee's husband gave her a diamond ring as a gift. Aimee did not want to bring something so precious to the lake for the weekend, but she also did not want to simply leave it at home. When her friend, Gladys, offered to keep the ring in her safe for three days, Aimee agreed, but only after Gladys accepted $100 as payment. Unfortunately, thieves broke into Gladys' house that night, cracked the safe, and stole the ring. Aimee has sued Gladys. Which of the following statements is most likely to be TRUE? A) Aimee cannot possibly win unless she has evidence to prove that Gladys acted negligently. B) Gladys is liable because the bailment creates a guarantee. C) As long as Aimee can prove that Gladys accepted $100 for her efforts, the court will treat Gladys as an insurer. D) Gladys will benefit from the rule that lowers the standard of care between friends and family, even though she received a small payment from Aimee. E) Even if the burden of proof shifts, Gladys will not be held liable if she persuades the court that she was not to blame for the loss. Difficulty: 2 QuestionID: 17-2-44 Topic: Liability of Bailees Skill: Applied Answer: E) Even if the burden of proof shifts, Gladys will not be held liable if she persuades the court that she was not to blame for the loss. 45. William owned a factory that was burned to the ground as a result of Jefferson's negligence. Happily, William had purchased first-party coverage from Clinton Insurance Corp (CIC). Which of the following statements is most likely to be TRUE? A) William will receive compensation from Jefferson. B) William will receive some compensation from Jefferson and the rest from CIC. C) Jefferson will be subrogated to William's position. D) CIC will sue Jefferson in tort. 22 © 2023 Pearson Canada Inc.

E) Because of the doctrine of indemnification, CIC must repay William's insurance premiums if a court holds Jefferson liable to CIC. Difficulty: 2 QuestionID: 17-2-45 Topic: Subrogation Skill: Applied Answer: D) CIC will sue Jefferson in tort. Essay Questions 1. "The acquisition of personal property always involves the intention of at least two people." Is this statement true? Explain your answer by using examples. Difficulty: 1 QuestionID: 17-3-01 Topic: Acquiring Property Rights Skill: Recall Answer: The statement is usually, but not always, true. Property rights are usually acquired through consensual arrangements between two people. For example, you may acquire the right to possess a book because I sold it to you, or because I rented it to you, or because I gave it to you as a present. In each case, your right to possession depends upon the fact that I intended to give something to you and you intended to receive it from me. Abandonment also involves an interesting instance in which the transmission of property rights involves the intention of two people. Property is abandoned when the owner gives up possession and control with the intention of relinquishing rights to the thing. Rights in the thing can then be acquired if someone else subsequently takes control and possession with the intention of asserting a form of ownership. In contrast to abandonment, the rights that are acquired by the finder of lost property are a function of unilateral intention of the finder. By taking control and possession of the thing with the intention of excluding others, that person acquires rights against the whole world except the true owner. The true owner's intention, however, obviously is not involved in the creation of the finder's rights. The true owner did not intend for the finder to acquire rights, any more than it intended to lose the property in the first place. 2. "Property law, like nature, abhors a vacuum. Consequently, property rights that are lost by one party are always acquired by another party." Is this statement true? Explain your answer by using examples. Difficulty: 1 QuestionID: 17-3-02 Topic: Losing Property Rights Skill: Recall

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Answer: The statement is usually, but not always, true. Especially in the commercial context, when rights in personal property are lost by one person, they are usually acquired by another. A publisher, for instance, may have full rights to the books that are contained in its warehouse. It may give up the rights to a particular book by selling, renting, or gifting it to someone else. What the publisher loses, someone else gains. Sometimes, however, property is lost by one person and not gained by anyone else. Most obviously, since property rights depend upon the existence of property, rights cease to exist if the property is destroyed. That would be true, for instance, if a warehouse full of books was wiped out in a fire. (In that case, the previous owner of the books might, however, acquire a new right to receive a benefit under an insurance policy.) There are also other means by which property rights may be lost by one person without being gained by another. The text briefly mentions the example of abandonment. If I no longer want a ring that I own, I may throw it into a field with the intention of abandoning rights to it. Although the cases are occasionally inconsistent, the ring probably belongs to no one unless and until someone takes possession and control of it with the intention of asserting rights in it. 3. Bonzi found a necklace while staying in a hotel that is owned by Alpha Corp. To whom does the necklace belong? Explain your answer, and identify any additional facts that are required before the issue can be fully resolved. Difficulty: 2 QuestionID: 17-3-03 Topic: Acquiring Property Rights Skill: Applied Answer: Three parties appear to have some claim to the necklace: Bonzi, Alpha Corp, and the person to whom the necklace belonged before Bonzi found it (whom we shall call X). The first question is whether X abandoned or lost the necklace. If the former, then X no longer has any rights to the thing. If the latter, however, X still has the best rights to the thing, even though the law will find that some lesser set of rights is enjoyed by either Bonzi or Alpha Corp. The text explained the situation in which one person finds lost property on someone else's land. The same general rules presumably apply if one person finds abandoned property on someone else's land. Bonzi will acquire rights against everyone except X if he found the necklace in a publicly accessible area of the hotel, such as the lobby. In contrast, Alpha Corp will acquire property rights against everyone except X if Bonzi found the necklace in an area of the hotel over which Alpha Corp had a "manifest intention" to exercise control, such as a private office. 4. Pavel found a ring that Jacinta had lost. Does a true bailment exist while the ring is in Pavel's possession? Explain your answer. Difficulty: 2 QuestionID: 17-3-04 24 © 2023 Pearson Canada Inc.

Topic: Bailment Skill: Applied Answer: A true bailment is premised upon three criteria: (i) one person voluntarily delivers property to another, (ii) for a particular purpose, (iii) with the intention that the property will be returned or disposed of as directed. These conditions were not met when Pavel found Jacinta's ring. She did not voluntarily deliver possession of the ring to him for a particular purpose and with the intention of having it returned. Rather, she simply lost it and he simply found it. Nevertheless, following common practice, the situation between Pavel and Jacinta may be described as a quasibailment, which means a "sort of bailment." The similarity arises from the fact that Pavel has legal possession of property belonging to Jacinta, which she has a right to recover. 5. Eleni owns and operates a restaurant. During the winter months, it is inappropriate for diners to bring their coats with them to their table. Eleni therefore provides a place for coats to be placed or hung. Does that arrangement necessarily involve a bailment? Is some other arrangement possible? What is the significance of classifying the arrangement as a bailment, rather than something else? Explain your answer, and identify any additional facts that are required before the question can be conclusively answered. Difficulty: 3 QuestionID: 17-3-05 Topic: Bailment Skill: Applied Answer: This question requires students to distinguish between a bailment and a licence, and to work by analogy to the parking lot scenario that was discussed in the text. A bailment occurs when: (i) one person voluntarily delivers property to another, (ii) for a particular purpose, (iii) with the intention that the property will be returned or disposed of as directed. In contrast, a licence is merely permission to act in a way that would normally be prohibited. The arrangement used in Eleni's restaurant may be either a bailment or a licence. The answer would depend upon the degree of possession and control exercised by the restaurant. If diners were simply allowed to hang their coats on hooks, a licence would seem more likely. In contrast, if diners were expected to give their coats to an attendant, who then placed them in an enclosed room, a bailment would seem more likely. If the arrangement is a bailment, Eleni, as the bailee, is subject to certain obligations to safeguard the diner's coats. She must return the coats, in good condition, to the diners at the relevant time. Consequently, she must exercise as much care as is reasonable in the circumstances. In contrast, if the arrangement is merely a licence, then Eleni is not subject to the same sort of positive obligations. She merely is allowing the diners to place their coats in a certain spot. 6. Surinder rented a boat from Aqua Inc. Is the parties' relationship better described as a sale or as a bailment? Explain your answer. Difficulty: 2 25 © 2023 Pearson Canada Inc.

QuestionID: 17-3-06 Topic: Bailment Skill: Applied Answer: A rental or leasing arrangement involves a bailment rather than a sale. A bailment occurs when: (i) one person voluntarily delivers property to another, (ii) for a particular purpose, (iii) with the intention that the property will be returned or disposed of as directed. A sale, in contrast, transfers ownership from one person to another, with no expectation that the property will be returned. Given the facts, Surinder is merely entitled to possession of the boat for a period of time, after which she must return it to Aqua Inc. 7. Raja gave a widget to Northwest Storage. Under the terms of the parties' contract, Northwest Storage was required to safely store the widget from October to April, and to then return it to Raja. The widget was in excellent condition when Raja delivered it to Northwest Storage, but it was badly damaged upon its return. A court has held that, on the facts, the burden of proof will be shifted. What does that mean? Which party will the court's decision favour? What is the policy justification for shifting the burden of proof? Difficulty: 2 QuestionID: 17-3-07 Topic: Liability of Bailees Skill: Applied Answer: As a general rule in civil litigation, the plaintiff bears the burden of proof with respect to every element of a claim. In the present case, that would mean, for instance, that Raja normally would be entitled to receive compensation for the damage to the widget only if he proved on a balance of probabilities that Northwest Storage acted carelessly in a way that caused the damage. In the context of a bailment, however, the burden of proof is often shifted from the bailor to the bailee. As a result, once Raja proved that he delivered the widget in good condition and that it was returned to him at the end of the bailment in damaged condition, Northwest Storage became liable to pay compensation for the damage. It will avoid liability only if it proves that the damage occurred without its fault. Significantly, then, the burden of explaining the cause of the damage falls upon Northwest Storage as the bailee, rather than on Raja as the bailor. The reason for that rule is clear. Since a bailment requires property to be in the bailee's possession, the bailor often has no way of knowing how the property became damaged. Consequently, it often would have no way of discharging a burden of establishing the cause of an accident. The facts are uniquely within the bailee's knowledge. The burden for explaining the damage therefore rests upon the bailee. 8. As a result of a bailment, Mitsu has possession of widget that belongs to Chuck. What factors will a court consider in deciding the content of the standard of care that Mitsu must meet while she has possession of the widget? Difficulty: 1 QuestionID: 17-3-08 Topic: Liability of Bailees Skill: Applied 26 © 2023 Pearson Canada Inc.

Answer: Generally speaking, a bailee is not required to guarantee the safety of the bailor's property. Liability will only arise from a failure to take reasonable care. In determining whether or not such care was exercised, a court will consider all of the circumstances. There are several factors that frequently play a prominent role. Contract, Custom, and Statute: If a bailment is contained within a contract, then Mitsu and Chuck were generally free to agree upon the level of care that the bailee must use. The court may also formulate the standard of care to reflect a practice that is customarily used in a certain type of business. Similarly, the standard may be affected by legislation. Benefit of the Bailment: Greater care must be used if a bailment is entirely for the benefit of the bailee. In contrast, a lower level of care may be acceptable if a bailment is entirely for the benefit of the bailor. Consequently, it would be important to know the purpose of the bailment that exists between Mitsu and Chuck. Perhaps she had possession of the widget for use in her factory or, conversely, perhaps she was providing a storage facility for Chuck's benefit. Gratuity or Reward: A bailee's burden also varies depending upon whether the bailment was gratuitous (free of charge) or for reward (for payment). It therefore would be important to know if one party paid the other for the purpose of the bailment. For instance, Mitsu may have borrowed the widget from Chuck free of charge. Alternatively, she may have paid a substantial fee for possession and use of the item. Value and Nature of the Property: A reasonable person's behaviour is influenced by the nature and value of the property. Consequently, it would be important to know if the widget was a delicate and expensive piece of equipment, or simply a cheap piece of sturdy metal. Bailee's Expertise: Mitsu might be expected to exercise greater care if she claimed to have special experience or training in handling the property. For instance, Chuck might have allowed her to take possession of the widget, which is a delicate and expensive piece of equipment, only because she claimed that she was a trained engineer with considerable experience with such machinery. 9. Katarina is interested in the possibility of establishing a business that delivers goods. She has heard, however, that as a matter of risk management, she should avoid becoming a "common carrier." What is a common carrier? What special risks are associated with being a common carrier? What is the policy justification for those risks? Difficulty: 2 QuestionID: 17-3-09 Topic: Common Carriers Skill: Applied Answer: A common carrier is a business that offers to deliver any goods for any person in exchange for a standard price (assuming that it has available space). That definition can apply to companies that transport by trains, trucks, ships, or airplanes. Significantly, however, the business must do more than commonly carry goods for money. It must also offer its services without reserving the right to refuse to deliver some goods, while taking others. Consequently, if Katarina wants to avoid the special risks associated with a common carrier (discussed below), she should settle for being a private carrier by establishing a practice of accepting some 27 © 2023 Pearson Canada Inc.

goods for delivery, while refusing others. A private carrier is only liable if it fails to exercise the level of care that is reasonably expected from someone in its line of work. A different rule applies to common carriers. The reason is largely historical. In ancient times, unscrupulous carriers often agreed to transport goods, but then delivered the property to "highwaymen" (robbers) in exchange for a share of the loot. A shipper (the person who shipped the property) usually found it difficult to prove carelessness because it did not have easy access to the facts. The loss occurred while the goods were out of its possession. To remedy that problem, the courts now hold that a common carrier is generally liable for any loss or damage, even if it was not personally at fault. The shipper merely had to prove that (i) the carrier was a common carrier, (ii) the property was given to the carrier in one condition, and (iii) it either was not properly delivered to its destination or it was delivered to its destination in worse condition. Even if Katarina operates as a common carrier, she will not be held liable every time that goods are lost or damaged while in her possession. She may be able to avoid liability by proving a special defence, such as act of God, inherent vice, or exclusion clause. 10. Explain the meaning and relevance of "inherent vice." Difficulty: 1 QuestionID: 17-3-10 Topic: Common Carriers Skill: Recall Answer: The concept of inherent vice is relevant in the context of common carriers. A bailee is normally liable for loss or damage to bailed goods only if the bailor proves that the loss or damage was caused by the bailee's fault. A different rule applies in the context of a common carrier, however. In that situation, if the bailor proves that (i) the bailee was a common carrier, (ii) the property was given to the carrier in one condition, and (iii) it either was not properly delivered to its destination or it was delivered to its destination in worse condition, then the bailee cannot avoid liability merely by proving a lack of fault. It can only avoid liability by proving a special defence. Inherent vice is one such defence. The defence of inherent vice applies when the loss or damage was caused by a defect in the goods themselves. For instance, cattle may die in transit because they were already diseased when they were brought on board. The common carrier, as bailee, is not liable because the bailor's loss is attributable to a problem inherent in the bailor's goods. The burden of that problem cannot fairly be placed upon the bailee. Were it otherwise, the owner of inherently defective goods could obtain a form of free insurance simply by shipping them with a common carrier and then complaining about the condition of the goods upon their delivery. The concept of inherent vice can also take the form of "shipper's fault." In that situation, goods are lost or damaged because of something that the bailor did wrong. For instance, a person shipping a container of delicate crystal may fail to label it as "fragile." When the crystal arrives at its destination smashed to pieces from normally handling by the common carrier, the bailor has no one to blame but itself. 11. Identify and briefly explain three reasons why property insurance very often does not provide full 28 © 2023 Pearson Canada Inc.

indemnification, in the sense that it does not provide the insured with enough money to buy a replacement for a lost or destroyed piece of property. Difficulty: 2 QuestionID: 17-3-11 Topic: Scope of Coverage, Indemnification Skill: Recall Answer: First, as a matter of risk management, it is critically important to understand the scope of coverage that is provided by an insurance policy. Not surprisingly, you only get what you pay for. Most insurance contracts are based on standard form agreements that cover common events, like fires, floods, storms, and thefts. That basic coverage, however, is subject to various restrictions. Standard fire insurance, for instance, may not cover accidents that arise from the storage of explosives or from riots. As a general rule, you can obtain extra protection for those events, but you will have to pay higher premiums. Property insurance merely provides indemnification, in the sense that it is aimed at reimbursing the insured for a loss that has occurred. Very often, however, the benefit that the insured receives under a policy is insufficient to replace lost or damaged property with new replacements. This is true for several reasons. Limited Coverage: Most insurance contracts are based on standard form agreements that cover common events, like fires, floods, storms, and thefts. This basic coverage is subject to various restrictions. Standard fire insurance, for instance, may not cover accidents that arise from the storage of explosives or from riots. As a general rule, extra protection can be purchased with respect to those events, but only at an additional price. Consequently, even if a widget is subject to property insurance, the insured may not be entitled to receive any benefit if the loss does not fall within the scope of the policy. Depreciated Value: There are different ways of calculating the loss that occurs when property is lost, damaged, or destroyed. If a piece of equipment is badly damaged in a fire, a policy may entitle the insured to replace it with a new machine. It is more likely, however, that the insurance company is only obligated to pay an amount equal to the value of the equipment the moment before it was destroyed. And if that equipment had been in use for some time before the accident, its depreciated value would probably be far less than the cost of a replacement. Consequently, unless the insured can find a suitable second-hand substitute, the policy will not actually provide enough money to purchase a substitute. And it almost certainly will not provide the insured with enough money to buy a new replacement. Deductibles: Property insurance policies usually include deductibles. A deductible occurs when the insurer is not required to provide indemnification for the initial part of a loss. A common example arises in connection with cracked automobile windshields. The driver usually agrees to pay the first $250 towards a repair. Of course, the insured can always ask for a policy that does not have a deductible and that provides full replacement cost. But again, it will pay accordingly. 12. Honoria recently tried to buy first party insurance with respect to a diamond ring she did not own. The insurance company refused to sell a policy to her on the basis that she did not have an insurable interest. Explain the insurance company's decision in more detail and identify the policy reason why a person who does not have an insurable interest cannot buy a insurance policy.

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Difficulty: 2 QuestionID: 17-3-12 Topic: Insurable Interest Skill: Applied Answer: Property insurance is based on the concept of indemnification. The benefit that the insured is entitled to receive under a policy is intended to provide compensation for a loss that has been suffered. The insurance company consequently was probably correct in refusing to sell property insurance to Honoria with respect to the diamond ring that she does not own. Since she does not own the ring, she would not suffer a loss if it was stolen or damaged. And since she would not suffer a loss in those circumstances, she is not in need of compensation. As the case suggests, the requirement of an insurable interest is intended to preclude a moral hazard. If Honoria could obtain insurance coverage with respect to a diamond ring that she does not own, she would have an incentive to secretly steal or damage the ring. By doing so, she would be entitled to receive a benefit under the policy even though she suffered no loss. Furthermore, the value of the benefit that she would receive would exceed the value of the premiums that she paid as the price for the policy. One last point: Honoria may have an insurable interest in the ring even if she is not the owner. That might be true, for instance, if the ring was owned by a company, in which she was the sole shareholder. In that case, she would have an insurable interest because she benefits from the existence of the property and would be worse off if it was damaged or stolen. 13. Thomas owns a manufacturing system worth $200,000. He purchased $90,000 worth of property insurance from Prairie Insurance Co. That policy contains a co-insurance clause that requires 90 percent coverage. A fire recently damaged Thomas's manufacturing system. How much is Prairie Insurance Co required to pay to him if the fire damage is assessed at $100,000? What if it is assessed at $200,000? Difficulty: 3 QuestionID: 17-3-13 Topic: Excessive and Insufficient Insurance Skill: Applied Answer: A co-insurance clause is a mechanism that an insurance company uses to encourage insured parties to maintain a reasonably high level of coverage. The insurer's motivation stems from the fact that it will receive higher premiums by selling more extensive coverage. In this case, the co-insurance clause required Thomas to maintain coverage equal to 90 percent of the value of the property in question. Since the property was worth $200,000, the co-insurance clause required him to purchase coverage for at least $180,000. Since he failed to do so, he will be held proportionately responsible for any losses that he suffers that are less than the required level of coverage. This calculation is represented in the following equation. × actual loss = insurer's liability The question poses two different scenarios in which Thomas's property suffers a loss. If Thomas suffered a loss of $100,000, Prairie Insurance Co would be required to pay $50,000. Since Thomas bought only half of the 30 © 2023 Pearson Canada Inc.

required coverage ($90,000 worth, rather than $180,000 worth), he must bear half of the responsibility for the loss that did occur. Since the loss was $100,000, he is entitled to receive a benefit for half that amount. × $100,000 = $50,000 If Thomas suffered a loss of , Prairie Insurance Co would be required to pay The co-insurance clause would not have effect in that situation because Thomas's loss was greater than the required level of coverage. Nevertheless, Thomas would not be entitled to full indemnification for his loss because he had purchased only $90,000 worth of coverage. 14. What is subrogation? What is indemnification? How are these two concepts related? Difficulty: 2 QuestionID: 17-3-14 Topic: Subrogation, Indemnification Skill: Recall Answer: The concept of subrogation has various facets. For present purposes, it is discussed in the context of property insurance. Property insurance is based on the concept of indemnification. This means that the insured is entitled to receive compensation for a loss, but nothing more. Property insurance is not intended to be profitable. If an insurable event occurs because property has been damaged, lost, or destroyed, the insured is entitled to receive compensation for the loss from the insurer. A complication arises, however, if the relevant loss was caused by a civil wrong that was committed by a third party. If the property owner did not have insurance, it would be entitled to sue the third party for compensation. But because it has property insurance, and because such insurance is limited to indemnification, such an action cannot be brought in the usual way. If it were, the insured would receive double compensation, once from the insurer as a benefit under the policy, and again from the third party as damages under a law suit. At the same time, it would be undesirable if the third party was immune from liability merely because the property owner enjoyed property insurance. Consequently, property insurance carries a right of subrogation. That means that the insurer is entitled to stand in the insured's place and sue the third party for compensation. If that action is successful, the insured will receive compensation from the insurer, and the insurer will recover its loss from the third party. (The third party will ultimately bear the burden of the loss unless it has liability insurance coverage, in which case, the loss would be borne by that insurer.) 15. Erin owns and operates a computer design business that employs 20 people. She recently purchased business interruption insurance and key person insurance. What was her likely purpose in doing so? Difficulty: 1 QuestionID: 17-3-15 Topic: Other Forms of Business Insurance Skill: Applied 31 © 2023 Pearson Canada Inc.

Answer: Basic property insurance would allow Erin to repair or replace equipment and facilities that were lost, damaged, or destroyed. Inevitably, however, it takes time to arrange repairs or replacements. During that time, Erin's business may be slowed or brought to a standstill. If so, the business obviously will generate less profits, if any. As its name suggests, business interruption insurance would provide compensation for the loss of such profits. It might also cover such things as relocation expenses and rental charges associated with temporarily securing substitute equipment. Key person insurance is somewhat similar. It is intended to provide compensation with respect to losses that arise when an important member of an organization is unable to work. For instance, among her twenty employees, Erin may have one person who works at an exceptionally high level. If that person was killed or suffered a debilitating injury, the business would suffer. Key person insurance would provide a fund with which Erin could train or hire someone to take that person's place.

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Managing the Law, 6e (McInnes) Chapter 18: Intellectual Property True/False Questions 1. T-Bone Steak, a Canadian pop act, just finished writing a new song. The band does not need to register their copyright ownership in order to protect their copyright. a True b False Difficulty: 1 QuestionID: 18-1-01 Topic: Copyright Skill: Applied Answer: a. True 2. Novelty is one of the criteria for copyright protection. a True b False Difficulty: 2 QuestionID: 18-1-02 Topic: Copyright Skill: Recall Answer: b. False 3. Only works produced by Canadians, or in Canada, are protected by Canadian copyright law. a True b False Difficulty: 2 QuestionID: 18-1-03 Topic: Author's Connection to Canada Skill: Recall Answer: b. False 4. Unbundling copyright means breaking the copyright down into several discrete rights. a True b False Difficulty: 1 QuestionID: 18-1-04 Topic: Copyright Ownership and Economic Rights 1 © 2023 Pearson Canada Inc.

Skill: Recall Answer: a. True 5. In Canada, trademark protection is afforded only to registered trademarks. a True b False Difficulty: 1 QuestionID: 18-1-05 Topic: Acquiring a Trademark Skill: Recall Answer: b. False 6. Whitemud Toothpaste has been recognized by the Canadian Dental Association as preventing tooth decay. As a result, its manufacturer put the association's logo on its tubes of toothpaste. The correct symbol to place next to the certification mark is ©. a True b False Difficulty: 2 QuestionID: 18-1-06 Topic: Acquiring a Trademark Skill: Applied Answer: b. False 7. Distinguishing guises cannot be registered as they can only be protected through the common law tort of passing-off. a True b False Difficulty: 2 QuestionID: 18-1-07 Topic: Acquiring a Trademark Skill: Applied Answer: b. False 8. When a party succeeds in showing that another party has been unjustly enriched, the appropriate remedy is an account of profits. a True b False Difficulty: 2 2 © 2023 Pearson Canada Inc.

QuestionID: 18-1-08 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: a. True 9. A Canadian inventor has up to 12 months to file a patent application in another Paris Convention member state in order to gain protection in that country. a True b False Difficulty: 2 QuestionID: 18-1-09 Topic: International Patent System Skill: Recall Answer: a. True 10. A patent can be rejected for public policy reasons, even if all the patent criteria are met. a True b False Difficulty: 2 QuestionID: 18-1-10 Topic: Patentable Subject Matter Skill: Recall Answer: a. True 11. For an invention to be considered non-obvious, the general public must not have been able to come to the solution directly and without difficulty. a True b False Difficulty: 3 QuestionID: 18-1-11 Topic: Non-Obvious Skill: Recall Answer: b. False 12. Olga and Simon are involved in patent litigation. Olga's arguments are based on the idea of "the patent bargain." That phrase refers to a contract under which a person pays a patent holder for the right to use an invention. In this instance, Simon broke his promise to pay a fee to Olga in exchange for her permission to use her patented invention. a True 3 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 18-1-12 Topic: The Patent Bargain Skill: Applied Answer: b. False 13. A certification mark is similar to an industrial design, in that both refer to industry standards. a True b False Difficulty: 2 QuestionID: 18-1-13 Topic: Acquiring a Trademark, Industrial Designs Skill: Applied Answer: b. False 14. A certification mark is similar to an industrial design, in that both refer to industry standards. a True b False Difficulty: 2 QuestionID: 18-1-14 Topic: Acquiring a Trademark, Industrial Designs Skill: Applied Answer: b. False 15. For many years, George Blake worked for the Canadian spy agency. The authorities eventually discovered, however, that he was actually working as a double agent, and that he was passing government secrets to countries that are unfriendly towards Canada. He was convicted and sent to prison, but he managed a daring escape and fled out of the country. Because he is now well-known, and therefore cannot work as a spy, he has written a book in which he reveals several pieces of information that the Canadian government still considered secret and enormously important. A court could, among other things, order George to pay his profits from the book over to the Canadian government. a True b False Difficulty: 2 QuestionID: 18-1-15 Topic: Confidential Information Skill: Applied

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Answer: a. True 16. A manager at a textile factory suspects his employees are feeding his competitors information about new textiles he is developing. In order to make them aware that this is unacceptable, he reminds them all that any information about his textiles is confidential and must not be disclosed. This is sufficient to ensure that the information is considered confidential. a True b False Difficulty: 2 QuestionID: 18-1-16 Topic: Confidential Information Skill: Applied Answer: a. True 17. Acme Co. has a logo designed for its products. The symbol it created is subject to copyright law. a True b False Difficulty: 2 QuestionID: 18-1-17 Topic: Trademark Skill: Applied Answer: b. False Multiple Choice Questions 1. Exclusive possession can be distinguished from non-rivalrous possession in that exclusively possessed assets A) are synthetic resources while non-rivalrous assets are natural resources. B) can be more easily controlled than non-rivalrous assets. C) can be possessed by numerous people at the same time, but the reverse is impossible. D) tend to be intangible, whereas non-rivalrous assets are not. E) can only be land. Difficulty: 2 QuestionID: 18-2-01 Topic: The Nature of Ideas Skill: Recall Answer: B) can be more easily controlled than non-rivalrous assets. 2. James owns a software development company. He toils day-in and day-out to develop new ideas. For James, the laws of intellectual property are useful because 5 © 2023 Pearson Canada Inc.

A) the ideas James develops may be easily reproduced and thus have natural scarcity of their own. B) this legal regime provides him with no incentive to create new ideas. C) information is not non-rivalrous. D) by rendering the supply of information unlimited, a market for James's ideas is created. E) they create an artificial scarcity even though ideas are not naturally scarce and are non-rivalrous. Difficulty: 2 QuestionID: 18-2-02 Topic: The Economics of Ideas Skill: Applied Answer: E) they create an artificial scarcity even though ideas are not naturally scarce and are non-rivalrous. 3. Intellectual property law aims to balance the rights of creators against the public interest. Which of the following statements best exemplifies a benefit to the public interest? A) Copyright law gives a photographer the exclusive right to reproduce his pictures. B) Trademark law allows a trademark holder to seek a legal remedy when her trademark is infringed. C) Patent bargaining grants an inventor a 20-year monopoly over his invention. D) Patent law allows a student to build a replica of a patented invention for private research. E) Trade secrets allow a company to keep a steak recipe secret from the public indefinitely. Difficulty: 2 QuestionID: 18-2-03 Topic: Intellectual Property Law, The Patent Bargain Skill: Applied Answer: D) Patent law allows a student to build a replica of a patented invention for private research. 4. Jaime has been hired as a screenplay writer by a television production company. Although he is a very creative individual, Jaime has recently started suffering from writer's block. In order to unblock himself, Jaime picked up a collection of Shakespeare's works and began combing it for ideas. He finally drafted a screenplay about a young couple from feuding families whose love, though strong, ends in tragedy. Which of the following is TRUE of Jaime with respect to the authorship requirements of copyright law? A) Jaime does not meet the requirements because his work is not original. B) Jaime does not meet the requirements because his work is not novel. C) Jaime does not meet the requirements because he may be violating the copyright for Romeo and Juliet. D) Jaime does not meet the requirements because scripts are not copyrightable works. E) Jamie has not infringed a copyright as Shakespeare's works are in the public domain as his copyright has expired. Difficulty: 2 QuestionID: 18-2-04 Topic: Duration of Copyright Skill: Applied Answer: E) Jamie has not infringed a copyright as Shakespeare's works are in the public domain as his 6 © 2023 Pearson Canada Inc.

copyright has expired. 5. Which of the following statements about an episode of This Hour has 22 Minutes best reflects Canadian copyright law? A) The show is subject to copyright only if it is broadcast live. B) The show is subject to copyright only if it meets the CRTC's Canadian Content regulations. C) The show is subject to copyright only if it is recorded on a fixed medium. D) The show is not subject to copyright because broadcasts are not protected by intellectual property law. E) The show is not subject to copyright because, once aired, it is considered to be in the public domain. Difficulty: 2 QuestionID: 18-2-05 Topic: Fixation Skill: Applied Answer: C) The show is subject to copyright only if it is recorded on a fixed medium. 6. In Canada, when does a work generally become part of the public domain? A) upon publication B) upon registration with the Copyright Board C) 20 years following the end of the calendar year in which the author dies D) 50 years following the end of the calendar year in which the author dies E) as soon as the author dies Difficulty: 1 QuestionID: 18-2-06 Topic: Duration of Copyright Skill: Recall Answer: D) 50 years following the end of the calendar year in which the author dies 7. Which of the following is most closely associated with the notion of moral rights? A) the right to licence software in Canada B) the right to publish the lyrics of a song C) the right to reproduce an essay in a textbook D) the right to have a photo attributed to its photographer E) the right to present a piece of art in an exhibition Difficulty: 3 QuestionID: 18-2-07 Topic: Moral Rights Skill: Applied Answer: D) the right to have a photo attributed to its photographer 8. Thierry is a successful artist, known across Canada for his marvelous portraits of famous Canadians. 7 © 2023 Pearson Canada Inc.

His work has been exhibited in the National Gallery, and he is beginning to acquire an international reputation. Recently, Thierry sold one of his paintings to the GuerillaGallery, not realizing that the owners of the GuerillaGallery had nothing but scorn for famous artists, insisting that they have sold out their creativity for the sake of the almighty dollar. The owners promptly took a large black felt marker and added a moustache to the painting's subject and drew an arrow poking through its head. When Thierry discovered the "act of these vandals" and further discovered that these "vandals were actually exhibiting the work," he was incensed. Despite his own disdain for lawyers, Thierry has decided to take legal action. His action ought to take the form of which of the following? A) a trademark infringement B) a moral rights infringement C) a trademark depreciation claim D) a passing-off claim E) a knock-off claim Difficulty: 2 QuestionID: 18-2-08 Topic: Moral Rights Skill: Applied Answer: B) a moral rights infringement 9. Avery and Bolton are two gifted architecture students at the University of the Outaouais. Both have been involved in a competition to come up with a design for a particularly immense structure. In class one day, one of their professors exposes them to a formula which, when applied in a particular manner to the competition, leads to a new, never-before-thought-of design for particularly immense structures. Independently, both students develop virtually identical designs for the competition. Avery is so enthused by his new discovery that he registers his copyright in the design. Tanner, a slightly lazier student, was considering entering into the same competition. Snooping around Bolton's desk one day, Tanner saw Bolton's design for the super structure. Tanner copied the design, and sold it to an architecture firm. Which of the following is TRUE? A) Tanner is infringing Avery's copyright but not Bolton's. B) Tanner is infringing Bolton's copyright but not Avery's. C) Tanner is infringing Avery's and Bolton's copyright. D) Tanner is infringing Avery's and Bolton's moral rights. E) Tanner is not breaking any copyright laws. Difficulty: 3 QuestionID: 18-2-09 Topic: Originality, Copyright Infringement Skill: Applied Answer: C) Tanner is infringing Avery's and Bolton's copyright. 10. While visiting his parents in Toronto, Egon went to a see a local band at a bar. He purchased the compact disk they had for sale, and took it back to his hometown in Victoria, BC. Once there, Egon made copies of the compact disk onto tapes and sold them at his record store for $5 each. Which of the 8 © 2023 Pearson Canada Inc.

following is TRUE? A) It is likely that Egon infringed the band's copyright, because in Canada it is illegal to make a copy of an audio recording without permission from the artist. B) It is likely that Egon infringed the band's copyright, because in Canada it is illegal to make a copy of an audio recording without permission from SOCAN. C) It is likely that Egon infringed the band's copyright, because in Canada it is illegal to make a copy of an audio recording for commercial purposes. D) It is unlikely that Egon infringed the band's copyright because BC and Ontario are subject to separate copyright regimes. E) It is unlikely that Egon infringed the band's copyright because audio recordings are not protected by copyright. Difficulty: 3 QuestionID: 18-2-10 Topic: Copyright Infringement Skill: Applied Answer: C) It is likely that Egon infringed the band's copyright, because in Canada it is illegal to make a copy of an audio recording for commercial purposes. 11. Remi is a musician who is involved with a charitable organization that helps to fight poverty. In addition to a wide variety of other activities, the charity puts on performances at schools to teach youngsters about poverty. Remi recently heard an anti-poverty song on the radio that he began incorporating into his performances. The song was such a hit that he began incorporating it into his commercial performances at local bars and music halls. At no point has Remi sought any permission to perform the song. The copyright holder recently saw one of Remi's performances on MuchoMusico and has decided to take action. Which of the following is most accurate? A) The copyright for the song was infringed at both the commercial performances and at the school performances. B) The copyright for the song was infringed at the commercial performances but not at the school performances. C) The copyright for the song was infringed at the school performances but not at the commercial performances. D) Performance rights are not subject to Canadian copyright law. E) The copyright for the song was never infringed. Difficulty: 1 QuestionID: 18-2-11 Topic: Copyright Infringement, Right to Use Another's Works Skill: Applied Answer: B) The copyright for the song was infringed at the commercial performances but not at the school performances. 12. Roula, a law professor, recently read a fascinating article about online privacy in Canadian Science and Technology Weekly, a Canadian magazine. She was so impressed with the article that she clipped it 9 © 2023 Pearson Canada Inc.

for future reference. Later in the term, a scandal erupted at the university when it was discovered that professors' emails were being surveilled. Incensed, Roula photocopied the article and slipped a copy of it under every professor's door in the faculty. There are 50 professors in the faculty. Which of the following is most likely TRUE? A) Roula's photocopying is considered fair dealing because she did not sell the copies. B) Roula's photocopying is considered fair dealing so long as proper attribution was made to the author and the source. C) Roula's photocopying is considered fair dealing because she is a professor, and copying articles in a university setting is permitted. D) Roula's photocopying is considered fair dealing because she was using the article for educational purposes. E) Roula's photocopying may be considered fair dealing, but she will have to defend her action, taking into account her purpose, the character and amount of her copying, whether or not she had alternatives to copying, and the effect of her copying on the article in question. Difficulty: 2 QuestionID: 18-2-12 Topic: Right to Use Another's Works Skill: Applied Answer: E) Roula's photocopying may be considered fair dealing, but she will have to defend her action, taking into account her purpose, the character and amount of her copying, whether or not she had alternatives to copying, and the effect of her copying on the article in question. 13. BrainFood is a brand used to promote a concoction of natural ingredients sold in natural health stores as a supplement to help with memory retention. Recently, MindFood has come onto the market and has begun selling supplements that, although composed of different ingredients, are also meant to help with memory loss. The packaging is similar, and the two products are sold in the same stores. Customers are often confused as to which product is which is made by which company. Which of the following is most likely to be TRUE? A) MindFood is infringing BrainFood's patent. B) MindFood is infringing BrainFood's copyright. C) MindFood is infringing Brainfood's trademark. D) MindFood is immune from suit because it is composed of ingredients not found in BrainFood. E) This is fair dealing and free competition—not the subject of intellectual property law. Difficulty: 2 QuestionID: 18-2-13 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: C) MindFood is infringing Brainfood's trademark. 14. CobeCola develops a line of sugar-free colas and plans to market it towards people on diets and people who are worried about tooth decay. Which of the following best illustrates a certification mark that may appear on its can? 10 © 2023 Pearson Canada Inc.

A) the name CobeColaLite, with a TM in a circle next to the name B) the company's distinctive logo of a bottle spraying cola as if it were a fountain C) the seal of the governing dental association D) the bilingual list of ingredients found in on the side of the can E) the slogan "Try it, it's diet!" on the can Difficulty: 2 QuestionID: 18-2-14 Topic: Acquiring a Trademark Skill: Applied Answer: C) the seal of the governing dental association 15. Raoul Newmen has been operating a shoe store, Newmen's Shoes, in Ottawa for the past 10 years. His business is registered in Ontario as an Ontario Corporation. His store sign reads: NEWMEN'S SHOES™. In 1999, a mega-shoe chain from the US, NewMensShoes, opened up its first Ottawa location. NewMensShoes has been operating in Canada since 1989, at which time it had registered its Canadian trademark: NewMensShoes®. NewMensShoes is irritated because it spends a fortune on advertising, yet people inevitably make the mistake of going to Raoul's store for shoes. Raoul is irritated because he had been running his store without problems until the mega-shoe corporation showed up. NewMensShoes has started an action claiming trademark infringement. Which of the following is most accurate? A) There is no trademark infringement. B) If there is a trademark dispute, the onus will be on Raoul to prove that he held rights to the name first. C) If there is a trademark dispute, the onus will be on NewMensShoes to prove that it held rights to the name first. D) Raoul is not allowed to put the symbol™ on his sign. E) Raoul should have put the symbol ® on his sign. Difficulty: 1 QuestionID: 18-2-15 Topic: Acquiring a Trademark Skill: Applied Answer: C) If there is a trademark dispute, the onus will be on Raoul to prove that he held rights to the name first. 16. Big and Bad Motors has come out with its newest line of SUV. They market the line under the slogan, "Enjoying the countryside has never been so easy®." A group of guerrilla environmentalists, angry about increased exhaust emissions from the SUVs, has started up a billboard campaign with a photo of an SUV in a diseased forest, surrounded by pollution and sick animals. Beneath the photo reads the caption "Destroying the countryside has never been so easy." The owners of Big and Bad Motors decide to take legal action. Which of the following claims is Big and Bad most likely to use? A) trademark depreciation B) passing-off C) copyright infringement D) identity theft 11 © 2023 Pearson Canada Inc.

E) patent infringement Difficulty: 1 QuestionID: 18-2-16 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: A) trademark depreciation 17. Louisa is a lemonade manufacturer in Ottawa. Since 1985, she has marketed her juice under the trademark FreshSqueeze. Late last year, a less expensive lemonade began appearing in grocery stores bearing a remarkably similar label. When examined closely, the label for the new lemonade actually says Fresh-n-Squeeze, but the 'n' is so small that it is hardly noticeable. The rest of the label, including colours and fonts, appears to be nearly identical. Louisa is upset because her lemonade sales have fallen drastically since it appeared on the shelves. Louisa decides to sue for passing-off. If Louisa is successful, what remedy is not available to her? A) an injunction to force the other party to stop selling the lemonade under that name B) an order for an accounting from the other party to pay her the profits earned from Fresh-n-Squeeze sales C) an order for damages to reimburse Louisa for lost sales during the period that the two lemonades were on the shelves D) an injunction compelling the competitor's lemonade to removed the shelves permanently E) imprisonment of the directors of the competitor Difficulty: 1 QuestionID: 18-2-17 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: E) imprisonment of the directors of the competitor 18. Woody has invented a method for instantly analyzing perfume, breaking it down into its component chemicals and reproducing the scent. He is so excited about his invention, he wants to tell the world. Which of the following examples of disclosure would be potentially fatal to a patent claim? A) He tells his wife that he thinks he has finally cracked the scent code. B) He invites local cosmetics store owners over to see if any of them would be interested in buying the invention. C) He presents the invention to his lawyer to ask for advice on how to go about patenting it. D) He tells his number one employee, on faith of a signed confidentiality agreement. E) He writes the method on a piece of paper and puts it in his safety deposit box, to which only he has access. Difficulty: 1 QuestionID: 18-2-18 Topic: Novelty Skill: Applied

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Answer: B) He invites local cosmetics store owners over to see if any of them would be interested in buying the invention. 19. Distraught after losing his cat, Jimmy Corpini drew up some designs for the "Kitty Caller Collar." The collar was designed so that when its wearer strays beyond certain limits, a signal is sent to a receiver, which pinpoints the location of the collar. In anticipation that one day he would get another cat, Jimmy printed off a copy of his design and emailed a copy to himself. A year later, Jimmy moved, and Takashi moved into his home. While cleaning the house, he came across the design. An engineer by trade, and cat lover by nature, Takashi copied the designs and took them to the Patent Office, where he applied for a patent on the collar, which he renamed the "CatchMeow." In due course, the patent was granted. Six months later, on the advice of an entrepreneur friend, Jimmy produced 100 Kitty Caller Collars, and began selling them at pet shows. He was unaware that Takashi had patented his invention. The collars sold quite well, and Jimmy became something of a local star in the community newspapers. Soon thereafter, Jimmy received a letter from a stern lawyer informing him that he had to stop selling his Kitty Caller Collars, because by so doing he was infringing the patent for the CatchMeow. Which of the following is the most accurate assessment? A) Jimmy is not liable for patent infringement since he is the true inventor. B) Jimmy is not liable for patent infringement because his email sufficiently protects his patent. C) Jimmy is not liable for patent infringement so long as he can prove that he independently came up with the design for the kitty collar. D) Jimmy is liable for patent infringement but will be able to benefit from an exemption, given that he is the true inventor. E) Jimmy is liable for patent infringement because Takashi owns the patent. Difficulty: 3 QuestionID: 18-2-19 Topic: Novelty, Patent Infringement Skill: Applied Answer: E) Jimmy is liable for patent infringement because Takashi owns the patent. 20. Rory Parisien has invented a mesh screen to keep bugs out of his cottage in the summer. Being a good steward of the environment, Rory had the unique idea of making the mesh biodegradable, so that when he replaces the mesh, he can just throw it away without harming the pristine environment around his cottage. There is, however, a problem with the mesh in that it biodegrades too easily. After a rainstorm or two, the mesh begins to disintegrate. Moreover, secretions from various bugs can have the same effect. Rory submits a patent for the biodegradable mesh screen designed to keep out bugs. Which of the following assessments is most accurate of his application? A) It is patentable, despite its flaws. B) It is patentable, so long as it is deemed non-obvious and novel. C) It is not patentable because there would not be much of a market for the product. D) It is not patentable because it will not be considered useful. E) It is not patentable because it will not be considered novel. Difficulty: 2 QuestionID: 18-2-20 13 © 2023 Pearson Canada Inc.

Topic: Utility Skill: Applied Answer: D) It is not patentable because it will not be considered useful. 21. A-Plus Health has come up with a previously undiscovered method of bonding skin back together after it has been cut. The new method allows doctors to use a series of tape-like strips that serve to pull the skin together and hold it in place. An ordinary tape is used and the novelty is the method of cutting and applying the tape. The benefit to the invention of this new method of medical treatment, is that by using the tape, stitches are no longer necessary. Although the company cares about people's health, it also cares about its bottom line. It knows that if everyone discovers how the tape works, anyone would be able to manufacture this medical treatment. Which of the following is TRUE? A) A-Plus Health can patent the treatment so long as it is novel, ingenious, and useful. B) A-Plus Health can patent the treatment but will not be able to stop others from developing similar product lines. C) The treatment is unpatentable for public policy reasons. D) The treatment is unpatentable because all health-related inventions are unpatentable. E) The treatment is unpatentable because it is too abstract. Difficulty: 3 QuestionID: 18-2-21 Topic: Patentable Subject Matter Skill: Applied Answer: C) The treatment is unpatentable for public policy reasons. 22. Zitsaway is the ultimate miracle cream for teenagers. Using a special combination of chemicals, Zitsaway is able to clear up the worst cases of acne. Truman, a 16-year-old with particularly bad acne thought that he had finally found the answer to all his social problems when he began using the cream. Although the cream worked like a charm, at $25 a bottle the cream took up most of his allowance. Truman therefore took the cream to his chemistry lab where he and his teacher managed to identify all the components of the cream. Fortunately, all the components were easily procured and easily combined. Which of the following is TRUE? A) Truman may make the cream for personal use. However, he may be infringing the patent as his personal use is not for research but for the patent's commercial purpose. B) Truman may sell the cream to kids at school, so long as he does not mass-market the product. C) Truman must get permission from the patent owner of Zitsaway before making the cream for personal use. D) Truman must buy or license the patent for Zitsaway before manufacturing any for personal use. E) Truman must pay the patent owners of Zitsaway royalties before making the cream for personal use. Difficulty: 2 QuestionID: 18-2-22 Topic: Patent Infringement Skill: Applied

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Answer: A) Truman may make the cream for personal use. However, he may be infringing the patent as his personal use is not for research but for the patent's commercial purpose. 23. Accounting for profits might be an appropriate award in which of the following cases? A) A company's sales dip a year after a competitor develops a similar line of product. B) An Internet service provider loses some of its customer base after Internet cable is made available in a community. C) The holder of patent on a special electric car battery is caught off-guard when a competitor begins successfully selling unlicenced identical car batteries. D) A company known for interfering with patents disassembles a patented electric toothbrush to discover how the toothbrush works. E) Someone publishes a new edition of Shakespeare's collected works. Difficulty: 3 QuestionID: 18-2-23 Topic: Patent Infringement Skill: Applied Answer: C) The holder of patent on a special electric car battery is caught off-guard when a competitor begins successfully selling unlicenced identical car batteries. 24. Of the following, which are only protected if they are registered? A) licensing rights B) company logos C) trademarks D) catchy slogans E) industrial designs Difficulty: 1 QuestionID: 18-2-24 Topic: Industrial Designs Skill: Recall Answer: E) industrial designs 25. Which of the following is an example of a registrable industrial design? A) the maple leaf shape of a maple-flavoured cookie B) the green colour of glass used to bottle lemon-lime sodas C) the patent for an industrial size dishwasher D) the Canadian Dental Association's mark on a tube of toothpaste E) the secret recipe for a new brand of chili Difficulty: 1 QuestionID: 18-2-25 Topic: Industrial Designs Skill: Applied 15 © 2023 Pearson Canada Inc.

Answer: A) the maple leaf shape of a maple-flavoured cookie 26. The capital letter D inside of a circle signifies that a product is A) deemed to be patented. B) a registered industrial design. C) under development. D) in the public domain. E) subject to a designated code of confidentiality. Difficulty: 2 QuestionID: 18-2-26 Topic: Industrial Designs Skill: Recall Answer: B) a registered industrial design. 27. Which of the following statements about trade secrets is true? A) Disgruntled employees are unable to register patents for the subject matter of trade secrets. B) Competitors who independently create the subject matter of your trade secret are unable to patent their ideas. C) Trade secrets can help keep an information-based asset a secret until it can be used or sold. D) Trade secrets cannot be patented at a later date because they violate the disclosure rules of patent law. E) Trade secrets can be registered at the Trade Secrets Bureau. Difficulty: 2 QuestionID: 18-2-27 Topic: Trade Secrets Skill: Applied Answer: C) Trade secrets can help keep an information-based asset a secret until it can be used or sold. 28. Achmed has invented a mechanism for building barbwire fences. It consists of a motorized machine that stretches the barbwire between two fence posts. It then wraps the barbwire around the post, ensuring that the fence is stable. The beauty of the mechanism is that at no point must a person touch the wire, thus drastically reducing the fear of injury. However, there are still a few glitches in the system. For example, the machine stretches the wire too much, causing the wire to snap before the fence is complete, and flail about until the operator turns off the machine. This increases the potential safety hazard, as the broken barbwire swings about dangerously until the machine is turned off. Additionally, if the operator does not turn it off in time, the loose barbwire ends up damaging the machine. Achmed is convinced that with a bit of tinkering, he can get it working better. Which of the following is TRUE of Achmed's invention? A) It is not patentable but may qualify as an industrial design. B) It may be protected as a trade secret. C) It is patentable so long as it has not already been patented by someone else. D) It is patentable so long as within 60 days of filing the patent application the design is fixed to avoid all 16 © 2023 Pearson Canada Inc.

the glitches. E) It is patentable so long as Achmed has not told others of its existence. Difficulty: 2 QuestionID: 18-2-28 Topic: Trade Secret, Patentable Subject Matter Skill: Applied Answer: B) It may be protected as a trade secret. 29. Which of the following is TRUE of a breach of confidence? A) It is morally wrong but not legally enforceable. B) It requires that the information be known by fewer than 50 people. C) It occurs when a patent is infringed. D) It can only be enforced if it results in direct financial loss. E) It is legally wrong if the confidential information is disclosed without authorization and there was a misuse or unauthorized use of the information. Difficulty: 2 QuestionID: 18-2-29 Topic: Confidential Information Skill: Applied Answer: E) It is legally wrong if the confidential information is disclosed without authorization and there was a misuse or unauthorized use of the information. 30. Hector Journale is the publisher of a major national newspaper. Following a string of political scandals, Hector comes up with an excellent idea for a weeklong series of articles on the moral shortcomings of politicians before they entered politics. Hector is worried that if his competitor, Linda Laprinte, catches wind of the series, she will scoop him. In order to protect his idea, Hector could do which of the following? A) copyright the idea for the series B) copyright the titles for the articles he is thinking of C) apply for a copyright for the future articles D) exact confidentiality agreements from any staffers who may find out about the series E) mail the idea for the series to himself and leave the envelope sealed Difficulty: 2 QuestionID: 18-2-30 Topic: Confidential Information Skill: Applied Answer: D) exact confidentiality agreements from any staffers who may find out about the series 31. Which of the following would constitute a breach of copyright when carried out without permission from the copyright owner? 17 © 2023 Pearson Canada Inc.

A) performing a dance routine that someone else had choreographed B) selling copies of Shakespeare's Hamlet C) quoting several lines from an encyclopedia in a college assignment D) making a copy of a musical tape for yourself that you borrowed from your friend E) writing your own version of the Bible but following closely the outline of a published Bible Difficulty: 1 QuestionID: 18-2-31 Topic: Fixation Skill: Recall Answer: A) performing a dance routine that someone else had choreographed 32. Marika spends her days in the lab trying to create new and useful inventions. She would like to protect her monopoly over her inventions but only has time to submit one patent application at this time. She would like your advice on which of her following creations is the most likely to be granted a patent in Canada? A) a specific species of mouse, which after years of investigation, she has identified as the most appropriate for diabetes research B) a new method for assembling mouse cages C) a "one-click" ordering system for buying mouse cages from her website D) computer software that she designed in order to keep her research notes organized E) a play she wrote Difficulty: 3 QuestionID: 18-2-32 Topic: Patentable Subject Matter Skill: Recall Answer: B) a new method for assembling mouse cages 33. Which of the following statements is TRUE with respect to registration of intellectual property rights? A) Registration is mandatory for trademarks but not for copyright. B) Registration is mandatory for copyright but not for trademarks. C) Registration is required for patents but not for copyright. D) Registration is required for both industrial design and breach of confidence. E) Registration is required for trade secrets. Difficulty: 2 QuestionID: 18-2-33 Topic: Copyright, Patent Infringement Skill: Recall Answer: C) Registration is required for patents but not for copyright.

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34. A distinguishing guise A) is most relevant to industrial design. B) is a breach of copyright. C) refers to the shape of a product. D) occurs when a manufacturer tries to hide a secret beneath several layers of useless information. E) is an award given by a government department for outstanding inventions. Difficulty: 2 QuestionID: 18-2-34 Topic: Acquiring a Trademark Skill: Recall Answer: C) refers to the shape of a product. 35. A government official has appointed you to a committee that is responsible for suggesting improvements to the government's own intellectual property legislation. Which of the following statements is TRUE? A) Because industrial designs and breach of confidence are both governed by the traditional common law rules, there is no legislation in either area. B) The government that appointed you is located in Ottawa. C) If the government wants to provide copyright protection to original works created outside of Canada, it will need to amend the relevant statute. D) Because intellectual property legislation is intended to create a complete regulatory scheme, there will be no need to consider any case law. E) Although there is only one Copyright Act in this country, there are fourteen Patent Acts. Difficulty: 3 QuestionID: 18-2-35 Topic: [based on statutes throughout] Skill: Applied Answer: B) The government that appointed you is located in Ottawa. 36. Avi is a remarkably creative person. He works in several different media, meaning that his creations take different forms–sometimes written, sometimes sung, sometimes sketched, and so on. Avi recently became party to a transaction that involved an advance of royalties. This most likely means that A) the government has informed Avi that an intellectual property law will be changed as soon as the relevant statute receives assent from the governor general, who will be acting as the Queen's representative. B) Avi sued another person for the violation of an intellectual property right, and the parties settled their case out of court. C) Avi submitted a manuscript to a publishing company in the hope that that company would pay him for the work. D) Avi received a sum of money. E) Avi has paid the government for the right to commercially exploit a work that he did not create.

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Difficulty: 2 QuestionID: 18-2-36 Topic: Copyright Ownership and Economic Rights Skill: Applied Answer: D) Avi received a sum of money. 37. Henrik successfully sued Acme Inc for violation of his moral rights. Which of the following statements is most likely to be TRUE? A) Henrik must still own the work to which the moral rights are attached. B) Because of the importance of moral rights, Henrik was able to win his case even if he previously had done everything possible to waive those rights. C) Acme Inc was held liable even though it had previously purchased copyright in the relevant work. D) In addition to violating Henrik's intellectual property rights, Acme Inc must have acted in a way that violated the Criminal Code. E) Henrik must have satisfied the court that he came to the courts with "clean hands" in the sense that he had not acted as immorally as Acme Inc. Difficulty: 3 QuestionID: 18-2-37 Topic: Moral Rights Skill: Applied Answer: C) Acme Inc was held liable even though it had previously purchased copyright in the relevant work. 38. Siesta Inc owns and operates a chain of Mexican-food restaurants across Canada. The restaurants have become wildly popular, largely because each restaurant is carefully designed and decorated to evoke an authentic Mexican feel. The company is, however, worried that competitors may begin to emerge and draw away customers. Siesta Inc therefore wants to protect itself as much as possible under trademark laws. Which of the following statements is TRUE? A) Siesta Inc is entitled to register a trademark for the shape and design of its "Sombrero Salad," which is a unique dish created by the company's head chef. B) Siesta Inc will not enjoy any protection until it registers its trademarks. C) Siesta Inc can trademark the appearance of physical objects, such as its restaurants, its logo, and its menus, but it cannot trademark a phrase, such as an advertising slogan. D) Although Siesta Inc is entitled to use ® to designate a registered trademark, it cannot use any symbol to designate an unregistered intellectual property interest. E) Siesta Inc is entitled to sue for trademark depreciation only if it can prove that customers became confused and mistakenly thought that restaurants owned by another company were part of the Siesta chain of restaurants. Difficulty: 2 QuestionID: 18-2-38 Topic: Acquiring a Trademark Skill: Applied

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Answer: A) Siesta Inc is entitled to register a trademark for the shape and design of its "Sombrero Salad," which is a unique dish created by the company's head chef. 39. Stealth Inc designs and manufactures a variety of products. Some of those products are marketed to ordinary consumers, while others are marketed toward governments. Stealth Inc is also aware, however, that its products often end up in the hands of criminals and terrorists. Which of the following statements is TRUE? A) A patent will not be granted for a new invention unless Stealth Inc can first show that there is a market demand for such a product. B) An invention may be granted patent protection even though it is manufacture could be put to illicit purposes. C) Because of the requirement of "usefulness," a patent will not be granted unless an invention is generally beneficial to the public. D) Patent protection is available for entirely new inventions but not for mere improvements to pre-existing products. E) Anything that is dangerous is not patentable as a matter of public policy. Difficulty: 2 QuestionID: 18-2-39 Topic: Patentability Skill: Applied Answer: B) An invention may be granted patent protection even though it is manufacture could be put to illicit purposes. 40. Silken Inc manufactures a wide range of bath products. Its best-selling item is the 1 litre bottle of "Silky Soak" water softener. A large part of the reason for that success is the distinctive and easily recognized bottle in which "Silky Soak" has been sold for many years. Silken Inc recently applied to protect the rights that are connected with the appearance of the "Silky Soak" bottle. That application was, however, rejected. Which of the following is not a good reason to reject the application? A) Silken Inc's application was based on the colour of the bottle. B) Silken Inc had successfully applied for the same protection 10 years earlier. C) The unique design of the bottle is purely functional in nature. D) Silken Inc's application was based on the materials used in the bottle. E) The bottle has a distinctive shape. Difficulty: 2 QuestionID: 18-2-40 Topic: Acquiring a Trademark Skill: Applied Answer: E) The bottle has a distinctive shape. 41. Which of the following statements is TRUE? A) Registration is mandatory for copyright, but not for patents. B) Registration is mandatory for copyright, but not for trademarks. 21 © 2023 Pearson Canada Inc.

C) Registration is mandatory for industrial designs, but not for trade secrets. D) Registration is mandatory for trademarks, but not for copyright. E) Registration is mandatory for trade secrets, but not for patents. Difficulty: 2 QuestionID: 18-2-41 Topic: Industrial Designs Skill: Recall Answer: C) Registration is mandatory for industrial designs, but not for trade secrets. 42. Under Canadian law, which of the following statements is TRUE? A) A registered trademark lasts for 100 years. B) Copyright generally lasts for the life of the author plus 50 years. C) An industrial design last for 25 years from the date of registration. D) Patent protection lasts for the inventor's life plus 20 years. E) A patent is renewable in perpetuity. Difficulty: 2 QuestionID: 18-2-42 Topic: Duration of Copyright Skill: Recall Answer: B) Copyright generally lasts for the life of the author plus 50 years. 43. Willa successfully sued Mike for a violation of her copyright. A court was able to reach that conclusion because A) for the purpose of exercising alone in his basement, Mike borrowed one of Willa's exercise videos from a friend and copied it onto a DVD that he had purchased. B) while acting as an online music provider, Mike allows customers to play 30 seconds from each song on Willa's latest album. C) during a public dance, Mike played records that Willa had made. D) Mike provides his Grade 12 students with short extracts from Willa's textbook for use in class. E) Mike wrote a research paper that quoted several passages from a book that Willa had written. Difficulty: 2 QuestionID: 18-2-43 Topic: Copyright Protection Skill: Applied Answer: C) during a public dance, Mike played records that Willa had made. 44. Which of the following is not a requirement for a patent? A) novelty B) usefulness C) non-obviousness 22 © 2023 Pearson Canada Inc.

D) a working model E) patentable subject matter Difficulty: 1 QuestionID: 18-2-44 Topic: Patentability Skill: Recall Answer: D) a working model 45. Which of the following definitions is not correct? A) "Natural scarcity" occurs when there is an inadequate supply of something. B) A "copyright collective" is an organization of copyright holders that administers rights on behalf of those members. C) The "public domain" refers to works that belong to the community as a whole and therefore can be used by anyone. D) "Royalties" consist of monetary payments made to an author in exchange for the right to use the author's work. E) "Non-rivalrous" refers to a situation in which an intellectual property-holder exercises a monopoly in the market. Difficulty: 1 QuestionID: 18-2-45 Topic: Nature of Ideas Skill: Recall Answer: E) "Non-rivalrous" refers to a situation in which an intellectual property-holder exercises a monopoly in the market. 46. Fitness Inc is a brand of fitness clothing designed for the active lifestyle. The company is a startup and did not register its trademark because it was too expensive at the time. Since the company's launch, it has become extremely profitable. Another company has started to make counterfeit Fitness Inc. products using a similar logo. What tort will Fitness Inc. sue for? A) Trademark infringement B) Passing off C) Patent infringement D) Copyright infringement E) Industrial design infringement Difficulty: 1 QuestionID: 18-2-46 Topic: Trademark Skill: Applied Answer: B) Passing off

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Essay Questions 1. Explain the difference between natural scarcity and artificial scarcity. How can intellectual property laws affect the scarcity of a particular asset? Illustrate with an example. Difficulty: 2 QuestionID: 18-3-01 Topic: The Economics of Ideas Skill: Applied/Recall Answer: Natural scarcity occurs when the supply of a resource is inadequate or finite. Where there is a limited amount of a given resource, the number of people who can simultaneously control that resource is limited. As a result, a market can easily be created for the resource. By contrast, when a resource can be infinitely reproduced and simultaneously possessed by an unlimited number of people, it has no natural scarcity of its own. In such a case, artificial means must be employed to create a market for the product. Artificial scarcity makes the supply of such resources inadequate, by making the information exclusive and rivalrous. Intellectual property laws create artificial scarcity for information. By issuing time-limited monopolies to certain types of innovations, a market can be created for these assets while still allowing them to be shared with the public. Without the legal monopoly, in certain cases the innovation could be reproduced and made so widely available that no one would be willing to pay for such a readily obtainable good. 2. Explain what is meant by the following statement: "Intellectual property law is a set of rules that aims to balance the rights of a creator against the public interest." Difficulty: 2 QuestionID: 18-3-02 Topic: Intellectual Property Laws Skill: Applied Answer: The question tests a student's ability to grasp the concept that intellectual property law deals with choices with respect to the allocation of information resources. Students should demonstrate that there is public value in information becoming public, as society benefits from inventions, works of art, and other informationbased assets. At the same time, students should be able to identify the fact that intellectual property law builds incentives into the legal system, to promote innovation and creation. If innovative products were not protected once they became public, there would be little incentive to create new products. However, if the monopoly granted to inventors was granted in perpetuity, the inventor may charge too much for the product for society to benefit from the invention. 3. Explain why fixation is an essential element of any copyright claim. Should the originality requirement be sufficient? In Gould Estate v Stoddart Publishing Co, a journalist named Jock Carroll visited with Glenn Gould, who was soon to become a world famous pianist, but at that point was still a largely unknown artist. As the pair chatted about a range of topics, Carroll snapped 400 pictures, tape recorded some discussions, and wrote notes for others. After Gould's death many years later, Carroll published a book containing photographs and quotations from the time that the pair spent together. Gould's estate sued Carroll for breach of copyright. The court rejected that claim on the ground that the copyright 24 © 2023 Pearson Canada Inc.

owner was actually the person taking the notes, and not the person who was being quoted. Do you think this is a fair way to allocate copyright? Difficulty: 2 QuestionID: 18-3-03 Topic: Fixation Skill: Applied Answer: This question challenges students to consider the reasons underlying intellectual property rules. While many answers may be acceptable, the best answers will refer to the fact that fixation helps achieve certainty. If there were no fixation requirement, copyright claims would be impossible to verify. The requirement for fixation ensures that a work is identifiable and helps to reduce spurious claims of infringement. While the originality requirement is an essential element, without fixation, it would become impossible to identify who the original author of a work is. The second part of the question is meant to illustrate that there exists a tension between fixation and originality. Students are asked to take a position on the issue of who ought to benefit from the protection that copyright affords: the person whose ideas are the source for a work, or the person who thinks to record the ideas for posterity (and profit). Students may well get caught in the trap of mistaking originality for novelty when answering this part of the question, but others will be able to see the difference between being the originator of an idea and being the originator of a work. 4. Trevor is a struggling, but very talented, musician. Over the years, he has written many great songs, but has yet to receive any media attention for his good work. Frustrated that he has never been able to achieve commercial success, he recently began to explore the idea of selling or licencing his work to other, already established, pop artists. He comes to your record label seeking to sell certain parts of his copyright. How do you foresee being able to exploit Trevor's work? Illustrate how Trevor's work could be unbundled and exploited. Does Trevor run any risks in transferring his rights? Difficulty: 2 QuestionID: 18-3-04 Topic: Copyright Ownership and Economic Rights Skill: Applied Answer: This question asks students to apply the concept of unbundling copyright. Answers here will vary, but correct answers should explain that copyright can be broken down into discrete rights, many of which can be bought, sold, licenced, or given away. Most answers will draw from the list of rights presented in Figure 17.2. In drawing suggestions from this list, however, students are asked to assess the risk that the artist will bear in unbundling the copyright in the suggested manner. For example, a student may suggest that Trevor sell the rights to create and distribute a sound recording of one of his songs. As a prudent business manager of a record label, the student would also want to acquire the right to publish the lyrics and sheet music for any songs acquired. Performance rights may also be a common answer given by students. The final part of the question identifies whether students recognize that if particular rights are sold, the seller 25 © 2023 Pearson Canada Inc.

bears the risk of selling the rights for too little. Students may be familiar with cases where a song became a commercial hit, and it was uncovered that the song's author sold the rights to the song at an unimaginably low price. Moreover, artists run the risk that their music will be used in songs, or by artists, that they may not like or that they find do not do justice to their work yet do not infringe moral rights to the copyright. 5. Amicus is an artist whose sculptures have made him a household name around the world. Recently, he has tried exploring different themes, thinking that his religious sculptures were becoming too common. In a moment of inspiration he had the idea to make a sculpture of 100 doves, symbolizing his hopes for world peace. Upon completion he sold the work to his hometown in Ontario. Years later, and facing budgetary cuts from the provincial government, the city decided to auction the work off, dove by dove. Amicus was furious when he heard the news, stating that the work is a unity and selling it off in pieces ruins its meaning. He has come to you for advice. Brief Amicus on moral rights and how he may be able to benefit from them. Difficulty: 3 QuestionID: 18-3-05 Topic: Moral Rights Skill: Applied Answer: This question asks students to tackle the issue of moral rights, and specifically the right to integrity. Here students should draw upon the moral rights examples in the chapter, to inform Amicus that he may be able to seek an injunction to prevent his work from being split up. Answers should begin by explaining the notion of moral rights, and explaining that these rights persist even after the work has been sold (unless waived). At this point, the student should indicate that moral rights include the right to integrity over a work. Next, the answer must address the issue of what "integrity over a work" means. Students should recognize that artists can prevent their work from being mutilated or altered in such a way that may prejudice the artists' reputation. Students should draw on the fact that this artist has a reputation to uphold and that he views his honour as being damaged by the act of separating the sculpture into 100 pieces. Here, the symbolism of the work may be discussed, with an indication that splitting the work up undermines the entire point of the work. Lastly, better answers will specifically point to the remedy that Amicus should seek, namely an injunction to prevent the alteration of his work. Although the question does not specifically ask the student to name the remedy, it does ask the student to indicate how Amicus can benefit from moral rights. 6. Double Burger is a musical sensation in the local rap world of Moosejaw. His shows are always sold out and he is on the verge of being signed to a record label. Double Burger's songs tend to incorporate samples from other songs, mostly cheesy pop songs from the fifties. His friends tell him that it is okay to use the samples because he does not use the songs in their entirety, but only short excerpts. He comes to you for a second opinion on copyright infringement. Advise Double Burger on how to proceed. Difficulty: 2 QuestionID: 18-3-06 Topic: Copyright Infringement 26 © 2023 Pearson Canada Inc.

Skill: Applied Answer: This question tests students' ability to explain the fact that copyright does not only protect whole works, but also substantial portions of works. It is likely that the copyright infringement has already occurred if Double Burger has been using the sample at his shows in Moosejaw. If Double Burger is sampling works that are protected by copyright, he will likely be infringing the copyright, especially if the sampled portion is distinctive enough to be recognizable. In answering this question, students should address both the qualitative and quantitative questions Double Burger's sampling raises. If a work is too generic, it may not benefit from copyright protection, and as such no amount of sampling could amount to infringement. However, in other cases, a few bars from a tune may amount to substantial taking, if the bars are distinctive enough. Other factors to consider are whether the rapper's use of the sample significantly hinders the sampled artist's ability to exploit his copyright, whether any unjust enrichment has occurred, and whether the works compete in the same market. Good advice to give an artist in this situation would include the suggestion that he seek permission from the copyright owner before producing work for commercial purposes. 7. Thomas recently patented a process for vacuum-packing T-shirts in cellophane. The process is such that the T-shirts are compressed into a tight cube, then sealed. The benefits for this are numerous, since the unique shape of the packaging attracts customers, allows for creative displays, etc. In addition to the patented process, Thomas is wondering if he can maintain exclusivity over other aspects of the shirts. Can trademark law help Thomas? How? Advise Thomas on any steps he ought to consider taking in order to protect himself, should a competitor try to imitate his product. Difficulty: 1 QuestionID: 18-3-07 Topic: Acquiring a Trademark Skill: Applied Answer: Thomas may wish to register his T-shirt cube as a distinguishing guise, which is one form of trademark. Moreover, he may wish to give his T-shirt a distinctive trade name for use in the market, such as "Shirt3." As a prudent entrepreneur, Thomas will want to register his trademarks, as registration will provide him with certain advantages if any other T-shirt producers try to adopt his guise or trade name as their own. Should such a case arise, Thomas would benefit from the presumption that the trademarks rightfully belong to him. This protection would extend to Thomas for fifteen years. After registration, Thomas would also be wise to mark his product with the symbol ®. This would act as a signal to potential infringers that the trademarks have been registered, and that they would face an uphill legal battle if they attempted to infringe the trademark. 8. The Enerstretch is an exercise device whose trademark has been registered, although the device itself has not been patented. Sales had been going well, until the Enerstretcher came along. A cheaper copy of the Enerstretch, the Enerstretcher is made with less resilient springs. As a result, the Enerstretcher was prone to snap, injuring its user. The media ran several stories about the victims, and as a result of the bad press, the makers of the Enerstretcher pulled their products off the market. Because of the bad press, the makers of the Enerstretch quickly saw their sales drop as well. You are a risk manager for Enerstretch. Does your company have a case? If so, what kind of remedies can they avail themselves of? 27 © 2023 Pearson Canada Inc.

Support your answer. Difficulty: 2 QuestionID: 18-3-08 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: The makers of Enerstretch may have a case for trademark infringement or passing-off, if it can prove the following: - That the trademark Enerstretch coincided with the company's goodwill - That the imposter represented itself in a manner that resulted in confusion between the two enterprises, and - That Enerstretch suffered harm as a result. It would appear that Enerstretch has a good case to pursue. First of all, it had the foresight to register the trademark for the name of its exercise machine. Since sales were going well, it was evident that, at first, people knew to buy the Enerstretch product. Secondly, the names Enerstretch and Enerstretcher are sufficiently similar that a court ought not to have much difficulty foreseeing confusion in the marketplace. This is especially the case, given that the two products are similar in nature and compete for the same market. The harm that was suffered is twofold. The first was a marked decrease in sales as a result of the Enerstretcher's bad press. Harm may also have occurred to Enerstretch's goodwill, whose value would have decreased if consumers were unable to distinguish between the quality product and the shoddier one. The remedies they should seek include damages for the harm in their sales and to their goodwill. Additionally, they could seek an accounting for profits. Although their sales did not decrease noticeably while the Enerstretcher was still on the shelves, Enerstretcher likely profited from the confusion it created by choosing a nearly identical name. This profit could amount to an unjust enrichment, if it was the result of the passing-off. An injunction would likely be superfluous, as the Enerstretcher has already been taken off the market, but it should be obtained as a precaution. 9. Hearty Meat Sandwiches is a large-sized chain of hamburger and sandwich shops. Although they have been operating in western Canada for 10 years, they had never managed to crack the Quebec market. A few years ago, on the advice of their lawyer, they had registered several trademarks, including their name, their logo (a cartoon heart shape between two pieces of bread), and their slogan "Smarties eat at Hearty's." When Hearty's opened their first Quebec store in Montreal last year, they ran a huge advertising campaign, including bilingual radio spots and ads on television. When opening day arrived, they were surprised that the number of new customers they managed to attract was far less than in other, smaller towns. Only later did they discover that Montrealers appeared to be flocking to another hamburger joint in town, Hardy's Burgers, owned and operated since 1997 by Jacob Hardy. Needless to say, the owners of Hearty's are miffed. They admit that they probably should have done better research before the opening, but still think it's unfair that their ads are working to their competitor's benefit. They have come to you for advice regarding any recourse relating to their trademark. Advise them of any action they may wish to pursue, remedies they may seek, and the benefits and detriments of pursuing their case. Difficulty: 2 28 © 2023 Pearson Canada Inc.

QuestionID: 18-3-09 Topic: Trademark Infringement and Passing Off Skill: Applied Answer: Should it wish to do so, it could pursue Hardy's Burgers for trademark infringement. The similar sound of the words "Hearty's" and "Hardy's," and the fact that both sell similar products to a similar customer base would help Hearty's to demonstrate the potential for confusion in the marketplace. In its favour is the fact that "Hearty's" has registered its trademark, otherwise it would have encountered difficulties convincing the court that it had developed sufficient goodwill in the Montreal area (in order to sue for the tort of passing-off). Assuming that the court could be convinced that the names are confusingly similar, Hearty's could potentially seek an injunction to prevent Jacob Hardy from carrying on business in his name. It is interesting to note that if Jacob Hardy tried to make the same claim, he would face an uphill battle, as the Hearty trademarks would be presumed valid, illustrating the power of registration. In addition to an injunction, Hearty's could also seek damages for lost profits resulting from the confusion. Since they ran radio spots, it is possible that many of their customers ended up at Hardy's restaurant by mistake. Risk managers should think carefully about whether a lawsuit is the best course of action, given the public relations issues that are bound to arise if a lawsuit is pursued. The public probably would perceive such action as a corporate Goliath marching into town to step all over a local business. Bad publicity might be avoided by simply negotiating with Hardy about a potential name change to his store. The gains would likely accrue for its goodwill would no doubt be eclipsed by the bad public relations image such a lawsuit might bring on. 10. Knock-offs and trademark depreciations are two examples of trademark infringement. How do the two differ? Provide an example of each. Difficulty: 1 QuestionID: 18-3-10 Topic: Trademark Infringement and Passing Off Skill: Recall Answer: The main difference between the two is that one creates confusion in the marketplace and the other does not. A knock-off is purposefully designed to try to fool consumers so that they believe that they are purchasing a particular product when, in reality, they are purchasing a cheaper imitation. This imitation is generally of an inferior quality, but bears marks identical or similar to products of higher quality. An example would be when a poor quality watch places the name or logo of a high quality watch on its face to trick consumers (or those looking at their wrists) into thinking the inferior watch is a genuine item. Similar confusion does not necessarily occur in trademark depreciation. A trademark depreciation occurs when a mark that is used in a non-confusing manner has the effect of sullying another's trademark, or somehow diminishing the value of its goodwill. Although its use is non-confusing, it is harmful. An example would be the use of a company's logo in a context that implies something negative about the company. By placing a hamburger chain's logo onto an image of clear-cut forest, to make a statement about the potentially harmful effects of deforestation for the sake of cattle farming, a party is likely depreciating the trademark of the hamburger chain.

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11. A group of engineering students set themselves the task of creating a motor powerful enough to run a car using solar power rather than gasoline. Two years into the project the students managed to create a prototype vehicle that was functional and environmentally friendly. The media was called, and several newspapers ran stories about the students, and how the students were going to try to sell their idea to a car manufacturer. Soon after, the students received a letter from an oil company informing them that it already owned the patent for the solar motor and that the students' motor, if sold, would be infringing the oil company's patent. Is the oil company correct? It turns out that the oil company held the patent but was not marketing it for fear of losing profits on its oil sales. What does this situation say about how patent law balances private rights with the public good? Difficulty: 3 QuestionID: 18-3-11 Topic: The Patent Bargain, Patent Infringement Skill: Applied Answer: Assuming the students' invention is sufficiently similar to the oil company's patent, the oil company is correct. The Patent Act grants the patent holder the exclusive rights to make, construct, or use a particular patent. This right to exclusivity essentially means that the patent holder can take as much time as is necessary, up to 20 years, to bring the product to market. Although the students were not infringing the patent during the research phase–ie while they were trying to build the motor–once they turned their minds towards using the motor for commercial profit, they crossed the line. The second part of this question requires students to explore ideas not covered in the text. Some students will consider the possibility that the oil company can prevent others from marketing an environmentally friendly motor as an example of how patent law sometimes sacrifices public welfare in favour of private rights. By granting exclusive rights over an invention, the inventor can keep the invention out of the hands of those who would benefit from it the most for a certain period of time. It could also allow the inventor to obtain huge profits from the public. Some students will juxtapose the key benefit of the system, namely, creating incentive, with its key shortcoming, namely, that there are bound to be cases where the price sought by the patent holder is too high, resulting in useful products never making it to the market. Students who make this insight should be rewarded, even if they do not realize that the Patent Act actually contemplates this shortcoming. When taking this question up in class, you can tell your students that the failure to exploit a patent will sometimes be said to amount to an abuse of patent rights. An abuse of patent rights occurs when the owner of the patent fails to make the invention available in Canada on a commercial scale without adequate reason. If the owner fails to meet the demand in Canada, or hinders trade by refusing to grant a licence to others willing to do so, where such a licence is in the public interest, those other manufacturers may apply for a compulsory licence. Where such an application is made, the Commissioner of Patents might require the patent owner to prove to that they are not abusing the patent rights. Where the Commissioner decides to grant a compulsory licence, parties other than the patent owner are permitted to produce the patented product, though they will be required to pay a set royalty to the patent owner. 12. Explain what is meant by the novelty requirement in patent law. Is it sufficient for a product to be the first one on the market? Difficulty: 1 30 © 2023 Pearson Canada Inc.

QuestionID: 18-3-12 Topic: Novelty Skill: Recall Answer: In the context of patent law, the novelty requirement means more than being new. Merely being the first one to bring your item to the market does not mean that you will meet the novelty requirement. In fact, if your product reaches the market more than a year before you file your patent application, the product cannot be patented. Nor does the novelty concept require the inventor to prove that no one else came up with the idea or built a similar product. What must be shown is that the invention has not previously been disclosed or made available to the public. If a product has been publicly presented prior to the patent application, its chances of registration may be jeopardized. It is for this reason that prudent business managers employ confidentiality measures to ensure that their product will not fail the novelty test for being too widely known. 13. Carlos, a baseball fanatic, has spent most of his adult life in a workshop, trying to invent a better baseball bat. Finally, after having spent many years and most of his savings, Carlos succeeded in creating a bat out of an aluminum alloy that results in sending the baseball further than if the ball was hit with a standard bat. Ecstatic, Carlos decides to hire a patent agent to help him secure a patent. But he contacts you for advice about his options for exploiting his patent, and to discuss the risks and benefits of each potential avenue. Difficulty: 2 QuestionID: 18-3-13 Topic: Exploiting a Patent Skill: Applied Answer: Carlos does not appear to be in great financial shape. As such, he may need a large amount of money in a relatively short amount of time. If that is the case, it might be best for him to sell his invention to a baseball bat manufacturer. The benefit of this is that he will get a significant sum of money up front. However, in order to determine a fair amount for the rights to the bat, Carlos needs to be able to forecast its success in the marketplace. If his bat becomes popular and, ultimately, an industry standard, his invention could be worth a significant sum. The likelihood of accurately foreseeing the future worth of the bat is slim, and Carlos runs the risk of undervaluing his invention. Alternatively, Carlos could licence the right to produce the bat to any number of bat producers. So long as they do not negotiate exclusive licenses with him, the benefit of this route is that Carlos retains control of the patent and is able to accumulate royalties from various bat manufacturers. A risk that is run here is that he may not make enough money from these licencing agreements. Moreover, these agreements require a bit of policing, in order to ensure that the licencee is only using the product to the degree agreed upon by the parties. As a further alternative, if he is able to secure some sort of financing, Carlos could manufacture and market the bat himself. The downside to this route is the massive commitment it demands. Moreover, if the product is not a success, or if Carlos does not have sufficient funds to properly market the bat, his years of research may not be as profitable as he had hoped. 14. Explain the meaning of the following statement: "Industrial designs cannot be registered for designs that are purely functional in nature." Using a running shoe as an example, describe an element that can 31 © 2023 Pearson Canada Inc.

be registered as an industrial design and an element that cannot. Difficulty: 1 QuestionID: 18-3-14 Topic: Industrial Designs Skill: Applied Answer: Industrial designs are meant to only protect the visual appeal of a product, since other measures (eg patents) are in place to protect the functional aspects of the product. As such, industrial designs protect the shape and configuration of a product, as long as this shape or configuration is not solely a functional aspect of the product. Industrial designs are not employed to protect the aspects of the product that are necessary in order for a product to work. Using a sneaker as an example, the fact that the shoe has 12 holes in it for the sake of passing laces through cannot be the subject of an industrial design. However, if a sneaker manufacturer uses a particular design on the soles of all its sneakers in order to help distinguish its shoe from its competitors, the design might qualify for registration. In order to benefit from legal protection in Canada, industrial designs must be registered and can be protected for up to 10 years. 15. Softwear Inc is a company that develops "smart clothes"–clothes that change in temperature depending on a number of factors such as the weather and the amount of activity the wearer is engaging in. Although Softwear owns several patents from which it generates much of its revenue, it is constantly developing new products. Recently, due to a downturn in the economy, Softwear has had to lay off many of its workers. Its executives are worried about disgruntled workers using the knowledge they have of products still in development at Softwear to obtain jobs with Softwear's competitors. Suggest an avenue that Softwear may wish to pursue in order to protect its information-based assets. Difficulty: 1 QuestionID: 18-3-15 Topic: Confidential Information Skill: Applied Answer: An effective method for protecting product ideas while they are still in development is through confidentiality agreements. By ensuring that its employees are aware that the information is to be treated as confidential, Softwear will have legal recourse if their product ideas fall into the wrong hands. Confidential information cannot be disclosed in an unauthorized manner, because such disclosure can lead to a suit in breach of confidence. In order to protect itself, Softwear would want to make it abundantly clear to its employees that the information they gain through their work is confidential and is only to be used for the benefit of the company. This obligation can be created by using confidentiality clauses in employee contracts and by distributing to all its employees a copy of a confidentiality policy. In addition to protecting itself in case it has to sue in breach of confidence, these steps may be effective in deterring disclosure before it occurs. Often times, knowledge that an employee will be legally pursued for disclosing confidential information is sufficient to ensure that the information is only used in an authorized manner.

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Managing the Law, 6e (McInnes) Chapter 19: Electronic Commerce True/False Questions 1. As a general rule, domain names are registered on a first come-first served basis. As a result, the first person to register a domain name typically has the right to sell it. a True b False Difficulty: 1 QuestionID: 19-1-01 Topic: Using the Internet Skill: Recall Answer: a. True 2. Defensive domain name registration is a precaution taken by companies to avoid potentially costly disputes with cybersquatters. a True b False Difficulty: 2 QuestionID: 19-1-02 Topic: Using the Internet Skill: Recall Answer: a. True 3. A click-farm is normally created in an attempt to inflate Internet rankings and increase advertising revenue. a True b False Difficulty: 2 QuestionID: 19-1-03 Topic: Using the Internet Skill: Recall Answer: a. True 4. The principle of net neutrality states that Internet service providers should refrain from providing online services. a True b False

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Difficulty: 2 QuestionID: 19-1-04 Topic: Internet Service Providers Skill: Recall Answer: b. False 5. The Government of Canada enacted PIPEDA in part to ensure an overlap between federal and provincial privacy laws. a True b False Difficulty: 2 QuestionID: 19-1-05 Topic: Privacy Policies Skill: Recall Answer: a. True 6. Double-spending is a problem that arises in connection with electronic commerce. If a single online transaction has contact with two or more locations–as when the seller may be in New York and the buyer may be in Winnipeg–the government in each location may impose a tax. The same transaction therefore may be taxed twice. That is the double-spending problem. a True b False Difficulty: 2 QuestionID: 19-1-06 Topic: Cryptocurrencies Skill: Applied Answer: b. False 7. Companies should refrain from telling consumers about privacy breaches because it will cause consumers to become distrustful. a True b False Difficulty: 1 QuestionID: 19-1-07 Topic: Privacy Breaches Skill: Applied/Recall Answer: b. False 8. According to the Canadian Code of Practice for Consumer Protection in Electronic Commerce, it is 2 © 2023 Pearson Canada Inc.

illegal for a company to send unsolicited emails to customers. a True b False Difficulty: 2 QuestionID: 19-1-08 Topic: Code of Practice Skill: Recall Answer: b. False 9. Matt Cone has registered the domain name icecreamcone.ca. While Matt plans on using the domain name to promote his homemade ice cream, he is also considering selling the name to the highest bidder and using the money to help offset his startup costs. Matt has contacted several relevant businesses with his offer. Recently, Matt has received a complaint from a kosher ice cream distributor that holds a registered Canadian trademark for "Ice-Cream Cohen." It has characterized Matt's actions as cybersquatting and is demanding that he assign his registration in the domain name to them at cost. Because cybersquatting is an illegal practice, Matt must assign his rights to Cohen. a True b False Difficulty: 3 QuestionID: 19-1-09 Topic: Using the Internet Skill: Applied Answer: b. False 10. Citron Cleaning Supplies has begun marketing their new computer screen cleaner under the name "Compuclean." Citron is a US-based company and holds a US federally registered trademark for "Compuclean." Recently, it has discovered that a Canadian company is in the business of vending a similar product through the website compuclean.ca. The Canadian web site encourages foreign-based orders and maintains an international toll-free phone number for customer inquiries. Instead of bringing a complaint under the domain name arbitration system, Compuclean wishes to bring an action against the Canadian company in a US court. In order to increase the chances that the US court will assert jurisdiction, Citron should argue in favour of the application of a passive versus active test. a True b False Difficulty: 2 QuestionID: 19-1-10 Topic: Jurisdiction Skill: Applied Answer: a. True

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11. Isabella has commenced an action against a Caribbean-based company that offered a "guaranteed 17 percent return on all 30-day foreign investments of $20,000 or more." Both the initial investment and interest were to be repaid in the investor's national currency, regardless of the mode of investment. Instead, the company provided Isabella with a certificate of ownership in a sugarcane farm, presumably obtained for less than its stated value. Because Isabella is a Canadian citizen, she would like the action tried in a Canadian court and, accordingly, must satisfy the real and substantial connection test. Under this approach, Isabella must demonstrate that the effects of the Caribbean company (ie the harms suffered) were experienced in Canada. a True b False Difficulty: 3 QuestionID: 19-1-11 Topic: Jurisdiction Skill: Applied Answer: b. False 12. Hoben Electronic Publishing Co wishes to take proactive steps to insulate itself from potential liability for any libelous content it might inadvertently publish. It has noticed that Southern Ontario is particularly litigious. Accordingly, it has posted a notice on its website stating that residents of Southern Ontario cannot purchase or download content from the site. These are the only steps taken by the company. Although it had the opportunity to purchase software that would allow it to block access to residents of that region, it has chosen not to do so. Nor has Hoben engaged in further screening at the time of purchase and/or download. Nevertheless, the steps taken by the company are sufficient to avoid liability under the effects-based approach to determining jurisdiction. a True b False Difficulty: 2 QuestionID: 19-1-12 Topic: Jurisdiction Skill: Applied Answer: b. False 13. While attending a recent conference on electronic publishing, Samina overheard a colleague remark that online service providers can always and absolutely avoid all liability from third parties by inserting an exclusion from liability provision into their terms of use, provided that the exclusion clause is sufficiently brought to the attention of its users. The remark that she overheard is correct. a True b False Difficulty: 2 QuestionID: 19-1-13 Topic: Online Service Providers 4 © 2023 Pearson Canada Inc.

Skill: Applied Answer: b. False 14. Kerasic Online is an ISP. It has been sued by SOCAN for copyright violation. SOCAN argues that Kerasic commits a wrong every time that it allows a customer to electronically distribute music files to other individuals. Kerasic believes, however, that as a result of a recent Supreme Court of Canada decision, an ISP can never be held liable for participating in the distribution of electronic music files. Kerasic's conclusion is correct. a True b False Difficulty: 3 QuestionID: 19-1-14 Topic: Online Service Providers Skill: Applied Answer: b. False 15. All websites must contain terms of use. a True b False Difficulty: 1 QuestionID: 19-1-15 Topic: Terms of Use Skill: Recall Answer: b. False 16. The doctrine of unconscionability gives the power to set aside unfair agreements that result from an inequality of bargaining power. a True b False Difficulty: 1 QuestionID: 19-1-16 Topic: Unconscionability Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following statements is TRUE? A) Electronic commerce discourages international business transactions. 5 © 2023 Pearson Canada Inc.

B) Technology allows contracts to be performed less efficiently. C) Technology increases marketing costs. D) Electronic commerce makes many transactions easier and more affordable. E) Electronic commerce is governed almost entirely by a set of international treaties. Difficulty: 2 QuestionID: 19-2-01 Topic: Introduction Skill: Recall Answer: D) Electronic commerce makes many transactions easier and more affordable. 2. According to the Office of the Privacy Commissioner of Canada, which of the following is an example of Serena's personal information? A) her favourite colour B) her body weight C) the name of her pet D) the name of her best friend E) her Facebook page Difficulty: 2 QuestionID: 19-2-02 Topic: Privacy Policies Skill: Applied Answer: B) her body weight 3. Rolf Dog Food has created a new website to sell its dog food over the Internet. Which of the following strategies will best ensure that Rolf's terms of use are binding on visitors to the website? A) Rolf can post the terms anywhere on his website. As long as interested customers can locate and read them, the specific location is never important. B) Rolf's terms of use are automatically binding on anyone using the site, so the company does not need to worry about where or how the terms are posted. C) Rolf could deny visitors access to the website unless they have confirmed that they have read and agreed to the terms of use by clicking an "I accept" box. D) Rolf should mail a hardcopy of the terms of use to each potential visitor to the website, to ensure that they receive adequate notice of the conditions. E) It is impossible to ensure that terms of use will be binding on visitors to the website. Difficulty: 2 QuestionID: 19-2-03 Topic: Terms of Use Skill: Applied Answer: C) Rolf could deny visitors access to the website unless they have confirmed that they have read and agreed to the terms of use by clicking an "I accept" box. 6 © 2023 Pearson Canada Inc.

4. A term of an online contract will not be binding on a customer if it consisted of "fine print" that could not be viewed in its entirety from the main page of the site. That rule was stated in A) Kanitz v Rogers Cable Inc. B) Doctor's Association Inc v QIP Holders. C) Rudder v Microsoft. D) Crookes v Newton. E) Society of Composers, Authors and Music Publishers of Canada v Canadian Association of Internet Provider. Difficulty: 3 QuestionID: 19-2-04 Topic: Terms of Use Skill: Recall Answer: C) Rudder v Microsoft. 5. After becoming tired of the Muzak piped into your office, you decide to subscribe to an online, listenersupported radio station dedicated to jazz and blues music. You had thought that there was no upfront fee, but that listeners may make a donation using their electronic wallets. Clicking through the site, you are asked to provide certain information on a contractual form. One day, after several visits to the website, you notice a hyperlink labelled "Terms of Service" while viewing the previous hour's play list. You click the link and a document opens, indicating that, by streaming music from the website, you have agreed to pay a flat fee on a monthly basis with a minimum subscription of one year. On your previous visits, you never noticed the hyperlink, which is barely visible in fine print, at the bottom corner of the homepage right next to a flashy and distracting animation. Which of the following BEST characterizes this situation? A) You have entered into a contract and owe a year of monthly fees. B) You can rely on Rudder v Microsoft to get out of this contract. C) You have not entered into a contract. D) You may have entered into a contract, but its terms likely do not include a year of monthly fees. E) You have entered into a contract that is governed by the Sale of Goods Act. Difficulty: 3 QuestionID: 19-2-05 Topic: Terms of Use Skill: Applied Answer: D) You may have entered into a contract, but its terms likely do not include a year of monthly fees. 6. Which of the following propositions is supported by the decision in Zhu v Merrill Lynch? A) The fact that a party clicked "I Agree" without actually reading the terms of the agreement will render the contract unenforceable. B) The fact that a party receives an automated response confirming a transaction is cancelled is not binding on the party sending the notice if that party has made a mistake. C) Computer-generated transactions are not generally binding. 7 © 2023 Pearson Canada Inc.

D) A party must verify significant transactions made on the Internet by telephone or other communication with the counterparty for those transactions to be binding. E) All computer transactions are binding based on the messages sent between the parties. Difficulty: 2 QuestionID: 19-2-06 Topic: Automated Transactions Skill: Recall Answer: B) The fact that a party receives an automated response confirming a transaction is cancelled is not binding on the party sending the notice if that party has made a mistake. 7. Which of the following would best explain why certain terms in an online agreement might be found to be of NO LEGAL EFFECT? A) The terms are boilerplate provisions. B) The terms are displayed in red font, rather than black. C) The terms cannot be stored electronically. D) The terms are not accessible to the customer until after the customer has clicked an "I Agree" box to accept the agreement. E) The terms can only be found by searching through complicated hyper-links. Difficulty: 2 QuestionID: 19-2-07 Topic: Terms of Use Skill: Applied Answer: D) The terms are not accessible to the customer until after the customer has clicked an "I Agree" box to accept the agreement. 8. The common carriage principle is relevant to Internet service providers (ISPs) because it A) allows ISPs to privilege the content that they think customers most want to see. B) allows ISPs to police the Internet by monitoring the content transmitted through their Internet infrastructure. C) prevents ISPs from denying competitors access to their Internet infrastructure. D) means the exact same thing as network neutrality. E) allows ISPs to maintain monopolies. Difficulty: 2 QuestionID: 19-2-08 Topic: Internet Service Providers Skill: Applied Answer: C) prevents ISPs from denying competitors access to their Internet infrastructure. 9. Ginger's Pet Shop has decided to retail its products over the Internet. To generate interest in its new website, Ginger wants to allow customers to post content about pets or pet supplies on the site. Which of 8 © 2023 Pearson Canada Inc.

the following examples might pose a liability risk to Ginger? A) Ginger's site carries a picture of a customer's dog with the customer's permission. B) In order to demonstrate the superiority of Ginger's pet supplies, one of Ginger's customers posts a video that makes untrue and unflattering comments about Ginger's competitors. C) The display of customers' pets on Ginger's website contributes to Ginger's image as a customer-oriented pet shop. D) Ginger requires customers to agree to terms of use that restrict the types of pictures they can post, leading to complaints that her terms limit free speech. E) Ginger requires customers in their terms of use to not use their products for an illegal purpose. Difficulty: 2 QuestionID: 19-2-09 Topic: Online Service Providers Skill: Applied Answer: B) In order to demonstrate the superiority of Ginger's pet supplies, one of Ginger's customers posts a video that makes untrue and unflattering comments about Ginger's competitors. 10. The International Widget Co has approached you seeking advice. It is currently embroiled in a dispute with one of its regular trading partners. As a result of spilling Orange Crush on his keyboard, the trading partner's purchasing officer accidentally ordered 700 widgets, instead of the usual monthly 70. Figuring that the extraordinary order would not be processed, he did not bother informing International Widget about the mistake. Relying on the accuracy of the order, International Widget bought supplies necessary to make 700 widgets. The trading partner refuses to carry out the transaction. Assuming the relevant jurisdiction follows the approach adopted by Canadian statutes that deal with electronic commerce, which of the following is most likely TRUE? A) International Widget's trading partner will not be bound by the order. B) International Widget's trading partner will be bound by the order. C) International Widget can recover from its trading partner the cost of no more than 350 widgets. D) International Widget can recover from its trading partner the cost of no more than 500 widgets. E) International Widget's trading partner is only obliged to pay for 70 widgets and keep the remaining 630 widgets for free. Difficulty: 2 QuestionID: 19-2-10 Topic: Automated Transactions Skill: Applied Answer: B) International Widget's trading partner will be bound by the order. 11. Which of the following is an example of traffic shaping? A) An Internet service provider (ISP) completely blocks access to particular websites. B) An ISP slows a user's Internet service whenever they try to send files through a peer-to-peer system. C) An ISP gives subscriber information to the police upon request. D) An online service provider offers prizes to the first 1,000 visitors to its website. E) An online service provider redirects Internet traffic from its old website to its new and improved 9 © 2023 Pearson Canada Inc.

website. Difficulty: 2 QuestionID: 19-2-11 Topic: Internet Service Providers Skill: Recall Answer: B) An ISP slows a user's Internet service whenever they try to send files through a peer-to-peer system. 12. Andres has created an online service that allows users to instantaneously distribute documents to hundreds of other people. Which of the following strategies can help him reduce his risk of being held liable for the content distributed by the users of his service? A) He should review all documents and edit anything that might be considered offensive. B) He should include a provision in his terms of use warning users that he will monitor every message they distribute through the service. C) He should include a provision in his terms of use allowing him to claim indemnification from a user if he is held liable for something they distributed through the service. D) He should avoid telling users what they can or cannot distribute through the service for fear of infringing their free speech. E) He should not worry about this risk and do nothing as it is not a likely legal hazard of his business. Difficulty: 2 QuestionID: 19-2-12 Topic: Online Service Providers Skill: Applied Answer: C) He should include a provision in his terms of use allowing him to claim indemnification from a user if he is held liable for something they distributed through the service. 13. Javed has created a website for his company. The website is strictly informational. It does not allow customers to buy products online or post their own content. It does, however, contain materials taken from other websites. Which of the following statements is most likely to be TRUE? A) Javed does not need to worry about liability issues. B) Javed's website could put him at risk for claims of copyright infringement, depending on the information posted on the site. C) Unless Javed specifies that his website forms a part of his contract with customers, the content on the website can never be considered in a claim for innocent misrepresentation. D) Javed should not include terms of use on his website because such terms are only appropriate for websites that allow customers to make online purchases or post content. E) Javed's website could put him at the risk of breach of contract if he does not allow his customers to post comments about his business on his website. Difficulty: 2 QuestionID: 19-2-13 Topic: Online Service Providers 10 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) Javed's website could put him at risk for claims of copyright infringement, depending on the information posted on the site. 14. Susanne has asked for your advice on how she can reduce the risk of having her identity stolen. Which following strategies would you recommend that she adopt? A) She should never download software from the Internet. B) She should always carry her social insurance card so she can prove her identity whenever necessary. C) She should never pay for items with a credit card instead she should only use cash. D) She should never transmit personal information over voicemail. E) She should always chose obvious passwords for her online accounts so that she does not risk forgetting them. Difficulty: 1 QuestionID: 19-2-14 Topic: Misuse of Personal Identifiers Skill: Applied Answer: D) She should never transmit personal information over voicemail. 15. Privacy laws limit the extent to which businesses can collect, use, or disclose personal information about their customers. Which of the following strategies should be adopted by a company to minimize the risks and costs associated with privacy compliance? A) A company should appoint one person to be responsible for privacy issues so that it can completely avoid the cost of training other employees about privacy compliance. B) When a company only collects necessary personal information, it can use that information however it wants. C) A company should encrypt personal information whenever possible, even if there is a small financial cost to do so. D) If the company is located in the Yukon, it is not subject to privacy legislation so should develop its privacy policy in a way that best suits its needs. E) A company should include the maximum expected cost of privacy law claims into its calculation price of goods or services and not bother to comply with the privacy laws. Difficulty: 2 QuestionID: 19-2-15 Topic: Privacy Breaches Skill: Applied Answer: C) A company should encrypt personal information whenever possible, even if there is a small financial cost to do so. 16. After reading an article about domain name-related entrepreneurship, you decide to register several domain names for resale. Subsequently, you receive a complaint alleging that you have registered one of those names in bad faith. The complainant has filed for arbitration. The name in question is 11 © 2023 Pearson Canada Inc.

breadandbutter.com. The complainant, a baker, conducts business under the name. Based on these facts, which of the following statements is most likely to be TRUE? A) You have an intellectual property right in the name. B) You are a cybersquatter. C) The complainant can claim the "good faith" justification. D) Your domain name dispute cannot be litigated in court. E) If you quickly set up a bakery under the same name you should be able to avoid any liability. Difficulty: 2 QuestionID: 19-2-16 Topic: Using the Internet Skill: Applied Answer: B) You are a cybersquatter. 17. "Phishing" occurs when A) you download free software from the Internet. B) you believe that your bank has requested your personal information, which you supply in an email, only to later learn that the initial email was a scam. C) without your knowledge, a program captures an image of your screen that can be used by an identity thief to collect your personal information. D) you accidently install a virus on your computer when you are downloading music from a website. E) a company sells your personal information without your permission. Difficulty: 1 QuestionID: 19-2-17 Topic: Collection of Personal Identifiers Skill: Recall Answer: B) you believe that your bank has requested your personal information, which you supply in an email, only to later learn that the initial email was a scam. 18. Which of the following tests is irrelevant to a determination of the appropriate jurisdiction for litigation arising from online interaction? A) whether there is a real and substantial connection to the place where jurisdiction is being sought B) whether the website has an actual impact in the place where jurisdiction is being sought C) whether the defendant is culpable D) whether the website merely posts information, or requires customers to interact E) whether the person clicked "I Agree" or not Difficulty: 1 QuestionID: 19-2-18 Topic: Jurisdiction Skill: Recall Answer: C) whether the defendant is culpable 12 © 2023 Pearson Canada Inc.

19. The Government of Canada proposed to add new provisions to the Criminal Code that focus on prohibiting identity theft. Which of the following statements about the proposed amendment is FALSE? A) Currently there are absolutely no provisions in the Criminal Code that can be used to prohibit identity theft. B) The proposed provisions focus on the preparatory stages of identity theft, making it illegal to possess the identity documents of another person. C) It is currently difficult to characterize personal information as property unless it has commercial value. D) Under the proposed amendment, the offender could be ordered to pay the victim for the reasonable amount spent restoring their identity. E) The new provisions include prison sentences sometimes up to a maximum of five years. Difficulty: 2 QuestionID: 19-2-19 Topic: Identity Theft Skill: Recall Answer: A) Currently there are absolutely no provisions in the Criminal Code that can be used to prohibit identity theft. 20. RAS Auto Parts, a Canadian company, recently received some decidedly unfavourable publicity stemming from an incident that took place at a Caribbean conference attended by its board of directors. The story was published in the Trinidad Daily Online. RAS would like to bring a defamation suit against the Daily Online in Canada. In order to obtain jurisdiction in Canada, under the effects-based approach, which of the following elements must RAS prove? A) how the harm was suffered B) why the harm was suffered C) where the harm was suffered D) what harm was done E) that RAS is incorporated in Canada Difficulty: 2 QuestionID: 19-2-20 Topic: Jurisdiction Skill: Applied Answer: C) where the harm was suffered 21. M!ke Internet Inc offers an Internet connection and an email account for $9 per month. The company does not retail goods, nor does it provide a forum for subscriber auctions. Which of the following is most likely FALSE? A) M!ke is an Internet service provider. B) M!ke is an online service provider. C) M!ke is an online intermediary. D) M!ke is unlikely to be seen as a participant in its customers' communications. E) M!ke has no risk of liability 13 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 19-2-21 Topic: Internet Service Providers Skill: Applied Answer: E) M!ke has no risk of liability 22. Syntax Systems has launched a new electronic newsletter. Similar to the use of a listserv, the newsletter is composed of subscriber submissions (rather than content generated by the news service itself). Each day's accumulated subscriber submissions are automatically packaged and automatically sent by mass email without editorial review. (In fact, the whole point of the newsletter is that no one knows what anyone else will say until it is disseminated.) Revenue for the newsletter is generated through automated advertising. Which of the following is most likely to be TRUE? A) Syntax is likely to be liable in the event that an illegal message was posted. B) Syntax will never be liable in the event that an illegal message was posted. C) Syntax is exempted from liability by virtue of being an Internet service provider. D) Syntax can only avoid liability if it attempts to censor illegal messages. E) A conduit model of website may attract liability, even where the activity of the provider is content neutral, and the law has not been finally settled by the decision of the SCC in SOCAN. Difficulty: 3 QuestionID: 19-2-22 Topic: Online Service Providers Skill: Applied Answer: E) A conduit model of website may attract liability, even where the activity of the provider is content neutral, and the law has not been finally settled by the decision of the SCC in SOCAN. 23. Which of the following kinds of online behaviour might not attract legal liability? A) posting a defamatory remark B) distributing materials subject to copyright C) disclosing personal information D) trademark infringement E) providing a content-neutral conduit, without wither knowledge of infringing content or a practical opportunity to monitor the vast amount of content passing over the network Difficulty: 1 QuestionID: 19-2-23 Topic: Online Service Providers Skill: Applied Answer: E) providing a content-neutral conduit, without wither knowledge of infringing content or a practical opportunity to monitor the vast amount of content passing over the network 24. Based on the decision in SOCAN v Canadian Association of Internet Providers, which of the following 14 © 2023 Pearson Canada Inc.

statements is TRUE? A) "Caching" is an unacceptable use of the Internet. B) An Internet service provider (ISP) is content-neutral when it does not have knowledge of infringing content and cannot practically monitor the content passing over its network. C) If an ISP knows that customers could potentially infringe copyright through their use of the Internet, the ISP will always be liable for any infringement that occurs. D) ISPs cannot be held responsible for paying royalties. E) Content-neutral ISPs are shielded from all legal liability. Difficulty: 2 QuestionID: 19-2-24 Topic: Online Service Providers Skill: Recall Answer: B) An Internet service provider (ISP) is content-neutral when it does not have knowledge of infringing content and cannot practically monitor the content passing over its network. 25. Which of the following proposals is found within the Canadian Code of Practice for Consumer Protection in Electronic Commerce? A) Online vendors should make a complaints procedure available to customers, endeavour to deal with complaints within one week, and resolve or address complaints within 45 days. B) To reduce the risk of confusion and disagreement, online communications should be available in one language only. C) Unsolicited emails can be sent to customers without their consent as long as the subject line of the email clearly specifies what the message is about. D) Online vendors should never communicate with people they know to be children. E) Online vendors do not have to worry about any liability whatsoever as jurisdiction of the courts cannot be taken over them. Difficulty: 1 QuestionID: 19-2-25 Topic: Code of Practice Skill: Recall Answer: A) Online vendors should make a complaints procedure available to customers, endeavour to deal with complaints within one week, and resolve or address complaints within 45 days. 26. You have recently gone into business as a consultant, specializing in the area of online consumer protection. As part of your services, you offer a seminar to business owners on how they can prevent identity theft. Which of the following practices will you suggest to your clients? A) transacting as a mere conduit B) adopting authentication procedures that collect only necessary personal identifiers C) utilizing an open-access network D) implementing electronic contracting and instantaneous communication E) allowing only one completely unsupervised person in your organization to have access to all personal information, and excluding all others in your organization from such access 15 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 19-2-26 Topic: Identity Theft Skill: Applied Answer: B) adopting authentication procedures that collect only necessary personal identifiers 27. You have recently gone into business as a consultant, specializing in the area of online consumer protection. As part of your services, you offer a seminar on how to avoid online consumer complaints. Which of the following practices should you suggest to your clients? A) Be sure your terms of use include extensive use of specialized legal terminology. B) Weave promotional materials into your terms and conditions of sale. C) Be sure to accurately describe all online goods and services. D) Dispense with confirmation procedures. E) Promise not to collect any personal information. Difficulty: 3 QuestionID: 19-2-27 Topic: Code of Practice Skill: Applied Answer: C) Be sure to accurately describe all online goods and services. 28. Which of the following is a good reason for incurring the costs associated with implementing Industry Canada's consumer protection principles into your business? A) Your business is legally required to do so. B) You will avoid competition from multi-level marketers. C) You will avoid the need for adopting a privacy-compliance policy. D) You will strengthen consumer confidence in your products. E) You will insulate your business from all legal liability. Difficulty: 3 QuestionID: 19-2-28 Topic: Consumer Protection Skill: Applied Answer: D) You will strengthen consumer confidence in your products. 29. Within the context of jurisdictional issues and electronic commerce, which of the following statements is TRUE? A) Because online communication rarely fails without at least one of the parties knowing of the failure, jurisdiction is not a significant issue for electronic commerce. B) Jurisdiction is usually determined on the basis of the but-for test. C) The effects-based test of jurisdiction focuses on how damage was caused. D) The passive versus active test asks which of the parties first filed official documents in a particular 16 © 2023 Pearson Canada Inc.

jurisdiction. E) The relevant connecting factors in the real and substantial connection test include the locations of the content provider, the host server, the intermediaries, and the end user. Difficulty: 2 QuestionID: 19-2-29 Topic: Jurisdiction Skill: Applied Answer: E) The relevant connecting factors in the real and substantial connection test include the locations of the content provider, the host server, the intermediaries, and the end user. 30. Which of the following practices should be adopted in order to respect the consumer protection principles advocated by Industry Canada? A) sending unsolicited email only to parties who you think will be interested B) sharing customer information only with trusted business partners C) providing the information necessary for customers to make informed choices D) implementing electronic payment systems E) selling private information about your customers to anyone who will pay for that information Difficulty: 3 QuestionID: 19-2-30 Topic: Code of Practice Skill: Applied Answer: C) providing the information necessary for customers to make informed choices 31. The case of Rudder v Microsoft dealt with the creation of online contracts. The judge held that A) consumers cannot be held liable for terms that they did not actually read. B) parts of a document that cannot be seen on the screen when the document is first opened are the electronic equivalent of small print. C) an electronic contract does not become effective until the consumer is provided with a paper copy of the agreement. D) when Canadian consumers become involved in disputes regarding online contracts, they are always entitled to have their claims heard in Canadian courts. E) merely clicking the "I Agree" prompt on an Internet contract can be sufficient to bind a party to all contractual terms, including onerous and unusual terms. Difficulty: 2 QuestionID: 19-2-31 Topic: Terms of Use Skill: Recall Answer: E) merely clicking the "I Agree" prompt on an Internet contract can be sufficient to bind a party to all contractual terms, including onerous and unusual terms.

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32. Which of the following propositions is best supported by the decision in Zhu v Merrill Lynch HSBC? A) Customers are entitled to rely on the common sense meaning of a website's online prompts when completing a transaction. B) Customers are NOT entitled to rely on the common sense meaning of a website's online prompts when completing a transaction. C) Customers cannot rely on keystroke errors to cancel a transaction when that transaction involves the purchase or sale of stocks. D) Companies owe customers the same duty to make online transactions readily understandable, regardless of whether the customer might risk losing large amounts of money as a result of a faulty transaction. E) It is the customer's responsibility to confirm the prompts received during online transactions. Difficulty: 3 QuestionID: 19-2-32 Topic: Automated Transactions Skill: Recall Answer: A) Customers are entitled to rely on the common sense meaning of a website's online prompts when completing a transaction. 33. Canadian and provincial privacy laws can be said to reduce the risk of identity theft. Which of the following statements is an example of how privacy laws might accomplish this task? A) by denying business the right to ever disclose personal information B) by encouraging businesses to track customer purchases so they can identify any purchases that seem out of character and might therefore be fraudulent C) by requiring businesses to destroy personal information that is no longer needed D) by requiring businesses to run criminal record checks on all employees E) by requiring businesses to store personal information only in paper form and not electronically Difficulty: 1 QuestionID: 19-2-33 Topic: Privacy Breaches Skill: Applied Answer: C) by requiring businesses to destroy personal information that is no longer needed 34. When it comes into force, Canada's Anti-Spam Legislation, S.C. 2010, c. 23 A) creates an automatic jail term of 14 years for anyone caught sending spam. B) requires that companies eliminate the possibility of keystroke errors in online transactions. C) allows individuals to put their names on a Do Not Call List to avoid telemarketers. D) gives individuals the ability to sue spammers for the actual cost of each occurrence of spam, up to $1 million per day. E) creates a criminal prohibition against identity theft. Difficulty: 3 QuestionID: 19-2-34 Topic: Spam, Spyware, and Phishing 18 © 2023 Pearson Canada Inc.

Skill: Recall Answer: D) gives individuals the ability to sue spammers for the actual cost of each occurrence of spam, up to $1 million per day. 35. Kamil created an electronic contract with Rogers Cable Inc. That contract contained a paragraph that purported to allow the company to change the terms of the agreement by (i) sending a letter through the mail to Kamil, (ii) sending an email to Kamil, or (iii) posting a notice of the changes on its website. Which of the following statements is TRUE? A) Regardless of the precise wording of the paragraph, Rogers cannot change the terms of the agreement unless it ensures that Kamil actually became aware of the change. B) As long as Kamil agreed to the terms of the contract as a whole, he will certainly be bound by every term in that contract, even if he did not actually read the entire document. C) Regardless of the precise wording of the paragraph, Rogers can vary the terms of its agreement with Kamil only if it acts in a way that would satisfy the reasonable person. D) Rogers can rely on the paragraph as long as it took reasonable steps to draw Kamil's attention to it before the contract was created. E) Because of the risk that companies may take advantage of consumers, Rogers must provide Kamil with a hard copy of a letter that explains the changes to the agreement. Difficulty: 2 QuestionID: 19-2-35 Topic: Terms of Use Skill: Applied Answer: D) Rogers can rely on the paragraph as long as it took reasonable steps to draw Kamil's attention to it before the contract was created. 36. Cordelia intended to purchase 10 copies of a book from an online book dealer. She intended to keep one copy for herself, and give the others to her students as end-of-term gifts. By mistake, however, she actually placed an order for "100," rather than "10," books. She realized her error only when she received an enormous shipment of books. She now wants to avoid the consequences of her mistake. Which of the following statements is TRUE under most Canadian statutes that deal with electronic commerce? A) Cordelia must pay for all 100 copies of the book unless she can prove that the book dealer immediately realized that a mistake had been made. B) Cordelia will be entitled to relief only if she proves that she had committed a reasonable mistake and that she had not been careless when she placed her order. C) Cordelia is automatically entitled to relief if the book dealer's website did not immediately ask her to confirm the number of books that she wanted to purchase. D) Cordelia is entitled to relief only if, among other things, she notified the book dealer of her error as soon as possible after realizing she had made a mistake. E) Cordelia cannot possibly avoid the consequences of her own mistake. Difficulty: 2 QuestionID: 19-2-36 19 © 2023 Pearson Canada Inc.

Topic: Automated Transactions Skill: Applied Answer: D) Cordelia is entitled to relief only if, among other things, she notified the book dealer of her error as soon as possible after realizing she had made a mistake. 37. David Stanley has created a new company that will manufacture beverage containers. He intends to call his company Stanley Cup Inc. He also intends to conduct business online. He therefore wants to use the domain name www.stanleycup.ca. Which of the following statements is TRUE? A) Because "Stanley Cup" accurately describes David's name and business, he has an absolute right to use that domain name. B) The use of that domain name will be regulated by an organization known as CIRA. C) Although there are several statutes that regulate the actual practice of online commerce, there are no special rules regulating the use of domain names, and as a result, any disputes arising from David's use of that domain name will be resolved on the basis of traditional intellectual property laws. D) If anyone objects to David's good faith use of that domain name, the case will certainly be resolved through ADR. E) David can use any name he wants as long as some else has not already taken the Internet domain name. Difficulty: 3 QuestionID: 19-2-37 Topic: Using the Internet Skill: Applied Answer: B) The use of that domain name will be regulated by an organization known as CIRA. 38. Which of the following statements is TRUE? A) The term "blockchain" reflects the fact that Bitcoin's payment system that operates like a chain-link fence, in that outsiders can view transactions but cannot reach with them. B) The phrase "double-spending" first arose because early online businesses used programs that were unreliable and often billed a customer twice for the same goods. C) The term "spyware" became popular after an early group of hackers discovered that they were all interested in international espionage and intrigue. D) The term "spam" reflects the fact that many of the people who first developed online commerce realized that they could work from any location, and chose to live in Hawaii, where Spam, a tinned ham byproduct, is curiously popular. E) The term "phishing" is taken from the term "phreaking" which was used to designate a clique of early hackers said to be "phone-freaks". Difficulty: 3 QuestionID: 19-2-38 Topic: Collection of Personal Identifiers Skill: Recall Answer: E) The term "phishing" is taken from the term "phreaking" which was used to designate a clique of early hackers said to be "phone-freaks". 20 © 2023 Pearson Canada Inc.

39. Miki wants to set up some kind of automated marketing to advertise her latest jewellery line. She is also wary of annoying her customers or breaking the law with her marketing. Which of the following strategies would be best for Miki? A) send an automated telephone message to every name in the phone book B) send an email to everyone on her business contact list, which happens to be a very long list C) send an email to her regular customers, and request that they forward her email to 10 friends, who can forward it to 10 more friends, and so on D) compare the phone numbers that she received from willing customers against the national Do Not Call List (DNCL), and send a telephone message to those names that do not appear on DNCL E) hire a telemarketer to call every name in the phone book so that she can avoid liability all together Difficulty: 1 QuestionID: 19-2-39 Topic: Telemarketing Skill: Applied Answer: D) compare the phone numbers that she received from willing customers against the national Do Not Call List (DNCL), and send a telephone message to those names that do not appear on DNCL 40. A company has recently begun to provide online services to consumers. In order to protect itself from the risk of liability, and in order to improve the quality of its services, the company has asked you, as an online consumer protection expert, to provide advice on best practices. Which of the following is TRUE? A) The company is legally obligated to comply with the minimum standards established in the Canadian Code for Consumer Protection in Electronic Commerce. B) The Canadian Code for Consumer Protection in Electronic Commerce is a federal statute. C) The company should offer services in only one language in order to avoid the risk of confusion. D) With the exception of the territories, every Canadian jurisdiction has adopted its own version of PIPEDA. E) The company should strictly comply with all of the standards in the Canadian Code for Consumer Protection in Electronic Commerce. Difficulty: 2 QuestionID: 19-2-40 Topic: Code of Practice Skill: Applied Answer: E) The company should strictly comply with all of the standards in the Canadian Code for Consumer Protection in Electronic Commerce. 41. The Supreme Court of Canada's decision in Crookes v Newton is best known for the proposition that A) a simple hyperlink does not count as republication for the purposes of the tort of defamation. B) jurisdiction over a dispute that arose from an online contract is generally decided on the basis of the target test. C) although many people use it, Bitcoin is not "legal tender" and cannot be treated as the equivalent of cash. 21 © 2023 Pearson Canada Inc.

D) a customer is bound by the terms of an online contract only if those terms were reasonably brought to the customer's attention before the contract was created. E) Internet service providers are not liable to pay royalties when they act as content-neutral conduits. Difficulty: 2 QuestionID: 19-2-41 Topic: Intermediary Liability Skill: Recall Answer: A) a simple hyperlink does not count as republication for the purposes of the tort of defamation. 42. Sam wanted to book his wedding reception at the Jasper Lodge. He went to the Lodge's website and entered the information required to book a block of 40 guest rooms. Out of caution, however, he asked his fiancé, Lilly, for her thoughts. After she explained to him that many of her family members would find it difficult to get to Jasper, Sam decided to cancel the booking. Unfortunately, when he intended to hit the "Cancel" button, he actually hit the "Make Booking" button. Sam immediately realized his mistake and he now wants to escape liability for an enormous contract with the Lodge. Which of the following will not be an important consideration if the issue goes to court? A) Sam received no benefit from the booking with the Lodge. B) Sam contacted his credit card company to cancel payment to the Lodge. C) Sam notified Jasper Lodge of the error as soon as possible. D) The Lodge's website did not provide any way for Sam to cancel the booking. E) The Lodge's website increased the risk of error because it did not require Sam to click more than once in order to create the contract. Difficulty: 2 QuestionID: 19-2-42 Topic: Automated Transactions Skill: Applied Answer: B) Sam contacted his credit card company to cancel payment to the Lodge. 43. Which of the following is not correct? A) DNCL stands for Do Not Call List. B) CRTC stands for Canadian Radio-television and Telecommunications Commission. C) CASL stands for Canadian Anti-Spam Law. D) ODR stands for Online Dispute Resolution. E) CIRA stands for Canadian Internet Registry Authority. Difficulty: 1 QuestionID: 19-2-43 Topic: Spam, Spyware, and Phishing Skill: Recall Answer: C) CASL stands for Canadian Anti-Spam Law.

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44. The phrase "net neutrality" refers to the fact that A) all of the taxes that the federal government collects from electronic commerce are used for the further development of the Internet. B) an Internet service provider can charge a fee that covers its expenses, plus a regulated profit, but no more. C) as long as an online service provider does not favour one political position over another, it will not be held liable for statements that appear on its social media. D) the Internet should act as a set of pipes through which data flows from sender to receiver without any intervention by the pipe owners. E) a cryptocurrency must ensure that the amount received by an online vendor is equal to the amount paid by an online buyer. Difficulty: 2 QuestionID: 19-2-44 Topic: Internet Service Providers Skill: Recall Answer: D) the Internet should act as a set of pipes through which data flows from sender to receiver without any intervention by the pipe owners. 45. Which of the following statements is correct? A) FAQ stands for Frequently Answered Questions. B) PIPEDA stands for Private Information Protection and Electronic Documents Act. C) IMTP stands for Internet Traffic Management Procedures. D) ITRC stands for Identity Theft Research Center. E) PIPEDA stands for Personal Information Protection and Electronic Documents Act. Difficulty: 2 QuestionID: 19-2-45 Topic: Privacy Policies Skill: Recall Answer: E) PIPEDA stands for Personal Information Protection and Electronic Documents Act. Essay Questions 1. It seemed almost too good to be true. Because he was about to start university, Delroy was desperate to buy a laptop computer. And because money was tight, he was also hoping to spend as little as possible. Those two factors came together when Delroy entered into the website that Personal Solutions Computers (PSC) uses for online contracts. The laptop that interested Delroy usually sold for around $2,000, but the website gave a "time limited special offer" price of $150. Delroy immediately submitted a purchase order and clicked on a button that said "I Agree to Be Bound By the Terms of This Agreement." A few minutes later, he received an "Order Confirmation" email that referred to the laptop and the price of $150. Later the same day, however, Delroy received a second email from PSC. That message said that 23 © 2023 Pearson Canada Inc.

the quoted price of $150 was the result of an employee's error. PSC actually intended to sell the laptop for $1,500. The message also said that the terms of the contract, which were accessible by way of a hyperlink on the order page, included an exclusion clause for such errors. Delroy nevertheless insists that he is entitled to purchase the laptop for $150. He honestly had not noticed the hyperlink at the time of purchase and he certainly had not been aware of the exclusion clause. Will a court enforce the exclusion clause in PSC's favour? Explain how the courts decide which "hidden" terms are included within online contracts. Which considerations are relevant to that exercise? Difficulty: 2 QuestionID: 19-3-01 Topic: Terms of Use Skill: Applied Answer: The concept of "electronic commerce" is slightly misleading insofar as it suggests that contracts created over the Internet are fundamentally different than contracts created face-to-face. In truth, the same contractual rules generally apply across the board. As always, however, those rules need to be interpreted and applied in the specific circumstances of the parties' dispute. As explained in Chapter 7, a contract contains only those terms that the parties were objectively agreed upon when the contract was made. Historically, those rules were interpreted rigidly. It typically was said, for instance, that a party's signature constituted assent to all of the terms contained in a document even if they had not been read and even if they were unusual, harsh, or unexpected. Over time, however, that rule was softened. Tilden Rent-a-Car Co v Clendenning (1978) 83 DLR (3d) 400 (Ont CA) momentously held that a signature could be taken as assent to the terms only insofar as it was reasonable to do so. If Tilden company wanted to enforce its highly unusual exclusion clause, it was required to do more than merely secure Clendenning's signature. It had to take reasonable steps to draw the provision to its customer's attention. The Supreme Court of Canada has followed the same approach within the context of electronic commerce. Delroy is not necessarily bound by the exclusion clause merely because he clicked on the "I Agree" button. As explained in Kanitz v Rogers Cable Inc (2002) 58 OR (3d) 299 (Ont SCJ), the court will ask whether the terms were reasonably accessible. The Supreme Court of Canada addressed that issue in Dell Computer Corp v Union des consommateurs (2007) 284 DLR (4th) 577 (SCC). It held that a contractual clause that requires complex maneuvering to locate will remain outside the contract and will be unenforceable. Conversely, if the terms are easily accessed through a clear hyperlink that is appropriately located on a website or order page, it will be enforceable even if it was not actually read. In this instance, PSC would be able to employ the exclusion clause if the company sufficiently brought the clause to Delroy's attention. 2. "In the world of real estate, a person may buy a piece of land with a view to re-selling it at a profit. A similar sort of activity can happen on the Internet." Explain the meaning of that statement, as it appeared in Chapter 18. Difficulty: 2 24 © 2023 Pearson Canada Inc.

QuestionID: 19-3-02 Topic: Using the Internet Skill: Recall Answer: Speculators often buy land not for the purpose of actually enjoying it, but rather for the purpose of flipping it for a profit. Cybersquatting is the Internet's equivalent of land flipping. A domain name locates the Internet protocol (IP) address associated with one or more websites on the Internet. Because domain names are unique, because they are registered on a first come-first served basis, and because many companies want to operate in the same field, a domain name like "sex.com" is enormously value. It can be bought and sold, just like a particularly desirable piece of land. Cybersquatters exploit that situation. A cybersquatter acquires a desirable domain name not for the purpose of actually using it, but rather with a view to selling it for profit to the highest bidder. For example, some entrepreneurs register domain names for common English words (such as drugstore.com or furniture.com) in the hope of reselling them to companies that are interested in dealing with the relevant products online. If a cybersquatter acts in bad faith, the aggrieved party may be entitled to commence litigation for trademark infringement or passing off in appropriate circumstances. A much quicker and much less expensive alternative is a complaint to Canadian Internet Registry Authority (CIRA), which has the authority to order the transfer or cancellation of offending registrations. 3. "Privacy laws are consistent across Canada. Wherever a dispute occurs, the same rules governing the collection and use of private information apply." Explain the extent to which that statement is correct. Difficulty: 2 QuestionID: 19-3-03 Topic: Privacy Policies Skill: Recall Answer: The issue begins with the fact that online commerce routinely involves the collection of personal information. In order to purchase clothing, for instance, customers may be required to state their names, addresses, sizes, and credit card numbers. In addition to being used to process the initial order, the vendor may collect that information together and offer it for sale to other businesses that wish to identify potential customers. The associated risks are obvious. Privacy laws are needed to deal with those risks. A complication exists, however, because the Constitutional division of powers (as explained in Chapter 1) gives jurisdiction in this area to both the federal government and the provincial governments. Federally, the issue is framed in terms of the "regulation of trade and commerce." Provincially, the issue pertains to "property and civil rights in the province." The federal government responded in 2004 with PIPEDA–the Personal Information Protection and Electronic Documents Act. That statute is aimed at ensuring that the same privacy standards are applicable across the country. At the same time, British Columbia, Alberta, and Quebec have enacted their own privacy laws for application in 25 © 2023 Pearson Canada Inc.

those provinces. The legislation in in all three provinces carry out the same basic functions as PIPEDA–ie they govern the means by which private sector organizations handle personal information. Moreover, all three jurisdictions take a balanced approach that recognizes both the right of individuals to have their personal information protected and the need of organizations to collect information for purposes that are reasonable. The legislation in Alberta and British Columbia provide individuals with the opportunity to request access to their own personal information and includes provisions regarding the correction and care of personal information by organizations. In either province, a privacy commissioner is given the power to review decisions made by businesses that deny individuals access to their own personal information or that refuse requests for corrections to personal information. Individuals in Alberta and British Columbia may also make a complaint to the commissioner if they believe their personal information has been collected, used, or disclosed without proper authority or without their consent. Unlike PIPEDA and the Quebec legislation, however, the Alberta and BC Acts do not require consent where an employee's personal information is collected, used, or disclosed only for the purpose of the employment relationship, as long as the employee is notified in advance, and as long as the collection, use, or disclosure is reasonable, considering the purpose. The Quebec legislation (enacted 10 years before the Alberta and BC Acts) is similar in most of the above respects but is even more expansive in that it applies to all private sector organizations, not just commercial activities. Quebec's Commission d'accès à l'information can issue binding orders requiring compliance with the legislation. The Civil Code of Quebec also creates liability for breach of the principal requirements of the Quebec legislation, for which individuals may claim damages in a court action. This right of action, which does not exist in other provinces, creates additional privacy risks for businesses operating in Quebec that are not compliant with basic privacy principles. 4. The Narwhal is one of Canada's leading forums for discussion of political, social, and cultural issues. Although it traditionally consisted of a monthly magazine, it now also operates a website that invites discussion. Explain how user-generated content may pose a threat to The Narwhal's brand identity and suggest possible risk management strategies. Difficulty: 2 QuestionID: 19-3-04 Topic: Loss of Brand Identity Skill: Applied Answer: User-generated content refers to various kinds of online media, including images, videos, podcasts, memes, comments, tweets, posts, articles, and blogs that are produced and posted by visitors to a website. Brand identity consists of the manner in which a business wants to be perceived by its customers and the wider community.

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The relationship between brand identity and user-generated content is a two-way street. In many respects, usergenerated content may reinforce or enhance brand identity. To the extent that comments posted on The Narwhal's website contribute to intelligent debate and discussion, they further the company's desire to be seen as an active participant in the marketplace of ideas. They reinforce the Narwhal brand. Of course, much of what passes for "discussion" online is of a different character. Mean-spirited, uninformed, or censorious comments on The Narwhal's website will tend to cast that business in a negative light. The company as a whole may come to be perceived as an outlet for anger and hate. To avoid losing control over their intellectual property, The Narwhal should consider the possibility of moderating the content contributed by visitors, or inviting visitors to identify inappropriate comments. A website moderator examines and sorts contributions, flagging and, in some cases, deleting those which are irrelevant, disparaging, obscene, illegal, or insulting, with a view to providing quality assurance regarding the usefulness of outside contributions. Moderation systems range from sites that allow users to self-moderate to sites that employ human or automated moderators with certain delegated powers to enforce business policies or an online community's rules on behalf of the owner of the site. From a risk management perspective, it is not enough to simply monitor user-generated content, nor is it always desirable. A website that allows visitors to contribute content must carefully define acceptable and prohibited conduct and content in its terms of use and, where appropriate, in its privacy policy. 5. Explain the principle of net neutrality using a business example. Why do some Internet companies, academics, and public interest advocates support this principle? Does any Canadian legislation address network neutrality? Difficulty: 2 QuestionID: 19-3-05 Topic: Internet Service Providers Skill: Applied/Recall Answer: The principle of network neutrality states that all information sent across the Internet should be treated equally, with no privileges, degradation of service, or prioritization based on the content's source, ownership, or destination. For example, if I run a website promoting workers' rights and display an article that is critical of my Internet service provider's labour practices, network neutrality would state that my criticism should have no impact on how my site is accessed through the Internet. My ISP, however, may want to block my site, or make it harder for other Internet users to access it. Some Internet companies, as well as academics and public interest groups support network neutrality as a logical extension of the common carriage principle. The common carriage principle precludes the owner of key social infrastructure, including access to the Internet, from discriminating amongst users of that infrastructure, or using the infrastructure to confer upon itself an undue advantage. Network neutrality, as an extension of the common carriage principle, has become especially important following certain public policy changes in Canada. Recently, the owners of the Internet infrastructure (ISPs) have been allowed to merge or otherwise have business interests with producers of Internet content (eg news media), creating a potential conflict of interest for Internet providers. ISPs may now have an incentive to prioritize their own content over that of competitors, 27 © 2023 Pearson Canada Inc.

affecting the public's access to various content on the Internet. The legality of interfering with the transfer of Internet data is currently unclear. A recent CRTC decision considered whether traffic shaping, the practice of altering the speed of a user's broadband service depending on the type of application that customer is using, constitutes an interference with Internet data. The CRTC held in favour of the ISP, finding that some network management on the part of an ISP is reasonable and does not violate the Telecommunication Act. However the CRTC has also committed to address the issue of network neutrality. 6. You recently received a notice that your Internet service provider has released your personal account information to a third party in connection with a defamation complaint. When you call to contest the service provider's actions, you are referred to a provision in the terms of use agreement that you apparently did not read (or, at least, you did not remember reading it!). The relevant provision gives permission to release personal information under such circumstances. Can the service provider rely on the provision? Explain your reasoning, using the precedent set out in Rudder v Microsoft. Difficulty: 3 QuestionID: 19-3-06 Topic: Terms of Use Skill: Applied Answer: Whether the provision is enforceable depends on whether the term was reasonably brought to your attention. According to Rudder v Microsoft, contracts that require website visitors to click "I Agree" in order to accept the contract are a valid form of contracting. Because of their integral role in electronic commerce, consumers may not rely on the fact that they did not read the terms and conditions of such a contract in order to escape their obligations under the agreement. That said, terms that are not reasonably brought to a person's attention, eg those found in a remote hyperlink, or camouflaged in unusual fonts or footnotes, may be held unenforceable. Although your service provider probably should have implemented a series of click-through confirmation mechanisms to clearly evidence your agreement to the term, it will likely be enforceable–whether you read it or not. 7. Monkey Business Inc has implemented an automated software system that allows its employees to enter their weekly hours. Recently, it was determined that one if its employees made a keystroke error and was underpaid as a result. As a general rule, how can Monkey Business and its employees protect themselves against keystroke errors? Difficulty: 2 QuestionID: 19-3-07 Topic: Automated Transactions Skill: Applied Answer: According to most provincial electronic commerce legislation, keystroke errors can render a transaction unenforceable, especially when they involve automated systems. Legislation allows a party to escape the consequences of a transaction in which a keystroke error has been committed provided that: (i) the automated system did not provide an opportunity to prevent or correct the error, (ii) the mistaken person notifies the other party of the error as soon as possible, (iii) the mistaken person took reasonable steps to return any benefit received under the transaction, and (iv) the mistaken person did not receive any material benefit from the transaction. Employers and employees can protect themselves by ensuring that the above conditions have 28 © 2023 Pearson Canada Inc.

been met. Monkey Business can protect itself against keystroke errors by employing automated mechanisms that detect and correct such errors. The simplest solution is to require a party to an electronic agreement to repeat the most important steps or otherwise confirm the details of the transaction. 8. Explain the "common carriage principle" as it applies to Internet service providers. Explain how that principle is related to the concept of "net neutrality." Difficulty: 2 QuestionID: 19-3-08 Topic: Internet Service Providers Skill: Recall Answer: An Internet service provider (ISP) provides others with access to the Internet. Such an entity is potentially at risk of liability if someone using its services acts improperly–eg posting obscene or treasonous materials online. As a general rule, however, an ISP is protected against material posted by its customers. That protection turns upon the common carriage principle. That principle is a function of an attempt to balance different policy concerns. In exchange for carrying whatever traffic comes its way–without discrimination and without taking an unfair benefit for itself–an ISP is immunized from liability for acts committed by its customers. In effect, an ISP, such as a telephone company, supplies a "pipeline" for communication–but it does not monitor the content of the ensuing flow. Until relatively recently, common carriage in telecommunications also entailed the separation of carriage from content. Policy changes in Canada have increasingly done away with this separation, however, with the result that the owners of the "pipes" have converged with the producers of content (as in the case of Rogers Communications and Bell Media). This has created an inherent potential for a conflict of interest, since carriers have an incentive to prioritize their own content over that of their competitors. For this reason, a number of Internet companies, such as Google and Yahoo!, as well as a number of academics and public interest advocates, have supported a corollary to the common carriage principle known as net neutrality. The principle of net neutrality states that all information sent across the Internet should be treated equally, with no privileges, degradation of service, or prioritization based on the content's source, ownership, or destination. In other words, the Internet should act as a set of pipes through which data flows from sender to receiver without any intervention by the pipe owners. Unfortunately, not all ISPs have adopted these principles. A number of businesses have taken it upon themselves to remove or block access to certain data for their own purposes. A failure to comply with the net neutrality principle can have serious business repercussions, especially if the transmission of your business data is treated as a lesser priority. 9. You have just started a new business selling jewel-encrusted dog collars over the Internet. Your website allows customers to place orders online, which they pay for by credit card. The collars are then shipped straight to their homes. The website is almost ready to be launched, the last thing you want to add to the site is your privacy policy. Briefly explain three provisions that you might wish to include in your privacy policy, and why a privacy policy is important for your business. 29 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 19-3-09 Topic: Privacy Policies Skill: Applied Answer: As an online business, I will have to collect certain information from customers in order to process and ship their orders. Therefore, I will want my privacy policy to address collection, storage and disclosure of my customers' personal information. Collection: I should specify that I will only collect information that is necessary for the commercial transaction, such as the customer's name, address for shipping, email address for a confirmation of the order, and credit card information. This information will only be collected with their consent which they will give by agreeing to the terms of the contract, electronically. It will be up to customers to provide this information when they place their orders. Storage: I should show my customers that there are safeguards in place to protect their personal information, such as encryption or password protection. I may also want to explain what I would do in the event of a privacy breach (how I would contact the customer, etc). I will want to explain that personal information that is no longer necessary for business purposes will be safely destroyed. I might also discuss granting customers the right to see their personal information and correct any inaccuracies. Disclosure and Use: I should explain to my customers that I will use and disclose their personal information only for the purposes for which they gave consent. For example, I may need to disclose their address to a shipping company in order to send my goods. A carefully drafted privacy policy will help to define my business practices so that I can meet my obligations under federal or provincial privacy legislation and act in corporately responsible and transparent manner. 10. Identity theft is a major concern for businesses and customers alike. Briefly explain why identity theft can be harmful to a business and provide three examples of how a business might reduce the risk of identity theft. Difficulty: 1 QuestionID: 19-3-10 Topic: Identity Theft Skill: Recall Answer: Identity theft is the unauthorized collection and use of personal information, usually for the purpose of committing some wrong. Identity theft can be harmful to a business in several ways. The business owner or employees may lose work time and earnings because of the hours required to restore their identity. Victims also often need to spend money in order to restore their identity. This money could have otherwise gone back into a business. Business owners may have difficulty obtaining clean audits and accurate credit reports, necessary to support other financial needs. A business owner may be responsible for additional taxes if the identity thief gains employment using the victim's identity. Additionally, the business may lose customers if poor security results in privacy breaches or theft of customer identities. 30 © 2023 Pearson Canada Inc.

There are many ways in which a business can reduce the risk of identity theft. Three examples raised throughout the chapter include limiting a company's collection of personal data to only that which is necessary, storing customer data in a secure manner (either by ensuring access controls or through encryption in the case of electronic data), and safely destroying information that is no longer needed. Businesses should also be wary of phishing, implement fraud detection and protection programs. 11. You are the owner of Bread and Butter, a catering service that accepts customer orders through its website. You have recently discovered that your company's domain name, breadandbutter.ca, was registered by a company called Domain Acquisitions Co during a lapse in your registration (due to an overlooked outstanding payment). This company has since offered to resell the domain name to your company for a considerable sum. Needless to say you are extremely perturbed. What are your possible courses of action? Decide which remedy you will seek and outline your strategy. Difficulty: 3 QuestionID: 19-3-11 Topic: Using the Internet Skill: Applied Answer: As a prudent risk manager you should note the following possible courses of actions and the remedies that they will provide: Arbitration: Because the domain name at issue is a dot-ca, I have the right to file a complaint under the Canadian Internet Registry Agreement. By doing so, Domain Acquisitions Co must submit by contract to mandatory arbitration governed by CIRA's Dispute Resolution Policy. Should my company succeed in proving that Domain Acquisitions Co has registered the name in bad faith (that is, specifically registered the domain name in order to resell it for valuable consideration in excess of its actual cost), Domain Acquisitions' registration will be cancelled. I can also ask for the registration to be transferred back to me. Litigation: By choosing to litigate, I would file an action in court alleging an economic tort, such as interference with economic relations, passing-off, or possibly trade mark infringement by Domain Acquisitions Co. Domain Acquisitions Co would then have the burden of proving that it held a competing commercial right in the name. On the facts, this would seem unlikely. If I am successful, I will likely be able to convince the court to cancel or transfer the registration by injunction. However, I can also seek an additional damage award, should the court find the defendant's behaviour to have been injurious. My best course of action is likely to file a written complaint with the CIRA. This is preferable to litigation, which can take a tremendous amount of time and expense. CIRA arbitration is intended to provide an inexpensive, quick, and fair resolution to domain name disputes. 12. Given the uncertainty involved in determining a company's potential liability in foreign jurisdictions, are there any proactive steps that a company might take to protect itself? Explain your answer and provide examples. Difficulty: 2 QuestionID: 19-3-12 31 © 2023 Pearson Canada Inc.

Topic: Jurisdiction Skill: Applied Answer: A company can seek to minimize or eliminate any connections it might have with jurisdictions in which it does not wish to face potential liability. These connections might include physical assets, bank accounts, country-code domain names, host servers and intermediaries. Another important proactive measure is the use of geo-targeting technologies. Targeting technologies are used in order to specify the locations where you are willing to do business. By restricting the geographical region in which online business can be done, certain jurisdictions can be avoided. Finally, a company may wish to insert a jurisdictional clause into any online agreements. Such a provision will require any disputes arising from the transaction to be heard by a particular court, using a particular set of laws however, it is not possible to say that by international law, these clauses will always be binding. 13. You are a manager at a medium-sized start-up company that is well positioned in the online intermediary market. One of your colleagues has asked you to offer some advice about the liability of online intermediaries. Provide a brief introduction to this issue. Illustrate your answer with business law examples. How can a business shield itself from intermediary liability? Difficulty: 2 QuestionID: 19-3-13 Topic: Intermediary Liability Skill: Applied Answer: As the name suggests, online intermediaries are often the go-betweens in a transaction. Because of the special role that they play in various e-commerce relationships, online intermediaries can be exposed to liability. For example, if a customer uses an online intermediary to distribute a defamatory message, the plaintiff may sue the service provider or commence a lawsuit to compel the service provider to reveal the name of the customer, if the alleged wrong was committed anonymously. In some jurisdictions, a limited number of exemptions have been carved out to allow Internet service providers to avoid liability on the basis that they are simply providing network access, or in other words, are acting merely as a conduit between the parties to an online interaction. But when service providers go beyond this role and begin taking control over the content, they thereby expose themselves to a greater likelihood of liability. This is certainly true for online service providers who exercise editorial control over their bulletin boards and newsletters, for example. Moreover, online service providers may find themselves potentially liable to third parties on account of their customers' actions. Although there is not much that they can do in the case of third party liability, online service providers are advised to set up their services to the greatest extent possible so that they operate as a mere conduit rather than a content provider. Service providers can also shield themselves from liability by way of contract. In order to do so, their terms of use should require subscribers to provide indemnification in cases where the company is held liable as a result of the subscriber's behaviour, and require their subscribers to insert a release or exclusion of liability clause for the ISP in their contracts or terms of use with their customers or users. 14. Identify and briefly explain the provisions of the Canadian Code of Practice for Consumer Protection in Electronic Commerce that deal with advertising communications and potential customers.

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Difficulty: 1 QuestionID: 19-3-14 Topic: Code of Practice Skill: Recall Answer: Several provisions are relevant to communications with potential customers. Information Provision: Consumers should be provided with clear and sufficient information to make an informed choice about whether and how to make a purchase. Online businesses should avoid jargon and use plain language whenever possible. They should clearly distinguish marketing and promotional material from the terms and conditions of sale. They should disclose the legal identity of their business, their business address, and any geographic limitations on where a product or service is for sale. They should fairly and accurately describe their goods. Language: When an online business offers products or services in a particular language, it should use that language to provide all of its material information about the product or service, the vendor, the vendor's relevant policies, and the terms and conditions of the transaction and all other material information. When information or support is not available in that language, this fact should be stated by the vendor in the language in which the transaction was conducted. Unsolicited Emails: Vendors should not send unsolicited email to consumers without their consent. In any marketing email, vendors should provide a return address and a simple way for consumers to indicate that they do not wish to receive such messages. Online businesses should avoid spamming, which is the sending of unsolicited emails to a large number of people. Spam exposes a business to the risk of being associated with products that are worthless, deceptive or fraudulent. Many of the online scams that we discussed in the chapter are perpetrated through unsolicited mass email. Children: Vendors have a social responsibility to determine whether they are communicating with a child in any given transaction. Vendors must not exploit the lack of experience or sense of loyalty of children and must not exert pressure on children to urge their parents to purchase products or services. Vendors must take reasonable steps to avoid monetary transactions with children and must not collect personal information from children except where express parental consent has been obtained. 15. What are the advantages and disadvantages of a decision by your business to implement Industry Canada's Principles of Consumer Protection in Electronic Commerce? Explain your answer. Difficulty: 2 QuestionID: 19-3-15 Topic: Consumer Protection Skill: Applied/Recall Answer: Their adoption is optional as they are not required by law. By implementing these principles into its current practices, a business can enhance its reputation, strengthen consumer confidence, and ultimately increase sales. Publicity and general goodwill can also be leveraged by using the adoption of these principles as an opportunity 33 © 2023 Pearson Canada Inc.

to showcase a company's commitment to ethical and effective business practices, practices which respect consumer's right to fair treatment and privacy. This should give the business a competitive advantage. However, because these principles may in fact never become law, the cost of their implementation must be weighed against these expected benefits. The adoption of some of the principles may involve significant monetary investment in new technologies, such as installing security mechanisms. Nevertheless, common sense dictates that businesses should respect these principles to the extent that the bottom-line allows. Prudent risk managers should realize that, given the possibility of these principles eventually possessing the force of law, a proactive approach should help them offset future costs, and gives them an early competitive advantage with those customers sensitive to consumer protection practices. Finally, and most importantly, the principles themselves may provide defences to potential common law, or other jurisdictional law, liability.

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Managing the Law, 6e (McInnes) Chapter 20: Agency and Other Methods of Carrying on Business True/False Questions 1. Wayne is an agent for Sarah, a professional hockey player. For two seasons, he has helped Sarah negotiate her contract with the Saskatoon Hilltops Hockey Team. He has never signed her contract. Sarah always signed her contract herself and she usually participates in the negotiations. This year, after a hard negotiating session that Sarah did not attend, he signed a contract on her behalf. The contract is binding because as an agent, Wayne has the absolute unconditional power to act on behalf of Sarah, his principal. a True b False Difficulty: 1 QuestionID: 20-1-01 Topic: When is the Principal Liable? Skill: Recall Answer: b. False 2. Jeremy is a singer. For several months, he and his friend George have discussed the fact that Jeremy needs an agent if he is to move forward with his career. George has proposed that he be that agent. Jeremy has never agreed to George acting as his agent. A few weeks later, however, George attended a negotiating session between Jeremy and a record company. After several hours, George said that Jeremy would agree to the terms of the recording contract proposed by the record company. Jeremy said nothing. There is a contract between Jeremy and the record company. a True b False Difficulty: 2 QuestionID: 20-1-02 Topic: When is the Principal Liable? Skill: Applied Answer: a. True 3. Jennifer is the president and chief executive officer of Starburst Co, a corporation incorporated under the Canada Business Corporations Act carrying on a television production business. She has been discussing a new show with Stein. She enters into an agreement to buy Stein's idea for a new show. The by-laws of the corporation state that the president cannot agree to buy new story ideas without the approval of the board of directors. Jennifer did not obtain the approval of the board to buy Stein's idea. The contract is binding on Starburst nevertheless. a True b False

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Difficulty: 2 QuestionID: 20-1-03 Topic: When is the Principal Liable? Skill: Applied Answer: a. True 4. Marta agrees to buy two tons of tomatoes from Argus Farm Products Inc, hoping that she can find a principal to take responsibility for the contract. In her discussions with Argus, she does not indicate that she intends only to contract as an agent for a principal that she hopes to find. If Fresh Vegetables Ltd ratifies the contract, it can only be enforced by Argus against Fresh Vegetables Ltd. a True b False Difficulty: 2 QuestionID: 20-1-04 Topic: Ratification Skill: Applied Answer: b. False 5. Sherwood entered into a contract to buy some real estate from Idris Real Property Inc. on behalf of Mento Corp, a major developer. Sherwood told Idris that he was the vice-president of acquisitions at Mento. In fact, Sherwood is not affiliated with Mento in any way and has no authority to act on behalf of Mento. Sherwood is not liable to Idris under the contract, but would be liable to Idris for breach of warranty of authority. a True b False Difficulty: 1 QuestionID: 20-1-05 Topic: When is the Agent Liable? Skill: Applied Answer: a. True 6. Samantha was the vice-president of purchasing for Amsterdam Books Inc, a chain of retail bookstores. She hired Anthea as a buyer of children's books for the chain. Storm Coast Books Ltd had never dealt with Amsterdam before. Anthea turned up at their offices, told them she was a buyer for Amsterdam, and gave out the business cards that Amsterdam had printed for her. Anthea entered into a contract with Storm Coast Books Ltd to buy 5,000 copies of a new adventure book. Unfortunately, Samantha had no authority to hire Anthea. A section in the corporation's by-laws provides that only the president of the corporation can hire buyers. The contract is nevertheless enforceable by Storm Coast Books. a True b False

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Difficulty: 3 QuestionID: 20-1-06 Topic: When is the Principal Liable? Skill: Applied Answer: a. True 7. An agent can be liable for a contract that it negotiates on behalf of an unidentified principal. a True b False Difficulty: 2 QuestionID: 20-1-07 Topic: When is the Agent Liable? Skill: Recall Answer: a. True 8. TopCo Inc appointed Ethel as its agent to negotiate a building lease on its behalf with DeGroot Realty Inc. At one point in the negotiations, DeGroot says to Ethel that it will buy her a new car if the negotiations are completed by the end of the week. Ethel cannot accept the car unless she obtains the permission of TopCo. a True b False Difficulty: 2 QuestionID: 20-1-08 Topic: Fiduciary Duty Skill: Applied Answer: a. True 9. Information Highway Inc enters into an agreement with Groulx under which Groulx agrees to act as Information Highway's agent in obtaining a permit for Information Highway to build an office tower in St John. Groulx pays a bribe of $1,000 to an employee of the city to issue the permit. Information Highway must reimburse Groulx for the bribe because it is an expense incurred in performing his responsibilities. a True b False Difficulty: 2 QuestionID: 20-1-09 Topic: The Principal's Duties to the Agent Skill: Applied Answer: b. False 3 © 2023 Pearson Canada Inc.

10. Alma contracts with Comvey Corp to act as its agent in purchasing fork lift trucks. Alma told Comvey that she did not know anything about fork lift trucks or Comvey's business, but was willing to learn and happy to have the opportunity. Comvey said that it would train her but the training never occurred. Comvey needed five forklift trucks to operate a freight terminal. Alma bought five forklift trucks for Comvey. It turned out that the trucks were too large for use in the terminal. Comvey cannot get its money back. It has an action for breach of duty of care against Alma for damages to compensate for its losses. a True b False Difficulty: 2 QuestionID: 20-1-10 Topic: Duty of Care Skill: Applied Answer: b. False 11. Mori is an employee of Garvie Corp, a film production business. Mori's job is to negotiate with screenplay writers for the rights to use the screenplay writers' work. He was given authority to sign a contract on behalf of Garvie with Joseph, a screenplay writer, for a specific screenplay. In October, a contract was concluded by Mori on behalf of Garvie with Joseph for the rights to that screenplay. In November, Mori entered into another contract with Joseph for a different screenplay. Neither Mori nor Garvie have ever said anything to Joseph about Mori's authority to act for Garvie. The contract is binding on Garvie. a True b False Difficulty: 2 QuestionID: 20-1-11 Topic: When is the Principal Liable? Skill: Applied Answer: a. True 12. Selma Corp and Kor Industries Inc are steel producers that have entered into a joint venture to recycle their waste. They have set up a corporation, Re-Steel Co, to carry on the joint venture business. Selma and Kor are shareholders and each has a nominee on the board of directors. The employees of Selma and Kor must be agents of the joint venture. a True b False Difficulty: 2 QuestionID: 20-1-12 Topic: Joint Ventures and Strategic Alliances Skill: Applied 4 © 2023 Pearson Canada Inc.

Answer: b. False 13. Tony is a sophisticated business person. Tony's stock broker advises him to buy 1000 shares of Q-Tel at the current market price of $10 per share. The broker's advice is based on a careful assessment of the market and Tony's advice to the broker about his risk tolerance. Tony takes the advice and directs his broker to buy the shares. The shares turn out to be a very bad investment and, after six months, are worthless. Tony has no claim against his broker. a True b False Difficulty: 2 QuestionID: 20-1-13 Topic: Duty of Care Skill: Applied Answer: a. True 14. Grosjean is employed as a truck driver by Newcastle Co. One day while he was making deliveries for Newcastle in its delivery van, he notices that the van was low on gas. He used his own money to buy gas so that he could complete his deliveries that day. In the absence of a provision in Grosjean's contract with Newcastle to the contrary, Newcastle is obliged to reimburse Grosjean for the cost of the gas because it was an expense reasonably incurred by him in carrying out his duties for Newcastle. a True b False Difficulty: 1 QuestionID: 20-1-14 Topic: The Principal's Duties to the Agent Skill: Applied Answer: a. True 15. Berta has entered into an agreement with Boys R'Us Inc to operate a men's clothing store as a franchisee in Scarborough, Ontario. Boys R'Us operates franchise stores in all provinces and has a great reputation as a place where men can get good quality clothes for a good price. One of the advantages to Berta of operating a men's clothing store as a Boys R'Us franchise is that she will likely obtain a licence of the Boys R'Us trademark and the assistance of Boys R'Us in the operation of the business. a True b False Difficulty: 2 QuestionID: 20-1-15 Topic: Franchises Skill: Applied

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Answer: a. True 16. Apparent authority exists when the principal creates an unreasonable impression that an agent is authorized to act on the principal's behalf. a True b False Difficulty: 1 QuestionID: 20-1-16 Topic: Agency Skill: Applied Answer: b. False Multiple Choice Questions 1. Silken is a producer of snowboards. She wants to enter into a commercial representation agreement with Jason. Under the agreement, he will sell her snowboards on her behalf to retail ski shops. Which of the following is TRUE? A) Jason will only have the authority to contract with the retail ski shops that Silken actually gives him. B) Jason will have no authority to contract with the retail ski ships. Instead, he will buy the snowboards from Silken and resell them to the ski shops. C) Jason will only have the authority to contract with the retail ski shops that Silken represents to the ski shops that he has. D) Jason will have the authority to contract with the retail ski shops that Silken represents to the ski shops that he has and the authority she actually gives him. E) Jason will have to obtain Silken's approval before any transaction he makes is valid. Difficulty: 2 QuestionID: 20-2-01 Topic: Creation of an Agency Relationship Skill: Applied Answer: D) Jason will have the authority to contract with the retail ski shops that Silken represents to the ski shops that he has and the authority she actually gives him. 2. Agency relationships arise in which of the following circumstances? A) Each partner is an agent of the partnership. B) Directors, officers, and employees of a corporation can be agents of the corporation for particular purposes. C) Agency can only be created by express contract. D) Agency can be created only by the principal telling someone that another person is their agent. E) Agency can be created by actual authority or apparent authority. Difficulty: 1 QuestionID: 20-2-02 6 © 2023 Pearson Canada Inc.

Topic: Creation of an Agency Relationship Skill: Recall Answer: E) Agency can be created by actual authority or apparent authority. 3. Purporting to act on behalf of Otton Mining Inc, Gaetan signed a contract to purchase some mining claims from Boucher. Boucher believes it is contracting with Otton. In fact, Gaetan had no authority from Otton to contract on its behalf. He had never discussed buying the claims with Otton, but he thought that Otton would be interested in the claims and would pay him a commission for arranging for Otton to buy them. Which of the following is TRUE? A) The contract can never be binding on Otton since it was negotiated without any authority from Otton. B) The contract will be binding on Otton if Otton ratifies the contract either expressly or impliedly. C) The contract is only binding on Gaetan personally and there is no way for Otton to be bound by this contract even if Otton wants this contract. D) The contract is binding on Gaetan personally and he can only avoid liability if Otton ratifies the contract. E) The contract is binding on Otton and Gaetan. Difficulty: 2 QuestionID: 20-2-03 Topic: Ratification Skill: Applied Answer: B) The contract will be binding on Otton if Otton ratifies the contract either expressly or impliedly. 4. In the absence of some specific contractual requirement, an agency arrangement may be terminated by A) the agent giving notice to the third parties it has contracted with for the principal. B) the principal giving notice by newspaper advertisement that the agency relationship is over. C) the principal and agent disagreeing about any issue whatsoever. D) the performance of the agency becoming more difficult than first imagined. E) the principal giving notice to the agent that the agency agreement is terminated. Difficulty: 1 QuestionID: 20-2-04 Topic: Termination Skill: Recall Answer: B) the principal giving notice to the agent that the agency agreement is terminated. 5. Daniel negotiated a contract on behalf of Compu/sys Inc for the supply of a computer system to Leader Co. The contract called for the supply by Compu/sys Inc of hardware and maintenance services for two years in return for $1 million. Daniel had no authority to negotiate this contract on behalf of Compu/sys. After 18 months of negotiations, Compu/sys agreed to perform the contract in part. The corporation agreed to provide the hardware but not the maintenance services. By the time it made this commitment it had gone bankrupt and consequently had lost capacity. Which of the following is TRUE? A) Compu/sys ratified the contract even though it did not agree to the obligations under the contract within a reasonable time. 7 © 2023 Pearson Canada Inc.

B) Compu/sys has ratified the contract because it has agreed to some of the obligations under the contract. C) Compu/sys has ratified the contract because a bankrupt corporation can ratify a contract. D) If Compu/sys has not ratified the contract, Daniel will not be personally liable in any circumstances. E) Cumpu/sys did not ratify the contract because a bankrupt principal does not have the capacity to ratify a contract. Difficulty: 3 QuestionID: 20-2-05 Topic: Ratification Skill: Applied Answer: E) Cumpu/sys did not ratify the contract because a bankrupt principal does not have the capacity to ratify a contract. 6. Carleton Computer Sales Inc carries on a business of buying and selling computers. Tara is negotiating to sell her computer to Carleton but no agreement has been reached between Tara and Carleton. In anticipation of selling it to Carleton, Tara agreed to leave her computer on a display rack at Carleton's store. Carleton sells Tara's computer to Eli for $1000, telling Eli that Carleton owned the computer. Which of the following best describes Tara's legal position based on the law of agency? A) Tara is entitled to get her computer back because she never gave Carleton authority to sell it to Eli. B) Tara may not be able to get her computer back because by leaving her computer with a computer dealer on its display rack, she represented to anyone who came into the store, including Eli, that Carleton had authority to sell the computer for her. C) Tara will not be able to get her computer back because Eli reasonably relied on the statement by Carleton that it owned the computer. D) Tara is entitled to get her computer back because Eli cannot rely on the statement by Carleton that it owned the computer. E) Tara has no remedy of any kind. Difficulty: 3 QuestionID: 20-2-06 Topic: Creation of an Agency Relationship Skill: Applied Answer: B) Tara may not be able to get her computer back because by leaving her computer with a computer dealer on its display rack, she represented to anyone who came into the store, including Eli, that Carleton had authority to sell the computer for her. 7. Orton Corp is incorporated under the Canada Business Corporations Act. It carries on a business running tour boats on the Bow River in Calgary. The articles of the corporation provide that Orton Corp may not enter into a lease unless the board of directors approves it. Joe, the president of the corporation, goes to West End Real Estate Inc, tells West End that he has authority to enter into a lease on behalf of the corporation, and signs a lease for some office space for the business. The board of directors never approves the lease. Which of the following is TRUE? A) The lease is not enforceable because the president did not have authority to enter into a lease on behalf of the corporation. 8 © 2023 Pearson Canada Inc.

B) The lease is enforceable because leases of offices are transactions within the usual authority of the president of a corporation, and even though the articles provided that the president does not in fact have authority to enter into a lease, the president would have that usual and apparent authority. C) The lease is not enforceable because leases of offices are not transactions within the usual authority of the president of a corporation. D) The lease is not enforceable because West End should have obtained proof that the president had sufficient authority to enter the lease on behalf of the corporation. E) The lease is enforceable because all businesses must lease premises from time to time. Difficulty: 3 QuestionID: 20-2-07 Topic: When is the Principal Liable? Skill: Applied Answer: B) The lease is enforceable because leases of offices are transactions within the usual authority of the president of a corporation, and even though the articles provided that the president does not in fact have authority to enter into a lease, the president would have that usual and apparent authority. 8. Jasmine enters into a contract to provide limousine services to Erin. Later, Jasmine tells Erin that she was acting as an agent on behalf of Big White Limousine Services Ltd. Which of the following is TRUE? A) Erin can enforce the contract against Jasmine alone. B) Erin can enforce the contract against Big White alone. C) Erin can enforce the contract against Jasmine or Big White, whichever she chooses. D) Erin cannot enforce the contract. E) Jasmine has the option not to perform the contract. Difficulty: 1 QuestionID: 20-2-08 Topic: When is the Agent Liable? Skill: Recall Answer: C) Erin can enforce the contract against Jasmine or Big White, whichever she chooses. 9. Four people, who are not partners, buy and sell a large number of apartment buildings. One of them, Marius, enters into a listing agreement with a real estate agent to sell one building. Marius says that he has authority to bind all four owners to the listing agreement. In fact, none of the others have authorized Marius to enter into the listing agreement, and they have no intention of selling their interests in the building. Which of the following is TRUE? A) The listing agreement can be enforced against the other owners because Marius did have actual authority to act on their behalf. B) The listing agreement is enforceable on the basis that it was entered into in the normal course of business. C) Even if the agreement may not be enforced, the real estate agent may have a claim against Marius for defamation. D) The listing agreement can be enforced against the other owners because the real estate agent can rely on the statements of Marius to give him apparent authority to enter the contract on behalf of the others. 9 © 2023 Pearson Canada Inc.

E) The listing agreement is not enforceable as Marius did not have actual or apparent authority. The realtor would have inquired as to who owned the real estate and in what capacity, and would be alerted by a reasonably expected inquiry to the lack of authority. Difficulty: 3 QuestionID: 20-2-09 Topic: When is the Principal Liable? Skill: Applied Answer: E) The listing agreement is not enforceable as Marius did not have actual or apparent authority. The realtor would have inquired as to who owned the real estate and in what capacity, and would be alerted by a reasonably expected inquiry to the lack of authority. 10. Nathan and Oliver are fishermen. They agreed that Oliver would take Nathan's fish to the market in Vancouver and sell them on Nathan's behalf along with Oliver's own fish. Oliver took Nathan's fish and his own fish to the market and set up a stall. As it happened, Oliver sold all of his fish and only half of Nathan's fish. Oliver did nothing to try to promote the sale of his fish over Nathan's. He simply put all the fish on a table in two piles and let the customers choose. Which of the following is TRUE? A) Nathan can claim damages from Oliver for breaching his fiduciary duty as an agent to act in the best interests of Nathan. B) As a fiduciary, Oliver should never have put himself in a position where his personal interest in selling his fish conflicted with his duty as Nathan's agent to do his best to sell Nathan's fish. C) Oliver is not in breach of his fiduciary duty because Nathan knew and impliedly authorized Oliver to sell his own fish along with Nathan's. D) Oliver is not in breach of his fiduciary duty because he did not violate any express instructions from Nathan regarding how he was to sell the fish. E) Oliver can be sued by Nathan for damages selling his own fish without Nathan's authority. Difficulty: 3 QuestionID: 20-2-10 Topic: Fiduciary Duty Skill: Applied Answer: C) Oliver is not in breach of his fiduciary duty because Nathan knew and impliedly authorized Oliver to sell his own fish along with Nathan's. 11. Sureeya sells jewelry at her store premises. Sureeya agreed to sell Janet's ring as her agent. Janet agreed to pay Sureeya a commission of $100 regardless of the sale price. Under their agreement, Sureeya did not have authority to sell the ring without Janet's approval. After Sureeya put the ring up for sale, Talia offered Sureeya $7,500 for it. This was far above the regular fair market price of $5,000 because the ring would complete a set that Talia had. Sureeya sold the ring to Talia. Which of the following best describes Sureeya's legal position? A) Sureeya breached her duties to Janet because she failed to follow Janet's instructions. B) Sureeya did not breach her duties to Janet because she acted in the best interests of Janet. C) Sureeya did not breach her duties to Janet because she did not benefit in any way from the sale to Talia at the higher price. 10 © 2023 Pearson Canada Inc.

D) Sureeya did not breach her duties to Janet because she exercised adequate care to ensure that she received the best price for the ring. E) Sureeya breached her duties to Janet because she could not be sure that the price Talia offered was the best possible price. Difficulty: 2 QuestionID: 20-2-11 Topic: The Agent's Duties to the Principal Skill: Applied Answer: A) Sureeya breached her duties to Janet because she failed to follow Janet's instructions. 12. Stone entered into an agreement with Star Alarms Inc, a corporation that sells alarm systems for personal residences, under which he would act as an agent for Star to find customers for Star's alarm systems. In the course of his work for Star, Stone learns quite a bit about alarm systems. A friend offers to sell him an alarm system business for commercial buildings, a segment of the market that Star has never pursued. Stone decides that he would like to buy the business. Which of the following is TRUE? Stone's fiduciary duty requires that he A) compete fairly with Star. B) refrain from using information from Star except if it will help his business. C) balance the interests of Star against his own self—interest. D) advise Star about this business opportunity only after he has bought the new alarm system. E) tell Star about this opportunity, only pursue this opportunity if Star rejects it with the knowledge that he will pursue it, and keep the information of Star confidential including not using it for his business unless Star consents. Difficulty: 2 QuestionID: 20-2-12 Topic: Fiduciary Duty Skill: Applied Answer: E) tell Star about this opportunity, only pursue this opportunity if Star rejects it with the knowledge that he will pursue it, and keep the information of Star confidential including not using it for his business unless Star consents. 13. Oxford Management Inc is a management consulting firm. It has hired Jerome as its agent to buy new computers for its offices across the country. Jerome owns 10 computers, which are ideal for Oxford's needs. Oxford is a valued client, and he decides to sell the computers to Oxford for a price which is $10,000 less than their market value. As agent for Oxford, he decides to buy the computers for this price from himself. Which of the following is TRUE? A) Jerome can never buy the computers for Oxford from himself because his personal interest as the seller would conflict with his duty to obtain the best price for Oxford. B) Jerome can buy the computers for Oxford from himself if Oxford consents to the sale. C) Jerome can buy the computers for Oxford from himself so long as he is satisfied that the price is fair. D) Jerome cannot buy the computers for Oxford from himself if there is an alternative supplier willing to sell the computers at their market value. 11 © 2023 Pearson Canada Inc.

E) Jerome cannot sell his own computers to Oxford even if Oxford consents to the sale. Difficulty: 3 QuestionID: 20-2-13 Topic: Fiduciary Duty Skill: Applied Answer: B) Jerome can buy the computers for Oxford from himself if Oxford consents to the sale. 14. Digital Technologies Inc entered into an agreement with Gray under which Gray agreed to act as Digital's agent for the purpose of finding new offices for Digital. Gray had never done this kind of work before and Digital knew this. He found offices that he believed would be satisfactory to Digital, and Digital entered into a five-year lease. Unfortunately, it turned out that the offices did not have airconditioning and so could not be used in the summer, making them completely unsuitable for Digital. Gray had forgotten to ask about air-conditioning. Anyone with experience as a real estate agent would have found out about this problem. Which of the following best describes Gray's legal position? A) Gray breached his fiduciary duty because he failed to act in good faith. B) Gray probably breached his duty of care by failing to take reasonable care in performing his responsibilities, but Digital may be denied recovery because Digital knew that Gray had no experience in finding office space. C) Gray did not breach his duty of care, so long as the price was fair for non-air-conditioned offices. D) Gray did not breach his duty of care because Digital did not specify that it wanted air-conditioned offices. E) Gray breached his duty of care because he did not obtain the best possible offices for Digital. Difficulty: 2 QuestionID: 20-2-14 Topic: Duty of Care Skill: Applied Answer: B) Gray probably breached his duty of care by failing to take reasonable care in performing his responsibilities, but Digital may be denied recovery because Digital knew that Gray had no experience in finding office space. 15. Silvio began work as an agent for Midnight Skateboards Inc. He is responsible for selling Midnight's skateboards to retail sporting goods stores. In his first month, he worked very hard, visiting dozens of stores, but did not sell any skateboards. Which of the following is TRUE? A) Silvio is not entitled to any remuneration for his work because it has been unsuccessful. B) Silvio is not entitled to any remuneration for his work unless his agency contract says he is. C) Silvio is entitled to reasonable remuneration for his work unless his agency contract says he is working only to be paid remuneration based on sales commission. D) Silvio is only entitled to reasonable remuneration for his work if ultimately he sells some skateboards for Midnight. E) Midnight can pay Silvio whatever remuneration it chooses, unless his remuneration is fixed in his agreement.

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Difficulty: 1 QuestionID: 20-2-15 Topic: The Principal's Duties to the Agent Skill: Recall Answer: C) Silvio is entitled to reasonable remuneration for his work unless his agency contract says he is working only to be paid remuneration based on sales commission. 16. Stein has agreed to act as an agent for Tayman Resources Inc for two years. Under the agreement, Stein is responsible for finding mining claims for Tayman to invest in. During the two-year term, Stein has agreed not to work for anyone else. No other terms have been agreed to in the agency agreement. Which of the following is TRUE? A) Neither Stein nor Tayman can terminate the agency on notice to the other. B) The agency is terminated if Tayman goes abroad to look for mining claims. C) The agency is terminated at the end of the two-year term if it is not expressly or impliedly extended beyond that term. D) The agency continues even if Stein becomes physically unable to look for mining claims for Tayman. E) This form of agency is not terminated by the bankruptcy of either party because the mining work may take the agent all over the world including places where there is no bankruptcy law. Difficulty: 1 QuestionID: 20-2-16 Topic: Termination Skill: Applied Answer: C) The agency is terminated at the end of the two-year term if it is not expressly or impliedly extended beyond that term. 17. Satinder is an employee of Bog Systems Inc. She acts as an agent on behalf of the corporation in that she buys office furniture on behalf of the corporation. Which of the following is TRUE? A) Satinder can be terminated as an employee at any time by Bog. B) Satinder can be terminated as an employee by Bog only for just cause or with reasonable notice or compensation in lieu of notice. C) Satinder cannot be terminated as an employee by Bog except for just cause. D) Satinder is automatically terminated as an employee by Bog if Bog goes bankrupt. E) Satinder can be terminated as an employee by Bog only with reasonable notice from Bog. Difficulty: 2 QuestionID: 20-2-17 Topic: Termination Skill: Recall Answer: B) Satinder can be terminated as an employee by Bog only for just cause or with reasonable notice or compensation in lieu of notice. 18. Which of the following statements regarding a principal's liability for the torts of its agents is TRUE? 13 © 2023 Pearson Canada Inc.

A) A principal is never responsible for the torts of its agents. B) A principal is always responsible for the torts of its agents. C) A principal is only responsible for the torts of it agents if it specifically authorized the activity by the agent that constituted the tort. D) A principal is only responsible for torts committed by agents who are also employees of the principal. E) A principal is responsible for the torts of the agent who is acting in the actual or apparent scope of the agent's duties or authority. Difficulty: 2 QuestionID: 20-2-18 Topic: Tort Liability Skill: Recall Answer: E) A principal is responsible for the torts of the agent who is acting in the actual or apparent scope of the agent's duties or authority. 19. Alannis is an agent but not an employee of Tesky's Inc, a large department store business. She acts as an agent for the corporation in entering contracts with suppliers to buy clothes. While she is on a trip to Toronto to visit a long-time supplier, Tesky's goes bankrupt. The next day, Alannis, while still unaware of the bankruptcy, enters into a contract with the supplier on behalf of Tesky's to buy $20,000 worth of clothes. Which of the following is TRUE? A) The contract is enforceable by the supplier because the supplier could rely on Alannis having apparent authority to contract on behalf of Tesky's based on its past experience in dealing with her. B) The contract is not enforceable against Tesky's because Tesky's bankruptcy terminates the agency relationship. C) The contract is enforceable against Tesky's because Alannis was not aware of the bankruptcy. D) The contract is enforceable against Alannis since she could not have contracted as the agent of Tesky's after the bankruptcy. E) The contract is enforceable against Tesky's because the supplier had no notice of the bankruptcy at the time of contracting. Difficulty: 3 QuestionID: 20-2-19 Topic: Termination Skill: Applied Answer: B) The contract is not enforceable against Tesky's because Tesky's bankruptcy terminates the agency relationship. 20. Serena was selling her house and she entered into a contract with Jatinder under which he would act as her agent. Armin was interested in buying the house which had a vacant lot next door. Jatinder told Armin that the lot was too small to build on. Armin relied on this representation and bought the house for $200,000. Later the owner of the lot did build a house on it. Jatinder knew that the lot was big enough for a house but had lied to Armin to get him to buy Serena's house. Serena knew nothing about what Jatinder had told Armin. The true value of the house was $175,000. Which of the following are TRUE? A) Serena is not responsible for Jatinder's fraud because she knew nothing about it. 14 © 2023 Pearson Canada Inc.

B) Serena is responsible to Armin for the difference between what Armin paid and the true value of the house because she benefited from Jatinder's fraud. C) Serena is not responsible for Jatinder's fraud because she did not authorize Jatinder to lie to Armin. D) Serena is responsible to Armin for the difference between what Armin paid and the true value of the house because Jatinder was acting within the scope of his apparent authority. E) A principal is never liable for the fraud of an agent. Difficulty: 3 QuestionID: 20-2-20 Topic: Tort Liability Skill: Applied Answer: D) Serena is responsible to Armin for the difference between what Armin paid and the true value of the house because Jatinder was acting within the scope of his apparent authority. 21. For several years, Jelena worked as an agent for Vladimir, a hockey player for the St Catharines Blackhawks. Jelena regularly negotiated Vladimir's contracts and agreed to them on his behalf. In August 2009, Vladimir terminated the agency. He had decided that he could negotiate his own contracts. He neglected to tell Jelena or the Blackhawks. In September 2009, Jelena signed a contract on his behalf with the Blackhawks for the 2009–2010 season. Which of the following is TRUE? A) The contract is not enforceable by the Blackhawks because Jelena's authority had been terminated. B) The contract is enforceable because, in the absence of notice to the Blackhawks that Jelena's authority had been terminated, she continued to have apparent authority to act for Vladimir. C) The contract is enforceable so long as Jelena negotiated a fair deal for Vladimir. D) The contract is not enforceable because Jelena was no longer acting in the best interests of Vladimir by negotiating the contract after she was terminated as an agent. E) The contract is not enforceable as Jelena was committing fraud by acting without authority, even if her termination had not been communicated to her. Difficulty: 2 QuestionID: 20-2-21 Topic: Contract Liability Skill: Applied Answer: B) The contract is enforceable because, in the absence of notice to the Blackhawks that Jelena's authority had been terminated, she continued to have apparent authority to act for Vladimir. 22. I-Jack Inc and Sys/Com Ltd are two large corporations carrying on telecommunications businesses. They want to work together to set up a new business that would develop and sell telephones specifically designed to take advantage of the new Internet services each is offering. Their idea is that the new telephones could be sold with their telecommunications services as a package. Sys/Com will be responsible for the management of the business. This joint venture could be set up as A) a relationship in which the parties' respective rights and obligations are set out completely in a contract between I-Jack and Sys/Com but only if that contract is made in writing and sealed by the parties. B) a partnership, in which each of I-Jack and Sys/Com are partners, and the parties' respective rights and obligations are set out in a partnership agreement. 15 © 2023 Pearson Canada Inc.

C) a corporation, in which I-Jack owns all the shares and Sys/Com works as a subcontractor where the terms of the subcontract are negotiated from time to time and I-Jack has unilateral rights of termination. D) a relationship in which the parties' respective rights and obligations are set out completely in a contract between I-Jack and Sys/Com, where Sys/Com is an agent with authority to bind I-Jack for obligations incurred to carry out the joint venture business. E) an agreement where Sys/Com is the agent for I-Jack, and I-Jack has the right to terminate the agency at any time, and to distribute the profits made by the agency as I-Jack sees fit in its sole discretion. Difficulty: 2 QuestionID: 20-2-22 Topic: Joint Ventures and Strategic Alliances Skill: Applied Answer: D) a relationship in which the parties' respective rights and obligations are set out completely in a contract between I-Jack and Sys/Com, where Sys/Com is an agent with authority to bind I-Jack for obligations incurred to carry out the joint venture business. 23. A strategic alliance includes A) an arrangement between two software producers to sell products to each other at market rates. B) an arrangement between a telephone long distance carrier and an Internet service provider to sell services to each other. C) an agreement between several businesses to enter a foreign market without any restraint on the competition between them in that foreign market each fending for themselves without relying in any way on the other. D) an arrangement between two technology companies to license their patents to each other. E) a price-fixing agreement among companies which would usually be in competition with each other. Difficulty: 1 QuestionID: 20-2-23 Topic: Joint Ventures and Strategic Alliances Skill: Recall Answer: D) an arrangement between two technology companies to license their patents to each other. 24. Petropolis Co, a manufacturer of auto parts, has distributors in most provinces. It wants a distributor in New Brunswick as well. Jacob is negotiating to become the distributor for New Brunswick. Unlike the distributors in the other provinces, Jacob does not want to take responsibility for buying the parts and then reselling them. Instead, he wants to sell the parts as an agent for Petropolis. Which of the following factors would be relevant to Petropolis in deciding how to respond to Jacob's proposal? A) Distributors can never be agents. B) Petropolis will be concerned about the potential for Jacob to bind Petropolis to unauthorized obligations. C) An agency does not require a written agreement. D) Distributors must provide warranty service. E) Distributors have better incentives than agents to work hard. Difficulty: 2 16 © 2023 Pearson Canada Inc.

QuestionID: 20-2-24 Topic: Distributorships Skill: Applied Answer: B) Petropolis will be concerned about the potential for Jacob to bind Petropolis to unauthorized obligations. 25. Nora has entered into a joint venture with Scott to sell diet supplements. They have set up a corporation to carry on the business. They are the sole shareholders and directors. Nora is the president. Which of the following are TRUE? A) Nora is not an agent of the joint venture because the participants in a joint venture cannot be agents. B) Nora is an agent of the joint venture with the authority that would be usual for a president to have. C) Nora is liable as a principal for all obligations of the joint venture business. D) Nora can only bind the corporation to contracts that are within her actual authority. E) Nora can only bind the corporation to contracts that Scott has expressly consented to. Difficulty: 3 QuestionID: 20-2-25 Topic: Joint Ventures and Strategic Alliances Skill: Applied Answer: B) Nora is an agent of the joint venture with the authority that would be usual for a president to have. 26. Maja is negotiating to become a Bread King franchisee with Bread King Inc. Maja is interested in getting a location near her home in Hamilton, Ontario. If Maja becomes a Bread King franchisee, which of the following are TRUE? A) Maja will be an agent of Bread King. B) The franchise agreement will likely provide that Maja is not an agent of Bread King. C) Maja could never be an agent of Bread King. D) Bread King will be liable for the acts of Maja in carrying out the franchise business. E) Bread King and Maja will have an agency relationship known as a strategic alliance. Difficulty: 2 QuestionID: 20-2-26 Topic: Franchises Skill: Applied Answer: B) The franchise agreement will likely provide that Maja is not an agent of Bread King. 27. You contract with Sal, a stock broker, to act as your agent to buy stocks for you. You specifically instruct Sal that you only want him to buy stocks for you that have a good dividends payment history. Sal carelessly buys you some shares that have never paid dividends. Which of the following describes a legal basis upon which you could claim relief? A) Sal's breach of his fiduciary duty of care as an agent B) Sal's breach of your implied instructions C) Sal's defamation 17 © 2023 Pearson Canada Inc.

D) Sal's breach to the stock vendor's of his warranty of authority E) Sal's breach of duty of care owed to you Difficulty: 2 QuestionID: 20-2-27 Topic: Duty of Care Skill: Applied Answer: E) Sal's breach of duty of care owed to you 28. Anton has entered into a contract with Donut Country Inc to supply Donut Country with coffee. Anton never intended to be responsible under the contract personally. He intended to find a commercial coffee supplier to undertake the obligations and pay him a fee for giving the supplier the contract with Donut Country. He did not disclose any of this to Donut Country, which thinks that they have contract with Anton. Which of the following best describes the situation with respect to the contract? A) Anton is personally responsible under the contract despite his intentions. B) Anton would not be responsible under the contract if it is ratified by a coffee supplier. C) Anton is not responsible under the contract but would be liable to Donut Country for breach of warranty of authority. D) If a coffee supplier ratifies the contract, Donut Country would have the option of holding either Anton or the supplier responsible under the contract. E) If a coffee supplier ratified the contract, it would be considered an undisclosed principal. Difficulty: 3 QuestionID: 20-2-28 Topic: When is the Agent Liable? Skill: Applied Answer: A) Anton is personally responsible under the contract despite his intentions. 29. Agents have a fiduciary duty to their principals. Which of the following is FALSE with respect to the fiduciary duty? A) The fiduciary duty of an agent is a duty to act in good faith and in the best interests of the principal. B) The fiduciary duty of an agent requires the agent to avoid conflicts between the interests of the principal and their personal interests. C) The fiduciary duty of an agent requires the agent to disclose to the principal any information that may be relevant to the principal's interests. D) The fiduciary duty of an agent may be breached even in circumstances where the principal does not experience any loss as a result of the breach. E) The breach of a fiduciary duty requires the agent to have committed actual theft from the principal. Difficulty: 2 QuestionID: 20-2-29 Topic: Fiduciary Duty Skill: Recall

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Answer: E) The breach of a fiduciary duty requires the agent to have committed actual theft from the principal. 30. Artemis has entered into a contract with Saskatoon Berry Pies Inc for the supply of pies. After the contract was entered into, Artemis disclosed that he was negotiating the contract on behalf of ABC Food Mart, which operates three grocery stores in Regina, Saskatchewan. Which of the following best describes the situation with respect to the contract? A) Saskatoon Berry Pies is not bound to the contract because Artemis did not disclose that he was contracting on behalf of a principal until after the contract was entered into. B) Now that the principal's existence and identity have been disclosed, Saskatoon Berry Pies can hold either ABC or Artemis liable under the contract. C) Artemis cannot be held liable under the contract because he was not contracting on his own behalf. D) Artemis cannot be held liable under the contract but will be liable for breach of warranty of authority. E) Only ABC is liable under the contract to Saskatoon Berry Pies. Difficulty: 3 QuestionID: 20-2-30 Topic: When is the Agent Liable? Skill: Applied Answer: B) Now that the principal's existence and identity have been disclosed, Saskatoon Berry Pies can hold either ABC or Artemis liable under the contract. 31. The concept of "apparent authority" is also sometimes known as A) actual authority. B) ostensible authority. C) reflective authority. D) delegable authority. E) mirror authority. Difficulty: 3 QuestionID: 20-2-31 Topic: When is the Principal Liable? Skill: Recall Answer: B) ostensible authority. 32. Which of the following business arrangements might not involve an agency relationship? A) joint venture B) strategic alliance C) distributorship D) stockbroker E) single transaction arm's length sales contract between two businesses Difficulty: 1 QuestionID: 20-2-32 Topic: Joint Ventures and Strategic Alliances, Distributorships, Agents Covered by Special Statutes, 19 © 2023 Pearson Canada Inc.

Skill: Recall Answer: E) single transaction arm's length sales contract between two businesses 33. Which of the following statements is TRUE with respect to franchises? A) Although other arrangements are available for other types of business, a true franchise is always concerned with the food-service industry. B) A franchise arrangement always includes, among other things, an agency relationship. C) Franchisors typically include a provision in their franchise arrangements that the franchisee is not an agent of the franchisor. D) Franchise agreements do not contain trademark licences. E) Franchisors do not worry about whether they may be held liable for actions of franchisees because each franchise is a separate business. Difficulty: 2 QuestionID: 20-2-33 Topic: Franchises Skill: Recall Answer: C) Franchisors typically include a provision in their franchise arrangements that the franchisee is not an agent of the franchisor. 34. A commercial representation agreement A) occurs anytime that an agency relationship is created. B) occurs when someone sells goods to a retailer on behalf of a manufacturer. C) is always a type of franchise relationship. D) is always governed by provincial partnership law. E) is no longer legal in Canada. Difficulty: 2 QuestionID: 20-2-34 Topic: Creation of an Agency Relationship Skill: Recall Answer: B) occurs when someone sells goods to a retailer on behalf of a manufacturer. 35. Minnie and Maximum Realty Inc have entered into a real estate agency agreement. In this situation, it is almost certain that A) Minnie is legally known as the agent. B) Minnie is legally known as the beneficiary. C) the company has complete authority to purchase or sell a house on behalf of Minnie. D) the company owes a fiduciary duty to Minnie. E) Minnie owes a duty of care to the company. Difficulty: 1 QuestionID: 20-2-35 20 © 2023 Pearson Canada Inc.

Topic: Fiduciary Duty Skill: Applied Answer: D) the company owes a fiduciary duty to Minnie. 36. Mathilde entered into an agreement with Pascal saying that she was acting on behalf of Citron Used Cars to purchase cars. In fact, Mathilde had no actual or apparent authority to do so. Moreover, Citron now refuses to ratify the agreement. In this situation, Pascal can hold A) Citron liable under the contract. B) Mathilde liable under the contract. C) Citron liable for breach of fiduciary duty. D) Mathilde liable for breach of warranty of authority. E) Mathilde liable for breach of fiduciary duty. Difficulty: 2 QuestionID: 20-2-36 Topic: When is the Agent Liable? Skill: Applied Answer: D) Mathilde liable for breach of warranty of authority. 37. Rula hired Mike to act as her stockbroker. In that capacity, Mike was authorized to buy and sell stocks on behalf of Rula as her agent. Rula paid very little attention to the details of the transactions that Mike entered into on her behalf. She adopted a very different attitude, however, after she received an anonymous tip that Mike was intentionally inflating the commissions that he received for buying and selling stocks for Rula by making an unreasonably large number of trades for her account. Which of the following statements is TRUE? A) Mike may be held liable for breach of fiduciary duty even if Mike did not cause Rula to suffer a loss and may even have generated a benefit for her. B) Mike may be held liable for breach of fiduciary duty only if Rula can prove, as a result of that breach, either that she suffered a loss or that Mike received a benefit. C) Mike may be held liable only if he breached an express instruction from Rula. D) Mike is liable for breach of his duty of care to Rula. E) Mike is only liable for breach of a fiduciary duty if Rula can prove that she took reasonable steps to monitor Mike's behaviour. Difficulty: 2 QuestionID: 20-2-37 Topic: Fiduciary Duty Skill: Applied Answer: A) Mike may be held liable for breach of fiduciary duty even if Mike did not cause Rula to suffer a loss and may even have generated a benefit for her. 38. Laurna hired Ned to act as her stockbroker. Ned purchased certain stocks on Laurna's behalf and at her specific direction. Ned advised her not to buy them, saying that they were too risky, but she insisted. 21 © 2023 Pearson Canada Inc.

Because those stocks subsequently dropped in value, Laurna has sued Ned for compensation. Which of the following is TRUE? A) Ned may be held liable for breach of fiduciary duty because it is his job to prevent her from making mistakes. B) Ned may be held liable for breach of fiduciary duty because he did not act in Laurna's best interests. C) Ned is not liable for breach of fiduciary duty even though buying the stocks was not in Laurna's best interests because he acted on her direct instructions. D) Ned is not liable for breach of fiduciary duty because everyone knows that stocks can fall in value. E) Ned is not liable because stock brokers are governed by a licensing scheme. Difficulty: 3 QuestionID: 20-2-38 Topic: Fiduciary Duty Skill: Applied Answer: C) Ned is not liable for breach of fiduciary duty even though buying the stocks was not in Laurna's best interests because he acted on her direct instructions. 39. Sharona entered into a contract with Deepak. Under the terms of that agreement, Deepak was obliged to sell his car for $25,000 to Myrna. Sharona subsequently asked Myrna to ratify the transaction and to actually pay the price to Deepak in exchange for the vehicle. Which of the following statements is TRUE? A) Myrna can acquire the right to receive the vehicle, while leaving the obligation to pay the price on Sharona. B) Myrna can ratify the contract if she has capacity at the time of ratification, even if she lacked a capacity at the time that the contract was made. C) Myrna cannot ratify the contract even if Sharona said, at the time of creating the contract, that she was doing so on behalf of a person named Myrna. D) If Myrna refuses to ratify the contract, Sharona cannot be held liable to Deepak on the contract as long as she said, before the contract was created, that she was acting as an agent for someone else. E) Ratification can be effective only if Myrna expressly ratified the contract. Difficulty: 3 QuestionID: 20-2-39 Topic: When is the Agent Liable? Skill: Applied Answer: D) If Myrna refuses to ratify the contract, Sharona cannot be held liable to Deepak on the contract as long as she said, before the contract was created, that she was acting as an agent for someone else. 40. For many years, Street Sounds Inc, a music retailer, purchased its supply of CDs from Smithee Entertainment Ltd, a major music producer. And for all of those years, Smithee Entertainment entered into those supply contracts by using Alan as its agent. Alan would meet with the manager of Street Sounds, that manager would request a selection of CDs, immediately pay for the order, and Alan would arrange for Smithee Entertainment to deliver the goods to Street Sounds within one week. In March 2010, as he had done countless times before, Street Sounds' manager met with Alan, selected a number of CDs, paid for the order by giving $15,000 to Alan, and was told that a shipment from Smithee 22 © 2023 Pearson Canada Inc.

Entertainment would arrive within a week. What Street Sounds did not know, unfortunately, was that Smithee Entertainment had fired Alan several days earlier. Because it has not yet received any money from Alan, Smithee Entertainment refuses to deliver any CDs to Street Sounds. Which of the following statements is most likely to be TRUE? A) Because it had already fired Alan, Smithee Entertainment cannot possibly be held liable for the contract in question unless it ratifies that agreement. B) While it may enjoy other options, Street Sounds is certainly entitled to enforce the contract against Alan. C) Smithee Entertainment may avoid all liability to Street Sounds by simply refusing to ratify the contract in question. D) Smithee Entertainment may be held liable for breach of warranty of authority. E) Street Sounds may be able to enforce the contract against Smithee on the basis that Alan had apparent authority to contract even though his authority was terminated because no such notice was given to Street Sounds of the termination of authority. Difficulty: 2 QuestionID: 20-2-40 Topic: Termination Skill: Applied Answer: E) Street Sounds may be able to enforce the contract against Smithee on the basis that Alan had apparent authority to contract even though his authority was terminated because no such notice was given to Street Sounds of the termination of authority. 41. Gordon created DogSearch, an app that allows people to track their dogs' locations on their smartphones via GPS. Gordon initially intended to allow people to use the app for free, but the situation potentially changed when Gordon's brother, Fred, got involved. Fred is a lawyer. He excitedly explained DogSearch prior to a meeting with one of his clients. The client immediately offered a generous price in exchange for Gordon's agreement to license the app and provide technical support for it. Fred purportedly agreed on Gordon's behalf. When Fred eventually told his brother about the offer, however, Gordon said that while he was happy to sell a license, he insisted that another party would have to provide technical support. Which of the following statements is most likely to be TRUE? A) The contract has been ratified by Gordon and is therefore binding. B) Gordon has only ratified part of the contract and has therefore accepted none of it. C) The contract cannot be binding because Fred had no authority to contract. D) Gordon will not be able to offer the app for free if he accepted the contract. E) The contract has been ratified only if the company agrees to find another person to do tech support. Difficulty: 2 QuestionID: 20-2-41 Topic: Ratification Skill: Applied Answer: B) Gordon has only ratified part of the contract and has therefore accepted none of it. 42. Romeo, an engineer, owns RR Consulting. Carmen, his wife, is not formally part of the business. In fact, Romeo has repeatedly insisted that she must stay out of the office, but she often ignores his wishes 23 © 2023 Pearson Canada Inc.

while he is away on business. That happened recently. Julia, who works as an agent for XYZ Construction, entered RR Consulting's office and asked to speak to "someone in charge." Carmen stepped forward and falsely identified herself as "one of the owners of this business." Julia then explained a building project that XYZ had under development and asked if RR Consulting would be willing to provide its services. Carmen agreed to the proposal and signed a contract "on behalf of RR Consulting." When Romeo returned to the office, however, he refused to have anything to do with that agreement. Who, if anyone, is most likely to be held liable to XYZ? A) Romeo because he is the true principal B) Romeo and RR Consulting on the basis of actual authority C) Carmen for breach of warranty of authority D) Romeo, but not RR Consulting, because he was an undisclosed principal E) Romeo, RR Consulting, and Carmen Difficulty: 2 QuestionID: 20-2-42 Topic: When is the Agent Liable? Skill: Applied Answer: C) Carmen for breach of warranty of authority 43. Hadi knew that he wanted to buy a car, but he also knew that he knew almost nothing about vehicles. His friend, Devon, in contrast, was an experienced mechanic. Devon agreed, in exchange for $250, to search the marketplace and obtain a suitable car for Hadi. Within a couple of days, Devon learned that Nadia was offering to sell two 2015 Honda Civics for a total price of $40,000. The blue Civic was in great shape and was absolutely perfect for Hadi. The yellow Civic, which Nadia called "a real lemon," required a complete engine replacement. Devon bought both cars, but after thinking about the situation for a night, kept the blue one for himself. The next day, Devon transferred the yellow car to Hadi in exchange for $20 000, which Devon said was Hadi's "fair share of the price." Hadi has now discovered the problem and wants to sue Devon. Which of the following statements is most likely to be TRUE? A) Devon breached his duty of care because he failed to recognize the problem with the car. B) Devon breached his duty of care because he failed to demand a lower price from Nadia. C) Devon breached his fiduciary duty because his personal interests conflicted with Hadi's. D) Devon will not be held liable because he paid a fair price to Nadia for the two cars. E) Devon will not be held liable because he fulfilled his obligations as an agent when facilitated Hadi's purchase of the yellow car. Difficulty: 2 QuestionID: 20-2-43 Topic: Fiduciary Duty Skill: Applied Answer: C) Devon breached his fiduciary duty because his personal interests conflicted with Hadi's. 44. Rachel recently started CanScot Curling Ltd, a new business that manufactures curling brooms. She is very comfortable running the workshop and the warehouse in Calgary, but she wanted to find at least one person to sell her goods in each province. With that in mind, she arranged for CanScot to enter into a 24 © 2023 Pearson Canada Inc.

distributorship agreement with Jack in Nova Scotia. Which of the following statements is most likely to be TRUE? A) Each time that a broom is sold, a contract will be created between CanScot and the buyer. B) Regardless of the precise nature of CanScot's relationship with Jack, the manufacturer must provide all warranty services. C) Under the distributorship agreement, CanScot actually authorized Jack to deal with customers on its behalf. D) Jack is not CanScot's agent, but Rachel should be concerned by the fact that some of the customers who deal with Jack believe otherwise. E) As long as the distributorship agreement expressly states that Jack is not CanScot's agent, the company cannot be held liable to anyone other than Jack. Difficulty: 2 QuestionID: 20-2-44 Topic: Distributorships Skill: Applied Answer: D) Jack is not CanScot's agent, but Rachel should be concerned by the fact that some of the customers who deal with Jack believe otherwise. 45. Early last year, Lane was employed by Prairie Dawn Grains (PDG), an Alberta company that produces genetically modified grains. He was sent to Saskatchewan to pursue the possibility of signing up a new customer. It was not easy, but after several weeks of difficult negotiations, he persuaded SaskFarm, a large agricultural company based in Moose Jaw, to purchase millions of dollars' worth of geneticallymodified grains over several years. Upon returning to Edmonton, however, Lane discovered that PDG had entered into bankruptcy the day before SaskFarm signed the contract. Which of the following statements is most likely to be TRUE? A) The contract is unenforceable because PDG lacked capacity when SaskFarm signed the agreement. B) The contract is enforceable because Lane acted with actual authority. C) The contract is unenforceable because Lane was PDG's employee and therefore could not be PDG's agent. D) The contract is unenforceable unless PDG ratifies it. E) The contract is enforceable as long as neither Lane nor SaskFarm knew of PDG's bankruptcy when the contract was signed. Difficulty: 3 QuestionID: 20-2-45 Topic: Termination Skill: Applied Answer: A) The contract is unenforceable because PDG lacked capacity when SaskFarm signed the agreement. Essay Questions 1. What are the purposes of the rules of agency?

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Difficulty: 2 QuestionID: 20-3-01 Topic: The Agent's Duties to the Principal, The Principal's Duties to the Agent Skill: Applied Answer: One of the purposes of the common law rules of agency, as well as the specific rules relating to corporations and partnerships, is to protect the reasonable expectations of business people. One of the most important issues in this regard is whether the agent has sufficient authority to bind the principal to an obligation that a third party seeks to enforce against the principal. Agency rules try to protect the reasonable expectations of third parties who are dealing with agents by allowing them to rely on commonly understood indicators of authority. In this way, the rules of agency reduce the risks for third parties that the contracts they negotiate through agents will be unenforceable because of the agent's lack of authority. This promotes commerce because it means that third parties do not need to spend as much money to ensure that sufficient authority exists. Agency rules reduce transactions costs in this way. At the same time, the rules of agency provide some protection for principals against the risk that agents will bind them to unauthorized obligations to third parties by providing that only the principal's conduct in relation to the third party can be relied on by the third party as clothing an agent with apparent authority in excess of the agent's actual authority. In these ways, agency rules allocate risk as between principals and third parties. A second purpose of agency rules is to protect the interests of principals against the actions of agents. Agency rules recognize that principals are vulnerable to the risk of loss as a consequence of the acts of their agents by imposing a fiduciary duty and duty of care on the agent. These legally enforceable standards of behaviour reduce the risk that the conduct of agents will result in liability for principals, and provide a basis for principals to claim relief in some cases where liability or loss does arise. A third purpose of agency rules is to provide some protection for agents. In the absence of any agreement to the contrary, agents are entitled to receive reasonable compensation for their efforts and to compensation for expenses reasonably incurred in connection with fulfilling their responsibilities. 2. Jackson is the shipping clerk for Coldpoint Inc, an appliance manufacturer. For five years, Jackson has regularly taken orders from Knight's TV and Appliances Inc for refrigerators. Jackson does not approve the orders himself. He submits them to the sales manager. Once the sales manager has approved the order, an invoice specifying the price and terms of payment is issued and signed by the sales manager. Each invoice is then sent to Knight's. A contract is formed on the terms of the invoice. Jackson then arranges for Coldpoint to ship the refrigerators. In October, Knight's gets an invoice in response to its order for two refrigerators that is signed by Jackson. Knight's calls Jackson and asks about this change in procedure. Jackson says that he has been promoted and he can now approve and sign invoices. Knight's accepts this explanation. In fact, Jackson has not been promoted and invoices still require approval by the sales manager. Can Knight's rely on the invoices a forming a contract for the two refrigerators enforceable by Knight's against Coldpoint? Difficulty: 2 QuestionID: 20-3-02 Topic: Creation of an Agency Relationship Skill: Applied

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Answer: Jackson has no actual authority to commit Coldpoint to a contract to sell refrigerators because he has not been promoted. Coldpoint has not represented to Knight's that he has such authority. The only person who has made such a representation is Jackson himself. A representation by the agent cannot create apparent authority. The only way to establish Jackson's apparent authority would be to argue that Coldpoint, in effect, represented to Knight's that Jackson had authority to contract by acquiescing to Jackson acting in this way. There is no specific evidence to support such an argument in the facts as given. 3. Ruby is a junior sales clerk employed in the sporting goods department of Lear's, a large department store. Because of her work she gets to know Basinger, the supplier of tennis racquets to Lear's. After talking to Basinger for some time, she asks Basinger if it would agree to sell 100 tennis racquets to Lear's for 10 percent less than the price Lear's usually pays if Lear's would agree to send all its racquet stringing and repair business to Basinger. Basinger agrees to this proposal. That afternoon, Ruby advises the president of Lear's about the deal she has worked out with Basinger. The president says that while she likes the price reduction, Lear's cannot accept the commitment regarding the stringing and repair business. Lear's has an existing commitment to send all such business to someone else. Is Lear's bound by the contract negotiated by Ruby? Can Lear's accept the contract excluding the commitment to send Basinger all the stringing and repair business? Can Ruby have the contract ratified by Beaton's, a competing department store? Is Ruby bound personally? Difficulty: 3 QuestionID: 20-3-03 Topic: When is the Principal Liable? / Ratification / When is the Agent Liable? Skill: Applied Answer: Lear's is not bound by the contract negotiated by Ruby because as a sales clerk, she would not have the actual or apparent authority to enter into such a transaction on behalf of Lear's. The only way the contract can be binding on Lear's is if someone with authority to contract on behalf of Lear's, such as the president, ratifies the contract. Lear's cannot ratify the contract in part, so it cannot accept just the price reduction and not the obligation to send all its stringing and repair business to Basinger. Beaton's cannot ratify the contract since it was not the principal on whose behalf the agreement was entered into. Ruby is not bound personally unless Ruby and Basinger intended that she have personal liability. There is nothing to suggest such an intention in the question. Ruby and Basinger intended that the contract would be between Basinger and Lear's. 4. Janus entered into an agreement with Ashley under which he made Ashley his agent for the purpose of selling his car. He agreed to pay Ashley a commission of 5 percent of whatever price she could get for the car. A week later, he cancelled the agency arrangement. At the end of the following week, Ashley showed up at his house with Simon. In front of Simon, she told Janus that Simon was interested in buying the car and asked for the keys so she could show it to him. Janus gave her the keys. An hour later she came back with Simon and told Janus that she had agreed to sell the car to Simon for $10,000. How would you describe Simon's legal rights? Difficulty: 3 27 © 2023 Pearson Canada Inc.

QuestionID: 20-3-04 Topic: Creation of an Agency Relationship Skill: Applied Answer: Simon cannot seek to enforce the contract based on the actual authority of Ashley because Janus had cancelled the agency arrangement with Ashley. Simon is likely to be successful in enforcing the contract, however, based on apparent authority. By giving Ashley the keys after Ashley had told him that Simon was interested in the car, Janus had represented to Simon that Ashley was his agent for the purpose of selling the car. A reasonable person in Simon's position would be justified in thinking that Janus had given Ashley the authority to sell the car. It could be argued, however, that giving Ashley the keys was a representation that she had authority to show the car but not to commit Janus to sell it for a specific price. This would mean that there is no contract between Simon and Janus for the sale of the car. 5. Seldon owned several apartment buildings. Sheila is the president of Ivest-co Inc, a corporation incorporated under the Canada Business Corporations Act. Sheila entered into a lease with Seldon to rent some office space in one of Seldon's buildings on behalf of Invest-co. Seldon was confident that the lease would be enforceable against Ivest-co Inc because the president of the corporation had signed the lease on behalf of the corporation. Unknown to Seldon, the by-laws of the corporation said that the corporation could only enter into leases if two directors of the corporation signed them. Discuss whether the lease is enforceable. Difficulty: 2 QuestionID: 20-3-05 Topic: When is the Principal Liable? Skill: Applied Answer: The lease should be enforceable. The by-law provision means that the president did not have actual authority to enter into the lease. Nevertheless, the president of a corporation would usually have full power to bind the corporation to a lease. Under the common law rules, if a corporation appoints someone to a position, this amounts to a representation by the corporation that the person has the usual authority associated with that position. The CBCA confirms this form of apparent authority. Seldon may enforce the lease on the basis that the president had apparent authority. 6. MC Electric Inc sold circuit boards. Dortmund was the director of sales for MC Electric. His employment contract said he was responsible for managing the sales force of five employees, including promoting sales. Pricing decisions and overall sales strategy were the responsibility of the president. In October, Dortmund was approached by GB Circuits Co, another supplier of circuit boards which had been asked to quote on a large order from a manufacturer of telephones, A-Tel. GB could not fill all the A-Tel order itself and proposed that MC should submit a quote for what GB could not supply and, if MC were successful, it would pay over 50 percent of its profits on the order to GB as compensation for giving the MC the opportunity to bid and the introduction to A-Tel. Dortmund agreed to this deal on behalf of MC. Subsequently, MC supplied 2,500 circuit boards to A-Tel which were paid for. MC refused to pay the 50 percent commission to GB. Is there any legal basis upon which it could be argued that MC is NOT OBLIGED to pay the commission? Do you think that MC will be successful in avoiding payment? 28 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 20-3-06 Topic: When is the Principal Liable? Skill: Applied Answer: MC could argue that Dortmund did not have authority to enter into the commission agreement with GB on its behalf. With respect to actual authority, the question would be whether the commission agreement could be characterized as reasonably associated with his job title and job description. Here GB could argue that the purpose of the agreement was to allow MC to make more sales and on this basis was within the express grant of authority in Dortmund's employment contract, or at least reasonably incidental to the promotion of sales. On the other hand, while the agreement relates to sales, it was not a run of the mill sales transaction. It was a significant strategic decision, which affected not only sales but also what profit is derived from those sales. It may be argued that a decision of this consequence is not merely a decision about how to promote sales. Nevertheless, since there seems to be some basis for concluding that Dortmund had actual authority to enter into the commission agreement, it seems likely that the court would resolve any ambiguity regarding the scope of his authority in favour to GB. With respect to apparent authority, by appointing Dortmund to the position of director of sales, MC is representing that Dortmund had all authority that would be usual for a person in his position to have. Would an agreement of this kind be one that a director of sales would usually have the authority to enter into? The arguments here are virtually identical to those relating to actual authority. It is likely that Dortmund would be found to have had apparent authority to enter into the contract on behalf of MC. 7. Alice entered into an agreement with a real estate agent to help her find a house in Windsor, Ontario. Alice found a house that she wanted and asked the agent to present an offer on Monday. The agent got busy with some other work and did not present the offer until Wednesday. Unfortunately for Alice, the owner of the house accepted another offer presented on Tuesday. Describe the bases upon which Alice could seek relief from the actions of the agent. Difficulty: 1 QuestionID: 20-3-07 Topic: Duty of Care Skill: Applied Answer: Alice's agent owes her a duty to take care in the performance of the agent's duties as well as a duty to comply with Alice's instructions as principal. The agent failed to fulfill both these duties. Alice would be able to claim damages for the loss of the house. civilly for breach of duty. 8. Shari entered into an agreement with Taiga Developments Inc under which she would act as an agent to find real estate for Taiga to buy in a suburb of Regina, Saskatechewan. Taiga had told her that it wanted to buy up all the land and buildings in a three block area to build a mall. No one but Taiga and Shari knew about Taiga's plans. Shari found a piece of property for sale across the street from the area Taiga was interested in for a great price. She knew that once the mall went in the property would be worth much more than it was today. Shari bought the property and then sold it after Taiga had built the mall for twice what she paid. Did Shari breach her fiduciary duty? 29 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 20-3-08 Topic: Fiduciary Duty Skill: Applied Answer: Shari's fiduciary duty requires her to act in Taiga's best interests, disclose information that may be relevant to Taiga's interests and not personally profit from any unauthorized use of information or opportunities arising as a result of her agency relationship with Taiga. While one may argue that Shari did not breach her fiduciary duty because her obligations only related to buying land in the area that Taiga was looking in, it is likely that her fiduciary duty would be interpreted more broadly. The better conclusion is that Shari breached her fiduciary duty to Taiga because she used information given to her by her principal and not publicly available to profit personally. The only way she could have made sure that she did not breach her duty would be to have obtained the informed consent of Taiga to her purchase of the property. 9. Sureet has a small gardening business. He recently won the lottery and had $50,000 to invest. He went to James, a stock broker, and told him that he would like to invest his money in shares that would give him a high return because he would be relying on this money to fund his retirement. He told James that he had few other assets and needed to grow this investment into a substantial sum if he was to live on it when he retired in 20 years. He said that he was relying on James because he had no investment experience. James recommended investing in options, a strategy which, if successful, would yield high returns. James did not explain to Sureet that there was a substantial risk that he could lose all his money. Sureet, attracted by the prospect of the high returns agreed to give all of the $50,000 to James to invest in options. Within six months all the money was gone. James was not negligent in how he pursued his options trading strategy, it simply was not successful. However, James did not keep Sureet informed on a regular basis about the losses. Sureet is now very angry and frustrated. Does Sureet have any claim against James? Difficulty: 3 QuestionID: 20-3-09 Topic: Fiduciary Duty, Duty of Care Skill: Applied Answer: As Sureet's agent, James owed Sureet a duty of care and a fiduciary duty to act in Sureet's best interests. In these circumstances, it is not clear that a high-risk strategy was in the best interests of Sureet. He had few other assets and could not afford to lose the money he invested. As well, he had a significant time before he needed to use the investment funds and so there was no need to embark on a strategy which had the possibility of significant gains in the short term where the risk of loss was so high. As well, the failure to advise Sureet that the investment strategy was a high-risk one or to keep him informed regarding the mounting losses on the investment cannot be considered to be acting in Sureet's best interests. The fact that Sureet had no investment experience means that James was responsible for taking even more care to ensure that Sureet was adequately informed regarding the risks that he was running. James would be found to have breached his fiduciary duty and his duty of care not to be negligent. 10. Bruner and Santos have entered into a joint venture for the purpose of building a housing development. They call the joint venture Brantwood Housing. Santos will provide the financing, and 30 © 2023 Pearson Canada Inc.

Bruner will build and sell the houses. Under the terms of the joint venture agreement, the profits from selling the houses will be split evenly between Santos and Bruner, and Santos agrees that expenses incurred by Bruner for the purpose of building the housing development "will be the responsibility of Bruner and Santos, to be shared equally." Bruner enters into a contract on behalf of Brantwood Housing with an Internet service provider, ISP Inc, to host a website for advertising the houses built by Brantwood Housing for $100 per month. Bruner defaults on the payments required under the contract. ISP Inc was not aware of Santos involvement in Brantwood Housing until it began investigating the joint venture after Bruner defaulted on the contract. Is Santos liable to ISP Inc? Difficulty: 3 QuestionID: 20-3-10 Topic: When is the Principal Liable? Skill: Applied Answer: There are several alternative bases upon which Santos could be found liable to ISP Inc. Actual Authority: On the basis of the provisions of the joint venture agreement, it could be argued that Santos had given Bruner actual authority to contract for services such as those of ISP, so long as the services are for the purpose of building the housing development. The difficulty with this argument is that the website hosting services are not directly related to building the development as opposed to selling the houses built. The contractual commitment regarding expenses only extends to expenses for the purpose of "building." If it possible to establish that actual authority existed on the basis of the joint venture agreement provisions, it does not matter that ISP was not aware of the existence of Santos until after the contract was concluded. Authority as a Partner: If ISP can successfully argue that the joint venture was a partnership between Bruner and Santos, then Bruner would be an agent of the partnership and any obligation he incurred in carrying out the business of the partnership in the usual way would be binding on Santos. The test for partnership will be discussed in Chapter 21: two or more persons carrying on business in common with a view to a profit. Here, an argument can be made that building the houses and selling them is a business. The fact that Santos and Bruner are jointly responsible for expenses and sharing profits is strong evidence of partnership. Assuming that Brantwood Housing is a partnership, the contract with the ISP would be an obligation incurred for the purpose of carrying on the business of the partnership in the usual way and Santos would be liable. Apparent Authority: There was no direct communication between Santos and ISP, so the only possible basis for arguing that Bruner had apparent authority to act on behalf of Santos is that Santos acquiesced in Bruner incurring obligations for the joint venture. There is no specific evidence of this in the question. 11. Orestes was employed as the manager of Coral Gables Horse Farm, a business carried on by Coral Gables Inc. Orestes was responsible for the day-to-day operations of the farm, including the care and maintenance of the horses and the management of the staff. Calum owned all the shares in the corporation and was the sole director and officer of Coral Gables Inc. He was the only one who had authority to buy new horses. In January, Calum asked Orestes to go to the local horse dealer and buy two stallions. Orestes bought the horses. Orestes thought that he had been given a general authority to buy horses for the farm, but that was not Calum's intention. In February, Orestes went to the horse dealer without Calum's permission and purported to buy from the horse dealer two more stallions on behalf of the corporation. When the horse dealer delivered the horses and asked for payment, Calum refused. Can 31 © 2023 Pearson Canada Inc.

the horse dealer enforce the contract? If not, does the horse dealer have any other remedy? Difficulty: 2 QuestionID: 20-3-11 Topic: Creation of an Agency Relationship / When is the Principal Liable? Skill: Applied Answer: Since Orestes had no actual authority to enter into contracts on behalf of the corporation, Coral Gables Inc will only be liable under the contract with the horse dealer if Orestes had apparent authority to buy the horses. Given these facts, the only basis for apparent authority is that Calum represented that Orestes had authority to buy horses by allowing him to buy horses on one occasion and then not advising the horse dealer that Orestes did not have authority to buy horses in any other situation. In the absence of such a notice, it would have been reasonable for the horse dealer to think that Orestes did have authority to buy horses on behalf of Coral Gables when he came to the horse dealer for the second time in February. The horse dealer should be able to enforce the contract to sell the horses to Coral Gables Inc on the basis of apparent authority. 12. Mireille recently sold her house in Kitchener, Ontario, through a real estate agent, and she is not very happy about the service she received. The agent, Emily, did not listen to her instructions. For example, Mireille told Emily that she would not allow the house to be shown to people on weekend mornings. Emily showed up with clients on several weekend mornings anyway. Emily was always late for appointments and did not work very hard to sell the house. She never had an open house. Eventually Mireille sold her house to a friend. She feels she got no service of value from Emily and paid a commission of 6 percent of the $300,000 price ($18,000). Is there anything that Mireille can do? Difficulty: 2 QuestionID: 20-3-12 Topic: The Agent's Duties to the Principal Skill: Applied Answer: Mireille only has a legal claim for damages caused by the failure of Emily to fulfill her responsibilities as set out in her agency contract or required by her fiduciary duty or duty of care. There is little to base a successful action on in the question. Turning up on weekend mornings and being late for appointments is inconsistent with Mireille's instructions, but it is not clear that anything more than inconvenience was caused by her actions. Not working hard and not having an open house might be characterized as a failure to act in Mireille's best interests or failing to take adequate care in performing her duties, but would be hard to prove and, in any case, it would be difficult to draw a causal link between her inaction and any specific loss. It is unlikely that any civil remedy is available to Mireille. 13. Explain how a third party can determine the scope of an agent's authority to bind the principal it represents? In your answer, specifically identify barriers make it difficult for a third party to discover an agent's authority. Difficulty: 2 QuestionID: 20-3-13 Topic: When is the Principal Liable? 32 © 2023 Pearson Canada Inc.

Skill: Recall Answer: A third party usually does not know and has no easy way to find out what authority an agent actually has been given by the principal. That information is often contained in a contract or other document to which the third party has no access, such as the principal's internal business records, a delegation from the board of directors of a corporate principal, a corporate principal's by-laws, or the agent's employment contract. Nevertheless, the law allows a third party seeking to contract with the principal to rely on words or conduct by the principal that represent to the third party that an agent has authority to contract with the third party. A letter from the president or chair of the board of directors of a corporation to the third party telling the third party that the agent has authority to contract is an obvious example. More typically, however, third parties rely on common indications of authority that are presented to the third party, either directly or indirectly by the principal. These would include a person being permitted to stand in a car dealership showroom wearing a dealership shirt and a name badge identifying that person as a "sales representative." Also, the appointment by the principal of a person to a position that usually has certain authority is a representation that the person has such authority. Identifying the precise scope of that person's apparent authority may be difficult, however. In large transactions where significant amounts of money are at stake, the actual authority of an agent may be the subject of costly investigation and proof. The corporate documents giving the agent authority, such as a board resolution, may have to be produced and supported by a legal opinion from the principal's law firm that the person purporting to act on behalf of the corporation has authority. In these circumstances, the size of the transaction justifies the cost involved. 14. How can a principal manage the risk that an agent will commit the principal to contracts that it does not want to be bound by? Difficulty: 2 QuestionID: 20-3-14 Topic: Termination, Risk Management Issues Skill: Recall Answer: Since a principal will be bound by contracts entered into by an agent within the scope of its actual or apparent authority from the principal, risk management strategies must address both these sources of an agent's authority. Dealing with actual authority is more straightforward. A principal can limit the actual authority that it gives to an agent by precisely specifying the scope of the agent's authority in the contract or other document that creates the agent's authority and responsibilities. By setting out clearly what the agent is allowed to do and what the agent cannot do, the principal will define one of the two legal bases for the agent to bind the principal. As well, in practice, agents are less likely to go beyond their given authority if they have a good understanding of what their authority is. Managing the risk associated with apparent authority is more difficult. Since apparent authority arises as a result of direct and indirect communication by the principal to third parties, risk management strategies must deal with all such communication. A principal must carefully monitor how it communicates with third parties to ensure that it does not inadvertently communicate to a third party that the agent has authority that goes beyond what it 33 © 2023 Pearson Canada Inc.

intended. A principal must think through what is the authority usually associated with the positions to which it appoints people because, in general, a third party will be able to rely on the principal's agents having the authority that is usual for person in those positions. Restrictions on the actual authority of such persons will not be effective. Also, principals must be vigilant regarding what they allow their agents to do because acquiescing in a person exercising a certain authority amounts to a representation that the person has that authority. The termination of an agent raises particular challenges because people who dealt with a principal through an agent may be able to assume that an agent continues to have authority to act even after the agent has been terminated. Giving notice of the agent's termination to third parties is an important way to manage the risk that the terminated agent will commit the principal to unwanted contracts after termination. 15. Knowing that Michele is looking for a house, Fatima negotiated a contract for her to buy a house from Owen. Fatima and Owen have agreed on the price, the deposit, the closing date, and all other relevant terms of the deal. Michele, however, has not authorized Fatima to negotiate this transaction on her behalf and had no knowledge of what Fatima was doing. When Fatima tells her, however, Michele is delighted by the house and all the terms of the contract except for the deposit of $20 000 that Fatima and Owen have agreed to. Is it possible for Michele to accept this contract with Owen, such that it becomes a binding obligation between them, but not accept the deposit requirement to which she did not consent? Difficulty: 2 QuestionID: 20-3-15 Topic: Ratification Skill: Applied Answer: In these circumstances, Michele can ratify the contract with Owen that was negotiated on her behalf by Fatima, though without her knowledge or consent, so long as certain requirements are met. Michele must have had legal capacity to contract at the time that Fatima agreed to the contract with Owen and must have capacity at the time of ratification. Michele must clearly express her intention to ratify the contract and do so within a reasonable time. However, she must accept the whole contract or none of it. She cannot accept all the terms other than the deposit requirement. Of course, she could always seek to amend the contract and could refuse to ratify it if the deposit requirement was not amended to her satisfaction. 16. You purchase a home using a real estate agent. What will be the key contractual terms that will need to be negotiated between the principal and the agent in this transaction? Difficulty: 2 QuestionID: 20-3-16 Topic: Agency Skill: Recall

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Answer: The principal and the agent enter into a contract that sets out the terms on which the agent is appointed, including the scope of the agent's authority and the agent's remuneration. The real estate agent cannot purchase a home for more that you authorized via the agency contract for example.

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Managing the Law, 6e (McInnes) Chapter 21: Basic Forms of Business Organizations True/False Questions 1. Alto Finance Inc carries on a highly profitable business as an investment dealer. Alto is considering buying an interest in a partnership that had been carrying on a diamond mining business without success. The mine is now closed and has no current operations. Alto is interested in becoming a 50 percent partner because the partnership has losses of $5 million and it would like to deduct a half of those losses against its other income. Alto can deduct the losses if it acquires a 50 percent interest in the partnership. a True b False Difficulty: 3 QuestionID: 21-1-01 Topic: General Partnerships Skill: Applied Answer: b. False 2. If two people share profits from a business, they are necessarily in a partnership. a True b False Difficulty: 1 QuestionID: 21-1-02 Topic: Creating a Partnership Skill: Recall Answer: b. False 3. If Ted and Mary were entering into a business relationship and did not want to be found to be partners, it would be sufficient to include a clause in their agreement to that effect. a True b False Difficulty: 1 QuestionID: 21-1-03 Topic: Managing the Risk That You Will Be Liable as a Partner Skill: Recall Answer: b. False 4. Aaron and Yarun are carrying on a takeout pizza business as a partnership and Yarun has bought a car with his own money for use in the partnership business. After a few months, Yarun tells Aaron that 1 © 2023 Pearson Canada Inc.

he wants to use the car at night and on the weekends, but Aaron says it must be used exclusively for the partnership business. Since the car was paid for by Yarun, he can use it however he likes. a True b False Difficulty: 3 QuestionID: 21-1-04 Topic: Managing Liability Risk If You Are a Partner Skill: Applied Answer: b. False 5. Arlo works for a gardening service. At the end of each month, he receives $500 plus a share of the profits. Arlo has never invested any money in the business and does not participate and has no right to participate in managing the business or own any of the equipment used. He has never agreed to be responsible for losses. He does whatever work is asked of him. Arlo is not a partner in the gardening business. a True b False Difficulty: 3 QuestionID: 21-1-05 Topic: Creating a Partnership, Internal Organization of Partnerships Skill: Applied Answer: a. True 6. Owen is a prominent accountant in his community. He is retiring from a partnership he has been in with several other accountants. He directs the partners to get rid of all letterhead with his name on it. Inadvertently, some of the firm's old letterhead is retained. The firm uses one of these pieces of old letterhead showing Owen as a partner to order several computers from a local business that the partnership had not dealt with previously. The business decides to sell the computers to the firm on credit. Owen is definitely liable as a partner to pay for the computers. a True b False Difficulty: 6 QuestionID: 21-1-06 Topic: Managing Liability Risk When You Are Not a Partner Skill: Applied Answer: b. False 7. Yasir and Rahool are partners in an accounting firm. Each contributed $10,000 in capital and Yasir has loaned the partnership a further $15,000. The partnership also owes its bank $25,000. Yasir and Rahool want to dissolve the partnership. They plan to pay themselves back $10,000 each first, then 2 © 2023 Pearson Canada Inc.

distribute $25,000 to the bank, and finally pay back Yasir's loan if there is enough money left. This plan for distribution is consistent with the default rules of partnership law. a True b False Difficulty: 2 QuestionID: 21-1-07 Topic: Internal Organization of Partnerships Skill: Applied Answer: b. False 8. Kalla decided to set up a limited partnership. First, she incorporated KalCo Inc, a corporation of which she was the sole shareholder, director, and officer. She intends KalCo Inc to be the general partner. Her spouse, Roger, who will not be involved in the business in any way, will be the initial limited partner. She will try to find other investors willing to become limited partners. Kalla can create a limited partnership with this proposed structure. a True b False Difficulty: 3 QuestionID: 21-1-08 Topic: Limited Partnerships Skill: Applied Answer: a. True 9. Incorporation is a process that only lawyers may carry out. a True b False Difficulty: 1 QuestionID: 21-1-09 Topic: Incorporation Process Skill: Recall Answer: b. False 10. Limited liability means that a shareholder can never be held liable for the obligations of the corporation. a True b False Difficulty: 2 QuestionID: 21-1-10 Topic: Separate Legal Existence 3 © 2023 Pearson Canada Inc.

Skill: Recall Answer: b. False 11. Shareholders, acting solely as shareholders, can incur obligations on behalf of the corporation in which they hold shares. a True b False Difficulty: 1 QuestionID: 21-1-11 Topic: Separate Legal Existence Skill: Recall Answer: b. False 12. Where shareholders are not the same people as the directors and the officers, one of the ways that shareholders ensure that directors and officers manage the corporation in a manner which most effectively promotes shareholder interests is through their power to elect the directors. a True b False Difficulty: 2 QuestionID: 21-1-12 Topic: Separation of Ownership and Management Skill: Recall Answer: a. True 13. Doren carried on a toy store business as a sole proprietorship. He incorporated Doren Toys Inc and transferred the business into the corporation. Later the same week, he signed a lease on behalf of Doren Toys with Patrice for a new store premises for the toy store business. The next week, he found a place he liked better and decided to try to figure out a way to get out of the lease with Patrice. He decided that he would transfer the business and all other assets out of the corporation and back to himself. Then he caused the corporation to default on the lease. This is a perfect plan because the corporation is the person who is liable to make the payments under the lease. If Patrice sues the corporation, she will get nothing. There is no possible way that she will be able to claim against Doren directly. a True b False Difficulty: 3 QuestionID: 21-1-13 Topic: Separate Legal Existence Skill: Applied Answer: b. False 4 © 2023 Pearson Canada Inc.

14. Only a few corporations have shares that, on the dissolution of the corporation, are entitled to receive the property of the corporation remaining after all the creditors and prior claim holders have been paid. a True b False Difficulty: 1 QuestionID: 21-1-14 Topic: Corporate Finance Skill: Recall Answer: b. False 15. The value of common shareholders' shares in a non—publicly traded company is based on the residual value of the corporation, which is inherently difficult to assess. Consequently, the value of common shares is generally somewhat uncertain. a True b False Difficulty: 2 QuestionID: 21-1-15 Topic: Corporate Finance Skill: Applied Answer: a. True 16. Cooperatives are a distinct form or corporation that are owned by its members who seek to benefit from the co-operative's activities in some way. a True b False Difficulty: 1 QuestionID: 21-1-16 Topic: Cooperatives Skill: Recall Answer: a. True Multiple Choice Questions 1. A sole proprietorship comes into existence when a person A) registers a business name. B) begins to carry on a business. C) obtains a licence for a business. D) pays the fee for registering a business name. E) files articles of incorporation. 5 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 21-2-01 Topic: Sole Proprietorship Skill: Recall Answer: B) begins to carry on a business. 2. Which of the following is FALSE? A) A sole proprietor is exclusively responsible for performing all contracts entered into in connection with the business. B) Sole proprietors must include any income or loss from the sole proprietorship business in their income for income tax purposes. C) A sole proprietor is vicariously liable for torts of employees in the course of the sole proprietorship business. D) A sole proprietor cannot be an employee of the sole proprietorship business. E) A sole proprietorship is a cautious method of forming of business as the proprietor has no legal liability for tort of contract and the proprietorship business is a separate legal entity from the proprietor. Difficulty: 1 QuestionID: 21-2-02 Topic: Sole Proprietorship Skill: Recall Answer: E) A sole proprietorship is a cautious method of forming of business as the proprietor has no legal liability for tort of contract and the proprietorship business is a separate legal entity from the proprietor. 3. The most significant disadvantage of using a sole proprietorship is that A) the sole proprietor alone must do all the work in the sole proprietorship business. B) the sole proprietor has unlimited personal liability for all obligations of the business. C) the sole proprietor must obtain a business licence. D) the sole proprietor must register a business name. E) it is simple to terminate. Difficulty: 2 QuestionID: 21-2-03 Topic: Sole Proprietorship Skill: Recall Answer: B) the sole proprietor has unlimited personal liability for all obligations of the business. 4. Sam and Jemma each owned a 50 percent interest in an office building. Which of the following is a factor that would support a conclusion that their relationship is NOT a partnership? A) Sam and Jemma are actively involved in the management of the building. B) Sam and Jemma are jointly responsible for all expenses associated with the building. C) Sam and Jemma have a bank account out of which they pay expenses relating to the building and each 6 © 2023 Pearson Canada Inc.

has signing authority. D) Sam takes responsibility for finding tenants and Jemma collects the rents. E) Sam lent the money to Jenna for the office building and he has a 50 percent interest as security for the loan. Sam takes no active part in the business, its profits, or its losses. Difficulty: 2 QuestionID: 21-2-04 Topic: Characteristics of General Partnerships Skill: Recall Answer: E) Sam lent the money to Jenna for the office building and he has a 50 percent interest as security for the loan. Sam takes no active part in the business, its profits, or its losses. 5. Norman and Velma are partners carrying on a trucking business. They share a single truck. Which of the following is TRUE? A) Norman will never be liable for any negligence by Velma in driving the truck. B) Norman will always be liable for Velma's negligence in driving the truck. C) Norman will be liable for Velma's negligence in driving the truck only if it is committed in the course of her employment. D) Norman will be liable for Velma's negligence in driving the truck if the negligence is in the course of the partnership business. E) Norman will be liable for Velma's negligence in driving the truck only if he was aware that she was using it. Difficulty: 2 QuestionID: 21-2-05 Topic: Characteristics of General Partnerships Skill: Applied Answer: D) Norman will be liable for Velma's negligence in driving the truck if the negligence is in the course of the partnership business. 6. Babak and Cal are partners in a restaurant business. Their partnership agreement says that Babak does not have authority to sign contracts for supplies for the partnership business. Babak contracted with Doris for the supply of 10 kilograms of haddock for the partnership. Which of the following is TRUE? A) The contract is not binding on the partnership. B) The contract is binding on the partnership unless Doris knew that Babak did not have authority to contract. C) The contract is not binding on the partnership unless Doris asked Babak if he had authority to contract on behalf of the partnership. D) The contract is binding on the partnership if Doris thought that Cal was a partner. E) The contract is binding on the partnership, but Cal is not personally responsible for the contract. Difficulty: 2 QuestionID: 21-2-06 Topic: How Partnership Liabilities Arise 7 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) The contract is binding on the partnership unless Doris knew that Babak did not have authority to contract. 7. Wilder and Joanne are carrying on a law firm business as a partnership under the name Wilder and Joanne Law Firm. Joanne has decided to leave. Which of the following strategies will best ensure that she does not become liable for any obligation of the firm arising after she moves on? A) Joanne takes out an advertisement in a local newspaper announcing her retirement. B) Joanne agrees to allow her name to be used in the firm name but obtains an indemnity from Wilder against any liabilities which arise as a result. C) There is no guarantee that Joanne will not be held liable for partnership debts after she leaves, but she should ask a court to dissolve the partnership and provide notice to anyone who may have a claim against the partnership, its assets, or its income. D) Joanne sends a letter to all of the clients she knows, advising them of her retirement. E) Joanne enters into an agreement with Wilder under which he promises to remove her name from the firm name, as well as from all letterhead and other papers of the firm. Difficulty: 2 QuestionID: 21-2-07 Topic: Managing Liability Risk When You Are Not a Partner Skill: Applied Answer: C) There is no guarantee that Joanne will not be held liable for partnership debts after she leaves, but she should ask a court to dissolve the partnership and provide notice to anyone who may have a claim against the partnership, its assets, or its income. 8. If two sisters, Simone and Claire, were setting up a partnership to provide French lessons, which of the following arrangements would require a change to the default rules under partnership law? A) Simone and Claire each want to receive 50 percent of the profits from the business. B) If one of the sisters had to pay out 100 percent of a business obligation, the other would reimburse her for 50 percent of the cost. C) Simone and Claire would each contribute the same amount to the partnership initially. D) Either sister can make management decisions for the partnership business without the other's participation. E) The sisters plan to buy a car, which will be used only in the partnership business. Difficulty: 2 QuestionID: 21-2-08 Topic: Internal Organization of Partnerships Skill: Applied Answer: D) Either sister can make management decisions for the partnership business without the other's participation. 9. Ella is a partner in a law firm operating as a general partnership. One of the firm's clients deposited $1 8 © 2023 Pearson Canada Inc.

million in the firm account to be used by Ella to complete a real estate purchase. Ella negligently bungled the transaction with the result that the client lost the $1 million. Which of the following is TRUE? A) Liability for Ella's negligence falls upon the partnership and upon each of the partners individually. B) The partnership is not liable for Ella's negligence because it did not authorize Ella to commit negligence. C) The partnership would not be liable for Ella's negligence if it was a limited partnership. D) The partnership is not liable for Ella's negligence because Ella breached her fiduciary duty to act in the best interests of the partnership. E) The partnership is not liable for Ella's negligence because negligence may be a criminal act as well as a tort. Difficulty: 1 QuestionID: 21-2-09 Topic: Risk and Liability in General Partnerships Skill: Applied Answer: A) Liability for Ella's negligence falls upon the partnership and upon each of the partners individually. 10. Steve and Laura do business as a partnership. As a result, Steve has a fiduciary obligation to A) pay over to the partnership any amounts earned from activities unrelated to the partnership. B) give up any business interests outside the partnership. C) pass up opportunities to compete with the partnership. D) look after the personal health and welfare of the other partners. E) provide information to the partnership about business opportunities not related to the partnership business. Difficulty: 2 QuestionID: 21-2-10 Topic: Managing Liability Risk If You Are a Partner Skill: Applied Answer: C) pass up opportunities to compete with the partnership. 11. Peter, Kathy, and Soren are partners in a hardware store business. Peter wants to retire and have his son, Mac, assume his place in the partnership. Which of the following is TRUE? A) Peter cannot make Mac a partner because unanimous consent is required to admit a new partner. B) Peter can make Mac a partner by obtaining the consent of one of the other partners. C) Peter can make Mac a partner because every partner is entitled to choose their successor. D) Peter cannot make Mac a partner unless he has first worked in the partnership business. E) Peter can make Mac a partner because partnership interests can be assigned. Difficulty: 2 QuestionID: 21-2-11 Topic: Internal Organization of Partnerships Skill: Applied Answer: A) Peter cannot make Mac a partner because unanimous consent is required to admit a new partner. 9 © 2023 Pearson Canada Inc.

12. Which of the following statements is TRUE? A) An effective partnership requires a high level of trust and confidence between the partners. B) Partners do not have to worry about individual partners incurring unauthorized liabilities because each partner has a fiduciary duty to act in the best interests of the partnership. C) An indemnification agreement between partners will always be complete protection against unauthorized liabilities. D) A prohibition in a partnership agreement on partners incurring a specific obligation will prevent partnership liability arising if one of the partners tries to commit the partnership to such an obligation. E) Partners have contractual risk to partnership contracts entered into by other partners in the course of the partnership business, but they do not have a similar tort risk. Difficulty: 3 QuestionID: 21-2-12 Topic: Managing Liability Risk If You Are a Partner Skill: Applied Answer: A) An effective partnership requires a high level of trust and confidence between the partners. 13. In which of the following situations is a partnership NOT dissolved? A) One partner writes a letter to the others stating that the partnership is terminated. B) A partnership is set up to operate a booth selling buttons at the Olympics and the Olympics are over. C) One of the partners dies. D) A partnership is set up for 14 years and 14 years have passed. E) The same partners decide to continue the partnership but in a different type of business. Difficulty: 1 QuestionID: 21-2-13 Topic: Dissolution of Partnerships Skill: Applied Answer: E) The same partners decide to continue the partnership but in a different type of business. 14. Terrence has invested $10,000 to become a limited partner in Bede Limited Partnership. Bede Management Co is the general partner in Bede Limited Partnership. Ogruk is the sole shareholder of Bede Management. Which of the following is TRUE? A) Terrence can never be liable for more than the $10,000 he has invested. B) Bede Limited Partnership can never be liable for more than the total amount invested by all limited partners. C) Terrence is prohibited from taking control of Bede Limited Partnership. D) Terrence is prohibited from providing management advice to Bede Limited Partnership. E) Terrence might not lose his limited liability if he worked for Bede Limited Partnership as Bede Management Co's office manager, but he must be cautious about the control he exercises over the limited partner's business. Difficulty: 3 10 © 2023 Pearson Canada Inc.

QuestionID: 21-2-14 Topic: Limited Partnerships Skill: Applied Answer: E) Terrence might not lose his limited liability if he worked for Bede Limited Partnership as Bede Management Co's office manager, but he must be cautious about the control he exercises over the limited partner's business. 15. Which of the following statements is TRUE? A) Both limited partnerships and general partnerships come into existence as soon as two or more people start carrying on business with a view to a profit. B) Both limited partners and general partners have unlimited liability for the obligations of the partnership. C) All partners in both limited partnerships and general partnerships are entitled to give advice regarding management. D) In a limited partnership, the liability of all partners for the obligations of the partnership is limited. E) A limited partner can control the general partner without losing their limited liability as a limited partner. Difficulty: 2 QuestionID: 21-2-15 Topic: Limited Partnerships Skill: Recall Answer: C) All partners in both limited partnerships and general partnerships are entitled to give advice regarding management. 16. If you were considering selling $1 million worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back? A) the value of the personal assets of the individual partners B) whether the individual partners had agreed to indemnify each other against any partnership liabilities that they have to pay individually C) the value of the assets of the partner's spouses D) the value of the personal assets of the employees of the partnership business E) the designations of heirs that the partners had made in their respective wills Difficulty: 2 QuestionID: 21-2-16 Topic: Characteristics of General Partnerships Skill: Applied Answer: A) the value of the personal assets of the individual partners 17. Which of the following statements is TRUE? A) The process for bringing a corporation into existence in Canada is essentially the same as for bringing a sole proprietorship or partnership into existence. 11 © 2023 Pearson Canada Inc.

B) Corporations have the same legal characteristics as sole proprietorships. C) Corporations may be subject to the same licensing requirements as sole proprietorships and partnerships. D) Just like partners and sole proprietors, shareholders are entitled to participate in the management of the business. E) The taxation of corporations and partnerships is the same. Difficulty: 2 QuestionID: 21-2-17 Topic: Incorporation Process Skill: Recall Answer: C) Corporations may be subject to the same licensing requirements as sole proprietorships and partnerships. 18. Articles of incorporation A) set out the arrangements for carrying on the legal business of the corporation. B) are a set of books in which a corporation's records are kept. C) set out the fundamental characteristics of the corporation. D) are used to govern a corporation, but only until formal rules are adopted at the first shareholders' meeting. E) set default rules for the governance of a corporation that apply if the directors do not adopt different arrangements. Difficulty: 1 QuestionID: 21-2-18 Topic: Incorporation Process Skill: Applied Answer: C) set out the fundamental characteristics of the corporation. 19. Athalone incorporated a corporation under the Canada Business Corporations Act. As the sole shareholder, he has limited liability. Which of the following statements is TRUE? A) Athalone is personally responsible for liabilities arising out of the business the corporation carries on, but only up to the amount he has invested in return for his shares. B) Athalone can never be personally liable for any liability of the corporation. C) In most situations, Athalone will not be personally liable for the obligations of the corporation. D) Athalone's personal liability for the liabilities of the corporation is limited to the total of his personal assets. E) Athalone will never have to assume personal liability to creditors of the corporation. Difficulty: 2 QuestionID: 21-2-19 Topic: Separate Legal Existence Skill: Applied Answer: C) In most situations, Athalone will not be personally liable for the obligations of the corporation. 12 © 2023 Pearson Canada Inc.

20. Which statement best describes the circumstances in which a court will disregard the separate existence of a corporation and impose liability on a shareholder for obligations owed by the corporation to a creditor? A court will impose liability on a shareholder A) when the corporation has breached its contract with the creditor. B) when the creditor is an individual who really needs the money, and imposing liability on the shareholder is the only way to ensure that the individual obtains relief. C) when a business has been incorporated to do something, or facilitate the doing of something, that is illegal or improper, such as fraud. D) when a corporation does not have sufficient assets to meet its reasonably foreseeable liabilities resulting from carrying on its business. E) when the court decides in its unfettered discretion that it would be just, fair, and equitable to all parties to do so. Difficulty: 2 QuestionID: 21-2-20 Topic: Separate Legal Existence Skill: Applied Answer: C) when a business has been incorporated to do something, or facilitate the doing of something, that is illegal or improper, such as fraud. 21. Cassandra is the sole shareholder of a corporation, incorporated under the Canada Business Corporations Act, which carries on a grocery store business. Which of the following statements is FALSE? A) Cassandra could work as a cashier employed by the corporation. B) If Cassandra was killed in an automobile accident, the corporation would continue to exist. C) Cassandra will pay no tax no matter what the corporation's profits are until some amount is paid to her personally. D) Cassandra does not own any of the specific assets of the corporation. E) Cassandra is personally liable for the debts of the corporation, in all circumstances Difficulty: 1 QuestionID: 21-2-21 Topic: Separate Legal Existence Skill: Applied Answer: E) Cassandra is personally liable for the debts of the corporation, in all circumstances 22. Rachi is a wealthy business person with substantial personal assets. One of the businesses she carries on is a health club. She has carried on this business as a sole proprietorship, but she has decided to incorporate a corporation under the Canada Business Corporations Act to carry it on. She will be the sole shareholder and director. If you were a client of the health club, which of the following would be a legitimate concern based on the change in the legal status of the health club business? A) Management personnel will change. B) Standards for cleanliness and service quality will decline. C) Prices for annual memberships will go up. 13 © 2023 Pearson Canada Inc.

D) The risk that any claim you might have against the business will not be paid will likely increase. E) It will be no use to you to complain to Rachi about any problems you have with the operation of the health club. Difficulty: 2 QuestionID: 21-2-22 Topic: Separate Legal Existence Skill: Applied Answer: D) The risk that any claim you might have against the business will not be paid will likely increase. 23. Eileen is considering incorporating a corporation under the Canada Business Corporations Act to carry on her toxic waste disposal business. She has heard that incorporation is a foolproof strategy to avoid personal liability for obligations of the business. Which of the following is FALSE? A) Sometimes, at the request of a creditor, courts will disregard the separate legal existence of the corporation and impose liability on a shareholder, but these circumstances generally involve egregious or fraudulent conduct using the corporation as a cloak to facilitate that conduct. B) Sophisticated creditors may demand that a shareholder guarantee a debt of the corporation, with the result that the shareholder becomes liable for the debt as well as the corporation. C) Incorporation will generally shield shareholders for the claims of trade creditors and consumers. D) Incorporation does reduce risk for shareholders by protecting them against liability for torts for which the corporation is liable. E) A shareholder of a corporation obtains no business advantage by conducting business through a corporation as opposed to a proprietorship. Difficulty: 2 QuestionID: 21-2-23 Topic: Separate Legal Existence Skill: Applied Answer: E) A shareholder of a corporation obtains no business advantage by conducting business through a corporation as opposed to a proprietorship. 24. Which of the following would you expect to find in the general by-law of a corporation? A) a resolution issuing shares of the corporation B) the rules for calling shareholder meetings C) the characteristics of the shares of the corporation D) an employment contract E) the memorandum of association Difficulty: 2 QuestionID: 21-2-24 Topic: Incorporation Process Skill: Recall Answer: B) the rules for calling shareholder meetings 14 © 2023 Pearson Canada Inc.

25. Which of the following is an important issue raised by the separation of ownership and control in a corporation? A) The same person may be a shareholder, as well as a director and an officer. B) Directors and officers need to be shareholders as well. C) Shareholders must ensure that management act in the best interests of the shareholders who own the corporation rather than management who controls the management of the corporation. D) Can a shareholder be a senior manager in the corporation? E) What happens when a shareholder dies? Difficulty: 2 QuestionID: 21-2-25 Topic: Separation of Ownership and Management Skill: Applied Answer: C) Shareholders must ensure that management act in the best interests of the shareholders who own the corporation rather than management who controls the management of the corporation. 26. Alice is the sole shareholder of AliCo Inc, a corporation incorporated under the Canada Business Corporations Act. She has elected Samra as the director and Samra has appointed Ezra to be the president of the corporation, responsible for its day-to-day business. Which of the following actions by Alice would be inconsistent with the separate legal existence of the corporation? A) Alice lending money to the corporation B) Alice selling some real estate belonging to the corporation and keeping the money C) Alice selling some real estate to the corporation and keeping the profits D) Alice providing consulting services to the corporation and keeping the profits E) Alice selling her shares in the corporation to Samra Difficulty: 3 QuestionID: 21-2-26 Topic: Separate Legal Existence Skill: Applied Answer: B) Alice selling some real estate belonging to the corporation and keeping the money 27. Stella is planning to build a national chain of restaurants. She should choose to incorporate under the Canada Business Corporations Act for which of the following reasons? A) Provincially incorporated corporations are prohibited from carrying on business in another province or territory. B) Provincially incorporated corporations need permission from each province and territory in which they want to carry on business. C) Provincially incorporated corporations have restrictions on the types of businesses that they can carry on. D) The limited liability of provincially incorporated corporations is not recognized in other provinces or territories. E) A company incorporated under the Canada Business Corporations Act has the right to carry on business 15 © 2023 Pearson Canada Inc.

across Canada. Difficulty: 1 QuestionID: 21-2-27 Topic: Incorporation Process Skill: Recall Answer: E) A company incorporated under the Canada Business Corporations Act has the right to carry on business across Canada. 28. Which of the following would be a good reason to choose to make an equity investment in a corporation rather than lending money to a corporation? A) The return paid on an equity investment is more secure than the return on debt. B) The holder of an equity investment always receives a higher return than a debt holder. C) The holder of equity has the same legal entitlement to receive dividends as a debt holder has to receive interest. D) The return on equity is riskier than debt but is not fixed and may be higher. E) It is easier to assess the price of an equity investment. Difficulty: 3 QuestionID: 21-2-28 Topic: Corporate Finance Skill: Applied Answer: D) The return on equity is riskier than debt but is not fixed and may be higher. 29. Common shares are entitled to the "residual value" of the corporation. Which of the following statements best describes residual value? A) the going concern value of the corporation B) the value of the corporation remaining after all the creditors and any claimants prior to the common shareholders have been paid C) the value of the tangible and intangible assets of the corporation if they were sold today D) the value of the business based on expectations of its future growth E) the value of the corporation remaining after the business has been sold Difficulty: 2 QuestionID: 21-2-29 Topic: Corporate Finance Skill: Applied Answer: B) the value of the corporation remaining after all the creditors and any claimants prior to the common shareholders have been paid 30. Preferred shares would be of interest to an investor having which of the following characteristics? A) an investor looking for the highest return and prepared to take the greatest risk B) an investor looking for an investment where the return is guaranteed 16 © 2023 Pearson Canada Inc.

C) an investor who is looking for a return that is fixed but not guaranteed D) an investor who wants a voice in the affairs of the corporation through the voting rights attached to the shares E) an investor who wants to be sure to get their money back Difficulty: 2 QuestionID: 21-2-30 Topic: Corporate Finance Skill: Applied Answer: C) an investor who is looking for a return that is fixed but not guaranteed 31. Which of the following concepts, as discussed in Chapter 20, represents a type of partnership that is recognized in Canadian law? A) dividend partnership B) partnership in pais C) chartered partnership D) partnership in transitu E) limited partnerships Difficulty: 1 QuestionID: 21-2-31 Topic: Limited Partnerships Skill: Recall Answer: E) limited partnerships 32. Which of the following statements is TRUE with respect to partnerships? A) As a matter of law, a partnership is treated as a type of "person," distinct from the individuals who act as partners. B) As a general practice, each partner is an employee of the partnership. C) As a matter of risk management, a general partnership carrying on any type of business should be organized so that each partner is a limited liability partner. D) Partnership property includes every piece of property that is held by any of the partners. E) In a general partnership, each partner has unlimited personal liability for the obligations of the partnership. Difficulty: 1 QuestionID: 21-2-32 Topic: Characteristics of General Partnerships Skill: Recall Answer: E) In a general partnership, each partner has unlimited personal liability for the obligations of the partnership. 33. Which of the following statements is TRUE with respect to the risk of liability under a partnership? 17 © 2023 Pearson Canada Inc.

A) A person may be held liable as a partner, as long as the reasonable person would believe that that person was a partner in the partnership. B) If a partner in a limited liability partnership commits a tort, the other partners may avoid liability if certain requirement are met. C) Because of their special position within partnerships, managing partners cannot be held liable for torts and breaches of contract that are committed by other partners. D) A partner cannot be held liable for torts and breaches of contract that another partner committed while acting in an unauthorized way. E) A partner is liable for debts and liabilities of the spouses of their partners. Difficulty: 2 QuestionID: 21-2-33 Topic: Limited Liability Partnerships Skill: Recall Answer: B) If a partner in a limited liability partnership commits a tort, the other partners may avoid liability if certain requirement are met. 34. The CBCA A) applies to every corporation that operates in Canada. B) requires, as part of the incorporation process, a name search that shows that the proposed name for the corporation is not already in use in Canada. C) provides the model for the corporation legislation that exists in every province in Canada. D) applies only to corporations that conduct business in areas that, according to sections 91 and 92 of the Constitution, fall within the legislative authority of the federal government. E) governs most types of business organizations, including partnerships and sole proprietorships. Difficulty: 2 QuestionID: 21-2-34 Topic: Incorporation Process Skill: Recall Answer: B) requires, as part of the incorporation process, a name search that shows that the proposed name for the corporation is not already in use in Canada. 35. K-Girl's Lawn & Yard is operated as a sole proprietorship by Kerry. Which of the following statements is TRUE? A) Kerry almost certainly is an employee of K-Girl's Lawn & Yard. B) Kerry can reduce the risks created by K-Girl's Lawn & Yard by hiring employees to cut grass on behalf of the sole proprietorship. C) Kerry can eliminate business liabilities of the sole proprietorship after they have arisen simply by dissolving K-Girl's Lawn & Yard. D) Kerry is legally required to register the name "K-Girl's Lawn & Yard." E) Like every sole proprietorship, K-Girl's Lawn & Yard must obtain a business licence before its starts to conduct business.

18 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 21-2-35 Topic: Legal Requirements for Sole Proprietorships Skill: Applied Answer: D) Kerry is legally required to register the name "K-Girl's Lawn & Yard." 36. Sam and Sarah have created a partnership for the purposes of giving financial advice. The partnership required certain property in order to operate in an effective and profitable way. First, a building was purchased with money earned by the partnership. Second, Sam donated a car, which he had purchased before entering into the partnership, to the partnership. And third, Sarah purchased office equipment with money that she had before she entered into the partnership. Two years after the partnership had started operations, it was successfully sued by a disgruntled customer. The assets that are available to satisfy that judgment include A) the building, but not the car or the office equipment. B) the building and the office equipment, but not the car. C) assets personally belonging to Sarah, but not assets personally belonging to Sam, if the actions that led to the judgment were committed by Sarah in the course of the partnership business. D) partnership assets as well as personal assets that belong to either Sam or Sarah. E) partnership assets but not personal assets that belong to either Sam or Sarah. Difficulty: 2 QuestionID: 21-2-36 Topic: Characteristics of General Partnerships Skill: Applied Answer: D) partnership assets as well as personal assets that belong to either Sam or Sarah. 37. Jessica had operated a business for several years. Because the number of customers increased significantly, she persuaded Zach to work together with her. Two years after Zach came aboard, Jessica committed a tort while acting in the course of the business and caused a customer to suffer a substantial loss. A question has arisen as to whether Zach and Jessica were partners. Which of the following statements is TRUE? A) A partnership may exist even if Zach and Jessica signed a document that expressly said that their relationship was not a partnership. B) Zach will be considered a partner as long as he was paid for his services out of the business's profits. C) A partnership cannot exist unless the business holds property apart from both Jessica and Zach. D) The parties' business organization cannot be a partnership if the business was losing money with the result that there were no profits to share. E) Because Zach and Jessica were working together, he is liable for her tort even if they were not formally partners. Difficulty: 3 QuestionID: 21-2-37 Topic: Managing the Risk That You Will Be Liable as a Partner Skill: Applied 19 © 2023 Pearson Canada Inc.

Answer: A) A partnership may exist even if Zach and Jessica signed a document that expressly said that their relationship was not a partnership. 38. Yasmin and Elvis were partners. Yasmin committed a tort against Patagonia Inc while acting in the course of partnership business. Patagonia suffered a loss of $500 000. It successfully sued and now intends to satisfy judgment by collecting the appropriate amount. Which of the following statements is TRUE? A) Patagonia can only take assets that qualify as partnership property. B) If Patagonia collects $500,000 from Yasmin personally, she is entitled to collect half that amount from Elvis in the absence of an agreement between them that allocates their responsibility differently. C) Patagonia is entitled to satisfy its judgment against assets personally held by Yasmin, but not against assets personally held by Elvis. D) Patagonia is entitled to collect from Elvis, but only to the amount that represents the value of the assets and services that Elvis has contributed to the partnership. E) Patagonia can recover from the partnership assets and the personal assets of Yasmin and Elvis, or both or all of them. Difficulty: 3 QuestionID: 21-2-38 Topic: Characteristics of General Partnerships Skill: Applied Answer: E) Patagonia can recover from the partnership assets and the personal assets of Yasmin and Elvis, or both or all of them. 39. Ten years ago, Tad and Tori created a partnership. At that time, Tad contributed $400,000 in property and Tori contributed $600,000 in cash as capital for the partnership. Two years later, Tori provided $300,000 to the partnership as an interest-free loan. That loan has not yet been repaid. During the entire life of the partnership, Tori performed approximately 60 percent of the partnership's work, while Tad tended to devote much of his time to various charitable causes that were unrelated to the partnership. The partnership has now been dissolved. Sale of the partnership assets produced a fund of $1.2 million. It is necessary to spend $200,000 on debts that the partnership still owes to various creditors. Assuming that the parties have not replaced or modified the default rules applicable to their partnership, A) Tori will receive an amount equal to her original contribution and repayment of her loan. B) Tori will receive an amount that reflects the fact that she performed 60 percent of the partnership's work. C) Tad and Tori will receive the same amount. D) A judge will consider all of the circumstances and then exercise a discretion to determine how much each party is entitled to receive. E) Tori will receive $800,000. Difficulty: 3 QuestionID: 21-2-39 Topic: Internal Organization of Partnerships Skill: Applied

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Answer: E) Tori will receive $800,000. 40. Familias Inc is a small corporation. Jennifer is one of only three shareholders. Questions recently have arisen regarding Jennifer's relationship to the company. Which of the following statements is TRUE? A) Because she is a shareholder, Jennifer cannot also be a creditor of the company. B) Because she is a shareholder, Jennifer cannot also be an employee of the company. C) Jennifer is taxed for one third of any profits that the company earns. D) If Jennifer dies, the company automatically will cease to exist unless the other shareholders purchase Jennifer's assets from her estate. E) Jennifer may be a director of the company even though she is also a shareholder, and as a director Jennifer would owe duties to the company. Difficulty: 2 QuestionID: 21-2-40 Topic: Separate Legal Existence Skill: Applied Answer: E) Jennifer may be a director of the company even though she is also a shareholder, and as a director Jennifer would owe duties to the company. 41. Lee starts a company that does painting and landscaping. He registers the name "Brush Ups" and hires Josh as a painter. Josh has no interest in the functioning of the business and only paints. If a customer is unhappy with Josh's work then A) both Lee and Josh are jointly and severally liable. B) the company's liability is limited to the assets owned by the company. C) Josh is the only one liable because he is just an employee, not a partner. D) Lee is vicariously liable for the actions of Josh. E) because he is the only employee, Josh will be considered a partner. Difficulty: 3 QuestionID: 21-2-41 Topic: Sole Proprietorship Skill: Applied Answer: D) Lee is vicariously liable for the actions of Josh. 42. Darren and Jeff enter into a partnership where Darren is the limited partner and Jeff is the general partner. Which of the following is TRUE? A) Limited partners can never take an active role in the management of the partnership. B) Limited partners can take an active role in the management but they will lose their limited liability up to the amount of the general partner. C) Limited partners cannot participate in controlling the partnership, but they can advise management. D) In a limited partnership, the general partner and the limited partner have limited liability. That is why it is called a limited partnership. E) A limited partnership exists when two or more people carry on business with the intention of making a 21 © 2023 Pearson Canada Inc.

profit, but limited partnerships must be registered in order for the limited partner to retain limited liability. Difficulty: 2 QuestionID: 21-2-42 Topic: Limited Partnerships Skill: Applied Answer: C) Limited partners cannot participate in controlling the partnership, but they can advise management. 43. A limited liability partnership (LLP) is a variation on the partnership form of business. Which of the following is FALSE? A) An LLP has the characteristics of a general partnership, but with specific limitations on the liability of the partners. B) The limitation on liability of an LLP varies depending on the province. C) An LLP provides special tax treatment that is not available in a limited partnership or a general partnership. D) An LLP is limited to certain practicing professions. E) An LLP must include the words Limited Liability Partnership or its abbreviation, LLP. Difficulty: 2 QuestionID: 21-2-43 Topic: Limited Liability Partnerships Skill: Applied Answer: C) An LLP provides special tax treatment that is not available in a limited partnership or a general partnership. 44. Annabelle operates a maid service as a sole proprietorship, but she's thinking about incorporating under the Canada Business Corporations Act. She would remain the sole shareholder. From her clients' perspective, which of the following is most likely to be TRUE? A) They should be excited because Annabelle will be able to provide better service. B) They should be worried that the company's name might change if it fails the name search. C) They should be worried that they will no longer be able to talk to Annabelle personally about problems with the maid service. D) They should be worried that if Annabelle's business causes them to suffer, they may not be able to recover full damages. E) They should be excited because it is less likely that the service will go out of business. Difficulty: 2 QuestionID: 21-2-44 Topic: Separate Legal Existence Skill: Applied Answer: D) They should be worried that if Annabelle's business causes them to suffer, they may not be able to recover full damages. 22 © 2023 Pearson Canada Inc.

45. ABC Corporation is financed by both debt and equity. In its shareholder agreement, it promises to pay monthly dividends to all shareholders. Recently, it has come into some financial trouble and is having trouble making payments. Which of the following is true? A) ABC should pay dividends or risk bankruptcy. B) ABC should pay its creditors or risk bankruptcy. C) ABC must pay dividends or it risks being sued for breach of contract. D) ABC must pay both dividends and its creditors or risk bankruptcy. E) ABC should declare bankruptcy now to avoid any obligations it currently has. Difficulty: 2 QuestionID: 21-2-45 Topic: Corporate Finance Skill: Applied Answer: B) ABC should pay its creditors or risk bankruptcy. Essay Questions 1. Stan is thinking about starting a toxic waste disposal business. He plans to collect the waste from businesses that produce it and then dispose of it in a sanitary landfill. In order to start this business, Stan will need a substantial amount of money to buy and develop the landfill site and purchase five trucks capable of transporting toxic waste. What concerns would you have about operating this business as a sole proprietorship if you were Stan? What alternative form of business organization would you recommend and why? Difficulty: 3 QuestionID: 21-3-01 Topic: Sole Proprietorship, Separate Legal Existence, Corporate Finance Skill: Applied Answer: There would be two main concerns based on these facts. First, Stan is thinking about a large-scale business with significant financial needs. As a sole proprietor, the only option Stan has to raise this money is to borrow it personally. This may be hard for him to do and the repayment obligations would be quite onerous. Moreover, his entire personal assets are exposed on default of the enterprise to repay its loans. By comparison, if he were to incorporate a corporation to carry on this business, he would have the additional option of raising money by selling shares which would not usually have a repayment obligation. A second and related concern is that the scale and nature of this business suggest that there will be significant liability risks in tort and for environmental issues. As a sole proprietor, any liability will attach to Stan personally. It will be hard for Stan to manage the risk of liability because it is contemplated that he will have a number of employees and the inherent risk in this kind of business is significant. By contrast, in a corporation, his personal assets would be shielded from liability. Only the assets of the corporation would be at risk. A partnership is not a viable option here since there seems to be only one person carrying on the business–Stan. 23 © 2023 Pearson Canada Inc.

2. In 2006, Sally opened a restaurant called Traders' Place in rented premises in Ottawa's booming financial district. She operated the restaurant as a sole proprietorship. By 2012, the business had grown and she determined that she needed experienced help to run the business. In November 2012, Sally approached Marty to see if he would become the manager of the Traders' Place business. He agreed and the following were the terms of his agreement with Sally. Each month, Marty was paid $1,000 plus 1 percent of the total restaurant revenues for that month. Total monthly revenues, on average, were about $100,000. At the end of each complete calendar year that Marty worked, if the restaurant had made a profit for the year equal to or exceeding $200,000, Marty was entitled to receive 10 percent of the profits. Marty was responsible for managing the restaurant, including — opening and closing the restaurant, — hiring, firing and scheduling staff, and — ordering food and paying suppliers. Sally was responsible for the financial side of the business, including budgeting, accounting and payroll, as well as marketing. In 2013, Traders' Place profits exceeded $200,000 and Marty was paid 10 percent of the profits in accordance with the agreement. Are Marty and Sally carrying on business as a partnership? Difficulty: 3 QuestionID: 21-3-02 Topic: Characteristics of General Partnerships Skill: Applied Answer: The test to be applied is, are Marty and Sally carrying on a business in common with a view to a profit? Clearly there was a business and it was being carried on with a view to a profit. The next issue is if the business is being carried on for the benefit of both Sally and Marty together. Several factors suggest that they were carrying on business together. Marty's monthly income includes a share of the revenues, which is not as good an indicator of partnership as a share of the profits, but sharing revenues does mean that his compensation is tied to the success of the business in generating revenues. As well, he did receive an annual profit share and participated in some aspects of management. Other factors suggest that Marty and Sally are not carrying on business together. In many respects, the arrangement looks more like an employer—employee relationship than a partnership. A monthly salary based on revenues not profits and the payment of a share of annual profits is consistent with an employment relationship. This is especially true in this case since Marty received nothing unless profits exceeded $200,000. There was no sharing of expenses, contribution to losses, or joint ownership of property. On balance, it seems most likely that this relationship is not a partnership. 3. Explain the meaning of the requirement for the existence of a partnership that the people carrying on the business have a "view to a profit." 24 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 21-3-03 Topic: General Partnerships Skill: Recall Answer: "View to a profit" means that the alleged partners have an intention to make profit. They need not ever actually succeed in making profits. The intention to make profits does not have to be the primary objective of a partner's investment in the partnership so long as it is one purpose of the investment. In Spire Freezers Ltd v The Queen (2001) 196 DLR (4th) 210 (SCC), the Supreme Court found that Spire Freezers was a partner in a partnership even though the primary purpose of its acquisition of the partnership interest was to receive a share of a $10 million loss that the partnership had incurred. The corporation had a secondary intention to carry on the partnership's apartment complex business with a view to making profits, even though, in fact, its profits from that business were never enough to cover the loss. If the only purpose of investing in a partnership is to acquire a loss, and there is no business that the investor carries on in the partnership, no partnership will be found. 4. Adam is lending $50,000 to a partnership being carried on by Selma and Jennifer. The arrangement he has with them is that they will pay him back out of their annual profits. Selma and Jennifer will decide how much to pay back out of profits in each year. Interest of 10 percent per year will have to be paid on whatever amount is outstanding after the payment of the profit share in each year. He is content with this rather uncertain arrangement because he does not need the money currently and the 10 percent return is a good rate. In order to protect his investment, he wants Selma and Jennifer to enter into a contract that requires them to continue carrying on the partnership business and to make monthly reports to him. Adam is concerned that he may be considered a partner in the business. Is he? Is there anything he can do to reduce the risk of being found a partner? Difficulty: 3 QuestionID: 21-3-04 Topic: Characteristics of General Partnerships / Managing Liability Risk When You Are Not a Partner Skill: Applied Answer: Adam's relationship with the partnership appears to be fundamentally a debtor—creditor relationship rather than a partnership. Even though he is receiving his loan back as a share of profits, this does not necessarily make him a partner. Apart from the sharing of profits, there is little in the facts to suggest that he is a partner. He is not actively participating in management, does not control the business, and has not paid for any partnership property, and his participation in management is essentially passive. This is consistent with his position as a creditor. There are several strategies that Adam can adopt for reducing his risk. He should ensure that the contract setting out the relationship clearly indicates that he is a creditor and not a partner. It should also contain an indemnity from Selma and Jennifer, protecting him against any liability that he does incur based on being a partner, or that is in any way caused by the partnership business. He should document instructions to Selma and Jennifer that he is not to be held out as a partner in any manner, directly or indirectly.

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5. Luke and Aldith are thinking about setting up a partnership to carry on a consulting business, but want to spend as little as possible. They have agreed that they will share profits and losses equally. Do they need a partnership agreement? Difficulty: 2 QuestionID: 21-3-05 Topic: Partnership Statutes and Partnership Agreements Skill: Applied Answer: Their agreement to share profits and losses equally means that their relationship is fundamentally consistent with one of the basic default rules of partnership that would apply to their relationship if they did not have an agreement. They will need to consider, however, whether the remaining default rules of partnership suit their needs and expectations. Since these rules are based on the presumption that partners are equal in every respect, many of them may be suitable. Even if all the rules were suitable, however, they should still consider whether they require an agreement to deal with issues not addressed in the rules including the name of the partnership, the nature of the business, indemnification for unauthorized liabilities, management arrangements, resolution of disputes, and dissolution events and procedure. 6. Compare the relative advantages and disadvantages of using a partnership and a corporation to carry on a business. Difficulty: 2 QuestionID: 21-3-06 Topic: Characteristics of General Partnerships, Separate Legal Existence, Separation of Ownership and Management, Corporate Finance Skill: Recall Answer: The corporation has several advantages over the partnership. It offers limited liability, perpetual existence, the option of financing through the distribution of ownership interests (shares), and a structure capable of being used easily for large numbers of participants. None of these are available in the partnership. On the other hand, the partnership is easier and less expensive to set up and, through a partnership agreement, may be structured however the partners like. The deductibility of losses in the partnership by the partners against their other income may also be attractive to some individuals who have other sources of income. 7. One of the purposes of the law of partnerships is to protect the reasonable expectations of people who are dealing with the partnership. Explain how the law achieves this objective with reference to two examples of legal rules relating to partnership. Difficulty: 3 QuestionID: 21-3-07 Topic: Creating a Partnership Skill: Applied Answer: The law seeks to protect the reasonable expectations of people dealing with the partnership in two ways. First, anyone who appears to be a partner will be held liable as a partner. Second, in contracting with a 26 © 2023 Pearson Canada Inc.

partnership, a third party is entitled to treat anyone who is a partner as having authority to bind the firm. Anyone dealing with a partnership may reasonably expect that anyone held out as a partner will be liable to them as a partner. Similarly, where a person who deals with a firm before a partner retires and who knew that a particular person was a partner, that third party should be able to assume that they can continue to treat the retiring partner as a partner until receiving actual notice of the retirement. Again, the rules of partnership are consistent with the reasonable expectations of third parties. The rules governing when a partnership is liable in contract and tort also demonstrate a concern with protecting the reasonable expectations of third parties. Any person dealing with a partnership is entitled to rely on the authority of any partner acting within the scope of the business of the partnership as having authority to bind the firm. This protection operates notwithstanding any actual restriction on the partner's authority. The only caveat is that, where there is a restriction on the authority of the partner to contract on behalf of the partnership, the third party cannot rely on the partner having authority if it knew about the defect in the partner's authority. In such a case, the third party cannot have any reasonable expectation that the partner has authority to bind the firm. 8. "No one should invest in a limited partnership unless they are prepared to stay out of management." Do you agree or disagree with this statement? Explain why. Difficulty: 2 QuestionID: 21-3-08 Topic: Limited Partnerships Skill: Recall Answer: This statement is true, but only to some extent. Limited partners are discouraged from participating in the control of the limited partnership business because, if they do so, they lose the protection of limited liability. They are permitted, however, to provide advice as to management. So while they do not need to be entirely passive, the scope for active participation in management is limited and it can be dangerous. It is not easy to draw a bright line between management advice and participation in control. A limited partner may manage a limited partnership if they do so only in their capacity as a senior employee in a corporate general partner (Nordile Holdings Ltd v Breckenridge (1992) 66 BCLR (2d) 183 (CA)). 9. Kim is the sole shareholder, director, and officer of Kim Consulting Inc. She is concerned that, because she is really the only person involved in the corporation, any creditor who wants to will be able to get a court to order that she be personally liable for the obligations of the corporation's business. Is Kim's concern a reasonable one? Explain why or why not. Difficulty: 3 QuestionID: 21-3-09 Topic: Separate Legal Existence Skill: Applied Answer: In most commercial circumstances, this is not a reasonable concern because the courts are very reluctant to disregard the separate legal personality of the corporation to allow creditors to pursue their claims directly against the shareholder. Doing so would undermine the public policy of granting limited liability for the 27 © 2023 Pearson Canada Inc.

purpose of encouraging people to start and continue businesses. Courts could disregard the separate existence of Kim Consulting Inc where it had been incorporated to do something (or facilitate the doing of something) that would be illegal or improper for Kim to do personally. If Kim had incorporated Kim Consulting Inc to provide a cloak to facilitate a fraud, as in Big Bend Hotel v Security Mutual Casualty Co (1979) 19 BCLR 102 (SC), she would have a reasonable concern. If she has simply incorporated to take advantage of limited liability, a court would not likely order that she be personally liable even if the business fails miserably leaving unpaid creditors. 10. Francesca and Michael carefully completed the articles of incorporation for a corporation they want to incorporate under the Canada Business Corporations Act. They chose a name, FranMic Corporation, and obtained a name search report. They submitted the report along with the necessary fee and were issued a certificate of incorporation certifying that FranMic Corporation was incorporated on November 12, 2012. They are very pleased that all this paper work is finished and they can start business. Is there anything else they should do or issues they should address as a matter of corporate law? Difficulty: 1 QuestionID: 21-3-10 Topic: Incorporation Process Skill: Recall Answer: There are a number of things that Francesca and Michael should do to organize the corporation, now that it has been incorporated. The first directors named in the articles should have a meeting and pass a resolution issuing shares. This is necessary to facilitate the ongoing existence of the corporation. Until shares are issued, the only people who can act for the corporation are the first directors. Should anything happen to them, the corporation could not continue to function. As well, it would be advisable to adopt some rules for how the corporation is going to carry out its formal legal business. Typically, this would be done in the by-laws, which would have to be passed by the directors, and, at the first meeting of shareholders, passed by them. Francesca and Michael should also consider whether they need a shareholders' agreement to modify the default rules in the Canada Business Corporations Act in favour of rules customized to their particular needs. Finally, the corporation is obliged to keep all these documents, other than directors' resolutions, at its registered office and accessible to shareholders and others who may statutorily be granted access to these records. 11. Artemis is a university professor carrying on an Internet-based auction business that is losing money. He is concerned about liability and wants to transfer the business to a corporation he will incorporate. He will be the sole shareholder, director, and officer. He thinks that his business will continue to lose money for the next couple of years before it turns profitable. He is living on his professor's income and plans to continue to deduct the business losses against that income. Can he do this? Difficulty: 2 QuestionID: 21-3-11 Topic: Separate Legal Existence 28 © 2023 Pearson Canada Inc.

Skill: Applied Answer: No. Artemis cannot deduct the losses against his income. Because the corporation is a separate legal person, once he has transferred the business into the corporation, the losses will belong exclusively to the corporation. They can only be deducted against any other income that the corporation has. 12. Arthur and Francine have been partners in a pet-sitting business for several years, but since after a vicious disagreement as to whether they should accept jobs involving exotic and difficult animals (such as aardvarks and monkeys), Arthur wants to bring the partnership to an end. Can he do so? Explain your answer. If Arthur and Francine had a partnership agreement, explain how that document might be relevant. Difficulty: 2 QuestionID: 21-3-12 Topic: Dissolution of Partnerships Skill: Applied Answer: Partnerships can be dissolved easily. Unless the partners agree otherwise, a partnership terminates when: - one partner gives notice of termination to the others - a partner dies or becomes insolvent - the partnership is set up for a specific purpose or for a limited time, and that purpose has been achieved or the period has expired There is nothing to suggest that the partnership was created for a limited purpose or a limited time. Moreover, it is unlikely that Arthur is so motivated as to welcome insolvency or death as a way out of the partnership. He therefore can dissolve the partnership by providing notice to Francine. If the parties had a partnership agreement, it may well address a number of issues that are relevant upon dissolution. Such agreements often provide that some period of notice is required for a partner to leave partnership. In addition, they may set out the partners' rights and obligations regarding the use of the partnership name, the sharing of profits, and so on. 13. Oneal wants to buy a computer software sales business being carried on by Softstuff Inc. The corporation has two classes of shares: common shares, which vote, and are entitled to receive dividends and the remaining property of the corporation on dissolution, and preferred shares, which do not vote, but are entitled to an annual dividend of 10 percent of the issue price and to receive the amount invested in return for the preferred shares. Dividends on the preferred shares must be paid before any dividends are paid on the common shares. Also, no payment on dissolution can be made to the holders of the common shares until full payment is made to the holders of preferred shares. Clay holds all of the 10 000 issued common shares. All of the 500 issued preferred shares are held by Clay's mother. Can Oneal buy control of this business by buying all of the common shares of the corporation from Clay? Difficulty: 2 QuestionID: 21-3-13 Topic: Corporate Finance 29 © 2023 Pearson Canada Inc.

Skill: Applied Answer: Yes. The common shares represent control of the business because the owner of the common shares elects the directors, and the directors, in turn, appoint the officers. The common shares also represent the residual value of the business after all prior claim holders have been paid. Consequently, if Oneal buys all the common shares he will control the corporation that owns the business. He need not buy the preferred shares, since they represent a fixed claim on the business and do not vote, if he only wants control. 14. Rupert is starting up a new high-tech business and needs to be able to attract some of the best computer programmers available. He has set up a corporation to carry on the business. It has two classes of shares: common shares which vote, and are entitled to receive dividends and the remaining property of the corporation on dissolution, and Class A preferred shares, which do not vote but are entitled to an annual dividend of 10 percent of the issue price and, on dissolution, to receive the amount invested in return for the preferred shares. Dividends on the Class A preferred shares must be paid before any dividends are paid on the common shares. Also, no payment on dissolution can be made to the holders of the common shares until payment is made to the holders of Class A preferred shares. Rupert holds all of the 100 common shares the corporation has issued. He expects that the common shares of the business will be sold in a couple of years for an enormous profit because the business will grow very fast. No Class A preferred shares have been issued. In order to attract programmers, Rupert wants to be able to offer them shares in his corporation in addition to paying them a good salary. What kind of shares should these be? Are there any concerns Rupert should have regarding his strategy? Difficulty: 3 QuestionID: 21-3-14 Topic: Corporate Finance Skill: Applied Answer: Since the programmers will be receiving a good salary, they will not need shares that produce a steady stream of dividend income, as promised by the Class A preferred shares. It is much more likely that they will be interested in the common shares. Although the value is uncertain, the common shares offer the chance to participate in the anticipated enormous growth of the business. The Class A preferred shares do not participate in any increase in the value of the corporation since the return to holders of these shares is limited to receiving the amount of their original investment back. In practice, employee share ownership or stock option plans usually allow the employees to acquire common shares for this reason. The concern that Rupert might have is what the impact on his control of the business will be as a result of giving shares to employees. If enough common shares are issued to others, he will lose control of the business. 15. "In small businesses with few shareholders, the corporate law rules that require a corporation to have shareholders who elect directors and who, in turn, appoint officers are highly artificial and unnecessary." Do you agree or disagree with this statement? Explain why. Difficulty: 3 QuestionID: 21-3-15 Topic: Separation of Ownership and Management Skill: Applied

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Answer: It is tempting to dismiss the distinct roles played by shareholders, directors, and officers as entirely irrelevant in the small corporation with few shareholders. Where there is only one shareholder who is also the sole director and officer, the roles are largely irrelevant. As soon as there is more than one shareholder, however, who plays each role may make a difference. Minority shareholders who are not directors or officers, for example, may have no input into how the business is run, notwithstanding that they may have made a substantial investment. As well as being able to determine the outcome of any shareholder vote, a majority shareholder will be able to determine who the directors are and they, in turn, will choose the officers. If shareholders are not involved in management as directors or officers or in some other capacity, they run the risk that the corporation will not be managed in their interests. It may be that management will actually enrich themselves by, for example, paying themselves unreasonably high salaries, depleting the residual value of the corporation at the expense of shareholders. Where all shareholders are involved in management, this risk is mitigated.

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Managing the Law, 6e (McInnes) Chapter 22: Legal Rules for Corporate Governance True/False Questions 1. Shareholders in a corporation incorporated under the Canada Business Corporations Act are entitled to the remaining assets of the corporation after all the creditors are paid. This means that they retain all management powers that they have not delegated to the directors. a True b False Difficulty: 1 QuestionID: 22-1-01 Topic: Corporate Management Skill: Recall Answer: b. False 2. Vanna is a director of Quorn Co, which operates a health food supply business. Vanna manages the business and wants to be the president. Her appointment would have to be approved by the shareholders to be effective. a True b False Difficulty: 2 QuestionID: 22-1-02 Topic: Corporate Management, Management's Duties to the Corporation Skill: Applied Answer: b. False 3. Edmund and Gertrude are the directors of ZipCo, a corporation incorporated under the Canada Business Corporations Act. They play very little active role in the business, which is run by their son, Zenon. They have delegated to him full power and responsibility to manage the corporation, including the power to declare dividends and issue shares. This delegation is permitted under the Canada Business Corporations Act. a True b False Difficulty: 2 QuestionID: 22-1-03 Topic: Officers Skill: Recall Answer: b. False

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4. A director's fiduciary duty is owed to the corporation. This means that directors must act with a view to maximizing the value of shareholders' investment to the exclusion of the interests of other stakeholders in the corporation. a True b False Difficulty: 1 QuestionID: 22-1-04 Topic: Fiduciary Duty Skill: Recall Answer: b. False 5. The fiduciary duty of a director to act in the best interests of the corporation means that a director may never do business with the corporation. If directors were to negotiate transactions between themselves and the corporation, there would be in an intolerable conflict between their personal interests and their obligation to act in the best interests of the corporation. That is why such transactions are never permitted. a True b False Difficulty: 2 QuestionID: 22-1-05 Topic: Fiduciary Duty Skill: Applied Answer: b. False 6. Daniel has worked as a computer programmer and senior officer of Litem Systems Inc for several years. He has built up a close relationship with a number of Litem clients. One of them asks Daniel if he can do some programming work on the side. It is the same kind of work that Daniel does for clients of Litem. The client would hire and pay Daniel directly. Daniel would do the work on nights and weekends. Daniel is interested, but he cannot take the work because it would be a breach of his fiduciary duty and, if he does take it, he could be forced to pay over all of his profits to Litem. a True b False Difficulty: 2 QuestionID: 22-1-06 Topic: Transacting with the Corporation Skill: Applied Answer: a. True 7. For many years, Jeremy worked for Pearl Inc. Over the years, he rose through the ranks and eventually occupied a very senior position. In that position, he enjoyed access to highly valuable and 2 © 2023 Pearson Canada Inc.

confidential information. His fiduciary duties prevented him from taking a personal benefit from his position. Last year, however, he quit his job and started working for a rival company. By doing so, he necessarily breached his fiduciary duty to the first company. a True b False Difficulty: 2 QuestionID: 22-1-07 Topic: Competition by Directors and Officers with the Corporation Skill: Applied Answer: b. False 8. Because the duty of care requires that directors and officers exercise the care that a reasonably prudent person would exercise in comparable circumstances, the standard is a subjective one. So long as people are honest and do their best, it does not matter how incompetent they are. a True b False Difficulty: 2 QuestionID: 22-1-08 Topic: Duty of Care Skill: Recall Answer: b. False 9. Sandy is a director of Plex Manufacturing Inc. She reads in a report to the board that the corporation has entered into a series of complex financing transactions. One result of the transactions is that the presentation of the corporation's financial statements has changed to make the corporation look more profitable. Sandy is concerned that these transactions might have been designed to hide the true financial position of the corporation. She decides not to enquire into these transactions, however, because she thinks that if she finds out more about them she will have to do something about it. In doing so, Sandy is in compliance with her duty of care and fiduciary duty because she does not have any clear evidence of wrongdoing. a True b False Difficulty: 3 QuestionID: 22-1-09 Topic: Duty of Care Skill: Applied Answer: b. False 10. Tom and Jane are the founders and only shareholders and directors of Shinestone Corp, which carries on a business selling semi-precious stones. They want to declare and pay a dividend to themselves. 3 © 2023 Pearson Canada Inc.

They think that the corporation will be able to pay its debts after payment of the dividend and have received advice from their accountants that the market value of the assets of the corporation exceeds the total amount owed to creditors and the amount they paid into the corporation for shares. One of its creditors, Nova Bank, hears about their plan to pay a dividend and says that, in its view, the market value of the corporation's assets is not high enough to meet this test after the dividend is paid. Tom and Jane can still declare the dividend. a True b False Difficulty: 3 QuestionID: 22-1-10 Topic: Fiduciary Duty / Duty of Care Skill: Applied Answer: a. True 11. Angela and Lou are starting a flower store business to be carried on by a corporation. Angela has substantial personal assets and will be getting 90 percent of the shares of the corporation. Lou has little money and will be getting 10 percent of the shares. A fair way to resolve disputes would be to enter into a shareholder's agreement which provides for a "shotgun buy-sell." a True b False Difficulty: 3 QuestionID: 22-1-11 Topic: Share Transfer Skill: Applied Answer: b. False 12. Alannis and Jake each hold 50 percent of the shares in JagCorp, a limousine rental business. All management decisions since incorporation have been agreed to by both of them. Now they find that they cannot agree on how the corporation should be operated. Alannis wants the corporation to give up the limousine rental business and become an Avis rent-a-car franchisee. Jake wants to continue with the existing business as it is. They have been battling for six months but are deadlocked. In these circumstances, Alannis could get a court to order that the corporation be wound up. a True b False Difficulty: 2 QuestionID: 22-1-12 Topic: Other Shareholder Remedies Skill: Applied Answer: a. True

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13. In practice, it is generally easier for shareholders in public corporations to exercise their legal rights because management is required to send them much more information regarding matters to be dealt with at shareholder meetings than they are required to send to shareholders in smaller corporations. a True b False Difficulty: 1 QuestionID: 22-1-13 Topic: How Shareholders Exercise Power Skill: Recall Answer: b. False 14. Nigel is negotiating to sell some lighting fixtures to Abda Corporation for its offices. Nigel has been dealing with Jerome. Jerome appears to be the president of Abda, or at least so it says on his parking spot at Abda's offices. Nigel can rely on Jerome having authority to enter into a contract with him to buy the lighting fixtures. a True b False Difficulty: 2 QuestionID: 22-1-14 Topic: Contracts Skill: Applied Answer: a. True 15. Aldus is an officer of Accent Interior Designs Inc. While working in one of the houses of Accent's clients, he stole a ring. He gave it back, but was convicted of theft and fined $1000. Accent wants to indemnify him for the fine. It cannot pay an indemnity in these circumstances. a True b False Difficulty: 2 QuestionID: 22-1-15 Topic: Managing Liability Risk for Directors and Officers Skill: Applied Answer: a. True 16. Indemnity clauses can be used by company officers and directors to manage liability risk. a True b False Difficulty: 2 QuestionID: 22-1-16 5 © 2023 Pearson Canada Inc.

Topic: Managing Liability Risk for Directors and Officers Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following statements is TRUE? A shareholder has a legal right to participate in the management of the corporation A) in no circumstances. B) only if elected as a director or appointed as an officer or employee. C) only if elected as a director, or appointed as an officer or employee, or when exercising management powers acquired under a unanimous shareholders agreement. D) only when the shareholder holds a majority of the shares issued by the corporation. E) only when exercising management powers acquired under a unanimous shareholders agreement. Difficulty: 1 QuestionID: 22-2-01 Topic: Corporate Management Skill: Recall Answer: C) only if elected as a director, or appointed as an officer or employee, or when exercising management powers acquired under a unanimous shareholders agreement. 2. Which of the following statements best describes the responsibilities of directors under the Canada Business Corporations Act? A) Directors are responsible for managing or supervising the management of the business of the corporation and its internal affairs. B) Directors are responsible only for those matters delegated to them by shareholders. C) Directors are responsible only for those management activities that they do not delegated to officers. D) Directors have no management responsibilities because they are only responsible for supervising others who actually manage the corporation. E) Directors are responsible only for the internal affairs of the corporation, such as declaring dividends and issuing shares. Difficulty: 2 QuestionID: 22-2-02 Topic: Corporate Management Skill: Recall Answer: A) Directors are responsible for managing or supervising the management of the business of the corporation and its internal affairs. 3. Which of the following best describes to whom the fiduciary duty is owed? The fiduciary duty is owed A) to shareholders. B) to creditors and shareholders. 6 © 2023 Pearson Canada Inc.

C) to the corporation. D) to employees. E) to the government. Difficulty: 1 QuestionID: 22-2-03 Topic: Fiduciary Duty Skill: Recall Answer: C) to the corporation. 4. Sarah is a director of Family Educational Testing Services Inc, a corporation incorporated under the Canada Business Corporations Act. She also carries on her own business of finding educational testers and psychometrists needed by testing services businesses. The other members of the board want to hire Sarah to find five testers for the corporation. Which statement best describes the legal rules that would apply to Sarah undertaking such work? A) She cannot do business with the corporation because there would be a conflict between her personal interest in getting the best price for her services and her fiduciary obligation to act in the best interests of the corporation, which would require her to seek the lowest price. B) She can do business with the corporation but only if the corporation chooses her after a bidding process open to all of Sarah's competitors. C) She can do business with the corporation because, as a separate legal person, the corporation is free to decide with whom it does business. D) She can do business with the corporation only if she gives notice to the board that she has an interest in the transaction, if she does not vote on the resolution of the board approving the contract, and if the transaction is fair and reasonable to the corporation. E) She can do business with the corporation as long as she agrees to work for a fair price. Difficulty: 3 QuestionID: 22-2-04 Topic: Transacting with the Corporation Skill: Applied Answer: D) She can do business with the corporation only if she gives notice to the board that she has an interest in the transaction, if she does not vote on the resolution of the board approving the contract, and if the transaction is fair and reasonable to the corporation. 5. Melli is the president of Iritech Inc, a grocery supplier. On behalf of Iritech, Melli has been negotiating with Teran Food Stores Ltd for two years for Teran to commit to making Iritech its exclusive supplier. Getting the contract would put Iritech's business on a much firmer financial footing. Melli has recently become frustrated with Iritech and is interested in leaving to form her own grocery supply business. The Teran contract would give her a great start and she thinks that Teran has been sufficiently impressed by her that she would have a chance to get the contract for herself. Which of the following factors would NOT support the conclusion that it would be a breach of her fiduciary duty for her to quit and seek the Teran contract for herself? A) This is a specific opportunity that the corporation has been actively pursuing. 7 © 2023 Pearson Canada Inc.

B) The corporation had done extensive work preparing for the opportunity. C) This is a significant opportunity for the corporation. D) Melli had access to the opportunity because of her position with the corporation. E) The contract is profitable, and if Tritech can restrict Melli from obtaining the contract, this is an impermissible restraint of trade. Difficulty: 2 QuestionID: 22-2-05 Topic: Competition by Directors and Officers with the Corporation Skill: Applied Answer: E) The contract is profitable, and if Tritech can restrict Melli from obtaining the contract, this is an impermissible restraint of trade. 6. Aldo is the vice-president of finance for Euro Mining Inc, which operates several diamond mines in the Northwest Territories. He also sits on the board. One day, the board heard a presentation from a geologist about a new area she had found that showed results consistent with the presence of diamonds. The board, which reviews dozens of such presentations each month, decided not to pursue exploration into the area. Aldo thought the area sounded very promising and arranged to meet with the geologist to discuss it with her. Aldo invested in a new corporation formed by the geologist to buy property in the new area. Eventually, the property was sold for a huge profit. Which of the following is TRUE? A) Aldo breached his fiduciary duty by appropriating an opportunity belonging to Euro Mining. B) Aldo did not breach his fiduciary duty because the opportunity ceased to belong to Euro Mining when the board decided not to pursue it. C) Aldo breached his fiduciary duty by competing with Euro Mining. D) Aldo breached his fiduciary duty by investing in the geologist's corporation because he found out about the opportunity through his position at Euro Mining. E) Aldo breached his fiduciary duty by investing in the geologist's corporation because the board had spent time considering the opportunity. Difficulty: 3 QuestionID: 22-2-06 Topic: Taking Corporate Opportunities Skill: Applied Answer: B) Aldo did not breach his fiduciary duty because the opportunity ceased to belong to Euro Mining when the board decided not to pursue it. 7. What best describes the circumstances in which a director may transact with the corporation? A) Procedural safeguards to avoid conflicts of interest and to provide transparency are observed in connection with the approval of the transaction and it is fair and reasonable to the corporation. B) The corporation receives a benefit from the transaction. C) A judge has given approval to the transaction. D) The director abstains from voting when the directors vote on the approval of the transaction. E) The director provides a notice to the board of benefits the director will receive from the transaction.

8 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 22-2-07 Topic: Transacting with the Corporation Skill: Applied Answer: A) Procedural safeguards to avoid conflicts of interest and to provide transparency are observed in connection with the approval of the transaction and it is fair and reasonable to the corporation. 8. Yasir is a director and the operations manager of Flavell Rubbish Disposal Ltd. All of the financial aspects of the business are the responsibility of John, another director. Yasir heard from one of his employees that a representative from the corporation's bank was in John's office yesterday and there was a lot of shouting. Yasir asked John about it. John said that the corporation was behind in its loan payments, but that Yasir doesn't need to worry about it. John tells him that a big customer will be paying its account soon and that money will be used to bring the loan up to date. Which statement most accurately describes Yasir's legal position? A) Yasir complied with his duty of care by asking about the problem. B) Yasir has no duty of care in relation to the loan payments because that is a matter that the directors have delegated to John. C) Now that Yasir is on notice that there is a problem, his duty of care requires him to make sure that the customer's payment is received and applied against the loan. D) Yasir has no duty because the duty of care is defined by reference to a person in comparable circumstances and Yasir is not in a position to deal with the bank. E) Yasir must make the loan payments himself to ensure that the corporation does not go into default. Difficulty: 2 QuestionID: 22-2-08 Topic: Duty of Care Skill: Applied Answer: C) Now that Yasir is on notice that there is a problem, his duty of care requires him to make sure that the customer's payment is received and applied against the loan. 9. Which of the following statements best describes the "business judgment rule"? A) The courts will never find that a business decision by a director or officer is a breach of the duty of care. B) Business decisions are presumed not to be a breach of duty, unless the court does not understand the business rationale for the decision. C) Directors and officers should always exercise their best business judgment in making decisions relating to the corporation. D) The courts will substitute their business judgment for that of directors and officers if doing so makes sense to them. E) Business decisions are presumed not to be a breach of duty so long as they fall within the range of reasonable business alternatives that were available and the process for making the business decision was reasonable. Difficulty: 2 QuestionID: 22-2-09 9 © 2023 Pearson Canada Inc.

Topic: Duty of Care Skill: Recall Answer: E) Business decisions are presumed not to be a breach of duty so long as they fall within the range of reasonable business alternatives that were available and the process for making the business decision was reasonable. 10. Which of the following statements best describes how corporate law protects creditors? A) Corporate law does not protect creditors. B) Corporate law rules restricting the payment of dividends to shareholders unless certain financial tests are satisfied protect creditors by keeping money in the corporation when the corporation requires that money to pay debt. C) Directors have a duty to protect the interests of creditors. D) Creditors can enforce restrictions on the ability of the corporation to pay dividends to shareholders. E) Creditors must protect themselves by contract. Difficulty: 2 QuestionID: 22-2-10 Topic: Protection for Creditors Skill: Recall Answer: B) Corporate law rules restricting the payment of dividends to shareholders unless certain financial tests are satisfied protect creditors by keeping money in the corporation when the corporation requires that money to pay debt. 11. Which of the following statements is TRUE? An annual meeting is A) a meeting of shareholders required to be held every 12 months. B) a meeting of directors required to be held every 12 months. C) a meeting of shareholders held each year at which directors are elected, an auditor appointed if necessary, and financial statements presented and discussed. D) a meeting of shareholders with respect to which directors must send shareholders a notice of meeting, form of proxy, and management proxy circular. E) a meeting of shareholders at which no dissidents are permitted. Difficulty: 1 QuestionID: 22-2-11 Topic: How Shareholders Exercise Power Skill: Recall Answer: C) a meeting of shareholders held each year at which directors are elected, an auditor appointed if necessary, and financial statements presented and discussed. 12. Which of the following statements is FALSE? A) A proxy is a person appointed to represent a shareholder at a meeting and vote their shares. B) A proxy need not be a shareholder. C) A form of proxy must be sent to each shareholder of a public corporation along with a management 10 © 2023 Pearson Canada Inc.

proxy circular in connection with each shareholders meeting. D) Shareholders can participate in meetings without attending through a proxy. E) A proxy is a way to transfer ownership of shares. Difficulty: 1 QuestionID: 22-2-12 Topic: How Shareholders Exercise Power Skill: Recall Answer: E) A proxy is a way to transfer ownership of shares. 13. Which of the following statements is TRUE? Under a unanimous shareholder agreement, A) the shareholders can agree on how directors are to vote. B) the shareholders can assume all the powers of the directors. C) the shareholders are prohibited from assuming only some of the powers of the directors. D) the shareholders cannot assume the powers of the directors because the directors would be left with nothing to do. E) the shareholders cannot assume the powers of the directors because doing so would be inconsistent with the basic division of powers in the corporation. Difficulty: 2 QuestionID: 22-2-13 Topic: Voting and Management Skill: Recall Answer: B) the shareholders can assume all the powers of the directors. 14. Which of the following statements best describes the role of the auditor? A) Auditors help management prepare the financial statements for the corporation. B) Auditors prepare the financial statements of the corporation. C) Auditors advise the directors on whether management has done a good job in managing the corporation's business D) Auditors provide an independent assessment of the corporation's financial statements prepared by management usually for the benefit of shareholders. E) Auditors advise the corporation on how to set up its bookkeeping system. Difficulty: 3 QuestionID: 22-2-14 Topic: How Shareholders Exercise Power, Shareholders' Access to Information Skill: Recall Answer: D) Auditors provide an independent assessment of the corporation's financial statements prepared by management usually for the benefit of shareholders. 15. Unanimous shareholders' agreements have special legal characteristics that distinguish them from ordinary shareholders' agreements. Which of the following statements most accurately describes how 11 © 2023 Pearson Canada Inc.

unanimous shareholders' agreements are different? A) Unanimous shareholders' agreements allow shareholders to transfer some or all of the powers and responsibilities of the directors to the shareholders. B) Not all shareholders are parties to unanimous shareholders' agreements. C) Under a unanimous shareholders' agreement, all shareholders must agree on all matters requiring shareholder approval. D) Under a unanimous shareholders' agreement, share transfers must be subject to a right of first refusal. E) A unanimous shareholders' agreement cannot be amended without the consent of all shareholders. Difficulty: 3 QuestionID: 22-2-15 Topic: Voting and Management Skill: Recall Answer: A) Unanimous shareholders' agreements allow shareholders to transfer some or all of the powers and responsibilities of the directors to the shareholders. 16. Jelena and Patrick are starting a retail sporting goods business. They have incorporated a corporation to carry on the business. Jelena has 60 of the 100 issued common shares and Patrick has 40. They have decided that each should be a director and all decisions relating to the business should require the consent of both of them. Which of the following is a reason that Jelena and Patrick should NOT have a shareholders' agreement? They need to agree A) that each should be elected a director. B) to restrict the transfer of shares, except in accordance with the agreement. C) that all shareholder decisions require the consent of both Jelena and Patrick. D) on some process by which shares may be transferred, such as a right of first refusal. E) that the directors will never owe any duties to the corporation, notwithstanding any law to the contrary. Difficulty: 2 QuestionID: 22-2-16 Topic: Shareholders' Agreements Skill: Applied Answer: E) that the directors will never owe any duties to the corporation, notwithstanding any law to the contrary. 17. Ola holds 75 percent of the shares of Henrik Shipping Co. Anatoly holds 25 percent. The board has called a shareholders' meeting to consider a proposal to amalgamate Henrik with Norwegian Shipping Inc. Ola is in favour of the transaction. Anatoly is opposed. Which of the following best describes Anatoly's legal position? A) As a minority shareholder, he has no way to block the transaction or obtain any relief. B) The majority shareholder cannot vote in favour of the transaction without taking Anatoly's interests into account. C) Because he holds 25 percent of the shares, he can block the transaction by voting against it. D) The only thing Anatoly can do is try to convince Ola to change his mind. E) Anatoly is entitled to vote against the transaction and, if it is approved, to dissent and require the 12 © 2023 Pearson Canada Inc.

corporation to buy his shares for fair value. Difficulty: 3 QuestionID: 22-2-17 Topic: Other Shareholder Remedies Skill: Applied Answer: E) Anatoly is entitled to vote against the transaction and, if it is approved, to dissent and require the corporation to buy his shares for fair value. 18. Elroy was the controlling shareholder and sole director of Maxi-Screen Ltd, which carries on a film production business. His wife, Ann, is a minority shareholder. The corporation was incorporated in 1995 and has paid a substantial dividend each year to its shareholders. In 2009, Ann and Elroy separated. Elroy did not declare a dividend even though the business was more profitable than ever because he did not want to share the profits with Ann. Which of the following statements best reflects Ann's legal position? A) She has no remedy because the declaration of dividends is a matter within the discretion of the directors. B) She has no remedy because Elroy is the controlling shareholder and can do what he wants. C) She could seek relief in court on the basis that Elroy and the corporation have defeated her reasonable expectations as a shareholder and thereby oppressed her or unfairly disregarded or prejudiced her interests as a shareholder. D) The only way she could seek relief is to apply to the court for permission to bring a derivative action against Elroy on behalf of the corporation for breaching his fiduciary duty. E) She has no remedy because the failure to pay dividends is not an action that she can dissent from. Difficulty: 3 QuestionID: 22-2-18 Topic: Relief from Oppression Skill: Applied Answer: C) She could seek relief in court on the basis that Elroy and the corporation have defeated her reasonable expectations as a shareholder and thereby oppressed her or unfairly disregarded or prejudiced her interests as a shareholder. 19. Ebo Corporation was incorporated under the Canada Business Corporations Act in 1991. It is a private corporation. It carries on a dress making business. Eben is the CEO and the sole director. He holds 60 percent of the shares. Four employees hold the remaining 40 percent, 10 percent each. Eben has run the corporation as if there were no other shareholders. None of the employees has ever seen a financial statement, nor has there ever been a shareholders' meeting. The employees have received substantial dividends on their shares and do not want to leave the corporation or sell their shares. They do, however, want some better disclosure regarding the corporation's business. Which of the following statements does not describe these minority shareholders' rights? A) They could seek leave to bring a derivative action on behalf of the corporation against Eben on the basis that his failure to send them annual financial statements and call annual meetings is a breach of his fiduciary duty to act in the best interests of the corporation and seek injunctive relief. B) They could apply to the court for an order directing Eben to comply with the Canada Business 13 © 2023 Pearson Canada Inc.

Corporations Act by distributing financial statements and holding shareholder meetings and to cease conducting the affairs of the corporation in a manner oppressive to the shareholders. C) They could requisition a shareholder meeting to discuss the problem. D) They could apply to the court for relief on the basis that Eben is oppressing or unfairly disregarding their interests as minority shareholders. E) They could sell their shares publically on the stock exchange. Difficulty: 3 QuestionID: 22-2-19 Topic: Shareholders' Remedies Skill: Applied Answer: E) They could sell their shares publically on the stock exchange. 20. George wants to get out of his investment in Silver Chair Furniture Inc, a corporation incorporated under the Canada Business Corporations Act. He holds 50 percent of the shares and is fed up with dealing with William, who holds the remaining 50 percent of the shares and will not listen to him. They cannot agree on how the corporation should be run. William is the sole director and officer of the corporation. George has asked William to buy him out or have the corporation buy his shares, but neither William nor the corporation has any money. George is prohibited from selling to a third party under a shareholder agreement he signed with William. Can George have the corporation wound up? A) No, because winding up is available only if all shareholders consent. B) No, because George should have protected his interests in a shareholders' agreement. C) No, because, while his interests may have been oppressed, winding up is not a remedy that a court can order based on oppression. D) Yes, in these circumstances it would be just and equitable to wind up the corporation because the two equal shareholders are deadlocked regarding how to run the corporation and there seems to be no alternative solution. E) No, because William may still want to carry on the business. Difficulty: 3 QuestionID: 22-2-20 Topic: Other Shareholder Remedies Skill: Applied Answer: D) Yes, in these circumstances it would be just and equitable to wind up the corporation because the two equal shareholders are deadlocked regarding how to run the corporation and there seems to be no alternative solution. 21. Which of the following statements is TRUE? The scale of a corporation makes a difference to how the rules of corporate law operate because A) large and small corporations are incorporated under different statutes. B) only large corporations can carry on business in more than one jurisdiction. C) small corporations are taxed at different rates than large corporations. D) large corporations are better able to bear the risk of unauthorized liabilities than small corporations. E) in large corporations, the separation between management and shareholders makes it more difficult for 14 © 2023 Pearson Canada Inc.

shareholders to exercise control over management and to align the interests of management with those of shareholders. Difficulty: 2 QuestionID: 22-2-21 Topic: Corporate Governance in Practice Skill: Applied Answer: E) in large corporations, the separation between management and shareholders makes it more difficult for shareholders to exercise control over management and to align the interests of management with those of shareholders. 22. Which of the following statements is TRUE? A corporation is only bound in contract if the person acting on behalf of the corporation A) had actual authority. B) had actual authority and apparent authority. C) had actual authority or apparent authority. D) had apparent authority. E) had written authority from the corporation. Difficulty: 1 QuestionID: 22-2-22 Topic: Contracts Skill: Recall Answer: C) had actual authority or apparent authority. 23. Actual authority of an employee may NOT arise as a result of which of the following? A) a term in an employee's contract with the corporation B) a provision in a resolution of the directors C) the employee being appointed to an office, such as president, which has authority attached to it D) the employee being orally delegated authority by a person authorized by the corporation to delegate it E) the employee telling third parties that they have authority even though this is obviously untrue to any reasonable person Difficulty: 1 QuestionID: 22-2-23 Topic: Contracts Skill: Applied Answer: E) the employee telling third parties that they have authority even though this is obviously untrue to any reasonable person 24. Jordan has been negotiating to sell office supplies to Softstuff Ltd, a software developer. He has been dealing with Ira exclusively. Jordan has visited Ira's office at the premises of Softstuff Ltd and noticed the sign on the door that says "Purchasing Manager." Ira has told Jordan that he has authority to enter 15 © 2023 Pearson Canada Inc.

into the contract. Which of the following is TRUE? A) Jordan cannot rely on Ira having any authority to bind the corporation because he has no proof that Ira actually has authority to contract on behalf of Softstuff. B) Jordan cannot rely on Ira having apparent authority because no one in the corporation has represented to him that Jordan has authority. C) Jordan can rely on Ira having authority because Ira told him he has authority. D) Jordan can rely on Ira having apparent authority because the corporation has made a representation that Ira has the usual authority of a purchasing manager by allowing him to use an office indicating that he has that title. E) Jordan cannot rely on Ira having apparent authority because Ira might not actually have authority to contract on behalf of the corporation. Difficulty: 3 QuestionID: 22-2-24 Topic: Contracts Skill: Applied Answer: D) Jordan can rely on Ira having apparent authority because the corporation has made a representation that Ira has the usual authority of a purchasing manager by allowing him to use an office indicating that he has that title. 25. Mischa had a consulting business that he carried on as a sole proprietorship. He was negotiating a contract to provide advice to Vengo Inc, a corporation carrying on business as a venture capitalist. Mischa has been dealing with Prashant, an old friend. Prashant is the office manager and Mischa knows that Prashant does not have authority to contract with him. But Vengo is aware that Prashant has been talking with Mischa, so Mischa thinks that if he gets Prashant to sign a contract, it will be binding on Vengo. Is he right? A) Yes. By acquiescing in Prashant negotiating with Mischa, Vengo has represented that Prashant has authority to bind Vengo. B) No. The fact that Prashant does not have actual authority means that a contract signed by him on behalf of Vengo will not be binding. C) No. The fact that Mischa knows that Prashant does not have authority means that he cannot rely on Prashant having apparent authority. D) Yes. It is within the usual authority of an office manager to hire consultants. E) No. It is not within the usual authority of an office manager to hire consultants. Difficulty: 3 QuestionID: 22-2-25 Topic: Contracts Skill: Applied Answer: C) No. The fact that Mischa knows that Prashant does not have authority means that he cannot rely on Prashant having apparent authority. 26. Punishing a corporation convicted of a criminal offence DOES NOT raise which of the following issues? 16 © 2023 Pearson Canada Inc.

A) Corporations cannot be put in prison. B) The stigma of a criminal conviction is not likely to have the same deterrent effect on a corporation as it will on an individual. C) Fines imposed on corporations may be passed on to shareholders or customers. D) Fines imposed on corporations weaken it financially, increasing the risk for creditors and other stakeholders with financial claims against the corporation. E) A corporation can only be punished by putting the shareholders and their spouses in prison. Difficulty: 2 QuestionID: 22-2-26 Topic: Crimes Skill: Recall Answer: E) A corporation can only be punished by putting the shareholders and their spouses in prison. 27. Nick was a foreperson working for Capital City Construction Ltd at the site of a major home renovation that Capital City Construction was doing. He was supervised by a site manager who came by two or three times per day to check on how things were going. The site manager set the schedule for the work, hired the workers, and ensured that the site met all applicable safety standards. Nick was responsible for supervising the workers and all the work done on the site. He decided how they should carry out their tasks at the site. One day, a large pile of painted boards was torn off the house. Because the paint contained lead, it was an offence under an environmental statute to leave them on the site. The statute provides for a "due diligence" defence. Nick knew that it would cost his employer a lot to take the boards to the dump and have them disposed of. He decided to throw the boards into a crawl space under the house. The site supervisor knew that there were boards painted with lead paint on the house, but did not enquire regarding how they had been disposed of. A building inspector found them and Nick was charged and convicted under the statute. Capital City Construction had a policy that it insisted that all its employees read, which said that no employee may break the law. Is Capital City Construction also liable for the offence? A) Yes. Capital City Construction is responsible because Nick thought he was acting for the benefit of the corporation. B) No. The site manager was responsible for ensuring compliance with environmental standards and he was not the one who committed the offence. C) No. The site manager did not know that Nick was going to commit the offence and so could not have prevented him from doing so. D) Yes. Nick was responsible for determining how the work was done within the parameters set by the site manager, so he was responsible for managing the business of corporation in relation to the activity that constituted the offence. As a result, Nick was the directing mind and will of the corporation, and Capital City Construction could be liable. The corporation cannot rely on the due diligence defence because arguably it failed to act reasonably in the circumstances in its supervision of Nick. E) No. Capital City Construction had a policy that it insisted that all its employees read, which said that no employee may break the law. Difficulty: 3 QuestionID: 22-2-27 Topic: Crimes 17 © 2023 Pearson Canada Inc.

Skill: Applied Answer: D) Yes. Nick was responsible for determining how the work was done within the parameters set by the site manager, so he was responsible for managing the business of corporation in relation to the activity that constituted the offence. As a result, Nick was the directing mind and will of the corporation, and Capital City Construction could be liable. The corporation cannot rely on the due diligence defence because arguably it failed to act reasonably in the circumstances in its supervision of Nick. 28. Manuel was the Alberta sales manager employed by Vulcan Co, which produces and sells gas-burning fireplaces. Manuel was responsible for all aspects of Vulcan's business in Alberta. He determined how the business of the corporation was to be carried on. Manuel was negligent in installing a fireplace and the customer's house burned down. Which of the following best describes the liability of Vulcan based on these facts? A) Vulcan is directly liable because Manuel was the directing mind and will of Vulcan in Alberta. B) Vulcan is vicariously liable because Manuel was acting within the course of his employment. C) Vulcan is both vicariously and directly liable. D) Vulcan is not liable because it did not authorize Manuel to be negligent. E) Vulcan is not liable because the loss would be covered by insurance. Difficulty: 2 QuestionID: 22-2-28 Topic: Torts Skill: Applied Answer: C) Vulcan is both vicariously and directly liable. 29. Michael was a director of Dot.com Tomorrow Inc, incorporated under the Canada Business Corporations Act. He was charged with failing to ensure that the corporation maintained adequate safety standards for its workers. He was furious, claiming that he was innocent. Michael hired the most expensive lawyer he could find and rented a limousine with driver to take him to the court every day of the three-week trial. Each night of the trial, he dined out at the best restaurant in town. Eventually, he was acquitted and has asked the corporation to indemnify him for all these expenses. Which of the following is FALSE regarding the legal obligation of the corporation to indemnify Michael for these expenses? A) Dot.com may be obliged to indemnify Michael because he was substantially successful on the merits of his defence. B) Dot.com can only indemnify for reasonable expenses and, to the extent that Michael's expenses are not reasonable, they cannot be indemnified. C) Dot.com may be obliged to indemnify because Michael had reasonable grounds for believing his conduct was lawful. D) So long as Michael fulfilled his fiduciary duty to act in the best interests of the corporation, Dot.com may be obliged to indemnify him for reasonable expenses. E) Dot.com has to pay for everything but the limousine. Difficulty: 2 QuestionID: 22-2-29 18 © 2023 Pearson Canada Inc.

Topic: Managing Liability Risk for Directors and Officers Skill: Recall Answer: E) Dot.com has to pay for everything but the limousine. 30. Denise has been asked to join the board of directors of Summit Corp, which carries on a software development business. She is attracted by the prestige and contacts she may gain as a result of joining the board but is concerned about her personal liability. Which of the following is TRUE? A) She has nothing to worry about because corporations are separate legal persons and so there is nothing that she would ever become liable for. B) She should worry about being held directly liable for the contracts the corporation enters into. C) She should worry about being vicariously liable for torts for which the corporation is responsible. D) She should worry about personal liability under regulatory and tax statutes. E) She does not need to worry so long as she obtains an indemnity from the corporation because an indemnity will always protect her from all risk. Difficulty: 1 QuestionID: 22-2-30 Topic: Other Sources of Personal Liability for Directors and Officers Skill: Applied Answer: D) She should worry about personal liability under regulatory and tax statutes. 31. A strict liability offence is A) a type of crime for which a person can be convicted only if they acted with a guilty mind. B) a type of crime for which there is no defence. C) a type of crime that allows for a defence of due diligence. D) a type of tort, but not a type of crime. E) a crime for which an individual, but not a corporation, can be convicted. Difficulty: 1 QuestionID: 22-2-31 Topic: Crimes Skill: Recall Answer: C) a type of crime that allows for a defence of due diligence. 32. The defence of due diligence A) applies only to a mens rea crime. B) applies only to an absolute liability crime. C) applies if a shareholder brings an action against a corporate director for relief under the oppression remedy. D) is the only defence to a derivative action. E) is available to a corporation, in certain circumstances, if the person with managerial responsibility for the area of the corporation's activities in which a strict liability offence was committed acted reasonably in the circumstances with a view to preventing the offence. 19 © 2023 Pearson Canada Inc.

Difficulty: 1 QuestionID: 22-2-32 Topic: Crimes Skill: Recall Answer: E) is available to a corporation, in certain circumstances, if the person with managerial responsibility for the area of the corporation's activities in which a strict liability offence was committed acted reasonably in the circumstances with a view to preventing the offence. 33. The obligation that requires certain people within a corporation to act honestly and in good faith when discharging other responsibilities A) arises under the common law, and not under statute. B) imposes liability only if a breach causes the corporation to suffer a loss. C) is known as the duty of care. D) is broken when a person with this obligation enters into a transaction with the corporation unless certain requirements are met. E) was recently abolished because it often prevented the sort of calculated risks that can generate large profits. Difficulty: 3 QuestionID: 22-2-33 Topic: Transacting with the Corporation Skill: Recall Answer: D) is broken when a person with this obligation enters into a transaction with the corporation unless certain requirements are met. 34. A derivative action A) is a type of crime that allows a corporation to be punished if a director misbehaves. B) occurs when a corporation feels compelled by the consequences of one decision to act on another decision. C) allows a corporation to sue a shareholder who refuses to pay the purchase price for their shares. D) is an action by someone on behalf of the corporation that can be pursued only with court approval. E) always occurs in connection with a unanimous shareholder agreement. Difficulty: 2 QuestionID: 22-2-34 Topic: Derivative Action Skill: Recall Answer: D) is an action by someone on behalf of the corporation that can be pursued only with court approval. 35. Acme Inc recently came into existence. Owen is the only officer, Dieter is a director, and Seppo is a shareholder. Which of the following statements is most likely TRUE? A) Under normal circumstances, Owen has the absolute power to remove Seppo from the company. 20 © 2023 Pearson Canada Inc.

B) Dieter was appointed by Owen. C) Owen decides whether or not Seppo will receive a dividend. D) Seppo belongs to a group of people that elected Dieter, or Seppo is the only shareholder and she elected Dieter. E) Seppo and Owen cannot be closely related by blood or marriage. Difficulty: 2 QuestionID: 22-2-35 Topic: Management and Control of the Corporation / Directors Skill: Applied Answer: D) Seppo belongs to a group of people that elected Dieter, or Seppo is the only shareholder and she elected Dieter. 36. Prophet Inc has existed for several years. Delilah is a director, Suki is a shareholder, and Odessa is an officer. Which of the following statements is most likely to be TRUE? A) Suki owes a duty of care to Delilah. B) Odessa owes a fiduciary duty to Suki. C) Delilah and Odessa owe a fiduciary duty to Prophet Inc. D) Prophet Inc owes a duty of care to Suki. E) Odessa owes a contractual duty of utmost good faith to Delilah. Difficulty: 3 QuestionID: 22-2-36 Topic: Fiduciary Duty Skill: Applied Answer: C) Delilah and Odessa owe a fiduciary duty to Prophet Inc. 37. Padraig is a director of Eire Inc. Oona, an independent businesswoman, presented Eire with an opportunity to enter into a business venture. The company's board of directors considered the proposal, and identified a number of risks that were associated with it. However, Eire did not reach a conclusion as quickly as Oona had hoped. Even though the board of Eire was still considering the proposal, she took the proposal to Padraig personally. Oona and Padraig had worked together on a number of business ventures in the past. Padraig accepted the proposal within eight hours. Which of the following statements is most likely to be TRUE? A) Eire can successfully sue Padraig for breach of his duty of care but not breach of fiduciary duty of care. B) Eire can successfully sue Oona for breach of fiduciary duty. C) Eire can successfully sue Padraig only if it can persuade the judge that it had decided to accept Oona's proposal when it learned that Padraig had already done so. D) Eire can successfully sue Padraig for any profits that he earns from the venture with Oona. E) Padraig could have legally accepted Oona's proposal if he had first resigned his position with Eire. Difficulty: 3 QuestionID: 22-2-37 Topic: Taking Corporate Opportunities 21 © 2023 Pearson Canada Inc.

Skill: Applied Answer: D) Eire can successfully sue Padraig for any profits that he earns from the venture with Oona. 38. Gargantua Inc is a very large company with a very large board of directors. Lada is one of those directors. The corporation recently became involved in a number of scandals. As a result, the various members of the board of directors have been named as defendants in several lawsuits. Lada is, of course, hoping to avoid liability. Which of the following statements is TRUE? A) As a director, Lada is personally responsible for the accuracy of any documents that accountants prepared on behalf of the company. B) If another director was granted sole responsibility for the corporation's financial dealings, Lada cannot possibly be held liable for misconduct that arose in connection with those financial dealings. C) The business judgment rule states that business decisions of the directors will not be found to be a breach of duty so long as they were within the range of reasonable alternatives available and the process by which the decision was taken was reasonable. D) In order to protect shareholders, judges require proof that every decision made by a board of directors was the best decision possible. E) Only officers, not directors, are responsible for any corporate wrongdoing. Difficulty: 2 QuestionID: 22-2-38 Topic: Duty of Care Skill: Applied Answer: C) The business judgment rule states that business decisions of the directors will not be found to be a breach of duty so long as they were within the range of reasonable alternatives available and the process by which the decision was taken was reasonable. 39. Roxanne is a minority shareholder in Sumner Inc. She is very unhappy with the way that the company is being operated. She therefore intends to express her disapproval and advocate changes at the next annual meeting. She will also be encouraging the other 50 shareholders of Sumner to vote against management's proposals. Which of the following statements is TRUE? A) Roxanne is entitled to obtain the minutes of the directors' meetings. B) Roxanne is a dissident shareholder. C) Roxanne can force the corporation to buy back her shares at the same price that she paid for them. D) Roxanne has the right to force the corporation into liquidation. E) Roxanne is not entitled to obtain a list of shareholders from the corporation in any circumstances. Difficulty: 1 QuestionID: 22-2-39 Topic: How Shareholders Exercise Power Skill: Applied Answer: B) Roxanne is a dissident shareholder. 40. As a result of dealing with Barry, Zita believes that she has entered into a contract with Primus Inc. 22 © 2023 Pearson Canada Inc.

Zita claims that Barry, who is the president of Primus, acted as the corporation's agent. Which of the following statements is TRUE? A) Primus can avoid liability by demonstrating that its by-laws prohibited Barry from incurring liability on its behalf. B) The indoor management rule states that Primus cannot be held liable on the basis of Barry's actions unless, as a matter of the company's internal affairs, it had actually authorized him to act as its agent. C) The concept of ostensible authority means that it is not enough for Zita to prove that Barry appeared to have been authorized to act as the company's agent. D) Primus cannot deny that Barry had the authority that is usually held by the president of a corporation. E) Zita can only enforce the contract if she searched all the corporation's public records and found no restriction on Barry's authority. Difficulty: 2 QuestionID: 22-2-40 Topic: Contracts Skill: Applied Answer: D) Primus cannot deny that Barry had the authority that is usually held by the president of a corporation. 41. Frank and Emma are shareholders in a cell phone company that they started together. Emma provided $10,000 for the hardware, while Frank provided $40,000 for the software and the store itself. Frank decided to make a shareholders' agreement with Emma prior to starting the company to ensure she would not sell her shares to competitors at any time in the future. By doing this, Frank has most likely created which type of share transfer rule? A) a non-competition agreement B) a right of first refusal C) a shotgun buy-sell D) a share protection agreement E) a unanimous shareholders' agreement Difficulty: 2 QuestionID: 22-2-41 Topic: Share Transfer Skill: Applied Answer: B) a right of first refusal 42. Robyn and his eight friends bought shares in company XYZ. Since it was their first time investing in a company, they became minority shareholders and did not closely follow the actions of that company. Three months later, they each received a letter stating the company planned to eliminate all minority shareholders as of that day. Robyn believes they are entitled to some form of remedy for XYZ's actions. Which of the following is the best course of action for Robyn and his friends? A) Robyn and friends should ignore this because minority shareholders can be eliminated without notice. B) Robyn and friends should sue the company for its total value in shares. C) Robyn and friends should each individually ask the courts for permission to take derivative action. 23 © 2023 Pearson Canada Inc.

D) Robyn and friends should simply send a letter asking for at least half of their share value. E) Robyn and friends should file a class action claim for an oppression remedy. Difficulty: 3 QuestionID: 22-2-42 Topic: Relief from Oppression Skill: Applied Answer: E) Robyn and friends should file a class action claim for an oppression remedy. 43. Levi is the director for a milk production company. On the side, he and his brother Ray own a nearby McDonalds Restaurant franchise that uses sweetened milk products to make ice cream. Recently, that McDonalds' contract with a different milk production company was ended due to price disagreements. Levi has offered a contract for sweetened milk on behalf of his own milk company to the McDonalds that he owns with his brother. Which of the following statements regarding that potential transaction is FALSE? A) The transaction is possible if procedural safeguards are observed. B) The transaction must be fair and reasonable to the milk production company. C) Levi must give adequate notice of his interests in the contract to the board of directors of the milk company. D) Levi must vote to approve the contract with the board of directors. E) The rules governing these transactions are found in the CBCA. Difficulty: 3 QuestionID: 22-2-43 Topic: Transacting with the Corporation Skill: Applied Answer: D) Levi must vote to approve the contract with the board of directors. 44. Ryan was an engineer and the Vice President for a technology company called App Ville, which specialized in creating apps for smartphones. He spent most of his time working on an app that could tell if you were impaired by alcohol by breathing onto the screen of the phone. Shortly before he could complete the app, he resigned and incorporated his own app creation business, App City. The local police force asked for bids on an app that could detect an impaired driver and accepted App City's bid over App Ville's. Is App Ville able to take any legal action against anyone in this situation? A) Yes, they can sue App Ville for taking a corporate opportunity of App City. B) Yes, they can sue Ryan for taking a corporate opportunity and therefore breaching his fiduciary duty to App Ville, but only if they can show that the opportunity was identified and actively being pursued by App Ville. C) Yes, they can sue Ryan for taking a corporate opportunity and therefore breaching his fiduciary duty to App Ville, but only if they can show that the app was at least 50% of App Ville's business. D) No, a fiduciary duty is only owed by directors to a company, not by officers, and Ryan is not a director, only an officer of App Ville. E) No, Ryan was the creator of the app, so he is free to take it with him when he leaves the company.

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Difficulty: 3 QuestionID: 22-2-44 Topic: Taking Corporate Opportunities Skill: Applied Answer: B) Yes, they can sue Ryan for taking a corporate opportunity and therefore breaching his fiduciary duty to App Ville, but only if they can show that the opportunity was identified and actively being pursued by App Ville. 45. Maria is a manager for Silverman Racks investment bank. She decides one day to give herself a hefty $250,000 bonus, which will directly reduce the value of each share in the company. Since she only owns 5% of the total shares, she sees a net benefit because she is able to enjoy the entire $250,000 herself. This is an example of what type of costs? A) sunk costs B) legal costs C) prospectus costs D) material costs E) agency costs Difficulty: 2 QuestionID: 22-2-45 Topic: Corporate Governance in Practice Skill: Applied Answer: E) agency costs 46. Which of the following is TRUE with respect to annual meetings? A) They are optional. B) They must be held each calendar year. C) The directors must call annual meetings at least every 15 months. D) The are also called special meetings. E) They require a proxy circular. Difficulty: 2 QuestionID: 22-2-46 Topic: Shareholder Rights and Remedies Skill: Recall Answer: B) They must be held each calendar year. 47. ABC Haulage Inc is a trucking company that knowingly allowed their drivers to operate their trucks without wearing seatbelts. What is the most likely category of criminal offence that has occurred? A) A strict liability defense B) An absolute liability defense C) A mens rea offence D) A directing mind offense 25 © 2023 Pearson Canada Inc.

E) It depends on whether there is a written policy in place Difficulty: 2 QuestionID: 22-2-47 Topic: Crimes Answer: B) An absolute liability defense Essay Questions 1. The nature of the claim on the corporation represented by common shareholders' shares is that they are entitled only to the remaining property of the corporation on dissolution after other claims have been paid and that they have a right to vote for the election of directors, to appoint the auditor, and on proposals made to them. As such, the shareholders' role is essentially a passive one. They are not involved in management. Is this a complete and accurate description regarding the role that shareholders play in corporations? Difficulty: 3 QuestionID: 22-3-01 Topic: Corporate Management Skill: Applied Answer: This description is technically correct but does not reflect accurately or completely the role that shareholders play in practice, especially in smaller corporations. Shareholders in large public corporations do tend to be passive investors, with few getting involved in management, on the board or otherwise. Many managers and directors will also be shareholders, but their active participation in management is attributable to their other roles. Shareholders with large or controlling blocks of shares may be more actively involved. In small corporations, all the shareholders may be actively involved in the management of the corporation. Often this involvement will be in their capacity as directors or officers. It is also possible for shareholders to manage directly if they enter into a unanimous shareholder agreement under which they transfer to themselves some or all of the powers of the directors. 2. Elise and Kim are trying to decide how to set up the internal management structure of the corporation they have just incorporated to carry on their engineering consulting business. They each hold 35 percent of the shares, with the remaining 30 percent being held by five employees. Elise will run the business. She will be responsible for all aspects of the management of the office. Kim will be a passive investor, but is nevertheless interested in being kept informed regarding what is going on in the business. Kim and Elise decide that they will both be directors and then delegate all management powers to Elise, subject only to an obligation to report to the board every two months as to what is happening. Will this structure work? Support your answer. Difficulty: 3 QuestionID: 22-3-02 Topic: How Directors and Officers Exercise Power Skill: Applied 26 © 2023 Pearson Canada Inc.

Answer: Kim and Elise hold 60 percent of the shares of the corporation between them, so if they vote together they can determine who is on the board. As a business matter, they may want to consider whether the employees with almost one-third of the shares will want to be represented on the board or ensure that their interests are taken into account in some way. Once they are elected to the board, Kim and Elise can delegate full power to manage the business and affairs of the corporation to Elise, except for certain matters related to the internal affairs of the corporation, such as declaring dividends and issuing and repurchasing shares. The board remains responsible for supervising Elise in the performance of her management responsibilities. This supervisory responsibility has a practical importance on the facts of this case since it is not only Kim and Elise's interests that will have to be taken into account. The board owes its duty of care and fiduciary duty to the corporation as a whole. 3. What does the fiduciary duty require of directors and officers? Difficulty: 2 QuestionID: 22-3-03 Topic: Fiduciary Duty, Taking Corporate Opportunities Skill: Recall Answer: The fiduciary duty requires directors to act honestly and in good faith, with a view to the best interests of the corporation. The best interests of the corporation have sometimes been interpreted as the financial interest of shareholders in maximizing the value of their shares. But, depending on the circumstances, the interests of employees, customers, creditors, and other stakeholders may be taken into account in determining the best interests of the corporation. The duty requires directors and officers to try to do what is best for the corporation and not put their personal interests ahead of those of the corporation. If a director or officer breaches their duty, they must pay to the corporation any profits they realize by doing so. This legal consequence is intended to eliminate any incentive for directors and officers to breach their duty in the first place. The requirements of the fiduciary duty are best understood by reference to some common situations in which conflicts between the personal interests of directors and officers and their obligations may arise. A director or officer would have a conflict of interest if they were to enter into a contract with the corporation. Consequently, the fiduciary duty at common law and equity prohibits such transactions. Modern corporate statutes now allow such transactions provided the transaction is fair and reasonable to the corporation and the contract was approved by the directors with notice of the conflict and without the participation of the director or officer who has it. Directors and officers are also precluded by their fiduciary duty from taking corporate opportunities and competing with the corporation while they are in a position of fiduciary duty. 4. Forest is the majority shareholder in ForCo Inc, a corporation carrying on a business of providing investment advice. She is also a director of DevCo, a corporation incorporated under the Canada Business Corporations Act engaged in real estate development. Is there a legal problem if ForCo provides 27 © 2023 Pearson Canada Inc.

advice on regular commercial terms to DevCo? How can Forest make sure that no problems arise in connection with her corporation doing business with DevCo? Difficulty: 2 QuestionID: 22-3-04 Topic: Transacting with the Corporation Skill: Applied Answer: As majority shareholder of ForCo and a director of DevCo, the proposed transaction would put Forest in a conflict of interest. As a shareholder of ForCo, she has a personal interest in selling investment advice for the highest price. As a director of DevCo, she has an obligation to ensure that the corporation pays the lowest price. If the transaction goes ahead, she will be in breach of her fiduciary duty to DevCo. The corporation will not be bound by the contract. In order to make the contract binding, she will have to give notice, and full, plain, and fair disclosure of her interest to the board of directors and not vote on the resolution of the board approving the transaction. As well, the transaction must be fair and reasonable to the corporation. 5. Regal Cinemas Inc operates a movie theatre in a small town in Manitoba. It has a chance to enter into long-term leases on the only other theatres in town. The landlord has refused to enter into the lease, however, unless Regal can put up a deposit of $50 000 and Regal has no money. Regal is very anxious to get the leases because there is an outstanding offer from MoviePlex Inc for all the shares of the corporation if the corporation has the leases on these other cinemas. The directors of the board, consisting of five people, decide that the best way to get Regal the money is for each of them to buy 100 shares for $100 each. The directors buy the shares, cause Regal to enter the leases, and then, on the next day, all the shareholders of Regal, including the directors, sell their shares to MoviePlex for $150. Once MoviePlex has all the shares, it elects new directors. The new directors cause the corporation to sue the former directors for the profits they made on the share sale, claiming that participating in the transaction in the way they did was a breach of their fiduciary duty. Do you agree? Explain you reasons. Difficulty: 3 QuestionID: 22-3-05 Topic: Taking Corporate Opportunities Skill: Applied Answer: Yes, it is a breach of fiduciary duty. Even though they acted in a way that benefited shareholders, the method they chose allowed them to profit personally. This is a breach of fiduciary duty because in making the decision about whether they should raise the $50 000 by personally buying shares, their personal interest in profiting from the subsequent sale conflicted with their obligation to act in the best interests of the corporation. Fiduciaries must not be permitted to decide whether to adopt a corporate strategy that benefits them personally over alternatives which do not. In addition to the obvious risk that directors might be tempted to characterize the opportunity as one the corporation could not obtain in any other way, permitting the directors to make this call would pose a problem for judicial oversight. Courts generally do not like to second-guess directors on issues such as whether there was any viable business alternative to the strategy benefiting the directors. They recognize that they do not have business expertise and that their conclusion on such questions necessarily would be speculative. This results in the courts applying the 28 © 2023 Pearson Canada Inc.

business judgment rule to decisions of diretors regarding business matters. Given these facts, it seems likely that some alternative could have been found which would not have involved the enrichment of the directors. Perhaps Regal could have borrowed the money on the strength of the offer to purchase the three cinemas. In any event, the rule is clear: the directors' fiduciary duty precluded them from profiting from any strategy they adopted. Given this basis for the rule, the fact that Regal and its new shareholders received an unexpected windfall would be irrelevant. [Based on the facts in Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 (HL)] 6. Salima is a director of Commercial Depot Inc, an office supply business. Salima thinks it would be a good idea if the corporation were to buy the building the corporation is currently renting. In her view, the price the landlord is offering is a good one. She thinks that if the corporation does not buy it, someone else might, and that person would want to significantly increase the corporation's rent. She has been trying to get the other members of the board to agree to buy the building for the past six months, but the purchase has not yet been approved. There just never seems to be time to get to it at the directors' meetings. She is very worried about other buyers and wonders whether she should just buy the building herself. She could always sell it again for a gain and she would not have to increase the rent to Commercial Depot to ensure that she receives a good cash flow. Do you see any problems with Salima's plan to buy the building herself? Explain how Salima could achieve her objective while avoiding any legal problems. Difficulty: 3 QuestionID: 22-3-06 Topic: Taking Corporate Opportunities Skill: Applied Answer: Even though she intends to protect the corporation's interest, Salima could be found in breach of her fiduciary duty on two bases. She could be considered to be appropriating an opportunity that she should be trying to obtain for the corporation. As well, once she has the building, she will be transacting with the corporation, putting herself in a position where her interests and her obligation to act in the best interests of the corporation are in conflict. Fortunately, there are strategies available to protect her. She should have the corporation make a formal decision regarding the property. If it decides to buy the property itself, her fiduciary duty concerns are eliminated. If it decides that it does not want to buy the property, then Salima would be free to go ahead and buy it herself. The next step would be to formally notify the corporation of her interest in the lease. If any change is to be negotiated regarding the lease, she would have to ensure that the change was fair and reasonable to the corporation and that she did not vote on the directors' resolution approving the change. 7. Identify and briefly explain the significance of Canadian Air Services Ltd v O'Malley (Case Brief 22.1). Difficulty: 2 QuestionID: 22-3-07 29 © 2023 Pearson Canada Inc.

Topic: Taking Corporate Opportunities Skill: Recall Answer: The decision of the Supreme Court of Canada (1974) is significant for clarifying the scope of liability for breach of fiduciary duty when a corporate officer takes a personal advantage of an opportunity open to the company. In imposing liability, the Court was particularly influenced by three factors. First of all, the opportunity in question was very specific and had been actively pursued by the corporation. This was not a case in which the officer merely took advantage of a vague proposal that had been floated within the company. The officer instead directly competed with his former employer. Second, the opportunity was "mature" in the sense that the company had done considerable work, at considerable expense, in the hope of securing the contract. And third, before leaving the company and committing his breach, the defendant had pursued the opportunity on the company's behalf. The case is also significant insofar as it suggests, as a corollary, that not every acquisition of an opportunity will expose an officer to liability. 8. Trudy and Aline have incorporated a corporation to carry on an antique shop business. They each hold 20 percent of the common shares. Aline's aunt, Louise, holds the remaining 60 percent of the common shares. Trudy and Aline will share responsibility for carrying on the business on a daily basis. Louise has no interest in participating in the business. She invested to help out her niece, to get a nice return when she sells her shares and would like to have a veto right over any substantial changes to the corporation. How would the parties set up their desired allocation of power and responsibilities? Difficulty: 2 QuestionID: 22-3-08 Topic: Shareholders' Agreements Skill: Applied Answer: Trudy, Aline, and Louise could agree in a shareholders' agreement that Trudy and Aline would be elected directors but that all substantial changes, as defined in the agreement, would require the consent of Louise. To the extent that this agreement transfers decision-making power of the directors to the shareholders, it would be a unanimous shareholder agreement. Aline and Trudy could allocate responsibilities to each other as they agreed. Acting as the board, they could delegate responsibilities to each other as directors, giving them the power to manage the business of the corporation, and they could appoint themselves as officers and delegate the agreed-on responsibilities to themselves as officers. The specific arrangements would not need to be recorded in a shareholders' agreement, since apparently Louise has no interest in them and these are matters to be decided upon by Aline and Trudy as directors. In the interests of clarity and certainty, however, it may be preferable to spell out the arrangements in the agreement. The agreement must clearly define what is meant by "substantial changee," triggering Louise's right of veto. 9. The shotgun buy-sell is a drastic but effective mechanism for resolving shareholder disputes. Do you agree with this statement? Please give your reasons. Difficulty: 2 QuestionID: 22-3-09 Topic: Share Transfer 30 © 2023 Pearson Canada Inc.

Skill: Recall Answer: One may readily agree with this statement. The effect of the shotgun is to eliminate one of the shareholders, which is certainly a drastic result. The shotgun, in effect, resolves the dispute in favour of the shareholder who ends up with the shares, since owning all the shares of a corporation gives a shareholder effective control over it. While this may be an effective way to resolve a conflict, it precludes a continuing relationship between the shareholders, at least as far as owning shares is concerned. It is also a drastic mechanism in that the shareholder who initiates the shotgun does not know whether the result of the shotgun process will be that they own all the shares of the corporation or none. The threat of the shotgun hanging over the heads of the shareholders may encourage them to work harder to resolve their dispute. 10. The oppression remedy is not just a shareholder remedy. It creates a standard of behaviour for management that is different from the fiduciary duty and duty of care, and one that is potentially more important for shareholders because it can be enforced by shareholders directly. Do you agree with this description of the oppression remedy? Difficulty: 3 QuestionID: 22-3-10 Topic: Relief from Oppression Skill: Applied Answer: The oppression remedy does create a new standard of behaviour. A shareholder simply has to establish that the actions of the corporation or its directors had a result that is oppressive or unfairly prejudicial to or unfairly disregards the interests of the shareholder. Whether or not the actions are also inconsistent with the directors' fiduciary duty or duty of care is not strictly speaking relevant. One may argue that breaches of duty will support a claim for relief from oppression on the basis that shareholders have a reasonable expectation that directors will fulfill their legal duties. The oppression remedy is more accessible to shareholders because, unlike the traditional duty of care and the fiduciary duty, a shareholder may seek relief from oppression directly, and the remedial options are unlimited. Remedies may be designed specifically to address whatever injury was suffered by the shareholder. 11. In corporations where there are few shareholders, the basic division of powers and responsibilities between shareholders, directors, and officers is formalistic and irrelevant. Do you agree with this statement? Be sure to provide reasons for your response Difficulty: 3 QuestionID: 22-3-11 Topic: Corporate Governance in Practice Skill: Applied Answer: It is true that where there are few shareholders the division of powers may be formalistic and irrelevant. In a corporation where there is only one shareholder who is also the sole director and officer, the distinctions are essentially meaningless in practice. Where there are a small number of shareholders, each of whom is actively involved in the business, they will simply agree amongst themselves as to who will have what powers and responsibilities. A unanimous shareholder agreement is a legal mechanism to formally recognize 31 © 2023 Pearson Canada Inc.

this and to manage potential future problems. As soon as there is a separation between ownership and management, however, the internal rules of corporate governance, and who is a director or officer, and who is a shareholder, and what percentage of shares they have all become important. Such a separation will occur whenever a corporation has at least one shareholder who is not active in the business. Since it is the directors who are allocated management power, the identity of the directors will become a significant issue, as will who has sufficient votes to determine who gets to be a director. Passive investors and those not in the management group need the protection of the fiduciary duty and duty of care to ensure that directors and officers act in shareholders' interests and ultimately in the best interests of the corporation. Even when the parties enter into a shareholders' agreement to create a customized management structure, the starting point for designing the structure is the allocation of voting rights based on share ownership and who, as a result, has the power to determine who becomes a director. As well, often the way in which they are given effect is through the allocation of directorships or the appointment of certain people as officers. So the separate roles are not irrelevant. They represent the overall framework within which these customized relationships must be worked out. 12. On behalf of her employer, MasterFood Inc, Claire has been negotiating the purchase of the business of Watson Corp for a price of $1 million. She has been dealing with Barry, who has told her that he is the chief financial officer of Watson Corp. She has visited him at the offices of Watson Corp him many times and, with her team, gone over Watson Corp's books. They have agreed on a form of contract to give effect to the sale from Watson Corp to MasterFood Inc. At the closing of this transaction, what should she do to ensure that Barry has sufficient authority to bind Watson Corp to sell its business? Difficulty: 2 QuestionID: 22-3-12 Topic: Contracts Skill: Applied Answer: Given these facts, she may consider relying on Barry having apparent authority on the basis that the corporation has represented that he is the chief financial officer by acquiescing in him acting as such. The problem with relying on apparent authority in this situation, however, is that there may be some uncertainty as to whether being the chief financial officer of the corporation carries with it the usual authority to sell the business of the corporation. For such a fundamentally important transaction, one could argue that only the president or the board of directors would have sufficient usual authority. As well, the scale of the transaction is sufficiently large that a substantial investment in being certain about Barry's authority would be justified. This might include, for example, a certified copy of the director's resolution conferring such authority on him and a legal opinion from the lawyers for the corporation certifying that Barry has this authority and all corporate formalities of Watson Corp have been satisfied in entering into the transaction. 13. Shazad is the manager of a bookstore that is one of a chain owned by Tebsco Markets Inc. Shazad advertised a special low price for Harry Potter books as a way of getting people to come to the store. Shazad knew at the time that he had no Harry Potter books. Advertising in this manner is an offence under the Competition Act. Shazad was convicted, and Tebsco was too on the basis that Shazad was a senior officer of the corporation in relation to its operation of his bookstore. Is there anything that Tebsco 32 © 2023 Pearson Canada Inc.

could do to avoid this liability in the future? Difficulty: 2 QuestionID: 22-3-13 Topic: Crimes Skill: Applied Answer: Criminal liability attaches to corporations whenever someone who is a senior officer of the corporation commits a crime. Internal policies designed to prevent crimes by employees will not protect Tebsco in the event that a crime is committed notwithstanding the policies. This was one of the holdings in R v Waterloo Mercury Sales Ltd (1974) 49 DLR (3d) 131 (Alta Dist Ct). The only way Tebsco could avoid liability is by putting in place procedures to try to make sure that managers like Shazad do not commit offences. Strategies might include: - education programs for staff on what kinds of advertising is permitted: - a requirement for all advertising to be reviewed by the head office and, perhaps, the legal department, and - regular spot checks in stores 14. New World Construction Co had contracted to build a new building at the University of British Columbia. New World employed Ellen as a project manager to determine how the construction would be completed and to supervise all aspects of the construction. Ellen was negligent in failing to make sure that a retaining wall was properly built. The wall collapsed, causing substantial property damage. The university is suing New World and Ellen for negligence. Assuming that Ellen is liable personally, explain the bases upon which New World would be responsible for her negligence. Difficulty: 1 QuestionID: 22-3-14 Topic: Tort Skill: Applied Answer: New World would be responsible in tort on the basis that the corporation is vicariously liable for the actions of its employee, the project manager, in the course of her employment. The project manager was acting within the course her employment in supervising the construction of the retaining wall. New World could also be found to be directly liable on the basis that the project manager was the directing mind and will of the corporation for the purposes of constructing the retaining wall. The manager had governing executive control over how the wall was built and so could be found to be the directing mind and will of the corporation in this regard. The manager's action would be considered the action of the corporation and New World would be responsible. 15. Jae was asked to join the board of directors of Western Trucking Ltd, a new firm in the trucking business incorporated under the Canada Business Corporations Act. The president of the corporation has told her that she should not worry about director's liability because Western will indemnify her. Would the indemnity fully protect her? Difficulty: 2 QuestionID: 22-3-15 Topic: Managing Liability Risk for Directors and Officers 33 © 2023 Pearson Canada Inc.

Skill: Recall Answer: No. The indemnity has a number of weaknesses. - The reliability of the indemnity is dependent on the financial strength of the indemnifying firm. Here there is no evidence of the financial strength of Western. As a new firm it may have few assets. To strengthen the indemnity, Jae could ask for a guarantee of the obligation from a shareholder or someone else with substantial resources. - Indemnities do not cover all expenses. Even if the corporation gave its commitment to indemnify in all circumstances in which it could legally do so, Jae would not be indemnified for: * expenses that are not reasonable, or * expenses in connection with actions that constituted a breach of fiduciary duty or where she had no bona fide belief that her actions were lawful. - Indemnification will not protect Jae against imprisonment. 16. Explain the difference between a derivative action and an action for oppression. Difficulty: 2 QuestionID: 22-3-16 Topic: Shareholder Remedies Skill: Recall Answer: A derivative action is an action by a shareholder on behalf of a corporation to seek relief for a wrong done to the corporation. The most common situation in which the directors do not act occurs when the wrong is a breach of duty by the directors themselves. If the directors approve a sale of corporate assets to a director for less than they are worth in breach of the director's fiduciary duty, the directors who approved the sale are unlikely to cause the corporation to take action. In this case, a shareholder might seek permission to bring a derivative action to cancel the sale. Damages or other relief in a derivative action goes to the corporation. A derivative action is one way for shareholders to ensure that directors and officers comply with their duties to the corporation. The oppression remedy allows a shareholder to claim relief from an act or omission by the corporation or its directors that oppresses or unfairly disregards or prejudices the interests of the shareholder. When actions or omissions by the corporation or the directors have oppressed or unfairly disregarded or prejudiced their interests, shareholders may claim relief under the oppression remedy. Relief is available when the reasonable expectations of shareholders about management behaviour have not been met. Relief can include anything the court decides is necessary to remedy the problem, including ordering the corporation to buy the oppressed shareholder's shares, orders against other shareholders, compliance with the corporate statute, and even the dissolution of the corporation.

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Managing the Law, 6e (McInnes) Chapter 23: Secured Transactions True/False Questions 1. Banks take collateral to secure the obligations of people who owe them money as a way to reduce the risks associated with non-payment. Having a security interest in collateral will not prevent a debtor from defaulting but will reduce the risk that the bank will be unable to recover what it is owed. a True b False Difficulty: 1 QuestionID: 23-1-01 Topic: Risk Management Strategies for Creditors Skill: Recall Answer: a. True 2. Under a conditional sales contract, the buyer gets neither title nor possession of the goods subject to the contract until the full amount of the purchase price is paid. a True b False Difficulty: 1 QuestionID: 23-1-02 Topic: Conditional Sales Skill: Recall Answer: b. False 3. Ornak Furniture Inc had an operating line of credit with the Bank of Brandon. Ornak had given the bank a security interest in all its present and future assets to secure its obligations under the line of credit. The bank had perfected its interest by registration in 2011. Cronin carried on business as a supplier of wicker furniture. In 2012, Cronin delivered 20 wicker chairs to Ornak. Ornak put the chairs on display in its showroom. Under the agreement that Ornak had with Cronin, Ornak was not obliged to buy the chairs, but the act of selling a chair to a customer constituted the agreement by Ornak to buy the chair from Cronin. For every chair sold, Ornak paid Cronin whatever it sold the chair for less 50 percent. In December 2009, Ornak defaulted on its obligations to the bank and the bank seized its assets including the chairs supplied by Cronin. The bank is entitled to the chairs. a True b False Difficulty: 2 QuestionID: 23-1-03 Topic: Conditional Sales Skill: Applied 1 © 2023 Pearson Canada Inc.

Answer: b. False 4. A lease of goods can have the same financial characteristics as a secured loan to finance the acquisition of an asset. The interest in the asset held by the lessor, in the case of the lease, or the secured lender, in the case of a secured financing, secures the payments required to be made. For this reason, all leases of personal property must be registered under provincial personal property security laws regardless of whether they create a security interest. a True b False Difficulty: 2 QuestionID: 23-1-04 Topic: Special Cases Skill: Recall Answer: b. False 5. Blue Bank agreed to give Clarice an operating line of credit. Clarice gave Blue Bank a security interest in all the present and future assets of her home renovation business which she carries on in Thunder Bay, Ontario, to secure her obligations under the line of credit. The security agreement says nothing about Clarice's right to sell her assets. The bank has registered its security interest under the Ontario Personal Property Security Act. Clarice can sell any of her assets without the consent of the bank. a True b False Difficulty: 3 QuestionID: 23-1-05 Topic: Granting a Security Interest in All of the Debtor's Assets Skill: Applied Answer: a. True 6. Under the Bank Act, banks may take a special type of security interest in specified assets. No other creditor may take this interest. Nevertheless, banks remain free to take any other kind of security interest in any type of personal property in addition to any interest under the Bank Act. a True b False Difficulty: 2 QuestionID: 23-1-06 Topic: Special Security Interests of Banks Skill: Recall Answer: a. True

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7. Gratzia Cross Country Skiing Inc told Power Leasing Inc that it wanted to acquire a machine that cuts cross-country ski tracks. Gratzia enters into a lease under which Power Leasing will buy a track-cutting machine and then lease it to Gratzia for three years. The lease payments will pay Power the full amount of the purchase price plus a return of 14 percent per year. At the end of the three years, Gratzia has an option to buy the machine for $1. This transaction is similar in effect to a secured financing. Power should file a financing statement to register its title to the track-cutting machine under the applicable provincial personal property security legislation to protect his interest. a True b False Difficulty: 2 QuestionID: 23-1-07 Topic: Leases Skill: Applied Answer: a. True 8. Gisele operates an outdoor equipment store in premises rented from Orca Real Property Inc. Before she moved to these premises, she borrowed $10 000 from Imperial Bank for her business and gave Imperial a security interest in her present and future inventory and accounts receivable. Gisele defaults on her obligations to the bank and to Orca. Orca is entitled to seize Gisele's assets located in the space rented from Orca. a True b False Difficulty: 2 QuestionID: 23-1-08 Topic: Exceptions Skill: Applied Answer: a. True 9. Simtech Inc needs $1 million for research related to a new product it is developing. It has been discussing a loan with Toronto Bank. On January 10, the Bank files a financing statement to register a security interest in all the assets of Simtech. On January 12, Simtech borrows $20 000 from one of its shareholders, secured by a security interest in all the assets of the corporation. The shareholder files a financing statement to register its security interest on the same day. On January 15, the bank and Simtech agree that the bank will lend Simtech $1 million and Simtech agrees to give the bank a security interest in all of its assets. If Simtech defaulted on the loans to both the shareholder and the bank, the shareholder's security interest would have first priority because the shareholder advanced its money first, before the bank advanced money. a True b False Difficulty: 3 QuestionID: 23-1-09 3 © 2023 Pearson Canada Inc.

Topic: Priorities Under PPSA Legislation Skill: Applied Answer: b. False 10. Muskoka Heritage Homes Inc builds vacation homes in a traditional style. In order to finance its acquisition of some earth-moving machinery, Laurentian Bank lent Muskoka $50 000. Muskoka gave Laurentian a security interest in all of its present and future assets to secure its obligation to repay the loan. Laurentian did not perfect its security interest. Subsequently, Muskoka had a dispute with one of its suppliers. The supplier sued and got a judgment against Muskoka, but had not yet taken steps to seize Muskoka's assets. Muskoka defaulted on its obligations to Laurentian. Laurentian has priority over the claim of the supplier, even though the supplier has successfully obtained a judgment. a True b False Difficulty: 2 QuestionID: 23-1-10 Topic: Priorities Under PPSA Legislation Skill: Recall Answer: a. True 11. Gluco Inc is a large producer of pharmaceuticals. It enters into an agreement to supply Discount Drugs Inc, which operates a chain of drug stores in British Columbia, with its products. In its agreement with Discount, Discount gives Gluco a security interest in the drugs supplied until they are paid for. On 1 July 2017, Gluco filed a financing statement to register this interest under the British Columbia Personal Property Security Act. Previously, on 1 May 2017, Discount had given a security interest in all of its present and after-acquired property to Baker Bank, including inventory. The bank filed a financing statement to register its interest under the British Columbia Personal Property Security Act on 1 May 2017. Gluco's security interest has priority over the Bank's because it is a purchase money security interest. a True b False Difficulty: 3 QuestionID: 23-1-11 Topic: Purchase Money Security Interests Skill: Applied Answer: b. False 12. Kingston Bank has a security interest in the equipment of Apex Manufacturing to secure a $10,000 loan that the Bank made to Apex. Apex has defaulted on one of its monthly loan payments in the amount of $1,000. The security agreement provides that the whole amount of the loan is payable on demand. The bank can seize the equipment without notice to Apex. a True 4 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 23-1-12 Topic: Taking Possession Skill: Applied Answer: b. False 13. Terry borrowed $5,000 from Jerry to buy a new car for her personal use in Winnipeg, Manitoba where they both lived. The loan was to be repaid in 12 blended monthly installments of $500, which included both principal and interest. The loan agreement also provided that if Terry missed one payment, Jerry could declare that the whole amount outstanding at that time was immediately due. Terry gave Jerry a security interest in her car as security for her obligations under the loan agreement. Terry missed the first payment. Jerry declared the whole amount due and seized the car. Terry is entitled get the car back and reinstate the loan by making the first payment and paying any reasonable expenses incurred by Jerry in taking possession of the car, notwithstanding Jerry's demand for payment in full. a True b False Difficulty: 2 QuestionID: 23-1-13 Topic: When a Debtor Can Get the Collateral Back Skill: Applied Answer: a. True 14. Marissa bought some used computers from Jordan Human Resources Services where she worked. She does not have to worry about there being any security interests in the computers because a security interest is only enforceable against a purchaser of collateral if they were aware of the interest at the time they purchased the collateral and Marissa is not aware of any security interests in the computers she bought from Jordan. a True b False Difficulty: 1 QuestionID: 23-1-14 Topic: Security Interest When Collateral is Transferred Skill: Recall Answer: b. False 15. Heidi's sister, Tammy, started a dog breeding business. Tammy borrowed $50,000 from Royal Bank that she needed to start the business. The bank took a security interest in all of Tammy's assets. Heidi guaranteed Tammy's obligations to the bank. Tammy defaulted on her loan and the bank seized many of her assets, including the dogs. At the time of the seizure, the dogs were worth $100,000. Because the bank 5 © 2023 Pearson Canada Inc.

did not take adequate care of them, some of them died, and the total value of the dogs has declined to $50,000. Because of the bank's actions, Heidi is no longer fully liable under her guarantee. a True b False Difficulty: 2 QuestionID: 23-1-15 Topic: Guarantees Skill: Applied Answer: a. True 16. A secured party is a debtor with a security interest. a True b False Difficulty: 2 QuestionID: 23-1-16 Topic: Risk Management Strategies Skill: Recall Answer: b. False 17. In a conditional sale the seller of goods retains title or some other form of interest in the goods to secure future payment of the purchase price by the buyer. a True b False Difficulty: 2 QuestionID: 23-1-17 Topic: Security Interests Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following is TRUE? The most important factor that a creditor considers in making its decision to grant credit to a debtor is A) the assets that the debtor has. B) whether other creditors have already taken security interests in the assets of the debtor. C) whether the debtor will be able to pay the credit obligation. D) whether someone can be found who will give a personal guarantee of the debtor's obligation to the creditor. E) whether the debtor is a corporation.

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Difficulty: 2 QuestionID: 23-2-01 Topic: Risk Management Strategies for Creditors Skill: Recall Answer: C) whether the debtor will be able to pay the credit obligation. 2. Which of the following is TRUE? A bank will be more likely to lend money to a borrower if the borrower grants the bank a security interest in its assets because A) the security interest prevents the borrower from defaulting. B) if the borrower defaults, the security interest guarantees that those assets can be seized by the bank, sold, and the proceeds used to pay back the loan. C) if the borrower defaults, the security interest means that the bank has a right to seize the assets, sell them, and use the proceeds to pay back the loan. D) if the borrower defaults, the bank will be able to get a court order allowing it to seize the assets, sell them, and use the proceeds to pay back the loan. E) the bank does not have to worry about whether the loan is paid back because it can keep the debtor's assets. Difficulty: 2 QuestionID: 23-2-02 Topic: Risk Management Strategies for Creditors Skill: Recall Answer: C) if the borrower defaults, the security interest means that the bank has a right to seize the assets, sell them, and use the proceeds to pay back the loan. 3. Which of the following is TRUE? A conditional sale is A) a sale in which the seller refuses to give possession of the goods to the buyer until the buyer meets certain conditions, including providing assurances that the seller will get paid. B) a sale in which the buyer gets possession of some goods but the seller retains title until the buyer pays the purchase price. C) a sale in which the buyer gets possession of the goods and title to them but payment of the purchase price is deferred. D) a sale in which the buyer refuses to buy the goods until certain conditions are met. E) a sale in which the buyer has the option to return the goods for a refund. Difficulty: 1 QuestionID: 23-2-03 Topic: Conditional Sales Skill: Recall Answer: B) a sale in which the buyer gets possession of some goods but the seller retains title until the buyer pays the purchase price. 4. Eldon leases tools and other equipment on a long-term basis to construction companies. He needs to 7 © 2023 Pearson Canada Inc.

buy a new forklift truck to lease in his business. Which of the following describes ways that Eldon could NOT acquire ownership of the forklift truck? A) Eldon could buy the forklift truck for cash from the manufacturer. B) Eldon could lease the forklift truck from the manufacturer with an option to purchase it for fair market value at the end of the lease. C) Eldon could buy the forklift truck on credit from the manufacturer, with the manufacturer retaining title until payment has been made in full. D) Eldon could borrow money from a bank, use the money to buy the forklift truck from the manufacturer, and give the bank a security interest in the forklift truck. E) Eldon could rent the forklift month by month. Difficulty: 2 QuestionID: 23-2-04 Topic: Special Cases Skill: Applied Answer: E) Eldon could rent the forklift month by month. 5. Walid carries on a retail electronics equipment sales business. He needs a new delivery truck. He is considering two options for acquiring the truck: a secured bank financing and lease financing with an option to purchase the truck. Which of the following distinguishes secured bank financing from lease financing? A) Lease financing will be more expensive than secured bank financing. B) Lease financing will be harder to get than secured bank financing. C) Nothing. Secured bank financing and lease financing are exactly the same. D) In a lease financing, Walid would not own the truck until he exercised the option to purchase in the lease. E) In a lease financing, the lessor does not have to worry about being able to get the truck back. Difficulty: 2 QuestionID: 23-2-05 Topic: Special Cases Skill: Applied Answer: D) In a lease financing, Walid would not own the truck until he exercised the option to purchase in the lease. 6. Oneal carries on a wholesale toy distribution business. He sells to his customers on credit, giving them 30 days to pay. Oneal is negotiating for an operating line of credit and his bank has asked him to assign his receivables to them as security for his obligations under the line of credit. Assuming that Oneal agrees to the assignment, which of the following is TRUE? A) Oneal's customers will not be happy because they will have to pay their accounts to the bank. B) If Oneal's receivables are more than the amount of the loan, the bank will be entitled to the surplus. C) Oneal will be permitted to continue to collect his own receivables and carry on his business as usual, unless he defaults on his loan and the bank exercises its rights pursuant to the assignment agreement. D) Oneal will not have to collect his receivables himself. 8 © 2023 Pearson Canada Inc.

E) If Oneal defaults under the operating line of credit, his customers will not have to pay what they owe him. Difficulty: 2 QuestionID: 23-2-06 Topic: Assignment of Accounts Receivable Skill: Applied Answer: C) Oneal will be permitted to continue to collect his own receivables and carry on his business as usual, unless he defaults on his loan and the bank exercises its rights pursuant to the assignment agreement. 7. Marissa Inc carries on an automobile parts manufacturing business in Ontario. Marissa has just finished negotiating a loan in the amount of $50 million from National Bank. As security for the corporation's obligations under the loan, Marissa has agreed to give National Bank a security interest in all of the corporation's present and future assets. Which of the following is TRUE? A) Marissa can sell its production equipment free of the security interest of National Bank. B) Marissa can sell inventory in the ordinary course of its business free of the security interest of National Bank. C) The security interest that Marissa has given to National Bank means that no supplier can get a security interest in any products it supplies that ranks ahead of National Bank's. D) Any new assets that are acquired by Marissa will not be subject of the security interest of National Bank. E) Marissa can sell any of its assets until the security interest of National Bank crystallizes. Difficulty: 2 QuestionID: 23-2-07 Topic: Granting a Security Interest in All of the Debtor's Assets Skill: Applied Answer: B) Marissa can sell inventory in the ordinary course of its business free of the security interest of National Bank. 8. Jerome is a farmer who has just agreed to borrow $100,000 from the Bank of Montreal to buy some new farm equipment. He has given the bank a security interest under s 427 of the Bank Act. Which of the following statements is FALSE? A) The Bank Act limits the assets in which a security interest may be taken. In a security agreement, there is no restriction on the assets in which a bank may take a security interest. B) Security interests under the Bank Act are registered under a separate system set up under the Bank Act. Security interests under security agreements are registered under provincial personal property security legislation. C) A single registration of a security interest under the Bank Act is effective across Canada. Registrations under a province's personal property security laws are effective only in that province. D) Only banks can take interests under the Bank Act. Anyone can take a security interest created in a security agreement. E) Bank Act security clearly and always has priority over all prior registered provincial security interests. Difficulty: 2 9 © 2023 Pearson Canada Inc.

QuestionID: 23-2-08 Topic: Special Security of Banks Skill: Recall Answer: E) Bank Act security clearly and always has priority over all prior registered provincial security interests. 9. Comerica Bank is considering lending $50,000 to Piat Co, a farm equipment dealer that carries on business across the country and has its head office in Toronto. Piat will use the money to build an addition to its show room in Regina, Saskatchewan. Comerica wants to take a security interest in Piat's farm equipment inventory in all provinces. Which of the following best describes the searches that Comerica should do to assess the value of such a security interest? Comerica should search A) the registries under the personal property security laws of each province and the registry under the Bank Act. B) the registry under the Saskatchewan personal property security legislation. C) the registries under the Saskatchewan personal property security legislation and the Bank Act. D) the separate registries in each province for conditional sales, chattel mortgages, assignments of book debts, and under the Bank Act. E) the registry under the Bank Act. Difficulty: 2 QuestionID: 23-2-09 Topic: Special Security of Banks Skill: Applied Answer: A) the registries under the personal property security laws of each province and the registry under the Bank Act. 10. Able Finance Corp carries on a lending business in Saint John, New Brunswick. Athos Transport has asked Able to acquire a truck trailer and then lease it to Athos for five years in return for monthly payments which will cover the full amount of the purchase price plus 10 percent. At the end of the lease term, Athos has an option to buy the trailer for $100. Assuming that Able and Athos enter into this transaction, which of the following is TRUE? The New Brunswick Personal Property Security Act A) applies to this transaction because, in substance, it gives Able a security interest in the trailer. B) does not apply to this transaction because the form of the transaction is a lease. C) applies to this transaction because the lease is for a term exceeding one year. D) applies to this transaction because this lease is equivalent to secured bank financing. E) does not apply to this transaction because, under the lease, Able will have title to the trailer, not a security interest. Difficulty: 3 QuestionID: 23-2-10 Topic: Leases Skill: Applied Answer: C) applies to this transaction because the lease is for a term exceeding one year. 10 © 2023 Pearson Canada Inc.

11. The Canadian Imperial Bank of Commerce has lent $100,000 to Cryo Corp, a corporation manufacturing medical equipment. Cryo carries on business in Ontario. The bank has taken a security interest in Cryo Corp's inventory under s 427 of the Bank Act. Which of the following is TRUE? A) The Bank does not need to register its interest because it is protected automatically under the Bank Act. B) The bank should register its interest with the office of the Bank of Canada nearest Cryo's place of business as well as by filing a financing statement under the Ontario Personal Property Security Act. C) The bank should register its interest only with the office of the Bank of Canada nearest Cryo's place of business. D) The bank should register its interest only by filing a financing statement under the Ontario Personal Property Security Act. E) The bank cannot register its interest by filing a financing statement under the Ontario Personal Property Security Act because such interests are excluded from the scope of the Act. Difficulty: 3 QuestionID: 23-2-11 Topic: Special Security of the Banks, Exceptions Skill: Applied Answer: B) The bank should register its interest with the office of the Bank of Canada nearest Cryo's place of business as well as by filing a financing statement under the Ontario Personal Property Security Act. 12. The registration systems established under provincial personal property security laws in most provinces are superior to the systems that existed previously. Which of the following best describes why the new systems are better? A) A creditor can search in one place to find all security interests in the property of a debtor. B) The priority of all security interests and other types of claims against a debtor are determined under personal property security law. C) Most security interests in a debtor's assets in a province are governed by one set of rules. D) A creditor need only make one registration against a debtor to perfect a security interest in the debtor's assets no matter where they are situated in Canada. E) The interests taken by banks in a debtor's assets under the Bank Act are now governed under provincial personal property security law. Difficulty: 2 QuestionID: 23-2-12 Topic: Provincial Rules for Secured Transactions Skill: Applied Answer: C) Most security interests in a debtor's assets in a province are governed by one set of rules. 13. Jovan Co owns a building in Winnipeg in which Saturn Shoes Inc has rented a store premises since 2000. In 2012, Galaxy Shoes Inc agreed to supply Saturn with its inventory of shoes on credit. Under its agreement with Saturn, Saturn gives Galaxy a security interest in its shoe inventory. Galaxy filed a financing statement to register its interest under the Manitoba Personal Property Security Act. No other financing statements have been registered against Saturn. Saturn has not paid its rent for two months 11 © 2023 Pearson Canada Inc.

and is in default under its agreement with Galaxy. Jovan and Galaxy both claim to be entitled to seize the shoes currently in Saturn's store. Which of the following is TRUE? A) Galaxy is entitled to the shoes because it has a purchase money security interest in the shoes. B) Jovan is entitled to the shoes because, as a landlord, it has a distraint right that prevails over most security interests. C) Galaxy is entitled to the shoes because Jovan's distraint right is not given priority under the Manitoba Personal Property Security Act. D) Jovan is entitled to the shoes because it has been Saturn's landlord longer than Galaxy has been Saturn's supplier. E) Galaxy is entitled to the shoes because security interests always prevail over landlord's distraint rights. Difficulty: 2 QuestionID: 23-2-13 Topic: Exceptions Skill: Applied Answer: B) Jovan is entitled to the shoes because, as a landlord, it has a distraint right that prevails over most security interests. 14. In June, Alicia borrowed $10,000 from the Toronto-Dominion Bank to start her record company. She agreed to give the bank a security interest in all of her assets, but the agreement was never recorded in writing. In July, she sold some CD-burning equipment to Record Supply Inc. Which of the following best describes the bank's claim against the equipment? A) The bank can enforce its security interest in the equipment against Record Supply because the loan predated the sale of the equipment. B) The bank cannot enforce its security interest in the equipment against Record Supply because the bank's interest never attached to the equipment. C) The bank cannot enforce its security interest in the equipment against Record Supply because there is no privity of contract between the bank and Record Supply. D) The bank can enforce its security interest in the equipment against Record Supply because the rights of secured creditors always prevail against people who buy goods that were subject to a security interest. E) The bank cannot enforce its security interest in the equipment against Record Supply because it has not filed a financing statement to register its security interest. Difficulty: 3 QuestionID: 23-2-14 Topic: Attachment Skill: Applied Answer: B) The bank cannot enforce its security interest in the equipment against Record Supply because the bank's interest never attached to the equipment. 15. In August, Shazad borrowed $20 000 from the Bank of Nova Scotia in order to finance his pool cleaning business. The bank and Shazad entered into a general security agreement under which the bank took a security interest in all of the present and future assets of Shazad. Jacqueline is a car mechanic who did some repairs in September on a truck that Shazad uses to carry on his business. The truck is still in 12 © 2023 Pearson Canada Inc.

her shop in Hamilton, Ontario. Shazad has not paid Jacqueline the $2,000 bill she gave him in September for repairs to the truck, and he is in default under his loan agreement with the bank. Which of the following is TRUE? A) The bank is entitled to the truck because its security interest was created before any interest that Jacqueline has in the truck. B) The bank is not entitled to the truck because it has not filed a financing statement to perfect its security interest. C) Jacqueline's possessory lien on the truck prevails over the bank's security interest. D) Jacqueline's possessory lien is excluded from the application of the Ontario Personal Property Security Act, so the bank's security interest prevails over her interest. E) The bank is entitled to the truck because Shazad did not give Jacqueline a security interest in the truck. Difficulty: 3 QuestionID: 23-2-15 Topic: Priorities Under PPS Legislation Skill: Applied Answer: C) Jacqueline's possessory lien on the truck prevails over the bank's security interest. 16. The Bank of Nova Scotia and MMX Corp are discussing setting up a line of credit for MMX. Under the terms of the line of credit, MMX will be able to require the bank to advance it funds at any time up to an aggregate cap of $10,000. MMX will give the bank a security interest in all of its present and future assets. The parties have not yet entered into an agreement and the bank has advanced no money. The bank files a financing statement to register its interest in anticipation of the agreement being entered into. Subsequently, Melanie, the president of MMX, lends the corporation $20 000. MMX gives her a security interest in all its present and future assets. Melanie files a financing statement to register her interest. Which statement best describes the relative priority of the claims of Melanie and the bank? A) The bank has priority over Melanie because it registered its security interest before Melanie registered hers. B) Melanie has priority over the bank because her claim is for a larger amount of money than the bank's. C) The bank has priority over Melanie because MMX and the bank began negotiating before Melanie's loan was made. D) Melanie has priority over the bank as the bank's security interest did not attach. E) The bank has priority over Melanie because Melanie has a close relationship with the corporation as its president. Difficulty: 3 QuestionID: 23-2-16 Topic: Attachment Skill: Applied Answer: D) Melanie has priority over the bank as the bank's security interest did not attach. 17. Perfection of a security interest in collateral means that A) no other interest of any kind in the same collateral can rank ahead of the security interest. B) the security interest only ranks ahead of unperfected interests in the same collateral. 13 © 2023 Pearson Canada Inc.

C) if the security interest is perfected by filing a financing statement, it generally ranks ahead of any interest perfected after the date of registration as well as unperfected security interests in the same collateral. D) no other security interest in the same collateral can rank ahead of the security interest. E) no other creditor can obtain a perfected interest in the same collateral. Difficulty: 2 QuestionID: 23-2-17 Topic: Perfection Skill: Applied Answer: C) if the security interest is perfected by filing a financing statement, it generally ranks ahead of any interest perfected after the date of registration as well as unperfected security interests in the same collateral. 18. The notice filing systems in place in most provinces have which of the following advantages? A) A secured party can perfect its security interest by filing a financing statement electronically. B) A notice of each new security agreement between a secured party and a debtor is sent to all financial institutions. C) Notice filings provide notice of the availability of hard copies of security agreements. D) A secured party can register a security interest as soon as the security agreement is entered into. E) The notice filing system provides a system of indefeasible validity to registered charges. Difficulty: 1 QuestionID: 23-2-18 Topic: Perfection Skill: Recall Answer: A) A secured party can perfect its security interest by filing a financing statement electronically. 19. Orange Bank was going to lend Fasgo Inc $1 million. As security for the repayment of the loan, Fasgo was going to give Orange Bank a general security interest in all its present and future assets. The parties have decided that the agreements will be signed and the financing will be completed on Friday. Orange Bank should file a financing statement to register its interest a few days before the completion of the transaction because A) it will save time at the completion of the transaction on Friday if the filing is done ahead of time. B) the filing will perfect the security interest of Orange and it is in the bank's interest to perfect its interest as soon as possible. C) the filing will prevent any other person from obtaining a security interest in the assets of Fasgo. D) once the financing transaction is completed on Friday, the priority of the bank's security interest will be determined by reference to the date of the filing. E) Fasgo will be bound to give the security when the filing is made. Difficulty: 2 QuestionID: 23-2-19 Topic: Priorities Under PPS Legislation Skill: Applied 14 © 2023 Pearson Canada Inc.

Answer: D) once the financing transaction is completed on Friday, the priority of the bank's security interest will be determined by reference to the date of the filing. 20. Info-Tech Ltd is a distributor of computers. Info-Tech borrowed $500,000 from the Bank of Montreal in 2008. In its written agreement, Info-Tech agreed pay back the loan over four years. As security for the loan, it gave the bank a security interest in all of its present and future assets. The bank never filed a financing statement to perfect its interest. In September 2009, Info-Tech still owed $400,000 to the bank. It also owed $40,000 to Computer Sales Inc, its primary supplier. Info-Tech defaults on its loan payments and its payments to Computer Sales. Computer Sales sues Info-Tech and gets a judgment for $40,000. It then takes possession of Info-Tech's inventory and starts selling it off. The bank finds out and claims that its security interest prevails over Computer Sales. Which of the following best describes the legal position of the parties? A) The bank is entitled to the inventory because its interest attached before the judgement in favour of Computer Sales. B) Computer Sales is entitled to the inventory because, as a supplier it has a purchase money security interest. C) Computer Sales is entitled to the inventory because, as a judgment creditor in possession of the inventory, it prevails over the bank's unperfected security interest. D) The bank is entitled to the inventory because it has a security interest in the inventory and Computer Sales does not. E) The bank is entitled to the inventory because it is owed much more than Computer Sales. Difficulty: 2 QuestionID: 23-2-20 Topic: Priorities Under PPS Legislation Skill: Applied Answer: C) Computer Sales is entitled to the inventory because, as a judgment creditor in possession of the inventory, it prevails over the bank's unperfected security interest. 21. Donaldo China Inc is an importer of plates operating in Toronto. It borrowed $100,000 from Barings Bank and, in a written agreement, gave the bank a security interest in its inventory. The bank filed a financing statement to register its security interest for two years in 2010. The bank's registration expired in December 2012. In April 2013, Donaldo becomes bankrupt. A trustee in bankruptcy is appointed to administer the estate of Donaldo. Which of the following statements is TRUE? A) The trustee in bankruptcy will treat Barings's security claim as an unsecured debt. B) Barings's security interest was perfected so it is can be enforced against Donaldo's assets even though Donaldo is bankrupt. C) Because Barings's interest had attached, it is enforceable against third parties like the trustee in bankruptcy. D) Because Barings's has a security interest, the trustee has a discretion to treat it as a secured creditor. E) Barring's security interest automatically is perfected by the bankruptcy and therefore takes priority. Difficulty: 2 QuestionID: 23-2-21 15 © 2023 Pearson Canada Inc.

Topic: Priorities Under PPS Legislation, Perfection Skill: Applied Answer: A) The trustee in bankruptcy will treat Barings's security claim as an unsecured debt. 22. TevCo Inc supplies tennis racquets to Olympus Sports Inc, a retail sporting goods store. TevCo and Olympus have entered into a supply agreement which provides that TevCo has a security interest in all racquets it supplies until they are paid for by Olympus. TevCo filed a financing statement to register its security interest on January 1, 2011. Prior to that date, Olympus had entered into an agreement with the Bank of Ottawa for an operating line of credit. As part of that agreement, Olympus gave the bank a security interest in all its present and future assets. The bank filed a financing statement to register its interest on December 1, 2009, indicating an interest in all of the debtor's assets including inventory. On March 1, 2012, TevCo delivered to Olympus its first shipment of 100 tennis racquets. Olympus never paid for them. A few days later, Olympus went into default under its agreement with the bank. Both TevCo and the bank claim to be entitled to the tennis racquets. Which of the following best describes the legal position of the two secured parties? A) TevCo's security interest prevails over the bank's because it is a purchase money security interest. B) The bank's security interest prevails over TevCo's because it was perfected first and TevCo does not have priority as a purchase money security interest in inventory because it failed to give notice to the bank. C) The bank's security interest prevails over TevCo's because it registered first, even though TevCo has a purchase money security interest. D) TevCo's security interest prevails over the bank's because conditional sellers always prevail over other secured parties with respect to the assets they sell. E) TevCo's security interest prevails over the Bank's because Olympus defaulted on its obligation to TevCo before it defaulted on its obligation to the bank. Difficulty: 2 QuestionID: 23-2-22 Topic: Priorities Under PPS Legislation, Purchase Money Security Interests Skill: Applied Answer: B) The bank's security interest prevails over TevCo's because it was perfected first and TevCo does not have priority as a purchase money security interest in inventory because it failed to give notice to the bank. 23. The special rules providing for the creation of purchase money security interests under provincial personal property security laws were put in place because if there were no such rules, A) the security interests of suppliers of goods would never have first priority in the goods supplied. B) where other secured parties already have security interests that extend to after-acquired property, a subsequent supplier of goods would not be entitled to first priority for its security interest in the goods supplied. C) suppliers of inventory would be unable to obtain a security interest in the inventory supplied. D) debtors would never be able to obtain inventory financing. E) a financial institution that financed the acquisition of goods by a debtor would never be able to get first priority for its security interest in the goods acquired.

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Difficulty: 3 QuestionID: 23-2-23 Topic: Purchase Money Security Interests Skill: Applied Answer: B) where other secured parties already have security interests that extend to after-acquired property, a subsequent supplier of goods would not be entitled to first priority for its security interest in the goods supplied. 24. Battleford Bank lent Artegal Manufacturing Inc $50,000. The loan is secured by a general security agreement under which Artegal has given Battleford Bank a security interest in all of its equipment. The agreement provides that Artegal must deliver financial statements to the Bank every three months. Failure to do so is defined as a default under the agreement. Artegal fails to deliver financial statements for a three-month period, though it has not missed any loan payments. Which of the following is TRUE? A) The bank is not entitled to take any enforcement action because Artegal's principal obligation to make the loan payments is not in default. B) The bank may take enforcement action because Artegal has committed a default as defined in the security agreement. C) The bank is required to take enforcement action because Artegal has committed a default as defined in the security agreement. D) The bank must give Artegal time to cure the default before taking any enforcement action. E) The bank can only take enforcement action if it demands that the financial statements be delivered and they are not. Difficulty: 2 QuestionID: 23-2-24 Topic: Default by the Debtor Skill: Applied Answer: B) The bank may take enforcement action because Artegal has committed a default as defined in the security agreement. 25. Which of the following best describes why personal property security legislation requires that a secured party in possession of collateral act in a commercially reasonable way when disposing of it? A) Secured parties are not in the business of disposing of the assets of their debtors and so need guidance as to how to do it. B) If there were no legal requirement, secured parties are likely to act in a way which is unreasonable. C) Secured parties are generally only interested in getting paid what they are owed plus their expenses associated with disposing of the collateral and not necessarily in obtaining the best price for the collateral. D) Secured parties must dispose of the collateral quickly to avoid having to pay others with claims against the debtor and so may not act in a commercially reasonable manner. E) Commercially reasonable behaviour is what parties expect in the marketplace. Difficulty: 2 QuestionID: 23-2-25 Topic: Disposition of Collateral 17 © 2023 Pearson Canada Inc.

Skill: Recall Answer: C) Secured parties are generally only interested in getting paid what they are owed plus their expenses associated with disposing of the collateral and not necessarily in obtaining the best price for the collateral. 26. MagicBank has lent $5,000 to Horwood. As security for the repayment of the loan, Horwood gave MagicBank a security interest in his car. Horwood has defaulted on his payments. He still owes $4,000. MagicBank has taken possession of his car. Horwood estimates that his car is worth $3,000. Which of the following is FALSE? A) MagicBank may decide to keep the car in full satisfaction of the debt owed by Horwood. B) MagicBank may decide to sell the car. C) MagicBank may decide to lease the car. D) Whatever MagicBank decides to do, it must act in a commercially reasonable manner. E) Magicbank may dispose of the car in whatever way it thinks is necessary to obtain the money it is owed. Difficulty: 1 QuestionID: 23-2-26 Topic: Disposition of Collateral Skill: Applied Answer: E) Magicbank may dispose of the car in whatever way it thinks is necessary to obtain the money it is owed. 27. Albert carried on a jewelry store business in Edmonton. He borrowed $10,000 from the Bank of Edmonton. As security for the repayment of his loan, Albert had given the bank a security interest in his inventory and equipment. The bank failed to file a financing statement to register its interest. Albert sold all his gem-cutting equipment to Bruce who carried on another jewelry store business because he had decided to get out of this aspect of the business. Bruce is not aware of the bank's security interest. Which of the following statements best describes the interest of the bank in the gem-cutting equipment? A) The bank has no interest because the sale of equipment by Albert was a business decision. B) The bank's interest follows the equipment into the hands of Bruce. C) Bruce takes the equipment free of the bank's interest because the bank's interest is not perfected and Bruce was not aware of it. D) The bank's interest follows the equipment into the hands of Bruce because the bank did not consent to the transfer. E) The bank never had any interest in the equipment because it failed to file a financing statement to perfect its interest. Difficulty: 3 QuestionID: 23-2-27 Topic: Priorities Under PPS Legislation, Security Interests When Collateral is Transferred Skill: Applied Answer: C) Bruce takes the equipment free of the bank's interest because the bank's interest is not perfected and Bruce was not aware of it.

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28. Sarah, a public servant, gave a security interest to her brother Peter in all her assets to secure her obligation to repay a loan from Peter. Peter filed a financing statement to register his interest. Subsequently, Joan bought some furniture from Sarah. Joan had no knowledge of Peter's security interest. Which of the following statements best describes Joan's legal position? A) Joan's interest in the furniture is subject to Peter's security interest. B) Joan's bought the furniture free of Peter's security interest because Sarah is not in the business of selling furniture. C) Joan bought the furniture free of Peter's security interest because security interests of close family relatives are not enforceable against third parties. D) Joan bought the furniture free of Peter's security interest because she had no notice of it. E) Joan is obliged to give the furniture to Peter. Difficulty: 2 QuestionID: 23-2-28 Topic: Perfection Skill: Applied Answer: A) Joan's interest in the furniture is subject to Peter's security interest. 29. Sally borrowed $50,000 from Halifax Bank to renovate her basement. The loan was to be repaid in monthly instalments over five years. The interest rate was 5 percent. Sally's mother, Elise, guaranteed the loan. Elise was provided with independent legal advice before she signed the guarantee. After two years, Sally sought to increase the amount of the loan. After a few meetings, Sally and the bank agreed to increase the loan to $75 000 and to increase the interest rate to 7 percent. Which of the following statements regarding Elise's legal position is TRUE? A) Elise is still bound by her guarantee notwithstanding the changes to the principal obligation. B) Elise is only bound by the guarantee up to the amount of Sally's original liability under the loan because she did not consent to the increase in the interest rate or the increase in the amount of the loan. C) Elise is still bound by her guarantee because the increase in the interest rate and the extension of the term are not significant changes. D) Elise is not bound by her guarantee because Sally is not in default on the principal obligation. E) Elsie is only obliged to pay the bank the principal but not the increased interest. Difficulty: 2 QuestionID: 23-2-29 Topic: Guarantees Skill: Applied Answer: B) Elise is only bound by the guarantee up to the amount of Sally's original liability under the loan because she did not consent to the increase in the interest rate or the increase in the amount of the loan. 30. In July, Monarch Taverns Inc borrowed $100,000 from the Bank of Commerce to finance its acquisition of a tavern. As security for Monarch's obligation to repay the loan, it gave the Bank a security interest in the tavern's inventory of spirits, then worth an estimated $50,000. Guillermo is an experienced businessman who has run several taverns. He is also the sole shareholder in Monarch. He signed a guarantee of Monarch's obligation to repay the Bank of Commerce. The corporation was represented by 19 © 2023 Pearson Canada Inc.

legal counsel in dealing with the Bank and Guillermo obtained the advice of an independent lawyer with respect to his obligations under the guarantee. After Monarch has operated the tavern business for six months, the value of the inventory has fallen to $20,000. Monarch has advised the bank of this. Which of the following statements best describes Guillermo's obligation to the Bank of Commerce? A) Guillermo is relieved of his obligation under the guarantee because his risk is increased as a result of the decline in value of the collateral. B) Guillermo is not liable under the guarantee because the guarantee exposed him to risk. C) Guillermo is still liable under the guarantee. D) Guillermo is not liable under the guarantee because the bank was aware of the decline in value of the collateral. E) Guillermo is not liable under the guarantee because, as the sole shareholder of Monarch, he is not a separate legal person from the corporation. Difficulty: 3 QuestionID: 23-2-30 Topic: Guarantees Skill: Applied Answer: C) Guillermo is still liable under the guarantee. 31. A true consignment A) is a situation in which ownership is held by the consignee until the item is sold. B) is a type of lease. C) involves an immediate transfer of title between the consignor and consignee. D) is a type of security interest. E) is an arrangement where ownership remains with the consignor until the goods are sold and the consignee is not obliged to pay anything to the consignor until the goods are sold. Difficulty: 2 QuestionID: 23-2-31 Topic: Special Cases Skill: Recall Answer: E) is an arrangement where ownership remains with the consignor until the goods are sold and the consignee is not obliged to pay anything to the consignor until the goods are sold. 32. The process of distraint A) is available against any tenant who fails to pay rent. B) occurs when property is sold under the terms of a chattel mortgage. C) applies to any property found on leased premises. D) is not governed by PPS legislation. E) arises as a result of an agreement between the parties. Difficulty: 2 QuestionID: 23-2-32 Topic: Exceptions 20 © 2023 Pearson Canada Inc.

Skill: Recall Answer: D) is not governed by PPS legislation. 33. A lien A) generally lies outside the scope of provincial personal property security legislation. B) usually occurs as a result of the Bank Act. C) cannot be enforced unless the debtor previously agreed to that possibility. D) is necessary only if the debtor has re-acquired possession of the relevant property. E) almost always arises at common law rather than under statute. Difficulty: 1 QuestionID: 23-2-33 Topic: Exceptions Skill: Recall Answer: A) generally lies outside the scope of provincial personal property security legislation. 34. The process of perfection A) is necessary to the enforcement of any type of security interest. B) may be satisfied by possession in some circumstances. C) refers to the creditor's ability to successfully enforce a security by receiving a payment of money. D) is available, free of charge, under the provincial personal property security system. E) can be used in substitution for the process of attachment. Difficulty: 1 QuestionID: 23-2-34 Topic: Perfection Skill: Recall Answer: B) may be satisfied by possession in some circumstances. 35. Arvid purchased a television from Beula. Under the terms of that contract, Arvid was entitled to immediate possession, but he was not entitled to receive ownership until he paid the full price. The contract required him to pay the total price of $5,000 in 10 equal instalments of $500 each. The parties have created an arrangement known as a A) lease and option to purchase. B) conditional sales contract. C) consignment. D) chattel mortgage. E) leveraged acquisition. Difficulty: 1 QuestionID: 23-2-35 Topic: Conditional Sales Skill: Applied 21 © 2023 Pearson Canada Inc.

Answer: B) conditional sales contract. 36. Chester owns and operates a farm. As a result of financial difficulties in Chester's past, a bank currently holds a security interest in all of Chester's after-acquired property. Unfortunately, Chester's situation recently deteriorated even further when his thresher (a type of farm vehicle) developed irreparable defects. He cannot continue on with business unless he acquires a replacement. This appears to be a problem because he has no money for the purchase price. And while he could otherwise simply purchase the new machine on credit, the bank's security interest suggests that any new security interest necessarily would rank second. Which of the following statements is TRUE? A) Chester's best option is to declare bankruptcy. B) Chester's only hope of purchasing the new thresher is to persuade his bank to forgive part of his existing debts. C) Chester's best option is to secretly purchase the new thresher on credit, without disclosing that fact to the bank that holds the old security interest. D) A purchase money security interest is available to Chester only if his bank agrees to lend him more money and to take a new form of security over the new thresher. E) A thresher vendor is entitled to acquire a purchase money security interest and to enjoy priority over the bank's security interest without the bank's consent. Difficulty: 3 QuestionID: 23-2-36 Topic: Purchase Money Security Interests Skill: Applied Answer: E) A thresher vendor is entitled to acquire a purchase money security interest and to enjoy priority over the bank's security interest without the bank's consent. 37. Shariff's Car Depot (SCD) sells new and used cars. Because it perceived a demand for Tucker Hupmobiles, a type of retro-design vehicle, it purchased several directly from Tucker Auto Inc. Those purchases were made under conditional sales contracts. At the relevant time, SCD paid part, but not all the purchase price. As predicted, SCD received a great deal of consumer interest in the Hupmobiles. It sold one to Ingrid. Several days later, however, SCD fell into serious financial difficulties and defaulted on some of its debts. As it was entitled to do in the circumstances, Tucker purported to exercise its rights to recover all interest in the Hupmobiles that it had conditionally sold to SCD. Which of the following statements is TRUE? A) Because Tucker retained ownership under the conditional sales contract, SCD could not possibly pass good title to the car to Ingrid. B) Ingrid is entitled to retain the vehicle only if she proves that (i) she was unaware of the conditional sales contract and (ii) SCD was entitled, under the sales conditional contract, to transfer good title to a purchaser. C) Ingrid is entitled to retain the vehicle only if Tucker failed to perfect its security interest. D) Ingrid can retain the vehicle, even if Tucker had a perfected security interest and she knew about it, as long as she paid fair market value. E) SCD sold the vehicle to Ingrid in the ordinary course of its business and so Ingrid receives it free of the security interest of Tucker. 22 © 2023 Pearson Canada Inc.

Difficulty: 3 QuestionID: 23-2-37 Topic: Security Interest When Collateral is Transferred Skill: Applied Answer: E) SCD sold the vehicle to Ingrid in the ordinary course of its business and so Ingrid receives it free of the security interest of Tucker. 38. Kajal wanted to borrow $500,000 from a bank in order to start up a new business. Because the bank was not convinced that the business would succeed, it insisted upon having repayment of the loan guaranteed. Kajal therefore persuaded her father, Ameen to sign as guarantor. As the bank had feared, Kajal's business failed, and as a result, Kajal cannot afford to repay the entire loan. The bank therefore insists that Ameen is liable to pay as guarantor. Which of the following statements is TRUE? A) The bank must collect from either Kajal or Ameen, and it cannot recover some of the loan from one and the rest from the other. B) If the guarantee agreement contains a clause that prevents Ameen from relying upon any defence that Kajal could have used against the bank, a court will declare that clause to be void. C) Ameen is not liable on the guarantee if, without his consent, Kajal and the bank agreed, after the original documents were signed, to modify the rate of interest. D) Given the relationship between Kajal and Ammen, a court will not enforce the guarantee unless the bank proves that the arrangement was to Ameen's financial advantage. E) The bank cannot enforce the guarantee unless it has already tried to recover payment from Kajal. Difficulty: 2 QuestionID: 23-2-38 Topic: Guarantees Skill: Applied Answer: C) Ameen is not liable on the guarantee if, without his consent, Kajal and the bank agreed, after the original documents were signed, to modify the rate of interest. 39. Caesar's School of Music wanted to substantially expand its operations. To do so, it required a loan of $2 million. Its banker agreed to that loan only on the condition that Caesar's grant security over all of its assets. That included both physical assets, such as guitars and tubas, and intangible assets, such as accounts receivable. It also included all the assets that the company held when the loan was created, as well as any assets that it subsequently acquired. Caesar's accepted those terms. Assuming that the general rules governing floating charges apply here, which of the following statements is TRUE? A) If and when the floating charge crystallizes, it will become entirely impossible for the company to sell any of its assets. B) If the parties use a floating charge, then the interest rate that the borrower is required to pay will fluctuate according to the bank's general lending rate. C) The floating charge will crystallize as soon as the company receives the loan money from the bank. D) If the company sold an asset after the floating charge crystallized, the purchaser acquires the property subject to the bank's security if this is not a PPSA jurisdiction. E) The concept of a floating charge was abolished when the PPS legislation was enacted. 23 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 23-2-39 Topic: Granting a Security Interest in All of the Debtor's Assets Skill: Applied Answer: D) If the company sold an asset after the floating charge crystallized, the purchaser acquires the property subject to the bank's security if this is not a PPSA jurisdiction. 40. Vegreville Food & Farm Inc (VFFI) operates a general store in a rural area of Saskatchewan. For a variety of reasons, the company has experienced continuing and substantial financial difficulties over the past 10 years. As a result, most of its assets are subject to one or more security interests. Those security interests are held by a number of creditors. VFFI recently found itself unable to meet its obligations and it has defaulted on a number of contracts. Creditors are now looking to execute upon their security interests. Which of the following statements is most likely to be TRUE? A) A creditor with a security interest under PPS legislation has an absolute right to immediately seize the relevant assets and to permanently retain that asset for itself. B) If an asset is seized by a creditor, VFFI is not entitled to redeem that collateral by paying the full amount of the missed payment that caused it to go into default under the security interest. C) A creditor with an unperfected security interest has priority over any lien created by law, but not over another unperfected security interest that attached earlier. D) As between competing creditors with security interests registered under provincial personal property security legislation, priority is determined by the date and time of registration rather than by perfection. E) The first secured party to seize has priority over all other secured parties regardless of the time of registration of the security interests. Difficulty: 3 QuestionID: 23-2-40 Topic: Granting a Security Interest in All of the Debtor's Assets Skill: Applied Answer: D) As between competing creditors with security interests registered under provincial personal property security legislation, priority is determined by the date and time of registration rather than by perfection. 41. On behalf of his company, OP Finance, Errol contracted with XYZ Construction to erect an office building. The building will cost $150 million. OP Finance has a very high accounts receivable balance. In order to pay XYZ, Errol arranges a loan from CIBC. From the bank's perspective, it would be best to obtain A) a conditional sale of the building, retaining ownership until OP pays the loan. B) an assignment of accounts receivable. C) a general security agreement. D) a security interest in the building. E) a floating charge. Difficulty: 2 QuestionID: 23-2-41 24 © 2023 Pearson Canada Inc.

Topic: Granting a Security Interest in All of the Debtor's Assets Skill: Applied Answer: C) a general security agreement. 42. Destiny Drilling financed its latest project with a general security agreement with RBC. They signed a security agreement and received the loan on August 1. RBC filled out the financing statement, but forgot to file it. On December 12, Destiny required additional funding for the project, so it entered into a new security agreement that gave CIBC rights in all Destiny's physical capital. CIBC filed a one-year financing statement. On December 13 of the following year, Destiny defaulted on both loans. Which of the following is true? A) RBC should be paid first because it has a general security agreement. B) RBC should be paid first because at the time of default, both interests are unsecured. C) CIBC should be paid first because it perfected its interest. D) CIBC should be paid first because its interest is smaller. E) RBC should be paid first because its interest is larger. Difficulty: 3 QuestionID: 23-2-42 Topic: Priorities Under PPS Legislation Skill: Applied Answer: B) RBC should be paid first because at the time of default, both interests are unsecured. 43. Pierce Electrical is a new company. Upon its creation, Pierce obtained a loan from the Bank of Montreal. Collateral consisted of a perfected general security agreement. That agreement was registered on April 30. On June 1, Pierce realized it needed to expand its fleet. In order to buy 15 new vans on credit, it created a purchase money security interest with the dealer and the vans were used as collateral. That interest was registered on June 8. Which of the following statements is most likely to be TRUE? A) If Pierce defaults, the general security agreement must be settled first. B) If Pierce defaults, the purchase money security interest must be settled first. C) The purchase money security interest is not valid because it was not perfected within 5 days. D) Because of the purchase money security interest, the bank cannot recover its entire interest in the event of default. E) The purchase money security interest is not valid because purchase money security interests cannot be used for physical capital. Difficulty: 3 QuestionID: 23-2-43 Topic: Purchase Money Security Interests Skill: Applied Answer: B) If Pierce defaults, the purchase money security interest must be settled first. 44. Ione lives and conducts business in Ottawa. Three months ago, she borrowed $25 000 from Donovan and put up her brand new Jaguar vehicle as collateral. Two months ago, she borrowed $10,000 from a 25 © 2023 Pearson Canada Inc.

small lending company, called SkyLeitch Inc, and again used her Jaguar as collateral. Unfortunately, as a result of a drop in business revenues, Ione defaulted on Donovan's loan almost immediately. Donovan consequently has seized the car. Which of the following is most likely to be TRUE? A) As long as he is prepared to give up any claim against Ione, Donovan has an absolute right to retain possession of the vehicle. B) Ione can redeem the collateral by simply paying the loan instalments that she already has missed. C) As long as he is prepared to give up any claim against Ione, Donovan has an absolute right to sell the Jaguar to any purchaser for any price. D) Even if Ione does not redeem the collateral, SkyLeitch may do so. E) Because she gave up possession of the Jaguar, Ione is not in default, even though she has missed a payment on the loan. Difficulty: 2 QuestionID: 23-2-44 Topic: When a Debtor Can Get the Collateral Back Skill: Applied Answer: D) Even if Ione does not redeem the collateral, SkyLeitch may do so. 45. Isis is currently sitting in a car dealership's showroom. She wants to buy a car for purely personal use, but since she cannot afford to pay cash, she will finance the purchase with credit. She nevertheless is eager to close the deal and drive away with the car this afternoon. The dealership is willing to business with Isis, but it knows that the transaction must satisfy several special requirements. Which of the following is LEAST likely to be one of those requirements? A) allow a minimum of 30 days to remedy any default on the credit B) disclose the interest rate C) disclose the costs of the car D) disclose the payment scheme E) allow Isis to retain possession unconditionally once she has paid ⅔ of the price Difficulty: 2 QuestionID: 23-2-45 Topic: Special Rules for Consumers Skill: Applied Answer: A) allow a minimum of 30 days to remedy any default on the credit 46. Rory takes his car in to the auto-shop for an oil change. He leaves the car with the owner. When he returns, Rory complains that the price of the oil change was 'too high' and he refuses to pay. What security interest has been created in favour of the auto-shop? A) A lien B) A lease C) A deemed trust D) A right of distress E) Perfection

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Difficulty: 2 QuestionID: 23-2-46 Topic: Risk Management for Creditors Skill: Applied Answer: A) A lien 47. A creditor can reduce risk by obtaining a contractual promise by a third-party to satisfy the debtor's obligation if the debtor fails to do so. The third-party is called a A) creditor. B) guarantor. C) PSMI. D) loan surety. E) bond holder. Difficulty: 1 QuestionID: 23-2-47 Topic: Guarantees Answer: B) guarantor. Essay Questions 1. Royal Bank is considering making a loan to O'Dell Inc, a manufacturer of computers. O'Dell is seeking a loan of $100,000 repayable over three years. If you were the bank manager, what kinds of information would you need to assess the risk of non-payment by O'Dell? Difficulty: 3 QuestionID: 23-3-01 Topic: Risk Management Strategies for Creditors, Facilitating Risk Management for Creditors, Guarantees Skill: Applied Answer: There are several kinds of information you would try to gather. Repayment: Your primary consideration would be whether the business of O'Dell today and over the three-year period of the loan would generate sufficient cash flow that O'Dell would be likely to make the payments. Assets: You would also want to know what assets O'Dell had which could be the subject of a security interest in favour of the Bank. Both the value of assets available and the ease with which they could be readily sold and converted to cash, would be important factors in considering whether to make the loan. Searches: Searches should be conducted of the registries maintained under the personal property security regimes of each province in which O'Dell has assets to see to what extent the assets of O'Dell are subject to existing security interests. A search should be conducted under the Bank Act as well. For claims that cannot be easily searched, it would be desirable to get representations from the O'Dell that there are no such claims. Some investigations could be done to verify these representations. 27 © 2023 Pearson Canada Inc.

Personal Guarantee: You might also consider whether there was a person who was in a good position to give a personal guarantee. If, for example, all the shares of O'Dell were owned by one person, that person has an interest in ensuring that O'Dell gets the loan. If that person also has a significant personal wealth, then a guarantee might be desirable. There are various other business considerations which a lender in this situation would take into account. The answer focuses only on those kinds of information made relevant by the material in the chapter. 2. Marlie carries on a business of selling new and used lamps. In 2009, she obtained an operating line of credit from the Bank of Nova Scotia. Marlie gave the Bank a security interest in all her present and future assets. Jordan is a dealer in imported chandeliers. He and Marlie agree that he will give her possession of a dozen chandeliers to sell on his behalf. Marlie is not obliged to pay for the chandeliers unless she keeps them for more than 30 days. Marlie goes into default on her loan. The bank seizes all of her inventory, including the 12 chandeliers. Jordan finds out about the seizure and demands the chandeliers, saying that they are his. Is Jordan entitled to get the chandeliers back? Difficulty: 2 QuestionID: 23-3-02 Topic: Special Cases / Perfection / Priorities Under PPSA / Purchase Money Security Interests Skill: Applied Answer: Whether Jordan can get the chandeliers back depends on the nature of his interest in them. If the transaction was a true consignment, then the transaction is outside the scope of the applicable personal property security laws. As the owner of the chandeliers, Jordan would be entitled to get them back. Marlie has no interest in them. In contrast, if the transaction, in substance, creates a security interest, then Jordan would have an unperfected security interest and his claim would be lower in priority than the bank's because the bank has a perfected security interest. On the question of whether this transaction is a true consignment, the correct answer is not obvious. The usual test to apply is whether the consignee was obliged to pay for the goods supplied. There was no obligation on Marlie to pay for the chandeliers when they were supplied. However, she became obliged to pay for them if she kept them more than 30 days. Since she was in control of whether she would be bound or not, it is arguable that this arrangement is a true consignment. If the arrangement is found not to be a consignment, Jordan could have claimed a purchase money security interest as a supplier of the chandeliers. Because the chandeliers are inventory, in order to obtain the superpriority of a purchase money security interest, Jordan would have had to file his financing statement before Marlie got possession of the chandeliers. As well, he would have had to search the register maintained under the applicable provincial personal property security legislation to see who else had registered a security interest against Marlie's inventory and given each such secured party notice of his purchase money security interest before Marlie obtained possession of the chandeliers. The Bank apparently had filed a financing statement showing an interest in inventory. Since Jordan did not take the steps necessary to qualify as a purchase money 28 © 2023 Pearson Canada Inc.

security interest, his interest in the chandeliers would be inferior to that of the Bank if the transaction was not a true consignment. 3. Joshua had a licence to operate a nursing home in Scarborough. Under the legislation setting up the licensing scheme, the licence was fully transferable at the request of the licensee. Indeed, licences were bought and sold all the time along with the nursing home businesses that they related to. The licence could only be revoked on limited grounds by the responsible agency of the government of Ontario, and there was a right to appeal any decision to revoke the licence. Under the licence, Joshua operated Green Acres Nursing Home. In order to finance the building of an addition to the nursing home, Joshua borrowed $75,000 from the Bank of Ontario. As security for the loan, he gave the bank a security interest in all his personal property. A few months after he received the loan, Joshua defaulted. Can the bank seize the licence along with Joshua's other personal property? Difficulty: 3 QuestionID: 23-3-03 Topic: Risk Management Strategies for Creditors Skill: Applied Answer: This is an unusually challenging question. The focus should fall more upon the students' ability to identify the issue and the relevant considerations, and less upon specific rules. If the licence is personal property, then it falls within the scope of the bank's security interest and the Ontario Personal Property Security Act. While some licences are personal property, others are not. In each case, it will depend on the nature of the entitlement that the licensee has. If the licensee's entitlement to the licence cannot be taken away by the government, or can only be taken away on very limited grounds, and the licensee is entitled to transfer the licence without the consent of the government, it is likely to be found to be personal property. Here the licences are fully transferable, are frequently bought and sold, and can only be revoked on specifically enumerated and limited grounds. It is likely that a court would find that the licence is personal property. An Ontario court came to the same decision in similar circumstances in a case involving taxi licences: Re Foster (1992) 89 DLR (4th) 555 (Gen Div). 4. Francesca carries on an investment business in Ontario. She borrowed $50,000 from Barry. Francesca gave Barry a security interest in all her present and future personal property. Barry never filed a financing statement to register his interest under the Ontario Personal Property Security Act. Subsequently, she borrowed $20,000 from Toronto Bank to invest in the shares of Argus Corp. The bank took a security interest in the shares and required Francesca to deposit the share certificates with the bank. Subsequently, Francesca defaulted on her obligations to Barry and to the bank. Who is entitled to the shares? Difficulty: 3 QuestionID: 23-3-04 Topic: Priorities Under PPSA Legislation Skill: Applied

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Answer: If the security interests of both the bank and Barry are unperfected, Barry will be entitled to the shares because his interest attached first. The bank can only prevail over Barry if its security interest in the shares is perfected by the bank's possession of the share certificates. Possession of share certificates has been held to constitute possession for the purposes of perfection under the Ontario Personal Property Security Act. Consequently, the bank perfected its security interest in the shares by taking possession of the share certificates. As a perfected security interest, the bank's interest in the shares has priority over Barry's unperfected interest, even though Barry's interest was created and attached first. 5. Alice needed some tractors for her gardening services business in Windsor. She approached Cooper's Equipment Leasing Inc. She asked Cooper's to obtain two tractors meeting her specifications and lease them to her. After performing a credit assessment of Alice, Cooper's decide to proceed with the transaction. Under the terms of the lease, Alice was obliged to make regular monthly payments over two years, which would result in paying Cooper's more than the full purchase price. Alice had an option to purchase the tractors at the end of the lease for $500 each. Alice knew that it was likely that the value of the tractors at the end of the lease would be at least $1,000. In January, Alice stopped making payments under the lease and went bankrupt. Cooper's claimed the tractors, but the trustee in bankruptcy has refused to give them up. Who is entitled to the tractors? Difficulty: 1 QuestionID: 23-3-05 Topic: Leases Skill: Applied Answer: Because the lease has a term exceeding one year, the interest of Cooper's is subject to the priority scheme of the Ontario Personal Property Security Act. Cooper's interest would be an unperfected security interest and not effective against the trustee. The trustee would be entitled to the tractors. Cooper's claim would be treated as a claim of an unsecured creditor, and it would only receive a share of the assets of Alice that are left after all secured parties had realized on their security interests. 6. Aruna ran a grocery store business in Niagara Falls. As security for a term loan to her, she had given Eaton Bank a security interest in her assets under s 427 of the Bank Act. Eaton Bank failed to register its interest under the Bank Act and made several other errors in creating the interest so that it was not effective under the Bank Act. Instead, Eaton Bank filed a financing statement under the Ontario Personal Property Security Act. Subsequently, Natasha lent Aruna $5000 and took a security interest in Aruna's assets. Natasha filed a financing statement under the Ontario Personal Property Security Act to perfect her interest. Later Aruna defaulted on her obligations to both Eaton Bank and Natasha. Whose interest in the assets of Aruna's grocery store business has priority? Would your answer be any different if Aruna's business had not been in Ontario? Difficulty: 2 QuestionID: 23-3-06 Topic: Special Security Interests of Banks Skill: Applied Answer: In Ontario, a bank holding an interest under s 427 of the Bank Act may register it under the Ontario Personal Property Security Act, though the bank is not obliged to. Since Eaton Bank did register and perfect its 30 © 2023 Pearson Canada Inc.

interest it has priority over Natasha's subsequently perfected security interest. 7. Itzik operates a bakery with 10 employees in Regina, Saskatchewan. In May, Itzik borrowed $10,000 from MBank to finance the acquisition of a new oven. He gave MBank a security interest in all his present and future assets as security for his obligation to repay the loan. By July, his business was in trouble. He failed to remit to the Canada Revenue Agency the amounts he had withheld from the wages he paid his employees for May, June, and July. Instead, he used some of it to pay suppliers and the rest, $5,000, he kept at the bakery for emergencies. Itzik defaults on his obligation to MBank. Is MBank entitled to the $5,000? Difficulty: 2 QuestionID: 23-3-07 Topic: Exceptions Skill: Applied Answer: So long as there is no security interest registered against the assets of Itzik and no other security interest that attached prior to MBank's, then MBank's interest would rank first under the scheme of priorities under the Saskatchewan Personal Property Security Act. That does not assure MBank that it will have priority over other entitlements in the assets of Itzik, including the $5,000. Under the Income Tax Act, Itzik is required to hold amounts withheld from employee's wage payments for income tax in trust for the Canadian Government. The government's entitlement to withholdings is not governed by the Saskatchewan Personal Property Security Act. The British Columbia Court of Appeal, in MNR v Tuxedo Transport (2000) 190 DLR (4th) 139 (BCCA), held that the government's claim has priority over security interests under provincial legislation. Consequently, the bank is not entitled to the $5,000. The Canada Revenue Agency is entitled to the money. 8. Norman Cheese Inc operates a retail store selling specialty cheeses. Global Cheese is Norman's exclusive supplier. Global and Norman have an agreement under which Norman's buys cheese on credit, with the purchase price payable 30 days after delivery. As security for its obligation to pay, Norman has given Global a security interest in all of its cheese. Norman defaults on his obligation to pay Global. Global takes possession of Norman's cheese inventory and begins selling it for its own account. Desperate to save his business, Norman agrees to sell Karen all of his cheddar cheese. Karen has no knowledge of Global's interest in the cheese or the fact that the cheese is now in Global's possession. Does Global have an interest in the cheese sold to Karen? Difficulty: 3 QuestionID: 23-3-08 Topic: Security Interest When Collateral is Transferred Skill: Applied Answer: If the sale to Karen were found to be in the ordinary course of business of Norman, then Karen would take the cheddar free of any interest of Global's. However, the sale of all of Norman's cheddar in bulk is not likely to be found to be a transaction in the ordinary course of the retail cheese business operated by Norman. If Global's interest was unperfected, then Karen would take the cheese free of Global's interest because she has no 31 © 2023 Pearson Canada Inc.

knowledge of it. Global may successfully argue that its interest became perfected at the time it took possession of Norman's cheese inventory and started selling it for its own account. This occurred before the sale to Karen. If Global's interest was perfected, then Karen would take the cheddar subject to Global's interest. 9. Baton Trucks Inc sold trucks in Alberta. Baton bought its trucks from Cold Automotive Inc. Under the terms of its agreement with Cold, Baton had agreed to give Cold a security interest in all of the trucks it acquired from Cold until they were paid for. Baton sold two trucks to Del's Flowers Inc in July. Del's paid for them but did not pick them up right away. Del's was run by Wendel, a friend of the president of Baton and knew about the security agreement that Baton had with Cold, though not its specific terms. Baton defaulted on its agreement with Cold, and Cold seized all of the trucks on Baton's lot including the two that had been sold to Del's. Who is entitled to the two trucks bought by Del's? Difficulty: 3 QuestionID: 23-3-09 Topic: Perfection / Priorities Under PPSA Legislation / Security Interest When Collateral Is Transferred Skill: Applied Answer: Cold's security interest had attached and is enforceable against third parties. Because Cold did not perfect its interest by registration, the Alberta Personal Property Security Act provides that its interest cannot be enforced against a purchaser of collateral unless the purchaser knew of the security interest. Here, since Wendel knew of Cold's interest, Del's cannot rely on this provision. An alternative argument Cold could make is that by taking possession of the trucks, it had perfected its interest. If Cold's interest was perfected, it could follow the trucks into Del's hands as well. The trouble with this argument is that Cold did not take possession in this case until after the sale to Del's. By the time Cold perfected, Del's had already bought the trucks free of Cold's interest. So, even if Cold did perfect its interest, likely it occurred too late. However, notwithstanding the foregoing, Del's will be found to be entitled to the trucks. Del's would argue that the sale of the trucks was in the ordinary course of Baton's business, in which case, Del's would be entitled to the trucks unless the transfer was a breach of the security agreement and Del's knew that the transaction was a breach. A provision prohibiting sales of inventory would be quite unusual. In any event, there is nothing in the question to suggest that the sale was a breach of the security agreement. Consequently, Del's would take the trucks free of Cold's interest and would be entitled to them. 10. Kathy has a horse farm where she raises thoroughbred horses to race. She had negotiated a loan of $25,000 from Commerce Bank to buy a new truck for the business. The bank took a security interest in all her present and future assets in a general security agreement. The bank registered its security interest in February 2010. A few months later, Kathy negotiated a loan in the amount of $200,000 from Canada Trust for the purpose of buying horses and equipment. Canada Trust took a security interest in all of Kathy's present and future assets under a general security agreement. Kathy spent the money to buy the horses, and they were delivered on June 15, 2010. Canada Trust registered its security interest by filing a financing statement on July 15, 2010. Kathy defaults on her obligations to Canada Trust and the bank. Both the bank and Canada Trust claim that its security interest has first priority. Who is entitled to Kathy's assets?

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Difficulty: 2 QuestionID: 23-3-10 Topic: Purchase Money Security Interests / Priorities Under PPSA Legislation Skill: Applied Answer: Under the basic priority rules, the secured party who has registered to perfect their interest first, in this case the Bank, would have first priority. Because Canada Trust had financed the acquisition of the horses, it could have obtained the super-priority of a purchase money security interest. In order to do so, however, Canada Trust would have had to file its financing statement before or within 10 days of Kathy obtaining possession of the horses. They did not do so and, therefore, cannot claim to have the superpriority of a purchase money security interest. Even though Canada Trust has second priority, it will still be able to take possession of Kathy's assets to the extent that they are not needed to satisfy the bank's claim. 11. Sabra carries on a business selling women's clothing at a retail store. She borrowed $10,000 from the Bank of Nova Scotia and gave the bank a security interest in all of her inventory. The bank filed a financing statement to register its interest. Sabra's entire inventory was bought on credit. The supplier retained title in the clothes as security for the payment of the purchase price. The supplier did not perfect its security interest. About $5,000 worth of inventory had not been paid for when Sabra defaulted on her loan. She had $8,000 left to pay on the loan and the Bank seized all her inventory. Sabra thinks that the inventory was worth in excess of $12 000 if it were sold at full retail prices. The bank found another store to buy it for $9,000. Should Sabra complain about the bank's disposition of the collateral? Difficulty: 2 QuestionID: 23-3-11 Topic: Disposition of Collateral Skill: Applied Answer: Sabra could complain that the bank's disposition was not commercially reasonable. In disposing of the collateral, the bank has a duty to act in a commercially reasonable manner. What is commercially reasonable depends on the facts in each case. Here, it is unlikely that a court would require the bank to act as a clothes retailer with a view to realizing the full retail value. In any case, $12,000 may or may not be an accurate assessment of the full retail value of the clothes. It is only Sabra's opinion. On the other hand, the facts do not disclose if the sale was conducted in a commercially reasonable manner. Apparently, the bank did not conduct a publicly advertised sale at which competitive bidding would have helped to ensure that a fair price was realized, nor did it seek a valuation to ensure that $9,000 was a fair price. If Sabra thinks $9,000 was not a fair price, and she can obtain a professional valuation to support her opinion, she may be successful in seeking compensation from the bank for disposing of the clothes in a manner which was not commercially reasonable. Anything she was able to recover in such an action would simply have to be paid to the supplier. Nevertheless, she has an interest in ensuring that as much is realized from the clothes as possible so she can reduce her indebtedness. 12. Legrand Distribution Corp sells watches to wholesalers in Ontario who resell them to retail outlets. 33 © 2023 Pearson Canada Inc.

Legrand also sells to some retail outlets directly. One of Legrand's wholesale customers is Reuben. Legrand has entered into a contract with Reuben under which Reuben gave Legrand a security interest in all watches supplied by Legrand until they are paid for. Reuben defaulted on his payment obligations and Legrand, acting under the security agreement, seized all the watches supplied by Legrand that are in Reuben's store. The total amount owed by Reuben to Legrand is $2,500. Legrand could probably sell the watches for $3,000. Instead of selling them right away, Legrand decided to keep the watches. Legrand sent Reuben a note saying that it is taking the watches in full satisfaction of Reuben's debt to Legrand. Reuben is unhappy because he knows the watches are worth more than he owed Legrand. Is there anything that Reuben can do about this? Should he try to do anything about it? Difficulty: 2 QuestionID: 23-3-12 Topic: When a Secured Party Can keep the Collateral Skill: Applied Answer: Reuben can object to Legrand keeping the watches. If he does so, Legrand must sell them and apply the proceeds against any reasonable expenses Legrand has incurred in taking possession and disposing of the watches and then against the amount owed by Reuben. If there is any excess, Reuben is entitled to it. In considering whether he wants to require Legrand to sell the watches, Reuben would have to consider not only the value of the watches and the risk that the full value may not be realized on the sale, but also that Legrand is entitled to its reasonable expenses. Taking this into account, Reuben may not want to object to the sale because there is a risk that, if Legrand is force to sell the watches, it may not realize enough to cover all of Reuben's indebtedness to Legrand. 13. Anders runs a piano store. In order to finance his business, he has an operating line of credit from the New Brunswick Bank. His obligations to the bank are secured by security interest in all of his assets, but he is permitted to sell pianos. The bank has perfected its security interest by filing a financing statement under the New Brunswick Personal Property Security Act. Anders sells a piano to Mac. Does Mac get the piano free of the security interest that Anders has given to the bank? Difficulty: 1 QuestionID: 23-3-13 Topic: Disposition of Collateral Skill: Recall Answer: Yes. The effect of the bank's consent to Anders selling pianos is that buyers of the pianos receive them free of the security interest of the bank. Even without the consent, Mac would still receive the piano free of the bank's security interest because the sale is in the ordinary course of Anders's business. 14. People who give guarantees are vulnerable to the actions of the principal debtor and the creditor. Explain how the law seeks to protect guarantors with reference to examples of the ways in which the guarantor may be put at risk. Difficulty: 2 QuestionID: 23-3-14 34 © 2023 Pearson Canada Inc.

Topic: Guarantees Skill: Recall Answer: Any action by the creditor or the creditor and the principal debtor that increases the risk that the guarantor will have to make payment of the debt, or pay more than it would have otherwise, must have the consent of the guarantor or the guarantor may be relieved of liability. The following are examples of actions by the creditor or the creditor and the principal debtor which may result in the guarantor being released from liability: - The contract between the creditor and the principal debtor is modified in a manner prejudicial to the guarantor, such as to increase the size of the loan, or the rate of interest agreed to be paid. - The creditor breaches the contract with the principal debtor and the guarantor's risk is affected. This may occur, for example, where the creditor seizes the principal debtor's assets given to secure the loan without giving the principal debtor the notice required in the contract. - The creditor does something to diminish the value of the collateral given by the principal debtor to secure the debt, such as agreeing to release its security interest in a specific asset so that the debtor may sell the collateral free of the security interest. - The creditor breaches the contract of guarantee. Perhaps the guarantee required that the creditor refrain from taking any enforcement action against the principal debtor without consulting with the guarantor and the creditor took enforcement action without notice to the guarantor. 15. Solomon Ltd carried on a boat building business. In July, as security for a loan in the amount of $15,000 from the Royal Bank, Solomon Ltd had given the bank a security interest in all its present and future assets. The loan provided that the interest rate would be 10 percent per year. Aaron Solomon is the sole shareholder and the president of Solomon Ltd. He gave the bank a personal guarantee of the corporation's indebtedness. In September, the corporation, acting through Aaron Solomon, agreed that the interest rate on its loan would be increased to 11 percent, if it was given the right to prepay the loan any time it wanted to. In November, Solomon Ltd defaulted on its obligations to the bank. The bank seized the assets of the corporation, but these were insufficient to satisfy the corporation's obligations to the bank. The bank demands payment of the shortfall from Aaron Solomon under the guarantee. Is Aaron Solomon liable to pay the shortfall to the bank? Difficulty: 2 QuestionID: 23-3-15 Topic: Guarantees Skill: Applied Answer: Aaron Solomon undertook to pay the corporation's debts in his guarantee. The modification to the terms of the principal indebtedness to increase the interest rate and add a prepayment privilege may have been sufficient to relieve Solomon from liability if they were found to have been made without his consent, notwithstanding that the overall impact on his risk may have been relatively small. Based on the facts in the question, however, the bank may argue that since he negotiated the transaction with the bank on behalf of the corporation, he was aware of the changes and, at least implicitly, consented to them. It is not entirely clear that this argument of the bank will succeed, however. Aaron Solomon may not have been aware of the impact that the change to the agreement between the bank and the corporation would have on his risk under the guarantee. In order to make sure that he was fully cognizant of the impact on him, it may be that 35 © 2023 Pearson Canada Inc.

the bank should have ensured that he be independently advised. This would ensure that the guarantee would be fully enforceable against Solomon. 16. The Royal Bank of Canada made a loan to Maker's Equipment Ltd. As security for the loan, the bank obtained a security interest in all property currently owned or acquired in the future by Maker's Equipment Ltd. It registered its interest in 2001 by filing a financing statement. Maker's business was selling and leasing equipment manufactured by Sun Equipment of Canada Ltd. In 2002, Sun entered into an agreement to finance the acquisition of its equipment by Maker's Equipment Ltd. On 7 September 2002, Sun gave notice to the bank that it would have a PMSI in the equipment that Maker would acquire from Sun as inventory. Sun filed a financing statement in relation to this interest on 20 September 2002. Subsequently, in 2003, 2004, and 2005, Maker Equipment Ltd. acquired three pieces of equipment from Clark but did not pay for them. In June 2006, Maker Equipment defaulted on its loan, and the bank seized the equipment. Sun claimed that it had first claim to the equipment because it had a PMSI that ranked ahead of the bank's previously registered security interest. Is Sun Correct? Difficulty: 2 QuestionID: 23-3-16 Topic: PSMI Skill: Applied Answer: Sun has met the requirements for a PMSI: (i) Sun's interest had been perfected by registration before Maker got possession of the collateral, and (ii) Sun had given notice to the bank of its PMSI claim in Maker's inventory. Sun was therefore entitled to seize the equipment in priority to the bank.

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Managing the Law, 6e (McInnes) Chapter 24: Dealing with Bankruptcy and Insolvency True/False Questions 1. The principle of creditor equality in bankruptcy essentially means that all creditors are to recover the same amount from the bankrupt's estate. a True b False Difficulty: 2 QuestionID: 24-1-01 Topic: Creditor Equality Skill: Recall Answer: b. False 2. It can accurately be said that almost all bankrupts are insolvent. a True b False Difficulty: 1 QuestionID: 24-1-02 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Recall Answer: a. True 3. Roulah is owed $50,000 by Freddie. It has been several months since the debt came due and Roulah is considering whether she should begin bankruptcy proceedings against Freddie to try to recover the loan. She can assign Freddie into bankruptcy. a True b False Difficulty: 2 QuestionID: 24-1-03 Topic: The Process of Bankruptcy Skill: Applied Answer: b. False 4. Pico has put his fashion clothing company into bankruptcy due to poor business conditions at the mall where the company's sole outlet is located. The company has secured, preferred, and general unsecured creditors. Only secured creditors will be permitted to immediately realize on their claims against the company. Other creditors will have to wait until the company's assets are liquidated for their share of the distribution. At that time, there may be nothing left, but this is a risk that they took when they extend 1 © 2023 Pearson Canada Inc.

credit to Pico's company. a True b False Difficulty: 2 QuestionID: 24-1-04 Topic: Categories of Creditors Skill: Applied Answer: a. True 5. A receiving order is a court order that entitles a creditor to receive payment of a debt, in accordance with the scheme established by the Bankruptcy and Insolvency Act. a True b False Difficulty: 1 QuestionID: 24-1-05 Topic: Application by Creditors for a Bankruptcy Order Skill: Recall Answer: b. False 6. Elaine's creditors decided that they wanted to apply for a bankruptcy order against her. In order to do so, they must prove before the Registrar in Bankruptcy that she owes each creditor at least $1,000 and that she has committed an "act of bankruptcy" as defined by the Bankruptcy and Insolvency Act during the past six months. They are planning to assert that she has failed to pay her debts as they came due. a True b False Difficulty: 3 QuestionID: 24-1-06 Topic: Application by Creditors for a Bankruptcy Order Skill: Applied Answer: b. False 7. In undertaking an assignment, Marie-Justine completes a preliminary statement of her affairs that sets out a list of her debts and the names of her creditors to the best of her recollection. This is the second time that Marie-Justine has had to file for bankruptcy and she feels badly. She also enrolls in mandatory credit-counselling classes, which teach her how to manage her financial affairs so that she does not have to file for bankruptcy ever again. With good behaviour, she can apply for an automatic discharge from bankruptcy within three months of the assignment. a True b False

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Difficulty: 2 QuestionID: 24-1-07 Topic: Undischarged Debt Skill: Applied Answer: b. False 8. After many long years in school, Kris graduated 16 months ago. He was excited about earning a good salary. He was even more excited that he no longer had to worry about finding enough money for food and rent each month. In fact, the expense of attending school caught up with him and he was forced into bankruptcy a little over a year ago. Just last week, however, he received his discharge from bankruptcy. Happy days indeed. That means that he certainly will not have to pay any of the debts that he incurred as a student. a True b False Difficulty: 2 QuestionID: 24-1-08 Topic: Undischarged Debt Skill: Applied Answer: b. False 9. Janine decides to make an assignment into bankruptcy. She has a number of creditors, including those that are secured (a bank has a mortgage against her house), preferred (the government, for some unpaid taxes), and general unsecured (all of the remainder). Janine would like to keep her household furniture worth $1,500, but she will not be able to do so because all of her property must be made available to satisfy the claims of creditors. a True b False Difficulty: 1 QuestionID: 24-1-09 Topic: Exempt Property Skill: Applied Answer: b. False 10. Garuda Excavations purchased a 5 tonne excavator from Tonka Inc for $350 000 with the help of a secured loan for that amount from Bank X. The loan covered the full amount of the purchase and was secured against the machinery. Garuda used the excavator for two years, but notwithstanding Garuda's valiant efforts, the company was constantly in the red and was eventually petitioned into bankruptcy by its creditors. Upon learning of the petition, Bank X moved swiftly to realize on its security. It took immediate possession of the excavator, which it sold for $300,000. It will have an unsecured claim against Garuda's estate in bankruptcy for $50,000. a True 3 © 2023 Pearson Canada Inc.

b False Difficulty: 2 QuestionID: 24-1-10 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: a. True 11. Gene1, a biotech firm, is wholly owned by Steve McGuire, who houses the firm in a large, Victorianera house in Vancouver. The house belongs to Gene1. Lately, however, the company has been going through some hard times. Its products are not well-received in the market and, in fact, one of its star pharmaceuticals, which though touted by stock analysts, fails to receive regulatory approval in Canada from the federal government. Sensing trouble ahead, Gene1's Board of Directors decides to deed the house to McGuire in April for $1,000. In May, Gene1 makes an assignment into bankruptcy. The sale of the house will probably be reversed as a settlement. It may also be void as a preference to McGuire, if he is a creditor of the company. a True b False Difficulty: 2 QuestionID: 24-1-11 Topic: Prohibited Pre-Bankruptcy Transactions Skill: Applied Answer: a. True 12. Raheem is a registered massage therapist and does business as STRESSBUSTORZ, a mobile massage lab outfit located inside an old bus. The bus circulates all day around the downtown core in Toronto offering quick relief curbside to harried office workers for a fee. Raheem provides a variety of treatments for a price, including reiki, shiatsu, and Pilates. Cash is occasionally short and STRESSBUSTORZ needs to reorganize itself to gain some "breathing space." Raheem would like to remain in control of the business. STRESSBUSTORZ's best bet would be to agree to a liquidation proposal with its creditors. This would liquidate its debts, but allow the business to keep its assets and continue operating. a True b False Difficulty: 2 QuestionID: 24-1-12 Topic: Proposals Skill: Applied Answer: b. False 13. Tony's Donuts makes a proposal to creditors whereby all secured creditors are placed in the same class and allowed to recover 100 cents on the dollar, all preferred creditors are placed in the same class 4 © 2023 Pearson Canada Inc.

and allowed to recover 80 cents on the dollar, and all unsecured general creditors are put in the same class and allowed to recover 5 cents on the dollar. Some unsecured creditors object to the proposal because they assert that the classifications proposed do not allow them to recover enough and they be in the same class as the secured creditors. That argument will certainly persuade a judge. a True b False Difficulty: 3 QuestionID: 24-1-13 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: b. False 14. Secured creditors often face a difficult choice: either enforce the security or sue the debtor for the outstanding debt. Because of the policy of protecting vulnerable debtors, a secured creditor is never entitled to both enforce the security and, if that does not generate enough money, compel the debtor to pay the deficiency. a True b False Difficulty: 2 QuestionID: 24-1-14 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Recall Answer: b. False 15. Chios Inc is in the business of importing luxury goods into Canada for the purpose of resale. The company prospered for many years. More recently, however, it has begun to struggle as a result of the government's decision to tighten up the laws governing the inspection and assessment of imported goods. When the government announced new amendments that will make the rules even more difficult to satisfy, Chios realized that, as currently structured, it has no hope of financial success in the future. The company therefore hopes to receive protection under the Companies' Creditors' Arrangement Act. As a matter of precedent, however, the company will not be entitled to that statutory protection unless and until it actually becomes insolvent. a True b False Difficulty: 3 QuestionID: 24-1-15 Topic: Other Statutes Dealing with Financial Distress and Failure Skill: Applied Answer: b. False

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16. Being insolvent is the same as being bankrupt. a True b False Difficulty: 1 QuestionID: 24-1-16 Topic: Bankruptcy Skill: Recall Answer: b. False Multiple Choice Questions 1. Which of the following statements is TRUE? A) A bankrupt is never insolvent. B) All insolvents are bankrupt. C) An insolvent is never bankrupt. D) All individuals and corporations forced into bankruptcy have committed an act of bankruptcy which usually means that they are insolvent. E) An insolvent must become bankrupt. Difficulty: 2 QuestionID: 24-2-01 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Applied Answer: D) All individuals and corporations forced into bankruptcy have committed an act of bankruptcy which usually means that they are insolvent. 2. In Canadian bankruptcy law, A) a person is insolvent when no bank or lender will provide credit. B) "liquidation" is the amount, stated in precise dollars and cents, which is available to pay a bankrupt person's debts. C) a "proposal" is a court-approved arrangement that occurs outside of formal bankruptcy. D) "goodwill" is formally defined as the amount by which a business' ability to borrow money exceeds that business' actual assets. E) a "stay" occurs when a creditor decides that it will allow a debtor to continue carrying on business. Difficulty: 2 QuestionID: 24-2-02 Topic: Introduction Skill: Recall Answer: C) a "proposal" is a court-approved arrangement that occurs outside of formal bankruptcy. 3. A discharge is 6 © 2023 Pearson Canada Inc.

A) a formal pronouncement by a court that a debtor is released from bankruptcy. B) a formal pronouncement by a court that a creditor is released from the stay operating in bankruptcy and may sue the bankrupt independently. C) a formal pronouncement by a court permitting the payment of the bankrupt's liquidated assets to creditors. D) a formal pronouncement by a court that a debtor is no longer able to carry on business. E) an informal pronouncement by the business community that a debtor is no longer able to carry on business. Difficulty: 1 QuestionID: 24-2-03 Topic: Introduction Skill: Recall Answer: A) a formal pronouncement by a court that a debtor is released from bankruptcy. 4. Under the Bankruptcy and Insolvency Act, the methods for dealing with a debtor's affairs are A) assignment into bankruptcy, an application for a bankruptcy order by creditors, and liquidation. B) assignment into bankruptcy, an application for a bankruptcy order by creditors, and discharge. C) assignment into bankruptcy, liquidation, and discharge. D) an application for a bankruptcy order by creditors, liquidation, and discharge. E) an application for a bankruptcy order by creditors, a proposal, and assignment into bankruptcy. Difficulty: 1 QuestionID: 24-2-04 Topic: Bankruptcy and Insolvency Law, The Process of Bankruptcy, Proposal Skill: Recall Answer: E) an application for a bankruptcy order by creditors, a proposal, and assignment into bankruptcy. 5. Things have been difficult for Jill during the past few months and she is now contemplating an assignment in bankruptcy. Jill could be found to be a bankrupt by a court if she owes at least a $1,000 in debt AND A) moves out of her house but otherwise remains in Canada. B) cannot meet her obligations as they become due. C) quits her old job. D) starts a new job. E) votes in an election. Difficulty: 2 QuestionID: 24-2-05 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Applied Answer: B) cannot meet her obligations as they become due.

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6. Reiko notices new luxury watches in a jewelry store window and decides to buy one. She enters the store and purchases a watch with her credit card. A few weeks later her credit card bill arrives, with a substantial balance owing. Because she is a careful consumer, the credit card balance is Reiko's only debt, but unfortunately she does not have sufficient funds to pay it. Reiko A) is the subject of a proposal. B) is bankrupt if she owes at least $1,000. C) is an insolvent person. D) has committed an act of bankruptcy and so must become bankrupt. E) is a bankrupt. Difficulty: 3 QuestionID: 24-2-06 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Applied Answer: C) is an insolvent person. 7. Tom, Lucinda, and Hye are friends of Ali and make various loans to him so that he can run his falafelmaking business. The business requires cash as well as equipment to run. Tom has loaned Ali a stove worth $3,000 which, under the terms of the loan agreement, Ali has pledged to return to Tom whenever Tom requests. Lucinda has lent Ali $3,000 in cash, and Hye has given Ali 100 kilograms of sesame seeds worth $1,000. Ali's obligations to Lucinda and Hye are simply to repay them when he can. In the event of Ali's bankruptcy, which of the following statements is TRUE? A) Tom is considered an unsecured creditor, but Lucinda or Hye are not. B) Tom is automatically considered an unsecured creditor, but so are Lucinda and Hye. C) Tom is considered a secured creditor, but Lucinda and Hye are not. D) The claims of Lucinda and Hye have priority over Tom's. E) Tom is a preferred unsecured creditor compared to Lucinda and Hye because he advanced credit first. Difficulty: 2 QuestionID: 24-2-07 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: C) Tom is considered a secured creditor, but Lucinda and Hye are not. 8. In the context of bankruptcy proceedings, an exemption is available to a debtor A) for any and all money earned during bankruptcy. B) only if the debtor is an individual rather than a corporation. C) for personal items but not for assets used for business purposes. D) under the Bankruptcy and Insolvency Act, but never under provincial legislation, because bankruptcy is a federal matter. E) for physical assets, like clothes and a car, but never for intangible assets, like insurance policies and pension plans. Difficulty: 2 8 © 2023 Pearson Canada Inc.

QuestionID: 24-2-08 Topic: Exempt Property Skill: Recall Answer: B) only if the debtor is an individual rather than a corporation. 9. Alexandra finished her college studies as a florist two years ago and has been operating her own florist shop in Victoria. Being a florist is a third career for Alexandra and she has several thousand dollars in student loans accrued from all of her years of study. Things in her new business are not going well, but Alexandra believes that if she can declare bankruptcy she'll be able to start afresh in her business with no debt. In assigning herself into bankruptcy, A) Alexandra could most likely discharge her business debts but probably not her school loans. B) Alexandra could most likely not discharge her business debts, but she could walk away from her school loans. C) Alexandra could discharge all of her debts, regardless of their source. D) Alexandra could not discharge any of her debts. E) the discharging of categories of debt in Alexandra's case will be determined by the trustee in bankruptcy in consultation with Alexandra's creditors. Difficulty: 2 QuestionID: 24-2-09 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: A) Alexandra could most likely discharge her business debts but probably not her school loans. 10. Edgar sells tax advice to businesses from a storefront operation in a local shopping mall. His sales efforts were not successful and, as a result, Edgar assigned himself into bankruptcy several months ago. He had the leased premises in the mall, two computers hooked up to a server, a printer, stationery, and books. The business was Edgar's only venture and it is unlikely that he could enter another line of business. As a result, he wants to know what he can keep out of the hands of creditors. A) He can keep all of the office equipment, regardless of its value. B) He can keep none of the office equipment, regardless of its value. C) He may be able to keep office equipment, provided that it is found to be necessary "tools of the trade" and is worth no more than the allowable provincial exemption. D) He may not be able to keep office equipment because this could be used as household furniture. E) He may be able to keep the office equipment if it is secured property belonging to a bank that has promised it will not take action against him. Difficulty: 3 QuestionID: 24-2-10 Topic: Exempt Property Skill: Applied Answer: C) He may be able to keep office equipment, provided that it is found to be necessary "tools of the trade" and is worth no more than the allowable provincial exemption. 9 © 2023 Pearson Canada Inc.

11. The concept of a stay is most accurately described as A) a requirement that the debtor, once placed in bankruptcy, must stay within the jurisdiction. B) a freeze on all of the bankrupt's property pending distribution to creditors. C) an order by the court that prevents debtors from counter-suing their creditors during the course of bankruptcy proceedings. D) a freeze on creditors' property pending distribution of the bankrupt's estate. E) an order by the court that prevents creditors of the debtor from bringing actions against the debtor for pre-bankruptcy debts. Difficulty: 2 QuestionID: 24-2-11 Topic: Introduction Skill: Applied Answer: E) an order by the court that prevents creditors of the debtor from bringing actions against the debtor for pre-bankruptcy debts. 12. In Canada, bankruptcy law A) is based on a federal statute enacted by Parliament. B) is governed entirely by provincial statutes. C) is primarily created at a municipal level. D) is mostly created by judges rather than legislators. E) is a mix of federal and provincial laws, but provincial law dominates. Difficulty: 2 QuestionID: 24-2-12 Topic: Introduction Skill: Recall Answer: A) is based on a federal statute enacted by Parliament. 13. A debtor may avoid bankruptcy altogether as a result of A) a successful assignment but not a successful application for a bankruptcy order or proposal. B) a successful proposal. C) a successful application for a bankruptcy order but not a successful assignment or proposal. D) a successful application for a bankruptcy order but not a successful proposal. E) a successful receiving order, a successful assignment, or a successful proposal. Difficulty: 2 QuestionID: 24-2-13 Topic: Proposals Skill: Applied Answer: B) a successful proposal.

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14. Under a proposal, a debtor A) must include both secured creditors and unsecured creditors. B) must include secured creditors, but not unsecured creditors. C) must be approved by at least half of unsecured creditors, and those creditors must hold at least twothirds of the face value of the debtor's unsecured debt. D) must be approved by all secured creditors, but the unsecured creditors are not entitled to vote. E) does not need to include any existing creditors in a proposal–only those who agree to lend money to the debtor in future. Difficulty: 2 QuestionID: 24-2-14 Topic: Approval Requirements Skill: Applied Answer: C) must be approved by at least half of unsecured creditors, and those creditors must hold at least twothirds of the face value of the debtor's unsecured debt. 15. Milo's Pedantry Inc is in bankruptcy. The owner of the company wants to better understand the process of bankruptcy. He therefore has asked you to identify and briefly explain the various people involved in the process. Which of the following statements is TRUE? A) The trustee will acquire legal title to the company's unsecured assets and, after assessing the various claims against the debtor, liquidate the assets and distribute the proceeds accordingly. B) The superintendent is the person who supervises, in a hands-on manner, the administration of the bankruptcy proceedings. C) The registrar is appointed by the federal cabinet to inspect and investigate bankrupt's estates. D) The inspectors are appointed by the debtor for the purpose of verifying the creditors' claims. E) The debtor remains in possession and control of the assets until the bankruptcy is completed. Difficulty: 2 QuestionID: 24-2-15 Topic: Trustee in Bankruptcy Skill: Applied Answer: A) The trustee will acquire legal title to the company's unsecured assets and, after assessing the various claims against the debtor, liquidate the assets and distribute the proceeds accordingly. 16. Bankruptcy is superior to a common law debtor/creditor action because it A) avoids a race to the courts, encourages multiple proceedings against the debtor, and gives the debtor a fresh start. B) permits a race to the courts, prohibits multiple proceedings against the debtor, and can give the debtor a fresh start. C) avoids a race to the courts, prohibits multiple proceedings against the debtor, and prohibits giving the debtor a fresh start. D) avoids a race to the courts, prohibits multiple proceedings against the debtor, and gives the debtor a fresh start. E) permits a race to the courts, prohibits multiple proceedings against the debtor, and gives creditors a fresh 11 © 2023 Pearson Canada Inc.

start. Difficulty: 2 QuestionID: 24-2-16 Topic: Bankruptcy and Insolvency Law Skill: Recall Answer: D) avoids a race to the courts, prohibits multiple proceedings against the debtor, and gives the debtor a fresh start. 17. Bill is in business as a contractor. He purchased a tractor worth $100,000 with a loan from Bank X. The full value of the loan was put towards the purchase price and the bank obtained and registered a security interest in the tractor. If Bill's business becomes bankrupt, the bank may A) seize the tractor, sell it, and recoup any short fall from the proceeds of the sale as a secured creditor from the business' estate. B) not seize the tractor and the bank has no claim against Bill's business for the debt. C) seize the tractor, sell it, and recoup any short fall as a general unsecured creditor. D) seize the tractor only if Bill agrees, but the bank has no claim for any short fall thereafter. E) not seize the tractor, but the bank may sue Bill personally for misrepresentation. Difficulty: 2 QuestionID: 24-2-17 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: C) seize the tractor, sell it, and recoup any short fall as a general unsecured creditor. 18. Ludmilla and Sudash formed ICING Inc, a caterer that specializes in frozen desserts and elaborate ice sculptures used for centerpieces. The corporation purchased a refrigerated truck with the help of a loan from Bank X. The bank took a security interest in the truck to secure the full amount of the loan, which was $70,000. Unknown to the bank, however, the truck was worth substantially more than the value of the loan. If ICING goes bankrupt and the Bank X seizes and sells the truck for $80,000, the bank will A) be allowed to retain the entire proceeds of the sale, $80,000. B) not be allowed to retain the $80,000 proceeds from the sale of the truck. Any value beyond $70 000 will have to be paid into the bankrupt's estate for distribution to other creditors. C) have to share the $80,000 proceeds from the sale of the truck with ICING's other creditors, whether secured or unsecured. D) have to share the $80,000 proceeds from the sale of the truck with other secured creditors on a pro rata basis. E) be able to keep only a portion of the $80,000 proceeds from the sale of the truck and sue ICING Inc for any deficiency. Difficulty: 3 QuestionID: 24-2-18 Topic: Creditors' Entitlements Upon Bankruptcy 12 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) not be allowed to retain the $80,000 proceeds from the sale of the truck. Any value beyond $70 000 will have to be paid into the bankrupt's estate for distribution to other creditors. 19. Bankruptcy law is intended to A) keep lenders from extending credit to people who are not habitual customers. B) relieve debtors of the consequences of poor choices. C) ensure that ordinary creditor-debtor laws are used to deal with insolvent debtors. D) create a guarantee that secured creditors receive payment from the government to the extent that debtors cannot pay. E) serve a variety of goals, including the promotion of confidence and certainty in the credit system. Difficulty: 3 QuestionID: 24-2-19 Topic: Bankruptcy and Insolvency Law Skill: Applied Answer: E) serve a variety of goals, including the promotion of confidence and certainty in the credit system. 20. In order to gain creditor (as opposed to court) approval for a proposal under the Bankruptcy and Insolvency Act, a proposal must command A) a bare majority of all creditors in every class, plus the support of all secured creditors. B) only the support of a majority of secured creditors. C) the support of a majority of voting creditors in each class representing at least two-thirds of the face value of the debtor's debt in that class. D) an absolute majority of all creditors in every class, plus the support of all secured creditors. E) at least two-thirds of creditors. Difficulty: 2 QuestionID: 24-2-20 Topic: Proposals Skill: Recall Answer: C) the support of a majority of voting creditors in each class representing at least two-thirds of the face value of the debtor's debt in that class. 21. Within the context of Canada's bankruptcy system, A) the Superintendent of Bankruptcy has wide powers to inspect and investigate bankrupts' estates, regulate and examine the work of trustees in bankruptcy, and intervene in bankruptcy court proceedings across Canada. B) the Official Receiver gathers in and liquidates the debtors' assets and distributes the proceeds to creditors. C) a trustee in bankruptcy is appointed, after a debtor has been discharged from bankruptcy, to provide advice and guidance on financial matters. D) the Registrar in Bankruptcy hears appeals from decisions of the Bankruptcy Court. 13 © 2023 Pearson Canada Inc.

E) an Inspector is a deputy judge with the power to and make interim orders in cases of urgency. Difficulty: 2 QuestionID: 24-2-21 Topic: Officials Involved in Bankruptcy Procedures Skill: Recall Answer: A) the Superintendent of Bankruptcy has wide powers to inspect and investigate bankrupts' estates, regulate and examine the work of trustees in bankruptcy, and intervene in bankruptcy court proceedings across Canada. 22. Sanjana decided to make an assignment in bankruptcy after she lost her job. Times are tough and she just wants a fresh start in life. She put all of her goods into the hands of the trustee appointed in her case, including a '61 Thunderbird coupe that her father left her when he passed away several years before. Since then, the car has sat under a tarp in a neighbour's garage. Sanjana estimates that the trustee should be able to get at least $80,000 for such a fine vintage model. Sanjana can A) require the trustee to seek the estimated amount before he sells, and if he does not achieve that price, buy it back. B) try to auction the car herself and pay the proceeds to the trustee. C) hold on to the car as part of her exempt property. D) give the car to a particular creditor. E) not stop the trustee from selling the car, but if the car pays all her creditors and the costs of the bankruptcy administration, she obtains the residual amounts in the estate. Difficulty: 3 QuestionID: 24-2-22 Topic: Undischarged Debt Skill: Applied Answer: E) not stop the trustee from selling the car, but if the car pays all her creditors and the costs of the bankruptcy administration, she obtains the residual amounts in the estate. 23. The main difference between a transfer at undervalue and a preference is that A) a transfer at undervalue involves an assignment, whereas a preference only involves a proposal. B) a transfer at undervalue involves a transfer of property by the debtor for little or no value, whereas a preference gives preferential treatment to a particular creditor. C) a transfer at undervalue involves a payment of money, whereas a preference involves other types of property. D) a transfer at undervalue involves the Bankruptcy Court, whereas a preference involves the trustee. E) a transfer at undervalue must be in writing, but a preference can be done orally or by conduct. Difficulty: 2 QuestionID: 24-2-23 Topic: Prohibited Pre-Bankruptcy Transactions Skill: Recall

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Answer: B) a transfer at undervalue involves a transfer of property by the debtor for little or no value, whereas a preference gives preferential treatment to a particular creditor. 24. ChazCo carries on an Internet service business. Unfortunately, because ChazCo is perilously close to becoming bankrupt, it has made a proposal to its many creditors. Under the Bankruptcy and Insolvency Act, a number of possibilities are available to ChazCo. That list of options includes A) a composition, under which ChazCo's assets will be controlled by a trustee for the benefit of creditors while the proposal is being performed. B) a scheme of arrangement, which is an agreement between ChazCo and its creditors, which the creditors agree to. C) a fire sale, under which the creditors would unanimously approve ChazCo's plan to destroy all of its assets in order to receive insurance money. D) a liquidation proposal, which would occur if ChazCo's biggest creditor took over the debts held by the other creditors. E) a debt-equity swap, under which ChazCo would exchange its shares for outstanding debt. Difficulty: 2 QuestionID: 24-2-24 Topic: Proposals Skill: Applied Answer: E) a debt-equity swap, under which ChazCo would exchange its shares for outstanding debt. 25. In making a proposal under the Bankruptcy and Insolvency Act, a composition would be most attractive to a creditor where A) the debtor is generally able to pay its debts as they come due. B) the creditor will receive more if the debtor is permitted to continue to operate under the proposal, than if the debtor is forced into bankruptcy. C) the debtor does not want to part with voting control over the company. D) the debtor cannot be trusted to pay its debts. E) the debtor has given a security interest to the creditor in assets that, if sold, would yield proceeds exceeding the amount of the debt. Difficulty: 3 QuestionID: 24-2-25 Topic: Proposals Skill: Applied Answer: B) the creditor will receive more if the debtor is permitted to continue to operate under the proposal, than if the debtor is forced into bankruptcy. 26. Noah, a bodybuilder, has a diet-supplement business. His supplements, GRO-BIG, are becoming increasingly popular, but it will take at least a year before they reach all of their target markets. Unfortunately, time may be running out. Although the future otherwise looks bright, several debts have fallen due and creditors are barking for payment. Noah's business recently became insolvent. If Noah wants to retain control of the business, his best bet would likely be to 15 © 2023 Pearson Canada Inc.

A) make a proposal to his creditors to liquidate the GRO-BIG business. B) encourage one of his creditors to apply for a bankruptcy order. C) make an assignment into bankruptcy so that he can extend the time needed to pay his debts. D) seek court approval of a scheme of arrangement under the Companies Creditor's Arrangement Act. E) make a proposal that convinces the creditors that it is in their interest to give the business more time to pay its debts, rather than trying to demand full payment immediately. Difficulty: 3 QuestionID: 24-2-26 Topic: Proposals Skill: Applied Answer: E) make a proposal that convinces the creditors that it is in their interest to give the business more time to pay its debts, rather than trying to demand full payment immediately. 27. The Companies Creditor's Arrangement Act A) is available to individuals, but not corporations. B) is seldom used because it provides less flexibility than the Bankruptcy and Insolvency Act. C) is often preferred to the Bankruptcy and Insolvency Act if the insolvency of a large corporation crosses international borders. D) is used only once it is clear that a business will become bankrupt and cannot be saved as a "going concern." E) is restricted to debtors who owe less than $5,000,000 in total. Difficulty: 2 QuestionID: 24-2-27 Topic: Other Statutes Dealing with Financial Distress and Failure Skill: Applied Answer: C) is often preferred to the Bankruptcy and Insolvency Act if the insolvency of a large corporation crosses international borders. 28. Joel's business, which makes customized widgets, was clearly in financial trouble in May. The situation grew worse during the summer months. In September, Joel transferred the title to his yacht to his wife for $250,000. The property's market value was $500,000. A short time later, Joel filed for bankruptcy. The transfer of the yacht can be challenged by Joel's creditors A) as a result of being a prescriptive transfer. B) only if Joel filed for bankruptcy within one month of the transfer. C) as a void preference if Joel was indebted to his wife, if the transfer occurred within three months of his bankruptcy, and if he intended to ensure that the property went to his wife rather than his other creditors. D) as a fraudulent conveyance, but only if Joel was insolvent at the time of the transfer. E) but only by using provincial legislation. Difficulty: 3 QuestionID: 24-2-28 Topic: Prohibited Pre-Bankruptcy Transactions 16 © 2023 Pearson Canada Inc.

Skill: Applied Answer: C) as a void preference if Joel was indebted to his wife, if the transfer occurred within three months of his bankruptcy, and if he intended to ensure that the property went to his wife rather than his other creditors. 29. Carmen is an unsecured creditor of Joe's Popular Pizza, which has just gone bankrupt. She learns about the bankruptcy in the newspaper and realizes that she must file a claim if she is to get any money back. Carmen must file a proof of claim A) within the stipulated time period or she will lose the right to receive payment on the debt. B) only if she is a secured creditor. C) if she wishes to argue about a void preference. D) if she wants to pursue Joe's Popular Pizza in another province. E) only if Joe's Popular Pizza has a counterclaim against her. Difficulty: 2 QuestionID: 24-2-29 Topic: Proof of Creditors' Claims Skill: Applied Answer: A) within the stipulated time period or she will lose the right to receive payment on the debt. 30. Natasha runs a lingerie business that caters to a select crowd. Notwithstanding her valiant efforts at promotion, the lingerie business struggles and she has over $10,0000 in debts. She would like to continue operating, at least for a while, so she makes a proposal to creditors. She puts all of her creditors into three classes: one class for creditors claiming less than $1,000, the second class for secured creditors, and the third class for preferred creditors. Which of the following statements is most likely to be TRUE? Natasha's proposal will A) fail because Natasha is not allowed to classify all creditors. B) fail because Natasha has too much debt to be able to make a proposal to creditors. C) succeed as long as the secured creditors are not secured against the same assets and are satisfied in the proposal, and her creditors do not object to the classification as unfair. D) succeed because all creditors will be fully satisfied. E) fail because proposals are allowed for consumer debts, but not for business debts. Difficulty: 3 QuestionID: 24-2-30 Topic: Proposals, Categories of Creditors Skill: Applied Answer: C) succeed as long as the secured creditors are not secured against the same assets and are satisfied in the proposal, and her creditors do not object to the classification as unfair. 31. Newfoundland and Labrador v AbitibiBowater Inc is best known for supporting the proposition that A) an insolvent insurance company must use the Winding-Up and Restructuring Act rather than the Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act. B) debts arising from a student loan remain enforceable even after a discharge from bankruptcy. 17 © 2023 Pearson Canada Inc.

C) a province can avoid the effects of a stay under the CCCA by dressing up a claim for money to look like an order to remediate a work site. D) a province is entitled to suspend the driver's license of a person who has failed to pay a provincial debt, even if that person has been discharged from bankruptcy. E) since bankruptcy is primarily a business issue, a court should apply a provincial statute rather than the Bankruptcy and Insolvency Act whenever there is a conflict between the statutes. Difficulty: 3 QuestionID: 24-2-31 Topic: Other Statutes Dealing with Financial Distress and Failure Skill: Recall Answer: C) a province can avoid the effects of a stay under the CCCA by dressing up a claim for money to look like an order to remediate a work site. 32. The Bankruptcy and Insolvency Act defines a "consumer debtor" as A) an insolvent individual whose debts, excluding those secured on their principal residence, do not exceed $250,000. B) a corporation that is primarily indebted to consumers. C) an individual whose debts arise exclusively from consumer purchases. D) a corporation or an individual who purchases outstanding debts from creditors, and then uses various means to extract payment from the debtors. E) any individual that is not carrying on a business. Difficulty: 2 QuestionID: 24-2-32 Topic: Business and Consumer Bankruptcy Skill: Recall Answer: A) an insolvent individual whose debts, excluding those secured on their principal residence, do not exceed $250,000. 33. Which of the following statements is TRUE with respect to the relationship between bankruptcy and insolvency? A) A person can be bankrupt without being insolvent. B) An act of insolvency automatically triggers bankruptcy. C) Before a person can be put into bankruptcy involuntarily, a court must find that they have committed an act of bankruptcy, which includes being insolvent. D) While an individual can be either bankrupt or insolvent, a corporation can be bankrupt but never insolvent. E) Bankruptcy begins with a bankruptcy order, whereas insolvency begins with a receiving order. Difficulty: 1 QuestionID: 24-2-33 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Recall 18 © 2023 Pearson Canada Inc.

Answer: C) Before a person can be put into bankruptcy involuntarily, a court must find that they have committed an act of bankruptcy, which includes being insolvent. 34. Within the context of creditors' entitlements on bankruptcy, which of the following statements is FALSE? A) Claims by the Canada Revenue Agency are paid before claims by secured creditors. B) A creditor who supplied goods to the debtor within 30 days of the debtor's bankruptcy is entitled to repossess the goods. C) Claims by certain types of suppliers, including farmers, may be paid before claims by secured creditors. D) Employees of a bankrupt company are entitled to be paid out before secured creditors. E) A secured creditor is entitled to enforce its security against a debtor 10 days after giving notice of intent to enforce. Difficulty: 2 QuestionID: 24-2-34 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Recall Answer: D) Employees of a bankrupt company are entitled to be paid out before secured creditors. 35. Domenico is a tradesman who works as an independent contractor. When the economy went into a recession and new construction projects dried up, he found it impossible to make ends meet. As a result, he has stopped meeting his debts as they fell due. Which of the following statements is TRUE? A) Domenico is already bankrupt. B) Because he is an individual, rather than a corporation, Domenico may be put into bankruptcy through the process of assignment but not through a creditor's application for a bankruptcy order. C) Domenico's failure to pay his debts as they fall due constitutes an act of bankruptcy. D) A court will issue a receiving order only if Domenico enters bankruptcy through assignment. E) Domenico is not insolvent. Difficulty: 2 QuestionID: 24-2-35 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Applied Answer: C) Domenico's failure to pay his debts as they fall due constitutes an act of bankruptcy. 36. Xiang is an independent financial advisor. As a result of a few bad decisions, he has fallen on hard times. He is unable to meets his liabilities as they fall due. He believes, however, that he can avoid bankruptcy by persuading all of his creditors to agree to a proposal under which he would be given more time to pay his debts in exchange for his willingness to pay a higher rate of interest. Which of the following statements is TRUE? A) The proposal process must include all of Xiang's creditors, both secured and unsecured. B) Xiang's proposal will succeed only if two thirds of his creditors accept it. C) If Xiang's proposal is rejected by his creditors, he automatically is placed into bankruptcy. 19 © 2023 Pearson Canada Inc.

D) Xiang is entitled to make such a proposal only if he already is in bankruptcy. E) The Bankruptcy and Insolvency Act does not say anything about Xiang's proposal. Difficulty: 2 QuestionID: 24-2-36 Topic: Proposals Skill: Applied Answer: C) If Xiang's proposal is rejected by his creditors, he automatically is placed into bankruptcy. 37. Chopin Inc, a music publishing company, is bankrupt. It has four creditors. One of the creditors, Frederic Ltd, is owed $200,000, and holds security over Chopin's accounts receivable. None of the other claims is secured. The municipal government is owed $100,000 in unpaid taxes. Mazurka Inc is owed $60,000 and Polonaise Inc is owed $40,000. Chopin has assets worth a total of $160,000. Half of that amount consists of its account receivables. The remainder consists of various assets that have been sold to produce a fund of money. Which of the following statements is TRUE? A) The municipality will receive $80,000. B) Mazurka will receive $40,000. C) Frederic is entitled to receive a total of $80,000. D) Polonaise will receive $20,000. E) Frederic is entitled to receive a total of $160,000. Difficulty: 3 QuestionID: 24-2-37 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: C) Frederic is entitled to receive a total of $80,000. 38. Brandenburg Inc has become bankrupt. It has assets worth a total of $200,000. It has five creditors. Sebastien is owed $50,000 and holds security over an asset that is worth $100,000. Johann is owed $50,000 in wages. Bach Corp is owed $200 000. Goldberg Inc and Fugue Ltd are each owed $100,000. Which of the following statements is TRUE? A) If the court finds that Goldberg received a preference, that will mean that Goldberg is entitled to be paid before Fugue. B) Sebastien is entitled to receive $100,000 as a result of its security. C) Bach is entitled to receive a total of $50,000. D) Goldberg and Fugue are each entitled to receive nothing. E) Sebastien is entitled to receive less than $50,000. Difficulty: 3 QuestionID: 24-2-38 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: C) Bach is entitled to receive a total of $50,000. 20 © 2023 Pearson Canada Inc.

39. Martina is a bankrupt student in Ottawa. Her debts exceed $200,000. Of that total amount, $50 000 is owed in student loans. Her assets, in contrast, are worth only $100,000. Included in that total are (i) clothing worth $5,000, (ii) household furnishings worth $7,000, (iii) an insurance policy worth $20,000, and (iv) a Mercedes worth $750,000. Which of the following statements is most likely to be TRUE? A) Although her situation currently seems bleak, Martina will be debt free once she is released from bankruptcy. B) Martina is entitled to keep her car C) Martina is entitled to retain the insurance policy. D) Martina is entitled to retain only $5,000 worth of household furnishings. E) Martina can keep $3,000 worth of her clothing. Difficulty: 2 QuestionID: 24-2-39 Topic: Exempt Property Skill: Applied Answer: C) Martina is entitled to retain the insurance policy. 40. William is the sole shareholder and director of Blackstone Inc, which was created under the Canada Business Corporations Act. The company employs ten people. Unfortunately, as a result of losing a major account, the company has become insolvent. Its secured creditors are threatening to take action and its unsecured creditors are very anxious. William believes that Blackstone will become profitable again, but only if he is given a chance to perform for its current customers and find new ones. Which of the following statements is most likely to be TRUE? A) Blackstone cannot use the Winding-Up Act because it is a federally incorporated company. B) If Blackstone becomes bankrupt, William may be personally liable to pay the company's employees their unpaid wages. C) Blackstone is entitled to use the Companies' Creditors Arrangement Act only if its debts are less than $5 000 000. D) It is highly unlikely that Blackstone will seek protection under the Companies' Creditors Arrangement Act because that statute's procedures are rigid and inflexible. E) Because Blackstone was incorporated under a federal statute, its employees have no special rights if the company becomes bankrupt. Difficulty: 2 QuestionID: 24-2-40 Topic: Liability of Directors of Bankrupt Corporations Skill: Applied Answer: B) If Blackstone becomes bankrupt, William may be personally liable to pay the company's employees their unpaid wages. 41. Wade's company, WaCo Inc, is insolvent and has committed an act of bankruptcy. Last year, Wade's friend, Jacques, went through personal bankruptcy last year. Wade is hoping to learn useful lessons from his friend's experience. Which of the following statements is most likely to be TRUE? 21 © 2023 Pearson Canada Inc.

A) While Jacques made a proposal that merely required approval of half of his creditors, if WaCo makes a proposal, it must be approved by 75 percent of its creditors. B) Unlike Jacques, Wade can make the debts disappear simply by dissolving WaCo. C) Jacques was discharged from bankruptcy, but WaCo will be discharged from bankruptcy only if it pays all of its debts. D) Exactly the same rules that applied to Jacques will apply to WaCo as well. E) WaCo will have to hire his own trustee, whereas Jacques had one assigned to him. Difficulty: 2 QuestionID: 24-2-41 Topic: Corporate and Consumer Bankruptcy Skill: Applied Answer: C) Jacques was discharged from bankruptcy, but WaCo will be discharged from bankruptcy only if it pays all of its debts. 42. Within the context of bankruptcy and insolvency laws, which of the following statements is TRUE? A) A preferred creditor is entitled to be paid before all other creditors. B) Pro rata sharing is a system in which each class of creditors is paid the same amount, regardless of how many members it contains. C) A preference occurs when the debtor pays one creditor, but not others, within a certain time prior to bankruptcy. D) A share exchange is possible only under an assignment into bankruptcy. E) Liquidation occurs only after the debtor is discharged from bankruptcy. Difficulty: 2 QuestionID: 24-2-42 Topic: Prohibited Pre-Bankruptcy Transactions Skill: Recall Answer: C) A preference occurs when the debtor pays one creditor, but not others, within a certain time prior to bankruptcy. 43. Ashitaka has declared bankruptcy and his trustee is currently dividing his assets. Ashitaka has three creditors. The first, a bank, has security on a loan for $30,000. The second is his friend, who is owed $6,000. The third is the government, which is owed $5,000 in taxes. Ashitaka has only one relevant asset, a painting, with fair market value of $33,000. That painting is subject to the bank's security. Which of the following statements is most likely to be TRUE? A) The bank gets $30,000, the government $3,000, and his friend $0. B) The bank gets $30,000, the government and his friend get $1,500 each. C) Each creditor gets $11,000. D) The government gets $5,000, the bank $28,000, and his friend $0. E) The government gets $5,000, his friend gets $1,000, and the bank gets $27,000. Difficulty: 3 QuestionID: 24-2-43 22 © 2023 Pearson Canada Inc.

Topic: Creditors' Entitlements on Bankruptcy Skill: Applied Answer: A) The bank gets $30,000, the government $3,000, and his friend $0. 44. Tae is insolvent. He has selected an Official Receiver to aide him in his bankruptcy proceedings. Tae tells the Official Receiver he wants to file a proposal. Which of the following is most likely to be TRUE? A) Any one of his creditors can still apply for a bankruptcy order. B) Only secured creditors can apply for a bankruptcy order. C) Tae may include a composition, giving him more time to resolve his debts. D) If Tae includes a scheme of arrangement, he must inform his creditors of all actions performed with his assets. E) Tae may include a liquidation proposal, which is a similar process to bankruptcy, but with more control for the Tae. Difficulty: 2 QuestionID: 24-2-44 Topic: Proposals Skill: Applied Answer: E) Tae may include a liquidation proposal, which is a similar process to bankruptcy, but with more control for the Tae. 45. Skynet is an insolvent company. It has approximately $6 million in debt that it cannot repay, but it wants to attempt to continue operating under its own control. Which of the following should Skynet pursue? A) fraudulent conveyance law to prove its debt was given fraudulently B) the BIA to begin bankruptcy proceedings C) the WURA, but only if it is federally incorporated D) the CCAA to begin a restructuring process E) the proposal procedure to begin a scheme of arrangement Difficulty: 2 QuestionID: 24-2-45 Topic: Other Statutes Dealing with Financial Distress and Failure Skill: Applied Answer: D) the CCAA to begin a restructuring process 46. A well-established company has suffered losses in recent years. It has developed a solid reputation and has a favourable public reputation. If a creditor that is considering applying to have a bankruptcy order made against this debtor, it will be because A) of goodwill. B) of a poor credit rating. C) of a stay of proceedings. D) it is awaiting a restructuring proposal. 23 © 2023 Pearson Canada Inc.

E) it is waiting to begin a scheme of arrangement. Difficulty: 1 QuestionID: 24-2-46 Topic: Bankruptcy Skill: Applied Answer: A) of goodwill. 47. A trustee in bankruptcy A) gathers and liquidates the debtor's assets and distributes the proceeds to creditors. B) is not the legal owner of the debtor's assets. C) can initiate a stay of proceedings. D) creates a restructuring proposal. E) starts the arrangement process. Difficulty: 1 QuestionID: 24-2-47 Topic: Trustee in Bankruptcy Skill: Recall Answer: A) gathers and liquidates the debtor's assets and distributes the proceeds to creditors. Essay Questions 1. "Bankruptcy is an alternative to ordinary creditor—debtor action." Discuss this statement and offer business law examples. Difficulty: 3 QuestionID: 24-3-01 Topic: Introduction, Bankruptcy and Insolvency Law Skill: Applied Answer: This question seeks to examine students' understanding of the distinction between bankruptcy and a creditor-debtor action. Although most of Chapter 23 is devoted principally to bankruptcy, students should be aware that creditor-debtor actions remain a real possibility in the pre-bankruptcy period. In fact, such actions will be the principle kind encountered by business people outside of bankruptcy. What is important for students to appreciate is that upon entering bankruptcy, all such creditor-debtor actions are stayed by virtue of the automatic stay under the BIA. Creditors will then be left to seek recovery according to their status (secured, preferred, or general unsecured). There are three ways in which creditor-debtor actions differ from bankruptcy. To begin with, bankruptcy law is federal law and is uniform across Canada. Most creditor-debtor statutes are provincial in scope and vary from province to province. Second, provincial creditor-debtor legislation focuses on individual action by creditors, while bankruptcy is a 24 © 2023 Pearson Canada Inc.

form of court-supervised class action against the debtor. In bankruptcy, all claims are consolidated, prioritized, and dealt with. Third, the possibility for debtor relief and a fresh start are greater under bankruptcy than they are under creditordebtor statutes since the operation of a stay in bankruptcy means that further proceedings against the debtor are prohibited. A further distinction is the fact that many provincial statutes allow a creditor to claim priority for both a debt and the costs associated with recovering that money through execution proceedings by the sheriff. Creditors in bankruptcy are governed by BIA-set priorities and normally recoup only a fraction of their debt. The question itself refers to bankruptcy as "an alternative" to normal creditor-debtor actions. A perceptive answer would be that, in light of the different preconditions for their exercise and the evident differences between the two types of proceedings, they are not truly equivalents. Rather, bankruptcy is to be entered into as a last resort when all other sources of credit, including proposals for composition or extensions of time, have been exhausted or come to an end. 2. Explain the difference between bankruptcy and insolvency. Your answer should focus on how the two concepts are related, if at all. Difficulty: 2 QuestionID: 24-3-02 Topic: Bankruptcy and Insolvency Under the Bankruptcy and Insolvency Act Skill: Recall Answer: This question examines the student's understanding of bankruptcy and insolvency. There may be some confusion between bankruptcy in a generic sense ("oh, he's so bad with money, he's probably bankrupt") and the formal legal designation of bankruptcy in law. Canadian law formally defines bankruptcy as someone who has made an assignment or is the subject of a receiving order, usually as a result of owing at least $1,000 to creditors and having committed a specified "act of bankruptcy." That act of bankruptcy usually involves being insolvent, meaning that the debtor cannot meet its liabilities as they come due. Simply meeting the definition is not sufficient, however. Before a person can actually be put into bankruptcy involuntarily, the situation has to be serious and a court must decide that an act of bankruptcy has occurred. "Insolvency" is a broad term. It refers to an inability to meet financial obligations as they become due. In that sense, it is the threshold to bankruptcy. Most bankrupts will be insolvent when they enter bankruptcy. In modern operations, many businesses operate in, or near, a state of insolvency for long periods of time due to imbalances between expenditures and lags in payment. For this reason, banks and other financial institutions step in to offer financing and can exert great control over the course of business. 3. Name three officials in the bankruptcy process and explain what they do. Difficulty: 2 QuestionID: 24-3-03 Topic: Officials Involved in Bankruptcy Procedures Skill: Recall 25 © 2023 Pearson Canada Inc.

Answer: To begin with, it is important to identify the fact that bankruptcy is a federally regulated process that does not necessarily involve litigation in court. Instead, there are a number of officials who make decisions about administration of the bankrupt's estate, the standing of creditors, and the distribution of assets. Where a decision cannot be made or the parties disagree, the matter may be dealt with by a bankruptcy judge. The central figure involved in any bankruptcy is a trustee, whom the debtor will approach to administer their assets. The trustee is professionally licensed and assumes control of the debtor's assets for the benefit of creditors. The trustee prepares certain essential documents in connection with the bankruptcy, reports on the bankrupt's affairs, adjudicates on creditors' proofs of claim, and then liquidates the assets and distributes the proceeds. The trustee is entitled to be remunerated for that work. Another official engaged in the bankruptcy process is the Registrar in Bankruptcy. This official has the power to hear unopposed applications for bankruptcy orders and proposals, grant discharges, make interim orders in cases of urgency, hear proofs of claim and appeals from decisions of a trustee, and deal with various administrative questions related to the trustee's administration of a bankrupt's estate. As well, under the BIA the creditors have the right to appoint inspectors who supervise the trustee in their management of the bankrupt's estate. In practice, the inspectors are usually the representatives of the largest creditors, but they undertake their role for all creditors. Their decisions may be reviewed by the bankruptcy court if fraud or partiality is shown. Other bankruptcy officials include the Superintendent of Bankruptcy, who is the chief administrative official responsible for bankruptcy in Canada and the Official Receivers who represent the Superintendent in each province and territory. Official Receivers receive bankruptcy assignments and proposals, examine bankrupts, chair the first meeting of creditors and monitor the performance of trustees in bankruptcy. 4. Bernice and her sister, Eda, run Sportfemina Inc, a company specializing in retailing women's sporting goods and apparel. They have a number of suppliers who are creditors of the company for the inventory they provide. This includes golf clubs, weights, racquets of all types, jogging shoes, various types of clothing, and other equipment. Sportfemina runs into trouble, however, and Bernice and Eda have a fairly clear idea that the company will have to enter bankruptcy shortly. They therefore transfer $700,000 worth of inventory free of charge to a competitor store, Sportstrac, that Eda has a part interest in. They also pay off its outstanding debts to two running shoe suppliers in the hope that, after the current trouble subsides, those companies will be eager to extend inventory to Bernice and Eda again. Finally, they assign all of the corporation's accounts receivable to their parents. A month later, Sportfemina enters bankruptcy. What can the trustee do to challenge the foregoing transactions? Difficulty: 2 QuestionID: 24-3-04 Topic: Prohibited Pre-Bankruptcy Transfers Skill: Applied Answer: It is well known that the period leading up to bankruptcy can be hotly contested. Both debtors and creditors may be tempted to engage in questionable behaviour. Debtors may try to shift assets to related companies, friends, or relatives in the hope that these can somehow escape distribution. Such transfers are known as settlements if they are made for free or for nominal payment. Likewise debtors may attempt to prefer, 26 © 2023 Pearson Canada Inc.

or favour, some creditors over others by paying certain debts in advance of assignment or petition. To prevent such unfair depletion of assets from both impairing the equal treatment of creditors and lessening the assets available for distribution, the Bankruptcy and Insolvency Act renders void certain types of transactions. Any settlement made within a one-year period prior to bankruptcy is void. Similarly, a transfer made to a creditor 90 days prior to bankruptcy is void if the aim of the transfer was to prefer that creditor over others. In the case of a non-arm's-length transaction between related parties, such as a husband and wife or affiliated companies, the avoidance period is one year. In this case, it appears that Bernice and Eda have caused Sportfemina to give improper settlements to Sportstrac and to their parents. It also appears that they have caused the corporation to give a preference to the two running shoe companies. All of these may be challenged by the trustee or creditors in bankruptcy court. 5. Jim owns a chain of diners that does reasonably good business. Times are changing, however, and he watches with disbelief as more and more of his customers abandon the traditional diner format for "lite" fare and donuts at competitor establishments. Creditors are now biting at Jim's heels. He is worried that his creditors will seek a bankruptcy order against him and wants to know what this will entail. Discuss. Difficulty: 3 QuestionID: 24-3-05 Topic: Application by Creditors for a Bankruptcy Order Skill: Applied Answer: Jim's problems are those of any established business person experiencing the cold shoulder of shifting consumer preferences. Unlike voluntary assignment, an application for a bankruptcy order is procedure undertaken by a debtor's creditors requesting that the court put the debtor in bankruptcy. Where one creditor is acting alone, it must prove that it is owed at least $1000 before it can start proceedings. Furthermore, it must prove that the debtor committed an "act of bankruptcy" within the past six months. Typically this requires clear evidence that the debtor is insolvent and can no longer pay its debts. A creditor often makes a fresh demand for payment to ensure that the evidence in support of the application is timely. If there are other creditors, the applying creditor will also need evidence from them that the debtor has ceased to meet its liabilities generally and will examine the other creditors for that purpose. Because that examination is outside or prior to a court action there is no guarantee that the other creditors will co-operate. An application can be submitted by one creditor acting individually or by several creditors acting together. Jim's creditors will probably want to act together to save themselves the expense of going it alone against him. In either event, once submitted, the application will become in essence but not formally, a class action in the name of all the creditors. The application will include an affidavit that supports the statements made in the application, as well as a notice that sets the date for hearing of the matter before the registrar or a bankruptcy judge. If the application is undisputed by the debtor, it may be heard by the Registrar in Bankruptcy, who, after examining the documents, may grant the receiving order if they are satisfied that the requirements of the BIA have been met. Disputed petitions are heard by a bankruptcy judge. The main issues before the judge will usually be whether or not Jim has in fact committed the alleged act of bankruptcy, and whether or not the debts 27 © 2023 Pearson Canada Inc.

claimed by creditors are valid. The downside of a successful application is considerable. Jim's assets will be taken from him and he will be financially disabled for at least nine months while the estate is administered and a distribution is made to creditors. When Jim is discharged from bankruptcy he may have a difficult time obtaining fresh credit. 6. Bank X has recently entered the business of extending loans secured on equipment. This means that it is willing to extend a loan for the estimated value of a piece of industrial equipment in return for a security interest in it. The security specifies that in the event of bankruptcy, Bank X retains the right to seize the equipment, sell it, and collect the proceeds in order to satisfy the loan. Bank X's lawyer is unfamiliar with bankruptcy procedure and would like to know what happens if the amount collected from the sale of the equipment is worth more than the value of the security? What if it is less? Difficulty: 3 QuestionID: 24-3-06 Topic: Creditors' Entitlements Upon Bankruptcy Skill: Applied Answer: The beginning of an answer to this question is recognition of the fact that we are dealing with a secured creditor here. A secured creditor is a creditor whose interest is directly linked to a particular asset, such as a tractor or an assignment of the debtor's accounts receivable. The creditor is "secure" in the sense that there are definite assets that the creditor can look to for payment. Secured credit represents the highest degree of protection and (at least initially) it is privileged under the BIA because it is exempt from the stay that is placed on disposition of the debtor's assets. That exemption means that the secured creditor can seize the secured asset for itself immediately. That is a critical advantage. Lowerranked creditors can wait years for their pro-rata shares to be paid, or they may not be paid at all. The question asks what happens in the event that the sale of the asset recoups more or less than the stated value of the debt. So, for instance, what happens if an asset secured for a value of $15,000 is seized and sold for $20,000? Any excess is owed to the bankrupt's estate administered by the trustee. What happens in the alternative hypothetical, that is, if the asset is secured for a value of $15,000 but is sold for only $10,000? The secured creditor is only protected to the extent of the proceeds from the asset secured, or $10,000, but it has the right to lodge a proof of claim with the trustee for the balance owing (here $5,000) as an unsecured creditor. This is a significant downside risk and is often a reason why banks and financial institutions are hesitant to accept security on assets that depreciate quickly or seek security in assets the value of which significantly exceeds the debtor's obligation. 7. Explain how bankruptcy and insolvency law facilitates the operation of the market for credit in Canada. Difficulty: 3 QuestionID: 24-3-07 28 © 2023 Pearson Canada Inc.

Topic: Introduction Skill: Recall Answer: An important point of Chapter 23 is to illustrate the interplay between the markets for debt and credit. Students should understand that lenders are the flip-side of borrowers and that every debtor will have creditors, some explicit, such as those who have lent money, goods, and equipment, and others implicit and involuntary, such as the government claiming unpaid taxes, spousal support obligations, and other preferred claims. The market for credit in Canada matches borrowing opportunities with lenders' taste for risk. Lenders either seek certainty in the form of security, in which case they will be secured creditors, or have some other degree of priority because of their peculiar relationship with the debtor, in which case they will be preferred creditors, or they will be included together with all other lenders in the general pool of unsecured creditors. Bankruptcy law helps to encourage the operation of this market because it gives lenders an idea of what they can expect upon default, thus helping them to price the loans they provide. A lender seeking good protection is going to seek a security interest, which will allow it to realize on the assets secured quickly and hence, charge a lower rate of interest. Unsecured lending will be correspondingly more expensive because it offers less certainty of a sure return. Bankruptcy law offers additional certainty in the sense that all creditors of the same type know that they will be treated the same. To the extent that no one creditor will be worse off than any other of that type, bankruptcy laws actually promote lending in situations of uncertainty. 8. Josefina runs a house-cleaning business in Kanata, an Ottawa suburb known as "Silicon Valley North" due to its heavy concentration of tech company start-ups. Josefina now has several assistant housekeepers who travel around Kanata from client to client performing housekeeping chores on a half-day basis. Josefina's clients are busy professionals who lead busy lives and are happy to have her do their housework. The last thing that they want to do is to come home and clean. However, after the tech stock bust many Kanata residents are into coupon-clipping and penny-pinching once again. Josefina's housekeeping services are among the first luxuries to go. As a result, she is now facing the prospect of either assigning herself into bankruptcy, submitting to an application by her creditors for a bankruptcy order, or making a proposal. Which option should she choose? Difficulty: 3 QuestionID: 24-3-08 Topic: The Process of Bankruptcy Skill: Applied Answer: This question seeks to examine knowledge of the three principal methods of dealing with financial distress and failure in Canada: assignment, an application by creditors for a bankruptcy order, and proposal. To begin with, Chapter 23 points out that there are a number of important tactical considerations that arise before bankruptcy proceedings begin. These are largely informal and do not appear in the BIA, but they are critical to the task of risk management. Josefina must choose whether she wants to leverage her existing assets further to keep operations going or use the threat of assignment to play for time. Likewise, her creditors must 29 © 2023 Pearson Canada Inc.

decide whether to make an application for a bankruptcy order immediately or keep her afloat. The outcome of those deliberations often dictates which procedure is employed. As the text indicates, it is rare for a creditor or group of creditors to seek to make an application for a bankruptcy order immediately. This is because most creditors are reluctant to push a debtor into bankruptcy due to the expense and potential for expensive litigation. Creditors also realize that debtors are their "customers" (ie customers for the loans they provide) and a reputation for enforcing rights to the letter scares other potential customers away. In Josefina's case, her business (housekeeping) is not particularly asset intensive and she is unlikely to possess many pieces of equipment that could satisfy outstanding debts. Her greatest asset is her physical work, which places a premium on the value of her business as a going concern–all the more reason for creditors to be reluctant about seeking a bankruptcy order. For Josefina, an assignment and eventual discharge would allow her to start in business again, though her credit rating would have been damaged. Also, automatic discharge will not be available if her creditors object. As an alternative, Josefina may seek to make a proposal to her creditors. On the one hand, this might be attractive if there is a reasonable prospect that her business as a going concern will be able to repay a significant portion of the debts outstanding. Whether the proposal would be successful would depend on whether the creditors would agree to a compromise, an extension of time for payment, a share in the ownership of Josefina's business, or some other arrangement to continue her business. General factors that will influence whether creditors will be interested in approving a proposal will be their degree of confidence and trust in the debtor and if the proposal will likely generate a better result than bankruptcy. 9. What are the advantages of seeking protection under the Company Creditors' Arrangement Act versus under the Bankruptcy Act? Difficulty: 3 QuestionID: 24-3-09 Topic: Other Statutes Dealing with Financial Distress and Failure Skill: Applied Answer: This question tests students' knowledge of non-bankruptcy alternatives. The BIA is not the only statute that deals with financial distress and failure. A number of the other statutes are provincial and regulate general debtor—creditor relations, such as fraudulent conveyances, business corporations, and personal property security acts. Some may provide more favourable options for debtors or creditors than an assignment, receivership, or proposal under the BIA. In the relevant circumstances, they should be carefully considered. One important alternative is the Companies Creditors Arrangement Act (CCRA), which applies to corporations that have issued debentures in series or under deeds of trust. A company that meets those requirements, and that is insolvent, can apply to a court for protection while assembling a plan of reorganization, but only if its total outstanding debts exceed $5 million. The benefit of applying under the CCRA is that actions by all creditors, including secured creditors, are stayed. This is a significant advantage over the BIA because a company can continue to operate safely in the knowledge that key equipment, such as vehicles and machinery, will not be repossessed by secured creditors. Most major companies in Canada have issued debentures in series or deeds of trust to take advantage of this option. The procedures under the BIA are available to all businesses. 10. What are two differences between corporate and personal bankruptcy? 30 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 24-3-10 Topic: Business and Consumer Bankruptcy Skill: Recall Answer: There are considerable differences in the size and scope of corporate and personal bankruptcy, a fact that suggests that there should be different rules for each type of proceeding. Despite this, there are fewer explicit distinctions between corporate and consumer bankruptcies than might be expected. Two differences are especially important. First, when corporations make proposals to their creditors to settle their obligations, they must be voted upon by creditors and they require the approval of a majority in each class of creditors who represent at least two-thirds of the value of the claims in each class. Consumers can make a simplified form of proposal that only needs to be approved by a bare majority of creditors. Second, corporate debtors are rarely discharged from bankruptcy unless they pay all of their debts. However, first-time consumer debtors who demonstrate responsible behaviour are usually discharged within nine months. 11. Explain why bankruptcy is a federal responsibility under Canadian law. Difficulty: 2 QuestionID: 24-3-11 Topic: Bankruptcy and Insolvency Law Skill: Recall Answer: Canada's Constitution assigns the power to enact bankruptcy legislation to the federal government. The principal reason for this is to assure uniformity across the country. Bankruptcy involves interaction between a debtor and its creditors, many of whom may be located in different parts of the country. If a creditor in one province could be reasonably assured of priority treatment over other creditors elsewhere simply because it filed in the province of the debtor, other creditors would be disadvantaged. For that reason, the federal government has mandated a uniform law that applies throughout Canada regardless of the provincial or territorial jurisdiction where the debtor or creditor is located. Uniformity brings certainty and predictability to the relations of debtor and creditors. 12. Explain why a creditor would accept a proposal in bankruptcy. Difficulty: 3 QuestionID: 24-3-12 Topic: Proposals Skill: Recall Answer: This question tests students' knowledge of the motivation for a proposal. A proposal is a courtapproved arrangement between a debtor and creditors that typically gives the debtor time to adjust its financial affairs while business operations continue. At first sight, the possibility of a proposal may seem counterintuitive given that it is in the interests of creditors to be paid sooner rather than later. Why would a creditor ever accept 31 © 2023 Pearson Canada Inc.

payment tomorrow when they can apply for a bankruptcy order today? The answer is that the bankruptcy of the debtor may be even less attractive. If a creditor invariably enforces its rights to the full extent, it will have to spend a great deal of time and expense in litigation. Moreover, it may acquire a reputation as a stickler, a reputation not every lender wants to have in a competitive lending market. A proposal is, in some sense, an attempt to give the debtor another chance. Normally, the hope is that the debtor, by continuing to operate, will at least be able to pay off its immediate debts. The real benefit is time. By temporarily removing the pressure, the debtor may be able to return to profitability, with the prospect of even greater payback for creditors in future that will compensate for current forbearance. Whether a proposal will be attractive to creditors will depend on the prospects for the debtor to carry on business successfully and the rights acquired by the creditors under the proposal–if the proposal will likely yield more than a bankruptcy, the proposal will more likely be approved by the creditors. For secured creditors, often realization on their security will be more straightforward and preferable. 13. "The value of bankruptcy is in promoting certainty among borrowers and lenders, the orderly disposal of debt, and the rehabilitation of debtors." Discuss this statement. Difficulty: 3 QuestionID: 24-3-13 Topic: Introduction Skill: Recall Answer: This question asks students to identify and elaborate upon the principal reasons for bankruptcy protection in Canadian law. At common law, a debtor could be sued by its creditors for non-payment. However, news of a single suit often triggered a legal stampede among creditors, who were all trying to get the same assets. Once the claims all came before a court, there was no systematic way of determining which claims were valid and which creditors should rank ahead of others. Today, the co-ordinated statutory procedure of bankruptcy allows a single proceeding and avoids the "race to the courts." First, all creditors are treated on the same basis by a single judge, who hears all of the evidence relating to the debtor's various debts. Second, because the debtor is exposed to only one set of legal proceedings, assets are not depleted by the need to hire lawyers for a variety of claims. Money that would have gone to the debtor's lawyers goes to creditors instead. Third, individual bankrupts are given a fresh start. Although the stigma of bankruptcy can be harsh, the bankrupt's rehabilitation can begin as soon as they are discharged. In general, it can be said that bankruptcy laws also help to reduce uncertainty in the business world. They give creditors some idea of the risks that arise when they extend credit and results on default are more predictable. They also provide debtors with several alternatives for dealing with insolvency and seeking rehabilitation. To parties on both sides of a credit transaction, they offer a preview of what will happen in the event of financial failure and, to that extent, they promote predictability in what is often a very difficult and emotional experience. The enhanced possibilities for co-ordination and co-operation in a bankruptcy ensure that society's dealings with financial distress and failure are as efficient as possible. 14. Describe three types of proposals and under what conditions they will be used. 32 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 24-3-14 Topic: Proposals Skill: Recall Answer: A proposal is a court-approved arrangement between a debtor and its creditors that typically gives the debtor time to adjust its financial affairs while business operations continue. The value of a proposal lies in the fact that it offers the debtor breathing room to rearrange its affairs. There are several reasons why creditors might find a proposal attractive. To begin with, they realize that there is often significant intangible capital tied up in an operating firm. Such things as client relationships, unique business synergies, and goodwill will be impaired if an entity is placed in bankruptcy and broken up. A proposal helps to safeguard some of this intangible value. Second, creditors operate in a "market" for credit. That is, they face customers on a daily basis who are debtors. A creditor who is keen to push a debtor "to the wall" may obtain a questionable reputation in the business community. A proposal is therefore an opportunity for the creditor to demonstrate its good faith in continuing business operations. Third, entities in trouble can survive rough patches and may go on to enjoy success that appeared previously unthinkable. From an entrepreneurial perspective, near-death experiences may cloak hidden potential that, given patience, can eventually mature into a solid investment. There are various possibilities for a proposal. - A composition is an agreement between a debtor and its creditors whereby the creditors agree to accept, in satisfaction of their claims, less than the amount that is owing to them. This may be arranged in the hope of greater returns in future. - An extension of time prolongs the time available for repayment. That may happen by itself or together with a composition. - A scheme of arrangement is a situation where the debtor's assets are vested in, or controlled by, a trustee for the benefit of creditors while the proposal is being performed. - Under a liquidation proposal, the debtor agrees to sell assets and distribute the proceeds. The benefit of that procedure is that the debtor itself can assist in the recovery of receivables, such as payments from its own debtors. Under a normal bankruptcy, this job is performed by the trustee. - A share exchange occurs when a debtor corporation offers to exchange its shares for outstanding debt. That procedure is sometimes called a "debt—equity swap." 15. For many years, A&P Travel Inc was a large and successful travel agency. After the events of September 11, 2000, however, the company began to struggle. Its difficulties were attributable to several causes: (a) increased airport security and heightened fears of terrorism discouraged some people from travelling, (b) the introduction of new travel-related taxes reduced the volume of air travel, and (c) the corporation's owners, brothers by the name of Aristotle and Plato Socratii, began to squabble over the operation of A&P Travel. The accumulated burden of these problems eventually became too much to bear, and the company went into bankruptcy. Aristotle and Plato are certainly sad to see their company disappear, but they take some solace in their belief that, even though they are the sole shareholders and directors of the corporation, they cannot be held personally liable for any debts or obligations associated with A&P Travel. Are they right? Can they be held personally liable? If so, explain the basis of that liability. 33 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 24-3-15 Topic: Liability of Directors of Bankrupt Corporations Skill: Applied Answer: When a corporation goes bankrupt and does not have enough money to pay its creditors, its directors are usually not liable for the deficiency. Nor, under Canadian law, do they owe a fiduciary duty to creditors. Directors nevertheless may be liable in two types of situation. First, a bankrupt company's directors may be liable if they have given personal guarantees for the company's debts. Second, those directors may also be held liable as a result of a statutory provision. The Canada Business Corporations Act, for instance, imposes liability on the directors of a bankrupt corporation for up to six months' wages to employees. To cover such liability, many directors of large corporations today maintain insurance. 16. Explain the difference between bankruptcy and insolvency. Difficulty: 2 QuestionID: 24-3-16 Topic: Bankruptcy Skill: Recall Answer: Insolvency is the inability of a debtor to meet their financial obligations to their creditors. Many businesses operate in, or near, a state of insolvency from time to time on account of lags in payments by customers and the level of debt they carry. The BIA defines an insolvent person as anyone who is not bankrupt but owes at least $1,000 to a creditor and is unable to meet their liabilities as they become due, has ceased paying their current obligations in the ordinary course of business as they generally become due, or the aggregate of whose property is not, at a fair valuation, sufficient or, if disposed of, would not be sufficient to enable payment of all obligations due and becoming due. Bankruptcy is the legal status of a person who has either made an assignment in bankruptcy (a procedure by which a debtor voluntarily becomes bankrupt) or had a bankruptcy order made against them by a court or other official based on a creditor's application. In order for a person to be the subject of a bankruptcy order, they must have committed an "act of bankruptcy." That act of bankruptcy usually involves being insolvent. The simple fact that a debtor is insolvent is not sufficient, however, for a person to be legally bankrupt. In practice, creditors are often prepared to wait well beyond mere insolvency to begin bankruptcy proceedings. They may adopt that attitude to maintain business relationships, preserve assets, and avoid the expense of legal action.

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Managing the Law, 6e (McInnes) Chapter 25: Government Regulation of Business True/False Questions 1. Under the Competition Act, the Commissioner refers: (a) criminal matters to the Attorney General for prosecution, and (b) reviewable matters to the Competition Tribunal for orders. a True b False Difficulty: 1 QuestionID: 25-1-01 Topic: The Competition Act Skill: Recall Answer: a. True 2. The Competition Act deals with three types of mergers, known as horizontal mergers, vertical mergers, and diagonal mergers. a True b False Difficulty: 2 QuestionID: 25-1-02 Topic: Mergers Skill: Applied Answer: b. False 3. For as long as she can remember, Gail's parents owned and operated an English-style pub on Vancouver Island. Although she moved to Halifax as an adult, Gail simply could not deny her past. After growing bored with several other jobs, she decided that she too would open and operate a pub. One of her most important decisions concerned the type of drinks that she would sell. Almost all of the relevant considerations pointed to the same answer: McCorquodale Ale. The locals loved it, Gail's parents had sold it, and it is generally available at a good price. McCorquodale's sales representative, however, said that the company's ale was for sale to Gail only if she also agreed sign a long-term contract for the purchase "Mr McCorquodale's Frail Pale Kale," a delicate, sun-bleached, potato-chip substitute made from seaweed. If the Commissioner of Competition looks into the matter, McCorquodale Ale is most likely to be investigated for a type of anti-competitive behaviour known as "parasitic selling." a True b False Difficulty: 2 QuestionID: 25-1-03 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied 1 © 2023 Pearson Canada Inc.

Answer: b. False 4. Within the context of the Competition Act, the phrase "price maintenance" refers to a situation in which a business commits an offence by breaking its promise that its goods or services will be available at a certain price for a certain time. a True b False Difficulty: 3 QuestionID: 25-1-04 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied Answer: b. False 5. Daphne runs a foodservice company, Le Monde Café, and believes that key suppliers are refusing to deal with her on critical items she needs for the business. Assuming that the requirements for the reviewable practice of refusal to deal under the Competition Act are satisfied, she can obtain a cease-anddesist order against the suppliers through a private action before the Competition Tribunal with leave of the Tribunal. a True b False Difficulty: 3 QuestionID: 25-1-05 Topic: Refusal to Deal and Other Reviewable Distribution Practices, Private Action under the Competition Act Skill: Applied Answer: a. True 6. Broadly speaking, under the Competition Act, some matters are criminal offences, others are reviewable practices that may be the subject of an application to the Competition Tribunal by the Commissioner, and misleading advertising may be dealt with as a criminal offence or a reviewable practice. a True b False Difficulty: 1 QuestionID: 25-1-06 Topic: The Competition Act Skill: Recall Answer: a. True 7. In Canadian law, an abuse of dominant position requires a firm to have a monopoly in some class or 2 © 2023 Pearson Canada Inc.

species of business. a True b False Difficulty: 1 QuestionID: 25-1-07 Topic: Abuse of Dominant Position Skill: Recall Answer: b. False 8. Arturo Inc recently began to manufacture canned curry sauces, at a factory in Toronto, in order to compete against some of the more expensive imported curry sauces that Canadian consumers traditionally buy. However, Arturo Inc's products do not contain ingredients on their labels and do not state a "best before" date. As a result, Arturo Inc may be in violation of the federal Food and Drugs Act. a True b False Difficulty: 2 QuestionID: 25-1-08 Topic: Other Federal Legislation Relating to Standards, Packaging, and Labelling Skill: Applied Answer: a. True 9. Under the Competition Act, the defence of due diligence is available if the person responsible for a misleading advertisement took all possible precautions to ensure that the advertisement was not unreasonably misleading. a True b False Difficulty: 1 QuestionID: 25-1-09 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Recall Answer: b. False 10. In late August, Idris moved from his parents' home in Kamloops to Winnipeg for college. Because he was living on his own for the first time, Idris was eager to find decent pieces of furniture at low prices. He consequently was excited to see an advertisement that Guile Furniture, a local store, placed in the newspaper: "Rest-E-Z Classic Recliners–Regularly $999–Sale Price $499–Tomorrow Only." Idris was waiting the next morning when Guile Furniture opened its front door. When he asked to see the specially-priced recliners, however, the young sales representative sheepishly looked at the floor and said, "Oh no … they didn't run that ad again? Well, we don't have any Rest-E-Z Classic Recliners–we actually never have those things in stock–but we do have another recliner that I could let you have for $800." If 3 © 2023 Pearson Canada Inc.

the Commissioner of Competition looks into the matter, Guile Furniture is most likely to be investigated for running a multi-level marketing plan. a True b False Difficulty: 2 QuestionID: 25-1-10 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied Answer: b. False 11. Last year, as she was preparing a sumptuous dinner for her boss, Jan reached to the back of her refrigerator for a jar of olives. The contents of the jar looked a bit funky, but Jan did not decide to toss the olives in the garbage until she noticed the "Best Before" date: "7 Feb 2012." That information most likely came to Jan as a result of a federal statute called the Hazardous Products Act. a True b False Difficulty: 2 QuestionID: 25-1-11 Topic: Other Federal Legislation Relating to Standards, Packaging, and Labelling Skill: Applied Answer: b. False 12. Zoë received a complete set of stories by the Brontë sisters in the mail from Umlaut Püblishing Inc. She did not order the books, she had never heard of Umlaut, and she was only vaguely aware of the Brontë sisters. If Zoë lives in a province like British Columbia, Ontario, or Nova Scotia, she must pay for the books unless she promptly returns them to the company. a True b False Difficulty: 1 QuestionID: 25-1-12 Topic: Provincial Consumer Protection Legislation Skill: Applied Answer: b. False 13. Vic Spiv is a ferociously aggressive and highly persuasive salesman. If you were to meet him, he would immediately look you in the eye and say, "Right, mate. I can sell you anything." Often enough, that seems to be true. Spiv's most recent business venture is selling magazine subscriptions door-to-door. Yesterday, Les opened his door and, six minutes later, Spiv walked away with his signature on a contract for a threeyear subscription to Quilting Canada. Under the terms of that agreement, the monthly magazine will cost Les $240 per year. Les actually has no interest in quilting, but he found that he just could not say "no" to 4 © 2023 Pearson Canada Inc.

Spiv. Assuming that Les lives in a province that provides a statutory "cooling-off period," he is entitled to escape from the contract any time before the subscription expires. a True b False Difficulty: 3 QuestionID: 25-1-13 Topic: Provincial Consumer Protection Legislation Skill: Applied Answer: b. False 14. H2O Canada Inc is a Burnaby-based water company that seeks to export water from Canada in bottled form. To do so it will most likely have to comply only with federal legislation since the water is for export alone. a True b False Difficulty: 3 QuestionID: 25-1-14 Topic: Provincial Consumer Protection Legislation Skill: Applied Answer: b. False 15. Only the federal government is entitled to impose income taxes. a True b False Difficulty: 1 QuestionID: 25-1-15 Topic: Taxation Skill: Recall Answer: b. False 16. The Canadian Environmental Protection Act (CEPA) is the main federal statute dealing with environmental protection. a True b False Difficulty: 1 QuestionID: 25-1-16 Topic: Federal environmental protection Skill: Recall

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Answer: a. True Multiple Choice Questions 1. In Canada, the power of taxation A) belongs exclusively to the federal government. B) is divided: the federal government is entitled to impose taxes on people and businesses who generate income in more than one province, but each province is restricted to imposing taxes on individuals who earn all of their income in that province. C) is not mentioned in the Constitution, but has been divided between the federal government and the provinces by means of an agreement. D) is divided: the federal government is entitled to impose direct and indirect taxes, but the provinces are restricted to imposing direct taxes. E) belongs exclusively to the provinces. Difficulty: 2 QuestionID: 25-2-01 Topic: Taxation Skill: Recall Answer: D) is divided: the federal government is entitled to impose direct and indirect taxes, but the provinces are restricted to imposing direct taxes. 2. Government regulation of business involves recognition of the fact that A) federal laws are always preferable to provincial regulation. B) cost-effectiveness is the sole goal of regulation. C) that regulations impose costs on business. D) unlimited competition is necessary for markets to function effectively. E) government power to regulate is unlimited by any law. Difficulty: 3 QuestionID: 25-2-02 Topic: Introduction Skill: Recall Answer: C) that regulations impose costs on business. 3. Maura owns a company that operates a restaurant. Much of the business' profits are earned on the sale of alcohol. Those profits were reduced, however, after the province imposed a hefty tax on restaurants that sold alcoholic beverages. As the government anticipated, restaurants like the one owned by Maura responded by raising the price of each drink by the amount of the tax. The business nevertheless suffered because the customers, who realized that they were effectively paying for the tax, drank less or avoided the restaurant altogether. Which of the following facts is most likely to be TRUE? A) The tax is invalid because it is indirect. B) The tax is invalid because provinces have the power to tax individuals, but not corporations. C) The tax is valid, but the province will have to share the money with the federal government. 6 © 2023 Pearson Canada Inc.

D) The tax is valid because it is imposed directly on the company. E) The tax is valid, but only if it was authorized by the federal government. Difficulty: 3 QuestionID: 25-2-03 Topic: Taxation Skill: Applied Answer: A) The tax is invalid because it is indirect. 4. Provinces are restricted to imposing direct taxes because A) direct taxes always generate more money than indirect taxes. B) indirect taxes always generate more money than direct taxes. C) practically speaking, there is no way for a province to collect an indirect tax. D) the burden of an indirect tax is generally shifted onto other people by the taxpayer, so that there is a real risk that a province's indirect tax will ultimately be paid by someone outside that province. E) the federal government is restricted to imposing indirect taxes. Difficulty: 3 QuestionID: 25-2-04 Topic: Taxation Skill: Recall Answer: D) the burden of an indirect tax is generally shifted onto other people by the taxpayer, so that there is a real risk that a province's indirect tax will ultimately be paid by someone outside that province. 5. Your friend, Aher, wants to be a candidate in upcoming election. He has a lot of great ideas, but he is not entirely clear on certain political and economic issues. He finds taxes, in particular, to be baffling. He therefore has asked you to teach him about a few basic concepts. His first question: "What is the difference between a direct tax and an indirect tax?" A) A direct tax is created by the province alone; an indirect tax is created by the federal government on behalf of a province. B) A direct tax is a tax imposed on the person who must pay it; an indirect tax is imposed one person with the expectation that the burden will be shifted to another. C) A direct tax is imposed on a person who harvests or manufactures goods; an indirect tax is imposed on a person who deals with goods that someone else harvested or manufactured. D) A direct tax is imposed on the person who first sells an item; an indirect tax is imposed on anyone who re-sells that same item. E) A direct tax is any tax imposed by the federal government; an indirect tax is any tax imposed by a province. Difficulty: 2 QuestionID: 25-2-05 Topic: Taxation Skill: Applied

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Answer: B) A direct tax is a tax imposed on the person who must pay it; an indirect tax is imposed one person with the expectation that the burden will be shifted to another. 6. Patty owns and operates Pretty Party People Inc, which sells party supplies and caters special events. The last year has been reasonably successful, but looking over the records, Patty notice that her company paid a very large amount of money for something called a "harmonized sales tax." As a result of asking her accountant, Patty learned that the harmonized sales tax A) is a single tax that combines a federal sales tax and a provincial sales tax. B) is a single federal tax that replaces several smaller federal taxes that previously existed. C) is a single tax that replaces two old taxes, one that applied to the sale of goods and another that applied to the sale of services. D) requires an employer to deduct its employees' income tax from their pay and forward it to the government. E) is a tax of 5 percent that several provinces agreed to adopt; each of those provinces previously had a sales tax, but the rates varied between 3 percent and 8 percent. Difficulty: 2 QuestionID: 25-2-06 Topic: Types of Taxation Skill: Applied Answer: A) is a single tax that combines a federal sales tax and a provincial sales tax. 7. The type of merger that are most likely to reduce competition is a A) vertical merger. B) horizontal merger. C) diversification merger. D) merger between suppliers and their customers. E) merger between firms of the same size. Difficulty: 1 QuestionID: 25-2-07 Topic: Mergers Skill: Recall Answer: B) horizontal merger. 8. Under the Competition Act, a private person has a right to receive damages for losses suffered, but only if those losses were caused by anti-competitive behaviour that was A) a criminal offence. B) a criminal offence or a reviewable matter. C) a criminal offence, a reviewable matter, or a dual category matter. D) either a criminal act, or a violation of an order from a court or the Competition Tribunal. E) was deliberate. Difficulty: 2 8 © 2023 Pearson Canada Inc.

QuestionID: 25-2-08 Topic: Private Action under the Competition Act Skill: Recall Answer: D) either a criminal act, or a violation of an order from a court or the Competition Tribunal. 9. DeAndre Inc runs a bakery in La Ronge, Saskatchewan. He bought the bakery from King's Bakery Inc. In the sale agreement, DeAndre agreed not to sell bakery products outside of La Ronge. Business is good, however, and DeAndre wants to expand. He is not interested in competing with King's Bakery, which now sells its products exclusively in Regina, Saskatchewan. King's Bakery does hope, however, to expand into other markets. DeAndre wants to know if he can successfully challenge the contractual term that restricts him selling in La Ronge. A) Probably. Restraints on trade are permissible, but they are scrutinized by the courts to ensure that they do not unduly restrict competition. Here, restricting DeAndre to selling bakery products in La Ronge is probably more restrictive than is necessary to protect the commercial interests of King's Bakery. B) Probably not. Restraints of trade are dealt with exclusively as criminal matters by the Commissioner of Competition under the Competition Act. C) Probably. The contractual term is a restraint on trade. That type of term may provide a private benefit, but it is never in the public interest. D) Probably not. Unless a crime is committed, the public's interest in freedom of contract outweighs the public's interest in freedom of competition. E) Probably. The contractual term is a regulatory offence. Difficulty: 3 QuestionID: 25-2-09 Topic: Competition and the Common Law Skill: Applied Answer: A) Probably. Restraints on trade are permissible, but they are scrutinized by the courts to ensure that they do not unduly restrict competition. Here, restricting DeAndre to selling bakery products in La Ronge is probably more restrictive than is necessary to protect the commercial interests of King's Bakery. 10. Under the Competition Act, "dual category matters" are A) matters that are criminal in nature but subject to civil penalties. B) matters that are civil in nature but subject to criminal penalties. C) purely regulatory offences. D) matters that have caused harm to both the public generally and at least one individual specifically. E) matters in which the Commissioner of Competition has a discretion to treat as criminal matters or as reviewable matters. Difficulty: 2 QuestionID: 25-2-10 Topic: The Competition Act Skill: Recall Answer: E) matters in which the Commissioner of Competition has a discretion to treat as criminal matters or 9 © 2023 Pearson Canada Inc.

as reviewable matters. 11. Edgardo runs a fish store in Toronto's Kensington Market. That store purchases its supplies from a wholesaler and then re-sells the goods to the public. Because he knows the market well, Edgardo is able to offer low prices. As a result, his store is always full of customers. Lately, however, Edgardo has had difficulty getting wild, as opposed to farmed, salmon. When he asked for an explanation, his wholesaler said, "Your prices are too low and you're making the other fishmongers look bad. If I let you carry on that way, you'll ruin the business for everyone else." Edgardo, who is furious, asked you what he should say to the Competition Bureau. You told him that, out of the following options, his BEST solution is to complain about A) the monopoly that the other fish retailers have created. B) a criminal conspiracy to drive him out of the market. C) the reviewable practice of exclusive dealing, because the wholesaler is only willing to sell wild salmon to Edgardo's competitors. D) the reviewable practice of price maintenance, because the wholesaler refuses to sell wild salmon to Edgardo because of his low pricing policy. E) the reviewable offence of tied-selling, because the wholesaler's decision is tied to its desire to help Edgardo's competitors. Difficulty: 3 QuestionID: 25-2-11 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied Answer: D) the reviewable practice of price maintenance, because the wholesaler refuses to sell wild salmon to Edgardo because of his low pricing policy. 12. Marissa is the CEO of Motormax Inc, a generic auto parts manufacturer that does business with several large auto manufacturers. Parts manufacturing is a highly competitive business. Several years ago, Marissa was contacted by the CEO of a competitor who asked whether Motormax would like to "go in with them." At the time, Marissa did not understand what that meant, so she replied in the negative. She now realizes, however, that the rival's CEO was proposing a conspiracy to reduce competition. Furthermore, she has begun to notice that the pricing of her competitors' products is always suspiciously the same as hers. Which of the following statements is TRUE? A) Conscious parallel pricing by parts manufacturers is a criminal offence. B) The actions of the other parts manufacturers is a criminal office only if an agreement to lessen competition unduly can be proven. C) Any agreement to intentionally fix prices is a criminal offence. D) Any agreement to fix prices is a reviewable practice but not a criminal offence. E) Agreements to fix prices are only reviewable if the price is lower than the cost of production, and only if the intention of the parties to the agreement is to drive competitors out of the market. Difficulty: 3 QuestionID: 25-2-12 Topic: Co-Operation Amongst Competitors Skill: Applied 10 © 2023 Pearson Canada Inc.

Answer: C) Any agreement to intentionally fix prices is a criminal offence. 13. Kimo runs a chain of health food supermarkets in Victoria, British Columbia. In the past, his stores offer a number of products that other major grocery retailers did not stock. As a result, Kimo enjoyed a loyal and steadily growing clientele. Recently, however, he has noticed that Global Foods, the major grocery retailer in the area, is offering several of his products, such as dried rice snacks, organic herbs, and shiatsu oils, at cut-rate prices. He cannot possibly match those prices without losing money. Kimo suspects that Global is selling those items below their cost in order to drive him out of business. If Global Foods is engaged in anti-competitive behaviour, it most likely is A) the reviewable practice of abuse of dominant position. B) the criminal offence of bid-rigging. C) the reviewable practice of price maintenance. D) the criminal offence of misleading advertising. E) the criminal offence of conspiring to reduce competition. Difficulty: 2 QuestionID: 25-2-13 Topic: Abuse of Dominant Position Skill: Applied Answer: A) the reviewable practice of abuse of dominant position. 14. The Merex 200E is a new sports coupe designed to appeal to the highest bracket of consumer. Each coupe costs at least $100,000. Calvin, a young stockbroker in Toronto, saw an ad for the Merex 200E in the subway. It says, "0 to 60 in 2.8 seconds." He went straight to the Toronto Merex dealer, took the car out for a test ride, but did not have an opportunity to test the acceleration. The sales representative, however, assured Calvin that the acceleration promised in the advertisement had been verified by an independent testing agency. Relying on the test drive and the representative's sales pitch, Calvin bought a hot red 200E and tried several times to take the car up to 60 mph in 2 seconds. He had no success. Worse yet, he discovered that the engine stalls dangerously when accelerating rapidly. Which of the following is most likely to be TRUE? A) Merex cannot be prosecuted for the offence of misleading advertising. B) If Merex is prosecuted for the offence of misleading advertising, it can rely on a defence of due diligence if it had retained an independent testing agency that had verified the promised acceleration. C) Merex cannot be prosecuted for misleading advertising because accelerating quickly is dangerous. D) Merex can be prosecuted for the offence of misleading advertising, but only by the Commissioner of Competition. E) Merex cannot be prosecuted because, regardless of what the advertisement said, it would be illegal for anyone to accelerate from 0 to 60 in 2.8 seconds on a public road. Difficulty: 3 QuestionID: 25-2-14 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied

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Answer: B) If Merex is prosecuted for the offence of misleading advertising, it can rely on a defence of due diligence if it had retained an independent testing agency that had verified the promised acceleration. 15. Janell Inc is an importer of luxury European fabrics. Because the company must fill containers with fabric in order to make them worthwhile to import, Janell Inc had adopted a policy that requires all of its retail customers to purchase two fabrics: one that they choose and one chosen by Janell. If Janell is a major supplier in the market, and if its policy has an adverse effect on competition, then under the Competition Act, that policy may constitute A) exclusive dealing. B) market restriction. C) a conspiracy to reduce competition unduly. D) multi-level marketing. E) tied selling. Difficulty: 2 QuestionID: 25-2-15 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied Answer: E) tied selling. 16. Monopoly is related to abuse of dominant position because A) monopolization requires a conspiracy and an intent to monopolize. B) in order for an abuse of dominance to occur, a firm must have substantial control over market share, and monopoly is one example of such control. C) abuse of dominant position occurs when conduct results in even a minor reduction in competition. D) both are considered criminal matters under the Competition Act and both are referred to the Attorney General for prosecution. E) both are subject to the defence of due diligence. Difficulty: 3 QuestionID: 25-2-16 Topic: Abuse of Dominant Position Skill: Applied Answer: B) in order for an abuse of dominance to occur, a firm must have substantial control over market share, and monopoly is one example of such control. 17. Primex is a discount broker that has offices across Canada. In recent years, it has used a number of innovative practices in order to grab more than 90 percent of the market for discount brokerage services. Its online services are second to none. The company also has a policy of filling orders almost instantly. Other discount brokers are irked by what they see as Primex's abuse of its dominant position. They are worried Primex is grabbing more and more market share by taking advantage of its presence in every significant town in the country. If a complaint was made that Primex was engaged in an abuse of dominance, Primex could successfully plead A) the defence of due diligence. 12 © 2023 Pearson Canada Inc.

B) none of the defences, because Primex has deliberately exercised an abuse of dominant position. C) the concept of superior competitive performance. D) the defence of felix confractus (which means "lucky break"). E) the defence that it does not control the market because it has less than 100 percent of the discount brokerage business. Difficulty: 3 QuestionID: 25-2-17 Topic: Abuse of Dominant Position Skill: Applied Answer: C) the concept of superior competitive performance. 18. For certain transactions, the threshold for pre-merger notification is met if A) either the value of the target firm or the assets being acquired exceeds $40 million, or the combined revenues of the entities involved exceed $400 million per year. B) the entities involved are engaged in bid-rigging and their combined revenues exceed $400 million per year. C) the entities involved are worth more than $100 million or their combined revenues exceed $400 million per year. D) the value of the target firm or the assets being acquired exceeds $87 million, and the combined assets or revenues of the entities involved and their affiliates exceed $400 million per year. E) there is an abuse of dominant position and the combined revenues of the entities involved exceed $400 million per year. Difficulty: 3 QuestionID: 25-2-18 Topic: Mergers Skill: Recall Answer: D) the value of the target firm or the assets being acquired exceeds $87 million, and the combined assets or revenues of the entities involved and their affiliates exceed $400 million per year. 19. Maleficent Inc recently was engaged in re-sale price maintenance. Despite being a private citizen, Sinjin Virtue wants to bring an action against the company under the Competition Act. His right to do so A) is non-existent because Maleficent Inc neither committed a crime nor violated an order of a court or the Competition Tribunal. B) depends upon his ability to obtain the Competition Tribunal's permission by proving that he was directly and substantially affected by Maleficent Inc's behaviour. C) is restricted to the recovery of damages for losses that he personally suffered as a result of Maleficent Inc misconduct. D) may lead to damages, but not to a cease-and-desist order. E) depends upon his ability to prove that Maleficent Inc intended to hurt him personally. Difficulty: 3 QuestionID: 25-2-19 13 © 2023 Pearson Canada Inc.

Topic: Private Action under the Competition Act Skill: Applied Answer: B) depends upon his ability to obtain the Competition Tribunal's permission by proving that he was directly and substantially affected by Maleficent Inc's behaviour. 20. Marianne Menzies is the president of MenzTel Inc. She fears that her company's principal supplier may be up to no good. It has denied MenzTel access to its latest telecommunications technology. Furthermore, several new models are available through supplier's retailer arm, but are not available to MenzTel. Because there are no other suppliers with competing products in the area, MenzTel is rapidly losing business opportunities. The supplier has told Marianne that it will not sell to MenzTel. Out of the following options, MenzTel's BEST response is to A) sue the supplier for the tort of unfair sales practices. B) speak badly of the supplier whenever someone in the same industry is within earshot. C) apply directly to the Competition Tribunal and prove that it has been directly and substantially affected by its inability to obtain supplies. D) prosecute the supplier for the crime of unconscionable market distortion. E) pursue arbitration. Difficulty: 2 QuestionID: 25-2-20 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied Answer: C) apply directly to the Competition Tribunal and prove that it has been directly and substantially affected by its inability to obtain supplies. 21. Java Joe is a coffee wholesaler. It is run by Ernesto Arabica and his brothers, Che and Hugo. Times are good. Canadians are drinking more coffee than ever before and an increasing number call on Java Joe for their daily fix of caffeine. Ernesto has therefore begun to wonder how he and his brothers can enjoy the profits, but pay as little in tax as possible. He has come to you for advice. He and his brothers specifically want to know about the tax implications of different business models. You have correctly said that A) corporations are solely responsible to pay tax on income earned by the business, and that shareholders are taxed only when the corporation pays them something, like a dividend. B) if Java Joe is incorporated, and if the company is ever unable to pay its income taxes, the shareholders will be liable for the debt. C) if Java Joe is incorporated, the company and its shareholders will pay roughly twice as much tax as the brothers would pay if they carried on business without incorporating. D) the brothers have no choice in the matter–because three people cannot operate a "sole proprietorship," they must incorporate Java Joe. E) Java Joe definitely should be incorporated–companies are never taxed on their income and dividends are not classified as income for shareholders. Difficulty: 3 QuestionID: 25-2-21 14 © 2023 Pearson Canada Inc.

Topic: Taxation of Corporations and Shareholders Skill: Applied Answer: A) corporations are solely responsible to pay tax on income earned by the business, and that shareholders are taxed only when the corporation pays them something, like a dividend. 22. Old West Inc exports Tex-Mex food products into western Canada from its manufacturing plant in Amarillo, Texas. In fact, western Canada is Old West's only non-American market. Western Canadians have similar tastes to Texans and, with a few exceptions, packaging that appeals to Texans appeals to western Canadians as well. As a result, the products bear exactly the same labels whether there are consumed in Edmonton or El Paso. The future consequently looked bright for Old West, at least until yesterday. The company learned that a consumer in Vancouver has complained that the labelling on a pack of taco shells was not bilingual. Old West is potentially in contravention of the A) Consumer Labelling and Packaging Act. B) Textile Labelling Act. C) Hazardous Products Act. D) Food and Drug Act. E) Competition Act. Difficulty: 1 QuestionID: 25-2-22 Topic: Other Federal Legislation Relating to Standards, Packaging, and Labelling Skill: Applied Answer: A) Consumer Labelling and Packaging Act. 23. What is the federal government's primary strategy for avoiding double taxation in the context of corporations and shareholders? A) Income earned by a corporation is never taxed until it is distributed to shareholders as dividends. B) Both corporations and shareholders pay income tax, but in each instance, the taxpayer is given a deduction for half the total amount that was received. C) A corporation must pay tax on its income, but if it distributes dividends to its shareholders, it can deduct the same amount from its annual property tax assessment. D) Income earned by a corporation and paid out as a dividend is treated as if it had been earned directly by the shareholder. E) Income earned by a corporation is taxed, but revenue distributed to shareholders is classified as dividends, rather than income, and consequently is tax-free. Difficulty: 2 QuestionID: 25-2-23 Topic: Taxation of Corporations and Shareholders Skill: Recall Answer: D) Income earned by a corporation and paid out as a dividend is treated as if it had been earned directly by the shareholder.

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24. Fancy Pants Inc is a successful clothing company based in Calgary. In the past few years, sales have skyrocketed and revenues have grown enormously. Like many successful businesses, Fancy Pants has employed various strategies in an attempt to reduce its tax liabilities. Unfortunately, Fancy Pants also shares one other similarity with many other Canadian companies: it has fallen into dispute regarding the amount that it owes in federal taxes. Which of the following statements is most likely to be TRUE? A) For the purposes of the dispute, Fancy Pants will deal with the Customs and Revenue Administration (CRA). B) Fancy Pants initiated the dispute by drafting a formal document called a Notice of Assessment and submitting it to the relevant branch of the government. C) Depending upon the circumstances, Fancy Pants may present its arguments four times: during an administrative appeal, in the Tax Court, in the Federal Court, and (if permission is granted) in the Supreme Court of Canada. D) Fancy Pants has only one chance to get it right–decisions of the Tax Court of Canada cannot be appealed. E) Fancy Pants was subject to a field audit, which means that a government official visited a small number of Fancy Pants' customers and formed a general opinion regarding the company's sales, and will later conduct an office audit by examining Fancy Pants' official records. Difficulty: 2 QuestionID: 25-2-24 Topic: Income Tax Administration and Audits Skill: Applied Answer: C) Depending upon the circumstances, Fancy Pants may present its arguments four times: during an administrative appeal, in the Tax Court, in the Federal Court, and (if permission is granted) in the Supreme Court of Canada. 25. As discussed in Chapter 24, what is a Notice of Assessment? A) a document used to appeal a decision of the Competition Tribunal B) a government's determination of the amount owed by a taxpayer C) a process used to calculate the economic impact of a merger D) economic guidelines that a judge uses to calculate damages for an anti-competitive act E) an analysis used to determine whether a company exercises a monopoly Difficulty: 2 QuestionID: 25-2-25 Topic: Income Tax Administration and Audits Skill: Recall Answer: B) a government's determination of the amount owed by a taxpayer 26. Sanjiv is an accountant. Although he recognizes the need for the government to have money for the purposes of funding social programs and whatnot, he is strongly opposed, as a matter of principle, to excise taxes. That most likely means that Sanjiv A) objects to payroll taxes. B) believes that he should not have to pay a consumption tax on non-essential goods. 16 © 2023 Pearson Canada Inc.

C) does not think that he should have to pay taxes on money that he earned outside of Canada. D) is offended that the government taxes the proceeds realized from the sale of assets at a price above their cost. E) objects to the payment of "sin taxes" on alcohol and tobacco—the word "excise" is derived from the Latin phrase ex id salus, which means "outside that safety." Difficulty: 2 QuestionID: 25-2-26 Topic: Types of Taxation Skill: Applied Answer: B) believes that he should not have to pay a consumption tax on non-essential goods. 27. Which of the following statements is TRUE with respect to capital gains tax? A) The name of the tax is derived from the Latin word caput which means "head"–a capital gains tax is the amount that must be paid for each member of a household that earns above a certain amount. B) A capital gains tax consists of all of the various amounts that an employer must deduct from an employee's pay cheque. C) Only a portion of capital gains are taxed, while all income from sales in the ordinary course of business is taxed. D) A company is liable to pay a capital gains tax whenever it sells some of its inventory in the ordinary course of business. E) The tax is designed to encourage economically efficient behaviour—it applies only if assets are sold for less than their cost. Difficulty: 2 QuestionID: 25-2-27 Topic: Types of Taxation Skill: Recall Answer: C) Only a portion of capital gains are taxed, while all income from sales in the ordinary course of business is taxed. 28. Elite Widget Inc recently was subject to a field audit. That most likely means that A) the company conducted a study of its competitors to determine whether its products were properly priced. B) the Canada Revenue Agency visited the company's place of business and examined its books and records. C) one of the company's shareholders has accused the directors of a conflict of interest. D) it has been investigated for anti-competitive behaviour. E) the company tested the effectiveness of its advertising among consumers. Difficulty: 2 QuestionID: 25-2-28 Topic: Income Tax Administration and Audits Skill: Applied 17 © 2023 Pearson Canada Inc.

Answer: B) the Canada Revenue Agency visited the company's place of business and examined its books and records. 29. The defence of due diligence A) is primarily relevant in connection with income tax liabilities. B) is available to individuals, but not to companies. C) is available under the Competition Act if the person responsible for the advertisement acted with reasonable care to ensure that it was not misleading. D) was recently removed from the Competition Act, but it remains relevant under provincial statutes. E) is applicable if the defendant failed to exercise care and the plaintiff suffered a loss as a result. Difficulty: 1 QuestionID: 25-2-29 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Recall Answer: C) is available under the Competition Act if the person responsible for the advertisement acted with reasonable care to ensure that it was not misleading. 30. A judge has concluded that Fine's Furniture Ltd acted in a way that was both anti-competitive and criminal. That may be TRUE if the company was engaged in A) bait and switch. B) tied sales. C) abuse of dominance. D) pyramid selling. E) misleading advertising. Difficulty: 2 QuestionID: 25-2-30 Topic: The Competition Act Skill: Applied Answer: D) pyramid selling. 31. Under the Competition Act, which of the following statements is completely TRUE? A) Criminal offences include bid-rigging and market restriction. B) Most criminal offences can also be classified as dual matters. C) Civilly reviewable matters include refusals to deal and exclusive dealing. D) Criminal offences include price maintenance and bid-rigging. E) Misleading advertising can be either a criminal matter or a hybrid matter, depending upon the circumstances. Difficulty: 2 QuestionID: 25-2-31 Topic: The Competition Act 18 © 2023 Pearson Canada Inc.

Skill: Recall Answer: C) Civilly reviewable matters include refusals to deal and exclusive dealing. 32. Figure 25.2 provides an overview of the enforcement process under the Competition Act. In one sense, the most important part of that process is the beginning. Which of the following events will lead the Commissioner to conduct an inquiry under s 10 of the Act? A) a petition is signed by 100 Canadians B) a formal request is received from the Lieutenant Governors of at least four provinces C) six Canadian residents request an inquiry into the matter D) a Direction is received from the Canadian Judicial Council E) a Notice to Appear is issued by the Prime Minister or a federal cabinet member Difficulty: 2 QuestionID: 25-2-32 Topic: The Competition Act Skill: Recall Answer: C) six Canadian residents request an inquiry into the matter 33. Skooma Drugs Inc has been accused of getting together with the other pharmacies in and forging an agreement to consistently charge inflate prices. The company's director, Kaye Jeet, does not seem especially worried, however. "These accusations have been around for years," she said. "Back in 1990s, my father constantly dealt with similar allegations and he easily got away clean. Conspiracies are almost impossible to prove." Kaye's nephew, Garfield, is not so confident. In a Business Law course, he learned of an important event in 2010. Consequently, unlike his aunt, Garfield knows that A) a criminal conviction for conspiracy now requires proof on a balance of probabilities, rather than proof beyond a reasonable doubt. B) a conspiracy no longer requires proof that competition has been completely eliminated–it is now enough that competition was significantly reduced. C) a conspiracy no longer requires an agreement between two separate businesses–a conspiracy may exist as long as a company's director formulates a plan on that company's behalf. D) the Supreme Court of Canada held that a conspiracy does not require an actual agreement if two or more parties, in fact, always charge the same prices for the same goods or services. E) the Competition Act was amended to say that any agreement between competitors to restrict competition is a criminal offence. Difficulty: 1 QuestionID: 25-2-33 Topic: Co-Operation Amongst Competitors Skill: Recall Answer: E) the Competition Act was amended to say that any agreement between competitors to restrict competition is a criminal offence. 34. There are several types of offences under the Competition Act. Which of the following statements is 19 © 2023 Pearson Canada Inc.

TRUE? A) Every type of offence can lead to an award of damages. B) It sometimes is possible to appeal a decision of the Competition Tribunal to the Federal Court. C) A reviewable matter is a type of offence that can only trigger an investigation by the Competition Bureau, and can result in recommendations, but not other types of relief. D) Dual matters involve the commission of more than one offence by a single offender. E) The Competition Act does not allow for private actions. Difficulty: 1 QuestionID: 25-2-34 Topic: The Competition Act Skill: Recall Answer: B) It sometimes is possible to appeal a decision of the Competition Tribunal to the Federal Court. 35. Under the Competition Act, an abuse of dominant position A) is a criminal matter. B) occurs when a firm has substantial control over a class of business, and engages in anti-competitive acts that substantially lessen competition (or are likely to do so). C) is possible if, among other things, a firm "dominates" a type of business, which means that its market share is at least 51 percent. D) triggers a "reverse onus," which means that the accused firm must prove that it did not engage in anticompetitive behaviour. E) always requires proof that the accused firm dominates a particular market on a global scale. Difficulty: 2 QuestionID: 25-2-35 Topic: Abuse of Dominant Position Skill: Recall Answer: B) occurs when a firm has substantial control over a class of business, and engages in anti-competitive acts that substantially lessen competition (or are likely to do so). 36. Low-Valu Inc owns and operates a number of discount mega-stores. Because of increasing competition, it has engaged in a number of improper business practices. It was recently accused of a "bait and switch" practice in one of its stores. Which of the following statements is most likely to be TRUE? A) The alleged practice occurs when a store places two price tags on one item, and then charges the customer the higher amount. B) "Bait and switch" is expressly prohibited by the Sale of Goods Act. C) The phrase "bait and switch" refers to the fact that the alleged offence originally arose in connection with general stores in the nineteenth century, who sold, among other things, hunting supplies. D) The alleged practice is a criminal matter under the Competition Act. E) Low-Valu drew customers into its stores by advertising low prices on specific items, but when customers arrived, they were told that while the advertised items were not in stock, alternative items were available at higher prices. 20 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 25-2-36 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied Answer: E) Low-Valu drew customers into its stores by advertising low prices on specific items, but when customers arrived, they were told that while the advertised items were not in stock, alternative items were available at higher prices. 37. The Ether Store Inc is trying to break into the potentially lucrative world of online retailing. Given the competitive nature of the field, it believes that the key to success is advertising and promotion. It therefore has asked you to review and assess several proposals that it has developed. Which of the following statements is TRUE? A) Because it is considered relatively less harmful than other sorts of offences, misleading advertising is always treated as a civilly reviewable matter under the Competition Act. B) Misleading advertising is not committed under the Competition Act unless the court is satisfied that at least one customer was actually misled. C) Although there have been calls for reform, the Competition Act does not yet regulate telemarketing. D) It is an offence to engage in telemarketing unless callers doing it identify themselves, explain the purpose of the call, and describe the product at the beginning of the call. E) The due diligence defence is never available in connection with advertising offences. Difficulty: 3 QuestionID: 25-2-37 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied Answer: D) It is an offence to engage in telemarketing unless callers doing it identify themselves, explain the purpose of the call, and describe the product at the beginning of the call. 38. The Competition Bureau has long suspected HAL Corp of abuse of dominant position. After a recent investigation, the Bureau commenced proceedings against the company. Which of the following statements is most likely to be TRUE? A) The Bureau may rely on the concept of "superior competitive performance" to prove that, as a result of committing a practice of engaging in anti-competitive acts, HAL has increased its market share. B) HAL has engaged in an anti-competitive act if, for the purpose of eliminating a competitor, it sells its products for a price that is lower than its cost. C) The Bureau will be concerned about anti-competitive acts by HAL if that company has more than 20 percent of the relevant market. D) HAL cannot be held liable for abuse of dominant position unless it enjoys a monopoly with respect to at least a part of the market. E) Because of the need to promote healthy competition, HAL would not be engaged in an anti-competitive act if it was buying up products to prevent the erosion of price levels. Difficulty: 2 21 © 2023 Pearson Canada Inc.

QuestionID: 25-2-38 Topic: Abuse of Dominant Position Skill: Applied Answer: B) HAL has engaged in an anti-competitive act if, for the purpose of eliminating a competitor, it sells its products for a price that is lower than its cost. 39. Alpha Corp and Beta Inc recently merged. Prior to the merger, both companies manufactured tools. The merged company continued to do so after the merger. Technically speaking, the parties were involved in a A) fusion merger. B) diversification merger. C) vertical merger. D) parallel merger. E) horizontal merger. Difficulty: 2 QuestionID: 25-2-39 Topic: Mergers Skill: Applied Answer: E) horizontal merger. 40. Nefarious Inc and Jaffar together control 90 percent of the market for artificial hearts. Nefarious and Jaffar will not be held to have committed an offence under the Competition Act if A) they agree on the prices that they will charge their customers. B) they agree to limit their production of artificial hearts for the purpose of driving up prices of their products. C) they agree in advance on the bids each will submit for a contract to supply artificial hearts to a hospital. D) they agree to limit their sales of artificial hearts for the purpose of driving up prices for their products. E) the evidence against them does not establish their guilt beyond a reasonable doubt. Difficulty: 3 QuestionID: 25-2-40 Topic: Co-Operation Amongst Competitors Skill: Applied Answer: E) the evidence against them does not establish their guilt beyond a reasonable doubt. 41. Which of the following statements is TRUE? A) A harmonized sales tax now exists in every province except Alberta and Quebec. B) A specialization agreement, in which one business promises to stop producing a product in exchange for another company's promise to stop producing a different product, is always treated as a criminal offence under the Competition Act. C) Within the context of corporations and shareholders, "integration" refers to the federal government's attempt to create rules that generate the same amount of income tax whether a business is conducted 22 © 2023 Pearson Canada Inc.

directly by an individual or through a corporation. D) The Competition Act's rules regarding misleading advertising previously appeared in the provincial Sale of Goods Acts. E) The Supreme Court of Canada's decision in Tervita Corporation v Commission of Competition stands for the proposition that the defence of due diligence is not available to a taxpayer that is accused of tax evasion. Difficulty: 3 QuestionID: 25-2-41 Topic: Taxation of Corporations and Shareholders Skill: Recall Answer: C) Within the context of corporations and shareholders, "integration" refers to the federal government's attempt to create rules that generate the same amount of income tax whether a business is conducted directly by an individual or through a corporation. 42. Which of the following statements is TRUE? A) A horizontal merger involves a combination of businesses that have little or no relationship to each other, such as a meat-packing business and a lumber mill. B) A vertical merger involves a combination of complementary businesses at different stages of production or distribution, such as a supplier and a customer. C) A diagonal merger involves combination of businesses that operate at the same stage of production or distribution, but aim for different segments of the market, such as Earl's and McDonald's. D) A vertical merger involves a combination of businesses at the same stage of production or distribution, such as competitors. E) A horizontal merger involves combination of complementary businesses at different stages of production or distribution, such as a supplier and a customer. Difficulty: 1 QuestionID: 25-2-42 Topic: Mergers Skill: Recall Answer: B) A vertical merger involves a combination of complementary businesses at different stages of production or distribution, such as a supplier and a customer. 43. Stipe refers to himself as "the Money Wizard." At any given time, he will tell you, he has "at least a dozen cash-creating projects in operation." And true enough, Stipe has made a substantial amount of money since graduating from business school just five years ago. It should also be said, however, that another one of Stipe's mottos—"There's no reward without risk"—came back to bite him. He was recently found to have committed a reviewable offence under the Competition Act. Which of the following statements is most likely to be TRUE? A) Stipe made a small fortune by selling goods on the basis of false testimonials. B) Stipe sold goods in packages that did not provide bilingual labelling. C) Under recent amendments to the Competition Act, the court must impose a prison sentence. D) Stipe sold cigarettes to children. 23 © 2023 Pearson Canada Inc.

E) Stipe's anti-competitive behaviour must have caused consumers in two or more provinces to have suffered losses. Difficulty: 3 QuestionID: 25-2-43 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied Answer: A) Stipe made a small fortune by selling goods on the basis of false testimonials. 44. As discussed in Case Brief 25.2, the dispute involving lululemon athletica A) eventually led Parliament to enact the Consumer Packaging and Labelling Act to protect consumers from rapacious businesses. B) was the first case in which a company was successfully prosecuted under the Competition Act. C) was widely reported as a victory for unscrupulous companies because it allowed the company to avoid liability by simply moving its manufacturing plant outside of Canada. D) arose from a misleading advertising campaign. E) resulted in a Supreme Court of Canada decision that fundamentally reformulated the defence of due diligence. Difficulty: 2 QuestionID: 25-2-44 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Recall Answer: D) arose from a misleading advertising campaign. 45. Each province has enacted consumer protection legislation that complements the federal statutes like the Competition Act. Those provincial statutes vary from one jurisdiction to the next, but certain types of provisions nevertheless are common. As discussed in Chapter 24, the list of such provisions does NOT include A) a requirement that consumers must be provided with written contracts containing prescribed information for certain types of transactions. B) an obligation upon businesses to provide a money back guarantee on goods that are purchased for personal use. C) a cooling-off period that allows consumers, within a limited period, to rescind certain types of contracts, such as contracts created under high pressure by sales representatives who come to consumers' homes. D) a requirement for credit terms to be fully disclosed. E) a right that relieves consumers of the need to either return or pay for goods that arrived without request. Difficulty: 2 QuestionID: 25-2-45 Topic: Provincial Consumer Protection Legislation Skill: Recall Answer: B) an obligation upon businesses to provide a money back guarantee on goods that are purchased for 24 © 2023 Pearson Canada Inc.

personal use. Essay Questions 1. "The power of taxation is divided between the federal government and the provincial governments. The way in which that power is divided reveals how the drafters of the Constitution wanted the country to operate." Is that statement TRUE? Explain the meaning of the quotation. Difficulty: 2 QuestionID: 25-3-01 Topic: Taxation Skill: Recall Answer: The drafters of Canada's Constitution set out to create a strongly centralized country. The federal government was therefore given the power to make laws for the purpose of raising money "by any mode or system of taxation." This broad power was designed to allow the federal government to pay for big projects, such as railways and harbours, that were vital to the development of the country as a whole. It gives the federal government the authority to impose income taxes and other kinds of taxes discussed below. The provinces, in contrast, were given jurisdiction over more local matters, such as the administration of justice, health care, and education. The provinces' taxation power was therefore restricted to the imposition of direct taxes. A direct tax is a tax imposed directly on the person who has to pay it. The provinces impose income tax on people earning income in the province because it is a direct tax. By comparison, an indirect tax is a tax levied on one person with the expectation that it will be passed along to another person. For example, a tax on retailers that they would be likely to pass on to consumers is an indirect tax. Only the federal government can impose such a tax. In contrast, sales taxes charged directly to consumers at the point of sale are direct taxes within provincial jurisdiction. All provinces other than Alberta impose a sales tax. 2. As a result of a recent election, your province has a new government. Compared to the previous government, it has a dramatically different view of both business and the relationship between the government and its citizens. As an expert in taxation and social policy, the new Premier has asked for your opinion regarding a proposal to substantially change the level of taxation on businesses. The Premier is well aware of the relevant considerations within the province, but wants to know if there is any need to consider how the adoption of the proposal might affect the province's relationships outside the province or outside the country. Difficulty: 2 QuestionID: 25-3-02 Topic: Taxation Skill: Applied Answer: The text contains the basic information required to answer this question. Students, however, can be expected to draw out the implications of that information.

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Governments at all levels recognize the need to make Canada attractive to business people. They consequently aim to ensure that business taxes are at a level that is competitive with the tax burden in other jurisdictions, both domestically and internationally. A dramatic change in the province's business tax regime is almost certain to have an impact on business. For instance, if business is more expensive to conduct within the province, the costs presumably will be passed onto consumers. That, in turn, will make the province's products less attractive to buyers outside the province. Going further, if taxes are dramatically increased, a business may simply decide to re-locate to a jurisdiction with lower taxes. Of course, the calculations work in the opposite direction as well. If taxes are lowered, costs drop and products become more attractive to consumers. So too, businesses may respond to the favourable tax environment by relocating to the province. As the Premier recognizes, however, business interests are only one part of the equation. The preceding considerations must be weighed against the social implications of raising or lowering business taxes. All of this demonstrates how taxes can be an important instrument of government policy regarding business. 3. Identify and briefly explain seven types of taxes that are relevant to businesses in Canada. Difficulty: 3 QuestionID: 25-3-03 Topic: Types of Taxation Skill: Recall Answer: Governments levy several types of taxes in Canada. Income tax: The most common type of tax is income tax. Income tax is levied on individuals both by the federal and provincial governments. The federal government charges a higher rate of income tax. Sales Taxes: Provincial sales tax rates vary from province to province and item to item. In 1991, the federal government also introduced its own sales tax, the goods and services tax (GST), which now stands at 5 percent and is applied on top of provincial sales taxes. Harmonized sales tax: In Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario, and British Columbia, the GST is combined with a provincial sales tax into a harmonized sales tax (HST). Purchasers must pay GST/HST on almost all goods and services supplied commercially. (Most health and educational services are exempt, as are home re-sales.) Although consumers pay the tax, businesses are responsible for collecting it and remitting it to the government. Businesses also pay the GST/HST on most purchases they make for business purposes, but they normally can claim a tax credit to recover those payments. Property taxes: This type of tax is an especially important source of revenue for municipal governments. Consumption taxes: "Excise" taxes," as they sometimes are known, are levied on non-essential goods, such as cigarettes, alcohol, and gasoline. That tax often constitutes a significant portion of the cost of these items. 26 © 2023 Pearson Canada Inc.

Payroll taxes: These taxes are levied on most workers' salaries and are used to fund employment insurance, the Canada Pension Plan, and workers' compensation. Capital gains tax: A tax may be levied upon the sale proceeds if an asset is sold for more than its original cost. In general, capital gains result from sales that occur outside the ordinary course of business. Only a portion of capital gains are taxed, while all income from sales in the ordinary course of business is taxed. Selling inventory is a sale in the ordinary course of business. Selling the equipment you use to make the inventory for more than you paid would be a capital gain. 4. Diva recently graduated with a degree in design and is eager to start up a business that creates and sells high-quality widgets. She has big dreams, but she also realizes that it will take a few years to establish her reputation and locate buyers. In the meantime, she is anxious to set up her business in a way that minimizes costs and maximizes profits. In that regard, she wants your advice about business models and taxes. More specifically, she wants you to explain how her business will be taxed if she carries on by herself (as a sole proprietor) or if she incorporates a company for that purpose. Difficulty: 3 QuestionID: 25-3-04 Topic: Taxation of Corporations and Shareholders Skill: Applied Answer: One of the most important planning issues when starting a new business is whether to use a corporation to carry it on. As discussed in Chapter 20, one of the benefits to a business person of carrying on business through a corporation is that only the corporation is liable for the obligations of the business, including tax. Corporations are solely responsible for the tax on the income earned by the businesses that they carry on. Shareholders are taxed only when the corporation pays them something, like a dividend. Often the key issue in choosing to incorporate is whether less total tax will be paid on income from the business if it is carried on by a corporation compared to an individual earning the same income directly. For example, if Diva carries on business directly, all the income from her business will be taxed in her hands. In contrast, if she carries on business using a corporation in which she is the sole shareholder, the corporation will pay the tax on the income. But what would happen when the corporation distributes that income to Diva through a dividend? In that case, Diva would have to pay tax on the dividend as well. That is a form of double taxation: a tax falls first on Diva's company and then on Diva as a shareholder. The federal government has tried to generally set up the tax rules so that the same overall amount of tax is paid on income earned by a business regardless of whether it is carried on by an individual directly or through a corporation This is done by giving a special tax treatment to dividends paid by corporations to shareholders. The basic idea is that the income earned in the corporation and paid out as a dividend is treated as if it had been earned directly by Diva. She must calculate her tax owing as if the income earned in the corporation was her income and then reduce the amount she actually pays by taking a credit for the taxes already paid by the corporation. The result is that the cash Diva ends up with after all the taxes are paid is the same, regardless of 27 © 2023 Pearson Canada Inc.

whether she earns the money directly or through a corporation. In many situations, however, there may be advantages to earning the money in a corporation. For example, the corporate tax rate may lower than Diva's individual tax rate. As a result, as long as Diva does not need the money, she can defer tax by leaving it in the corporation. There are also a variety of special tax rules that make it beneficial to use a corporation in particular situations. For example, the first $500 000 of annual income earned by certain Canadian-controlled private corporations is taxed at special low rates of between 12.5 and 15 percent. These low rates increase the benefit of using a corporation to carry on a small business. As the preceding analysis suggests, the tax implications of carrying on as a sole proprietor or as a corporation is complicated. It often is advisable to make that decision after receiving advice from an accountant. 5. One of the key elements of consumer protection under provincial laws is mandatory disclosure of contractual terms. Describe the main features of provincial laws requiring disclosure to consumers. Difficulty: 2 QuestionID: 25-3-05 Topic: Provincial Consumer Protection Legislation Skill: Recall Answer: Each province and territory has consumer protection legislation. Although the details vary from one jurisdiction to the next, certain types of provisions are consistent. The text mentions four. Two are not pertinent to this question: the right to rescind transactions within a fairly brief "cooling-off" period and the absence of any obligation to pay for unsolicited goods or services. The other two types of provisions are directly relevant to this question. Consumers must be provided with written contracts containing prescribed information for certain types of transactions: To ensure that consumers know what kind of deal they are getting, some contracts must be in writing and they must disclose certain information. These include: - contracts in which consumers are likely to find themselves under pressure–such as when a salesperson comes to their house - contracts in which the consumer finds it difficult to understand the value of the goods or services on offer— such as time-share agreements and contracts that require immediate payment for a one-year membership at a gym - contracts concluded over the Internet In those situations, the information that has to be disclosed includes a fair and accurate description of the goods or services being supplied, the price, and all additional charges Credit terms must be fully disclosed: Anyone providing goods or services on credit must give the consumer a written statement showing all financing charges and the effective annual percentage rate of interest for the credit transaction. The statement must also explain how any extra charges would be calculated if the consumer failed to make the payments. A consumer is not bound unless the required disclosure is made. Some statutes require additional, more specific disclosure for some complex transactions, such as leases and time-share contracts. These provisions enable consumers to make informed choices regarding whether to enter into a credit 28 © 2023 Pearson Canada Inc.

obligation. They can compare financing costs and look for the best rates. Finally, although the question asks about disclosure requirements under provincial legislation, similar requirements occasionally are imposed federally as well. The Competition Act, for instance, requires fair, reasonable, and timely disclosure regarding prices and delivery of goods arranged as a result of telemarketing. 6. Scofflaw Inc is a Canadian company that imports and exports goods from dozens of countries around the world. Because of the nature of its business, its income tax situation is complex. Scofflaw wishes to pay as little as possible, but its directors are also keen to ensure that the company remains on the right side of the law. The most recent tax year was unusually complicated and the directors anticipate that Scofflaw may have to argue with government in order to secure the most favourable tax position possible. Which government entity will deal with Scofflaw's income tax return? Briefly explain the process that (a) Scofflaw must follow for income tax purposes, (b) Scofflaw must follow if it wishes to dispute the government's position, and (c) the government must follow if it wishes to investigate Scofflaw's tax position in greater detail. Difficulty: 2 QuestionID: 25-3-06 Topic: Income Tax Administration and Audits Skill: Applied Answer: The principal source of tax law in Canada is the federal Income Tax Act (ITA). The Act is administered by the Canada Revenue Agency (CRA). Each year, the CRA receives tax returns from more than 23 million individual Canadians and registered trusts, and more than 1.5 million corporations. It collects in excess of $300 billion. (a) Every tax payer must file an income tax return that states total income. That sum is subject to deductions arising from expenses that were incurred to generate that income. The resulting sum is the taxpayer's taxable income. (b) The administration of the ITA inevitably gives rise to complex disputes that require specialized expertise to resolve. If Scofflaw disputes the amount that the CRA's Notice of Assessment, it must launch an administrative appeal. This process involves discussions with CRA. If the administrative appeal fails, the dispute may be taken to the Tax Court of Canada. Appeals from the Tax Court may be taken to the Federal Court of Appeal, and then, with the court's permission, to the Supreme Court of Canada. (c) Every year some individuals and businesses are selected by the CRA for audits. An audit is a detailed examination of a taxpayer's annual income and tax payable. The field audit is the main tool in the CRA's audit program. In Scofflaw's case, the CRA representatives would conduct a detailed examination of the company's books and records, most likely at Scofflaw's place of business. At the end of the audit, the CRA auditor may reassess the company's return and claim that a higher amount of tax is due. If Scofflaw disputes that reassessment, it would be entitled to appeal by using the procedure discussed above. 7. Seva Inc is a pharmaceutical manufacturer in Montreal which is about to launch a new cancer-fighting drug, Floror. The drug works by inhibiting the growth of new cells at specific body sites. Clinical trials and careful economic analysis have convinced Seva that Floror will be a hit in the therapeutic market. 29 © 2023 Pearson Canada Inc.

Nevertheless, Seva officials learn that two other rival pharmaceutical makers have their own cancer inhibitors in the works. Seva officials worry that if these drugs hit the market at the same time as Floror they will eat into Seva profits. Seva's Chief Financial Officer decides to open secret talks with the two rivals. Those discussions confirm his fears and prompt him to enter into a market-sharing arrangement in which the competitors will delay their products' entry into the market for the first five years of Floror's life in the Canadian market. In exchange, Seva will share some of its profits with its competitors, which they can use to further refine and improve their drugs. In so doing, would Seva's CFO have done anything wrong? Difficulty: 1 QuestionID: 25-3-07 Topic: Co-Operation Amongst Competitors Skill: Recall Answer: Agreements on price and other forms of agreement to limit competition are considered to be serious because are always anti-competitive in effect. They are therefore criminalized. The kind of conspiracy described in this question between Seva and its competitors reflects conduct that is antithetical to the spirit of free markets and is likely a criminal offence under the Competition Act. In essence, by restraining the entry of competitors on to the market, Seva and its co-conspirators have made it possible for Seva to market Floror at higher prices and to enjoy greater profits than it otherwise might. This kind of behaviour could contravene the Competition Act as a conspiracy offence to "lessen competition unduly." However, proving a conspiracy–that is, the joint action of more than one party–is difficult since the prosecution must prove that Seva and its co-conspirators' conduct was intentional and most conspirators are careful to cover their tracks. In addition, the Act had been interpreted to require specific knowledge among the conspirators that the effect of the agreement would be to lessen competition. This might be evident in the case of Seva and its coconspirators, but in general it is a difficult mental state to prove. Amendments made to the Competition Act in 2010 made it easier to prosecute businesses like Seva. Now any agreement to restrict output is an offence under the Competition Act. There is no need to prove that there was an impact on competition or that the parties intended to have an adverse effect on competition. Limited defences are available. 8. Why are mergers reviewed by the Competition Bureau? Difficulty: 3 QuestionID: 25-3-08 Topic: Mergers Skill: Applied Answer: A merger involves the combination of two or more businesses. Under the Competition Act, merger is a reviewable practice "where a merger is likely to lessen competition substantially in a trade, industry or profession." The Competition Tribunal is given the power to dissolve the merger, dispose of assets, or take other necessary action.

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The Competition Bureau will be concerned about a merger where it results in such a high degree of market concentration that the merged entity may charge prices above what would exist in a competitive marketplace. Whether this is a risk depends on the characteristics of the market, including the number of firms, the ease with which new competitors, including foreign competitors, may enter the market to increase competition and whether there are substitutes available for the products produced by the merged firms. 9. Ultra-Brite is a new brand of clothing detergent introduced in the Canadian market in the past year following heavy promotion and advertising. It is specially formulated to take heavy dirt out of white and other light-coloured clothing. Sales have climbed substantially with the catchy new slogan "Ultra-Brite, Always White!" However, recently a small, but growing, number of complaints have been received by the Competition Bureau alleging that Ultra-Brite is in fact engaged in deceptive advertising: the use of UltraBrite on clothes does not always return them to a pristine, white condition like the advertising and slogan suggest. Instead, clothes washed with Ultra-Brite often have a used, faded look about them. Discuss what action could be taken against the company, and what defences would it have? Difficulty: 3 QuestionID: 25-3-09 Topic: Misleading Advertising and Other Deceptive Marketing Practices Skill: Applied Answer: The facts here suggest that Ultra-Brite may be guilty of misleading advertising–that is, a representation made in connection with a product or business interest which is calculated to, or negligently, deceives the public in a material way. Misleading advertising has a dual character under the Competition Act in that it may be reviewed civilly or prosecuted criminally. Misleading advertising can be a criminal offence if the misleading representation was made intentionally or recklessly. In cases involving misleading advertising it is not necessary to prove that any person was actually deceived or misled by the misrepresentation, but in a prosecution the general impression conveyed by the representation as well as its literal meaning is to be taken into account. The Tribunal or court examining the case will be aware of the aggressive nature of advertising in modern Canada and the general level of consumer expectations that must be taken into account. Here, the issue would be whether Ultra-Brite's slogan and heavy promotion and advertising would create a reasonable expectation in the consumer's mind that clothes would be returned in a pristine, white condition. Note that the facts state "not always," wording which suggests that in many cases Ultra-Brite usage does do so. Moreover, the prosecutor would consider that the ordinary consumer's expectations should be tempered by the known fact that clothes coming out of a dryer will never look as good as they did upon purchase. Finally, there is the issue of what defences are available. A defence of due diligence exists to all dual offences prosecuted criminally. Due diligence involves the exercise of reasonable care by an individual who is responsible for the performance of a duty. to determine if Ultra-Brite was being duly diligent, it would be relevant whether Ultra-Brite had sought to ensure that the representation was true. 10. For years, Mandy has owned a chain of six delicatessens in and around Calgary. She is very proud of the products her stores carry, but she has always wanted to get Pantry Pride Meats, Snacks, and Fruits as part of her line. This has been difficult because, as she learned early on, Pantry Pride products are sold 31 © 2023 Pearson Canada Inc.

only through authorized dealers who follow Pantry Pride's "pricing guidelines." These are meant to reinforce consumer perceptions of Pantry Pride's superiority over other brands. Mandy wonders whether there is anything under the Competition Act that would help her get Pantry Pride items. Difficulty: 2 QuestionID: 25-3-10 Topic: Refusal to Deal and Other Reviewable Distribution Practices Skill: Applied Answer: In this case, Pantry Pride's behaviour can be defined as price maintenance, which is a reviewable practice under the Act involving attempts to influence upward the price at which a product is sold or resold. The imposition of mandatory pricing "guidelines" for purchasers who plan to resell, like Mandy, would be price maintenance. The Commissioner would only make an application to the Competition Tribunal for an order directing that the practice be stopped if it was having an adverse effect on competition in a market. A second issue is whether Mandy could bring an individual action against Pantry Pride's behaviour under the Competition Act. Most actions under the Act are maintained by the Commissioner of Competition. With respect to price maintenance, Mandy can apply to the Competition Tribunal herself with the Tribunal's permission. In order to obtain the Tribunal's permission, she must show that she has been directly and substantially affected by the behaviour complained of. If successful before the Tribunal, Mandy would only be allowed to obtain a ceaseand-desist order against the Pantry Pride, not damages. 11. Flower Inc produces a brand of energy drink originally developed in Japan that has been introduced in Canada in the past two years. It is aimed at the youth market and has several Canadian and international competitors. Flower's traditional retailers are health food and sporting goods stores, but Flower's supplier is anxious to build market share and so provides hefty "slotting allowances" to larger stores that carry the brand and not its competitors' brands. Several chains then introduce Flower at heavily discounted prices to attract a younger crowd into their aisles. What competition offence might this constitute, and what can be done about it? Difficulty: 2 QuestionID: 25-3-11 Topic: Abuse of Dominant Position Skill: Applied Answer: This question asks students to distinguish between permitted strategies for growth in a market and anti-competitive tactics that are evidence of an abuse of dominant position. Section 79 of the Competition Act defines an "abuse of dominance" as activity wherein an entity that "substantially or completely controls" a class or species of business engages in a practice of anti-competitive acts, and the practice has had, is having, or is likely to have, the effect of preventing or lessening competition substantially in a market. Section 78 of the Act lists several examples of abuse of dominant position, including the use of "loss leaders" to discipline or eliminate competitors. This kind of behaviour is a reviewable offence and can be pursued civilly by the Commissioner of Competition before the Competition Tribunal. In this question, however, it is not clear that Flower is in a dominant position within the industry. The facts 32 © 2023 Pearson Canada Inc.

indicate that Flower has "several Canadian and international competitors" and that it is anxious to build market share. This does not necessarily translate into a dominant position or to a contravention of the Act. The Competition Bureau has not taken enforcement action where the market share of an allegedly dominant firm was less than 85 percent. If Flower was a dominant firm, the practice of granting slotting allowances may be anti-competitive and an abuse of dominance because it is designed to exclude the products of Flower's competitors. 12. Identify and briefly explain (a) the significance of competition in the business world, and (b) three common law actions that help to regulate competition in Canada. Difficulty: 2 QuestionID: 25-3-12 Topic: Competition Skill: Recall Answer: Competition is vital to maintain the efficiency and adaptability of the Canadian economy for the benefit of consumers. In a competitive market, firms compete for consumers' business by lowering their prices and improving product or service quality. Competition encourages innovation in the way businesses operate to reduce their costs and improve efficiency. Some marketplace behaviour by individual businesses or groups of businesses that is intended to promote their commercial interests can, however, injure competition and be detrimental to consumers. For example, an agreement by all sellers in a market to charge a price that is higher than the price that would result if they competed with one another is an example. So too, if competition were completely free, the most efficient firm might drive all the others out of the market. If a monopoly were created in this way (or in any other way), there is a significant risk that the monopolist would abuse its position by raising prices above the level that would exist if the market were competitive. The law consequently intervenes in the market to prevent such abuse. The preservation of competition is addressed primarily through the Competition Act. The common law actions nevertheless do provide some tools for dealing with anticompetitive behaviour. Contract–Restraint of trade: As explained in Chapter 10, contractual provisions that unreasonably restrain trade are invalid. There are many examples. - Employment: An employment contract may require an employee to promise to refrain from competing with the employer after the parties part ways. That promise may vary in scope in terms of duration (a month, a year, a lifetime), location (the neighbourhood, the city, the province, the country), or the nature of the competition (non-competition, non-solicitation of customers). - Sale of business: The sale of a business may require the vendor to refrain from competing with the purchaser. The buyer of a long-established corner store may want some assurance that the vendor, having sold the business, will not simply develop a new one in the same area. Customers may be more loyal to the vendor than to the original store. Non-competition agreements must be carefully and reasonably drafted. Because courts will not enforce unreasonable restraints on trade, as a risk management, the utility of such agreements is reduced. 33 © 2023 Pearson Canada Inc.

A challenge to a restraint of trade clause may be brought only by the party to the contract who is subject to the constraint. The common law typically provides no relief where parties are co-operating to restrain competition. Tort–conspiracy and unlawful interference with trade: As explained in Chapter 5, tort claims are available in the event of conspiracy or unlawful interference with trade. Those actions, however, are difficult to prove and consequently often fail. The court generally requires proof that the defendant deliberately inflicted a loss on the plaintiff by (a) conspiring with another party to restrain trade, or (b) inducing a breach of contract. 13. With respect to the Competition Act, identify and briefly explain (a) the nature, purpose, and operation of the Act, (b) the categories of anti-competitive behaviour that are recognized by the Act, and (c) examples of each category. Difficulty: 3 QuestionID: 25-3-13 Topic: The Competition Act Skill: Recall Answer: The federal government long ago enacted the Competition Act for the purpose of regulating competition within the Canadian business world. That statute aims to restrict anti-competitive practices and stimulate competitive conduct. It includes provisions relating to agreements amongst competitors to fix prices as well as abusive behaviour by a dominant firm and mergers that reduce competition. It also contains prohibitions on misleading advertising and other consumer protection provisions that are discussed in the following section on consumer protection. The Competition Act is administered by the Commissioner of Competition, who oversees the operation of the Competition Bureau in Ottawa. The Bureau is an independent law enforcement agency of the federal government that investigates complaints and monitors the marketplace. The Commissioner is responsible for enforcement of the Act and three other standard-setting statutes. The Act categorizes anti-competitive conduct as criminal, or civilly reviewable. Criminal and civil matters have distinct procedures and remedies. Criminal matters: These are serious matters that always threaten competition. Criminal matters include agreements to lessen competition, such as by fixing prices, and employing deceptive marketing practices. After an investigation by the Competition Bureau, the Commissioner refers criminal matters to the Attorney General for prosecution in court. Criminal matters include: - Agreements to restrict competition: agreeing with a competitor to fix product price or supply or to allocate sales, territories, customers, or markets - Bid-rigging: agreeing not to submit a bid in response to a call for tenders or submitting a bid based upon a prior agreement as to what the bid would be - Deceptive telemarketing: making a misrepresentation or failing to make required disclosure when using the telephone to promote the sale or use of a product or to promote some other business interest - Misrepresentations regarding multi-level marketing plans: making a representation regarding the compensation that a participant in such a plan may receive that is not fair and reasonable or based on compensation that has actually been received 34 © 2023 Pearson Canada Inc.

- Pyramid selling: creating a scheme in which participants pay to participate and receive benefits only when they persuade others to join the scheme Civilly reviewable matters: Civilly reviewable matters, also known as reviewable matters, must be reviewed in each case to determine whether they have an anti-competitive effect. Reviewable matters include mergers, abuse of dominant position, refusal to deal, exclusive dealing, tied sales, market restriction, and price maintenance. If the Commissioner determines that any conduct is a reviewable matter and is having an anticompetitive effect, it may be referred to the Competition Tribunal, which is an administrative tribunal composed of judges and lay members, including economists. The tribunal has the power to impose a number of remedies aimed at stimulating competition. Those remedies include (a) an order to stop the anti-competitive practice, (b) the dissolution of mergers, and (c) an order requiring entities that are contemplating a merger to be "held separate." Appeals from the tribunal's orders can be taken to the Federal Court of Appeal. Civilly reviewable matters include: - Abuse of dominance: a firm that has substantial control over a "class or species" of business engaging in a practice of anti-competitive acts - Mergers: acquiring a "significant interest" in or control over a business of a competitor, supplier, customer, or some other person - Refusals to deal: refusing to sell to a customer who is willing to meet the usual trade terms - Exclusive dealing: requiring a customer to deal only, or primarily, in products designated by the supplier as a condition of agreeing to supply the customer - Tied sales: refusing to sell to a customer unless the customer either acquires another product or does not distribute a product associated with another business - Market restriction: limiting the market in which the purchaser may resell a product - Price maintenance: attempting to influence upward the price at which the customer resells its product or refusing to supply a product to a customer because of the customer's low pricing policy - Bait and switch: advertising a product for a very low price then telling customers who come to the store that the advertised product is no longer available but a different, higher-priced alternative is available Dual category matters: Misleading advertising may be dealt with as a criminal or civil matter. If the Commissioner determines that the behaviour was committed intentionally or recklessly, the issue can be referred to the Attorney General for prosecution. Otherwise, the Commissioner may decide to refer the matter to the Competition Tribunal. Dual category matters include: - Misleading advertising: making a representation to the public that is false or misleading in some material way for the purpose of promoting the supply of a product or another business interest 14. Elkton is a small city in a remote part of Canada. Its economy struggled for several decades, but the discovery of rarium, a precious metal, in the surrounding hills had the potential to be enormously profitable for at least some of the local people. The government announced that it was holding a competition for the right to extract and sell the rarium. In an attempt to ensure that the local community benefitted from the project, the government also announced that the competition was restricted to individuals or companies with an established record of working in the area. In practice, that meant that only four businesses were entitled to submit bids: Wapiti & Sons Corp, Moose Mining Ltd, Cariboo Inc, and Muskox Extraction Co. Depending upon the price to be paid by the winning party, the venture promised to be extraordinarily lucrative. The individuals in control of those four entities, however, were not prepared to leave things to chance. While they each submitted a bid to the government, the agreed beforehand on three points: (a) Wapiti would offer a price somewhat lower than what the government 35 © 2023 Pearson Canada Inc.

anticipated, (b) the other parties would bid even less than Wapiti, and (c) Wapiti would share its eventual profits with the others. All of that occurred several years ago. As the bidders expected, Wapiti won the competition, received the right to mine the rarium, and shared its obscene profits with Moose, Cariboo, and Muskox. Having recently learned about the companies' agreement, the government is unhappy. What, if anything, can the government do about the situation? What outcome can the government hope to achieve? How will it achieve that end? Difficulty: 2 QuestionID: 25-3-14 Topic: The Competition Act, Co-Operation Amongst Competitors Skill: Applied Answer: The parties engaged in bid-rigging, which is a form of anti-competitive behaviour under s 47 of the Competition Act. Bid-rigging is classified as a criminal matter. Bid-rigging occurs when a person either agrees not to submit a bid in response to a call for tenders or submits a bid that is based upon a prior agreement as to what the bid would be. In this instance, Wapiti, Moose, Cariboo, and Muskox agreed that Wapiti would submit the winning bid and then subsequently share its artificiallyinflated profits with the others. Bid-rigging is an offence, regardless of the effect that it has on competition. In this instance, however, it clearly limited the competition for the right to extract and sell rarium. The government received a lower price than it otherwise would have enjoyed for the sale of a precious commodity. The Competition Act is administered by the Commissioner of Competition, who oversees the operation of the Competition Bureau in Ottawa. The Bureau is an independent law enforcement agency of the federal government that investigates complaints and monitors the marketplace. The Commissioner is responsible for enforcement of the Act and three other standard-setting statutes. The Commissioner enjoys broad discretion in enforcing the Act. In the interests of achieving a quick and costeffective end to anti-competitive behaviour, the Commissioner sometimes seeks to resolve problems by using alternatives to a criminal prosecution or a contested application to the Competition Tribunal. These may include arranging an information visit, obtaining a written undertaking of the person engaged in the behaviour to stop it, or seeking a consent order from the Competition Tribunal. Alternatively, the Commissioner may employ more formal enforcement procedures. 15. It is often said that you should not judge a book by its cover. It nevertheless is true that attractive books sell more than ugly books. In fact, packaging and labelling play a significant role in shaping consumer choices. For that reason, the federal government has enacted four pieces of legislation that are aimed at ensuring that consumers can determine what they are buying by inspecting goods and their containers. Identify those four statutes and briefly explain what they require. Difficulty: 3 QuestionID: 25-3-15 Topic: Other Federal Legislation Relating to Standards, Packaging, and Labelling Skill: Recall 36 © 2023 Pearson Canada Inc.

Answer: Consumer Packaging and Labelling Act: This statute requires pre-packaged consumer products to bear labels that provide accurate information in English and French. Labels must clearly identify the common name of the product, the quantity, and the name and principal place of business of the manufacturer. Certain products, such as wine and peanut butter, must be sold in standardized containers. Misleading or false representations on labels are prohibited. For example, a label on a food product cannot say how many servings that package contains unless it also says how big the servings are. Textile Labelling Act: Each piece of clothing must bear a label that states the materials used and the name of the dealer. This Act also imposes detailed requirements regarding the manner in which those materials are described. Misleading or false representations regarding the material, either on labels or in advertising, are prohibited. For example, a picture on a label cannot falsely suggest that a garment contains a particular kind of fibre. A sweater cannot bear a picture of sheep if it does not actually contain wool. Hazardous Products Act: This Act lists inherently dangerous products–such as lead-based paints, glues, and industrial chemicals–and says that they cannot be produced or handled except in accordance with the legislation. That explains the otherwise curious fact that new mattresses invariably bear tags that identify the materials used during manufacture. Food and Drugs Act: The final statute deals with many aspects of food, drugs, and cosmetics, including their processing, storing, and labelling. The Act imposes penalties on businesses that sell food, cosmetics, or drugs that are adulterated, or that produce or store these products in unsanitary conditions. The Act also sets standards for product labelling, including the listing of ingredients and "best before" dates for products with limited shelf life.

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Managing the Law, 6e (McInnes) Chapter 26: Individual Employment True/False Questions 1. Advertising a job position creates risks even though is no employment relationship exists at that time. a True b False Difficulty: 2 QuestionID: 26-1-01 Topic: Advertising Positions Skill: Applied Answer: a. True 2. A job description is a human resources document with no legal implications. a True b False Difficulty: 1 QuestionID: 26-1-02 Topic: Job Descriptions Skill: Recall Answer: b. False 3. Big Brother Inc has instituted a new email policy for the workplace. In addition to outlawing the viewing of pornography and the dissemination of defamatory material, the policy also states that all email, both personal and otherwise, will be monitored by the corporation. In some provinces, this entire policy would be void since employee monitoring violates the human rights or privacy rights of the employees. a True b False Difficulty: 2 QuestionID: 26-1-03 Topic: Employee Privacy Skill: Applied Answer: b. False 4. Statements made by both parties during hiring can have an effect on the employment contract. a True b False

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Difficulty: 2 QuestionID: 26-1-04 Topic: Statements Made During Hiring Skill: Recall Answer: a. True 5. All workers even independent contractors are entitled to certain minimum employment standards. a True b False Difficulty: 2 QuestionID: 26-1-05 Topic: Employment Standards Skill: Recall Answer: b. False 6. An employee acting in the course of her assigned duties who causes injury to a third party is vicariously liable for damages. a True b False Difficulty: 3 QuestionID: 26-1-06 Topic: Third Party Liability Skill: Applied Answer: b. False 7. Since positive reviews increase employee morale and are more pleasant to conduct, employers and managers should always give a positive review when appraising an employee's work habits. a True b False Difficulty: 1 QuestionID: 26-1-07 Topic: Performance Reviews Skill: Recall Answer: b. False 8. A promotion entails new duties and not necessarily an increase in pay. a True b False

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Difficulty: 1 QuestionID: 26-1-08 Topic: Promotion and Progressive Discipline Skill: Recall Answer: a. True 9. Chloe lives in Quebec. Her employer recently asked her to work on Canada Day. If she takes the shift, she is entitled to additional pay. a True b False Difficulty: 2 QuestionID: 26-1-09 Topic: Employment Standards Skill: Applied Answer: a. True 10. Jerry is a 21-year-old waiter in Ontario. He is entitled to the same minimum wage as he would be if he lived in Quebec. a True b False Difficulty: 2 QuestionID: 26-1-10 Topic: Employment Standards Skill: Recall Answer: b. False 11. The purpose of human rights legislation is remedial rather than punitive in nature. a True b False Difficulty: 2 QuestionID: 26-1-11 Topic: Human Rights Skill: Recall Answer: a. True 12. Ji has failed to live up to his employer's expectations. The employer tells Ji that she has to learn to perform as well as Shawna. Ji responds by saying that she completes assigned tasks carefully and thoroughly but at her own pace. Nevertheless, since the employer can show that another employee can do a better job, she is justified in dismissing Ji. 3 © 2023 Pearson Canada Inc.

a True b False Difficulty: 2 QuestionID: 26-1-12 Topic: Incompetence and Carelessness Skill: Applied Answer: b. False 13. Employees (as opposed to independent contractors) are always entitled to reasonable notice or money in lieu regardless of the circumstances of their dismissal. a True b False Difficulty: 2 QuestionID: 26-1-13 Topic: Summary Dismissal, Reasonable Notice Skill: Recall Answer: b. False 14. An employer found by a court to owe its employee money in lieu of notice will never owe more than the amounts set out in employment standards legislation. a True b False Difficulty: 2 QuestionID: 26-1-14 Topic: Reasonable Notice Skill: Recall Answer: b. False 15. Tomaj is fired by his employer without reasonable notice and without cause. He is likely entitled to a severance package. a True b False Difficulty: 1 QuestionID: 26-1-15 Topic: Severance Packages and Settlements Skill: Recall Answer: a. True

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16. Jurisdictions across Canada have enacted special leave provisions for absences from work due to COVID-19. a True b False Difficulty: 1 QuestionID: 26-1-16 Topic: Statutory protection Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following items may be required in an employment application without offending human rights legislation concerned with employment standard? A) Specify an emergency contact and your relationship to that person. B) Are you legally entitled to work in Canada? C) Please specify marital status. D) What church do you go to? E) What clubs do you belong to? Difficulty: 2 QuestionID: 26-2-01 Topic: Application Forms and Interviews Skill: Recall Answer: B) Are you legally entitled to work in Canada? 2. Which of the following best highlights the distinction between employees and independent contractors? A) Employees owe a higher degree of loyalty. B) Independent contractors can quit whenever they want without consequence. C) Employees need not remit some of their pay to workers' compensation. D) Independent contractors do not need to pay income tax. E) Independent contractors do not need to follow directions from the entity they contracted with. Difficulty: 2 QuestionID: 26-2-02 Topic: Independent Contractors and Consultants Skill: Recall Answer: A) Employees owe a higher degree of loyalty. 3. Which of the following entitlements are employees but not independent contractors provided for by statute? A) reasonable notice of termination 5 © 2023 Pearson Canada Inc.

B) severance pay C) overtime pay D) vacation pay E) employment standards Difficulty: 2 QuestionID: 26-2-03 Topic: Employment Standards Skill: Recall Answer: E) employment standards 4. Mr Plumber regularly carries out services for Big Irv's Plumbing supplies. Which of the following factors will the court consider when seeking to determine whether Mr Plumber is an employee or independent contractor of Big Irv's Plumbing? A) Mr Plumber's prior work experience B) whether Mr Plumber owned the tools used to carry out services C) Big Irv's annual profit D) how long Mr Plumber has known Big Irv E) Mr Plumber's family relationship to the owner of Big Irv's Difficulty: 3 QuestionID: 26-2-04 Topic: Independent Contractors and Consultants Skill: Applied Answer: B) whether Mr Plumber owned the tools used to carry out services 5. Sonya is contracted to work for Diamond Dave's Deliver-All. While delivering mini-donuts, Sonya inadvertently runs into the back of a parked car and smashes the bumper and back windshield. Luckily no one is hurt. Still, the owner of the car has decided to sue Diamond Dave to collect for the damages done to the car. Under which of the following circumstances will the owner succeed? A) if she is able to prove that the accident happened while Sonya was working B) if she is able to prove that the accident was sufficiently connected to Sonya's deliveries C) if she is able to prove that Dave told Sonya to drive on that busy street during rush hour D) if she is able to prove that Sonya has a string of previous accidents on her record E) if she is able to prove that Sonya is not an independent contractor but actually an employee, and therefore Diamond Dave would be vicariously liable for her actions Difficulty: 3 QuestionID: 26-2-05 Topic: Third Party Liability Skill: Applied Answer: E) if she is able to prove that Sonya is not an independent contractor but actually an employee, and therefore Diamond Dave would be vicariously liable for her actions 6 © 2023 Pearson Canada Inc.

6. Employment policy manuals A) are merely cosmetic and play no actual role in employee supervision. B) are not enforceable unless their content has been approved by a workplace advisory group. C) are a means of expressing the conduct that is expected of employees during the course of their employment. D) are established under the Employment Standards Act. E) are always binding contracts. Difficulty: 2 QuestionID: 26-2-06 Topic: Employment Policy Manuals Skill: Recall Answer: C) are a means of expressing the conduct that is expected of employees during the course of their employment. 7. Tracy has been on the job for six months now, but is failing to live up to her employer's initial expectations. From the perspective of risk management, what is the prudent course of action? A) Fire Tracy immediately while she is still in the probationary period. B) Suspend Tracey with pay and ask her to spend the time away from work redefining her job description. C) Promote Tracey into a different position. D) Conduct and document a performance review. E) Commence a program of progressive discipline. Difficulty: 2 QuestionID: 26-2-07 Topic: Performance Reviews Skill: Applied Answer: D) Conduct and document a performance review. 8. From a risk management perspective, the value of a performance review is enhanced if A) the employer provides the employee with two notarized copies of the review. B) the employer posts the review in a public area. C) the employer gives a day off to employees that receive outstanding reviews. D) the employer conducts the review in accordance with standard written valuation form. E) the employer tailors the review differently for each individual. Difficulty: 1 QuestionID: 26-2-08 Topic: Performance Reviews Skill: Recall Answer: D) the employer conducts the review in accordance with standard written valuation form.

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9. Employees are NOT entitled to leaves from the workplace under Employment Standards legislation for which of the following circumstances? A) pregnancy B) child-rearing C) vacation D) bereavement E) birthdays Difficulty: 1 QuestionID: 26-2-09 Topic: Employment Standards Skill: Recall Answer: E) birthdays 10. Daphne has worked for Eddie for two years. Last year, she elected to take her vacation during the winter so that she could fly south with her significant other. This year, she has asked to take a holiday in the summer. Eddie refuses, telling her that she must take her holidays at the same time of year from now on. Which of the following is true? A) Eddie's refusal is most certainly a human rights violation. B) Daphne's complaint will be dealt with by her local workplace advisory committee. C) Eddie is within his rights to refuse Daphne's request. D) Daphne has the right to take her vacation whenever she likes. E) Eddie and Daphne have no choice but to enter binding arbitration to resolve their dispute. Difficulty: 2 QuestionID: 26-2-10 Topic: Employment Standards Skill: Applied Answer: C) Eddie is within his rights to refuse Daphne's request. 11. Due to the enthusiastic response it receives each year from Italian tourists visiting for the summer, La Batootski Sandwiches Inc is hiring a sandwich maker. In addition to the requirement of being able to make a mean turkey and provolone, which of the following characteristics might be justified as a bona fide occupational requirement? A) ability to converse in Italian B) proof of Italian ancestry C) proof of an Italian post-secondary education D) 20/20 vision E) single or married status, but not divorced Difficulty: 2 QuestionID: 26-2-11 Topic: Human Rights Skill: Applied 8 © 2023 Pearson Canada Inc.

Answer: A) ability to converse in Italian 12. Indirect discrimination in the workplace A) occurs when someone outside the employment setting behaves in a discriminatory fashion. B) does not involve adopting a rule or practice that treats a person differently. C) is an acceptable practice in some provinces. D) can be distinguished from direct discrimination on the basis of the wrongdoers intention. E) has an adverse effect on at least one employee. Difficulty: 3 QuestionID: 26-2-12 Topic: Human Rights Skill: Recall Answer: E) has an adverse effect on at least one employee. 13. Which of the following is the clearest example of sexual harassment? A) the employer paying women a lower rate to do the same work B) the employer requiring all women sales personnel to attend an evening cocktail party C) the employer intentionally asking a female colleague rather than a male colleague to attend a business dinner D) one colleague joking with another for the third time about going on a romantic weekend getaway together E) a worker complimenting another worker on that worker's new clothes Difficulty: 2 QuestionID: 26-2-13 Topic: Human Rights Skill: Recall Answer: D) one colleague joking with another for the third time about going on a romantic weekend getaway together 14. Which of the following adaptations to the workplace would not be required of an employer in order to comply with a duty to accommodate? A) creating wheelchair access B) installing ergonomic workstations C) outfitting an office with a speaker-phone D) allowing dogs into the workplace E) successfully implementing an accommodation even though the employee did not take reasonable steps to assist the employer in that regard Difficulty: 1 QuestionID: 26-2-14 Topic: Human Rights 9 © 2023 Pearson Canada Inc.

Skill: Applied Answer: E) successfully implementing an accommodation even though the employee did not take reasonable steps to assist the employer in that regard 15. Hermann is a hair products distributor who works out of his second-storey walk-up apartment. His business has expanded, making a profit of $136,000 last year. He decided to hire someone to answer the phones on Tuesday and Thursday afternoon while he does deliveries. After interviewing Waldzell, Hermann offered her the position. After one week on the job, Waldzell returned from a ski weekend with a badly broken hip and foot. She will need reconstructive surgery and, though mobile, she will be in a body cast for almost a year. She will be able to get around by wheelchair. Unfortunately, the elevator in Hermann's building has been broken for over a year. Herman inquired into the cost of repair and found out that it will be more than a million dollars. After an inquiry to his telephone provider, Hermann also found out that he is able to forward his calls, so he offered Waldzell an opportunity to keep the job and work from home. She became indignant and claimed a right to the same working conditions as before her accident. Seeking accommodation, she decided to bring a human rights complaint. Which of the following is most likely to be TRUE? A) Waldzell will win because in this case it is possible for the employer to make adaptations to the workplace by fixing the elevator. B) Waldzell will not be able to compel Hermann to fix the elevator but she will get compensatory damages in lieu thereof. C) Hermann will claim undue hardship and will likely succeed. D) Hermann could be forced to close his business if he doesn't comply. E) Although Hermann cannot be compelled to fix the elevator, the owner of the walk-up most certainly will. Difficulty: 2 QuestionID: 26-2-15 Topic: Human Rights Skill: Applied Answer: C) Hermann will claim undue hardship and will likely succeed. 16. When a safety standard has been breached in the workplace, the employer will be subject to a corresponding fine A) no matter what. B) only if it has not put into effect a workplace advisory committee. C) only if a worker was hurt as a result. D) depending on whether it is able to prove due diligence. E) only if the safety standard is proved to be a reasonable standard of safety. Difficulty: 1 QuestionID: 26-2-16 Topic: Occupational Health and Safety Skill: Recall

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Answer: D) depending on whether it is able to prove due diligence. 17. Which of the following descriptions of workers' compensation schemes is true? A) Compensation for partial disability is based on the difference between pre-accident earning capacity and post-accident spending capacity. B) Workers who suffer a partial, though temporary, incapacity are paid the same as they were prior to the accident during the length of their recovery. C) If a worker is killed during employment, no money comes out of the accident fund. D) Worker compensation schemes are funded through employer on an opt-in basis. E) Worker compensation funds are funded though compulsory contributions from employers. Difficulty: 3 QuestionID: 26-2-17 Topic: Workers' Compensation Skill: Recall Answer: E) Worker compensation funds are funded though compulsory contributions from employers. 18. Summary dismissal A) is the same thing as wrongful dismissal. B) means that the employee is dismissed without notice. C) means that the employer had just cause. D) means that the employee is dismissed with notice. E) means that the employee is dismissed with reasonable notice. Difficulty: 2 QuestionID: 26-2-18 Topic: Summary Dismissal Skill: Recall Answer: B) means that the employee is dismissed without notice. 19. Roy has missed 10 days of work this year as a result of a reoccurring viral illness. Although he has never missed more than two days of work in a row, his productivity has definitely been affected. Roy's employer has done the math and figured out that his absence from work has prejudiced its business interests. Which of the following is true? A) The employer has just cause for dismissing Roy. B) Roy can be dismissed without notice on the basis of his repeated absenteeism. C) Roy's absenteeism is just cause so long as the employer documents the number of days missed and the lost productivity as a result. D) In order for absenteeism to be a just cause for dismissal, the employer must demonstrate that the employee was dishonest about his or her absence. E) The facts do not demonstrate just cause for dismissal without notice. Difficulty: 2 QuestionID: 26-2-19 11 © 2023 Pearson Canada Inc.

Topic: Absenteeism Skill: Applied Answer: E) The facts do not demonstrate just cause for dismissal without notice. 20. Until recently, Clark stretched crusts at a local pizzeria. One day, he showed up 10 minutes late with beer on his breath. (He had a couple of beers a few hours before coming to work.) When asked by Kent, his supervisor, whether he had been drinking, he told the truth and said that he was not drunk but only energized. He then proved his assertion by stretching pizza crusts twice as fast as either of his two coworkers. Concerned that others would think that drinking before work was an acceptable behaviour, Kent decided to make an example of Clark. He sent Clark home about an hour into the shift and told him that he would receive his final cheque in the mail. Which of the following is most likely true? A) Firing Clark was justified whether or not he posed a serious threat to the safety of the workplace. B) Firing Clark was not justified because his job performance was unaffected. C) Firing Clark was justified because to do otherwise would have been to condone Clark's behaviour. D) Firing Clark was justified because Clark drank alcohol within 48 hours of a shift. E) Firing Clark was justified only if he was a known abuser of alcohol. Difficulty: 3 QuestionID: 26-2-20 Topic: Substance Abuse Skill: Applied Answer: B) Firing Clark was not justified because his job performance was unaffected. 21. Percy seems to lack the basic skills necessary to do her job. Which of the following is true? A) To prove incompetence, her employer need only show that her job could have been done better. B) To claim this as the ground for summary dismissal, her employer must demonstrate that she once had the skill. C) To manage risk, her employer should tell her that her work is substandard, develop a process for improvement, and tell her that she will be fired if she is unable to improve. D) To increase profitability, she should be moved into an easier job–even if that means promoting her. E) To increase profitability, she should be fired immediately. Difficulty: 2 QuestionID: 26-2-21 Topic: Incompetence and Carelessness Skill: Applied Answer: C) To manage risk, her employer should tell her that her work is substandard, develop a process for improvement, and tell her that she will be fired if she is unable to improve. 22. Which of the following examples of employee behaviour would most likely be seen as disobedience warranting dismissal? A) a repeated failure to follow instructions B) criticizing the ways that the employer does business 12 © 2023 Pearson Canada Inc.

C) refusing to carry out duties because of illness D) refusing to do as instructed out of a concern for safety E) missing work for a day to look after the employee's sick child Difficulty: 2 QuestionID: 26-2-22 Topic: Dishonesty and Disobedience Skill: Applied Answer: A) a repeated failure to follow instructions 23. Which of the following is the best example of a conflict of interest? A) teaching a college course based on skills learned at the workplace B) accepting gifts from competitors C) giving common sense advice to a friend who is trying to get a job with your employer D) not telling your employer that you have been accused of a criminal offence E) taking a part-time night job unrelated to your full-time employment Difficulty: 2 QuestionID: 26-2-23 Topic: Conflicts of Interest Skill: Applied Answer: B) accepting gifts from competitors 24. Wrongful dismissal occurs when an employee is A) summarily dismissed for wrongful conduct in the course of employment. B) dismissed with just cause but without reasonable notice or money in lieu. C) dismissed without just cause but with reasonable notice (or money in lieu). D) dismissed without just cause and without reasonable notice (or money in lieu). E) dismissed for being drunk while at work. Difficulty: 3 QuestionID: 26-2-24 Topic: Reasonable Notice Skill: Recall Answer: D) dismissed without just cause and without reasonable notice (or money in lieu). 25. The notion of bad faith is relevant to wrongful dismissal in that a court will use it to A) lengthen the period of notice required of an employer. B) award damages to an employee, whether or not the employee has actual proof of mental distress. C) reinstate the employee in his or her former position. D) put the employer out of business. E) determine that wrongful conduct caused foreseeable mental distress and the employee suffered actual psychological damages (if the employee can show the employer acted in bad faith in the dismissal 13 © 2023 Pearson Canada Inc.

process) Difficulty: 2 QuestionID: 26-2-25 Topic: Reasonable Notice Skill: Recall Answer: E) determine that wrongful conduct caused foreseeable mental distress and the employee suffered actual psychological damages (if the employee can show the employer acted in bad faith in the dismissal process) 26. Which type of dismissal occurs when an employer fundamentally changes the nature of an employee's job? A) constructive B) wrongful C) conflict D) severance E) summary Difficulty: 1 QuestionID: 26-2-26 Topic: Constructive Dismissal Skill: Recall Answer: A) constructive 27. Which of the following best distinguishes constructive dismissal from summary dismissal? A) In the case of constructive dismissal, the employee is offered a settlement package in exchange for a resignation letter. B) In the case of constructive dismissal, the employee is dismissed without notice. C) In the case of constructive dismissal, the employee is not actually fired. D) In the case of summary dismissal, the employee is not actually fired. E) In the case of summary dismissal, a unilateral decision to alter an employee's status is said to amount to dismissal. Difficulty: 2 QuestionID: 26-2-27 Topic: Constructive Dismissal Skill: Applied Answer: C) In the case of constructive dismissal, the employee is not actually fired. 28. Suess was a model employee and future superstar in the corporation. Thinking that he was about to be offered a promotion, Suess was called into his manager's office where he was told that he was about to become the next victim of a projected economic downturn. To keep his job, Suess was told that he would have to take a 50 percent pay cut and move from Vancouver to Winnipeg. Which of the following is true? 14 © 2023 Pearson Canada Inc.

A) Suess has been wrongfully dismissed. B) The projected future economic downturn was just cause for dismissal. C) Suess was entitled to a remedy for summary dismissal. D) Suess was constructively dismissed. E) Suess is obliged to move to Winnipeg or resign. Difficulty: 2 QuestionID: 26-2-28 Topic: Constructive Dismissal Skill: Applied Answer: D) Suess was constructively dismissed. 29. Severance packages are distinguishable from settlement packages A) in that severance packages involve a lump sum payment offered to bring an employment dispute to an end. B) in that settlement packages involve a lump sum payment offered to bring an employment dispute to an end. C) in that settlement packages contain only that which is owed to the employee under statute. D) in that severance packages are offered in exchange for a release. E) settlement packages are always more generous to the employee than severance packages. Difficulty: 2 QuestionID: 26-2-29 Topic: Severance Packages and Settlements Skill: Recall Answer: B) in that settlement packages involve a lump sum payment offered to bring an employment dispute to an end. 30. A written release A) is part of a severance package. B) is the employer's written promise to bring an end to the employment dispute. C) is a provision in the employment contract that allows an employer to dismiss an employee without notice. D) is a provision in the employment contract that allows the employee to work for someone else without notice. E) is a prudent document to obtain from an employee who has threatened litigation or with whom a settlement has been made for the employee's dismissal by way of settlement package or severance pay. Difficulty: 2 QuestionID: 26-2-30 Topic: Severance Packages and Settlements Skill: Recall Answer: E) is a prudent document to obtain from an employee who has threatened litigation or with whom a 15 © 2023 Pearson Canada Inc.

settlement has been made for the employee's dismissal by way of settlement package or severance pay. 31. In deciding whether a worker is an employee or an independent contractor, a judge will A) always give effect to the literal terms of the parties' contract. B) usually resolve the issue on the basis of presumptions. C) be most influenced by the fairness of imposing vicarious liability as a result of the worker's tortious conduct. D) be substantially influenced by the fact that independent contractors almost always earn more than employees for doing the same work. E) apply the control or organization test and will look to the substance not the form of the relationship. Difficulty: 1 QuestionID: 26-2-31 Topic: Independent Contractors and Consultants Skill: Recall Answer: E) apply the control or organization test and will look to the substance not the form of the relationship. 32. In deciding whether or not a non-competition clause is enforceable, a court will A) examine only the terms of the parties' agreement and not the likely effect of that agreement. B) enforce the clause only if the former employee received independent legal advice before signing the agreement. C) be influenced by the employer's personal interests but not by its proprietary interests. D) be less likely to enforce the clause if the employer could have been sufficiently protected by a nonsolicitation clause. E) not be influenced by the fact that the employer wrongfully terminated the employee's contract of employment. Difficulty: 1 QuestionID: 26-2-32 Topic: Non-Competition and Non-Solicitation Skill: Recall Answer: D) be less likely to enforce the clause if the employer could have been sufficiently protected by a nonsolicitation clause. 33. Assuming that the general rules apply, an employee may be summarily dismissed A) after a single episode of employee theft. B) if his or her breath smelled of alcohol and if that fact violated company policy. C) for any criminal behaviour, even if that behaviour occurred before the term of employment began. D) for missing a day of work without either permission in advance or condonation after the fact. E) upon receipt of an unfavourable work performance report. Difficulty: 1 QuestionID: 26-2-33 Topic: Summary Dismissal 16 © 2023 Pearson Canada Inc.

Skill: Recall Answer: A) after a single episode of employee theft. 34. Which of the following criteria will NOT be considered by the court when deciding whether to award damages for wrongful dismissal? A) whether the employer acted in bad faith during the dismissal process B) whether the employee suffered actual psychological damage C) whether the way in which the employee was dismissed caused foreseeable mental distress D) whether the notice period can be appropriately lengthened in order to compensate the employee for mental distress E) the nationality of the employee Difficulty: 2 QuestionID: 26-2-34 Topic: Reasonable Notice Skill: Recall Answer: D) whether the notice period can be appropriately lengthened in order to compensate the employee for mental distress 35. Luminara has been given two weeks' notice by Knight Services Inc, her employer. While she is upset and hurt, she also wants to make sure that she lands on her feet and that she will not be without an income for long, if at all. She therefore has asked you to comment on several potential outcomes that she has predicted. Which of the following statements is TRUE? A) Unless she signed an agreement to the contrary, Luminara will not owe any obligations to Knight Services once she leaves the company. B) Luminara will be entitled to a settlement package. C) Luminara cannot take customer lists belonging to Knight Services. D) As an employee, Luminara is subject to fiduciary obligations that will survive her departure from the company. E) Luminara may take the customer lists of her employer if she did not sign a non-solicitation agreement in writing. Difficulty: 3 QuestionID: 26-2-35 Topic: Post-Employment Obligations Skill: Applied Answer: C) Luminara cannot take customer lists belonging to Knight Services. 36. Garth was accused by his employer, Redav Inc, of acting in conflict of interest. Garth denies the allegation. Both parties realize, however, that if they take the issue to court, they will lose precious time and money. The parties have therefore entered into an agreement regarding Garth's departure from the company. Which of the following statements is TRUE? A) If Redav Inc agrees to provide severance pay, Garth will receive payment in lieu of notice, as well as 17 © 2023 Pearson Canada Inc.

several other payments, including his past contributions to the Canada Pension Plan, vacation and sick pay, and an amount equal in value to the bonus payments that other employees in his position have received in the past fiscal year. B) By merely persuading Garth to sign a release, Redav Inc will eliminate the risk of later being sued by him. C) The phrases "severance pay," "severance package," and "settlement package" mean the same thing. D) Redav Inc is not obligated to provide Garth with a settlement package unless the parties agree otherwise. E) By accepting a severance package, Garth gives up the right to sue the company for wrongful dismissal. Difficulty: 2 QuestionID: 26-2-36 Topic: Severance Packages and Settlements Skill: Recall Answer: D) Redav Inc is not obligated to provide Garth with a settlement package unless the parties agree otherwise. 37. Obie has worked for Force Security Systems for ten years. Although the relationship was happy and mutually advantageous for the first eight years, the situation has been terrible for the past two years. Obie feels neglected and unappreciated, and the company questions his loyalty. As a result, each party is secretly looking for a way to end the relationship in the best way possible. Which of the following statements is TRUE? A) While Force Security is required to provide Obie with either notice of termination or payment in lieu of notice, Obie is entitled to leave the company at any time without incurring any obligations or liabilities. B) If Force Security acts in bad faith when it fires Obie, a court may award damages for bad faith dismissal, in addition to any other remedies that Obie is entitled to receive, if that bad faith caused foreseeable mental distress and Obie suffered actual psychological damages. C) Each party must provide notice (or payment in lieu of notice) if it intends to terminate the employment relationship, and that notice period will be the same whether it applies to Obie or to Force Security. D) If Force Security terminates Obie's employment, the duty to mitigate will require the company to ease Obie's return to the work force by doing things like writing reference letters. E) Depending upon the circumstances, if Obie is summarily dismissed from his position as a senior executive with Force Security, he can expect to receive between 24 and 36 months' worth of payment in lieu of notice. Difficulty: 3 QuestionID: 26-2-37 Topic: Reasonable Notice Skill: Applied Answer: B) If Force Security acts in bad faith when it fires Obie, a court may award damages for bad faith dismissal, in addition to any other remedies that Obie is entitled to receive, if that bad faith caused foreseeable mental distress and Obie suffered actual psychological damages. 38. Cece suffers from a disability. She developed that condition while working for Blackheart Inc. The duty to accommodate 18 © 2023 Pearson Canada Inc.

A) is irrelevant to this case unless the employment contract requires Blackheart to provide Cece with housing. B) requires Blackheart to modify the workplace, as long as the cost of those modifications does not exceed a statutorily imposed financial limit. C) does not apply because Blackheart is responsible only for those conditions that existed when the employment contract was created. D) may impose an obligation on Blackheart, but that duty is limited by proof that the accommodation would cause undue hardship on the employer. E) arises only if Cece can prove that she would not necessarily face the same problems with a different employer. Difficulty: 3 QuestionID: 26-2-38 Topic: Human Rights Skill: Applied Answer: D) may impose an obligation on Blackheart, but that duty is limited by proof that the accommodation would cause undue hardship on the employer. 39. Graham has worked for a department of the federal government for seven years. For the past six months, he has repeatedly complained to his supervisor, Cheryl, about sexual harassment in the workplace. He claims that several of his colleagues, both female and male, have persistently commented on his physical appearance, asked him for dates even after he rejected their offers, and allowed sexually explicit materials to be seen on work station computers. Cheryl initially responded to Graham's complaints in good nature by telling him to "loosen up," "take a joke," and "be a man, for goodness sake." More recently, however, she has grown impatient, and has simply told him to "get back to work." Which of the following statements is TRUE? A) Graham's claims of harassment will be successful only if he proves that the accused individuals intended to cause him grief. B) Graham's employer may be held vicariously liable for failing to actively prevent or inhibit sexual harassment. C) While changes have been proposed, it currently is impossible for a man to succeed in an action for sexual harassment. D) Sexual harassment requires proof of at least one incident in which the victim was touched in an offensive manner. E) This is not sexual harassment but just joking around in the workplace, which is not against the law. Difficulty: 2 QuestionID: 26-2-39 Topic: Third Party Liability, Human Rights Skill: Applied Answer: B) Graham's employer may be held vicariously liable for failing to actively prevent or inhibit sexual harassment. 40. Jason is a notoriously lazy individual. Consequently, while he recently returned to the workforce after 19 © 2023 Pearson Canada Inc.

exhausting his eligibility for employment insurance benefits, he is anxious to earn as much as possible while doing no more than is necessary for his new employer, Big Boy Pants and Shoes (BBPS). Which of the following statements is TRUE? A) Employment standards legislation prohibits BBPS from asking Jason to work on a statutory holiday, and must instead ask its employees for volunteers. B) Minimum wage rules apply only if Jason is paid on an hourly basis. C) Jason is entitled to a 15 minute rest period every 2 hours. D) Employment standards legislation states that Jason is entitled to an annual vacation, and that he is entitled to take his vacation whenever he wants to do so. E) Jason is entitled to take a statutorily defined time off work to vote on election days. Difficulty: 2 QuestionID: 26-2-40 Topic: Employment Standards Skill: Applied Answer: E) Jason is entitled to take a statutorily defined time off work to vote on election days. 41. Within the context of restrictive covenants, which of the following statements is TRUE? A) Judicial enforcement depends primarily on three factors, one of which asks whether the employer has a proprietary interest worthy of protection. B) A non-competition clause prohibits the employee from soliciting the customers of the employer, but otherwise leaves the employee free to compete. C) Because of the importance of freedom of contract, all restrictive covenants are presumed to be void. D) A non-solicitation restricts an employee's ability to work for a competitor or to start a business that would compete with the employer. E) The courts adopt the same attitude toward both non-competition clauses and non-solicitation clauses. Difficulty: 2 QuestionID: 26-2-41 Topic: Non-Competition and Non-Solicitation Skill: Recall Answer: A) Judicial enforcement depends primarily on three factors, one of which asks whether the employer has a proprietary interest worthy of protection. 42. When Mike became an employee of Caine Inc four years ago, he signed a contract that included a restrictive covenant. Unfortunately, after four happy and productive years, the employment relationship has come to an end. While he wishes that the situation had played out differently, Mike accepts the fact that he must move on. In fact, although he will miss the friends that he made at Caine Inc, he is excited about his future prospects. The company, however, has pointed to the restrictive covenant and said that Mike's options for earning an income are limited by the restrictive covenant. In that situation, which of the following statements is most likely to be TRUE? A) The restrictive covenant is much more likely to be enforced if it is a non-competition clause as opposed to a non-solicitation clause. B) If the parties' relationship came to an end because Mike was terminated without cause, Caine Inc 20 © 2023 Pearson Canada Inc.

probably cannot enforce the restrictive covenant. C) In deciding whether the restrictive covenant is enforceable, a judge will be primarily influenced by the salary that Mike was paid while he worked for Caine Inc. D) If Mike wrongfully resigned from the job, a court will enforce the restrictive covenant regardless of its contents. E) If the parties' contract did not contain a restrictive covenant, a court would imply one into the employment agreement as a matter of law. Difficulty: 3 QuestionID: 26-2-42 Topic: Non-Competition and Non-Solicitation Skill: Applied Answer: B) If the parties' relationship came to an end because Mike was terminated without cause, Caine Inc probably cannot enforce the restrictive covenant. 43. Maurice is employed by Micklewhite & Sons Ltd. His job, however, is potentially in jeopardy. Maurice insists that he is entitled to be away from the job on Monday afternoon. The company says that he will be fired if he does not work Monday afternoon. Maurice is most likely to be right if Monday is A) Maurice's birthday. B) the Queen's birthday. C) a federal election. D) Opening Day for Major League Baseball. E) Valentine's Day. Difficulty: 2 QuestionID: 26-2-43 Topic: Employment Standards Skill: Applied Answer: C) a federal election. 44. The Supreme Court of Canada's decision in Queen v Cognos Inc, which was explained in Case Brief 26.1, supports the proposition that A) an employer may be held vicariously liable if an employee, who was hired to serve as a bouncer at a bar, viciously beats an unruly customer in a fight that occurred away from the business premises. B) an employer is generally entitled to summarily dismiss an employee who has been caught watching pornography on the employer's computer during regular business hours. C) a former employee does not owe any obligations to the former employer once the employment relationship has come to an end. D) employers have a duty during employment interviews to exercise reasonable care and diligence when making representations about the nature of an employment opportunity. E) constructive dismissal may occur through either a single unilateral action taken by the employer that breaches the contract, or a series of actions that, taken together, show that the employer no longer intended to be bound by the contract.

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Difficulty: 2 QuestionID: 26-2-44 Topic: Statements Made During Hiring Skill: Recall Answer: D) employers have a duty during employment interviews to exercise reasonable care and diligence when making representations about the nature of an employment opportunity. 45. Harry Palmer was employed by Jack Carter Corp for 27 years. His position was terminated when the company's founder died and his step-daughter, Jacqui Rogers, took control of the business. Harry, however, is not willing to go quietly. He believes that he was unfairly dismissed and he has threatened to bring the matter to court. In these circumstances, which of the following statements is most likely to be TRUE? A) Regardless of what is contained in the parties' employment contract, Harry has a legal right to receive a settlement package. B) As a result of the Supreme Court of Canada's decision in Honda Canada, Harry is entitled to a minimum of $5000 for mental distress if he was unfairly dismissed. C) Even if Harry committed a crime while he was working, it was unlawful for Jack Carter Corp to dismiss Harry before a court actually entered a criminal conviction. D) Because judges recognize that everyone makes mistakes, the company could not possibly have been justified in firing Harry if it discovered that Harry had stolen from the company on a single occasion. E) If the company offers Harry the opportunity to resume employment with Jack Carter Corp, a judge may find that Harry unreasonably failed to mitigate if he refuses the offer. Difficulty: 3 QuestionID: 26-2-45 Topic: Mitigation Skill: Applied Answer: E) If the company offers Harry the opportunity to resume employment with Jack Carter Corp, a judge may find that Harry unreasonably failed to mitigate if he refuses the offer. Essay Questions 1. Explain the concept of a "job description." In which phase of the employment relationship is it created? What are the advantages of having a well-drafted job description for an employer? Difficulty: 1 QuestionID: 26-3-01 Topic: Job Descriptions Skill: Recall Answer: A job description is a written list of the employment duties that attach to a particular job. In order to be most effective, it is usually drafted prior to hiring. A well-drafted job description makes it easier to find the right person for the job. It also provides a standard of measure for performance review, once the employee has been hired. A job description has the added benefit of communicating the employer's view of the duties owed 22 © 2023 Pearson Canada Inc.

by the employee so that the employee has a clear understanding of their responsibilities at the time of hiring. 2. Dr Greenwald, a well-known plastic surgeon, rents a substantial portion of office space in the Americas University Hospital, a for-profit organization. Greenwald generates his own income, which is billed by the hospital after which a percentage is remitted to him on a bi-monthly basis. The amount of revenue generated by Greenwald equals 40 percent of the hospital's total revenue. In addition to his very successful practice, he serves on the hospital's ethics committee and is one of its key fundraisers. Would the doctor be considered an employee or an independent contractor? Apply the organization test. Difficulty: 2 QuestionID: 26-3-02 Topic: Nature of the Work Relationship Skill: Applied Answer: Although the hospital is not completely dependent on Dr. Greenwald, his practice and his extracurricular activities do play an important role in the success of the hospital. Due to his integral role in the overall business administration of the hospital, he is more likely to be found to be an employee of the hospital than an independent contractor. Given that courts sometimes use other tests, such as the control test, it is possible that he might be considered by some other standard to be an independent contractor. 3. Describe some outcomes that you might expect to emerge from the court's decision on bad faith dismissal in Honda Canada. Why do you expect these outcomes to arise? Difficulty: 2 QuestionID: 26-3-03 Topic: Reasonable Notice Skill: Applied Answer: The decision by the Supreme Court of Canada in Honda Canada overturned the previous method for calculating compensation for bad faith dismissals, known as Wallace damages.The rationale behind Wallace damages was that if an employer acted in bad faith when dismissing an employee, that employee might suffer psychological harm. Such harm justified compensation from the employer. When awarding Wallace damages, the court would extend the required period of paid notice as a means of compensating the employee. The new test outlined in Honda Canada requires not only that the employer acted in bad faith, but also that the bad behaviour caused actual and foreseeable psychological harm and the employee suffered actual psychological harm. A potential outcome of this change that might benefit employers is that the requirement to prove actual and foreseeable harm will likely make it more difficult for employees to succeed in their claims for mental distress at dismissal. This is particularly true where the employer's behaviour was not egregious. A potential positive outcome for employees, however, is that if foreseeable psychological harm can be proven, the amount of the award is not limited by the traditional constraints on the length of reasonable notice periods. 4. Professor Paine's performance reviews by the faculty in which he works always end on a positive note despite the fact that his work has been subject to serious criticism by both students and faculty alike. Most likely, this is due to the fact that the professor is emotionally fragile and has previously been traumatized by receiving a negative review. Is it bad practice for the dean of the faculty to avoid an honest appraisal in order to save Professor Paine from having hurt feelings? Explain why. 23 © 2023 Pearson Canada Inc.

Difficulty: 2 QuestionID: 26-3-04 Topic: Performance Reviews Skill: Applied Answer: Yes, the dean's practice is a bad one from an employment law perspective. Besides the fact that such a practice promotes non-uniform treatment of all faculty members, it may prove to be an even more serious omission should the administration ever find itself in a situation where it becomes necessary to assemble an evidentiary basis upon which to dismiss Professor Paine. Furthermore, a positive review will not address or assist in correcting already existing problems. In this and every case, it is better to present the professor with an honest appraisal of his work performance. 5. Suggest several means by which a manager can minimize the risk of vicarious liability for the actions of workers? Difficulty: 2 QuestionID: 26-3-05 Topic: Third Party Liability Skill: Recall Answer: In some instances, managers can avoid vicarious liability altogether by developing relationships with independent contractors rather than employees. This, however, is not always possible. Consequently, employers will have to minimize risk by taking proactive measures to control the behaviour of their employees. This is best accomplished through direct supervision. Where this is impossible, indirect supervision along with some form of feedback scheme will go a long way in shaping employee conduct. These methods can be used in conjunction with written policy manuals and job descriptions. Setting, communicating, and enforcing standards through these means will help to ensure that employee behaviour falls within acceptable standards and thereby reduces the possibility of them attracting liability. 6. Indira works full-time as a marketing assistant in a large corporation. She is thinking about having a baby. She wonders: Will she lose her job? If not, will she get paid while on leave? What happens if her colleague Diana is given her position and wants to keep it after she comes back? Provide answers to Indira's questions and name the governing legislation that provides the authority for your responses. Difficulty: 2 QuestionID: 26-3-06 Topic: Employment Standards Skill: Applied Answer: Indira's concerns are dealt with in provincial employment standards legislation, which governs leaves of various sorts. Every jurisdiction entitles women who have fulfilled minimum service requirements to take a leave of absence during pregnancy and thereafter. Indira should know that the legislation does not mandate payment by the employer during her leave. She will need to check into the provincial employment insurance scheme and also check with her employer to see if she is entitled to benefits. Her employer is allowed to replace her while she is on leave, but employment standards legislation prevents her employer from giving her job 24 © 2023 Pearson Canada Inc.

away. Diana will only be able to keep Indira's position if it is impossible to reinstate Indira. If this turns out to be the case, Indira must be provided with a comparable job with equivalent wages and benefits. She also will not lose her seniority at the company. 7. Tawney had been working as a forest firefighter for two years. Tawney was one of the only women in her unit, but that did not stop her from winning the Firefighter of the Year badge for her region. Two weeks later, Tawney was notified that she had not passed one of the modules on a newly imposed province-wide fitness test and that, as a result, she would be dismissed. This module of the test required firefighters to run a 2.5 km course of uphill terrain in 11 minutes or under. Tawney had taken 11 minutes and 49 seconds. Because of her excellent record of service, she was given a severance package in excess of what was owed to her by law. Does Tawney have grounds for a complaint? Briefly describe the relevant considerations. Difficulty: 3 QuestionID: 26-3-07 Topic: Human Rights Skill: Applied Answer: Tawney can bring a complaint under human rights legislation. Although she was not directly discriminated against as a woman (since any woman who ran the course under 11 minutes would have qualified), she can argue that she is as fit as any member of the unit and that requiring a certain speed for the uphill course has more to do with testing lung capacity than it does ensuring a firefighter has sufficient speed to do the job. Tawney might be able to produce medical testimony showing that women tend to score slightly lower on this particular kind of test. If she is successful, it will then be up to her employer to demonstrate that passing the test is a bona fide occupational requirement. Here, the relevant determination is whether the hill-climbing test is a good measure for overall fitness or the ability to perform the job. If it is not, the next consideration is whether the employer has a duty to accommodate Tawney by allowing her to participate in an aspect of firefighting that does not require the abilities tested for. Here, the relevant determination is whether such an allocation would place undue hardship on the firefighting unit. More facts would need to be known to answer this question with certainty, but here it seems likely that keeping someone as good as Tawney would not be an undue hardship, in which case she would likely be reinstated to her position. 8. Luke owns a lifeguard consulting company, supplying lifeguarding services to public and private schools in Kelowna. Luke has been charged with sexual harassment by one of his employees. The employee alleges that she and the other women lifeguards were forced to wear company bikinis while performing their lifeguarding duties. Those who refused would be given last choice on shifts (which, practically speaking, meant that they would be getting no shifts). The complainant protested to Luke but eventually gave in since it was too late in the summer to find another job. Additionally, the employee claims that, ever since the female staff was forced to wear the bikinis, Luke drops in constantly for site visits. His visits with females are more frequent and longer lasting. In fact, it is alleged that these visits have earned him the nickname of Lurking Luke. Several female employees have expressed that they find his behaviour unwelcome. Luke knows about his nickname but stands behind his policy. According to Luke business has increased and, as a result, there has been more to "supervise" at each visit. Explain 25 © 2023 Pearson Canada Inc.

the concept of sexual harassment and apply it to the situation at hand. Difficulty: 2 QuestionID: 26-3-08 Topic: Human Rights Skill: Applied Answer: Sexual harassment consists of any unwelcome or objectionable sexual solicitations, advances or demands, or any comment, gesture or conduct of a sexual nature that is known or ought reasonably to be known to be unwelcome. Because the employees have voiced their objection to both the bikinis and Luke's lurking, Luke's policy and his conduct will likely be found to be sexual harassment, especially if the male lifeguards have not also been subjected to a change in dress or supervision. Luke might try to claim that the bikinis are part of a uniform for the job and, as such, are a bona fide occupational requirement. However, since the employees have always been able carry out their duties in an adequate, safe, and economical manner in the one-piece bathing suit, this argument will surely fail. 9. Mme Renaud, a university librarian, became concerned about her safety ever since she has heard that many other universities recently instituted asbestos removal projects. Until recently, many of her coworkers regarded her concern as mere paranoia. Yesterday, Mme Renaud substantiated her fear when a piece of ceiling tile labelled "Danger–Contains Asbestos" fell on her head while she was checking out some books to a student. Briefly outline the steps that are available to her to ensure her safety and the safety of others working in and using the library facilities. Difficulty: 2 QuestionID: 26-3-09 Topic: Occupational Health and Safety Skill: Applied Answer: Generally, Occupational Health and Safety legislation requires workers to report any known hazards immediately. It also provides employees with the right to refuse to work in unsafe conditions and compels them in such cases to make a report to their supervisor. Mme Renaud should begin by reporting the incident to her manager. If she is unsatisfied, she should refer the matter to the library's workplace advisory group. If she still remains unsatisfied, she may refer the matter to the relevant governmental authority. 10. Sandy has repeatedly come into work under the influence of drugs and, on several occasions, has been warned that this behaviour cannot continue. List all of the relevant factors that a prudent risk manager will take into account in deciding whether to suspend or dismiss him. Difficulty: 2 QuestionID: 26-3-10 Topic: Substance Abuse Skill: Applied Answer: In seeking to make a determination as to whether Sandy's drug use amounts to grounds for some form of sanction, a manager should consider the following factors: - whether Sandy's performance of his work duties was impaired 26 © 2023 Pearson Canada Inc.

- whether Sandy's drug use threatens workplace safety - whether Sandy's behaviour has harmed the reputation of the business - whether the workplace has a policy that prohibits employee drug usage and whether or not Sandy was aware of it - whether the business has condoned Sandy's behaviour at any time in the past - whether Sandy has a dependence issue (an illness) that might require accommodation pursuant to human rights legislation - whether any other factors should be taken into consideration, such as a strong service record or period of emotional turmoil. 11. Legislation and common law precedents suggest that a prudent business manager should provide employers with a reasonable period of notice prior to dismissal. List four or five factors that the manager should consider when deciding on the reasonableness of the notice period to be provided. Difficulty: 2 QuestionID: 26-3-11 Topic: Reasonable Notice Skill: Recall Answer: The key factors that should be taken into account by the manager when determining the notice period are: - the employee's age - the position held - the length of service - the current salary level - likelihood of securing another job Managers should know that courts often provide more than the statutory minimums set out in employment standards legislation. 12. Can an employee claim to have been dismissed even if they were not fired? Are there any remedies available in such circumstances? Difficulty: 2 QuestionID: 26-3-12 Topic: Constructive Dismissal Skill: Recall Answer: An employee who is forced out of a job even if not fired can claim constructive dismissal. Constructive dismissal occurs when an employer fundamentally changes the nature of a person's job. Sometimes this is done to pressure them to resign. Other times it is done to allow someone else to advance in their place. Typical changes amounting to constructive dismissal are: - a substantial reduction in salary - a change in job status or responsibility 27 © 2023 Pearson Canada Inc.

- a substantial change in geographical location If proved, an employee who has been constructively dismissed will be treated as though dismissed without notice and will therefore be entitled to damages in lieu of notice. 13. List several items that may be included in an employee's severance package. Difficulty: 2 QuestionID: 26-3-13 Topic: Severance Packages and Settlements Skill: Recall Answer: The text lists ten items that may be included in a severance package: - salary, commissions or bonuses owing - benefits owing - contributions to Canada Pension Plan - contributions to registered retirement savings plans or private pension plans - automobile allowance - vacation pay and sick leave pay - stock options - employee discounts and staff loans - reference letters 14. Stanislov is terminated as a result of an economic downturn. He is given a severance package that includes monies owing for all statutory obligations. He is told that by cashing the cheque, he waives any and all right to sue his employer for further sums. Is this correct? Difficulty: 2 QuestionID: 26-3-14 Topic: Severance Packages and Settlements Skill: Applied Answer: No. These amounts are owing to Stanislov. He therefore is entitled to them by law. If the employer wishes Stanislov to make a binding promise that he will not sue for wrongful dismissal, his employer will have to offer him something extra. This can be accomplished through a settlement package, which is offered as consideration in exchange for a promise not to sue and usually a release. 15. What is a release? Who signs it? The employer or the employee? Why? Difficulty: 2 QuestionID: 26-3-15 Topic: Severance Packages and Settlements Skill: Recall Answer: A release is a promise by the employee to refrain from suing the employer for wrongful or 28 © 2023 Pearson Canada Inc.

constructive dismissal. Usually it is offered in exchange for a settlement package. It is signed by the employee as a manifestation of their willingness to be bound by the promise.

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Managing the Law, 6e (McInnes) Chapter 27: Organized Labour True/False Questions 1. Every worker in Canada has the right to join a union. a True b False Difficulty: 1 QuestionID: 27-1-01 Topic: Nature and Function of Collective Bargaining Skill: Recall Answer: b. False 2. Some employee organizations are not entitled to take part in the collective bargaining process. a True b False Difficulty: 1 QuestionID: 27-1-02 Topic: Acquisition of Bargaining Rights Skill: Recall Answer: a. True 3. One less common method of acquiring bargaining rights is through voluntary recognition by the employer. a True b False Difficulty: 2 QuestionID: 27-1-03 Topic: Acquisition of Bargaining Rights Skill: Recall Answer: a. True 4. The employees of Lou's Construction have asked Lou to recognize their trade union as the bargaining agent for his employees. If Lou provides voluntary recognition, his decision cannot be challenged. a True b False Difficulty: 3 QuestionID: 27-1-04 1 © 2023 Pearson Canada Inc.

Topic: Acquisition of Bargaining Rights Skill: Applied Answer: b. False 5. Local 66 have recently been certified to represent the employees of a large manufacturing company. An employee, Shep, expresses his dissatisfaction with the union. Unfortunately for Shep, he will not be able to bargain on his own behalf with his employer. a True b False Difficulty: 2 QuestionID: 27-1-05 Topic: Collective Bargaining Process Skill: Applied Answer: a. True 6. Until a contract is secured, any union is free to attempt to negotiate a desirable collective agreement on behalf of the bargaining unit. a True b False Difficulty: 2 QuestionID: 27-1-06 Topic: Collective Bargaining Process Skill: Recall Answer: b. False 7. Collective agreements are best thought of as contracts between multiple parties. a True b False Difficulty: 2 QuestionID: 27-1-07 Topic: Collective Agreements Skill: Recall Answer: b. False 8. Management and unions have some say as to the procedure for dealing with grievances so long as they stipulate the procedure in their collective agreement. a True b False

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Difficulty: 2 QuestionID: 27-1-08 Topic: Grievance Provisions Skill: Recall Answer: a. True 9. Superset Inc is a union shop organized labour employer. Hannah is not a member of the union. Hannah can still work for Superset so long as she is willing to become a union member before or shortly after she starts work. a True b False Difficulty: 2 QuestionID: 27-1-09 Topic: Union Security Clauses Skill: Applied Answer: a. True 10. Only a panel of three labour arbitrators can hear disputes about violations of the governing labour relations statute. a True b False Difficulty: 3 QuestionID: 27-1-10 Topic: Grievance Arbitration, Arbitration Process Skill: Recall Answer: b. False 11. Madeleine is a labour arbitrator hearing a dispute. During its submissions, one of the parties provides Madeleine with a case that is virtually identical to the facts in dispute. Even if the case has not been overruled and there are no other cases that go in the opposite direction, Madeleine is free to disregard the case if she thinks it is wrongly decided. a True b False Difficulty: 2 QuestionID: 27-1-11 Topic: Arbitration Process Skill: Applied Answer: a. True

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12. Hans, a union member, was demoted due to incompetence in the workplace. The collective agreement contained a "just cause" provision. The employer's decision is, therefore, not subject to review by an arbitrator. a True b False Difficulty: 3 QuestionID: 27-1-12 Topic: Discipline and Discharge Skill: Applied Answer: a. True 13. Arbitrators can issue awards, but they do not have the power to enforce them. a True b False Difficulty: 2 QuestionID: 27-1-13 Topic: Enforcement of Arbitration Awards Skill: Recall Answer: a. True 14. There is no right to strike expressly stated in either the Charter of Rights and Freedoms or by common law. a True b False Difficulty: 3 QuestionID: 27-1-14 Topic: Strikes and Lockouts Skill: Recall Answer: a. True 15. After a strike, workers have a guaranteed right to be reinstated to their previous positions. a True b False Difficulty: 2 QuestionID: 27-1-15 Topic: Strikes and Lockouts Skill: Recall Answer: b. False 4 © 2023 Pearson Canada Inc.

16. The right to strike and the right to bargain collectively are protected by the Charter of Rights. a True b False Difficulty: 1 QuestionID: 27-1-16 Topic: Back to Work Legislation Skill: Recall Answer: a. True Multiple Choice Questions 1. Which of the following best distinguishes labour law from employment law? A) Employment law is governed by common law, whereas labour law is governed exclusively by statute. B) Labour law is governed by common law, whereas employment law is governed exclusively by statute. C) Employment law involves trade unions, whereas labour law does not. D) Employment law governs collective relations amongst management, trade unions, their members, and the institutions involved in such relations. E) "Labour law" refers to collective bargaining with unions. Difficulty: 2 QuestionID: 27-2-01 Topic: Collective Bargaining Process Skill: Recall Answer: E) "Labour law" refers to collective bargaining with unions. 2. A document containing the terms of employment and the rights and duties of the employer, the trade union, and the employees is known as A) a contract of employment. B) a collective agreement. C) the Labour Relations Act. D) the Employment Standards Act. E) a release. Difficulty: 1 QuestionID: 27-2-02 Topic: Nature and Function of Collective Bargaining Skill: Recall Answer: B) a collective agreement. 3. The right of a union in a federally regulated industry to bargain collectively on behalf of employees is derived from the 5 © 2023 Pearson Canada Inc.

A) common law. B) existing collective agreement. C) Canada Labour Code. D) Labour Relations Act. E) Charter of Rights. Difficulty: 2 QuestionID: 27-2-03 Topic: Nature and Function of Collective Bargaining Skill: Recall Answer: C) Canada Labour Code. 4. Simone and a group of her colleagues have decided that they wish to bargain collectively with their employer. In order to do so, they will need to A) form an appropriate bargaining unit. B) form a labour relations board. C) become a certified bargaining agent. D) become incorporated. E) go on strike. Difficulty: 2 QuestionID: 27-2-04 Topic: Acquisition of Bargaining Rights Skill: Applied Answer: A) form an appropriate bargaining unit. 5. Which of the following groups is NOT prohibited from bargaining collectively in all jurisdictions? A) lawyers B) managers C) doctors D) nurses E) the RCMP Difficulty: 1 QuestionID: 27-2-05 Topic: Nature and Function of Collective Bargaining Skill: Recall Answer: D) nurses 6. After a union membership drive, if more than a majority of employees in an appropriate bargaining unit become members, the unit is automatically certified in A) all jurisdictions. B) no jurisdictions. 6 © 2023 Pearson Canada Inc.

C) Alberta and Nova Scotia. D) all jurisdictions except Alberta and Nova Scotia. E) all jurisdictions except British Columbia and New Brunswick. Difficulty: 2 QuestionID: 27-2-06 Topic: Acquisition of Bargaining Rights Skill: Recall Answer: D) all jurisdictions except Alberta and Nova Scotia. 7. Which of the following industries is most likely to select its bargaining agent through a system of voluntary recognition? A) auto industry B) steel plant C) homebuilders D) universities E) hospitals Difficulty: 3 QuestionID: 27-2-07 Topic: Acquisition of Bargaining Rights Skill: Applied Answer: C) homebuilders 8. During the process of negotiating a collective agreement, Local 969 and the employer come to an impasse. The problem lies in the fact that the employer simply refuses to meet and discuss the issues. In this situation, A) the union will not be able to achieve its goal of signing a collective agreement. B) the employer has committed a criminal act. C) it will be necessary to hold another membership drive. D) there has been a breach of the duty of good faith. E) the employer is completely within its rights to refuse to negotiate at all. Difficulty: 2 QuestionID: 27-2-08 Topic: Collective Bargaining Process Skill: Applied Answer: D) there has been a breach of the duty of good faith. 9. Which of the following would be required by the duty to bargain in good faith? A) the duty to supply information about the number of union members B) the duty to present a proposal that is to the mutual benefit of both parties C) the duty to protect confidentiality 7 © 2023 Pearson Canada Inc.

D) the duty to respect the fiduciary nature of the relationship E) the duty to reveal the financial statements of the employer Difficulty: 2 QuestionID: 27-2-09 Topic: Collective Bargaining Process Skill: Applied Answer: A) the duty to supply information about the number of union members 10. The Umbrella Workers Local 18 and Parapluie Co had come to a tentative agreement on major issues and the union members voted in favour of it. Nothing, however, had been committed to paper. Thinking that there were some important outstanding issues that needed to be resolved, the umbrella workers continued to strike. Parapluie Co accused the union of striking unlawfully, since an agreement was in place. May the union continue to strike? A) Yes. There has not been a "meeting of the minds," so full consent has not been given to the agreement; therefore, it has not been executed and the union is still entitled to strike. B) No. Once an agreement has been reached between the parties, they are no longer entitled to strike according to labour legislation in most jurisdictions. C) Yes. An agreement must be signed in order for it to be executed, therefore the union is still entitled to strike. D) No. Once the membership has voted in favour of an agreement, the union is bound by the agreement and they are no longer entitled to continue negotiating according to labour legislation in most jurisdictions. E) No. A collective agreement can be made orally. Difficulty: 3 QuestionID: 27-2-10 Topic: Collective Agreements Skill: Applied Answer: C) Yes. An agreement must be signed in order for it to be executed, therefore the union is still entitled to strike. 11. Gus and Marty are members of the Ironworkers Union. They are qualified to work on the construction of bridges and multi-storey buildings. Each year, they pay a membership fee to the Ironworkers Union and dues are deducted from their pay cheques. In between jobs, they show up at the Ironworkers Hall to receive work assignments. The employer calls the union hall when it needs workers, requesting a certain number of workers with certain skills. The employer will only take union members. This structure is an example of A) a closed shop. B) a union shop. C) a dues shop. D) an open shop. E) a right to work shop. Difficulty: 2 8 © 2023 Pearson Canada Inc.

QuestionID: 27-2-11 Topic: Union Security Clauses Skill: Applied Answer: A) a closed shop. 12. A dues shop A) is one that is based solely on seniority ... you must pay your dues before you get the good work. B) requires a person to become a card-carrying union member prior to employment. C) is the same as a closed shop. D) is a made-up term created solely for the purposes of fooling you on this question. E) requires a hired worker to pay union dues but not necessarily join the union. Difficulty: 2 QuestionID: 27-2-12 Topic: Union Security Clauses Skill: Recall Answer: E) requires a hired worker to pay union dues but not necessarily join the union. 13. Although Dieter is employed in a "union shop" workplace, he disagrees with the concept of unions in general, and he does not like his own union leaders in particular. He feels that it is contrary to his personal freedom that he must remain a member of the union. If he wishes to both maintain his principles and earn an income, which of the following options is best for Dieter? A) no choice but to remain in the union B) pay his union dues to a charity instead C) find another job at a non-unionized workplace D) continue to pay union dues but cease to be a union "member" E) complain to the court about the union Difficulty: 3 QuestionID: 27-2-13 Topic: Union Security Clauses Skill: Recall Answer: C) find another job at a non-unionized workplace 14. An arbitration board or sole arbitrator usually hears disputes concerning A) the collective agreement. B) the violation of the governing labour relations statute. C) the violation of the governing employment standards statute. D) complaints by the union but not by management. E) whether a union should be certified as a bargaining agent Difficulty: 1 QuestionID: 27-2-14 9 © 2023 Pearson Canada Inc.

Topic: Grievance Arbitration Skill: Recall Answer: A) the collective agreement. 15. In which of the following is an arbitrator (or arbitration panel) similar to a judge? A) Both are bound by previous jurisprudence. B) Both are jointly appointed by the parties. C) Both strictly apply the rules of evidence. D) Both may apply the principles of equity. E) Both have inherent jurisdiction. Difficulty: 2 QuestionID: 27-2-15 Topic: Arbitration Process Skill: Recall Answer: D) Both may apply the principles of equity. 16. Gerhart is representing a large corporation that is trying to put a stop to a grievance by Samson resulting from a disciplinary sanction against him for incompetence. Gerhart hopes to make his argument before the arbitration actually commences and end the matter for all times. Which of the following arguments is MOST LIKELY to achieve this end? A) Samson is not, in fact, covered under the collective agreement. B) The issue raised falls within of the scope of the collective agreement. C) Samson was an incompetent worker. D) It has recently come to light that Samson stole from the company. E) Samson was not really demoted. Difficulty: 3 QuestionID: 27-2-16 Topic: Arbitration Process Skill: Applied Answer: A) Samson is not, in fact, covered under the collective agreement. 17. Chara was hired for a position that required her to quickly assemble parts on an assembly line. Unfortunately, Chara has consistently had problems keeping up with the pace of the other workers, and the line often gets backed up at her station. The employer decided to demote Chara to a cleaning position where she will earn a lower wage. The union grieved the demotion, claiming that management did not show just cause, nor did they warn Chara that continued slowness would result in a demotion. What is the MOST LIKELY outcome of the grievance? A) The employer will lose because it should have shown just cause. B) The employer will win because a demotion related to competence is non-disciplinary and not subject to review by an arbitrator. C) The employer will lose because whether a demotion or discharge is disciplinary or non-disciplinary, the 10 © 2023 Pearson Canada Inc.

employee deserves to be given a warning. D) The employer will win because the employer has the right to make final decisions about hiring, firing, promotion, and demotion. E) The employer will lose because Chara's incompetence is irrelevant. Difficulty: 3 QuestionID: 27-2-17 Topic: Discipline and Discharge Skill: Applied Answer: B) The employer will win because a demotion related to competence is non-disciplinary and not subject to review by an arbitrator. 18. An employer has made a financial decision to lay-off workers. Shane has decided to invoke her bumping rights. The collective agreement allows bumping, but specifically prohibits bumping up. Which of the following is most likely to be TRUE? A) Shane can move into a more junior position for which she is qualified, without suffering any reduction in pay. B) Shane cannot move into a more senior position, but she is entitled to be paid as if she had done so. C) Shane can move into a more junior position for which she is qualified. D) Shane can move into a more senior position for which she is qualified. E) Shane can choose to move into any other position in the organization that is not subject to layoff. Difficulty: 2 QuestionID: 27-2-18 Topic: Seniority Skill: Applied Answer: C) Shane can move into a more junior position for which she is qualified. 19. Local 121 and Highflyers Inc management are working on a collective agreement. Local 121 is seeking to include a provision that allows bumping up. Highflyers management feels strongly that such provision should not be included because it wants to be able to A) reward long-time employees. B) prevent the domino effect that occurs in bumping. C) make demotions based on incompetence. D) make appointments and promotions based on merit. E) make appointments based on which employee is likely to vote to decertify the union. Difficulty: 3 QuestionID: 27-2-19 Topic: Seniority Skill: Applied Answer: D) make appointments and promotions based on merit.

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20. Local 304 and Kar Manufacturing Inc have just implemented a new collective agreement, but there is trouble already. Local 304 allowed a specific provision addressing retroactivity of wage increases to be dropped because there were other more pressing issues to discuss. The agreement is silent on retroactivity and now Kar management does not intend to institute the agreed upon wage increase retroactively. Which of the following is the correct principle to be used by the arbitrator in resolving the union's grievance? A) Retroactivity is one of the matters that must be addressed specifically in collective agreements in order to be applied. B) There is a general presumption of retroactivity regarding wage increases in collective agreements. C) Only those terms that are addressed explicitly in collective agreements will be applied. D) Some terms may be implied in collective agreements but retroactivity of wages is not one of them. E) The law presumes that wage increases are never retroactive. Difficulty: 2 QuestionID: 27-2-20 Topic: Compensation Skill: Applied Answer: B) There is a general presumption of retroactivity regarding wage increases in collective agreements. 21. As discussed in the text, the Supreme Court of Canada's decision in RWDSU Local 558 v Pepsi Cola Canada Beverages (West) Ltd is most notable for stating that A) unless prohibited by statute, secondary picketing is generally lawful, as long as it does not involve tortious or criminal conduct B) back-to-work legislation can be enacted by a province, but not by the federal government. C) the right to strike is constitutionally protected under section 2(d) of the Charter of Rights and Freedoms. D) members of the RCMP are entitled to unionize and collectively bargain. E) the lock-out that eliminated the 2012‒2013 NHL season was lawful. Difficulty: 3 QuestionID: 27-2-21 Topic: Compensation Skill: Recall Answer: A) unless prohibited by statute, secondary picketing is generally lawful, as long as it does not involve tortious or criminal conduct 22. Peter was fired after his manager caught him breaking a workplace rule. Peter filed a grievance and the arbitrator found that while he had contravened an important rule, the collective agreement required more than a single transgression to show just cause for dismissal. Which of the following awards is the arbitrator permitted to craft in her decision? A) Rewrite the provision in the collective agreement to allow dismissal if employees break the particular rule in question. B) Award damages to Peter in the form of the appropriate notice of dismissal since it is not possible for an arbitrator to reinstate an employee who has been dismissed. C) Substitute a warning or suspension and reinstate Peter's job. 12 © 2023 Pearson Canada Inc.

D) Rewrite the provision in the collective agreement to prevent the employer from enforcing the particular rule. E) Rewrite the collective agreement to delete entirely the "more than a single transgression" clause. Difficulty: 3 QuestionID: 27-2-22 Topic: Arbitration Awards Skill: Applied Answer: C) Substitute a warning or suspension and reinstate Peter's job. 23. An arbitrator ordered Local 234 to cease its illegal walkout from Ardvark Inc. Local 234 decided to continue its action anyway, in order to send a strong message to the employer. How can Ardvark Inc enforce the order against the union? A) Call the police to charge the picketers with breaking the arbitrator's order. B) Arbitrators' orders are unenforceable. C) Sue the union local in a civil action. D) Bring the arbitrator to the scene to sort out the dispute. E) File the arbitrator's order with the court and enforce it in the same way as any judicial order. Difficulty: 2 QuestionID: 27-2-23 Topic: Enforcement of Arbitration Awards Skill: Applied Answer: E) File the arbitrator's order with the court and enforce it in the same way as any judicial order. 24. What is the most usual means of resolving a dispute that arises under an existing collective agreement? A) litigation B) mediation C) negotiation and conciliation D) strike or lockout E) grievance arbitration Difficulty: 1 QuestionID: 27-2-24 Topic: Industrial Conflict Skill: Recall Answer: E) grievance arbitration 25. A strike is unlawful in Canada whenever it A) occurs while a collective agreement is in force. B) involves picketing. C) results in a lockout. 13 © 2023 Pearson Canada Inc.

D) results in a boycott. E) will cause problems for other businesses. Difficulty: 2 QuestionID: 27-2-25 Topic: Strikes and Lockouts Skill: Recall Answer: A) occurs while a collective agreement is in force. 26. After a heated argument between picketers and managers crossing the line, five workers set fire to three company cars and ruined other company property. Can management express its displeasure by firing the employees? A) No. Under statute, employees cannot be fired while on strike. B) No. Under statute, employees have the right to be reinstated in their previous positions. C) Yes. The employer will have grounds to discharge employees so long as it can prove that they have engaged in serious misconduct while on strike. D) No. Temporary flare-ups of violence on picket lines do not constitute just cause for dismissal. E) Yes. Employers are always at liberty to discharge any employee deemed to have behaved improperly during a strike. Difficulty: 3 QuestionID: 27-2-26 Topic: Strikes and Lockouts Skill: Applied Answer: C) Yes. The employer will have grounds to discharge employees so long as it can prove that they have engaged in serious misconduct while on strike. 27. Which of the following is LEAST likely to fall under the legal definition of picketing? A) a single striking employee waiving a placard with the intent to secure a sympathetic response from an audience of onlookers B) a group of striking employees waving placards with the intent to secure a sympathetic response from an audience of onlookers C) a group of striking employees posting messages on a company-only discussion board on the Internet D) a group of striking employees having a sit-in on the front steps of the workplace, engaging in discussion about the workplace issues with those who approach E) blockading the employer's premises with cement barricades, with signs posted to them regarding the strike. Difficulty: 3 QuestionID: 27-2-27 Topic: Picketing Skill: Applied Answer: C) a group of striking employees posting messages on a company-only discussion board on the 14 © 2023 Pearson Canada Inc.

Internet 28. Coola-Cola Inc and the International Federation of Bottlers had been without a contract for several months when the union walked away from the negotiating table. In order to show the union that it "meant business," the employer locked the workers out the next day. Is Coola-Cola justified in locking out its employees? A) No. An employer may never lock out employees. B) No, unless it is a temporary measure based on financial reasons during a strike. C) Yes, so long as the lockout is only intended to force concessions from the union. D) Yes, but only after the first round of negotiations breaks down. E) Yes if the negotiation and conciliation procedures have been exhausted and the lockout decision is not otherwise unlawful. Difficulty: 2 QuestionID: 27-2-28 Topic: Lockouts Skill: Applied Answer: E) Yes if the negotiation and conciliation procedures have been exhausted and the lockout decision is not otherwise unlawful. 29. Which of the following is an example of secondary picketing? A) university faculty picketing in front of various university buildings as part of a strike action B) striking employees of a large hotel chain picketing at other hotels in the same chain C) public service workers picketing on Parliament Hill D) employees of a factory picketing in front of the factory's biggest supplier E) anti-poverty activists protesting at a provincial legislature Difficulty: 2 QuestionID: 27-2-29 Topic: Picketing Skill: Applied Answer: D) employees of a factory picketing in front of the factory's biggest supplier 30. Local 354 has been accused of secondary picketing during a lawful strike. In what forum will the business experiencing the alleged secondary picketing take legal action regarding this matter? A) mandatory mediation B) grievance arbitration C) complaint to the labour board D) voluntary conciliation E) court of common law Difficulty: 3 QuestionID: 27-2-30 Topic: Picketing 15 © 2023 Pearson Canada Inc.

Skill: Recall Answer: E) court of common law 31. As explained in the text, the essential elements for a collective agreement consist of A) express inclusion of the relevant legislation. B) a statement of the parties' good faith. C) approval from a labour relations board. D) a list of issues that shall be open to grievance. E) a written agreement signed by both parties, containing provisions relating to the conditions of employment. Difficulty: 1 QuestionID: 27-2-31 Topic: Collective Agreements Skill: Recall Answer: E) a written agreement signed by both parties, containing provisions relating to the conditions of employment. 32. In the context of a collective agreement, a "union shop" clause A) is required by law. B) signifies that the employer is involved in sales, at either the retail or wholesale level. C) allows a union to "shop around" for new employees. D) means that a person must join a union in the early stages of their employment. E) means management cannot hire anyone who is not already a member of the union. Difficulty: 1 QuestionID: 27-2-32 Topic: Union Security Clauses Skill: Recall Answer: D) means that a person must join a union in the early stages of their employment. 33. In the context of seniority in a unionized workplace, A) a non-competitive clause prevents junior employees from competing with senior employees for new positions regardless of a senior employee's competence. B) the law requires seniority to have the same effect on both layoffs and promotions. C) a junior employee cannot earn more than a senior employee. D) a competitive clause means that all employees can compete equally on the basis of merit, regardless of seniority. E) a person who voluntarily bumped into a lower job usually is entitled to return to the higher position if that position is reinstated. Difficulty: 2 QuestionID: 27-2-33 16 © 2023 Pearson Canada Inc.

Topic: Seniority Skill: Recall Answer: E) a person who voluntarily bumped into a lower job usually is entitled to return to the higher position if that position is reinstated. 34. Which of the following statements is TRUE with respect to picketing? A) Picketing is prohibited unless it is expressly permitted by a collective agreement. B) Secondary picketing against a party that is not directly involved in a labour grievance is generally lawful as long as it does not involve tortious or criminal activity. C) Because of the desire to promote a free exchange of information and ideas, statements made during picketing are protected from liability in defamation by the defence of absolute privilege. D) Because most employment contracts involve private parties, activities performed during a picket seldom involve criminal law. E) A picket is defined as an organized effort to persuade consumers to either purchase a particular product or purchase from a particular business. Difficulty: 1 QuestionID: 27-2-34 Topic: Picketing Skill: Recall Answer: B) Secondary picketing against a party that is not directly involved in a labour grievance is generally lawful as long as it does not involve tortious or criminal activity. 35. The employees at Don's Ice Palace, an ice skating complex, feel that they are being treated unfairly. They consequently want to become unionized, in the hope of pressuring the company into providing better pay and working conditions. The International Brotherhood of Ice Makers (IBIM) and the United Snow and Ice Workers (USIW) are both organizations interested in representing the employees. Which of the following statements is TRUE? A) IBIM and USIW are both hoping to become the appropriate bargaining unit. B) The employer has an absolute right to decide whether IBIM or USIW represents the employees. C) Regardless of where these facts take place, the employees must choose their union through a secret ballot vote. D) Once the employees have chosen their representative, Don's Ice Palace will be classified as a certified bargaining agent. E) Once the employees have chosen which union they wish to belong to, that union will be the certified bargaining agent. Difficulty: 3 QuestionID: 27-2-35 Topic: Acquisition of Bargaining Rights Skill: Applied Answer: E) Once the employees have chosen which union they wish to belong to, that union will be the certified bargaining agent. 17 © 2023 Pearson Canada Inc.

36. Hardball Inc, a sporting goods manufacturer, has been negotiating for some time with a union representing the company's employees. Those negotiations recently came to a halt, however, when one of the parties accused the other of breaching the duty to bargain in good faith. Which of the following statements is TRUE? A) The accusation is pointless because Canadian law does not recognize such a duty. B) The duty governs the negotiating process but does not require the parties to reach any particular agreement. C) Although the duty requires actual negotiations to be conducted in a spirit of cooperation, it does not require either party to actually negotiate. D) The duty prevents the parties from concealing information, but it does not require them to actually provide information. E) The allegation must have been made by Hardball Inc. Difficulty: 2 QuestionID: 27-2-36 Topic: Collective Bargaining Process Skill: Applied Answer: B) The duty governs the negotiating process but does not require the parties to reach any particular agreement. 37. After years of failure, the employees at the Cherryville branch of MegaStore, an international chain of discount stores, finally succeeded in becoming unionized. They are very anxious to ensure that the collective agreement, which is currently being negotiated, does everything possible to solidify their position and to prevent the company from undermining their recent success. Which of the following statements is TRUE with respect to a union security clause? A) An approach sometimes referred to as an "agency shop" will ensure that the store contains only unionized employees. B) Under a closed shop clause, MegaStore will be required to allow an employee at another one of its branches join the Cherryville store without having to join the union. C) The collective agreement will not necessarily include such a clause. D) It would be unlawful for a collective agreement to prohibit a non-union person from being an employee at the Cherryville branch. E) Such a clause is relevant only in the event of a grievance. Difficulty: 3 QuestionID: 27-2-37 Topic: Union Security Clauses Skill: Applied Answer: C) The collective agreement will not necessarily include such a clause. 38. Aziz Hairdressing Emporium is a unionized business with over 100 employees. Ten of those employees have filed a grievance against their employer. The majority of the employees who are not involved with that grievance disagree with the grievance. Which of the following statements is most likely 18 © 2023 Pearson Canada Inc.

to be TRUE? A) The grievance cannot succeed unless it is supported by a majority of the employees. B) The grievance probably will be resolved through the internal method of arbitration. C) If the dispute comes before a labour relations board, the 10 employees probably are alleging that there has been a breach of labour relations legislation. D) Arbitral jurisprudence constitutes precedent that is binding on an arbitrator. E) If the dispute requires an arbitration panel, then, unless the collective agreement says otherwise, the expense falls upon management. Difficulty: 2 QuestionID: 27-2-38 Topic: Arbitration Process Skill: Applied Answer: C) If the dispute comes before a labour relations board, the 10 employees probably are alleging that there has been a breach of labour relations legislation. 39. A union recently won a grievance against the University of Edmonton. The underlying dispute was concerned with the forced removal of several professors. In terms of a remedy, the panel A) cannot award monetary damages because that function is properly filled by a court. B) cannot reinstate the professors against the university's wishes, but the panel can compel the university to pay an amount equal in value to a maximum of two years' salary. C) cannot rectify a collective agreement unless the agreement expressly allows for such an order. D) may grant a compliance order, which would require the university to reach a compromise solution with the professors. E) can award damages, but only in accordance with a tariff that appears in employment standards legislation. Difficulty: 3 QuestionID: 27-2-39 Topic: Arbitration Awards Skill: Applied Answer: C) cannot rectify a collective agreement unless the agreement expressly allows for such an order. 40. The workers at the Great Grain Company are unhappy with their working conditions. By adopting a "work to rule" philosophy, they hoped to persuade management to offer a better deal. Management refused to be moved, however, and pointed to the fact that the collective agreement still had three weeks left to run. The workers therefore began to plan their next move. As the head of the union, you want to put as much pressure as possible on your employer, but you are also anxious to avoid breaking the law. Within that context, which of the following statements is most likely to be TRUE? A) While it would be unlawful to go on strike while the collective agreement is still in force, you are allowed to immediately commence a secondary picket against the company's suppliers or buyers. B) You should wait until the collective agreement has expired, and then call a lockout. C) Call a strike as soon as possible, because as a matter of law, management must eventually allow the workers to return to their jobs. 19 © 2023 Pearson Canada Inc.

D) While it does not protect any particular methods of collective bargaining, the right to strike is protected by the Charter of Rights and Freedoms. E) While the union cannot yet go on strike, it is entitled to immediately implement a lockout. Difficulty: 2 QuestionID: 27-2-40 Topic: Strikes and Lockouts Skill: Applied Answer: D) While it does not protect any particular methods of collective bargaining, the right to strike is protected by the Charter of Rights and Freedoms. 41. Within the context of union security clauses, which of the following statements is TRUE? A) While a union will always prefer for a collective agreement to contain a union security clause, an employer is always entitled to refuse to have such a clause. B) While union security clauses are permitted in Manitoba, Ontario, and the Maritime provinces, they are statutorily prohibited in the three western-most provinces. C) A union shop is sometimes called an "agency shop." D) The purpose of a union security clause is to ensure that employees have job security in accordance with their years of seniority. E) The "Rand formula" refers to a requirement for all employees to pay into a union whether or not they are members of that union. Difficulty: 3 QuestionID: 27-2-41 Topic: Union Security Clauses Skill: Recall Answer: E) The "Rand formula" refers to a requirement for all employees to pay into a union whether or not they are members of that union. 42. A dispute has been sent to an arbitrator for resolution. Within that context, which of the following statements is most likely to be TRUE? A) The dispute almost certainly arises from a violation of labour relations legislation, rather than a breach of a collective agreement. B) As a matter of law, the union has the right to name the individual who will serve as the arbitrator. C) The cost of the arbitration proceedings will be paid by whichever side loses the dispute. D) Although arbitrators act like judges in many respects, arbitrators are not bound by the doctrine of precedent. E) Grievance arbitration is classified as an internal procedure because it is governed by the rules that the parties created in the collective agreement. Difficulty: 2 QuestionID: 27-2-42 Topic: Arbitration Process Skill: Recall 20 © 2023 Pearson Canada Inc.

Answer: D) Although arbitrators act like judges in many respects, arbitrators are not bound by the doctrine of precedent. 43. Ulyanov Widgets Inc designs and manufactures high-quality widgets. The final step in the manufacturing process requires the widgets to be polished to a mirror-like finish. The job of widget polishing requires years of specialized training. Unfortunately, the company has been engaged in a long and heated dispute with the union that represents its widget polishers and their leader, Charles Marks. Neither side is willing to back down; both sides have vowed to win at any cost. Within the context of that debate, which of the following statements is most likely to be TRUE? A) As long as the collective agreement has expired, Ulyanov has an absolute right to lockout the employees. B) A strike and a lockout are essentially the same strategy; they are simply employed by different parties. Consequently, the same rules will determine the issue of legality if either Marks leads the employees in a strike or Ulyanov locks out its workers. C) Even if Ulyanov locks its doors and prevents the widget polishers from working, it has not created a lockout if its decision to do so was part of an irrevocable plan to contract out the task of widget polishing to a third party. D) As long as the collective agreement has expired, the union is entitled to go on strike for the purpose of either compelling management to negotiate or supporting a political protest. E) In 2015, the Supreme Court of Canada recognized that employers have a Charter right to lockout uncooperative employees. Difficulty: 3 QuestionID: 27-2-43 Topic: Lockouts Skill: Applied Answer: C) Even if Ulyanov locks its doors and prevents the widget polishers from working, it has not created a lockout if its decision to do so was part of an irrevocable plan to contract out the task of widget polishing to a third party. 44. The employees of Grunwick Films Inc have been on strike for more than a year. They demand better pay, but they primarily seek better working conditions. The company, however, has shown little sign of giving in to those demands. In the hope that additional pressure will soften the company's resolve, the union recently began secondary picketing. In these circumstances, that most likely means that the union A) is engaged in an activity that the Supreme Court of Canada recently held is always lawful for unions. B) has picketed companies that do business with Grunwick in an effort to encourage them to withdraw their business until Grunwick reaches an agreement with the union. C) necessarily has committed a tort. D) has doubled the number of picketers that can legally picket Grunwick's offices. E) has violated a court order by picketing Grunwick's offices outside the hours that a judge set. Difficulty: 2 QuestionID: 27-2-44 Topic: Picketing 21 © 2023 Pearson Canada Inc.

Skill: Applied Answer: B) has picketed companies that do business with Grunwick in an effort to encourage them to withdraw their business until Grunwick reaches an agreement with the union. 45. The union that locally bottles Pfffiz Cola has been on strike for many months. Most of the union members remain committed to the cause, but they are suffering financially as a result of being without regular pay-cheques. In the hope of pressuring management into offering acceptable terms on a collective agreement, people who support the union have begun to boycott Pfffiz Cola. In these circumstances, that most likely means that the people who support the union A) are refusing to purchase any products manufactured by Pfffiz Cola, even though those sales involve third parties, like stores, theatres, and restaurants. B) are also employees of Pfffiz Cola, and they refuse to do any work for the company. C) must be involved in secondary picketing. D) have asked a judge to impose an injunction that requires the company to act in good faith. E) are asking the government to enact back-to-work legislation. Difficulty: 2 QuestionID: 27-2-45 Topic: Boycotts Skill: Applied Answer: A) are refusing to purchase any products manufactured by Pfffiz Cola, even though those sales involve third parties, like stores, theatres, and restaurants. Essay Questions 1. Why is it important to distinguish between employees and managers? What factors will be considered when determining whether someone is an employee or a manager in the collective bargaining context? Using the factors for consideration that you have outlined, analyze an example of a position that would be seen as an employee and one that would be seen as a manager in a university or college. Difficulty: 3 QuestionID: 27-3-01 Topic: Nature and Function of Collective Bargaining Skill: Applied Answer: It is important to distinguish between employees and managers because they are treated differently and have different roles in the unionized workplace. Employees may be members of unions while managers may not. The main distinction is that the managers are seen to represent the employer during collective bargaining. If the managers were also "employees," they would be in the position of bargaining with themselves. When considering whether a position is that of an employee, or a manager, the following factors will be considered: (a) the nature of the organization, (b) a person's position in the organizational structure, (c) the extent of a person's authority over other workers, and (d) the proportion of a person's work that is non22 © 2023 Pearson Canada Inc.

managerial. Example of employee: University Administrative Assistant (a) The organization is a university, which employs hundreds of administrative assistants and has many levels in a hierarchical structure. (b) Most members of the support staff are relatively low in the organizational structure. They are usually assigned work as opposed to setting their own course of work, and they do not have a lot of decision-making power regarding their work. (c) Most members of the support staff do not have authority over other workers. Even if a particular person has a lead role in, for example, a clerical pool, the person is usually simply assigning tasks, and not acting in a supervisory function. (d) The support staff is not involved in the big picture tasks of management, supervision, budgeting, etc. Example of manager: University Dean (a) The organization is a university, where there are thousands of employees but only a handful of deans. (b) Deans are at the top of the organizational structure in each academic unit, but report to a higher structure within the entire university. They set their own course of work, and they have a lot of decision-making power over the work they do. (c) Deans have authority over the other workers in the academic unit, and they usually supervise other managers who in turn directly supervise other employees. (d) Deans are involved in the big picture tasks, such as management, supervision, budget. 2. Describe the steps in the process by which a workplace becomes unionized. Difficulty: 2 QuestionID: 27-3-02 Topic: Acquisition of Bargaining Rights Skill: Recall Answer: An appropriate bargaining unit must qualify under labour legislation to bargain collectively, and a bargaining agent must be recognized. Recognition may be done voluntarily by the employer or through a membership drive. In a membership drive, the goal is to enlist more than a majority of employees as members. In most jurisdictions, a membership drive that meets the requisite numbers will be automatically certified. Some jurisdictions require a vote to certify the union. 3. Compare and contrast collective agreements with private contracts. Difficulty: 2 QuestionID: 27-3-03 Topic: Collective Agreements Skill: Recall Answer: While it might be tempting to think of the collective agreement as a multi-party contract, there are some key differences. Collective agreements are only enforceable by virtue of enabling labour legislation, whereas contracts are 23 © 2023 Pearson Canada Inc.

enforced under the common law. The labour legislation in most jurisdictions insists on the inclusion of several particular statutory provisions such as strike and lockout provisions, grievance provisions, and union security clauses. These statutory provisions make collective agreements very different from contracts. It has been said that a collective agreement is better thought of as a type of constitution governing relations between the parties, rather than a contract. 4. The International Sisterhood of Drum-Makers is trying to decide how to achieve financial security. Describe, and provide examples of, approaches that it might take to remuneration as well as the requirements that it might set for workers. Difficulty: 2 QuestionID: 27-3-04 Topic: Union Security Clauses Skill: Applied Answer: The Sisterhood will receive remuneration from each employee in the form of union dues. There are three basic approaches to membership and the collection of dues. In a closed shop, the employer is not permitted to hire a person unless he or she is already a member of the Sisterhood. In a union shop, drum-makers will not be hired unless they become Sisterhood members before they begin their employment. In a dues shop, persons who are hired are required to pay dues to the Sisterhood, but actual membership in the union is optional. 5. What should an arbitrator do when asked by the parties to interpret an ambiguous clause in a collective agreement? Difficulty: 2 QuestionID: 27-3-05 Topic: Arbitration Process Skill: Recall Answer: An arbitrator should start by applying the traditional rules of contractual interpretation. If these are insufficient, the arbitrator can look to various outside sources, including labour legislation and relevant arbitral jurisprudence. As a last source, the arbitrator may apply the broader principles of equity. 6. Explain the difference between disciplinary and non-disciplinary action by an employer. Provide examples of each. In what context does this distinction arise? Difficulty: 2 24 © 2023 Pearson Canada Inc.

QuestionID: 27-3-06 Topic: Discipline and Discharge Skill: Applied Answer: Disciplinary action by an employer is based on employee misconduct and may take the form of suspensions, formal warnings, demotion, and discharge. For example, an employee is issued a formal warning for repeatedly arriving at work late. Non-disciplinary action by an employer is more likely to be due to incompetence as opposed to misconduct. For example, an employee is moved to a different position because they are found to lack the skills to properly do the job they were assigned. Disciplinary action by an employer is reviewable by an arbitrator, but non-disciplinary action is not. In the context of a grievance by an employee for demotion or dismissal without just cause, for example, an employer may try to argue that the demotion or dismissal was based on incompetence, and not misconduct, and therefore the employer has full discretion and is not required to show just cause. 7. What is rectification and when can it occur? Difficulty: 1 QuestionID: 27-3-07 Topic: Arbitration Awards Skill: Recall Answer: Rectification is the process by which a contract is rewritten to better reflect the actual agreement contemplated by the parties. It is one of the possible remedies available to an arbitrator when resolving a grievance. According to the Supreme Court of Canada, however, a collective agreement can be rectified only if that collective agreement expressly provides the arbitrator with power to do so. 8. A lawyer named Albert represents a small union that is in the midst of negotiating its very first collective agreement. The main issues are ironed out but the union leader wishes to know what the minimum requirements are to make the deal enforceable. How should Albert advise his client? Difficulty: 2 QuestionID: 27-3-08 Topic: Collective Agreements Skill: Applied Answer: Albert should tell the union leader that there are three essential requirements for any collective agreement. First, all of the terms and conditions of the agreement should be in writing. Second, the collective agreement should be signed by authorized representatives of both parties, indicating their 25 © 2023 Pearson Canada Inc.

assent to the terms and conditions therein. Third, the agreement must contain various provisions respecting the terms and conditions of employment. Some of these conditions are imposed by statute. Albert should review with the client some of the key terms, such as those dealing with strikes and lockouts, grievance procedures, and union security. 9. A lawyer named Alberta represents a small union that is in the midst of negotiating its very first collective agreement. After explaining the minimum requirements to ensure that the agreement is enforceable, Alberta is asked to provide some basic information on key terms, such as those dealing with strikes and lockouts, grievance procedures, and union security. What should Alberta say? Difficulty: 3 QuestionID: 27-3-09 Topic: Collective Agreements Skill: Applied Answer: Alberta should discuss the following issues. Strike and lockout provisions. Alberta should explain that most Canadian jurisdictions require provisions that stipulate that there will be no lockouts or strikes while the agreement is in effect. Since these clauses apply equally to lockouts and strikes, neither party is advantaged nor disadvantaged. Grievance provisions. Alberta should explain that these provisions set out the mechanisms for dealing with disputes about the collective agreement. Since both parties have a hand in negotiating the actual procedures, each should take care to ensure policies that are to their liking. Alberta must make sure that her client's needs are represented when drafting these provisions or replying to a draft by the other party. Union security clauses. Alberta will explain that these clauses stipulate the means by which a union will be remunerated. She should probably recommend that the union be paid through the collection of dues. She should also suggest three typical approaches: - closed shop: management may only hire union members - union shop: new employees must become union members - dues shop: all employees pay dues, but actual union membership is optional In some jurisdictions, an employer is required to include a union security clause in a collective agreement if the union requests it. To ignore such a request would be a breach of the duty to bargain in good faith and is grounds for complaint to the labour relations board. 10. What are the necessary elements of a strike? Using the elements you have listed, provide and analyze one example of employee actions that would be seen as a strike and one example of an employee action that would not be seen as a strike. Difficulty: 3 QuestionID: 27-3-10 Topic: Strikes and Lockouts Skill: Applied 26 © 2023 Pearson Canada Inc.

Answer: The necessary elements of a strike are: - a cessation of work - resulting from a concerted activity - that has a common purpose - designed to limit or restrict output Example of strike action: After a strike vote, factory employees plan to walk off the job (cessation of work; designed to restrict output) on a set day (concerted activity) in order to convince management to return to negotiations (common purpose). Example of non-strike action: During the negotiation of a new contract, while talks are ongoing, city bus drivers arrive at work not dressed in uniform (concerted effort) but prepared to work in order to protest management's bargaining position (common purpose). Management sends them home and then grieves that they participated in an illegal strike. While two of the requirements are definitely present, there may or may not have been a cessation of work since it was management who sent the workers home, and the action was not designed to limit or restrict output since the workers were ready to do their work–they just refused to wear their uniforms in protest. 11. Distinguish between lawful and unlawful strikes. Difficulty: 2 QuestionID: 27-3-11 Topic: Strikes and Lockouts Skill: Recall Answer: For a strike to be legal, it must: - take place while there is no collective agreement in force, - while there is no statutory freeze on striking, and - after negotiations and conciliation have been exhausted. A strike action must also be voted upon and have received the support of a majority the union membership. A legal strike is designed to gain economic objectives, whereas an unlawful strike is designed to gain sympathy, to bring pressure on a secondary employer, or for political protest. Sometimes workers walk out even when all of these conditions are not met. This is still called a strike, although it is unlawful. 12. At best, picketing can be an important form of social expression; at worst it can be coercive, violent, and interfere with commercial activity and property rights. Discuss some of the pros and cons of picketing in the broader context of industrial relations. Difficulty: 3 QuestionID: 27-3-12 Topic: Picketing 27 © 2023 Pearson Canada Inc.

Skill: Applied Answer: In the modern day, the debate about the value of unions and the act of striking continues. It appears that those who do not support unions are often more concerned about strikes and picketing. People who adopt this point of view are not opposed to the benefits of the union community and collective bargaining, but they are not in favour of the cessation of work through collective force. In the unequal relationship between employer and employee, collective action and picketing clearly level the playing field and, in some cases, do swing the balance in the other direction. However, if workers collectively had no power to wield, there would be no process of collective bargaining. The cost of losing workers to the picket line will often keep management at the negotiating table. Unfortunately, sometimes unions wield too much power. Sometimes, labour actions are more about the will of the union brass than the collective, and workers are pushed into taking stands they do not support. Sometimes the rift between union and management grows too deep, and frustrations manifest on the picket line. It is common knowledge that workers make great sacrifices when they decide to strike. Morale decreases, financial strain increases, and violence can erupt. The media tends to report more about the conflicts involved in industrial relations, than the usual day-to-day harmony. Such violence does not take place the majority of the time, and should not be seen as overshadowing the importance of the freedom to take job action, and its role in the industrial relations process. 13. Identify and briefly explain three common types of grievances that arise in the context of organized labour. Difficulty: 3 QuestionID: 27-3-13 Topic: Typical Grievances Skill: Recall Answer: As identified in the text, three typical grievances are discipline and discharge, seniority, and compensation. Discipline and discharge: Like individual employment contracts, collective agreements often say how employee misconduct will be treated. One main difference is that disciplinary procedures are generally spelled out in the collective agreement. Disciplinary measures include suspensions, formal warnings, and sometimes demotion. Extreme misconduct leads to discharge. Additionally, many collective agreements provide that the employer is allowed to discipline or discharge an employee only if there is just cause. Where such a provision exists, an arbitrator will interfere with the employer's handling of a disciplinary matter only if the arbitrator believes that just cause was lacking. Where a collective agreement does not contain such a provision, arbitrators will not usually interfere with an employer's decision to take action. For more leeway, business managers should try to avoid a just cause provision. 28 © 2023 Pearson Canada Inc.

It is sometimes difficult to tell whether an employer's particular conduct is of a disciplinary nature. Demotion is a typical example. Demotion occurs when an employer transfers an employee to a lower-rated job. Often employers demote employees on account of their misconduct. In this context, demotion is a form of discipline and is subject to review if the collective agreement contains a just cause provision. In contrast, a demotion due to incompetence is generally seen as non-disciplinary and therefore is not subject to review by an arbitrator. Seniority: A second common grievance occurs if an employer has acted without proper regard to an employee's seniority. The concept of seniority is central to virtually every collective agreement. Seniority grants preferences to certain employees based on their accumulated length of service. Not only does seniority define who is eligible for certain monetary benefits, it also provides a way of determining which employee is entitled to job promotion and which employee is subject to a transfer or lay-off. Seniority provisions in collective agreements are usually one of two types: - non-competitive clauses - competitive clauses Non-competitive clauses require seniority to be the determining factor, as long as the more senior person is competent. Competitive clauses require seniority to be the determining factor only when the skill and ability of the competing employees are relatively equal. Many collective agreements contemplate bumping. Bumping occurs when a senior employee who is about to be laid off is allowed to invoke their seniority and replace an employee in a junior position. In many instances, this sets off a chain reaction. The junior person who was just bumped asserts their seniority against a still more junior person, and so on. Most collective agreements either explicitly or implicitly provide that an employee who has elected to bump into a lower position does not forfeit the right to return to their previous job if it is eventually recalled. Collective agreements that include bumping rights usually carry a minimum requirement that the senior person be capable of doing the junior person's job. However, if the junior position requires a specialized skill, the senior employee is usually entitled to the necessary training to learn that skill. Business managers involved in negotiating a collective agreement should realize that employees may want to use the bumping procedure in reverse. Bumping up is an application of seniority rights in the context of promotion. Prudent business managers will not want a system of promotion that is based solely on seniority. To avoid that risk, management should negotiate an exclusive right to make appointments in a manner that applies seniority rights differently for the purposes of promotion and lay-offs. Compensation: The third common grievance concerns compensation. Like the individual employment scenario, typical complaints involve - equal pay for equal work - unilateral change in wages - overtime pay 29 © 2023 Pearson Canada Inc.

- entitlement to benefits. One issue that arises more often in the context of organized labour is retroactive pay. Retroactive pay, or backpay, is money that is owed by the employer to the employee as a result of a collective agreement that is deemed to come into effect some time before the date of its creation. The law generally presumes that wage increases apply retroactively. Although most employers are willing to comply with collective agreements for retroactive wages in the form of back-pay, disputes often arise about whether employees are also entitled to other benefits as of that date. Traditionally, arbitrators have drawn a distinction between monetary and non-monetary provisions. Therefore, they usually require clear language that expressly includes benefits before awarding them retroactively. A business sometimes has to decide whether to offer back-pay to people who were employees at the time the collective agreement retroactively became effective but ceased to be employees before the agreement was signed. 14. Many people hold the opinion that unions cause more problems than they solve. Identify three criticisms of unions and three reasons why unions continue to be relevant in today's business world. Your answer need not stem from assigned readings. Difficulty: 3 QuestionID: 27-3-14 Topic: Arbitration Awards Skill: Applied Answer: Criticisms of unions: (a) Unions have gotten too big and powerful and have lost the perspective of individual workers. Unions use their power to force employers to raise wages; as a result, companies relocate to regions of the world where they can pay lower wages. (b) Unions are on a left-wing political crusade that is out of touch with today's economic reality. (c) In a unionized workplace, workers must be union members and pay union dues even if they do not agree with the union's position. Reasons unions continue to be relevant: (a) Without a collective bargaining process, human resources management in large workplaces would be chaotic because each employee could be hired on different terms. (b) The standard of living would drop because companies would pay lower wages and not provide job security, so workers would not have as much money to spend in local economies. (c) Currently non-unionized workplaces in industry would no longer be motivated to provide competitive wages, and good working conditions; they are currently motivated to keep unions out, but without unions, they would more easily take advantage of workers. Instructors should note that students may come up with many kinds or reasons and that this will be a much more subjective question than the others offered. 15. From where do arbitrators obtain authority to award remedies? Identify and describe three important remedies that arbitrators can award in labour disputes. Difficulty: 3 30 © 2023 Pearson Canada Inc.

QuestionID: 27-3-15 Topic: Arbitration Awards Skill: Recall Answer: The authority of an arbitrator to award various remedies is limited by labour legislation and the collective agreement between the parties. While parties are negotiating their collective agreements, they must specifically contemplate the breadth of power they wish to give arbitrators in resolving conflicts. Damages aim is to put the party who has suffered a breach of the collective agreement in the position that it would have been in had the breach not occurred. Compliance orders are demands that specific obligations in the collective agreement be fulfilled, or that particular courses of conduct be brought to an end. Reinstatement may be awarded if an arbitrator finds that employees have been discharged without cause. Unless the agreement specifically provides otherwise, an arbitrator can usually substitute a lesser penalty in the case of a suspension or discharge. 16. A provincial ministry of education stipulated that secondary school teachers would have to spend more hours each day teaching in the classroom. As a result, teachers had to prepare for classes on their own time. In protest, certain teachers' union locals refused to participate in extracurricular activities such as athletic teams and student clubs. Teachers had traditionally led these activities on a voluntary basis. A board of education wishes to grieve that the union is engaged in an illegal strike. Analyze this issue and determine whether the board of education's position will be adopted. Difficulty: 3 QuestionID: 27-3-16 Topic: Strikes and Lockouts Skill: Applied Answer: The requirements for a strike in most jurisdictions are: - a cessation of work - resulting from a concerted activity - that has a common purpose - designed to limit or restrict output. Some jurisdictions require a fifth element: - the common purpose is to compel the employer to agree to certain terms and conditions of employment. In this case, there is a concerted activity (the teachers are declining to participate in extracurricular activities) and it has a common purpose (to protest changes to their teaching schedules and to find time for class preparation). It remains to be seen, however, whether this is actually a cessation of work or whether the extracurricular activities were voluntary and therefore not a part of the work they were contracted to do. In addition, if the extracurricular activities were not "work" in the first place, ceasing to do them can hardly be seen as limiting or restricting output. 31 © 2023 Pearson Canada Inc.

With regard to the fifth element, it could be argued both ways: either the teachers are trying to compel the government to remove their additional teaching responsibilities or the teachers are simply exercising their choice not to participate in voluntary activities. According to this analysis, the teachers may not be engaged in a strike at all, let alone an illegal one. If the criteria for a strike are found to have been met, it would then be necessary to analyze whether the strike was legal or not. Since the teachers are otherwise under a collective agreement, strike action would be unlawful.

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