TEST BANK for Canadian Business and the Law 7th Edition by Duplessis, O'Byrne, King, Adams & Enman. by StudyGuide

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Chap 01_7e Indicate whether the statement is true or false. 1. Litigation is usually the most cost-effective method for resolving legal disputes. a. True b. False 2. Canada offers an attractive commercial environment for entrepreneurs because it has an established set of laws comprised of rules and principles intended to guide conduct in business relationships and protect the property of persons and business. a. True b. False 3. In every type of business dispute resolution, Canadian law requires that a judge must decide the amount of the loss to prevent hard feelings between the parties and allow the business relationship to be maintained. a. True b. False 4. Parties that agree to submit disputes to a neutral party who will ultimately make a binding decision to resolve the dispute are agreeing to participate in the arbitration process. a. True b. False 5. A supplier who commits to a contract is free of any legal obligations for direct and foreseeable financial consequences that the other party to the contract may experience should the supplier breach the contract. a. True b. False 6. Mediation and arbitration are mechanisms offered by the legal system for avoiding litigation. a. True b. False 7. Litigation is an expensive and lengthy process that involves one business entity attempting to find a resolution for a conflict caused by the other party to the contract by actively engaging in negotiations aided by a neutral party. a. True b. False 8. A legal risk management plan involves a business strategy that may require legal supervision to reduce the probability and severity of loss. a. True b. False 9. One of the goals of Canadian law is to ensure that losses are paid for by the parties responsible for creating them. a. True b. False

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Chap 01_7e 10. It is a rule of law that a party who suffers a breach of contract is entitled to be put in the position it would have been in had the contract been fulfilled. a. True b. False 11. The law is primarily about rules that constrain commerce. a. True b. False 12. Ethics may demand that a business do more than comply with the law. a. True b. False 13. Liability between parties engaged in a contractual business relationship refers specifically to the legal responsibility of one party to the other for any event or loss that may occur due to breach of the contract. a. True b. False 14. Businesses that have been unable to resolve complex contractual disputes may have to turn to litigation as the last resort to, among other things, establish the liability of one business to another. a. True b. False 15. A contract provides the legal backdrop to commercial relationships by defining the rights and obligations of the parties, but it is the business relationship itself that will determine whether, in a conflict, the parties will insist upon strict enforcement of their legal rights. a. True b. False 16. In the litigation process, the party initiating a claim for breach of contract is obligated to prove its case, and the judge is obligated to be as objective as possible in determining whether the case of breach has been proven. a. True b. False 17. One of the most important functions of law in the business environment is to facilitate planning. a. True b. False 18. It is a rule of law that a party who suffers a breach of contract is entitled to be put in the position that he or she would have been in had the contract been fulfilled. a. True b. False

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Chap 01_7e 19. A business that neglects to protect its intellectual property may have its ideas taken with impunity by a competitor. a. True b. False 20. Canadian business law consists of a set of established bilingual rules governing commercial relationships that exclude enforcement of rights. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. How does the law impact the marketing activities of a business? a. It requires businesses to customize marketing to the recipient. b. It imposes limitations on how far a business may go in extolling the virtues of its product. c. It does not regulate marketing activities. d. It requires that marketing activities treat all individuals equally. 22. Groot Industries Inc. requires more space in order to expand its business. Which of the following is a legal decision that Groot Industries Inc. must now undertake? a. who should be hired to construct a new building b. whether its new premises will be regulated by health and fire regulations c. whether to buy, build, or lease additional premises d. whether to obtain insurance for its new premises 23. Which statement best exemplifies a protective element of Canadian law? a. It seeks to make those who break the law accountable. b. It sets rules in order to encourage complexity. c. It sets rules in order to encourage complacence. d. It provides rules that prohibit making commitments. 24. Organic Veggies’4’U Inc. has entered into a one-year, extendable supplier contract with EcoWise Fertilizers Ltd. for the delivery of 1.5-ton pallets of worm castings fertilizer at a price of $2,000 per ton in March and June. What type of role do contract law and its contributions to the establishment of this business relationship have? a. a facilitating role, providing definition, context, and certainty b. an ethical role, facilitating better environmental practices c. a litigation role, defining clear areas of liability for breach d. a governing role, providing a comprehensive action plan 25. Which of the following best describes how law protects members of society? a. setting rules with penalties and making those who break the law accountable b. establishing ethical rules and minimizing risks before they materialize c. constraining business activity and regulating commercial relationships d. minimizing unknown contingencies to avoid irreconcilable disputes between businesses Copyright Cengage Learning. Powered by Cognero.

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Chap 01_7e 26. Kamal is a computer technician who is about to enter into a one-year contract to provide IT services to a real estate agency. From Kamal’s perspective, what is the most important function of this contract? a. to establish penalties for non-compliance b. to deal fairly with unexpected events c. to resolve conflicts d. to plan for the future and enforce expectations 27. What consequences might a business face by skirting ethical norms? a. bad publicity and condemnation b. Criminal Code conviction c. conflict of interest d. breach of contract 28. Which of the following best describes the nature of the arbitration process? a. negotiated resolution with the assistance of a neutral person b. neutral party makes a decision (usually binding) that resolves a dispute c. submission to judge for decision-making d. renegotiation of the contract with the assistance of a judge 29. A small group of entrepreneurs undertaking a business venture have agreed on the roles each will assume in the business, but they must now determine the form of business structure for the enterprise. What does the law facilitate by offering entrepreneurs different business structure options? a. choice of degree of exposure to liability for business risks b. rules that make written agreements between parties binding c. opportunities to maximize the protections that the law extends d. legal certainty for activities conducted in the commercial arena 30. Novel Swings Inc. has a contract to begin construction of a school’s swing set on June 15th, and work is to be completed by August 1st. After weeks of wet weather, the ground was unsuitable for work to begin in June and Novel will not meet the completion deadline. Which statement best describes the legal status of the contractual relationship between Novel Swings and the school? a. The contract is void due to wet weather. b. The contract requires renegotiation. c. The contract is in good standing. d. The contract has been breached. 31. Jim has retained a lawyer to file a lawsuit claiming economic loss due to theft of business revenues by his partner. What form of dispute resolution has Jim undertaken? a. arbitration b. mediation c. litigation d. reconciliation 32. Which law regulates privacy standards in most Canadian provinces? a. the Consumer Protection Act b. the Personal Information Protection and Electronic Documents Act c. the Criminal Code of Canada d. the Privacy and Marketing Act

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Chap 01_7e 33. What might be the legal consequence if a business were to choose a name for its new product that is very similar to the name already used by a competitor for its competing product? a. mandatory arbitration b. a lawsuit for defamation c. a lawsuit for passing off d. prosecution under the Criminal Code 34. What is the purpose of contract law? a. to ensure litigation of parties committing contractual breach b. to prescribe principles and values for use in society c. to determine right and wrong in the business world d. to enforce expectations and facilitate planning 35. After numerous requests for payment for the services it provided to a client, Cando Enterprises Inc. found it necessary to sue in order to recover the amount it was owed. What type of law did Cando Enterprises Inc. resort to? a. employment b. business c. criminal d. contract 36. What are the commonly used alternative dispute resolution methods for avoiding litigation? a. intervention, negotiation, and reconciliation b. intervention, arbitration, and mediation c. negotiation, mediation, and adjudication d. direct negotiation, mediation, and arbitration 37. The government recently enacted rules governing the use of drones that will limit how they are used by businesses and individuals. What purpose is the law fulfilling in this situation? a. facilitating planning by ensuring compliance with commitments b. protecting businesses by setting penalties and ensuring accountability c. responding to emerging hazards in society and setting rules to protect the public interest d. ensuring that losses are borne by those who are responsible for them 38. What is usually the first logical step for parties involved in a legal dispute? a. to submit their dispute to a mediator b. to engage legal counsel c. to submit their dispute to an arbitrator d. to try to come to a resolution between themselves 39. What type of law is the vehicle for ensuring that those affected by a failed business are treated fairly, reasonably, and in accordance with agreed rules? a. bankruptcy b. contract c. criminal d. corporate

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Chap 01_7e 40. Which statement best explains how business law guides business conduct? a. The law sets rules and penalties to encourage compliance. b. The law sets specific codes of ethics to guide conduct. c. The law seeks levels of compensation exceeding losses. d. The law limits executive compensation to guide conduct. 41. Which of the following best defines business law? a. legal responsibility for the occurrence of an event causing loss b. rules governing commercial relationships and the enforcement of rights c. rules governing procedures involved when one person sues another d. rules providing members of a society with established rights 42. Olivia is suing a supplier for breach of contract. Assuming she is successful, what remedy might she expect to receive from the court? a. restitution b. punitive damages based on the seriousness of the contract breach c. aggravated damages d. a sum of money that will put her in the position that she would have been had the contract been fulfilled 43. What is one of the most significant contributions the law can make in the commercial arena? a. establishing penalties for breaching promises b. defining the moral principles and values of the relationship c. creating certainty in business relationships d. setting standards for service in business relationships 44. Alpha Textile Ltd. has developed a line of clothing and is considering using the brand name Kalvin Clein in order to take advantage of the familiarity of its target market with a well-known designer named Calvin Klein. What legal consequences might Alpha Textile Ltd. face if it proceeds with its plan? a. being sued for negligence by its customers b. criminal proceedings for breach of trademark legislation c. being sued for damages by Calvin Klein d. no legal consequences because it is not actually using the name Calvin Klein 45. What is the role of business ethics? a. to provide a comprehensive plan for dealing with legal risk b. to establish principles and values for determining right and wrong in the business world c. to resolve disputes between conflicting parties d. to impose legal responsibility for an event or loss that has occurred

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Chap 01_7e 46. In what way is mediation different from arbitration and litigation? a. Mediation is free and does not require the assistance of a lawyer. b. Mediation is time-consuming and tends to be ineffective. c. Mediation results in an informal, non-binding decision. d. Mediation involves the use of a neutral party to assist with resolution of the dispute. 47. Champion Well Drilling Inc. is being sued for rupturing a gas line while drilling a well on a customer’s property. How might Champion best avoid similar risks in the future? a. by developing and implementing a legal risk management plan b. by limiting itself to zero-risk projects c. by ensuring it has sufficient resources set aside to pay out future judgments d. by hiring a mediator to assist in resolving future legal disputes 48. What are the standard forms of business structure available to entrepreneurs to facilitate creation of a for-profit business enterprise? a. sole owner, proprietor, and partnership b. sole proprietor, partnership, and corporation c. sole partnership, proprietor, and corporation d. sole owner, proprietor, and corporation 49. Joy is a sales representative with EduPlan Ltd., a business selling education savings plans. She received a hospital record setting out the names and contact information of women who recently gave birth at a local hospital. She received the record from her friend who is a nurse in the maternity ward, who photocopied it without permission. Joy intends to contact these potential leads about purchasing an annuity from her business. How does the law impact the disclosure of this record to Joy? a. by requiring businesses and organizations to protect the privacy of personal information by imposing and collecting fines when they breach this obligation b. by ensuring that Joy is required to compensate her friend for her assistance in providing the record c. by punishing Joy for using the record for a purpose that was not contemplated when the record was created d. by requiring Joy to obtain the hospital’s consent before using the record 50. Which of the following is NOT an objective of business law? a. protection of business ideas and tangible property b. ensuring losses are borne by those who cause them c. imposition of fines on those who breach contracts d. facilitating planning by ensuring compliance with commitments 51. What are some examples of typical business transactions and events with significant legal implications?

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Chap 01_7e 52. Briefly describe how the law of contract facilitates commercial activity.

53. Lawsuits come to court for either of two reasons: there is a dispute about the facts that actually occurred or there is a dispute about the way the law treats the parties. Describe the role and obligations of the judge, including what details must be considered and what must be proven to the court to allow it to reach a decision resolving the dispute.

54. Briefly describe the steps that parties must go through to achieve the consensus reflected in a contract. What role does a lawyer play in this process?

55. Briefly describe the main reasons that some business disputes must be resolved in court.

56. Why might a business involved in a legal dispute prefer to reach a private settlement instead of litigating the matter in court?

57. Briefly describe the main reasons one party to a contract might decide to overlook a breach of contract by the other party.

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Chap 01_7e Answer Key 1. False 2. True 3. False 4. True 5. False 6. True 7. False 8. True 9. True 10. True 11. False 12. True 13. True 14. True 15. True 16. True 17. True 18. True 19. True 20. False 21. b 22. c 23. a 24. a 25. a 26. d

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Chap 01_7e 27. c 28. b 29. a 30. d 31. c 32. b 33. c 34. d 35. d 36. d 37. c 38. d 39. a 40. a 41. b 42. d 43. c 44. c 45. b 46. d 47. a 48. b 49. a 50. c 51. Examples of transactions and events having legal implications include: choice of form of business, business name selection, financing considerations, property purchasing and leasing decisions, and marketing and advertising strategies.

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Chap 01_7e 52. The law of contract provides a way for parties to enter into binding agreements, thereby creating a measure of security and certainty in their business operations. Contract law also allows business enterprises to plan for the future and to enforce their expectations. 53. The role of the judge is to review the claim and consider the contract and other evidence, as well as legal arguments presented by both sides to determine what the agreement between the parties actually was and what laws apply. The judge is obligated to then impartially apply the law in an objective manner to determine whether the initiating party’s claim has been proven, and, if so, what legal consequences would provide a remedy to make up for the loss. 54. Usually one party has identified a need and will make a proposal to another party for an exchange that will satisfy that need. If the other party sees benefit in making the exchange, the parties will negotiate until they arrive at mutually acceptable terms. Typically, each party will have a lawyer whose role is to provide legal advice throughout the negotiation process and, once consensus is reached, to then accurately document the terms of the agreement in a contract. 55. The main reasons a court must decide some business disputes involve instances where the parties are unwilling or unable to negotiate a settlement themselves, or where there is no agreement between the parties to accept arbitration of disputes or to refer disputes to mediation. 56. The time and money saved in avoiding a court battle may more than offset the cost of a private settlement. There are other less tangible benefits to reaching a compromise, including preserving business relationships and reputation. 57. A party to a contract might decide to overlook a breach of the contract if it is a minor breach and maintaining the business relationship is important and desirable. A minor breach is more likely to be quickly resolved directly between the parties, while litigation is a slow and expensive process for resolving a dispute.

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Chap 02_7e Indicate whether the statement is true or false. 1. There are no limits on the guarantees of rights and freedoms established by the Charter of Rights and Freedoms. a. True b. False 2. Section 33 of the Charter permits the governments to override some of our Charter rights, such as the freedom of expression. a. True b. False 3. Section 1 of the Charter requires the government to justify why it is infringing a right, as well as to demonstrate that, in doing so, it is restricting the right in question in a reasonably measured, controlled, and appropriate way. a. True b. False 4. Federal and provincial legislatures are constitutionally provided with the authority to appoint judges within specified judicial jurisdictions. a. True b. False 5. Private law deals with the regulation of relationships between individuals and government. a. True b. False 6. Canada’s federal Parliament is composed of the House of Commons and the Senate. a. True b. False 7. The Charter is a powerful constitutional document because it provides protection from improper or oppressive government conduct. a. True b. False 8. Public health and the environment are constitutionally undefined as areas of concurrent jurisdiction shared between the federal and provincial governments. a. True b. False 9. The judges in Canada’s higher courts are appointed, and those in the lower courts are elected. a. True b. False

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Chap 02_7e 10. The principle of precedent holds that all precedents are not of equal value, meaning the higher the level of court that created the precedent, the less weight it brings to bear on the common law system. a. True b. False 11. The Constitution Act makes the provincial governments subordinate to the federal government in cases of overlapping jurisdiction. a. True b. False 12. One of the defining features of the law of equity is that “anything goes, as long as it’s fair.” a. True b. False 13. The rights and authority of municipal governments are protected by the Constitution Act. a. True b. False 14. Inferior courts are presided over by judges appointed by the provincial government. a. True b. False 15. The new Criminal Code of Newfoundland would be enforced by the courts because it would not be contrary to the Canadian Constitution to do so. a. True b. False 16. According to the doctrine of precedent, the Supreme Court of Canada—the highest court in Canada—is entitled to decide a case in any way it sees fit. a. True b. False 17. The Canadian Radio-television and Telecommunications Commission (CRTC) is an example of an administrative tribunal. a. True b. False 18. The law of equity consists of rules that focus on what is fair. a. True b. False 19. A bill put before a legislative body represents a proposed piece of legislation that a political party wants to make into law. a. True b. False

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Chap 02_7e 20. Eleven treaties between the federal government and Indigenous peoples have been enacted since Canadian Confederation in 1867. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Vape Industries Inc. plans to take legal action if the government attempts to pass legislation restricting the advertising of water tobacco products. On what basis might Vape Industries Inc. take legal action should such legislation be enacted? a. The legislation interferes with its equality rights contained in section 15 of the Canadian Charter of Rights and Freedoms. b. The legislation interferes with the fundamental freedom of expression contained in section 2 (b) of the Canadian Charter of Rights and Freedoms. c. The legislation is beyond the jurisdiction of the legislative branch of government. d. The sale of water tobacco products is an area of private law not public law. 22. The government has failed to enact new legislation requiring appropriate warnings on water tobacco. Which statement best describes the legal obligation of the Canadian government to enact such legislation? a. The government has a constitutional obligation to enact legislation to protect the health of Canadians. b. A new law would help fulfill Canada’s international treaty obligations. c. A new law cannot be enacted because it would interfere with freedom of expression, which is protected under section 2 (b) of the Canadian Charter of Rights and Freedoms. d. The government has no legal right to control how businesses choose to display a legal product, because such matters are private law, not public law. 23. Why is constitutional law described as the ‘supreme law’ of Canada? a. It protects individual freedom. b. It contains laws that impact all legal disputes. c. It cannot be overridden by the executive or legislative branch. d. It places limits on the exercise of power by the branches of government. 24. Which outcome is dictated by the doctrine of paramountcy in circumstances where conflicting federal and provincial laws cannot be reconciled? a. The federal law prevails, except in Quebec. b. The superior law prevails. c. Concurrent provincial law prevails. d. The provincial law prevails.

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Chap 02_7e 25. Which statement best describes the Indian Act? a. It empowers band councils to pass bylaws governing the reserve community in such areas as, for example, health, law and order, and the residence of band members. b. It confirms the right to hunt and fish on lands subject to aboriginal title. c. It has been struck down as unconstitutional. d. It affirms existing treaty rights. 26. What is a possible legal justification for upholding a provincial law that prohibits the display of tobacco products in retail outlets? a. If the government can show that the law reduces the incidence of smoking, the law may constitute a reasonable limit on freedom of expression. b. The provincial government has sole jurisdiction over business activity. c. The provincial governments have delegated jurisdiction. d. The new tobacco law is constitutional because it protects health, and health concerns always override business concerns. 27. What is the judicial branch of government in Canada composed of? a. the system of various levels of courts in Canada b. the judiciary and the system of various levels of courts c. a judiciary appointed by the governor general d. the judiciary and federal and provincial prosecutors 28. A recent decision of the Supreme Court of Canada established that the equality provision contained in section 15(1) of the Charter of Rights and Freedoms applies to unequal treatment on the basis of sexual orientation. Which statement best describes the effect the decision will have on provincial governments? a. Provincial governments will not be bound because the Charter of Rights and Freedoms is only binding on the federal government. b. The decision applies only to cases outside of the province of Quebec. c. Provincial governments will be bound because the Charter of Rights and Freedoms is binding on all levels of government. d. The decision will be binding on provincial governments because they are required to follow decisions of the Supreme Court of Canada under the division of powers. 29. Which statement best reflects the high value Canadians place on the political philosophy of liberalism? a. Canada regulates privacy with laws restricting government access to persons and property. b. Canadians have elected more majority Liberal governments than NDP or Conservative. c. Public outcry forced the Green Party leader’s acceptance in federal election debates. d. Governments willingly and promptly comply with access to information requests.

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Chap 02_7e 30. Which statement best describes the common law system of private law? a. It is used in all provinces, including Quebec. b. It includes constitutional and administrative law. c. It is based on the interpretation and application of statutes which must be applied in all cases. d. It bases its private law on judicial decisions that, if relevant and binding, must be applied to the case at issue. 31. Who determines whether legislation is permissible? a. the Parliament of Canada b. the judicial branch c. the prime minister d. the federal government 32. Which of the following is an example of the law of equity? a. the “clean hands” principle b. the “decidendi” principle c. the “stare decisis” doctrine d. the “judicial discretion” principle 33. What is the legal status of the office of prime minister in Canada? a. The office of prime minister is an example of a constitutional convention. b. The office of prime minister does not really exist. c. The office of prime minister is set out in the Constitution Act, 1867. d. The office of prime minister is set out in the Canadian Charter of Rights and Freedoms. 34. What are the basic levels of courts that make up the Canadian court system? a. trial, informal appeal, and final appeal courts b. trial, intermediate appeal, and final court of appeal c. informal trial, formal trial, and final appeal courts d. pretrial, trial, and appeal courts 35. In what way does a civil law system differ from a common law system? a. In a civil law system, provinces have jurisdiction to appoint judges to superior courts. b. Judges in a civil law system must apply a relevant provision of the Civil Code, even if doing so would produce an unjust outcome. c. Judges in a civil law system are not bound by how other judges have interpreted the Civil Code. d. In a civil law system, tort and contract laws are established by precedent. 36. Which statement best describes the effect of section 35 of the Constitution Act, 1982? a. It confirms Indigenous peoples the right to self-government b. It affirms existing aboriginal and treaty rights of the Indigenous peoples of Canada c. It confirms the surrender and capitulation of Indigenous rights to sovereignty d. It recognizes legislative powers of the federal government with respect to Indigenous peoples

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Chap 02_7e 37. To which level of government would a business make an application for a property zoning variance, and why? a. municipal government; direct constitutional jurisdiction b. municipal government; concurrent constitutional jurisdiction c. municipal government; provincial constitutional delegation of authority d. federal government; exclusive jurisdiction to regulate zoning 38. Why are provincial governments unable to pass criminal laws? a. Criminal laws are part of the Constitution and cannot be modified by the legislative branch. b. The doctrine of paramountcy dictates that the federal government law making power overrides provincially enacted laws. c. Criminal laws can only be enacted jointly by the federal and provincial legislative branches of government. d. Criminal law falls under federal jurisdiction. 39. What is a distinguishing characteristic of the principle of precedent law? a. It is based on a Civil Code. b. It applies only in Quebec courts. c. Individual freedoms are valued. d. Like cases should be treated alike. 40. In which areas is the federal government given exclusive jurisdiction to make law by the Canadian Constitution? a. currency, trade, national defence b. administration of justice, trade, national defence c. interprovincial trade and commerce, highway regulation, licensing d. criminal law, administration of justice, hospitals 41. Which of the following is an example of a federal administrative body that plays a role in regulating activity? a. the Securities Commission b. the Board of Health c. the Canadian Radio-television and Telecommunications Commission (CRTC) d. the Liquor Control Board 42. What classification of law would a provincial statute restricting the display of tobacco products in retail outlets fall under? a. private law b. public and domestic law c. common law and private law d. procedural law 43. Which level of government should Nantucket Sleigh Rides, Inc. lobby for regulated roadway access to sell horsedrawn sleigh rides to patrons of downtown business establishments from December through February? a. provincial government b. federal government c. municipal government d. federal and provincial governments 44. How are the decisions of the Supreme Court of Canada best described? a. as binding on all other courts in all Canadian jurisdictions b. as limited to constitutional matters c. as binding only on the government d. as appeals from the Federal Court of Canada Copyright Cengage Learning. Powered by Cognero.

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Chap 02_7e 45. Which statement best describes the status of Aboriginal or Indigenous rights within Canada? a. They were created by treaties entered into after Europeans settled across Canada. b. They have survived British and French assertions of sovereignty and continue to exist in a free-standing way today. c. European settlement terminated the pre-Confederation interests of Aboriginal peoples. d. They were affirmed by the Constitution Act, 1867. 46. What is the defining characteristic of procedural law? a. It is a set of laws defining individual rights, duties, and liabilities. b. It regulates the relationship between persons and governments. c. It governs procedure for the enforcement of rights, duties, and liabilities. d. It governs procedure for the enforcement of the Civil Code. 47. Which of the following is an example of a function typically performed by cabinet? a. enacting regulations b. providing independent overview of commercial disputes c. approval of statutes d. regulating property rights 48. A hospital board of directors granted absolute authority to physicians to arbitrarily withdraw life support from patients. The board’s authority to grant such power was quickly challenged and overturned in the courts. What type of law had to be applied to constrain the hospital board’s authority? a. criminal law b. constitutional law c. administrative law d. equity law 49. Which of the following is a feature of the superior courts? a. The judges are appointed by provincial governments. b. Their processes are designed to be simpler, quicker, and less expensive, and parties often appear in this court without a lawyer. c. They are available only after permission or “leave” to appeal is granted. d. They have the jurisdiction to handle claims involving an unlimited monetary amount and are the entry

level for the more serious criminal matters. 50. Which of the following is a key feature of the judicial branch of government? a. The judiciary is to be independent from the legislative and executive branches of government. b. The judiciary is composed of judges who are elected. c. The judiciary has jurisdiction over criminal law, including the power to define new crimes. d. The judiciary executes government policy and reforms statutory law. 51. What attribute distinguishes substantive law from other forms of law? a. It defines rights, duties, and liabilities. b. It defines international legal status. c. It defines the relationship between governments. d. It defines procedures under the Charter. Copyright Cengage Learning. Powered by Cognero.

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Chap 02_7e 52. What is a distinguishing characteristic of a treaty? a. A treaty is the sole law governing relations between nations. b. A treaty is a set of coded laws to regulate relations. c. A treaty governs relationships between Canada’s provinces. d. A treaty can exist between nations governed by international law. 53. Which statement best describes the defining characteristics of public law? a. It regulates relationships between governments and individuals. b. It provides rules concerning rights and obligations of business. c. It focuses on fairness according to strict rules of common law. d. It contains the rules of law in the Civil Code of Quebec. 54. Judges are bound to apply relevant legislation enacted by the three levels of government. Which of the following represents an exception to this rule? a. laws that violate the Constitution do not have to be followed and may be declared of no legal effect b. common law always prevails over statutory law c. the Supreme Court of Canada may ignore legislation, even if it has been validly enacted d. equity law always prevails over legislation 55. According to section 35 of the Constitution Act, 1867, which group is included in the term ‘Aboriginal peoples’? a. Métis and Indian peoples b. members of First Nations’ bands c. the Indian, Inuit, and Métis d. all individuals of Indigenous heritage 56. Which of the following functions is most likely to be carried out by an administrative body? a. hearing licensing and zoning applications b. collection of revenue for government operation c. enforcement of traffic laws d. reviewing applications for leave to appeal 57. Which legislative body (or bodies) in Canada is (are) generally the most involved with creating laws that regulate business activity? a. the judiciary b. provincial legislatures and municipalities c. the House of Commons and Senate d. the Parliament of Canada 58. Which statement best characterizes Aboriginal rights where treaties have not been negotiated? a. They were ceded upon Confederation. b. They continue to exist. c. They have been reinstated by the federal government. d. They are limited to fishing and hunting rights.

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Chap 02_7e 59. A province wants to challenge an appeal court’s decision regarding the prevention of continued ground water contamination now posing a significant health risk to people, wildlife, and plants living in the ecosystem to the Supreme Court. Which of the following would immediately signify the Supreme Court’s agreement to hear the challenge, and why it would consider this appeal? a. leave to appeal; significant or national concern b. consent to appeal; provincial challenges c. consent to appeal; jurisdiction d. permission to appeal; national public concern 60. Which of the following is a required element in the procedure for passing federal legislation through Parliament? a. a majority vote by Commons committee and approval by Senate b. a quorum vote in the House of Commons and by the Senate c. a majority vote of the members in the House of Commons and in the Senate d. an approval by the House of Commons and by the Senate committee 61. Which statement best describes the executive branch of government? a. The executive branch of government consists of the prime minister and the premiers of the provinces and territories. b. The executive branch of government provides rulings to resolve existing legal conflicts. c. The executive branch of government passes laws that impact business operations. d. The executive branch of government includes the formal executive and the political executive. 62. Quest Electrical Engineers Inc. contractually committed to provide specialized services to a construction project with specified deadlines for completion. Quest has to meet deadlines or face penalties. What type of law governs the relationship and conduct of the parties to this contract? a. common law b. corporate law c. public law d. private law 63. Why is it important for businesses to monitor government policy? a. Rules and regulations are periodically revised. b. It is the machinery that regulates government. c. It provides rulings that resolve existing disputes. d. It can be overwhelming and very technical. 64. Which of the following is NOT a source of law in Canada? a. common law b. public opinion c. Civil Code d. royal prerogative

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Chap 02_7e 65. The city of Riverside is considering enacting a bylaw to criminalize solicitation for the purposes of prostitution. What legal challenge might the city face if it proceeds with this course of action? a. The law is unconstitutional as it interferes with the Charter right to freedom from arbitrary detention. b. The law is invalid as it interferes with a provincial power. c. The law is unconstitutional because it interferes with the federal government’s exclusive jurisdiction over criminal law. d. The law is unconstitutional as it violates the right to equality. 66. Briefly describe the system of courts in Canada.

67. The application of precedent in a common law system is subject to a number of rules. Outline the rules judges must apply when considering how much weight to give a precedent case.

68. Briefly describe the circumstances under which the guarantee of Canadians’ rights and freedoms provided under the Canadian Charter of Rights and Freedoms is permitted to be limited.

69. Briefly describe the role of administrative bodies in the Canadian legal system and provide examples of particular bodies that impact businesses and their functions.

70. Briefly describe the history of treaty rights of Indigenous peoples in Canada.

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Chap 02_7e 71. Briefly describe the origins of the common law system and the civil law system as they exist in Canada and the comparable and contrasting characteristics of each system of law.

72. Briefly describe the benefits to be derived by businesses being aware of government policy and the status of regulations affecting their operations, as well as the consequences of being unaware of the same.

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Chap 02_7e Answer Key 1. False 2. True 3. True 4. True 5. False 6. True 7. True 8. False 9. False 10. False 11. True 12. False 13. False 14. True 15. False 16. True 17. True 18. True 19. True 20. False 21. b 22. b 23. d 24. b 25. a 26. a

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Chap 02_7e 27. b 28. c 29. a 30. d 31. b 32. a 33. a 34. b 35. c 36. b 37. c 38. d 39. d 40. a 41. c 42. b 43. c 44. a 45. b 46. c 47. a 48. c 49. d 50. a 51. a 52. d 53. a 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 02_7e 55. c 56. a 57. b 58. b 59. a 60. c 61. d 62. d 63. a 64. b 65. c 66. Each provincial and territorial system of courts has three basic levels: trial, intermediate appeal, and final appeal. Trial courts are of two types: inferior and superior. An inferior court is presided over by a judge appointed by the provincial government. These courts are organized by type of case, such as criminal, family, and civil. The civil court, sometimes called small claims court, handles disputes involving smaller amounts of money. Superior courts, whose judges are appointed by the federal government, have the jurisdiction to handle claims involving an unlimited monetary amount. In addition, they are the entry level for the more serious criminal matters. Provincial courts of appeal hear appeals from these lower courts, and from there cases go to the Supreme Court of Canada. In most commercial cases, litigation tends to end in provincial courts of appeal because appeal to the Supreme Court of Canada is available only after permission or “leave” to appeal is granted by the Supreme Court itself. Ordinarily, the Supreme Court of Canada will hear only appeals that involve questions of national concern or significance. 67. The rules governing the application of precedent to a particular case include the following: • A lower court must follow a relevant precedent created by a higher court within the same jurisdiction. • Not all precedents are of equal value—the higher the court that created the precedent, the more valued the decision is. • The Supreme Court of Canada—the highest court in Canada—is entitled to decide a case in any way it sees fit. 68. Limitation of the guarantee of Canada’s Charter rights and freedoms is allowed when the limitation is demonstrated to be justified under section 1 and by the use of the notwithstanding clause contained in section 33 of the Charter.

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Chap 02_7e 69. It is often difficult to summarize how businesses are subject to administrative regulation because the nature and function of these bodies often vary. In some instances, the body or individual carries out purely administrative functions, as when the Canada Employment Insurance Commission processes a claim for benefits; sometimes the body also has judicial functions, such as when the Labour Relations Board settles a dispute between an employer and employee; sometimes the body exercises legislative functions, as when the Canadian Radio-television and Telecommunications Commission (CRTC) passes regulations concerning the amount of Canadian content on radio and TV; and sometimes the body has some combination of these functions. Examples of particular bodies that might impact businesses include municipal licensing tribunals, which issue business permits; development zoning boards, which grant development permits; and labour relations boards, which regulate relationships between unionized workers and their employers. 70. Treaty rights derive from treaties dating back to the early 18th century as well as eleven numbered Treaties following Canadian Confederation in 1867. The Nisga’a Treaty which came into force in 2000 is described as British Columbia’s first modern treaty. As of 2016, there were 26 modern day treaties, dealing with such matters as land title, self-government rights, fishing and trapping, financial compensation, and other social and economic benefits. Section 35 of the Canada Act, 1867 expressly protects the treaty rights of Indigenous peoples. 71. The Quebec civil law system originated from the French legal system and was brought to Quebec by the French when they colonized the region. The Canadian common law system is rooted in England’s legal system, which was established in all provinces excluding Quebec by the British when they conquered and colonized the Canadian regions of North America. The key principle of common law is that laws are interpreted and applied in decisions of the court known as judgments. Judgments become precedents, which form the body of case law that must be referred to and applied by every judge hearing a similar matter when making a legal determination in a similar dispute involving the same laws. The key principle of the civil law system is that the Quebec legislature makes civil law, and those laws are codified or compiled in one source known as the Civil Code. The judges’ task in the civil code system is to find the specific provision in the code that applies to the case at hand, and to apply it to resolve the dispute. Civil code judges do not refer to past decisions at all. Both systems are designed to deliver constant, consistent justice. 72. Businesses need to actively monitor government policy and regulations that affect how businesses are permitted to operate because either may be changed periodically. Awareness allows business to comply with laws and to attempt to influence development of policies and regulations to favour and further business interests. Being unaware of changes would result in noncompliance with regulations, levy of fines, or even closure of a business. Lack of awareness of government policy may also result in a missed opportunity to lobby government to change law or to take advantage of favourable change in law.

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Chap 03_7e Indicate whether the statement is true or false. 1. Employees are generally considered to be an unreliable source for identifying risks in an organization’s

functional areas. a. True b. False 2. In-house legal counsel are highly trained commercial law specialists, capable of handling all of the business’s

litigation matters. a. True b. False 3. Most lawyers can be expected to have the expertise necessary to head up a risk management department. a. True b. False 4. Negotiating terms in a contract that limit the liability of the business is an example of risk avoidance. a. True b. False 5. A limitation of liability clause in a customer contract is an example of risk transference. a. True b. False 6. Forecasting risk in international business transactions is often difficult. a. True b. False 7. A high probability that a particular event will occur can be offset by a relatively low level of loss should the

event actually occur. a. True b. False 8. Lawyers are increasingly willing to offer a variety of fee structures such as billing at an hourly rate, standard

fees for routine work, and annual retainers. a. True b. False 9. Risk avoidance is appropriate when the undesirable result of the activity is greater than the advantages. a. True b. False 10. Risk managers should have ample knowledge of the business, its activities, and the industry it operates in. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 03_7e 11. Rahim’s decision to increase the amount of the deductible on his business liability insurance policy will result in

the business having to absorb the loss resulting from a future materialization of a legal risk. a. True b. False 12. Anders will be able to support his recommendation that the business undertake development of a legal risk

management plan by performing a subjective evaluation involving an assessment of both the probability and the severity of loss. a. True b. False 13. Insurance policies covering business risks will provide coverage for all losses as part of their standard terms,

so there is no need for the legal risk management team to review the policies. a. True b. False 14. Prevention of loss is the primary goal of a risk management plan. a. True b. False 15. Requiring employees to wear protective equipment is an example of a risk avoidance strategy. a. True b. False 16. Having a legal risk management plan is unnecessary for a small business entity. a. True b. False 17. There are two basic ways a business can manage its interaction with the law and legal issues: identify issues

and avoid. a. True b. False 18. Risk reduction involves introducing policies, practices, and procedures to reduce the probability of an event

happening. a. True b. False 19. Identifying legal risks may require an organization to analyze its operations and transactions. a. True b. False 20. Risk avoidance is always the best policy. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 03_7e Indicate the answer choice that best completes the statement or answers the question. 21. Which of the following is the term “in-house lawyer” used to describe? a. a lawyer working from home b. a lawyer specializing in home sales c. a lawyer working inside the business

d. a lawyer working in a law firm

22. Benta recently purchased an office cleaning business with established long-term contracts to provide cleaning

services to a number of large office building operators. Which of the following actions would immediately allow Benta to be aware of the potential legal risks with the building operators? a. consult with a law firm to devise a legal strategy b. consult and arrange insurance to cover legal risks c. schedule introductory meetings with customers d. review contracts and customer payment history 23. Which legal risk management process is most appropriate when the risk is simply too great or when the

undesirable result of the activity, product or service is greater than the advantages? a. prevention of loss b. reduction of risk c. transfer of risk d. risk avoidance 24. Toyota Motor Corp. recalled 8.8 million cars after some of its vehicles were found to have unintended

acceleration problems. Which goal of a legal risk management plan were Toyota’s actions meant to achieve? a. elimination of risk b. facilitating self-insurance c. evaluating risk d. reduction of impact by implementation of plan 25. Which of the following risk management objectives would be strongly supported by the use of a limitation of

liability clause in a contract? a. It reduces the liability for the risk and is legally enforceable. b. It transfers the risk, is legally enforceable, and is acceptable to the other party. c. It eliminates the risk, limits the liability, and is acceptable the other party. d. It retains a standard form of contractual of limited liability. 26. Dontally Imports Inc. has an expiring contract that the overseas supplier is anxious to renew. However,

supplier shortages caused difficulties for Dontally. Recently, it was able to secure a reliable, alternate source to meet its obligations to its large merchant customers. Which of the following actions should the legal risk department recommend regarding expiring contracts? a. reduce the risk b. eliminate the risk c. transfer the risk d. retain the risk

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Chap 03_7e 27. A staff member employed in the purchasing department has been experiencing a number of sexually harassing

telephone calls from a sales representative of a new supplier. The matter is referred to the legal risk management department for analysis. Which function of the business must be analyzed? a. business relations b. human resources c. employee relations d. supplier relations 28. Risk management is best viewed as a task that should be carried out by whom? a. stakeholders within and outside the organization b. senior managers c. a single person within the organization d. managers and employees at every level of the organization 29. A company operating a dating website for married individuals has identified that technology-related risks,

including the possibility of infiltration of its customer database by hackers, could pose a hazard to the company and its customers. What legal risk management step is the company engaged in? a. evaluating potential risk; first step b. reducing risk; second step c. implementing, monitoring and revising; final step d. devising a risk management plan; third step 30. Which of the following would strongly support a business strategy for managing risks uniquely associated with

commitments made by employees to suppliers or customers? a. Identify a knowledgeable individual to be risk department manager. b. Retain legal counsel to act as in-house counsel to the business. c. Establish policies and financial limits for commitments to customers. d. Deal with each risk and assign responsibility for each action. 31. Which of the following correctly identifies elements that would be contained in a legal risk management plan? a. Transfer the risk and recommend contracts to address changes. b. Identify the risk and hire insurance professionals to develop policies. c. Identify the risk and monitor changes in legislation. d. Track new manufacturing processes and implement new technology. 32. In which of the following circumstances would an organization consider self-insurance to be an option? a. where it is possible to minimize risk by diversion to another b. where the organization has determined that risk retention is appropriate c. where it is possible to create contract terms that achieve its objectives d. where the undesirable result of an activity is less than its advantages

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Chap 03_7e 33. A food producer inadvertently labelled a batch of a food product incorrectly, indicating it was sulphate-free

when sulphate was a standard ingredient. A number of incidents involving severe allergic reactions resulted in the product’s removal from shelves and fines levied. What business function did this legal risk rise from? a. labelling b. production c. marketing d. advertising 34. Which statement best describes the role of lawyers in a successful risk management plan? a. Lawyers should always be retained to develop the risk management plan. b. Lawyers may be part of the risk management team or may be consulted at various states of the process. c. Lawyers should only be consulted after legal problems develop. d. Organizations should maintain internal legal departments to handle all aspects of legal risk management. 35. Big City Taxi plans purchased an insurance policy for its fleet of vehicle that includes a $1000 deductible for

each claim made against the policy. Which legal risk management strategies is Big City Taxi engaging? a. transference and retention b. self-insurance c. retention and avoidance d. reacting and preventing 36. Which of the following methods should be used to manage the risk of non-payment by customers? a. Perform credit checks on customers seeking credit. b. Monitor the financial environment. c. Charge outstanding accounts as expenses. d. Reduce legal costs by finding more affordable legal counsel. 37. Duble Mining Ltd. began gold mining operations in Brazil a year ago. Recent changes in government policy

cause the risk management department to transfer some uninsured risk to satisfy their commercial lenders. Which of the following actions by Duble Mining would immediately confirm to the commercial lenders that their requirements have been met? a. hiring private security to guard the mine b. selling shares to the public to raise capital c. arranging a political risk insurance policy d. engaging in political lobbying efforts 38. Flow Pump Manufacturing wants to reduce costs and legal risk associated with its product warranty program

which provides purchasers of its pumps with a two-year comprehensive warranty against pump failure. Which action should the company take to begin development of its legal risk management plan? a. review the loss history data for its pumps b. review its marketing practices c. ensure that its pumps are manufactured in accordance with current engineering practices d. schedule an inspection of its facilities

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Chap 03_7e 39. Rollie’s Electric Ltd. notes its lawyer’s account for annual corporate fees has been paid twice. No refund was

received; instead, a second account has been sent, marked “paid in full.” Why are Rollie and his business associates now contacting other lawyers? a. to devise a plan to recover the overpayment b. to determine what action would be best c. because lawyers’ billing practices may vary d. because circumstances warrant a change of lawyer 40. Why is the inclusion of a limitation of liability clause in a commercial contract considered to be an effective

solution for business legal risk management? a. It triggers avoidance of liability in standard form commercial contracts. b. It creates equity because it imposes the same terms on every customer. c. It limits financial responsibility for damages if there is a breach of contract. d. It transfers risk from the business owners to the business and its customers. 41. A food manufacturing company has determined that one of its most significant risks is potential customer illness

or death from listeriosis or other contamination of its products. Which of the following is likely to be an important aspect of this company’s risk management plan? a. a limitation of liability clause in its contracts b. self-insurance c. risk reduction d. Authority to contact legal counsel is restricted. 42. A private investment firm that deals exclusively in derivative investment products is concerned its market

activities may become regulated. What measures should the institution take to begin to address its concerns? a. establish an adequately funded cash reserve b. manage legal risk with a plan to prevent loss c. appoint a junior trader to monitor and assess possibility of loss d. prepare a risk aversion policy manual 43. A newly opened hotel has purchased a liability insurance policy in order to address occupier’s liability due to

slips and falls on the hotel premises. What legal risk management step is the hotel engaged in? a. risk avoidance b. risk reduction c. risk transference d. risk retention 44. Among its inventory of business decisions to be assessed for possible legal implications, Bellamy Solar Panels

Inc. must review its ownership of land and the wording of its warehouse leases. Who has the ability to contribute the most to this assessment? a. senior managers b. a lawyer c. in-house counsel d. a leasing agent Copyright Cengage Learning. Powered by Cognero.

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Chap 03_7e 45. What set of methods is used when forming a risk management plan to limit exposure to legal risks? a. avoid, reduce, transfer, and absorb b. divert, decrease, and align risk c. avert, tolerate, and lessen risk

d. reduce, shift, diversify risk

46. Against which of the following possibilities should a high probability that a particular loss-causing event will

occur be weighed during the risk evaluation process? a. that the event will definitely occur and the loss is unavoidable b. whether the likely occurrence may be offset by a low level of associated loss c. whether a low probability will be offset by a high level of associated loss d. that the event will likely never occur and should be ignored 47. Pharmaco Ltd. plans to lobby the federal government to delay introducing new guidelines for drug testing that

will increase Pharmaco’s costs to develop new products. Which risk management strategy is Pharmaco using? a. risk retention b. risk transference c. risk avoidance d. risk reduction 48. Barrick Homecare Ltd. plans to introduce a health and safety system that will require reporting of workplace

accidents and which will promote a culture of safety in their workplace. What type of risk management plan is Barrick using? a. risk avoidance b. risk reduction c. risk transference d. risk retention 49. A cost-benefit analysis is conducted to assess the benefits of substituting a key compound in a herbal health

specialty product formula. The substitution would involve the use of an untested inexpensive compound. What business function should be analyzed for legal risk? a. costing b. production c. marketing d. analyzing 50. Amicus Investing Services requires clients to sign a contract that states that the client understands that investing

in the stock market is inherently risky and that Amicus is not responsible in any way for any financial losses incurred by the client as a result of following advice provided by Amicus. What legal risk management strategy is Amicus utilizing? a. risk elimination b. risk reduction c. risk transference d. risk retention 51. What position, if any, would a lawyer have on the risk management team? a. professional risk management supervisor b. part of the executive management team c. excluded from team; acts as legal consultant d. part of the team or a consultant to the team

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Chap 03_7e 52. How does the management of a legal crisis differ from managing legal risks? a. Crisis management should focus on transferring risk. b. Crisis management requires a quick and positive reaction. c. Crisis management requires an organization to assess its functional areas. d. Crisis management should be handled by public relations experts. 53. Prior to completing the financing arrangements needed to fund the purchase of an IT consulting firm, Albert

Brinkman met several times with his bank and his accountant to review the terms of the bank’s financing offer against the business’s financial statements. What activity and corresponding step in the legal risk management process is this? a. avoiding the possibility of loss; first step b. transferring legal risk; fourth step c. evaluating severity of potential loss; third step d. identifying risk in business decisions; first step 54. Which of the following are usually classified as functional areas of a business? a. production, human resources, finance b. finance, accounting, training c. marketing, education systems, finance

d. accounting, marketing, training

55. What is the defining feature of an ‘all-risks’ insurance policy? a. no deductible b. co-insurance c. any risk not specifically excluded is covered d. only risks related to property loss are covered 56. After several interviews and calls to follow up on references, Fashion By Design Inc. chooses a seasoned

lawyer from a well-known commercial law firm to provide legal services to the company. Why does the company’s management expend substantial effort during the lawyer selection? a. to reduce stress level put on in-house counsel b. to establish a productive, long-term relationship c. to allow the risk to remain outside the business d. to delegate risk management to outside source 57. A trucking company owns a fleet of gravel trucks, and rather than fully insure the fleet, the company chooses

an insurance policy that provides for a $5000 deductible in the event of a loss involving one of its vehicles. In choosing the $5000 deductible, what form of risk management is the company using? a. risk evaluation b. risk avoidance c. risk retention d. risk acquisition

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Chap 03_7e 58. What is the most critical step in the development of a legal risk management program? a. risk avoidance b. preventing and reacting c. identifying risk d. assessing the organization’s functional areas 59. Why does one assess the severity of potential losses when creating a legal risk management plan? a. to establish insurance policies for employees exposed to greater risk b. to delegate responsibility for devising the risk management plan c. to prioritize identified risks and guide a given risk through the process d. to identify mechanisms to adopt, avoid, or eliminate existing risks 60. What approach to managing interaction with the law and legal issues has the following distinguishing

characteristics: compliance with legal requirements and anticipation of changes in the legal environment? a. preventative b. anticipatory c. precautionary d. reactionary 61. Briefly describe how an organization’s legal risk management plan could manage environmental risks

associated with the business enterprise.

62. A crisis can arise when a minor event or expected event spirals out of control or an unexpected event occurs

that an organization is not prepared to handle. What are some general principles a car manufacturer might consider when addressing a serious manufacturing defect affecting thousands of vehicles that will now have to be recalled?

63. The #MeToo movement has exposed a widespread prevalence of sexual assault and harassment, especially in

the workplace. What are some examples of risk management strategies that a business might utilize to manage the risk of sexual harassment in the workplace?

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Chap 03_7e 64. What initial step would you suggest that a business should go through in selecting a lawyer?

65. Why is it important to evaluate both the probability and likely severity of loss when evaluating risk? Provide an

example to illustrate your answer.

66. Identify and describe the four steps in creating a legal risk management plan.

67. What are risk avoidance, risk reduction, risk retention, and risk transference? When is each appropriate?

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Chap 03_7e Answer Key 1. False 2. False 3. False 4. False 5. True 6. True 7. True 8. True 9. True 10. True 11. True 12. True 13. False 14. True 15. False 16. False 17. False 18. True 19. True 20. False 21. c 22. d 23. d 24. d 25. b 26. b

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Chap 03_7e 27. b 28. d 29. a 30. c 31. c 32. b 33. c 34. b 35. a 36. a 37. c 38. a 39. d 40. c 41. d 42. b 43. c 44. a 45. a 46. b 47. d 48. b 49. b 50. c 51. d 52. b 53. d 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 03_7e 55. c 56. b 57. c 58. c 59. c 60. a 61.

Reduce: introduce practices to minimize impact of operations on the environment. Avoid: decide not to expand operations into environmentally sensitive areas. Transfer: secure comprehensive general liability insurance that includes coverage for damage to third parties; purchase an all risks property insurance policy with environmental coverage. Retain: agree to a deductible on all insurance policies based on cost of insurance, frequency of events, and ability to absorb losses. 62.

There are many ways to manage a crisis, and a crisis management plan will have to be tailored to address the specific situation and the needs of the organization. However, some general lessons from past events would suggest that some of the following strategies may form part of an effective crisis management plan: ∙ React quickly and in a positive fashion; ∙ Use a prominent spokesperson to tell the company’s side of the story and, as appropriate, publicly apologize for the event; ∙ Explain how the problem occurred and what the company is doing to fix it; and ∙ Use appropriate messages in different media. 63. There are several approaches a business might consider when devising a management plan to address sexual

harassment in the workplace and most of these will centre around risk reduction. For example, a business might introduce policies, practices, and procedures regarding behaviour in the workplace. Education and training to reduce the probability of harassment occurring will likely be a key feature of the legal risk management plan and training should educate management and employees to recognize what qualifies as harassment. Establishing appropriate procedures and systems to report and fairly investigate harassment complaints would also be features of a sexual harassment risk management plan. 64. The first step is to develop a clear idea of the nature and the volume of the legal advice that will be required, as well

as the allocated budget for legal services. This step also involves identifying an appropriate lawyer or law firm with the appropriate expertise and approach to the business’s needs. Those responsible for engaging legal services will have to discuss a legal services agreement with potential legal services providers to ensure the right fit is achieved.

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Chap 03_7e 65.

The point in evaluating risks is to recognize that not all risks are alike, nor should they be treated alike. A high probability that a particular event will occur can be offset by a relatively low level of loss should the event actually occur. Events that are unlikely to occur also deserve close attention if the potential loss is high. Some events, such as accidental release of harmful chemicals into the environment may be very unlikely to occur but could result in severe consequences and should therefore be given greater priority by an organization when developing its risk management plan. Conversely, some events, such as machinery breakdowns, may occur frequently and have only minor consequences and therefore may be given less priority. 66. The four steps are:

1. Identifying the legal risks 2. Evaluating the potential loss associated with those risks 3. Devising a legal risk management plan to address those risks 4. Implementing the plan 67. Risk avoidance, reduction, retention, and transference are the four methods of limiting risk exposure prescribed in

step three of devising a risk management plan. 1. Risk avoidance involves the termination of an activity, and it is considered appropriate in circumstances where the legal risks associated with it are deemed to be too great. 2. Risk reduction is appropriate in circumstances where the implementation of practices is possible to lower the likelihood and severity of loss. 3. Risk retention is appropriate where circumstances justify absorbing the legal risks that arise. 4. Risk transference is appropriate in circumstances where it is possible to shift the risk to someone else (e.g., through an insurance contract).

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Chap 04_7e Indicate whether the statement is true or false. 1. A commercial business should seek to manage the risk of loss by securing a basic coverage insurance policy

with a reputable insurance company. a. True b. False 2. One of the features of arbitration is that it does not create a binding precedent that will apply to future cases. a. True b. False 3. When a dispute is covered by insurance, it is important that employees are aware that an attempt to negotiate

a settlement may jeopardize coverage unless the insurer consents to the company conducting negotiations. a. True b. False 4. The process of discovery includes the examination of documents, oral testimony, and expert reports. a. True b. False 5. One of the factors influencing whether negotiations to remedy a dispute will succeed is the effectiveness of the

parties involved in the negotiations. a. True b. False 6. If a debt owed by a customer is not large and the customer is in financial difficulty, negotiating a payment plan

or even writing off the debt may be more practical than spending money to try to collect on the account. a. True b. False 7. The filing and service of a defence is part of the pleadings stage of a legal action. a. True b. False 8. One of the most important factors to be considered when deciding whether to proceed with a litigation of a

conflict that failed to be remedied through negotiation is whether the business can devote the necessary resources to proceed with the dispute. a. True b. False 9. The goal of negotiation is to reach a resolution that is agreeable to all parties. a. True b. False

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Chap 04_7e 10. Appeals at higher levels are normally conducted by a panel of at least three judges. a. True b. False 11. It is unusual and not advisable for the defendant to insist that a confidentiality clause be incorporated into a

settlement agreement or release. a. True b. False 12. One of the advantages of mediation is that it results in a non-binding decision that can be appealed by either

party to the courts. a. True b. False 13. A controversial development has been the awarding of legal costs against unsuccessful plaintiffs involved in

class action suits. a. True b. False 14. The parties reveal and demonstrate the facts that support their allegations during the discovery stage of

litigation. a. True b. False 15. Negotiation can be used at any state of the litigation process, including during trial. a. True b. False 16. The procedural rules in most superior courts are designed to ensure that parties can represent themselves

without consulting with a lawyer. a. True b. False 17. One of the advantages of alternative dispute resolution is that the parties may be able to preserve their privacy

and reputation. a. True b. False 18. Arbitration is a very popular method for resolving international commercial disputes. a. True b. False 19. Arbitration decisions are usually final with little or no right of appeal. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 04_7e 20. The duty to consult Aboriginal peoples applies to both businesses and the Crown. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. A store manager of a large grocery chain makes a verbal offer to compensate a customer for a serious hand

injury that requires medical attention. Even though the store manager’s offer is refused, he is seriously reprimanded by the vice president of the legal risk department. What was the vice president’s most significant concern? a. to pay as small a settlement as possible b. to clarify the situation before entering negotiations c. reaching a fair and acceptable outcome d. negotiating could imperil risk insurance coverage 22. ABC Loans Ltd. successfully sued Brian Dooley and obtained a judgment for $150 000 after Dooley failed to

repay a loan. The value of all of Dooley’s assets is only about $100 000. Which statement best describes the steps ABC can now take against Dooley? a. ABC can seize all of Dooley’s assets and apply the proceeds to toward the judgment. b. ABC cannot seize Dooley’s assets but can garnish his bank account. c. ABC will be limited in its ability to seize Dooley’s assets because some assets may be exempt from seizure to ensure Dooley is not left destitute. d. ABC will be able to apply to a public fund in the event that Dooley is unable to pay the entire judgment. 23. Walter receives and considers submissions from both parties involved in a commercial dispute. He will deliver

his decision shortly. In accordance with the terms of the contract governing the disputing parties’ relationship, they are bound to comply with that decision. What role does Walter play in providing a resolution to this dispute? a. mediator b. judge c. arbitrator d. adjudicator 24. Which of the following best describes burden of proof? a. the onus on a party to introduce evidence to prove their claim or defence b. the expense of hiring a lawyer c. the duty to disprove the defendant’s defences d. the requirement of hiring experts to support one’s view of the case

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Chap 04_7e 25. NoTangles Wireless Connections Inc. enters the details required on the claim form provided by the small

claims court: each party’s name and address, the nature of the dispute, and the claim amount of $25,050. Why will the court clerk refuse to register NoTangles’s claim? a. the jurisdiction’s small claims court dollar limit is $25,000 b. the amount claimed exceeds the court’s jurisdiction c. the court lacks jurisdiction to hear commercial disputes d. all litigation claims must be filed by law firms 26. What is the name of the party who begins or files an appeal? a. defendant b. respondent c. litigant

d. appellant

27. Sian has been named in a lawsuit alleging a large balance owed on an automobile lease. Sian believes the

contract was voided when the vehicle’s motor ceased operating the day after signing the lease agreement. Sian is still owed the compensation the dealership promised to pay her as reimbursement of the towing cost to have the vehicle returned to the dealership after it broke down. If Sian wants to avoid a default judgment and recover her losses, how should she proceed? a. issue a request for a discovery of documents b. issue a request for a pretrial conference c. immediately file a defence and counterclaim d. file a statement of claim based on her losses 28. While negotiation can be used to resolve almost any type of dispute, what is one situation where a business

should not proceed with negotiation? a. when litigation has already been commenced b. where the parties need a quick solution c. when insurance covers the risk that is the subject of the dispute d. where the parties wish to preserve confidentiality 29. What is the meaning of “evidence” in the legal environment? a. the proof presented in court to support a claim b. facts that are strictly documentary in nature c. facts that are strictly verbal in nature d. the oral details of the defence to the claim 30. What is the role of the pleadings stage of the litigation process? a. to allow time for the parties to plead the basis of their case before a judge b. to prepare a document containing the allegations supporting the claim c. to allow time for the defendant to concede and allow default judgment d. to facilitate the exchange of formal documents stating the basis of the suit Copyright Cengage Learning. Powered by Cognero.

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Chap 04_7e 31. What is the purpose of the discovery phase in a private lawsuit? a. to allow each side an opportunity to obtain expert evidence that can later be used at the trial b. to disclose evidence in support of the claims in the lawsuit and test the strength of the opposing party’s

claims c. to cross-examine all of the witnesses that will be called at trial d. to enable each side to make its allegations 32. The activities of a large multinational corporation violated federal and provincial environmental laws. It polluted

a clean water source and caused illness among the people and wildlife inhabiting the affected area. What would the corporation’s lawyers most likely suggest as the main reason for attempting to force resolution of the legal dispute through ADR? a. a desire to avoid establishing a common law precedent for damages arising from environmental infractions b. a need to sustain the operation based on the amount of capital resources committed to its business activities c. the ability to keep details of the contamination and of the settlement private and confidential d. the fact that an arbitrator’s decision will be binding and likely be favourable to the corporation 33. What is a counterclaim? a. It formally sets out judiciary evidence filed to counter the plaintiff’s claim. b. It documents the response to a defence claimed by the countering party. c. It documents the claim for loss filed against the party initiating the process. d. It formally sets out facts to be relied in defence against the plaintiff’s claim. 34. What is one of the advantages of mediation as a form of alternative dispute resolution? a. Mediators impose a solution on the parties. b. Approximately 80% of mediations are successful. c. Mediations are carried out by sitting judges. d. Mediators must meet mandatory qualifications. 35. A mediator attempting to negotiate a resolution to a commercial dispute has conceded that she is unable to

move the dispute through the mediation process. What would the mediator most likely say is the main factor contributing to the failed mediation? a. the parties’ inability to choose effective teams of negotiators b. the unwillingness of one party to compromise and quickly resolve the issues c. the mediator’s lack of familiarity with the industry and the businesses d. the parties’ mutual failure to include an arbitration clause in their contract

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Chap 04_7e 36. Even though the amount of accumulated interest awarded previously by the trial judge was reduced,

management of Renna Inc. indicated to its lawyer that it was pleased with the result of her efforts on the company’s behalf. Which of the following would Renna Inc.’s lawyer have most likely stated as an explanation of the decision rendered by the appeal court? a. The appeal court confirmed the original decision due to the trial judge’s understanding and application of the law. b. The appeal court varied the original decision due to the trial judge’s misunderstanding and application of the law. c. The appeal court reversed the original decision based on rehearing arguments of the facts cited by the trial judge. d. The appeal court quashed the original decision based on rehearing arguments of the facts cited by the trial judge. 37. Chemical Industries is suing a customer for non-payment of its account and will bring its lawsuit in provincial

court. What is the name of the document that Chemica will use to commence its lawsuit? a. claim b. statement of demand c. petition d. civil demand 38. Incida Homes negotiated a settlement with a customer that had initially refused to pay for renovation work it

carried out. The customer claimed there were numerous deficiencies with Incida’s work and the settlement agreement they reached included a reduction in the amount initially charged for its services. What likely had the greatest motivating influence on the disputing parties to achieve a remedy through this form of dispute resolution? a. hourly rate charged by expensive lawyers b. realizing the claim was covered by insurance c. justification of the use of the firm’s resources d. realizing cost and time savings for concerned parties 39. Which statements best describes one of the features of alternative dispute resolution? a. It is free because it is not necessary for the parties to hire lawyers. b. It is only available before a lawsuit has been commenced. c. It usually results in the faster resolution of a dispute than litigation alone. d. It is only available when litigation has already been commenced. 40. Which statement would be a valid criticism of the use of arbitration clauses in consumer contracts? a. Arbitration clauses may unfairly restrict consumer access to the courts. b. Clients are unable to ensure the independence and expertise of a suggested arbitrator. c. Arbitration firms tend to treat consumers unfairly. d. An arbitration procedure requires clients to pay a fee to have their complaint remedied.

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Chap 04_7e 41. Dante is a claims adjuster with the insurer of a supermarket chain and has just concluded successful

negotiations with a customer who was injured as a result of slipping on ice in a store parking lot. Which step should now take place? a. The parties should now enter into a settlement or release agreement. b. The parties should take their agreement to a judge for review and approval. c. The insurance company should seek reimbursement of the claim from the supermarket chain. d. A written contract should now be filed with the court. 42. SolarCell Corp. has decided to litigate a dispute over an $8,000 outstanding account. Over the course of the

business relationship, the customer has proven to be both unreliable and unreasonable. SolarCell is no longer interested in maintaining the business relationship. Which court will have jurisdiction to decide the outcome of SolarCell’s claim? a. small claims court b. class actions court c. the Trial Court of Canada d. the Superior Court of Justice 43. What difference between litigation in Canada and litigation in the United States causes concern for Canadian

companies that do business in the U.S. marketplace? a. American lawyers are not usually trained in the same way as Canadian lawyers are. b. Unlike in Canada, most U.S. jurisdictions do not require a losing party to pay a portion of the winner’s costs. c. Unlike in Canada, most U.S. jurisdictions have not embraced alternative dispute resolution as a means for resolving disputes. d. Unlike in Canada, most U.S. jurisdictions do not have limitation periods that restrict plaintiffs from suing after the passage of a considerable amount of time. 44. The law firm of Janes & Jones personally served the defendant with a claim, and the defendant failed to

respond with a defence within 20 days, as required by provincial law. Which of the following statements describes the position of the defendant? a. The defendant has effectively admitted the claim. b. The defendant must be re-served with the claim. c. The defendant may file a counterclaim. d. The defendant may now seek arbitration of the claim. 45. Abacus Industries is considering arbitration to resolve its dispute with a foreign supplier. Which statement best

describes why arbitration is popular for settling international commercial disagreements? a. Arbitration is mandatory in contracts involving the international sale of goods. b. There is no international court for the resolution of commercial disputes. c. Arbitration decisions can be appealed to the courts. d. Arbitrators must meet mandatory qualifications.

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Chap 04_7e 46. What is the role of common law and statue law with regard to the litigation of a commercial dispute? a. Both provide a source of the objective rules applicable to the disputed matter. b. Each provides a source of the substantive rules applicable to the contested matter. c. Both provide rules governing the legal foundation for determining how trials proceed. d. Each contains rules that determine what the process leading up to trial will be. 47. Wilhelm Commercial Insurers Inc. is considering initiating a claim against an individual it now believes

fraudulently misrepresented the facts of an insurance claim. The individual had been paid a substantial sum for a serious neck injury alleged to have been sustained in a slip and fall accident on a staircase in a retail store. If Wilhelm proceeds with the claim, how will the court place the burden of proof? a. on the party alleging the loss b. on each party’s lawyer at the discovery stage c. on each party to support their respective positions d. on the party denying the loss 48. Which of the following is a significant risk for Canadian companies doing business in the U.S. marketplace? a. Damage awards in the U.S. tend to be much higher than in Canada. b. Unsuccessful litigants have limited rights to appeal in the U.S. compared to Canada. c. Contingency fee agreements are less frequently available in the U.S. than in Canada. d. Unlike Canada, the U.S. has a general rule that unsuccessful litigants must pay the costs of the winning

party. 49. What is the rationale for strict limitation periods? a. They provide useful guidelines for when to commence litigation. b. They require parties to have their trials heard in a timely manner. c. They prevent plaintiffs from advancing old claims in which evidence may have been lost because of the

passage of time. d. They establish upper financial limits on liability for defendants. 50. The Ultimate Caterer Inc. did not fare well in court. In addition to damages, the company was ordered to pay

costs to the young couple whose wedding dinner left them and many of their guests very ill. Which of the following correctly describes the meaning of costs in these circumstances? a. the legal fees incurred by the defendant in a lawsuit b. the amount the loser must pay toward the winner’s expenses c. the legal fees incurred by the plaintiff in a lawsuit d. the amount of court fees charged for litigating the lawsuit

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Chap 04_7e 51. How does a court order of costs at the conclusion of a lawsuit impact the litigation process? a. by ensuring that the defendant pays the plaintiff’s legal expenses b. by providing partial reimbursement of legal expenses to the successful litigant c. by ensuring the successful party is fully reimbursed for their legal expenses d. by requiring the losing party to pay its own legal costs 52. Davey Jones Law Offices acts as legal counsel to a large commercial client. The client has instructed Mr.

Jones to prepare and file a litigation claim naming a competitor as the opposing party in the lawsuit. What title is given to the opposing party in the initiating document? a. respondent b. petitioner c. plaintiff d. defendant 53. For how long, and under what circumstances, would a losing party’s personal income and other assets such as

land, houses, and vehicles be at risk? a. for as long as 20 years in some provinces, to satisfy the payment of a judgment b. for as long as 20 years in some provinces, beginning on the dissolution of a partnership c. for up to a 10-year period in cases of commercial bankruptcy d. for up to a 10-year period in cases of corporate insolvency 54. Which statement best describes the duty to consult Aboriginal people? a. The duty arises even where the Aboriginal rights have not yet been proven in court. b. The duty is consult is set out in the Constitution Act, 1982. c. The duty applies to businesses and the Crown. d. The duty can be triggered by potential adverse effects on future negotiations. 55. Rebekah is in a dispute with her landlord and was recently served with a statement of claim. She believes her

landlord has no case and intends to ignore the document and do nothing further. What consequence will Rebekah likely face if she does nothing? a. There will be no adverse consequences for Rebekah. b. Rebekah may automatically lose the lawsuit. c. Rebekah may be punished with extra court-ordered costs for ignoring the statement of claim. d. Rebekah will be at an advantage because the landlord will not be able to proceed with its lawsuit. 56. In addition to setting out the details of who must pay how much to whom, which of the following is required in

a court’s decision in a civil case? a. The court’s account of events and application of relevant case law. b. The identification of relevant legal guidelines for interpretation of contracts. c. Appropriate justification based on the evidence and legal rules. d. Details about the provincial jurisdictions where enforcement is possible.

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Chap 04_7e 57. Which circumstance would cause a risk management department to consider referring a commercial dispute to

alternative dispute resolution? a. The parties are unconcerned about privacy or confidentiality. b. The parties disagree about the nature of the disputed issues. c. The parties both desire a quick resolution of minor problems. d. One or more of the parties does not respond to cost incentives. 58. How does a person who wins a case in civil court actually collect on the judgment? What limitations are there

on his/her ability to collect?

59. Explain the nature of negotiation as an alternative dispute resolution method used in a business setting. Include

a brief description of the technical rules that govern the operation of the negotiation process, the parties involved in preparing for negotiations, who should conduct the negotiations, and the elements required for a negotiated resolution or settlement to be reached.

60. Axis Enterprises Inc. is considering expanding its operations into the United States. Compare the features of

Canadian and U.S. litigation and outline some of the legal risks Axis might face as a result of the expansion.

61. What is a limitation period and what are some possible rationales for limitation periods?

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Chap 04_7e 62. Identify the party on whom the burden of proof rests with respect to a trial of a commercial dispute. Briefly

explain what satisfying the burden of proof will entail in the trial process, how the opposing party is entitled to respond at this stage, and what is required of the judge presiding over the litigation of the matter.

63. What are some factors to consider when deciding whether to proceed or not to proceed with litigation?

64. Gorrie Industries Ltd. recently lost a lawsuit, and in addition to damages, it must also pay “costs” to the

plaintiff, its former client. Explain what “costs” refers to in this context.

65. Discuss what a class action lawsuit is, including a brief description of the requirements that must be met under

legislation passed in some provincial jurisdictions that would enable a class action law suit. Also include a brief explanation of how a determination is made as to whether a class action may proceed in a province that has not passed specific legislation governing the process.

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Chap 04_7e Answer Key 1. False 2. True 3. True 4. True 5. True 6. False 7. True 8. True 9. True 10. True 11. False 12. False 13. True 14. True 15. True 16. False 17. True 18. True 19. True 20. False 21. d 22. c 23. c 24. a 25. b 26. d

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Chap 04_7e 27. c 28. c 29. a 30. d 31. b 32. c 33. c 34. b 35. b 36. b 37. a 38. d 39. c 40. a 41. a 42. a 43. b 44. a 45. a 46. b 47. a 48. a 49. c 50. b 51. b 52. d 53. a 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 04_7e 55. b 56. c 57. c 58. After the judge makes the judgment and order, the judgment creditor (i.e., winner) is allowed to take enforcement

proceedings against the judgment debtor (i.e., loser). Depending on the jurisdiction, a court official or other public official (e.g., the sheriff) will proceed against the assets of the judgment debtor. Assets that can be seized include all types of personal property and real property, subject to legislative limitations that protect the judgment debtor from being left destitute as a result. If the judgment is not fully satisfied, it remains on the books and can be enforced later if the judgment debtor’s financial circumstances change. 59. Negotiation is a tool that business owners and managers use to assess, evaluate, and develop resolutions to legal

disputes on a relatively informal and inexpensive basis. The process of negotiation is not governed by technical rules, which allows the process to operate in whatever way the parties wish in order to solve their problem. Negotiation should occur at the senior management level, and legal advice will be required. In order for a negotiated resolution or settlement to be reached, all parties must agree to a compromise and negotiate in good faith. 60.

In Canada, the losing party in civil litigation pays a portion of the winner’s legal costs. In the U.S., there is no general rule. Also, in the U.S., litigants have a constitutional right to a jury trial, and juries tend to be far less sympathetic to corporate defendants. In Canada, jury trials, except for defamation and personal injury cases, are rare. Another factor is that damage awards in the U.S. are much larger than in Canada, thus the incentives to sue are greater. The use of contingency fees is also more widespread in the United States, making it easer for claimants with limited resources to sue. Yet another factor is that discovery rules in the U.S. are far-reaching, which results in more time-consuming and expensive litigation. 61. Limitation periods are specific time periods within which to commence legal action. After the expiration of a

limitation period, it is too late to sue. The time periods to sue vary from province to province and also sometimes vary depending on the type of legal dispute. Some of the rationales that have been proposed for limitation periods include: • Limitations periods provide a very strong incentive for plaintiffs to advance their claims within a reasonable time. • Limitation periods prevent plaintiffs from advancing old claims in which evidence has been lost because time has passed. • Limitation periods provide repose to defendants by providing a time after which the threat or possibility of litigation comes to an end.

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Chap 04_7e 62. At trial, the burden of proof falls on the plaintiff, who must formally introduce evidence according to established rules

to prove its case on the balance of probabilities. To satisfy this requirement, the plaintiff must provide that there is a better than 50 percent chance that the circumstances of the contract are as it has contended they are. The plaintiff must also prove that it is entitled to receive the compensation it has claimed to be entitled to. The defendant has the opportunity to challenge the plaintiff’s witnesses and documents and to introduce its own account of events to oppose the claim. The judge must decide what happened between the parties and whether their claims are justified. Once the facts have been established, the judge will then consider and apply the relevant case law to arrive at a decision. 63. Litigation is costly and time consuming. Before proceeding, a business should consider the following questions:

• What further steps are available and how long will they take? • Can the business devote the resources necessary to proceed with the dispute, in terms of both the commitment and the time of business personnel? • Will a lengthy dispute affect the public profile and reputation of the business? • Is the relationship with the other side valuable? • Will that relationship be harmed, whatever the outcome? • What is the likely cost in terms of legal fees and company time? • Are there worthwhile principles at stake that go beyond the particular dispute? • If the dispute goes to court, what are the chances of winning? • If the court decides in favour of the business, does the other side have the assets to pay the claim? 64.

Costs are the legal expenses that a judge orders the loser to pay the winner. The amount awarded will be based on a predetermined scale and also on the judge’s view of the complexity of the case. An award of costs usually falls well short of fully compensating the winning party for all its actual legal expenses, providing only a partial recovery for the successful litigant. Where the losing party’s conduct has been particularly objectionable, the court may order that the winning party’s actual, or “solicitor and client,” costs be paid. 65. A class action is a lawsuit launched by one person representing a larger group whose members have similar claims

against the same defendant. Generally, the legislation enables a class action to be certified or approved by the court if the class can be clearly defined, there are common issues of fact or law, success for one class member means success for all, and the proposed representative adequately reflects the common interests of class members. In provinces without class action legislation, class actions may be allowed to proceed based on similar common law criteria.

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Chap 05_7e Indicate whether the statement is true or false. 1. If someone has suffered a legal wrong, he or she should automatically sue the wrongdoer. a. True b. False 2. In order to be binding, an agreement must contain a bargain or exchange between the parties. a. True b. False 3. Contract law is primarily derived from statutory law. a. True b. False 4. The principle of equality of bargaining power follows the rationale that parties should be able to rely on

contractual commitments. a. True b. False 5. Individuals who negotiate a contract on behalf of their employer are bound to the contract along with their

employer. a. True b. False 6. Alberta Carr, in his well-known article published in the Harvard Business Review, encouraged

businesspeople to break the law to seek advantage in business negotiations. a. True b. False 7. Luna Quan has been directed to attend a meeting tomorrow for the purpose of negotiating a new supply

contract. It is vitally important that Luna pay particular attention during those negotiations to when simple business communications transform into legal obligations. a. True b. False 8. It is a legal assumption in contract law that parties to a contract are able to look out for their own interests. a. True b. False 9. In most instances, the rules governing contractual disputes are based on the common law. a. True b. False

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Chap 05_7e 10. Every contract is subject to the same set of mandatory rules. a. True b. False 11. Contract law ensures that all parties concerned may rely on the terms included in the contract. a. True b. False 12. A business should always insist on the strict observance and enforcement of its legal rights. a. True b. False 13. Issues can arise in contractual relationships that will require owners and managers to be conscious of the fact

that business relationships are long-term, and so is reputation. a. True b. False 14. Courts will take into account the impact on the long-term relationship between the parties when applying

contract law principles. a. True b. False 15. In order for a court to recognize a contract as a binding agreement between the contracting parties, there must

be clear evidence of each party having given something of value in exchange for receiving something of value. a. True b. False 16. All contracts are complex documents that must be prepared by lawyers. a. True b. False 17. The law applies the principle of equality of bargaining power even though usually one party has an advantage

over the other. a. True b. False 18. It is important for a business person to know when simple communications crystalize into legal obligations. a. True b. False 19. Business people regularly breach contracts because the decision to breach a contract is both a business and

legal decision. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 05_7e 20. Any contract can be written or oral; each are equally enforceable. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. A large greenhouse grower that wants to source a suitable organic liquid fertilizer contacts Organics. The

grower is willing to pay a premium price for Organics’s product. Accepting the order would mean Organics will not be able to completely fill existing orders to its current customers. Organics desires the new business but wants to maintain its existing customer base. Which of the following strategies should Organics use to solve this problem? a. Abandon all but the most important of the existing orders and fill the new order. b. Present an ultimatum on existing orders offering delivery on a later date or nothing at all. c. Comply with existing obligations, fill the orders, and offer the new business what is left. d. Offer a price break on existing orders in return for varying quantity and delivery date. 22. The purchase of stationery supplies from a retailer for cash, without an invoice or a receipt being provided in

return, is an example of which of the following? a. an incomplete agreement b. a formal contract c. a standard form agreement d. an informal agreement 23. Ajay entered into a contract to buy a used car from a dealership for $10,000. Upon doing further research, he

has now discovered the car is actually only worth $9,000. Which of the following best describes Ajay’s legal position? a. The contract is binding as Ajay was expected to take care of his own interests. b. The contract is not binding because it is not a fair price for the car. c. The contract is binding because both parties had equal bargaining power. d. The contract is not binding because the dealership has committed fraud. 24. What is the primary benefit of contract law to business? a. Contract law allows businesses to transfer risk. b. Once a contract is created, it permits both parties to rely on the terms they have negotiated and plan

their business affairs accordingly. c. Contract law guarantees that others will follow through with their promises. d. It ensures that businesses treat each other as equals and do not take advantage of one another in business relationships.

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Chap 05_7e 25. Fatima needs to copy and bind five sets of legal submissions with beige covers, but none are left in the supply

cabinet. The office manager offers to reimburse Fatima for the cost of the covers and buy her lunch from petty cash if she will dash to the nearby office supply store to buy them. Fatima agrees. What is the nature of the arrangement negotiated between Fatima and the office manager? a. a formal accord b. an informal business arrangement c. a haphazard promise d. a binding agreement 26. Which of the following is a requirement in order to have a legally enforceable agreement? a. The parties must have intended to create legal relations. b. The agreement must have been signed by the parties. c. The parties must have equal bargaining power. d. The agreement must be in writing and witnessed. 27. Under what circumstances would a court apply the objective standard test? a. when deciding the amount of damages to award the winning party b. if there is inequality of bargaining power between the parties c. where it is unclear whether the parties intended to form a contract d. if the enforcement of the contract might cause harm to a third party 28. Which of the following best describes the relationship between bargaining power and the law of contract? a. The law of contract is not generally concerned with the parties’ relative bargaining power. b. The law of contract seeks to correct inequalities in bargaining power. c. The law of contract is very concerned with the relative bargaining power of the parties. d. The goal of the law of contract is to reduce the bargaining power of the parties. 29. Matt purchases a car for his son from an auto dealership. A week later, his son discovers a defect that renders

the car unsafe. The defect is one that a court would consider to be a breach of contract. What legal recourse is available to remedy this problem? a. The court’s resistance to imposing ethical business standards leaves no recourse. b. Matt may commence a lawsuit against the dealer for breach of contract. c. Matt’s son may file a lawsuit against the auto dealer for breach of contract. d. Mat’s son can sue the manufacturer of the car for breach of contract. 30. With respect to what the terms contained in a negotiated formal contract should ultimately be representative of,

each parties’ reasonable expectations will most likely be founded on which of the following? a. that all of the parties to the contract have legal capacity to contract b. the time period within which all obligations must be performed c. that there has been a formal intention to create legal relations d. the binding commitments that form the essence of the contract

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Chap 05_7e 31. Monkeytown Playground Supplies has negotiated an oral agreement with a highly reputable toy store to

deliver $10,000 worth of product to the store for resale. Why should Monkeytown insist that the agreement be put in writing? a. because oral contracts are unenforceable b. because personnel can change and memories can be selective and self-serving c. because a lawsuit cannot be based on an oral agreement d. because the toy store can cancel the agreement unless it is in writing 32. What types of employees should a company’s head of risk management choose when putting together a

negotiating team? a. executives with highly developed abilities to deceive when necessary in order to secure a favourable agreement b. experienced individuals who want to win and are willing to bluff and bluff hard to have a successful career c. individuals with adequate legal knowledge for the negotiation of an enforceable contract that meets needs and protects interests d. individuals who know the game and are not shy in demonstrating a complete lack of ethical standards 33. How should a manufacturer try to salvage its reputation after it has been discovered to have knowingly

produced and sold a defective product to the public? a. Deny any wrongdoing and obtain top lawyers to defend against litigation. b. Take ownership for the problem and voluntarily compensate affected customers. c. Hire bloggers to create confusion about the facts on social networking websites. d. Have a top executive issue an official apology presented on national television. 34. Which of the following is an example of an alternative method of dealing with a breach of contract, rather than

starting a lawsuit? a. Treat the subject matter of the contract as a standard or ordinary commodity. b. Maintain the project’s profitability by insisting on full compensation for any loss. c. Seek sufficient compensation for any resulting loss but extend the time for payment. d. Show respect for the other party while seeking a standard of reasonableness in return. 35. What is the likely outcome when a court is asked to resolve a dispute involving parties that have reached an

incomplete agreement? a. The court will decline jurisdiction to provide a remedy derived under contract law. b. The court will refer to statute law that will be applied to formulate a binding contract c. The court will lack jurisdiction to refer the issue to alternative dispute resolution. d. The court will apply the principles of the common law to constitute a binding contract.

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Chap 05_7e 36. Two accomplished software developers want to combine their talents on a lucrative project offered by a large

document storage firm. The developers will have their agreed roles and responsibilities incorporated into a formal contract to be prepared by their respective lawyers. Which of the following is a valid representation of the legal significance of the relationship between the parties that will be evidenced by the contract? a. Each party will get exactly what it bargained for. b. There has been a deliberate meeting of the minds. c. Some of the parties to a contract can be sued under it. d. No element of coercion exists between the contracting parties. 37. When resolving contractual conflicts, what laws do the courts usually apply? a. the Contracts Act b. the Sale of Goods Act c. all decisions based on principles of fairness and equity d. common law and occasionally statutory law 38. Bespoke Designs Inc., a custom suit maker, has a contract to purchase its suiting fabric from ABC Textiles.

The dye used in the most recent order of fabric from ABC appears to be slightly different from the sample agreed upon in the contract and from orders in the past and will not work with Bespoke’s product line. The manufacturer insists that the material is the same as previous orders. What should Bespoke consider at this point? a. whether it makes business sense to sue ABC b. that failure to immediately sue ABC will result in giving up its right to sue c. the impact of the litigation on the industry d. whether it can prove that the breach was due to negligence on the part of ABC 39. How is the general body of law governing contracts best characterized? a. common law b. statutory law c. constitutional law

d. civil law

40. Countdown Events made what looks like an offer to Roxy Theatre group to provide online ticketing services

to Roxy in exchange for a share of ticket proceeds. Roxy has now accepted the offer. Countdown now insists it was only exploring a possible business relationship and did not intend to make an offer to Roxy. How will a court resolve this dispute? a. by considering the parties’ legal capacity to contract b. by considering whether the bargain is fair to both parties c. by considering the relative bargaining power between the parties d. by considering how ‘a reasonable person’ would view the matter

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Chap 05_7e 41. With respect to the relationship that exists between contractual parties, what is meant by the phrase “meeting

of the minds”? a. There is an agreement between two or more persons. b. The legal cornerstone of the commercial operation has been formed. c. There is an informing idea behind the contractual relationship. d. There is agreement upon the intrinsic responsibilities owed to each other. 42. Which statement best describes written contracts? a. Written contracts must be filed at the appropriate registry in order to be enforceable. b. Only certain types of contracts must be in writing in order to be enforceable in court. c. All contracts must be in writing in order to be enforceable in court. d. Written contracts are usually less cost-effective than verbal contracts. 43. What sequence of procedures will a court follow when asked to determine a matter involving a contractual

dispute between two large corporations? a. review the conduct of the parties, evaluate the relevant law and the contract terms, then reach a decision b. evaluate the contract terms and the conduct of the parties, then apply relevant law to arrive at a determination c. review the relevant law, evaluate the conduct of the parties, then apply the contract terms to arrive at a decision d. evaluate the conduct of the parties, review the contract terms, then apply the rules of law to arrive at a decision 44. Under which of the following circumstances would a court be likely to set a contract aside? a. if there is a lack of sufficient equality of the benefits received by each party b. if there is an attempt to take advantage of a handicapped, vulnerable person c. if there were witnesses to the contract d. if the parties put their contract in writing 45. Grandview Developments negotiated an oral agreement with a landowner to purchase property on the

outskirts of the city. Grandview intends to develop the land into a housing project. What is Grandview’s legal position regarding this agreement? a. The agreement is legally binding on Grandview and the landowner. b. The agreement is not legally enforceable because it is not in writing. c. The agreement is not legally enforceable because it is not supported by mutual consideration. d. The agreement is not legally enforceable because the parties have not achieved a ‘meeting of the minds’.

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Chap 05_7e 46. What test will a court apply when asked to determine a matter involving a dispute between parties regarding

the formation of a contract? a. whether the contract is sufficiently complete to provide certainty to all parties b. whether the terms of the contract provide sufficient mutual consideration c. whether a reasonable person could conclude that an offer and acceptance occurred d. whether the parties to the agreement have legal capacity to enter into contracts 47. Which of the following is a good reason to use a contract as opposed to having a casual understanding? a. Casual understandings require lengthy negotiations and time to perform. b. All contracts typically involve arrangements that are unlikely to be repeated. c. Casual understandings are casually conducted and completed instantly. d. All contracts are subject to the same set of compulsory legal rules. 48. Juha agreed to hire Zen Home Builders Ltd. (Zen) to construct his new home. Juha, Zen, and their lawyers

met to review and sign a contract that provided for specific types of environmentally safe construction materials to be used. In many instances, Zen failed to use the stipulated “green” construction materials. What would a court, faced with determining a resolution to the ensuing dispute, rely on the existence of to establish the existence of the contract? a. Juha’s entitlement to rescind the contract due to poor contractual performance. b. A framework of rules created by the parties and which judges automatically enforce. c. Mandatory rules which every type of contract is subject to. d. An intention between the parties to create a legal relationship. 49. What is a defining characteristic of the principle of equality of bargaining power? a. Judicial assistance is readily available to all disadvantaged parties to a contract. b. It is applied to adjust the terms so that the contract is fair and then enforces it. c. It is applied to reject unfair contracts and return the parties to their prior positions. d. It generally applies regardless of some distinct advantage favouring one party. 50. Which statement best describes the value of contracts to society? a. Contracts can never be breached and therefore provide permanence to promises made between

parties. b. Contracts permit parties to rely on terms and plan their business affairs accordingly. c. Contracts create equal bargaining power between negotiating parties. d. Contracts ensure that agreements are fair to both parties.

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Chap 05_7e 51. Which statement best explains the requirement that “contracts must be supported by mutual consideration”? a. There must always be at least two parties to a contract. b. Contracts require that the parties treat each other fairly. c. A contract involves a bargain or exchange between the parties. d. Contracts must be in writing to be enforceable. 52. Is a lawsuit always the best response to a contractual legal dispute? Explain your answer.

53. Identify and briefly explain the circumstances where a party might opt to deliberately breach a contract by

refusing to honour its promises to the other side. Provide an example and a possible alternative to an outright breach of existing contractual obligations.

54. Explain the notion of equality of bargaining power and its impact on the operation of contract law.

55. Identify the role that a contract plays in any commercial operation. Provide several examples of what activities

a business is able to do through a contract. Identify and briefly explain the role contract law plays with respect to contractual participants and their commercial operations.

56. Identify and briefly describe the objectives that owners and managers should keep in mind when dealing with a

customer who is attempting to expand or restrict an existing contract.

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Chap 05_7e 57. Identify and briefly describe the necessary elements that must be present in order for a court to recognize a

contract as a legally binding agreement.

58. An alternative to a contract is a casual understanding between the parties. Explain the disadvantages of casual

understandings and outline the advantages of ensuring a business understanding is formalized by a contract.

59. Do all contracts have to be in writing in order to be legally enforceable? What are the advantages of putting

your contract in writing?

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Chap 05_7e Answer Key 1. False 2. True 3. False 4. True 5. False 6. False 7. True 8. True 9. True 10. True 11. True 12. False 13. True 14. False 15. True 16. False 17. True 18. True 19. True 20. False 21. d 22. b 23. a 24. b 25. b 26. a

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Chap 05_7e 27. c 28. a 29. b 30. d 31. b 32. c 33. b 34. d 35. a 36. b 37. d 38. a 39. a 40. d 41. d 42. b 43. b 44. b 45. b 46. c 47. d 48. d 49. d 50. b 51. c

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Chap 05_7e 52.

Businesspeople regularly breach contracts. For example, a purchaser may fail to pay invoices on a timely basis; a supplier may deliver the wrong product, or the wrong amount of product, or a defective product. Each of these examples amounts to a breach of contract but whether the other side sues for breach of contract is not just a legal decision; it is a business decision, too. Even if the prospects of successfully proving your case in court are high, there are other considerations. Not only is litigation costly and unpredictable, a business that insists on strict observance of its legal rights may damage its reputation in the marketplace. For example, while a business may have a valid defence for having sold a defective product, it may be better in the end to compensate the customer voluntarily rather than fight out a lawsuit. A lawsuit may result in a serious blow to reputation and a public relations disaster. Litigation will also damage, if not end the relationship between the parties. If the relationship is an important one, it is often wiser to look at options other than strict insistence on one’s legal rights. 53. There may be situations in which the cost of paying compensation to the other party is less than the benefit to be

gained by breaching an existing contract through non-performance of obligations. A business may be faced with circumstances where there may be a more profitable opportunity to sell a manufacturer’s production to a different buyer at a much higher price over a longer period of time. In that instance, it may be possible to offer a price reduction as an incentive under the existing contract that would allow for a lesser quantity to be supplied over a longer delivery period or later delivery of the quantity contracted for. 54. Equality of bargaining power is the legal assumption that parties to a contract are able to look out for their own

interests. In effect, it underscores a requirement that contracts should not be binding on individuals unless entered freely and voluntarily. In fact, the court will presume there is such equality unless there is good reason not to. Only in extreme circumstances, when one party has taken gross advantage of the other’s pronounced weakness to “impose” a contract, will the court refuse to enforce the contract. 55. Contracts are the legal cornerstone of any commercial operation. Through a contract, the business enterprise can sell

a product or service, hire employees, rent office space, borrow money, purchase supplies, and enter into any other kind of binding agreement it chooses. In this way, contract law is facilitative because it allows participants to create their own rights and duties within a framework of rules that a judge will later enforce, if called upon to do so. 56. In circumstances where a customer is attempting to expand or restrict an existing contract, owners and managers

can approach the issue with the following objectives in mind: 1. maintain the project’s profitability; 2. treat the customer with respect while seeking a standard of reasonableness in return; 3. ensure the work is completed on a safe and timely basis without incident; 4. refrain from approaching the issue legalistically; and 5. understand that business relationships are long-term, and so is reputation.

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Chap 05_7e 57. For a court to recognize a contract as a legally binding agreement, it must consist of the following necessary

elements: 1. an agreement composed of an offer and an acceptance of that offer; an element of completeness; 3. an element of deliberateness, formally known as an intention to create legal relations; 4. an element of fairness and voluntary willingness of the parties to enter into the arrangement; 5. at least two parties having legal capacity to contract; 6. mutual consideration; and 7. preferably, it is contained within a written document. 58.

Relying on casual understandings often makes little business sense. For one thing, there is no remedy in contract law should one of the parties fail to keep its word. Also, even if the other party is reputable and trustworthy, cooperation and goodwill between parties can suddenly evaporate when an unforeseen conflict or problem arises. Contracts also provide a record of the parties’ agreement. Personnel can change, memories may become selective and self-serving, and genuine differences of opinion may arise. A contract can reduce disputes by helping to ensure both parties have a clear understanding of their respective rights and obligations. 59. As a general rule, even oral contracts are enforceable, though it is preferable for negotiators to get the contract in

writing. That said, in most Canadian jurisdictions there are certain kinds of contracts—such as those involving an interest in land—that must be in writing in order to be enforceable. The difficulty with oral contracts is uncertainty. Personnel can change, memories may become selective and selfserving, and genuine differences of opinion may arise. A written agreement creates certainty, reduces disputes and improves the enforceability of the contract.

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Chap 06_7e Indicate whether the statement is true or false. 1. A gratuitous promise is never enforceable. a. True b. False 2. The adequacy of consideration is not normally open to challenge. a. True b. False 3. Once made, an offer cannot be revoked. a. True b. False 4. An offeree may revoke an offer any time prior to acceptance by merely notifying the offeror of its withdrawal. a. True b. False 5. The courts have applied the postbox rule to acceptance delivered by courier. a. True b. False 6. The postbox rule prohibits the formation of contracts through the mail. a. True b. False 7. Use of a seal in a written contract acts as a substitute for the requirement of consideration. a. True b. False 8. Because a court infers an intention to contract, it will also speculate on what the parties would have agreed had

they fully completed their negotiations. a. True b. False 9. A car rental agreement is an example of a standard form contract. a. True b. False 10. An offer that states the final price will be “cost plus 15%: is too uncertain to form the basis of a valid contract. a. True b. False

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Chap 06_7e 11. Canada’s new CASL law (anti-spamming legislation) makes it illegal to send an electronic commercial

message without the prior actual or implied consent of the recipient. a. True b. False 12. Contracts between family members are just as binding and enforceable as contracts in the marketplace. a. True b. False 13. It is possible for an offer to be expressed in such a way that no communication of acceptance is required. a. True b. False 14. The concept that a contract is formed only when a complete offer is unconditionally accepted by the other side

forms a fundamental rule in codified law. a. True b. False 15. Revocation may be communicated through a reliable third-party source. a. True b. False 16. An option agreement is viewed by the courts as a gratuitous promise. a. True b. False 17. Contracts that contain unreasonable terms are unenforceable. a. True b. False 18. Vague commitments involving commercial exchange between parties are invitations to treat because of the lack

of specification of the terms or scope of the proposed arrangement. a. True b. False 19. Consideration must always flow from one party in a contract to the other party. a. True b. False 20. An offer is automatically terminated when it is rejected by an offeror. a. True b. False

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Chap 06_7e 21. An offer that has been revoked does not exist anymore and cannot be accepted. a. True b. False 22. An offer to sell one’s house for a “reasonable price” is capable of forming the basis of a contract. a. True b. False 23. An offer without a stated deadline will not expire until it is expressly revoked by the offeror. a. True b. False 24. Firm offers can be revoked prior to their deadlines by the formation of an option agreement, whereby the

offeror pays the offeree to keep the offer open for a specified time. a. True b. False 25. Where an agreement reached through offer and acceptance contains the phrase “this agreement is subject to

formal contract,” the agreement itself is unenforceable unless and until the formal contract comes into existence. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 26. Recent legislation in some provincial jurisdictions overrides the common law that governed the acceptance of a

payment of a lesser amount in full satisfaction of a debt. What is the policy rationale for the legislation? a. to allow debtors to pay by instalments over time b. to promote the settlement of debts on a final basis c. to allow creditors to increase the collection of debts d. to promote a reduction in consumer debt 27. A cancer hospital asked its privately-owned medical isotope source to arrange an earlier shipment of an urgent

order. The private supplier confirmed an earlier shipment was possible for a 30 percent surcharge on the contractual price. Because the hospital’s cancer patients needed the isotopes desperately, the hospital faxed a written acceptance of the varied terms. The hospital subsequently refused to pay the price increase. What would a New Brunswick court hearing the ensuing dispute be most likely to determine? a. Contractual variation supported by pre-existing duties is enforceable. b. Where there is consent to a gratuitous variation, it is enforceable. c. Contractual variation was supported by consideration, and therefore the variation is enforceable. d. Contractual variation unsupported by consideration is enforceable.

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Chap 06_7e 28. Boyd wanted to buy a 1967 Mustang car and promised he would pay $10 000 to the first person who

presented him with such a vehicle. Jai was the first individual to deliver such a car to Boyd. What form of contract exists between Boyd and Jai? a. a bilateral contract b. a unilateral contract c. a unilingual contract d. a multilateral contract 29. What principle of law was established in Dickinson v. Dodds [1876] 2 Ch.D. 463 (C.A.)? a. that advertisements are merely invitations to treat b. that all parties must agree on price c. that an offer can consist of a gratuitous promise d. that firm offers can be revoked prior to their deadlines 30. Mariam offered to sell her horse to Shia for $5000, but Shia counter-offered with a price of $4500. Mariam

rejected Shia’s counter-offer. What is the effect of Shia’s counter-offer on Mariam’s original offer? a. Mariam’s original offer is still available for acceptance until Mariam specifically revokes it. b. The original offer is no longer available because it has lapsed. c. Mariam’s original offer is no longer available for acceptance because Shia’s counter-offer is a rejection of the original offer. d. Mariam’s original offer is still available because she has not replaced it with a new offer. 31. What distinguishes the lapse of an offer from the rejection of an offer? a. An option agreement cannot lapse, but it may be rejected. b. Acceptance of an offer will be subject to rejection. c. A lapse requires a communication of deliberate intent by the offeree. d. Acceptance has not occurred when an offer lapses. 32. A consumer conducting business with a bank must accept the standard set of terms expressed in the loan

agreement, even though those terms are non-negotiable and typically favour the bank. Why would a modernday court most likely continue to uphold these contractual “take it or leave it” arrangements? a. the law expects a bank to show goodwill toward its customers b. the agreement does not require further elaboration or clarification c. the law expects people to take care of themselves d. consumers accept the bank’s unconditional offer

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Chap 06_7e 33. Abletree Equipment Supplies is closing its business and offered to sell its inventory to Candu Suppliers Inc. for

$100,000. The written offer specifies that it may be accepted by delivering notice in writing to Abletree on or before the 15th of April. Can Candu accept the offer by telephoning Abletree and verbally indicating its acceptance of the offer? a. No, because the acceptance must be made using the same method of communication used for the offer. b. No, the offer must be accepted in the manner specified by Abletree. c. Yes, provided the method of acceptance is reasonable. d. Yes, acceptance by any means will be effective as long as it is received by the offeror. 34. On April 2, Tundra Outfitters Ltd. received an offer to purchase from Lakeview Resorts Inc. Lakeview sought

35 canoes for a May 30 delivery, at $300 per canoe. The offer specified acceptance was to be by fax, received by 4:00 p.m. on April 5. Tundra did not reply. Why would a court consider that no agreement had come into existence? a. The offer was rejected by the offeror. b. The offeree took the offer off the table. c. The offer was revoked prior to its acceptance. d. The offer is missing because it is no longer alive. 35. Albert’s mother signed a three-month listing agreement with a real estate agent. Prior to considering or

accepting either of two below-listing-price offers the agent brought to Albert’s mother, she suffered a fatal stroke. What would a judge likely decide if the agent and/or the offerees attempt to legally force the mother’s estate to accept one of the offers? a. that someone who makes an offer and then dies would not be bound b. that the death increased the chance of one of the offers being accepted c. that the deceased party cannot personally perform, hence her offer also died d. that the estate is obligated to complete the sale by accepting one of the offers 36. Madeline, a garment buyer, left Lance with her business card and a clear impression she was very interested in

his line of fashion products. Which of the following is the element that would qualify Madeline’s communication as an offer to treat? a. Qualification is dependent upon the speaker’s intention, subjectively assessed. b. Lance has clearly advertised his products as available for purchase. c. Qualification is dependent upon an objective assessment of the orator’s intent. d. Lance has relinquished his option by refusing to complete the transaction. 37. What is the proper method of leading contrary evidence to challenge a legal presumption favouring one party? a. a rebuttable presumption of the parties’ intent to contract b. the doctrine of rebuttable inference of refusal to contract c. the doctrine of rebuttable assumption of pre-existing condition d. a rebuttable promise for which no consideration is given Copyright Cengage Learning. Powered by Cognero.

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Chap 06_7e 38. In the case of R. v. Ron Engineering & Construction Ltd. [1981] 1 S.C.R. 111, the Supreme Court of

Canada reformed the legal structure concerning the tendering process in Canada. What did the Supreme Court state would form an element of the reformed legal structure? a. Every party submitting a tender is accepting the offer of Contract B. b. The only successful tenderer would enter into a Contract A with the owner. c. The call for tender offered a preliminary contract called Contract A. d. The call for tender offered a preliminary contract forming Contract B. 39. Which of the following is a requirement of the doctrine of promissory estoppel? a. the plaintiff must have changed its position in reliance on the promise b. the plaintiff must have given valuable consideration for the promise c. the plaintiff can only use promissory estoppel to enforce a promise d. the defendant’s promise must be in writing 40. What is the modern-day rationale for enforcing a gratuitous promise if the promisor has placed a seal beside

his or her signature? a. The presence of the seal protects against forgery. b. The application of the seal suggests serious intent to be legally bound. c. The presence of the seal suggests a “firm offer” is being made. d. The seal serves to verify the identity of the parties. 41. Why is it important for the parties involved in contractual negotiations to know that an offer has been rejected? a. The risk in rejecting an offer is that it may not be renewed. b. A counteroffer is legally recognized as a form of rejection. c. The distinction between rejection and counteroffer can be unclear. d. The offer is automatically terminated upon rejection by the offeree. 42. Amanda has agreed to attend Rebecca’s home and provide her with biology tutoring for three hours per week

for a flat fee of $50. What is the legal term for Rebecca’s promise to pay Amanda $50 each week? a. gratuitous promise b. nominal fee c. ratification d. consideration 43. Yesterday, Farrah offered to sell her car to Ravi for $3000. Today, she changed her mind and no longer

wishes to sell the car, and has left a phone message for Ravi advising that the car is no longer for sale. Can Ravi still accept Farrah’s offer? a. No, because Farrah has changed her mind and cannot be forced to sell her car. b. Yes, provided Ravi is unaware that Farrah has revoked her offer. c. No, provided Farrah has left him a phone message before he communicated his acceptance. d. Yes, because Farrah’s revocation is ineffective unless it is communicated in writing.

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Chap 06_7e 44. In what way are promises between family members treated differently than promises between other parties? a. Contracts between family members are prohibited. b. Family members cannot sue one another for breach of contract. c. Promises between family members are always treated as gratuitous promises. d. The law presumes promises between family members are non-contractual. 45. What is the legal effect of placing a seal on a contract? a. The party applying the seal is “estopped” from breaching the contract. b. The promise in the contract will be enforceable even if it is gratuitous. c. The application of a seal is ceremonial and has no legal implications. d. The seal replaces the party’s name in the contract. 46. Which statement best expresses the effect of the decision of the court in NAV Canada v Greater Fredericton

Airport Authority Inc? a. All variations of a contract must be supported by “fresh” consideration. b. A promise to pay more than set out in the contract is worthless and unenforceable without some corresponding concession. c. Provided that the party who agrees to a gratuitous variation did so voluntarily, it is enforceable. d. A pre-existing legal duty cannot be consideration for a new contractual promise. 47. Raphael saw Fabco Electronics Inc.’s ad in a newspaper advertising that the store had new laser printers for

sale for the price of $75. Unfortunately, the store was sold out by the time Raphael arrived at the store with $75, and he now wants to sue Fabco for breach of contract, claiming he accepted their offer by arriving at the store and tendering his payment of $75. Why will Raphael’s breach of contract claim be unsuccessful? a. because the store was not able to actually supply him with a printer b. because the store’s ad did not constitute an offer to Raphael c. because the offer expired when the store ran out of printers d. because the offer lapsed due to the passage of time 48. Which of the following is an example of lapse? a. the time specified to accept an offer has expired b. one party responds to an offer with a counteroffer c. one party withdraws an offer before it is accepted by the other party d. one party rejects an offer

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Chap 06_7e 49. Caroline agreed to purchase organic hemp fabric from an Ontario manufacturer. While making an inquiry to

purchase organic dyes from a Manitoba producer, she learned they offered a superior organic hemp fabric at a much lower price than the Ontario manufacturer. Knowledge of what legal principle would immediately let Caroline know she made a costly error? a. Parties must be informed as to the adequacy of price, as it is usually not open to challenge. b. The consideration to be given for each party’s duties is the other party’s duties. c. Parties must pay the price for a promise before they can sue when it is broken. d. The traditional perspective that alteration of a pre-existing duty is enforceable. 50. Gandrel received an offer to purchase on his home. The offer provided for the payment of the asking price but

required Gandrel’s new appliances and riding lawnmower to be included in the purchase price. Does Gandrel’s offer to sell his home still have legal substance? a. Yes, the original offer could be conditionally accepted. b. No, the lapse of time automatically terminates the original offer. c. Yes, it forms the basis of the purchaser’s counter-offer. d. No, a counteroffer is a terminal rejection of an original offer. 51. In what way does the law of tenders differ from the normal rules that apply to offers? a. unlike an ordinary offer, a tender can be withdrawn at any time without legal consequence b. everyone who submits a tender is accepting the offer of contract A to govern the relationship c. everyone who submits a tender is automatically accepting two offers, contract A and contract B d. unlike an ordinary offer, a tender must be communicated in writing 52. Which of the following best describes the basic elements of a contract? a. agreement, in writing, complete, deliberate b. agreement, witnessed, deliberate, supported by mutual consideration c. agreement, complete, deliberate, supported by mutual consideration d. agreement, equal bargaining power, deliberate, in writing 53. Arcand Industries has offered to sell a piece of equipment to XYZ Inc for $100,000 and has promised to

keep its offer open until the last day of the month. What is Arcand’s legal position in this situation? a. the promise to hold the offer open is contrary to public policy and is unenforceable b. the offer can be revoked at any time by Arcand without legal consequence c. Arcand is legally bound to keep its offer open until the last day of the month d. the offer can be revoked before the last day of the month with the consent of Arcand

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Chap 06_7e 54. Under what circumstances would a judge who is determining a remedy to a commercial dispute consider that a

contract does not exist even though all of the required elements of reaching an agreement are present? a. A phrase indicates the agreement is subject to formal contract. b. A contract lacks sufficient consideration for both parties. c. A contract lacks adequate consideration for both parties. d. A phrase indicates the agreement is subject to its exact wording. 55. Thomas gave Jerron his final sales pitch, offering 10 percent off the list price, 60 days for payment, a delivery

date, and delivery terms. What has happened so far at this point in the negotiation process? a. A consensus on the parties’ rights and obligations has been reached. b. A consensus on the terms of the offer between parties was reached. c. A complete offer has been extended that is now open to acceptance. d. There has been a mutual expression of willingness to do business. 56. Martin has agreed to sell his car to his son for $500. What is the legal effect of this promise? a. The law presumes promises between family members are non-contractual. b. The law presumes all promises between family members are gratuitous. c. The family members’ intention to contract must be subjectively tested. d. The family members must understand the legal consequences of a promise. 57. Panda Industries agreed to supply 500 tons of steel rebar to ABC Builders for a price of $250 per ton.

Shortly after the contract came into effect, the market price of rebar rose to $275 per ton. Fortunately, ABC Builders was agreeable to paying the hew higher price. Why might ABC Builder’s promise to pay an additional $25 per ton be unenforceable? a. the lack of sufficient consideration b. the absence of fresh consideration c. the lack of adequate consideration d. the absence of formalization 58. What element must be present to enable an innocent party to commence a lawsuit when a promise is broken? a. The innocent party must agree to a “price” for the defendant’s promise. b. The work must be performed. c. The consideration must be adequate. d. The promise must be accepted.

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Chap 06_7e 59. On Tuesday, Jatelle offered to sell one of her racing motorcycles to Rofan for $8000. Rofan said he needed

time to consider her offer. On Friday morning, Jatelle sent Rofan an e-mail message advising the offer was no longer open. Which of the following actions would allow Rofan to try to complete the purchase of her motorcycle? a. present Jatelle with an offer to buy the motorcycle b. revitalize the offer by communicating a counteroffer c. immediately communicate a need for more time to Jatelle d. immediately communicate the acceptance of Jatelle’s offer 60. In what ways are the use of seals and the doctrine of promissory estoppel similar? a. Both are ways to create contracts. b. Both may render a gratuitous promise enforceable. c. Both may be arbitrarily revoked. d. Both are exceptions to the rule that offers lapse after a reasonable period of time. 61. Which statement most accurately describes the requirement of consideration? a. As long as one party provides consideration, the promise will be binding. b. All promises are legally binding, whether or not consideration is provided. c. Consideration must be fair and adequate. d. Consideration may take the form of a promise in exchange for a promise. 62. What common distinguishing characteristic may be attributed to both an option agreement and a counteroffer? a. Both can result in a lawsuit for damages if deliberately rejected by the offeror. b. Both are subject to revocation by the offeror prior to a lapse of a set period of time. c. Both form a separate contract that may or may not lead to the acceptance of an offer. d. Both serve to prohibit the lapse of an offer before a set time period has expired. 63. Jedco Wholesalers Ltd. and BigGrocer Inc. have agreed that Jedco will supply BigGrocer with 400 kilos of

watermelon when the crop is harvested. Rather than agree on a set price, they have agreed that the price of the watermelon will be based on the cost of the watermelon to Jedco plus 25 percent. Would this contract be enforceable in court? a. Yes, because it is not necessary to set out final price in the contract as long as the price can be determined in some way, for example, by a formula. b. No, because price is an essential term, and the parties have not clearly expressed the final price in their contract. c. Yes, because parties have agreed to a formula that will produce a reasonable price. d. No, because price must be decided at the time the contract is entered into and cannot be determined at a future date.

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Chap 06_7e 64. Which of the following is NOT an example of an invitation to treat? a. an advertisement in a newspaper b. a display on a store shelf c. a price tag on an item in a store d. a written offer to sell a car for $10,000 65. What is the meaning of the statement “Promissory estoppel may be used as a shield and not as a sword” with

respect to the classical application of the common law doctrine of promissory estoppel? a. The doctrine is unavailable as a defence in a lawsuit. b. The doctrine is unavailable as the basis for a lawsuit. c. The doctrine is unavailable to a person who has made a promise. d. The doctrine is unavailable to a person who has broken a promise. 66. Identify and briefly define the events that will cause an offer to be taken off the table.

67. While contract law normally requires that the parties provide consideration in order to render an agreement

enforceable, the law is less concerned about the adequacy of the consideration provided by each party. What is the rationale for each of these seemingly conflicting principles?

68. Identify and briefly describe six ways that an offer can be terminated.

69. How has statutory law modified the common law treatment of partial payment of a debt?

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Chap 06_7e 70. Provide a legal analysis of a typical retail transaction, discussing offer, acceptance, consideration, and intention.

71. Identify and briefly describe what element is recognized as forming the basis of a contract in common law.

Include a brief explanation of what is meant by the legal requirement of certainty of offer and identify and briefly described the circumstances under which a court would endeavour to resolve ambiguities in an alleged offer.

72. How do the courts get around the basic rule that a gratuitous promise is not enforceable if they feel that not

enforcing such a promise would be unfair? Identify and briefly describe the requirements for this “get around.”

73. Briefly describe the options available to a party to a contract who wishes to avoid problems related to cost

increases.

74. Identify the source of a competing analysis of the traditional common law view of unenforceability of a

gratuitous promise. Provide a brief explanation of the competing analysis and explain the goal it was meant to achieve.

75. Explain the specialized rules of offer and acceptance that govern the tendering process.

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Chap 06_7e Answer Key 1. False 2. True 3. False 4. False 5. True 6. False 7. True 8. False 9. True 10. False 11. True 12. False 13. True 14. False 15. True 16. False 17. False 18. True 19. False 20. False 21. True 22. False 23. False 24. False 25. True 26. b

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Chap 06_7e 27. c 28. b 29. d 30. c 31. d 32. c 33. b 34. d 35. c 36. c 37. a 38. c 39. a 40. c 41. d 42. d 43. b 44. d 45. b 46. c 47. b 48. a 49. a 50. c 51. b 52. c 53. b 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 06_7e 55. c 56. a 57. b 58. a 59. a 60. b 61. d 62. c 63. a 64. d 65. b 66. Following are the events that will cause an offer to be taken off the table:

1. revocation: the withdrawal of an offer 2. lapse: the expiration of an offer after a specified or reasonable period of time 3. rejection: the refusal to accept an offer 4. counteroffer: the rejection of one offer and proposal of a new one 5. death or insanity: an offer generally dies if the offeror or offeree dies and a party to an offer who subsequently becomes insane would not, as a general rule, be bound 67.

The requirement of consideration reflects the idea that a contract consists of a set of commitments or promises that amount to a bargain or an exchange between the parties. To constitute a contract, each party must give up something of value in exchange for receiving something of value from the other contracting party. The classical view is that the law will enforce bargains but not one-way (gratuitous) promises. The fact that the law places less significance on the actual value of the consideration reflects the notion that individuals should have the freedom to contract as they see fit and should not be restricted by the court’s notions of what constitutes a “good deal.” The reduced concern about the adequacy of consideration (in most situations) also reflects the view that parties have an obligation to protect their own interests. 68. An offer can be terminated by any of the following events:

∙ Revocation (the offeror withdraws the offer) ∙ Lapse (the offer has expired because of the passage of time) ∙ Rejection (the offeree has rejected the offer) ∙ Counter-offer (the offeree responded to the offer with a different offer) ∙ Death (provided the offer concerns a contract that requires personal service of the deceased party) ∙ Insanity of the offeror (after the offer has been made) Copyright Cengage Learning. Powered by Cognero.

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Chap 06_7e 69. The traditional position in the common law is that the gratuitous promise to reduce a debt is not binding. Thus, a

creditor could actually sue for the full amount even after “agreeing” to accept a lesser amount in full satisfaction of the debt. The harshness of the common law has been modified in some provinces to make such partial payment agreements legally enforceable. In provinces without such legislation, any partial payment agreement that is executed under seal will still be legally enforceable. The policy rationale for this legislation is that it promotes finality of the debt settlement, and hence greater certainty. 70.

The ad and store display used to market the product are viewed in law as “invitations to treat.” When a customer picks up an item in the store and takes it to the till, an “offer” has been made to purchase the item at the sticker price. “Acceptance” of the offer occurs when the clerk accepts payment from the customer. The store’s “consideration” is the item being sold and the customer’s corresponding “consideration” is the money provided in exchange for the item. It is a rebuttable presumption in law that the customer and store intend to be legally bound by their actions. 71. Common law requires that only a complete offer can form the basis of a contract. This means that all essential terms

must be set out or the contract will fail for uncertainty. If the parties intend to have a contract, the courts will endeavour to interpret the alleged offer in as reasonable a fashion as possible and thereby resolve ambiguities. 72. The courts solve the problem by applying the equitable doctrine of promissory estoppel. The requirements for

promissory estoppel are the following: One party has, by words or conduct, made a promise or assurance to the other party that was intended to affect their legal relationship and be acted on. The party receiving the promise or assurance acted on it or in some way changed its position. The promising party’s own conduct has been above reproach, and in this way, it is deserving of the court’s assistance. Finally, promissory estoppel can be used only as a defence to legal claims made by the party breaking the promise. 73. The party could negotiate a clause in the contract that included a formula for varying the price according to the

prevailing market conditions. Other possibilities include negotiating a cost plus contract, meaning the contract price would be comprised of the manufacturer’s actual costs, plus a set percentage for profit. Another alternative would be to charge a higher price to begin with to cover unexpected cost escalations. 74. The competing analysis is offered by the New Brunswick Court of Appeal. In that case, the court held that,

provided the variation to a contract is not the product of duress, it is enforceable due to principles of commercial or business efficacy. The ruling expresses a goal to protect the parties’ legitimate expectations that such a contractual variation would be respected and adhered to.

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Chap 06_7e 75.

The Supreme Court of Canada, in R v Ron Engineering & Construction Ltd, devised a unique legal structure for the tendering process. According to this decision, the call for tenders can be construed as an offer of a preliminary contract known as Contract A. Contract A typically requires the tenderer and the owner to follow the rules governing the tender selection process, including a promise by the tenderer not to revoke its tender for a specified period of time. Everyone who submits a tender is accepting the offer of a Contract A to govern the relationship as well as offering to enter into Contract B, if chosen to do so. Contract B refers to the larger contract to perform the work or supply the goods in question. While there would be as many Contract A’s as there were tenderers, only the successful tenderer would enter into a Contract B with the owner. If the tenderer seeks to revoke its tender before the specified period of time has elapsed, it is likely a breach of Contract A and subject to legal action. As well, if the tenderer refuses to enter into Contract B when chosen to do so, it has committed another breach of Contract A.

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Chap 07_7e Indicate whether the statement is true or false. 1. A product that contains a shrink-wrap licence typically bears a notice stating that opening the package

constitutes agreement to the licence terms. a. True b. False 2. When resolving a dispute regarding the interpretation of a contract, the court always bases its interpretation on

how a reasonable person would regard a term in a contract. a. True b. False 3. An entire contract clause could be used to prevent a court from using outside evidence to interpret a contract. a. True b. False 4. Contractual quantum meruit requires a customer to pay whatever the supplier chooses to charge or whatever

the market will bear. a. True b. False 5. Courts are not allowed to refer to external sources (e.g., dictionaries) when trying to determine the meaning of

ambiguous terms used in contracts. a. True b. False 6. Contracts may be entirely written or entirely oral but not partly oral and partly written. a. True b. False 7. The court may refuse to uphold a liquidated damages clause if its purpose is to punish. a. True b. False 8. The court may decline to apply the parol evidence rule if the language in the written contract is ambiguous. a. True b. False 9. Some Canadian courts have ruled that a good faith clause is not an automatic term of every contract and can

be implied only when it is consistent with the parties’ intentions. a. True b. False

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Chap 07_7e 10. An implied term may be imposed by the court in order to give effect to the parties’ intentions. a. True b. False 11. The court in Tilden Rent-A-Car v. Clendenning refused to uphold an exemption clause because the business

knew that the customer had not read the contract. a. True b. False 12. There is a point where language in a contract is so ambiguous that the contract will fail for uncertainty. a. True b. False 13. It can be very difficult to predict how a court will interpret any given contract because the principles for

interpreting the rules of a contract are guided by conflicting rules of construction. a. True b. False 14. Bad faith is conduct that is contrary to community standards of honesty, reasonableness, or fairness. a. True b. False 15. Through the doctrine of business efficacy, a judge is entitled to imply terms necessary to make a contract

workable. a. True b. False 16. A browse-wrap licence instructs the user to review the terms prior to assenting by clicking an “I accept” icon,

and the user typically cannot proceed any further without agreeing to the licence terms. a. True b. False 17. Contracting parties can agree to limit the liability for a breach to less than what is recoverable under the

principles of contract law. a. True b. False 18. The courts have implied a duty of honesty into contractual relationships. a. True b. False 19. The purpose of an entire contract clause is to signal that the parties consider each term in the contract to carry

the same weight. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 07_7e 20. A condition precedent situation means that the parties’ obligations to perform are not triggered pending

fulfillment of the condition. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Primetime Events has hired the Janglers to perform at its concert hall, but the contract provides it can be

cancelled if Primetime cannot sell more than 1000 tickets before December 1. What is the name given to the term that would allow Primetime to cancel the contract? a. escape clause b. exclusion clause c. condition precedent d. condition subsequent 22. What principle could you reasonably expect Canadian common law courts to apply when faced by cases

dealing with standard form contracts? a. Customers’ continued use amounts to acceptance of unilateral amendments. b. Terms are to be set out in plain language, and legalese must be absent. c. Pre-printed terms are put inside a box to which reference is made on the outside. d. Ambiguous terms should be construed against the party that prepared the contract. 23. What is the legal effect of a condition precedent? a. It prevents a contract from coming into existence if a particular condition is not met. b. It relieves a party from performing a contract if a particular condition is not met. c. It is a term that, if breached, entitles the other party to cancel the contract. d. It permits a party to limit liability for damages. 24. EcoGrow Inc. contractually agreed to deliver two tons of organic fertilizer on March 16 to Organics Inc. The

contract provided for the payment of $1000 for each day the delivery may be delayed. An ice storm closed the highways, causing Eco to deliver four days late. What could you likely expect a lawyer representing Organics to argue before the court hearing a dispute over the non-payment of the late fee? a. to have the court apply the parole evidence rule to the contract b. to ignore the parties’ intentions and apply the plain-meaning rule c. to have the court apply the rules of construction to the contract d. to ignore the rules of construction and apply the entire contract rule

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Chap 07_7e 25. Nathan is the owner of a small drapery manufacturing business. He has a written contract with a fabric

supplier, but some aspects of their agreement were never put into the written document. Why will Nathan have difficulty enforcing the verbal aspects of their agreement? a. because the parol evidence rule forbids outside evidence as to the terms of the contract when the written contract is clear b. because verbal promises cannot form the basis of contractual obligations c. because the contra proferentum rule will result in a court rejecting the verbal terms of the agreement d. because the court cannot imply terms into a contract 26. Under what circumstances might a court apply the “Best Evidence Rule”? a. if the parties have entered into an oral contract with witnesses b. when interpreting an implied term in a written contract c. when applying an electronic contract d. where evidence has been lost before trial 27. A supplier and a retailer have a long, established relationship. Earlier contracts between them have always

provided the standard “within 30 days of delivery” payment provision. A new contract between them makes no reference to payment terms. What would a court most likely rely on to arrive at a decision that payment is due within 30 days of delivery? a. customs in the trade b. past dealings c. business efficacy d. statutory requirements 28. OrganicFoods Inc. enters into a contractual supply arrangement with EcoGrow Inc. EcoGrow contractually

promises to supply two tons of organic carrots by May 1, providing carrots will be available. If EcoGrow does not supply the carrots as agreed, how will a court view EcoGrow’s obligation to OrganicFoods to do so? a. Business efficacy makes the obligation conditional. b. Business efficacy makes the obligation provisional. c. Business efficacy makes the obligation express. d. Business efficacy makes the obligation absolute. 29. Which of the following would automatically end a contract with a supplier if the buyer’s sales fall below a

stated level? a. an exemption clause c. a liquidated damages clause

b. a condition precedent d. a condition subsequent

30. Which statement best describes the effect of the parol evidence rule? a. The rule preserves the sanctity of the written agreement. b. The rule ensures that both written and oral contract terms are given effect. c. The rule ensures that the true intentions of the parties are given effect. d. The rule requires all contracts to be in writing to be enforceable. Copyright Cengage Learning. Powered by Cognero.

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Chap 07_7e 31. What is the legal term given to a clause that makes a contract enforceable against a buyer only if the buyer is

able to secure a satisfactory building inspection? a. a liquidated damages clause b. a limitation of liability clause c. a condition subsequent d. a condition precedent 32. Marty has made his acceptance of an offer to purchase his house subject to his lawyer’s approval. Why did

Marty’s lawyer advise him that it was essential for him to do so? a. to ensure contractual obligations Marty incurs are limited to certain circumstances b. to ensure that any price-variation clause will be detected and eliminated c. to ensure that Marty will receive a fair price without losing the sale altogether d. to avoid having to negotiate a higher price to compensate for market changes 33. Wee Ones Safety Ltd. manufactures child car carriers and has agreed to provide 2000 statutorily compliant

car seats to a department store chain. If the government changes the regulations and Wee Ones’ production costs rise accordingly, what is the legal position of Wee Ones in its contract with the chain? a. The doctrine of frustration holds that the terms of a contract are settled at the time of acceptance and Wee Ones will have to comply with its original contract terms. b. The doctrine of frustration is a reliable avenue of escape for Wee Ones. c. The doctrine of frustration will allow Wee Ones to modify its contract to incorporate the regulatory changes and its increased production costs. d. The doctrine of frustration will not apply unless the parties have specifically referenced it in their contract. 34. What must be present in order for a condition subsequent to be recognized as legally enforceable? a. sufficient detail; otherwise, the uncertain condition is unenforceable b. sufficient fulfillment of each parties’ collateral contractual obligations c. reasonable certainty and objectivity; otherwise, the condition will fail d. reasonable certainty of an unforeseen occurrence of an event 35. What is the legal term given to a provision in a contract whereby the parties agree in advance the amount to be

paid in the event of a contract breach? a. an applied term b. a liquidated damages clause c. a punitive clause d. an exemption clause 36. How does the doctrine of business efficacy impact the interpretation of contracts? a. by permitting judges to strike out contractual terms that are commercially unreasonable b. by permitting judges to imply terms necessary to make the contract workable c. by permitting the parties to vary the wording of their contract to suit changing circumstances d. by permitting the parties to ignore contractual terms that are commercially unreasonable

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Chap 07_7e 37. What is the policy rationale for contractual quantum meruit? a. The assistance provided by implied terms is sporadic and uncertain. b. It is not the intention of the parties that goods or services are provided for free. c. Parties who fail to document their contracts should nonetheless be bound by their promises. d. The parties’ intention to impose a penalty should be upheld. 38. What is one of the drawbacks of the parol evidence rule? a. It permits the acceptance of extrinsic evidence to determine the parties’ intention. b. It is a basis for relieving parties from their contractual obligations. c. It may prohibit parties from enforcing oral promises. d. It results in contractual quantum meruit. 39. Under the UEEA, which of the following would immediately tell you that you have satisfied the best evidence

rule with respect to an electronic record? a. proving the authenticity of an electronic record is as it was claimed to be b. proving the integrity regarding the claimed authenticity of the electronic record c. proving the integrity of the electronic system that recorded the data d. proving authenticity by producing the original electronic contract 40. What is the function of an express term with respect to a contract? a. It gives effect to the parties’ intentions. b. It brings an existing contract to an end. c. It explicitly states contractual promises.

d. It implicitly states contractual promises.

41. Sheps & Shaps LLP signed a one-year contract under which it was to receive a weekly delivery of 10 cartons

of 8 x 11 bond paper and 5 cartons of 11 x 14 bond paper for a monthly fee of $700. The contract expired two months ago, but Sheps & Shaps continued to accept two additional deliveries. Given these circumstances, which of the following statements is most accurate? a. The Sale of Goods Act will imply a continuing contract between the parties on the same terms as the previously existing contract. b. The contract has expired, and therefore Sheps & Shaps is not required to pay for the two additional deliveries. c. If the parties have contracted in the past, it may be possible to imply that their contract remains the same. d. The business exception rule will impose a requirement that Sheps & Shaps pay a reasonable price for the paper.

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Chap 07_7e 42. Which of the following is a distinguishing characteristic of a limited liability clause? a. It relieves or limits liability of a party for damages in particular circumstances. b. It may be used to punish parties for non-compliance with contractual promises. c. It requires the parties to purchase insurance. d. It relieves parties in a variety of circumstances from contractual obligations. 43. What would a negotiator most likely caution against with respect to the notion of building flexibility into

contractual agreements? a. the risk of having no contract at all if the resulting document is too unfixed b. the risk that the parties will be allowed to terminate the contract altogether c. the risk of having the parol evidence applied regarding evidence of intent d. the risk that voluntarily altering the contract will make it unenforceable 44. Which of the following would provide that a supplier will NOT be liable to a retailer if it is fails to deliver

products to it on time? a. a liquidated damages clause c. an exemption clause

b. a condition precedent d. a limitation of liability clause

45. What is a valid criticism of the common law with respect to the current application of an implied term of good

faith by the courts when considering dealings between contractual parties? a. Business interests are not served by good faith conduct of contractual obligations. b. Business interests are not opposed to bad faith conduct to achieve added benefit. c. Opposing rulings create uncertainty, which is not the function of common law. d. Opposing rulings maintain the rule that parties must take care of themselves. 46. What type of contractual condition is the statement “I’ll buy your horse if he decides he likes me” an example

of? a. a fiduciary condition subsequent c. an illusory condition precedent

b. a condition precedent d. a condition subsequent

47. What is meant by the term “contractual quantum meruit”? a. as much as merited or deserved b. a term required to imply payment c. as much as someone will pay

d. a promise to pay a fair price

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Chap 07_7e 48. Which statement best encapsulates the Supreme Court of Canada’s position regarding the duty of honesty in

contract law? a. Parties must disclose any matters that would adversely impact the other party’s decision to enter into the contract. b. Parties in a contract have a duty to disclose any advantages flowing to them from the contract. c. Parties in a contract have a duty to be loyal to one another. d. Parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. 49. What is the term given to the guiding principles for interpreting the terms of a contract? a. Thompson’s Rules b. The Rules of Construction c. The Rules of Interpretation

d. The Parol Evidence Rules

50. What legislation would you need to rely on if you want to ensure that terms are implied in a contractual

business arrangement? a. the Commercial Transactions Act c. the Goods and Services Act

b. the Electronic Commerce Act d. the Sale of Goods Act

51. What is the position of the courts regarding the enforceability of ‘browse-wraps’ agreements? a. They are not binding because they purport to accept an offer without something affirmative or positive

to signal assent. b. They are not binding because the user is not provided with sufficient notice of the terms of the agreement. c. They are binding provided the user is provided with sufficient notice of the terms of the agreement. d. They are an exception to the rule that the terms of a contract must be known in order to be enforceable. 52. A court that is hearing a contractual dispute has determined that an ambiguous term must be construed against

the party drafting the agreement. What is name for the doctrine the court is applying? a. parol evidence rule b. quantum meruit c. implied contract rule d. contra proferentum rule 53. Which of the following is characteristic of a shrink-wrap agreement? a. Continued use after posting of amendments to a website constitutes acceptance. b. The enforceability of terms depends on notification of the user’s assent. c. The effect of opening the package constitutes acceptance of the terms. d. The appearance on screen is in response to a user’s attempt to download product. 54. ABC Electrical Inc. has a contract with a building contractor that provides that in the event of breach, ABC

will be entitled to damages of $10 000. Which of the following best describes this type of contract term? a. a liquidated damages clause b. a condition precedent c. an exemption clause d. a limitation of liability clause Copyright Cengage Learning. Powered by Cognero.

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Chap 07_7e 55. What is the term for the guiding principles that are used for interpreting terms of a contract? a. the statutory interpretation rules b. the entire contract rules c. reasonable bystander test

d. rules of construction

56. The parol evidence rule prohibits the introduction of a specific type of evidence relating to the terms of a

contract when the language used in that document is clear. What is the second condition required to invoke the parol evidence rule? a. Neither party can prove adverse affects of a documentary mistake. b. Neither party is able to support its interpretation of the contract. c. The restriction of the contractual content to the document is intentional. d. Fraud by one party affecting formation of the contract was intentional. 57. Which statement best expresses the position taken by the courts with respect to contractual penalty clauses? a. The court will enforce if it is meant to scare the other party into timely performance. b. Such a clause is enforceable only if it fits the definition of a liquidated damages clause. c. Such clauses are always enforceable provided the other party has sufficient notice. d. Such clauses are enforceable provided they are in writing. 58. Upside Software Development Ltd. has agreed in its contract to pay damages of $500 per day for each day

that it is late in delivering the agreed upon software program to its client. What is this type of contract clause? a. a condition precedent b. a limitation of liability clause c. a liquidated damages clause d. an exemption clause 59. Rumpel Lawn Care Inc. has had contractual relations with Rudy for many years. Rudy left a message asking

Rumpel to include an organic weed inhibitor in the next lawn dressing mix applied to his lawn and to just add whatever charge there would be to his regular bill. What would you expect a risk manager is likely to advise Rumpel in this regard? a. to negotiate the interest rate at the time business is transacted b. that a court would imply a term requiring payment of the new sum c. that a court will automatically impose a common law implied term of good faith d. to clarify the contractual relationship each time business is transacted 60. In what manner could you reasonably expect a court to apply the parol evidence rule when asked to interpret

the meaning of a nebulous term in a written contract? a. Abide by the rule and use its discretion to infer a clarification of the term. b. Disregard the rule and allow extrinsic evidence to resolve the ambiguity. c. Abide by the rule and use its discretion to apply implied terms for clarification. d. Disregard the rule and apply the reasonable person test to interpret the term.

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Chap 07_7e 61. Great White North Plumbing received an urgent call to repair a ruptured water line in a house. After attending

the premises and repairing the line, Great White North submitted its invoice for it services however now the customer refuses to pay, arguing that no price was discussed before the emergency repair was undertaken. What legal doctrine might Great White rely upon to collect its invoice? a. the parol evidence rule b. contractual quantum meruit c. the business efficacy doctrine d. the factual matrix approach 62. Kramer and Biff entered into a formal purchase and sale agreement with respect to Kramer’s house. Two

weeks later, Biff revisited Kramer and offered to purchase all of Kramer’s custom yard and deck furniture too. The price Biff offered was $2500 more than the last offer Kramer had received, and he accepted the offer. In these circumstances, if a dispute ensues, will the parol evidence rule play a role? a. It will be used to prevent extrinsic evidence regarding the oral agreement. b. It will not play a role; because the oral agreement deals with land and furniture, it is invalid. c. It will be applied to prevent a challenge of the written agreement. d. It will not play a role, owing to the distinct nature of the collateral contract and price. 63. Which description best describes the factual matrix examined by the courts when interpreting contractual

terms? a. the evidence of the party’s subjective intention or negotiations leading up to the contract b. the background facts known to the parties when the contract was concluded c. the plain meaning of the words used in the contract document itself d. the impression of a ‘reasonable bystander’ of the parties’ intentions 64. Why would a businessperson use contractual terms as a planning feature of the law? a. to limit liability and block the use of the parole evidence rule b. to limit liability and shield against possible future events c. to limit liability and prevent collateral oral agreements d. to limit liability and buffer against certain future events 65. In what way are a click-wrap agreement and a browse-wrap agreement different from one another? a. Notification prior to assent is required to enforce terms of a click-wrap agreement. b. Notification prior to assent is required to enforce browse-wrap agreements. c. Notification and consent are required to enforce browse-wrap agreements. d. Notification and consent are required to enforce terms of a click-wrap agreement.

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Chap 07_7e 66. How has the Supreme Court of Canada characterized the goal of contract interpretation in its recent decision

in Sattva Capital v Creston Molly Corp?

67. The use of electronic communications creates difficulties in the application of contract law. Some jurisdictions

have implemented legislation based on the recommendations of the Uniform Law Conference of Canada. Discuss.

68. Identify and briefly explain the circumstances in which a court will imply a term where that term is alleged to

have not been addressed in the contract as an express term. Identify and briefly describe the classic courtroom scenario that would be presented to a judge hearing such a case. Provide a brief explanation as to which party in the suit would bear the burden of proof.

69. Is there an implied obligation of good faith on parties to a contract? Explain.

70. What is a liquidated damages clause and how can it be used to manage risk in a contract? What are the

limitations on their use?

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Chap 07_7e 71. Because numerous circumstances may arise that prevent a party from performing its contractual obligations, it

is important (particularly in longer-term contracts) that negotiators evaluate risks, speculate on possible changes in the business environment, and be wary of making inflexible commitments or obligations that make performance much more expensive than anticipated. How might a business that is contracting to supply goods in the future protect itself from potential increases in costs?

72. Identify four grounds used by the courts for introducing implied terms into contracts. Give an example of each.

73. Compare and contrast a condition precedent and condition subsequent. Provide an example of each.

74. Identify and briefly describe the circumstances that are of particular importance to negotiators with respect to

evaluating risks associated with increases in the cost of materials used to produce a product. Identify and briefly describe contractual terms that may be applied to reduce the risk of market price fluctuations.

75. Identify and briefly describe the situations in which the court will disregard the parol evidence rule and

consider evidence outside the contract.

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Chap 07_7e Answer Key 1. True 2. False 3. True 4. False 5. False 6. False 7. True 8. True 9. True 10. True 11. True 12. True 13. True 14. True 15. True 16. False 17. True 18. True 19. False 20. True 21. d 22. d 23. b 24. b 25. a 26. c

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Chap 07_7e 27. b 28. d 29. d 30. a 31. c 32. a 33. a 34. a 35. b 36. b 37. b 38. c 39. c 40. c 41. c 42. a 43. a 44. c 45. c 46. c 47. a 48. d 49. b 50. d 51. c 52. d 53. c 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 07_7e 55. d 56. c 57. b 58. b 59. d 60. b 61. b 62. d 63. b 64. b 65. a 66.

According to Sattva, the goal of contractual interpretation is to understand the mutual and objective intentions of the parties expressed in the words of the contract. To accomplish this, courts should apply the plain meaning rule— interpreting the words the way a reasonable person would regard them—but in combination with the contract’s factual matrix or surrounding circumstances. According to the court, the factual matrix includes the background facts known to the parties when the contract was concluded but excludes evidence of the party’s subjective intention or negotiations leading up to the contract. 67. Electronic business involves the negotiation and creation of contracts online. The terms of the contracts are

electronic records, and there is no document record. This method of doing business creates difficulty if it becomes necessary to produce the original contract in court. Several jurisdictions have implemented the Uniform Electronic Evidence Act (UEEA). Under this legislation, the person seeking to introduce an electronic record has the burden of proving its authenticity by evidence capable of supporting a finding that the electronic record is what the person claims it to be. 68. A court will imply a term in a contract in order to give effect to the parties’ intentions if a judge has been satisfied that

not all of the terms that the parties intended to include in the contract were in fact included. In the classic scenario, the plaintiff argues to include an implied term while the defendant argues that no such term was intended. The plaintiff carries the burden of proof and will only be successful where there has been a demonstration that the intention to include the term exists on the balance of probabilities.

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Chap 07_7e 69.

A business person’s obligations under a contract can extend beyond the explicit, written terms of the contract. An example of this is the doctrine of good faith. The law requires that parties to a contract exercise their rights under their agreement honestly, fairly, and in good faith. The duty of good faith is breached when a party acts in a manner that is contrary to community standards of honesty, reasonableness, or fairness, such as where one party acts in such a way as to substantially nullify the bargained objective or benefit contracted for by the other, or to cause significant harm to the other, contrary to the original purpose and expectation of the parties. 70. The purpose of a liquidated damages clause is to set out in advance what one party must pay to the other in the

event of breach. Essentially, the parties themselves decide before a breach has even happened what that breach would be worth by way of compensation. The courts will enforce these clauses provided that the clause is a genuine pre-estimate of the damages that the innocent party will suffer. The clause will not be enforceable, however, if it sets an exorbitant amount as a remedy for the innocent party. If so, the clause is a penalty clause—it intends to punish, not compensate—and a court will simply disregard it in assessing damages for the breach in question. 71.

A contract term could: ∙ Provide a formula setting the price of the goods supplied in a manner that is tied to market value; ∙ Set the price according to the cost of materials plus a specific percentage for profit; ∙ Allow the parties to reopen negotiations or terminate the contract altogether if specified events occur, such as a commodity price reaching a certain level. 72. Examples will vary. Following are four grounds:

a. business efficacy b. customs in the trade of the transaction c. previous dealings between the parties d. statutory requirements 73. A condition subsequent will always bind the parties to a contract until a particular event occurs—the condition

subsequent. If the event specified in the condition subsequent occurs, it operates to terminate the contract between the parties. For example, parties to an employment contract may agree that an employee is to work for an organization unless the employee’s sales drop below a certain amount. This is a contract subject to a condition subsequent. If the condition occurs—that is, if the employee’s sales fall below the threshold—the contract automatically comes to an end. The condition precedent situation means that the parties’ obligations to perform are not triggered until the fulfillment of the condition. That is, a contract exists between the parties, but the obligation to perform the contract is held in abeyance pending the occurrence of the event. In a real estate transaction, a condition precedent might be that the contract is in abeyance until the purchaser obtains financing on reasonable terms.

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Chap 07_7e 74. It is particularly important in longer-term contracts that negotiators evaluate risks, speculate on possible changes in

the business environment, and be wary of making inflexible commitments. In order to reduce risk with respect to market price fluctuations, the following contractual terms may be used: 1. Provide a formula setting the price of the goods supplied in a manner that is tied to market value 2. Set the price according to the cost of materials, plus a specific percentage for profit 3. Allow the parties to reopen negotiations or terminate the contract altogether if specified events occur, such as a commodity price reaching a certain level 75. The situations in which the court will disregard the parol evidence rule and consider evidence outside the contract

are as follows: a. where there is an allegation of fraud or mistake creating an alleged problem that goes to the formation of the contract b. where the contract is intended to be partly oral and partly in writing the rule has no application c. where a promise is contained in a separate collateral agreement that happens to be oral, the rule does not apply d. where the language in the contract is ambiguous, evidence outside the contract can be used to resolve the ambiguity

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Chap 08_7e Indicate whether the statement is true or false. 1. The remedy of rescission is only available in the case of fraudulent or negligent misrepresentation. a. True b. False 2. A contract will be set aside for mistake only if one party realized the other party was mistaken at the time of

entering the contract. a. True b. False 3. The only basis for a contract being held to be illegal is if it is prohibited by the Criminal Code. a. True b. False 4. Ranjit, Quan Lu, and Ng are all directors of BigSkyInvestments Inc. who have a beneficial interest in a

contract that BigSkyInvestments’ management is considering and each must disclose their status to management in accordance with statute requirements. a. True b. False 5. To establish undue influence, evidence of actual pressure requires the party seeking relief to show, among other

things, that the influence existed. a. True b. False 6. The value in obtaining a certificate of independent legal advice is that it can help prove a contract was freely

entered into. a. True b. False 7. Only misrepresentations that were significant to the decision to enter into the contract are actionable. a. True b. False 8. Carelessly signing a document without reading it will be sufficient to avoid enforceability. a. True b. False 9. People seeking to avoid a contract owing to mental capacity, duress, undue influence, or unconscionability

must do so promptly. a. True b. False

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Chap 08_7e 10. When applying for life and disability insurance protection on her mortgage, Marabou neglected to disclose that

she had been diagnosed with type 2 diabetes. As players in the commercial contractual area have a duty to look after their own interests, the insurance policy will be enforced should she become disabled or die as a result of the undisclosed pre-existing condition. a. True b. False 11. When a relationship exists between a lawyer and a client, the court is entitled to assume presumed pressure

amounting to undue influence. a. True b. False 12. In order for a contract to satisfy the requirement of being written, all of the requirements must be met in one

document called “the contract.” a. True b. False 13. Minors have the option of fulfilling their contractual obligations and suing the other party to enforce the

contract. a. True b. False 14. Sanjip has elected to build up the earth around the cracked foundation of his home prior to listing the home for

sale. Sanjip’s action will not amount to misrepresentation if he fails to disclose the cracks to potential purchasers. a. True b. False 15. Proof of unconscionability requires proof of inequality between the parties. a. True b. False 16. Some Canadian common law courts have ruled that, where proper circumstances allow, a party’s lack of a

practical or realistic alternative can establish valid evidence of economic duress. a. True b. False 17. A simple oversight or error by one negotiating party does not constitute a legal mistake and provides no basis

for voiding a contract. a. True b. False

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Chap 08_7e 18. In order to count as misrepresentation, it must be proven that the party making the statement knew it was

untrue. a. True b. False 19. A contract with an individual who lacks mental capacity is always unenforceable. a. True b. False 20. A void contract is considered to have never existed at all. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which of the following is NOT necessary for an actionable claim of misrepresentation? a. a false statement of fact b. the statement induced the other party to enter into a contract c. the speaker knew the statement was untrue d. the untrue fact was material to the contract 22. Marie, an elderly widow, has discovered that the fee in the contract she signed to install new siding on her

home is more than twice that typically charged for such work. What must Marie prove in order to cancel the contract on the basis of unconscionability? a. Marie must prove undue influence was present. b. Marie must prove the presence of actual pressure. c. Marie must prove the parties are in a relationship of utmost good faith. d. Marie must prove inequality and an improvident bargain or exploitation 23. Which of the following forms the basis of a common argument for setting aside a contract based on mistake

that will rarely succeed in Canadian courts? a. misunderstanding of the legal consequences of giving an oral guarantee b. misunderstanding of the terms of an oral contract dealing with land c. misunderstanding of the nature or type of contract signed by the party d. misunderstanding that a contract is not to be performed within one year 24. Which of the following elements would a court consider when determining the enforceability of a non-

competition clause on the grounds of reasonableness? a. contravention of the Real Estate and Business Brokers Act b. the reasonableness of location and time restrictions c. contravention of anti-price maintenance legislation d. the need to maintain free and open competition Copyright Cengage Learning. Powered by Cognero.

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Chap 08_7e 25. In what way is a void contract different from a voidable contract? a. A void contract contains a defect so substantial that it is of no force or effect. b. A void contract cannot be enforced because it is contrary to legislation or public policy. c. A voidable contract fails to meet the requirements imposed by the Statute of Frauds. d. A voidable contract fails to meet the requirements imposed by the Sale of Goods Act. 26. Why do the courts subject restrictive covenants in the employment context to greater scrutiny than those

arising in the sale of a business? a. because the clauses are typically ambiguous b. because there is typically a power balance in employment situations c. because such agreements offend human rights legislation d. because such clauses violate the Competition Act 27. Which of the following reflects the general view in Canada with respect to electronic signatures? a. They cannot take the place of signatures on written contracts. b. They are capable of binding the parties to contractual obligations. c. They are not acceptable in the absence of extrinsic evidence of an agreement. d. They are always accepted as conclusive evidence of the parties’ intention. 28. What criteria must be satisfied in order for a misrepresentation to be actionable? a. the misrepresentation must be made to a minor b. the misrepresentation must be material to the contract c. the misrepresentation must be made in conjunction with a threat of harm d. the misrepresentation must be intentional 29. What is the legal definition of “mistake”? a. the threat of physical or economic harm that results in a contract b. an unfair manipulation that compromises someone’s free will c. an error made by one or both parties that seriously undermines a contract d. a false statement of fact that causes someone to enter a contract 30. Holding a gun to someone’s head to induce them to enter a contract exemplifies which of the following legally

exceptional circumstances? a. unconscionability resulting from presumed pressure b. undue influence resulting from actual pressure c. misrepresentation resulting from presumed pressure d. undue inducement resulting from actual pressure

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Chap 08_7e 31. What is the goal of the common law remedy of rescission? a. It seeks to provide redress to the innocent party. b. It seeks to provide monetary redress for harm incurred. c. It seeks to return parties to their pre-contractual positions. d. It seeks to enforce good faith in commercial transactions. 32. Kramer returned from a wedding in an intoxicated state and, while still under the influence, agreed to sell his

motorcycle to his roommate for a price substantially lower than its market value. Which statement best describes Kramer’s legal position? a. He must claim relief due to the effects of duress. b. He must claim relief on the basis of undue influence. c. The contract may be voidable if his roommate was aware he lacked mental capacity. d. The contract will be binding on Kramer because his reduced mental capacity was self-induced. 33. Which of the following is an example of a contract that would be considered contrary to public policy? a. a loan that charges interest in excess of 60% per annum b. a contract in restraint of trade c. a commission contract of an unlicensed realtor d. a contract to that contains an improvident bargain 34. Which of the following might prove that a contract was freely entered into by the parties? a. evidence the contract was signed in the presence of a witness b. evidence the weaker party received independent legal advice c. evidence there has only been presumed pressure but not actual pressure d. evidence that the terms of the contracts are fair 35. How does Canadian contract law protect minors and mentally incapacitated individuals? a. by ensuring that they cannot enter into legally binding contracts b. by requiring the courts to approve their contracts c. by providing that only certain types of contracts are enforceable against minors and those who lack

mental capacity d. both ensuring both groups are represented by guardians when entering into contracts 36. A seller unknowingly made a misrepresentation during negotiations to sell his car. Now that the seller is aware

of the misrepresentation and the prospective buyer is returning to make an offer, what recourse is available to rectify the situation and accept the offer without risking an ensuing lawsuit? a. The seller has no recourse; once information is offered, it must be completely accurate. b. The seller can remain silent to secure the best price and plead mistake as a defence. c. The seller should simply forego the deal with this buyer and look for a new buyer. d. The seller must attend to the prompt disclosure of the correct facts to the prospective buyer. Copyright Cengage Learning. Powered by Cognero.

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Chap 08_7e 37. Michael was severely injured in an automobile accident. While in the hospital, he was visited by an insurance

adjuster who made him a take it or leave it offer of $3000 in full settlement of his personal injury claim. Michael accepted the offer because the adjuster told him there would be no further offers. If Michael’s claim is actually worth $100,000, on what legal basis might the court cancel the agreement? a. because the agreement was illegal b. because the agreement was entered into under duress c. because Michael lacked capacity to contract d. because the agreement is unconscionable 38. Which of the following would be enforceable against a minor? a. a contract for a necessary of life b. any employment contract c. a contract where the minor received legal advice prior to entering into the contract d. a contract to purchase a concert ticket 39. How does misrepresentation differ from a breach of contract? a. Misrepresentation refers to statements made prior to entering into a contract. b. Misrepresentation must be intentional in order to be actionable. c. Misrepresentation only applies if the parties are in a relationship of utmost good faith. d. Proof of misrepresentation alone is insufficient for the courts to rescind a contract. 40. Cory, aged 17, plays hockey under contract with the Northern Manitoba Huskies junior hockey team. What is

the legal term given to this particular type of contractual arrangement? a. beneficial contract of training b. beneficial development contract c. beneficial contract of service d. beneficial minor training contract 41. David was approved for automobile insurance coverage despite his history of seizures. As it turns out, the

insurance agent forgot to ask him about his medical history and David did not bother mentioning his seizures. What is the legal position of the insurer? a. The insurer is still bound to provide coverage because it did not ask David about his medical history. b. The insurer may deny coverage because applicants for insurance have a positive duty to disclose matters that would be relevant to the risk of accepting the application. c. The transactions is unconscionable and may be cancelled at the discretion of the insurer. d. The insurer may not cancel the contract but may increase David’s premiums to reflect the additional risk he represents.

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Chap 08_7e 42. What was the intended purpose of the creation and enactment of the Statute of Frauds? a. to require that commercial contractual relationships be stated in one document b. to avoid the difficulty in proving the value of the goods or services exchanged c. to allow performance to take the place of a written duly executed agreement d. to impede perjury and fraud by documented evidence of specified types of contracts 43. Which of the following are achieved through the law’s enforcement of contracts? a. the protection of economic interests and avoidance of coercion b. due diligence and fair contractual terms c. fairness and equality of the parties within contractual relationships d. the integrity, reliability, and predictability of contractual relationships 44. Where circumstances surrounding a proposed commercial transaction involve an unsophisticated party, what

would a court most likely accept as undisputable evidence that that party has proceeded with the transaction on a free and informed basis? a. a certificate of individual legal advice b. a certificate of independent legal advice c. a certificate of indisputable legal advice d. a certificate of indubitable legal advice 45. Under what circumstances might a court enforce a verbal contract for the sale of land? a. where the plaintiff comes to the court with “clean hands” b. where enforcement of the agreement will not interfere with the rights of third parties c. where the person attempting to enforce the agreement has performed acts that can be explained by the

existence of an agreement d. where it would be unfair to permit the defendant to avoid his or her contractual obligations 46. In the case of Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737 (C.A.), the court was asked to

consider whether a wife who had signed a guarantee on a loan for her husband’s business was entitled to be released from the guarantee on the basis of undue influence exerted by her husband. Why did the majority of the court find that the guarantee was enforceable against the wife? a. because the wife had received independent legal advice b. because the wife was a real estate agent and presumably knowledgeable enough to not be unduly influenced by her husband to sign the guarantee c. because agreements between spouses are always enforceable d. because there was no evidence that the guarantee was unconscionable

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Chap 08_7e 47. While negotiating a commercial agreement, Juan made a misrepresentation that goes to the heart of the ensuing

formal contract between the parties. How do you think the other party to the contract will act, once it becomes aware of the misrepresentation? a. The other party must seek a mediated remedy for the problem. b. The other party may opt to enforce the contract or have it set aside. c. The other party must seek legal advice to remedy the misrepresentation. d. The other party may opt to reproach the contract and set it aside. 48. What is the definition of “duress” with respect to contractual relationships? a. inequality between the parties b. the threat of physical or economic harm that results in a contract c. unfair manipulation that compromises someone’s free will d. unfair criminal activity that seriously undermines a contract 49. Which statement best reflects one of the principles regarding the doctrine of unconscionability? a. It is based on the assumption that the parties to a contract should have equal bargaining power. b. Imbalance in bargaining power alone is insufficient on its own to upset a contract. c. The court will only intervene if there is evidence of mental incapacity of one of the parties. d. The doctrine of unconscionability imposes a positive duty to disclose information. 50. A judge has determined that offending portions of a contract can be severed, and the remaining portions

saved. What type of common law contractual infraction is this judge resolving? a. a mistaken contract b. a fraudulent contract c. an illegal contract d. a negligent contract 51. Which type of misrepresentation entitles the wronged party to cancel the contract? a. innocent misrepresentation b. unconscionable misrepresentation c. fraudulent misrepresentation

d. material misrepresentation

52. Why are contracts that unduly interfere with the ability to earn a livelihood or reduce competition generally

unenforceable in common law? a. They contravene the rules of goodwill contained in the Competition Act. b. They cannot be enforced because they are contrary to statues and public policy. c. They contravene the rules of fairness contained in the Consumer Protection Act. d. They are contrary to the community’s common sense and common conscience.

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Chap 08_7e 53. Which of the following are competing goals that contract law attempts to balance when enforcing contracts? a. the goal of providing remedies, and the goal that contractual terms are reasonable b. the goal of preventing people from avoiding contractual obligations, and the goal of ensuring the contract

reflects the real agreement between the parties c. the endeavour to preserve the real agreement reached by the parties, and the goal of preventing mistakes d. the goal of ensuring equal power between the parties, and the goal of ensuring contract negotiations are successful 54. Rita is employed as a financial investment advisor for a local investment services firm and signed a restrictive

covenant that prevents her from working as an investment advisor for a period of 5 years anywhere in Canada should she leave her current employer. On what legal basis might this clause be unenforceable? a. It violates the Charter guarantee of freedom of mobility. b. It constitutes an unreasonable restraint on trade. c. Rita failed to read the contract before signing it. d. It violates the Criminal Code. 55. What is the legal definition of a “guarantee”? a. a fair contract formed by one advantaged party over another b. a pledge evidencing the capacity to enter into legally binding contracts c. a pledge to pay another’s liability in the event of default of such duty d. a contract made enforceable by performance over a period of time 56. How does the common law classify a situation in which both parties to an agreement have shared the same

fundamental mistake in order to provide a remedy? a. as a mistake at law b. as a shared mistake c. as a common mistake d. as a mutual mistake 57. A sales representative knowingly entered into a contract for an alarm system during a door-to-door sales

campaign with an obviously mentally ill individual. Why could the contract be immediately rendered voidable at that individual customer’s request? a. The contract is contrary to the culpable silence provisions contained in the Vulnerable Persons Act. b. The contract is unenforceable in accordance with the Unconscionable Transactions Relief Act. c. Establishing true consent is not possible due to the individual’s incapacity to grasp the essence and effect of the contract. d. The individual is lacking legal capacity and is unable to perform the contract in whole or in part.

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Chap 08_7e 58. Johan is negotiating the possible sale of one of his company’s regional business operations to Bill. In response

to Bill’s inquiry regarding the duration remaining on the existing supply contracts, Johan provided the end dates of the contracts themselves. Johan did not advise Bill that two of the customers were on the brink of insolvency. If Bill relies on the information Johan provided, what recourse will contract law allow him? a. The contractual defect is so substantial that it is of no force or effect. b. A misrepresentation must meet the requirements imposed by legislation. c. An aggrieved party can choose to enforce the deal or bring it to an end. d. Partial provision of information allows the contract to be rescinded. 59. Which of the following situations might give rise to a void contract? a. a contract that is contrary to public policy b. a contract that fails to meet the requirements of the Statute of Frauds c. a contract between spouses d. a contract between partners in a partnership 60. What is the policy rationale underlying the rule that minors are obligated by contracts for essentials? a. minors who are self-supporting should be treated like adults b. no one would provide essentials to minors if such contracts were unenforceable c. essentials of life are usually priced fairly d. minors do not voluntarily incur obligations for essentials 61. Which of the following would be a valid provision under the various provincial acts dealing with the sale of

goods? a. Contracts above $20 to $25 must be made in writing in order to be enforceable. b. If partial payment or acceptance is made by the buyer, an oral contract is enforceable. c. Contracts above $15 to $20 must be made in writing in order to be enforceable. d. If creation of a record of an agreement is evident, the court must make a prudent ruling. 62. Identify the categories of contracts that must be evidenced in writing in order to be enforceable.

63. If a contract is one that the Statute of Frauds requires must be written in order to be enforceable, what must

appear in writing?

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Chap 08_7e 64. What interests do the courts balance in deciding whether a noncompetition covenant, preventing an employee

from leaving and going into competition with her former employer, is enforceable? What is the test applied by the courts?

65. Is an “electronic signature,” legally valid in Canada?

66. Under what circumstances might a contract be enforceable against a minor?

67. What is the distinction between a non-solicitation clause and a non-competition clause, and in what context do

these clauses typically arise?

68. Identify and briefly explain the relevance of a misrepresentation of relevant facts with regard to an insurance

contract.

69. What must be proven in order to have a contract set aside for misrepresentation?

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Chap 08_7e 70. A contract is only as good as the process leading up to its formation. What factors should businesses train their

employees to consider when negotiating contracts in order to ensure they are enforceable?

71. With respect to a contractual relationship, identify the types of remedies for misrepresentation available to the

affected parties and how they are applied.

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Chap 08_7e Answer Key 1. False 2. False 3. False 4. True 5. True 6. True 7. True 8. False 9. True 10. False 11. True 12. False 13. True 14. False 15. True 16. True 17. True 18. False 19. False 20. True 21. c 22. d 23. c 24. b 25. a 26. b

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Chap 08_7e 27. b 28. b 29. c 30. b 31. c 32. c 33. b 34. b 35. c 36. d 37. d 38. a 39. a 40. c 41. b 42. d 43. d 44. b 45. c 46. b 47. b 48. b 49. b 50. c 51. c 52. d 53. b 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 08_7e 55. c 56. c 57. c 58. d 59. a 60. b 61. b 62. 1. Contracts of Guarantee 2. Contracts not to be Performed Within a Year 3. Contracts Dealing with Land 4. Contracts for the Sale of Goods 63. Three things must appear in writing:

1. Essential terms of the contract 2. Identity of the parties 3. Signature of the party against whom the contract is to be enforced 64. Factors considered are that it is in the public interest to discourage restraint of trade and maintain free and open

competition, versus a disinclination to restrict the rights of contract, particularly when exercised by knowledgeable persons of equal bargaining power. The test applied is whether the covenant is reasonable between the parties and with reference to the public interest. 65. This area of law is still developing, but legislators across the country have now offered guidance as to what fulfills a

signature requirement in an electronic environment, and most Canadian jurisdictions have now accepted electronic signatures according to statutory rules of varying strictness. 66. Minors are obligated by contracts for essentials, known in law as “necessaries,” and are required to pay a

reasonable price for them. What amounts to a necessary in a given case is legally determined in relation to two questions: 1. Is the item being acquired necessary to this minor? 2. Does this minor already have an adequate supply of the item? Contracts known as beneficial contracts of service are also binding if they are considered largely for the benefit of the minor. For example, an employment contract with a minor is enforceable if the employer can show that the contract involves a significant element of training and career development, such as one would expect in a program required to enter or progress through a trade or profession.

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Chap 08_7e 67. These clauses are typically used in contracts for the purchase of a business and in employment contracts. A non-

solicitation clause simply forbids the employee (or business vendor) from contacting the business’s customers. A non-competition clause forbids competition outright for a certain period of time and is therefore much more intrusive. 68. A person applying for insurance coverage is entering into a relationship that the law considers to require utmost good

faith. The person applying therefore has a duty to disclose all relevant information to the insurer in order for the insurer to assess the risk of accepting the application. 69. It must be shown that:

1. There was a false statement 2. The misrepresentation was clear and unambiguous 3. The misrepresented fact was material to the contract 4. The misrepresentation actually induced the aggrieved party to enter the contract 5. The misrepresentation was one of fact and not opinion, unless given as an “expert opinion” 70. ∙ Matters to be concerned about include: ∙ Are the parties to the contract under any legal incapacities? ∙ Has one party taken unfair advantage of the other? ∙ Has one party misled the other? ∙ Has a substantial mistake been made? ∙ Is the contract contrary to legislation or in violation of public policy? ∙ Is the contract required to be in writing? 71. The types of remedies for misrepresentation available to the affected parties are as follows:

1. A court may rescind the contract 2. A court may set the contract aside 3. Misrepresentations that are torts attract an award of damages from the courts If the misrepresentation is fraudulent or negligent, damages in tort may be awarded by the court in addition to the remedy of rescission provided by contract law.

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Chap 09_7e Indicate whether the statement is true or false. 1. Under common law, an individual improperly fired from their employment has a duty to their former employer

to try to find a replacement job as quickly as possible. a. True b. False 2. A clause that excludes or limits liability even for a profoundly serious breach of contract is unenforceable, if it is

unconscionable or would be unfair or unreasonable. a. True b. False 3. Both parties to the original contract must agree to an assignment for it to be enforceable. a. True b. False 4. An assignee’s rights can be no greater than the assignor’s rights. a. True b. False 5. An assignment is effectively the same thing as novation. a. True b. False 6. A breach can have the effect of terminating a contract. a. True b. False 7. A creditor has assigned a debt to a collection agency. As an assignee, the collection agency is not a party to

the original contract and is therefore barred under the doctrine of privity from acquiring any rights to own the debt under it. a. True b. False 8. A person claiming frustration must establish that the event arose without either party’s fault. a. True b. False 9. Under the common law test for remoteness, damages are not generally considered reasonably foreseeable

where any unusual circumstances were communicated to the offending party at the time the contract was formed. a. True b. False

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Chap 09_7e 10. Novation of a contract will result in the termination of the original contract. a. True b. False 11. If neither party has performed its obligations under a contract when a frustrating event occurs, they are both

left where they were before the contract was formed. a. True b. False 12. A warranty is a contract term that entitles a party to rescission of the contract. a. True b. False 13. The remedy of rescission is not available if the plaintiff does not bring an action seeking rescission within a

reasonable time. a. True b. False 14. Everyone who suffers a breach of contract has a duty to mitigate. a. True b. False 15. Both contractual rights and contractual obligations can be assigned. a. True b. False 16. An assignee is entitled to collect the debt owed under a contract despite not being involved in the creation of

the contract that produced the debt. a. True b. False 17. The courts are reluctant to allow a breaching party to rely on the protection of a limited liability clause when

the breach is severe and undermines the foundation of the contract. a. True b. False 18. Specific performance is only available with the goods are easily replaced. a. True b. False 19. Normally the goal of damages in contract law is to put the wronged party in the same monetary position as if

the contract had been completed. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 09_7e 20. Recovery for non-pecuniary damages is not possible in contract law. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What is a distinguishing feature regarding the common law remedy of punitive damages? a. It is an award of an equitable remedy of punitive damages. b. It represents every adverse consequence following actionable breach. c. It is a damage award arising from a unique actionable wrong. d. It represents an award for reasonably foreseeable damages. 22. Two financial institutions unknowingly advanced loans in exchange for an assignment of rents on the same

apartment building. The tenants were served with notice of the assignment by one financial institution immediately, the other served notice one week later. With respect to the payment of the rents under the assignments, what advice would a lawyer give to the tenants? a. Payment of the rents by the tenants is payable to the landlord. b. Priority ranking is delegated in the order notice was effected. c. Priority ranking is delegated to the first party to advance the loan. d. Payment of rents must be made to the assignor of the rents. 23. Which statement best describes the duty of the plaintiff to mitigate his or her damages? a. The duty to mitigate is no longer part of the law of Canada. b. The plaintiff is relieved of the duty to mitigate if the case involves a breach of a major term of the

contract. c. Everyone who suffers a breach of contract has a duty to mitigate. d. A party will be relieved from the duty to mitigate if it will require a cash outlay. 24. Although Maybelle’s insurance excluded coverage for jewelry loss, her insurer mistakenly sent her a cheque to

compensate her for the loss of an expensive piece of jewelry. What legal doctrine might the insurer use to recover the money that was mistakenly paid to Maybelle? a. frustration b. the duty to mitigate c. unjust enrichment d. misrepresentation 25. Which of the following accurately describes the legal position of the plaintiff in a case of anticipatory breach of

the contract by the defendant? a. The plaintiff cannot sue until the defendant actually breaches the contract. b. The plaintiff’s only remedy is to seek an injunction. c. The plaintiff will not be permitted to sue for damages and may only sue for specific performance. d. The plaintiff can sue for damages immediately.

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Chap 09_7e 26. Albert entered into a contract under the name of one of his corporations. After consulting with his accountant

regarding tax implications, he asked, and the other party agreed, to change the name of the company in that contract. What has transpired with respect to the contract between these parties? a. amendment b. novation c. assignment d. substitution 27. What is the legal term for a remedy in which the court utilizes its jurisdiction to order an injunction for a stated

period of time? a. specific injunction c. temporary injunction

b. interim injunction d. interlocutory injunction

28. A flood will require mining operations to cease for at least six months. How would a force majeure clause

affect the legal status of the miner’s obligations relating to its existing supply contracts? a. non-performance of the contract will be excused without liability b. the innocent party will have the right to terminate and sue for breach c. performance obligations will be suspended until a specified event occurs d. the innocent party will have the right to sue for damages for breach 29. In which situation might a court be inclined to grant an injunction? a. where the contract contains a promise not to engage in specified activities b. where the plaintiff does not have “clean hands” c. where the plaintiff is undeserving of damages d. where the court wishes to force a party to complete their performance of the contract 30. Dana has received a cheque from Storage4U Ltd. compensating her for the theft of her stored property. What

type of damages has Dana been compensated for? a. pecuniary damages b. non-pecuniary damages c. punitive damages d. special damages 31. Which of the following would a court consider the common law duty to mitigate to be imposed upon? a. the assignee to a contractual agreement b. the party causing a contractual breach c. the party affected by contractual breach

d. the third party unaffected by the breach

32. Which term best describes damages that award the plaintiff with the monetary equivalent of performance of the

contract? a. restitution damages c. innominate damages

b. punitive damages d. expectation damages

33. A party to a contract erroneously acted on an assumption involving breach of an innominate term. That party is

itself now being sued for breach. What was the erroneous action taken by this party? a. the initiation of a claim for damages b. the repudiation of the contract c. an incorrect application of a warranty d. a delay of performance of obligations Copyright Cengage Learning. Powered by Cognero.

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Chap 09_7e 34. Aaron’s $175 000 a year employment contract was terminated without notice or compensation two years

before it was to expire. Within six months, he was able to secure a position under a one-year contract paying an annual consideration of $90 000. What could you reasonably expect a judge to award to Aaron for damages for wrongful termination? a. $70 000 b. $85 000 c. $175 000 d. $260 000 35. Mai entered into a contract to by Jessa’s 1970 Volkswagen Beetle for $5,000. Shortly after signing the

contract but before Mai paid her, Jessa decided to keep the car after learning it was actually worth $12,000. How much damages will a court award Mai if she sues for breach of contract? a. $5000 b. $7000 c. $12 000 d. $17 000 36. Randall was wrongfully dismissed from his job as an accountant 6 months before his term of employment

expired. He would have earned $50,000 had the contract not been breached. He had the opportunity to take a similar accounting job shortly after his termination, which would have paid $30,000 but he refused to do so. Which statement describes the most likely outcome? a. Randall’s damages will be $50 000. b. Randall is not entitled to damages because he had another job available to him. c. Randall’s damages will be $30 000. d. Randall’s damages will be $20 000. 37. A courier employed by Jack’s Deliveries delivered a client’s package to the wrong address. Unfortunately, the

package contained a valuable piece of jewelry and efforts to recover it have been unsuccessful. Which statement describes the most likely outcome? a. The employer will be held responsible in law for the incompetent performance. b. Both parties will be jointly held responsible for their combined incompetence. c. The law will hold each party proportionately responsible for the incompetence. d. The employee will be held responsible in law for the incompetent performance. 38. A lawyer was negligent in his duties, causing his client to lose her entitlement to ongoing support she needed

and was legally entitled to receive. The error remained unresolved, and the client, unable to meet her mortgage commitments, went into foreclosure six months later. In these circumstances, why would the client’s new lawyer commence an action including the damages relating to the foreclosure? a. They are a special consequence of the breach. b. There was no exclusion clause in the retainer agreement. c. The degree of suffering is sufficient to warrant compensation. d. They are a natural consequence of the breach.

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Chap 09_7e 39. Old Time Coins sold an antique coin collection to a client who refused to pay after the coins were delivered.

Old Time has sued and is asking the court to order the return of the coin collection. What type of remedy is Old Time requesting? a. injunction b. specific performance c. rescission d. damages 40. In the case of Fidler v. Sun Life Assurance Company of Canada, [2006] 2 S.C.R. 3., the Supreme Court

of Canada rejected the traditional view that damages for mental distress should be tightly controlled and exceptional and asked instead, “What did the contract promise?” Which of the following represents the answer the court arrived at with respect to that question? a. Damages arise from lack of provision of a psychological benefit. b. Damages arising from mental distress should be tightly controlled. c. Damage awards should be a benefit of a personal nature. d. Damages arising from mental distress should be exceptional. 41. What is NOT a requirement in order to be entitled to the remedy of specific performance? a. the plaintiff has ‘clean hands’ b. the plaintiff has mitigated her losses c. the plaintiff has not delayed d. the goods are unique and cannot be replaced with money 42. Shadow Awning Inc.’s employee attended a client’s home to install an awning over a window. What has just

occurred? a. novational performance c. assigned performance

b. substitutional performance d. vicarious performance

43. In what way did the Supreme Court of Canada’s decision in London Drugs Ltd v. Kuehne and Nagel

International Ltd. [1992] 3 SCR 299 impact the law of privity? a. by extending the situations in which privity prevents the enforcement of contracts by non-parties b. by preventing the enforcement of force majeure clauses in the absence of privity c. by holding that exclusion clauses negotiated by employers also protect employees from liability d. by creating an insurance exception to the doctrine of privity 44. What must be used as the determining factor upon which a court will rely to settle a dispute involving the

classification of a contractual term? a. the conditions specified in the contract c. the implied terms relevant to the contract

b. the warranties set out in the contract d. the intentions of the contractual parties

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Chap 09_7e 45. What is the definition of an “anticipatory breach”? a. a breach that occurs purely for ethical reasons b. a breach that occurs purely for economic reasons c. a breach that occurs at the time of founding the contract d. a breach that occurs before the date for performance 46. A court has refused to order specific performance owing to the effects it would have on a third party. What

would the defendant’s lawyer most likely identify as the circumstances that gave rise to the court’s refusal? a. the impossibility to enforce an employment contract b. improper behaviour on the part of the defendant c. improper imposition of severe hardship d. improper delay on the part of the defendant 47. What will readily allow the judge to make a determination when a court is asked to determine whether the

termination of a contract amounts to termination by performance? a. the determination of the nature of the contract b. the oral evidence given by each of the parties c. the reasonableness of unforeseeability of an event d. the factual circumstances of subsequent events 48. Why did the Supreme Court of Canada grant leave to hear the case of London Drugs Limited v. Kuehne &

Nagel International Ltd. (1992), 97 D.L.R. (4th) 261 (S.C.C.)? a. to restrict employee liability relative to the doctrine of privity of contract b. to ensure employee exclusion clauses are no longer recognized by the lower courts c. to restrict employee liability relative to the doctrine of vicarious liability d. to ensure employer exclusion clauses are no longer recognized by the lower courts 49. Corinne Busco is the owner of Corinne’s Custom Kitchens and was hired to rebuild kitchen cabinets in a

client’s home. Unfortunately, Corinne has become too busy to do the job herself and she has asked another cabinet making business, Jack’s Cabinets, to do fulfill the contract. Which statement describes the most likely outcome? a. Corinne will be held responsible in law for the incompetent performance of Jack’s Cabinets. b. Corinne cannot substitute Jack’s as a party without the consent of her client. c. Corinne may assign the contract to Jack’s provided she gives notice to her client. d. Corinne may assign the contract to Jack’s provided she has the consent of her client. 50. Which remedy would a court most likely award to restore parties to their original pre-contractual positions? a. contractual rescission b. injunctive performance c. interlocutory performance

d. restitutionary quantum meruit

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Chap 09_7e 51. Among other things, Genevieve received an award from the court relating to her inability to sleep for 14

months following the collapse of the roof covering a newly built addition to her home. What is the nature of this portion of Genevieve’s award? a. non-pecuniary general damages b. pecuniary expectation damages c. punitive damages for intangible loss d. punitive damages for tangible losses 52. Donelle agreed to rent her cottage to Juan for the first two weeks of June. Juan paid Donelle the rent due on

May 29 by certified cheque. On the last day in May, a forest fire burned the cottage to the ground. What is the role of the doctrine of frustration with respect to the status of the contract? a. It applies because Donelle has breached the contract. b. It is not applicable; performance can be postponed. c. It applies, as performance is no longer practical. d. It is not applicable; the settled amount has been paid. 53. Rumie paid a $5000 retainer to a lawyer to commence a lawsuit on her behalf. After rendering two $1000

accounts for research, the lawyer advised the claim was too small for him to attend to. He recommended another lawyer to Rumie. How does the law allow Rumie to proceed? a. She must forfeit the full retainer and hire a different lawyer. b. She must treat the contract as ended and sue for breach. c. She must sue the lawyer to recover the balance of the retainer. d. She must retain the lawyer that has now been recommended. 54. In order to avoid having a court impose a classification of a contractual obligation as an innominate term, which

of the following actions would be appropriate? a. Ensure that all contractual obligations are clearly described in the contract. b. Avoid the use of ambiguous language that leads to erroneous assumptions. c. Avoid the use of contractual promises that hold less significance or importance. d. Clearly set out the consequences of the breach at the time the contract is created. 55. What legal remedy is applied in circumstances where a court orders a party to refrain from acting in a specific

manner? a. injunction c. specific performance

b. interlocative injunction d. rescission

56. Leslie offered to pay Murray $100 a day to show her dog in an upcoming three-day competition. Murray

accepted and showed the young male dog, winning best of breed during each day’s competition. Leslie paid Murray $300. What is the present status of their contractual arrangement? a. The contract has been terminated by performance. b. The termination of the competition frustrated the contract. c. The payment of the settlement ended the contract. d. The contract terminated by agreement of the parties. Copyright Cengage Learning. Powered by Cognero.

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Chap 09_7e 57. Speedy Deliveries delivered an envelope two days later than they had promised in their courier services

contract. Unbeknownst to Speedy, the envelope contained important title documents and their client now alleges the late delivery caused a real estate deal to fall through and is suing Speedy for the $200,000 profit it had expected to make from the deal. Which statement describes the most likely outcome? a. The damages cannot be recovered from Speedy because the plaintiff has failed to mitigate. b. The damages will not be recoverable because they are pure economic losses. c. The damages will likely be regarded as a natural consequence of a contract breach. d. The claim will likely fail because the damages are too remote. 58. Which of the following is a distinguishing feature of the vicarious performance of contractual obligations by an

employee at the direction of the employer? a. The doctrine of frustration of contract protects the employee from employer bad faith. b. The doctrine of frustration of contract will hold the employee liable for certain acts. c. The doctrine of privity of contract bars the employee from suing or being sued. d. The doctrine of privity of contract bars the employer from suing or being sued. 59. Which of the following would disentitle a wronged party to the remedy of specific performance of the

contract? a. The wrongful party refused to perform its obligations. b. The item in question is unique. c. The event giving rise to the breach was not foreseeable. d. The wronged party has delayed seeking a remedy. 60. Which of the following possibilities would a party considering the non-performance of a contract weigh? a. the actual anticipated gains versus the likely cost of breach b. the moral cost to society of unethical commercial activity c. that actual moral cost balanced against the economic gains d. the ethical cost to the essential functioning of business 61. Valiant Construction Inc. has assigned its contractual right to payment from one of its customers to ABC

Lumber Ltd. in order to satisfy its debt to ABC. Which of the following statements is correct? a. Valiant Inc. is now released from its obligations to its client. b. This arrangement must be consented to by Valiant’s client in order to be legally enforceable. c. This arrangement is valid even without the consent of Valiant’s client. d. ABC is liable to fulfill the contract in the event Valiant fails to do so.

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Chap 09_7e 62. Newtown Meats Ltd. failed to deliver a restaurant’s order for ground beef, forcing the restaurant to find

another supplier. Unfortunately, the substitute product was contaminated, and now the restaurant is being sued by customers who became ill. Can Newtown be sued by the restaurant for the damages it must now pay its customers? a. No, because the damages would be considered too remote. b. No, because Newtown was not negligent. c. Yes, because the damages would not have arisen had Newtown met its contractual obligations. d. Yes, because the restaurant is entitled to expectation damages. 63. Within each provincial jurisdiction, a beneficiary under an insurance contract is entitled to sue under that

contract even though the contractual arrangement is between parties other than the beneficiary. How is this legally possible? a. legislation limiting application of exclusion clauses in life insurance contracts b. common law reclassification of the application of the doctrine of privity c. legislative amendment to modify application of the doctrine of privity d. common law limiting application of exclusion clauses in life insurance contracts 64. Margo has agreed to purchase a used car from the dealership and their contract contains the following terms:

Model - Ford Taurus, Price - $14,000, Colour - Red, Mileage- 90,000 km, includes floor mats and new tires. What would likely be considered a “condition” in her contract? a. Colour - Red b. Model - Ford Taurus c. includes floor mats d. includes new tires 65. What is the legal definition of the term injunction? a. the substitution of parties or replacement of one contract with another b. the right to a remedy for breach when a party has sustained a loss c. an order to refrain from doing something for a limited period of time d. the transfer of a contractual right by an assignee to an assignor 66. Which statement describes a distinguishing feature of an assignment? a. They are rarely enforced by the courts. b. One can only assign rights, not duties. c. They require consent of the debtor. d. One can only assign to a party approved by the debtor.

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Chap 09_7e 67. If the order would force someone to work in service to another PTS: 1 DIF: Challenging REF: Enforcement of Contracts KEY: Bloom’s Remember 4. Buildco Ltd. entered into a contract that contains a clause limiting Buildco’s liability for any breach of the

contract. Buildco’s employees performed its obligations negligently and have caused harm to the other party as a result. Are the employees protected by the clause that limits Buildco’s liability? Explain.

68. Identify four situations in which the equitable remedy of an order for specific performance may not be

available.

69. Explain the concept of privity. Provide two examples of exceptions to this legal doctrine.

70. What is an assignment, and in what ways are assignments of rights and obligations limited in contract law?

71. While monetary compensation or damages are the usual award in an action for breach of contract,

what other possible remedies are available to a plaintiff who successfully establishes an action for breach of contract?

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Chap 09_7e 72. 2. What four things must generally be shown on the balance of probabilities in order for a party to succeed in

an action for breach of contract?

73. Identify and briefly described the type and circumstances under which punitive damages are to be awarded as

firmly established by the Supreme Court of Canada in the case of Whiten v. Pilot Insurance Co. (2002), 209 D.L.R,. (4th) 257 (S.C.C.).

74. Briefly outline the ways in which a contract can be brought to an end.

75. Explain why a court may deny the remedy of specific performance where it is satisfied that there has been

improper behaviour by the plaintiff. Identify and provide two examples of the rules that are applicable in these particular circumstances and explain briefly the meaning both of those rules imply.

76. What four requirements must be met in order for a contract to be terminated by frustration?

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Chap 09_7e Answer Key 1. True 2. True 3. False 4. True 5. False 6. True 7. False 8. True 9. False 10. True 11. True 12. False 13. True 14. True 15. False 16. True 17. True 18. False 19. True 20. False 21. c 22. b 23. c 24. c 25. d 26. b

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Chap 09_7e 27. d 28. a 29. a 30. a 31. c 32. d 33. b 34. d 35. b 36. d 37. a 38. d 39. c 40. a 41. b 42. d 43. c 44. d 45. d 46. c 47. a 48. a 49. b 50. a 51. a 52. c 53. b 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 09_7e 55. a 56. a 57. d 58. c 59. d 60. a 61. c 62. a 63. c 64. b 65. c 66. b 67.

In the case of London Drugs Ltd. v. Kuehne & Nagel, the Supreme Court of Canada established the principle that employees will be protected by an employer’s contractual limitation of liability clause if a. the clause either expressly or impliedly extends its benefit to the employees, and b. the employees were acting in the course of their employment, and c. the employees were performing the very services provided for in the contract when the loss occurred. 68.

Four situations in which an order for specific performance may not be available are as follows: 1. If there has been improper behaviour by the plaintiff 2. If it is impossible to actually perform the obligation 3. If the order would result in severe hardship to an affected party

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Chap 09_7e 69. Privity means that, generally speaking, only those who are parties to a contract can enforce the rights and obligations

it contains. Because a strict application of the doctrine of privity can lead to serious injustices, courts allow third parties to rely on contractual clauses placed in the contract for their benefit. For example, a contract between a business and a customer may have an exclusion clause protecting employees from liability in the event that the customer suffers a loss. Under a classical approach to privity, employees would not be permitted to rely on such clauses as a defence to any action brought by a disgruntled customer because they are not parties to the contract—only their employer and the customer are. However, in London Drugs Ltd v. Kuehne & Nagel International Ltd, [1992] 3 SCR 299, the Supreme Court of Canada refused to apply privity in this way, choosing instead to create a limited exception to its application. Another exception to privity can be found in insurance legislation across the country that permits the beneficiary under a life insurance contract to sue the insurer even though the beneficiary is not a party to the contract. 70. In law, an assignment arises when one party transfers a contractual right to someone else. Contract law allows one

party to assign his rights under a contract but not the liabilities or obligations. The law of assignment permits the creditor to assign his right to collect under a contract to another (the assignee) without the agreement of the debtor. Once the assignee has given notice of the assignment to the debtor, the latter can perform the obligation only by paying the assignee. An assignee’s right to payment can be no greater than the right possessed by the assignor. 71.

The plaintiff may be able to establish entitlement to an equitable remedy in particular circumstances. Equitable remedies include the following: 1. Specific Performance - An order by the court for specific performance means that instead of awarding compensation for failing to perform, the court orders the party who breached to do exactly what the contract obligated him to do. 2. Injunction - A court order requiring the offender to refrain from continued violation of the contract. 3. Rescission - A court order to restore the parties to the situation they were in before the contract was formed. Additionally, a plaintiff may be able to establish entitlement to a restitutionary remedy. The law of restitution gives recourse to a plaintiff who has conferred benefits on the defendant in reliance on a contract that cannot be enforced. Unjust enrichment occurs when the defendant has undeservedly or unjustly secured a benefit at the plaintiff’s expense. In such circumstances, the court will ordinarily order that the benefit be restored to the plaintiff or otherwise be accounted for by the defendant. 72. Generally, what must be shown by the plaintiff on the balance of probabilities is the following:

1. Privity of contract between the plaintiff and the defendant 2. Breach of the contract by the defendant 3. A loss that entitles the plaintiff to a remedy 4. A better than 50 percent chance that the claim is as the party states it to be

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Chap 09_7e 73. In the Supreme Court of Canada case of Whiten v. Pilot Insurance Co., the court confirmed that punitive damages

are exceptional and are awarded against the defendant only for malicious, oppressive, and high-handed misconduct that offends the court’s sense of decency. In addition, the plaintiff must show that the defendant committed an independent actionable wrong. 74.

When parties enter into a contract, there are several ways in which it can be brought to an end (known, in law, as “termination”): 1. Through performance: when both parties fulfill their contractual obligations to each other, they have performed the contract. 2. Through agreement: the parties are always free to voluntarily bring their contract to an end. 3. Through frustration: the doctrine of frustration applies when, after the formation of a contract, an important, unforeseen event occurs—such as the destruction of the subject matter of the contract or the death/incapacity of one of the contracting parties. 4. Through breach: when a breach of contract is particularly serious, it can release the innocent party from having to continue with the contract if that is his wish. 75. Because specific performance is an equitable remedy, a court can refuse to order it at its discretion if it is satisfied

that there has been improper behaviour by the plaintiff. Any improper motive or conduct on the part of the plaintiff may disqualify that party from being granted such special assistance from the courts. Rules governing equity, such as “he who seeks equity must do equity” and “she who comes to equity must come with clean hands,” mean that only the deserving plaintiff will succeed with a claim for an equitable remedy. 76. The requirements for a contract to be terminated by frustration are the following:

1. The event was dramatic and unforeseen 2. Neither party had assumed the risk of the event occurring 3. The event arose without being either party’s fault 4. The event must make performance of the contract functionally impossible or illegal

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Chap 10_7e Indicate whether the statement is true or false. 1. The defendant in a civil action must prove his or her innocence beyond a reasonable doubt. a. True b. False 2. The word “tort” is a legal term used to describe any type of harm or injury caused by one person to another,

excluding instances of breach of contract. a. True b. False 3. A plaintiff can recover 100% of his tort judgment from any one of the defendants whom a court has found to

be jointly responsible. a. True b. False 4. The law of torts narrowly restricts the amount of compensation awarded to an injured party when the injury is

the result of someone else’s blameworthy conduct. a. True b. False 5. There are many different torts, each with its own unique set of requirements. a. True b. False 6. In order to avoid responsibility for a tortious act, individuals must take reasonable care to avoid acts or

omissions that they can reasonably foresee would be likely to cause injury to others. a. True b. False 7. The tort of battery involves the intentional infliction of harmful or offensive physical contact. a. True b. False 8. An employer can never be held vicariously liable for an employee’s intentional tort, such as a sexual assault. a. True b. False 9. Generally, supporting expert evidence is required to sustain an action for damages for emotional distress. a. True b. False 10. The same event may give rise to legal consequences in criminal law and in tort law. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 10_7e 11. The primary goal of tort law is compensation. a. True b. False 12. In general, tort law seeks to impose liability based on fault. a. True b. False 13. Damages for pain and suffering are an example of special damages. a. True b. False 14. The primary goal of non-pecuniary damages is to compensate. a. True b. False 15. The nature of precedent is inherently contemporary, meaning that judges can use their discretion and ignore

past cases in order to force the evolution of the law in accordance with policy directives. a. True b. False 16. Contributory negligence legislation apportions responsibility among those whose conduct has led to injury. a. True b. False 17. The tort of negligence is the most uncommon of the torts that arise in a business context. a. True b. False 18. When an employer is vicariously liable, the employee who actually caused the plaintiff’s loss retains primary

liability. a. True b. False 19. Intentional torts are harmful acts that are committed on purpose. a. True b. False 20. A judge will likely rely on expert opinions from occupation experts, labour economists, and actuaries when

determining the value of an injured plaintiff’s diminished earning capacity. a. True b. False

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Chap 10_7e Indicate the answer choice that best completes the statement or answers the question. 21. What is the primary goal of tort law? a. punishment b. retribution c. compensation

d. loss prevention

22. What are the categories of pecuniary damages that may be awarded in accordance with tort law? a. compensation awarded to the plaintiff to punish the defendant for particularly offensive behaviour b. compensation for pain and suffering, loss of enjoyment of life, and loss of life expectancy c. compensation for out-of-pocket expenses, loss of future income, and cost of future care d. no-fault compensation for injured employees in lieu of their right to sue 23. Which of the following circumstances is synonymous with the legal term “joint tort-feasor”? a. A culpable party has committed more than one tort. b. It is a form of court order prohibiting certain conduct. c. All blameworthy parties to the tort share joint liability. d. A victim is found responsible for a portion of the loss. 24. What must a finding of guilt or innocence beyond a reasonable doubt be based on? a. objective and factual reasoning b. better than a 50 percent chance c. logic and common knowledge

d. reason and common sense

25. Carson is a security guard in a department store and made a citizen’s arrest of an individual who was acting

suspiciously and whom he suspected was a shoplifter. However, the police were unable to find any evidence of theft and the customer was released. Which statement best describes the most likely outcome? a. Carson and his employer may be liable for the tort of false imprisonment. b. Carson cannot be sued but his employer may be sued for the tort of false imprisonment. c. Carson and his employer may be liable for the tort of deceit. d. Carson cannot be sued but his employer may be sued for the tort of deceit. 26. Which of the following is most likely attributable to a private prosecution? a. a rare form of criminal prosecution initiated by a private individual b. a rare form of civil action in which the defendant is a private individual c. a typical form of civil action in which the plaintiff is a private individual d. a typical form of criminal prosecution initiated by the Crown

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Chap 10_7e 27. Why would a hotel guest who has been injured by a tortious act of the hotel’s employee be entitled to claim

liability in tort and in contract? a. Businesses are particularly vulnerable to the doctrine of vicarious liability. b. Providing a reasonably safe environment is an implied term of the contract. c. Provision of inadequate service gives rise to primary liability of employees. d. Businesses are exposed to a wide variety of risks related to tort actions. 28. In addition to monetary compensation for mental pain and economic suffering awarded for harms arising from

another’s tortious act, which of the following would also qualify for monetary compensation under tort law? a. enjoyment of life b. recurring trespass c. physical injury d. slight economic harm 29. Where the same incident has led to both criminal charges and the commencement of a lawsuit, what will most

likely be the result? a. A criminal conviction ensures a successful civil liability action in tort. b. Criminal conviction is relevant to establishing a related civil action in tort. c. A prior civil compensatory award for tort ensures criminal conviction. d. Civil actions are unable to proceed without a prior criminal conviction. 30. Marion ran a red light, colliding with Amand’s vehicle. Amand had consumed four beers before getting behind

the wheel. He suffered two broken legs in the accident and missed work for 14 months. Marion filed a defence seeking to reduce the amount of any damage award made against her. What would the court need evidence of in order to accept Marion’s defence? a. joint tort-feasors b. contributory negligence c. vicarious liability d. intentional tort 31. What are the legal terms given to the party bringing a criminal action and to the party bringing a tort action? a. petitioner, complainant b. applicant, plaintiff c. appellant, complainant

d. the Crown, plaintiff

32. Casia, who had always been in good health, suffered a heart attack while driving her car and crashed into a

pedestrian who in turn suffered serious personal injuries as a result of being struck. Which statement best describes the most likely outcome? a. The type of damages was not reasonably foreseeable. b. Casio has insurance and therefore is protected from being sued. c. No tort has been committed by Casia. d. Casio owes no duty of care in these circumstances.

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Chap 10_7e 33. How do the burdens of proof in criminal cases and tort cases differ? a. The burden of proof in a criminal case is higher than in a tort case. b. The burden of proof in a criminal case is “beyond a balance of probabilities,” but it must be “proven

beyond a reasonable doubt” in a tort case. c. The burden of proof in a criminal case rests with the accused, whereas in tort cases it rests with the plaintiff. d. It is easier to prove a tort case than it is to prove a criminal case 34. Which of the following would be characteristic of an offence of aggravated assault under s. 268(1) of the

Criminal Code of Canada? a. entering onto another person’s property without consent b. wilful disfiguration or endangerment of another person c. commission of a careless act causing loss to another d. idle talk of threats to physically harm another person 35. How has Workers’ Compensation legislation impacted tort law? a. by prohibiting employees from suing the employer for negligence and other torts b. by limiting the amount of damages awarded by the courts in tort lawsuits arising from workplace

accidents c. by transferring an employee’s right to sue to the employer d. by restricting employee tort claims to past and future income losses 36. What type of evidence will a court require in order to determine the monetary amount of a damage award for

a plaintiff’s cost of future care? a. testimony from labour and vocational experts b. expert testimony from accountants and/or actuaries c. expert testimony from the provincial health insurer d. testimony from medical, occupational, and rehabilitation experts 37. Which term is synonymous with the legal term “punitive damages”? a. special damages b. pecuniary damages c. exemplary damages

d. general damages

38. What is the legal significance of the relationship between the conduct authorized by an employer and the wrong

committed by the employee? a. It is the significant connection justifying an employer’s vicarious liability. b. Courts consider that the party who benefits from business should bear its associated costs. c. It is the significant connection prescribed under the doctrine of primary liability. d. Courts consider that the fact that wrongful acts may occur is a cost of business.

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Chap 10_7e 39. What would a court most likely rely on when awarding damages to compensate an innocent party for their loss

in a case involving joint tort-feasors? a. each tort-feasor’s ability to pay damages b. each tort-feasor’s risk of wrongful conduct c. each tort-feasor’s level of responsibility d. each tort-feasor’s contributory negligence 40. How would a court determine the amount by which to reduce a plaintiff’s award where that party has also

acted negligently? a. by considering the defence alleging contributory negligence by the plaintiff b. by determining the degree to which a plaintiff is responsible for their own loss c. by apportioning liability for the loss between all of the joint tort-feasors d. by determining that the loss sustained was much less than it might have been 41. While a central function of tort law is compensation for innocent victims, why might the application of tort law

not result in compensation for an innocent victim? a. because any fault on the part of the victim will negate his or her claim b. because the wrongdoer was already convicted criminally for the same wrong c. because the victim has failed to satisfy the “clean hands” rule d. because tort law requires blameworthy conduct on the part of the defendant 42. What do negligence and breach of contract have in common? a. Both are torts. b. Both are types of private wrongs. c. Both are types of claims must be initiated by the Crown. d. Both give rise to vicarious liability. 43. What is considered to be the critical intent behind the prosecution of criminal acts that contravene the laws

prescribed in the Criminal Code of Canada? a. to facilitate the rehabilitation of society’s less than fortunate citizens b. to determine awards of compensation for the victims of crimes c. to determine and enforce the adequate punishment of wrongdoers d. to maintain respect for established societal rights of the Canadian people 44. What does the law consider to be a qualifying act with respect to the commission of a tort of battery? a. an uninvited intentional occupation of another person’s property b. an uninvited intentional physical violation of another’s bodily security c. a careless act or omission that causes harm to another d. an overt threat of imminent physical harm

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Chap 10_7e 45. Graham was in a hurry and forgot to purchase a parking pass after parking his car in a private parking lot.

Which tort has Graham likely committed in these circumstances? a. trespass b. negligence c. fraud d. deceit 46. Which statement best describes one of the key objectives of tort law? a. to allow parties certainty and the ability to plan their business affairs b. to determine when a loss by one person should be shifted to the person responsible c. to ensure that negligent parties are punished for their carelessness d. to prevent losses 47. Which statement best describes the relationship between tort law and criminal law? a. Legal consequences may arise under either criminal or tort law, but not both. b. Legal consequences can arise under criminal and tort law from the same event. c. A tort is a public wrong whereas a crime is a private wrong. d. Anyone committing a tortious act commits an offence under the Criminal Code. 48. Which of the following would immediately justify a court finding an employer vicariously liable? a. authorized actions within the ordinary course of employment b. evidence of unauthorized mode of performance c. evidence establishing a significant connection d. authorized actions outside the ordinary scope of employment 49. Which of the following is an example of special damages? a. pain and suffering b. loss of enjoyment of life c. loss of life expectancy

d. ambulance costs

50. Rodolfo was permanently injured in a vehicle collision. He retained Pilgren six months prior to the limitation

date to commence a law suit on his behalf. Pilgren incorrectly noted the limitation date. As a result, he failed to file the claim within the prescribed time. What is the tort that arises in these circumstances? a. professional negligence b. professional incompetence c. incompetence d. negligence 51. After being cut off while driving, Martin intentionally rammed his truck into the rear of the offending driver’s

car in an act of road rage. Which statement best describes the most likely outcome? a. Martin has likely committed the tort of trespass. b. Martin will likely be held liable for aggravated damages. c. Martin will likely be held liable for punitive damages. d. Martin will likely face criminal charges but not liability in tort law.

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Chap 10_7e 52. What must be established to give rise to a cause for a civil action based on primary liability? a. an act of self-defence b. a criminal conviction c. an individual’s own misdeed

d. torts of assault and battery

53. Neither Jeremy nor Jayson could afford the $60 ticket price for the RTG concert, but they were determined to

go nonetheless. They were humiliated when they were apprehended shortly after sneaking in through a side entrance, charged, and sternly escorted from the building. What is the most likely infraction arising from these circumstances? a. defamation of character b. trespass to land c. libel d. negligence 54. Which of the following is the phrase “unreasonable conduct” synonymous with when considered in its legal

context? a. battery c. negligence

b. deceit d. fraud

55. Which of the following is a valid defence to a claim for damages for losses arising from an alleged negligent

act? a. The act causing the harmful event was unintentional. b. The loss was reasonably unforeseeable or reasonably unpreventable c. The act is an indictable offence under the Criminal Code of Canada. d. The loss was reasonably foreseeable or reasonably preventable. 56. Which statement best describes the distinction between criminal law and tort law? a. Tort law doesn’t require the defendant’s fault, whereas criminal law does require fault. b. Tort litigation must be commenced by a business, whereas criminal proceedings are commenced by

victims of crime. c. Tort law is concerned with insurance claims, whereas criminal law is concerned with restitution to victims of crime. d. Tort law is concerned with compensation, whereas criminal law is concerned with punishment. 57. Under what circumstances will a court hearing a civil action most likely determine it is necessary to punish a

tort-feasor’s offensive behaviour? a. where the defendant has sufficient assets to warrant such an award b. where the victim requires modifications to his living accommodations c. where the defendant might otherwise profit from the objectionable behaviour d. where there has been significant out-of-pocket expenses resulting from injury

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Chap 10_7e 58. Which statement most accurately describes the vicarious liability of employers? a. Employers are vicariously liable for crimes committed by employees. b. Employers are only vicariously liable for negligence and not for intentional torts committed by their

employees. c. Vicariously liability may be imposed where there is significant connection between the conduct authorized by the employer and the wrong. d. Vicarious liability will not be imposed when the employer forbade the employee to take the wrongful action. 59. The injured plaintiff in a car accident lawsuit was not wearing her seatbelt at the time of the accident, resulting

in more severe injuries than if she had been wearing her seatbelt. What argument might the defendant make at her trial? a. The plaintiff consented to the risk. b. The plaintiff was contributorily negligent. c. The plaintiff caused the accident. d. The plaintiff is vicariously liable. 60. What would a lawyer representing an individual wrongfully imprisoned as a result of a fraudulent act on the

part of a Crown prosecutor most likely seek as compensation for her client’s intangible injuries? a. aggravated damages for the defendant’s reprehensible actions b. punitive damages to punish the defendant’s oppressive actions c. special damages to punish the defendant’s high-handed conduct d. pecuniary damages for the defendant’s malicious conduct 61. Which statement best describes damages for pain and suffering? a. Pain and suffering damages are a form of pecuniary damages. b. Pain and suffering damages intended to compensate for reduced life expectancy. c. Pain and suffering damages are subject to a clear upper monetary limit. d. Pain and suffering damages are a form of special damages. 62. Explain what must be valued by a judge with respect to determining the amount of an award for loss of future

income. Identify the parties a judge is likely to rely on to arrive at a decision as to the amount of compensation to be awarded.

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Chap 10_7e 63. Identify and briefly describe the law’s rationale for holding employers vicariously liable for the tortious actions

of their employees.

64. Describe conduct on the part of the plaintiff that might constitute “contributory negligence” in the case of a car

accident. How will a finding of contributory negligence impact the plaintiff’s case?

65. How has tort law been modified by workers’ compensation legislation?

66. Draco is a bouncer employed by Diggers Nightclub. Contrary to the employer’s instructions that rowdy

patrons were to be removed with as little force as possible, Draco lost his composure and seriously injured a very intoxicated patron while removing him from the premises. Diggers is now being sued by the patron. Explain why Diggers might be found vicariously liable for Draco’s conduct.

67. Provide a brief explanation of the circumstances that would involve joint liability under the law of torts. Include

a brief discussion of how legislation assists an innocent victim to recover amounts awarded where there is joint liability for the tort.

68. Compare the approaches taken in Canada and United States with respect to awards for punitive damages.

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Chap 10_7e 69. Provide a brief description of the nature of the expenses a court will consider when awarding special damages

for an injury-causing event. Provide examples of the types of expenses that fall under this damage category, and indicate what a court will require from an innocent party in order to determine the amount of the award. Identify the legal principle that is applicable in some provincial jurisdictions and the types of costs that must be repaid to these provincial health insurers.

70. What is the common law rule regarding the availability of compensation when the plaintiff’s contributory

negligence contributed to his/her injury? How has this been changed by legislation?

71. Carmen was seriously injured when she was struck by a car while crossing the street at a marked crosswalk.

In addition to a broken leg and hip, Carmen was unable to work for six months and it is expected she will never be able to work as a yoga instructor again. Carmen incurred an ambulance bill and physiotherapy expenses as well as costs for purchasing medication. How would the various losses suffered by Carmen be categorized by the courts?

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Chap 10_7e Answer Key 1. False 2. True 3. True 4. False 5. True 6. True 7. True 8. False 9. True 10. True 11. True 12. True 13. False 14. True 15. False 16. True 17. False 18. False 19. True 20. True 21. c 22. c 23. c 24. d 25. a 26. a

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Chap 10_7e 27. b 28. c 29. b 30. b 31. d 32. c 33. a 34. b 35. a 36. d 37. c 38. a 39. c 40. b 41. d 42. b 43. c 44. b 45. a 46. b 47. b 48. d 49. d 50. a 51. c 52. c 53. b 54. c Copyright Cengage Learning. Powered by Cognero.

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Chap 10_7e 55. b 56. d 57. c 58. c 59. b 60. a 61. c 62. With respect to a compensatory award for loss of future income, a judge is required to value the plaintiff’s

diminished earning capacity resulting from injury. The calculation is typically complex, and the court relies on the input of vocational experts, labour economists, accountants, and actuaries in order to determine the amount of compensation that ought to be awarded to the victim. 63. The law’s rationale is threefold:

1. The business that benefits from the ongoing business enterprise should also bear the associated costs. 2. Plaintiffs have a better chance of actually being compensated through liability insurance. 3. An employer’s risk of exposure to potential liability functions as an incentive to employers to try to prevent torts from being committed because employers have the ability to control who their employees are and the training and authority given to employees, and may exercise a great deal of authority over their employees and therefore should be liable for an employee’s conduct. 64.

Contributory negligence is a defence that applies when a plaintiff’s own carelessness contributed to his or her injuries or losses. This defence is very common in car accidents, and examples of contributory negligence might include failure to wear a seatbelt or speeding that caused the injuries of the plaintiff to be more severe than they might have otherwise been. The court will assign a percentage of fault to the plaintiff’s conduct and reduce the plaintiff’s damages award by a corresponding amount. 65.

Workers’ compensation legislation provides monetary compensation to employees for work-related injuries and illnesses. At the same time, it prohibits the employee from suing the employer for any negligence or other tort that might have caused the loss. In this way, the statute takes away the employee’s common law right to sue but provides compensation no matter who is at fault.

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Chap 10_7e 66.

Employers are liable for an employee’s wrongful conduct that is within the ordinary course or scope of employment if it is: ∙ Authorized by the employer; or ∙ An unauthorized mode of doing something that is, in fact, authorized by the employer. Although Draco was not specifically authorized to use excessive force, the employer may still be found liable where there is a significant connection between the conduct authorized by the employer and the wrong committed by the employee. In this case, it could be argued that Diggers created or enhanced the risk of the wrongful conduct by serving intoxicating substances and employing the services of a bouncer to remove intoxicated patrons, and thus it is appropriate that the employer or operator of the enterprise be held responsible, even though the wrongful act was contrary to its instructions. 67.

In circumstances where an individual is injured due to the tortious conduct of more than one party, those culpable as known as joint tort-feasors. Joint tort-feasors share joint liability for the consequences suffered by another as a result of the culpable parties’ wrongful acts. Uniform legislation in each of Canada’s provincial jurisdictions allows that a victim or plaintiff may sue all or any of the culpable parties, with recovery for damages apportioned between the joint tort-feasors according to their level of responsibility. A plaintiff is entitled to recover 100 percent of the judgment from any defendants found by a court to be jointly responsible for the loss or injuries sustained by an innocent party. 68. Punitive damages overall are higher and more frequent in the U.S. than in Canada.

One reason for this is that jury trials are much less common in Canada than they are in the United States. This tends to keep punitive damages lower in Canada, since judges are less easily influenced to make large awards than members of the public who compose juries. Another reason for lower awards in Canada is that the Supreme Court of Canada has guarded against high awards by insisting on “proportionality” as the measure for punitive damages. Any punitive award must be rationally related to the incident and be no more than necessary to punish the defendant, deter wrongdoers, or convey denunciation of the defendant’s conduct. Moreover, the court has insisted that punitive damages should be exceptional, leaving criminal law as the main venue of punishment. 69.

Special damages relate to an innocent party’s out-of-pocket expenses resulting from an injury-causing event. These expenses cover a number of items, including costs for an ambulance, medication, housekeeping, and yard work. The innocent party must retain the receipts for any of these expenses that have been incurred as a result of the injury in order to provide evidence for the court as to the amount of the costs incurred. In some provincial jurisdictions medical costs must be claimed as special damages, which are ultimately repaid to the provincial health insurer under the insurance principle of subrogation.

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Chap 10_7e 70. The common law rule is that where a plaintiff has negligently contributed to their own injury, the amount of

compensation recoverable from a tort-feasor is reduced. Legislation provides for the apportionment of the amount of damages awarded based on the defendant’s proportion of responsibility for the occurrence of the injury. 71.

Carmen’s losses fall into several categories of damages: ∙ Broken hip and leg (Non-pecuniary damages for pain and suffering) ∙ Loss of future income (Pecuniary damages) ∙ Past loss of income (Special damages) ∙ Ambulance bill, physiotherapy, and medication (Special damages)

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Chap 11_7e Indicate whether the statement is true or false. 1. In Canada, manufacturers of poorly produced or designed product are strictly liable for any losses suffered by

users of their product. a. True b. False 2. Donaghue v. Simpson is the foundation of modern negligence law. a. True b. False 3. The defence of voluntary assumption of risk is a complete defence to a lawsuit. a. True b. False 4. Employers may be liable in tort law with respect to negligence arising from injuries related to the consumption

of alcohol during office parties. a. True b. False 5. The thin skull principle is the standard applied to judge whether a person’s conduct in a given situation is

negligent. a. True b. False 6. In negligence law, injury caused by unintended culpable conduct on the part of a defendant is non-

compensable. a. True b. False 7. Commercial establishments serving alcohol owe a duty of care to impaired patrons to assist them or prevent

them from being injured. a. True b. False 8. The standard of a reasonable person is the responsibility owed to avoid carelessness that causes harm to

another. a. True b. False 9. Manufacturers are not held in tort law to owe a duty to consumers of their products. a. True b. False

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Chap 11_7e 10. The idea of remoteness is concerned with whether there is a sufficiently close relationship between the plaintiff

and defendant. a. True b. False 11. Businesses affected adversely by product liability face claims arising from both negligence law and the law of

contract. a. True b. False 12. A large group of members who have similar claims against the same defendant are unlikely to be given

certification as a class action in Canadian courts. a. True b. False 13. Proximity is concerned with whether there is a sufficient connection between the carelessness of the defendant

and the loss suffered by the plaintiff. a. True b. False 14. The thin skull rule is a defence to the tort of negligence. a. True b. False 15. In tort law, the term “neighbour” is considered to imply a relationship that exists between the defendant’s

conduct and the plaintiff’s loss or injury. a. True b. False 16. The tort of negligence reflects the idea that we are expected to act reasonably toward those who we should

foresee could be harmed by our carelessness. a. True b. False 17. Having to prove that for no other reason than for acting on a duty of care owed to them, a party suffered injury

or loss is known as the “but for” test. a. True b. False 18. The imposition of strict liability is a frequent phenomenon in Canadian tort law. a. True b. False

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Chap 11_7e 19. Strict liability does not automatically apply under Canadian law in circumstances where a breach of contract

arises as a result of an employee’s breach. a. True b. False 20. In negligence law, it is possible that a careless defendant will not be found liable for damages he caused if there

are policy reasons to negate the imposition of a duty of care. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which statement best describes a limitation to the defence of voluntary assumption of risk? a. The defendant must prove the defence beyond a reasonable doubt. b. The defendant must prove he assumed no legal risk. c. The defendant show the plaintiff was committing a crime at the time of the loss. d. The defendant must show the plaintiff’s losses were purely economic in nature. 22. In the court’s view, the law requires employees of a bar establishment to encourage a potentially intoxicated

patron to not drive his or her automobile. This duty includes involving police, if necessary, to ensure the patron does not drive under the effects of alcohol consumption. What type of duty has the law imposed on the establishment and its employees? a. a positive duty b. a vicarious duty c. a public duty d. an explicit duty 23. Which statement best describes one of the features of strict liability? a. Strict liability is limited to criminal offences. b. Strict liability makes only rare appearances in the law of torts. c. Strict liability will only be imposed in cases of vicarious liability. d. Strict liability requires the plaintiff to prove carelessness on the part of the defendant. 24. In the legal context, a manufacturer’s responsibility for the design, manufacture, or sale of its products is

synonymous with which of the following? a. a partial defence to relationship of proximity b. the director’s standard of care imposed by professional liability c. a partial defence to neighbour relationship d. the standard of care imposed by product liability

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Chap 11_7e 25. A negligence victim experienced a prolonged recovery from injuries owing to an inherent physical weakness.

What principle would a court apply to prevent a negligent defendant from escaping liability for full compensation in these circumstances? a. foreseeability b. thin skull c. reasonableness d. remoteness 26. Hector didn’t read the waiver clause in the entry form before signing it and paying his entry fee to compete in a

weekend slalom ski-racing event. His neck broke as he landed on top of a pile of large rocks, after an unexpected collision with Juri sent him through a thin, unsupported barrier of mushy walled ice. Which of the following would most strongly support the Supreme Court of Canada’s position that, in these circumstances, the defence of volenti non fit injuria would fail? a. A signed waiver fails as an expression of a victim’s true intention. b. A waiver is an incorrect statement made carelessly. c. A waiver is a misstatement giving rise to valid action in negligence. d. A signed waiver fails as a reliable third-party agreement. 27. A tavern over-served a patron with alcohol who then drove their vehicle while intoxicated. Who might the

tavern owe a duty of care in this situation? a. the patron b. the passengers in the patron’s car and other users of the road c. the patron, passengers in the patron’s car and other users of the road d. the provincial government for breaching the province’s liquor laws 28. At what phase of inquiry in a negligence analysis would the court consider the thin skull rule? a. Did the defendant breach the standard of care? b. Did the defendant owe the plaintiff a duty of care? c. Were the parties in a proximate relationship? d. Were the damages too remote? 29. What is the law’s purpose with regard to imposing a higher standard of care on a physician responsible for

injuries arising from a wrongful breast removal surgery? a. to impose the reasonable person test b. to encourage compliance, competence, care, and caution c. to reduce the scope and the severity of loss to victims d. to set the standard through expert evidence

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Chap 11_7e 30. In accordance with the Supreme Court of Canada’s ruling in Crocker v. Sundance Northwest Resorts Ltd.,

[1988] 1 S.C.R. 1186, in Canada sliding down a hill in an oversized inner tube can NOT be viewed as constituting which of the following? a. a failed defence of volenti non fit injuria b. an assumption of known physical risks c. a waiver of legal rights d. a consent to legal risk 31. Which of the following is synonymous with strict liability with respect to Canadian negligence law? a. vicarious liability b. public liability c. contributory liability

d. prima facie liability

32. Which of the following is synonymous in negligence law with the statement “it is not enough to establish some

of the steps or even most of them”? a. the plaintiff’s requirement to prove each and every step b. the defence of volenti non fit injuria c. the plaintiff’s automatic entitlement to damages d. the right to recover a loss of income. 33. The Supreme Court stated that a person suffering mental injury as a result of another’s negligence must prove

that such a mental injury would have occurred in a person of ordinary fortitude. The fortitude of an ordinary person is held by the same court to be irrelevant in circumstances where carelessness caused physical injury and loss. What common law principle offers a valid criticism of the Supreme Court’s position of the law with respect to involuntarily acquired mental illness? a. the remoteness principle b. the equity principle c. the thin skull principle d. the foreseeability principle 34. Why is the defence of volenti non fit injuria often unsuccessful? a. because the defendant must show the plaintiff acted with violence b. because the defendant must show that the defendant owed a duty of care based on a special

relationship c. because both parties must understand that the defendant has assumed no legal responsibility d. because it requires the defendant to produce a waiver signed by the plaintiff 35. Which of the following is unnecessary in the successful litigation of an action arising from a negligent tortious

act? a. a prima facie harmful act c. a calculated harmful act

b. a standard of care d. reasonable care

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Chap 11_7e 36. Which statement best describes the liability of professionals? a. They may only be sued by their clients. b. They may be sued in contract but not tort. c. They are held to a higher standard of care than an ordinary person. d. They can only be sued for negligent misstatements. 37. Sony Corporation is thinking about having purchasers of its PlayStation product sign an arbitration clause that

takes away their right to sue in court. What benefit might you reasonably expect Sony to achieve with such a clause? a. It’s a good public relations idea. b. It’s likely to reduce exposure to class action suits. c. It’s an actual way to remove liability. d. It’s effective provided customers receive legal advice. 38. Which of the following is a distinguishing feature of the standard of care we are all expected to meet? a. The standard of care expected is the same for everyone. b. The standard of care is always that of an ordinary, reasonable person. c. The standard of care expected is higher for professionals and others with specialized knowledge. d. The standard of care expected is to take all possible steps to prevent foreseeable losses. 39. A court is listening intently to counsel’s argument regarding causation in a case arising in negligence. What must

counsel have already firmly established to now be addressing the issue of causation for the court’s deliberation? a. the general standard that helps a court assess the defendant’s negligence b. that the defendant had a duty to avoid carelessness that caused harm to another c. the reasonableness of an exacting standard of care imposed on activities d. the identity of anyone who might reasonably be affected by another’s conduct 40. Why is the application of strict liability necessarily limited by Canadian tort law? a. Canadian tort law takes contributory negligence into consideration. b. Canadian tort law is founded on a strict liability system. c. Canadian tort law is founded on a fault-based system. d. Canadian tort law is imposed irrespective of proof of negligence. 41. What is the law’s traditional approach to financial or economic losses that are not accompanied by property or

personal injury damage? a. The loss is not usually recoverable. b. The loss is always recoverable. c. The recovery of such losses violates the “but for” test. d. Such losses are recoverable if there is no insurance in place. Copyright Cengage Learning. Powered by Cognero.

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Chap 11_7e 42. TrimAll Manufacturing has been found to owe a duty of care to the plaintiff who was severely injured when he

stuck his hand in the path of the blade of his lawnmower manufactured by TrimAll. What evidence might persuade a court to deny damages to the plaintiff? a. evidence that the plaintiff had insurance b. evidence that the plaintiff was negligent c. evidence that the plaintiff was working at the time of the loss d. evidence that the lawnmower was borrowed from a neighbour 43. Marsha was permanently disabled by a drunk driver in an automobile accident. Her lawyer missed the

limitation date for filing her claim, causing further economic and psychological suffering to Marsha. What is the role of the thin skull rule in these circumstances? a. Damages cannot be reduced because of a pre-existing vulnerability. b. It holds inherent weakness to be negative to a full damage award. c. The lawyer can escape full liability due to a pre-existing injury. d. It holds defendants are not required to foresee the full extent of loss. 44. What is the consequence of a finding that the plaintiff was contributorily negligent in a negligence action? a. The plaintiff will recover 50% of his or her damages. b. The plaintiff’s claim will be dismissed. c. Responsibility for the losses will be apportioned between the plaintiff and defendant. d. The defendant can sue the plaintiff for damages. 45. Who would the law consider to be the ‘reasonable person’ for the purposes of the tort of negligence? a. a trained person b. the judge c. an average person d. an ordinary person of normal intelligence and prudence 46. An elderly woman with osteoporosis suffered numerous broken bones as a result of a minor car accident. A

person without osteoporosis would not have suffered any broken bones in the same circumstances. What would you reasonably expect a court to determine with respect to a negligence claim by the elderly claimant? a. The elderly claimant will receive full compensation on the basis of the thin skull principle. b. The defendant has a complete defence. c. The injury will pass the test of remoteness. d. The elderly claimant will not be awarded any damages.

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Chap 11_7e 47. What aspect of negligence is the law referencing when it applies the neighbour principle? a. whether the defendant breached the standard of care b. whether there is causation c. whether the defendant owed the plaintiff a duty of care d. whether the damage is too remote 48. The business of Helpmates Care Services involves supplying nurses and home care workers to visit elderly

and disabled individuals in their homes to provide nursing and personal care. One of Helpmates’ staff inadvertently gave the wrong medication to one of its clients, and the client had to be hospitalized as a result. Which statement best describes the wrongful act of the worker? a. The defendant breached the standard of care owed to the patient. b. The defendant breached the duty of care owed to its employer. c. The defendant purposely caused the loss. d. The defendant’s conduct was accidental and therefore the defendant cannot be sued for negligence. 49. When a court asks, “Did the defendant behave in the manner of a reasonable person?” what aspect of the tort

of negligence is the court considering? a. Did the defendant owe a duty of care? b. Did the defendant breach the standard of care? c. Did the plaintiff sustain damage? d. Is the damage too remote? 50. What would you reasonably expect a European Union state court to base its findings on when determining a

matter involving defective-product liability? a. limited liability b. a fault-based standard c. a no-fault standard d. strict liability 51. If a court finds Rudy’s spinal injuries are also the result of Rudy encouraging Benj to drive his boat at the

excessive speed that caused the accident, what will immediately come into play? a. contributory negligence b. the standard of care c. volenti non fit injuria d. provincial legislation 52. A court is now considering a question of remoteness with respect to a plaintiff’s injury. Plaintiff’s counsel has

argued the injury was a direct result of the negligent act of the defendant. Which element of this tort action must have already been established in Step 2? a. Will compensation discourage legitimate business activity? b. Was the injury suffered too remote? c. Is the imposition of a standard of care unreasonable? d. Did the defendant breach the standard of care?

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Chap 11_7e 53. Jaycee was seriously injured when the car she was driving was struck from behind by another vehicle whose

driver was travelling at a speed of 130 kph in a 60 kph zone. She would like to sue the police for not ‘catching’ the other driver while he was speeding. Why is this approach unlikely to be successful? a. Policy considerations may make it unwise to impose a duty of care. b. The government cannot be sued for negligence. c. The plaintiffs can sue only the party directly responsible for their losses. d. The government did not breach the standard of care. 54. In which aspect of negligent misstatement does the term “an indeterminate class” arise? a. non-professional b. thin skull principle c. standard of care

d. claims by non-clients

55. How does the proximity analysis differ from the stage 2 analysis when applying the tort of negligence? a. Proximity is concerned with the relationship between the parties and stage 2 is concerned with the legal

system and society more generally. b. Proximity is concerned with the physical connection between the parties and stage 2 is concerned with the legal relationship between the parties. c. Proximity is concerned with fairness and stage 2 is concerned with reasonableness. d. Proximity is concerned with the closeness of the parties and stage 2 is concerned with whether the defendant behaved reasonably. 56. How does the court’s decision in Deloitte & Touche v Livent Inc impact the liability of auditors in Canada? a. Auditors will normally be liable only to their clients. b. Auditors are now liable to anyone who relies on their audited financial statements. c. Auditors can only be sued for breach of contract and not for negligent misstatement. d. Auditors are not liable for pure economic loss. 57. Which of the following is a question that must be answered in the affirmative in order to establish actionable

circumstances of negligence? a. Was the omission the cause of the other’s injury? b. Was the logical consequence proof of intended negligence? c. Did the defendant deliberately cause another misfortune? d. Did the defendant deliberately breach the standard of care? 58. Which of the following best describes what the law regards as carelessness? a. accidental losses b. intending to cause damage c. failure to use reasonable care

d. acting deliberately

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Chap 11_7e 59. What is the meaning of the Latin term prima facie? a. a reasonably foreseeable consequence of an action b. at first sight or on first appearance c. a standard of measurement of questionable behaviour d. a relationship relating to causality 60. Which of the following established the principle in negligence that defendants owe a responsibility to avoid

carelessly causing harm to those whom they can reasonably foresee could be harmed by their carelessness? a. Donoghue v. Stevenson [1932] A.C. 562 (H.L.) b. Hercules Managements Ltd. v. Ernst & Young [1997] 2 S.C.R. 165 c. Kauffman v. Toronto Transit Commission [1960] S.C.R. 251 d. Donoghue v. Simpson [1932] A.C. 562 (H.L.) 61. In which of the following circumstances would a Canadian court be least likely to follow a fault-based system

of determining liability for a negligent act? a. a claim arising for liability for contributory negligence b. a claim arising from product liability c. a claim arising for liability for tort of negligence d. a claim arising from liability in contract 62. What is a distinguishing characteristic of the tort of negligent misstatement? a. It clearly places an unduly broad scope of liability on professionals. b. The tort action co-exists with an actionable contractual breach. c. The client faces liability for the tort of negligent misstatement. d. It strongly places liability for third-party reliance on professionals. 63. What is a distinguishing feature of European product liability law? a. It allows pure economic loss. b. It uses strict liability. c. It requires breach of contract.

d. It requires proof of negligence.

64. 3. Does the standard of care test require all defendants in a particular situation to demonstrate the same degree

of care? Explain.

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Chap 11_7e 65. What explanations have been suggested for the fact that, generally, damages are not available to compensate

for pure economic loss sustained as a result of negligence?

66. What must a plaintiff prove in order to successfully establish a negligence action?

67. Identify and briefly describe what a defendant must show in order to successfully rely on the defence of

volenti non fit injuria. Include a brief explanation of the major significance of this defence to commercial liability insurers.

68. Why might the courts look more favourably on the defence of contributory negligence as compared to the

defence of voluntary assumption of risk?

69. Identify and briefly explain the manner in which negligence law is similar to tort law in general. Include a brief

explanation of how this similarity is accomplished in negligence law.

70. In what ways does the tort of negligence differ from strict liability?

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Chap 11_7e 71. In what way does a claim of negligent misstatement different from an ordinary negligence action?

72. Becky’s carelessness while driving resulted in serious injuries to an elderly individual in another car. While a

younger person might have sustained only minor physical injuries, the elderly plaintiff’s pre-existing osteoporosis resulted in severe injuries. Explain how the thin skull rule will apply in this case.

73. Briefly describe how a prima facie duty of care is established.

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Chap 11_7e Answer Key 1. False 2. True 3. True 4. True 5. False 6. False 7. True 8. True 9. False 10. False 11. True 12. False 13. False 14. False 15. False 16. True 17. True 18. False 19. False 20. True 21. b 22. a 23. d 24. d 25. b 26. a

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Chap 11_7e 27. c 28. d 29. b 30. d 31. a 32. a 33. c 34. c 35. c 36. c 37. b 38. c 39. b 40. c 41. a 42. b 43. a 44. c 45. d 46. a 47. c 48. a 49. b 50. d 51. c 52. d 53. a 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 11_7e 55. a 56. a 57. a 58. c 59. b 60. a 61. d 62. b 63. b 64.

While the defendant’s conduct is judged against the standard of a “reasonable person,” a higher standard of care and demonstrated competence is required of persons who are performing specialized tasks and who have specialized training to qualify them to perform these tasks. The test applied is not the reasonable person, but the reasonable doctor, the reasonable accountant, or the reasonable engineer, as the case may be. The court will hear evidence from expert witnesses to establish exactly what the appropriate specialized standard requires. Also, if an activity or product poses a high risk, the law will impose a higher standard of care. 65.

The explanations given are: 1. This type of loss is too remote or indirect for the defendant to be held responsible 2. The rule prevents defendants from being overwhelmed with liability 3. To permit recovery of damages in such cases would lead to a mass of litigation that the courts would have difficulty handling

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Chap 11_7e 66. The plaintiff must prove each of the following elements beyond a balance of probabilities:

1. Does the defendant owe the plaintiff a duty of care? This element involves two stages: Stage 1: In the relationship between the plaintiff and defendant, is there a prima facie duty of care? To fulfill Stage 1, the plaintiff must demonstrate two things: reasonable foreseeability and proximity. Reasonable Foreseeability: That the harm to plaintiff was a “reason ably foreseeable consequence of the defendant’s negligence.” Reasonable foreseeability considers whether the defendant should objectively have anticipated that his or her act or omission would cause harm to the plaintiff. AND Proximity: That the parties are in such a close and direct relationship that it would be “just and fair having regard to that relationship to impose a duty of care in law.” In assessing proximity, the court must take into account all relevant factors arising from the relationship between the defendant and plaintiff. Stage 2: Are there residual policy considerations outside the relationship of the parties that may negate imposing a duty of care? This stage of the inquiry no longer considers the relationship between the parties but considers, more generally, “the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally.” The concern is for the court not to extend liability too far because of the general ill effects it may have. 2. Did the defendant breach the standard of care? 3. Did the plaintiff sustain damage? 4. Was that damage caused by the defendant’s breach? 5. Was the damage too remote? 67. To succeed in using the defence of volenti non fit injuria, the defendant must show that the plaintiff was aware of

the virtually certain risk of harm and still released his/her right to sue for injuries incurred as a result of any negligence on the defendant’s part. The major significance of a volenti non fit injuria defence to commercial liability insurers is that it is a complete defence with regard to negligence. 68.

Tort law is concerned with compensating those who have suffered damages due to the carelessness of another. The defence of voluntary assumption of risk is a ‘complete’ defence. This means that even if the defendant was careless and that carelessness caused the plaintiff’s loss, the plaintiff would be awarded nothing if the defence of voluntary assumption of risk were successfully established. This is a harsh result and the courts have restricted the application of the defence to situations where both parties understood that the defendant assumed no legal responsibility to take care of the plaintiff. In contrast, contributory negligence is an ‘apportionment’ defence. The plaintiff will still recover damages for the losses caused by the defendant’s negligence but they will be reduced to the degree that the plaintiff’s own negligence contributed to their losses.

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Chap 11_7e 69. Negligence law, like tort law in general, seeks to compensate victims for their loss or injury. Negligence law

accomplishes its goal of providing compensation after applying rules that determine who is liable to compensate another, on what basis, and for how much. 70.

In order to establish the tort of negligence, the plaintiff must show that the defendant’s conduct is blameworthy. Negligence is only established if the plaintiff can show that the defendant’s conduct fell below the standard of a reasonable person in the same circumstances. Without carelessness, a negligence lawsuit will fail. In contrast, strict liability makes the defendant liable for the plaintiff’s loss even though the defendant was not negligent and exercised reasonable care. 71. Negligent misstatement is the tort of negligence however the negligence is in the form of an inaccurate statement or

careless advice that is relied upon by the plaintiff. However, the distinction becomes important when examining whether or not a duty of care was owed by the defendant to the plaintiff. While it is obvious that a professional should expect his or her client to rely on the advice they provide, what if that advice is shared with non-clients, for example? Should the professional also be liable to those individuals? For this reason, an important aspect of the court’s inquiry when applying the tort of negligent misstatement will be whether the defendant actually undertook or committed to present information to the non-client plaintiff in a reliable way. In order to assess reasonable foreseeability, the court must focus on whether the plaintiff’s reliance on that information was reasonably foreseeable and reasonable given the circumstances of the case. 72.

The thin skull rule states that such a plaintiff is still entitled to recovery for the full extent of the injury. Therefore, it can also be said that the thin skull rule prevents defendants from escaping liability needed to fully compensate this type of plaintiff. Provided the “type of injury” that occurred was foreseeable (i.e., physical injuries), then Becky will be required to fully compensate the plaintiff. 73. A prima facie duty is established in Step 1 of the negligent action. It requires proof of the reasonable foreseeability

that careless acts or omissions would cause harm to the injured party. It must also be made clear that the relationship between the defendant and the plaintiff is of sufficient proximity to establish a duty of care. With regard to the duty of care, there also needs to be evidence to determine whether there is an element in the specific relationship between the defendant and the plaintiff to negative or reduce that duty. On this basis, a prima facie duty of care is established.

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Chap 12_7e Indicate whether the statement is true or false. 1. Any person who comes onto the property to provide the occupier with a benefit is legally described as a

licensee. a. True b. False 2. The tort of trespass is actionable without proof of loss or damage. a. True b. False 3. The defence of fair comment requires the defendant to show that the comment was factually based. a. True b. False 4. False imprisonment occurs most often in a retail setting. a. True b. False 5. The defence of “legal authority” requires that the defendant immediately contact the police after making a

citizen’s arrest. a. True b. False 6. The torts of assault and battery are very common in the business and professional context. a. True b. False 7. Out of all of the common law Canadian provincial jurisdictions, only Alberta, British Columbia, Manitoba,

Nova Scotia, Ontario, and Prince Edward Island have passed occupier’s liability legislation. a. True b. False 8. Tort actions that are relevant to business activities can be divided between those that arise because a business

occupies a property and those that arise due to actual business operations. a. True b. False 9. In order to successfully sue for assault, Bonita must prove that actual physical or offensive contact occurred. a. True b. False 10. Injurious falsehood consists of untrue statements made about the goods or services provided by that person. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 12_7e 11. The right to sunlight is protected by the tort of nuisance. a. True b. False 12. The Trade-marks Act contains a statutory form of action that bears a strong resemblance to the tort of

passing off. a. True b. False 13. The main tort actions arising from occupation of property relate to passing off, injurious falsehood, and deceit. a. True b. False 14. An injunction is a common remedy sought in the case of the tort of trespass a. True b. False 15. Passing off involves presenting another’s goods or services as one’s own. a. True b. False 16. An individual who is asked by security to leave a shopping mall will instantly become a trespasser against

whom force can be used. a. True b. False 17. The general rule with respect to occupier’s liability for responsibility to a licensee is for the occupier to make

the licensee aware of any unusual danger of which the occupier is aware. a. True b. False 18. The act of coming onto another’s property without the occupier’s express invitation or implied consent gives

rise to the tort of invasion of privacy. a. True b. False 19. It is entirely possible to have more than one occupier of land or a building. a. True b. False 20. Bonita has been given a new assignment relating to preparing a list of possible legal risks associated with the

business’s newly leased office space. Bonita will need to consider occupier’s liability, trespass, and nuisance in relation to risks arising from occupation of property. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 12_7e Indicate the answer choice that best completes the statement or answers the question. 21. Carrie writes a blog in which she reviews local restaurants. She recently published a blog which was highly

critical of a restaurant because it mixed up her order and she found the food was cold and flavourless—all of which she shared with her readers. What defence might Carrie avail herself to if she is sued by the restaurant for the tort of defamation? a. fair comment b. qualified privilege c. absolute privilege d. responsible communication on matters of public interest 22. PaintForU recently came up with a marketing plan that will refer to its competitor and suggest to readers that

the competitor uses untrained and unskilled workers, a fact for which PaintForU has no evidence to support. What tort action might the competitor bring against PaintForU? a. passing off b. injurious falsehood c. interference with contractual relations d. deceit 23. Which of the following is the most suitable substitute to having an after-the-fact debate on the standard of duty

owed to an injured entrant? a. determining what classification the injured plaintiff belongs under b. knowing that insurance policies are adequate and in good standing c. knowing whether children trespass onto neighbouring property d. implementing preventive measures to maintain safe premises 24. Which of the following would most likely be used by a court to assess the quantum of an individual’s actual

monetary damages resulting from defamation? a. the severity of injury from the falsehood b. the remoteness of the damages c. the severity of the defamation d. the foreseeability of the damages 25. Symmetry Construction is installing pilings for the foundation of a new building it has been hired to construct.

The noise emitted by the pile driver can be heard for several blocks. Why is a lawsuit against Symmetry for the tort of nuisance likely to be unsuccessful? a. The disturbance is not substantial. b. The disturbance is temporary. c. Symmetry has a building permit to carry out the construction. d. Construction noise is always exempted from the tort of nuisance.

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Chap 12_7e 26. Roslyn was stopped on her way to her seat during the hockey game and asked to show her ticket, which she

readily did. Why did Roslyn have to comply with the usher’s request to show her ticket? a. to allow the usher to point out the exclusion of warranty b. so she could be ushered to the correct seat c. so she could confirm entry for the spectators’ benefit d. to show she had paid for the right to enter the premises 27. With respect to personal information, which of the following does the protection of privacy interests afforded

through privacy legislation deal with? a. reputation, right to exclusive enjoyment, and dignity b. proof of damage arising from an actionable privacy violation c. the protection of the privacy of young offenders d. disclosure, use, and collection for commercial purposes 28. Which of the following would be most strongly supported by counsel’s presentation of evidence that

substantiates the truth of a statement in a defamation action? a. a qualified privilege b. a complete defence c. an absolute privilege d. an opinion defence 29. What is a distinguishing characteristic of the tort of passing off? a. It is a strict liability tort. b. Goodwill or a reputation must be attached to the plaintiff’s product. c. The defendant must have intended to confuse the public. d. The plaintiff must have trademarked their product. 30. Which of the following is synonymous with the phrase “protect the reputation of individuals against unfounded

and unjustified attacks” with respect to an actionable tort? a. the law of unfair comment b. the tort of defamation c. the breach of qualified privilege d. the tort of absolute privilege 31. Foodworks Grocers is concerned about customer “slips and falls” and has a maintenance schedule that

requires employees to conduct inspections of its produce area every 30 minutes for spills. How will this schedule impact Foodworks in relation to its duties as an occupier of the premises? a. The existence of the schedule will discharge Foodworks’ obligations as an occupier. b. The adherence to its schedule may assist Foodworks in defending a lawsuit from an injured customer. c. Foodworks will still be strictly liable for any falls that occur in the produce area. d. Foodworks will only be liable if the customer can prove that its deliberate or reckless conduct caused the customer’s fall.

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Chap 12_7e 32. Which of the following is a distinguishing characteristic of injurious or malicious falsehood? a. The burden of proof requires a plaintiff to establish malicious harm to his reputation. b. The plaintiff must prove a false statement harming her reputation was intentional. c. The burden of proof requires a plaintiff to establish a negative product statement is false. d. The plaintiff must prove a malicious statement about service or products and its falsehood. 33. With respect to statutory requirements relating to occupiers’ liability, which of the following would most likely

be set out as a general requirement by provincial legislators creating such law? a. to create a standard of duty to act with common humanity b. to refrain from creating deliberate danger or harm c. to create a high duty of care owed to trespassers d. the common law standard of duty of care 34. Roger’s soccer team completed the entry form and submitted the fee to participate in a local weekend

promotional tournament. Several players in the opening games became nauseated and very ill due to exposure to residue from a pesticide sprayed on the fields an hour earlier. In formulating a legal argument, which of the following could be applied to reach the equivalent to the standard of care set by Manitoba occupiers’ liability legislation? a. standard of common law duty of care b. negligence standard c. standard of statutory duty of care d. neighbour standard 35. What defence did the restaurant reviewer in Sara’s Pyrohy Hut v. Brooker successfully rely on when sued for

defamation after publishing an unfavourable review of the restaurant? a. qualified privilege b. justification c. absolute privilege d. fair comment 36. Which of the following is problematic in the legal context of comparative and negative advertising? a. qualified privilege b. injurious falsehood c. fair comment

d. defamation

37. Which statement best describes the legislative purpose of occupier’s liability legislation? a. to distinguish different classes of occupiers b. to require all occupiers to take steps to ensure the utmost safety of all visitors c. to impose a duty of care when a trespasser is a child d. to impose a generalized duty of care based on the “neighbour” principle 38. Which statement best describes an occupier under occupier’s liability law? a. An occupier must have sole control over the condition of the premises. b. The owner of a property will always be an occupier of that property. c. A temporary provider of services on premises cannot be an occupier. d. It is possible to have more than one occupier of land or a building. Copyright Cengage Learning. Powered by Cognero.

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Chap 12_7e 39. Richard was shopping in a sporting goods store when he was approached by a security guard who told him he

was suspected of shoplifting. The security guard then told Richard he had to accompany him to an office at the back of the store. Richard had stolen nothing but felt compelled to comply with the security guard’s request. Which statement best describes this situation? a. The security guard has committed the tort of defamation. b. Richard cannot sue for false imprisonment because he voluntarily complied with the security guard’s request. c. Richard cannot sue for false imprisonment because he was not physically restrained by the security guard. d. Richard may still sue for false imprisonment because he was coerced into complying with the security guard’s request. 40. Gibert Technologies has developed a cellphone that is very similar in appearance to the iPhone. What tort may

Gibert have committed? a. proprietary trespass c. inducement of breach of contract

b. passing off d. product defamation

41. What is the common term for publishing a defamatory statement? a. defamation b. fair comment c. libel

d. slander

42. Which of the following is a distinguishing feature of the tort of battery? a. Contact need not cause actual harm. b. Contact need not be harmful or offensive. c. Harm must flow directly from contract. d. Harm must flow from careless disregard. 43. Suspecting a burglar was attempting to enter his garage, Hakim let his Dobermans outside to take care of the

threat. He was shocked six months later when he was served with a lawsuit claiming damages for the serious injuries inflicted by the Dobermans’ bites on the thief’s hands and legs. Why has Hakim been named as a defendant in this lawsuit? a. Hakim owed a duty of care to restrict the number of bites his dogs could inflict. b. The injuries result from his reckless disregard for the trespasser’s presence. c. Hakim owed a generalized duty of care based on the neighbour principle. d. The thief must be a child in order for injury to a trespass to be actionable.

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Chap 12_7e 44. With respect to the management of the risk of passing off, which of the following would immediately let you

know that training efforts have failed? a. providing adequate warnings and protections to visitors b. copying others treated as innovation by employees c. maintaining adequate liability insurance coverage d. reducing risk by keeping sidewalks clear of ice 45. As she exited her bank’s building, Tallama’s foot became entangled in a thick rope hanging from the building

maintenance worker’s window-washing platform onto the ground. Tallama lost her balance and broke her arm as she awkwardly hit the ground. Under which of the following torts will Tallama’s lawyer most likely commence an action to recover damages? a. occupiers’ nuisance b. contractual entrants’ negligence c. contractual entrants’ liability d. occupiers’ liability 46. What is the common term for broadcasting a defamatory utterance? a. slander b. liable c. defamation

d. libel

47. How does one establish the defence of lawful authority? a. by calling the police to carry out the arrest b. by complying with s. 494 of the Criminal Code c. by proving lack of malice d. by being a licensed security guard 48. Able Investing is attempting to “poach” a very successful investment consultant from a competing investment

firm and offered him $25 000 to break his three-year contract with his employer. What tort action might Able’s competitor bring against Able in the event the consultant breaks his contract? a. breach of goodwill b. deceit c. interference with contractual relations d. breach of fiduciary duty 49. What is a distinguishing feature of court awards for damages arising from an actionable tort of interference with

contractual relations? a. personal service contracts are exempted from specific performance b. specific performance is rarely awarded in master/servant relationships c. damages are exempted in instances of inducement of breach of contract d. courts rarely award damages for breach of personal service contracts

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Chap 12_7e 50. With respect to unusual dangers, which of the following is a recent modification to the general rule with respect

to occupiers’ responsibilities to licensees? a. Liability arises from having actual awareness of them. b. Liability for known hazards is highest when the visitor is a licensee. c. Liability for known hazards is highest when the visitor is an invitee. d. Liability arises from having reason to know about them. 51. Which statement best describes the newly recognized tort of intrusion upon seclusion? a. It has now been recognized in each province. b. The plaintiff must prove the defendant’s conduct was intentional. c. There is no ceiling with respect to the damages available. d. The defendant’s actions must be deliberate and prolonged. 52. Leakage from a gold mine’s tailings pond eventually leached through the soil, contaminating the groundwater

system with high levels of cyanide. Dairy farmers in the region suffered heavy losses from the illness in their herds caused by the poisoned well water. With respect to the right to use and enjoy land, which of the following would a lawyer advising the farmers likely suggest as grounds for an actionable tort? a. a nuisance action on the grounds of unreasonable and substantial interference b. a negligence action on the grounds of breach of promise of absolute safety c. a nuisance action on the grounds of temporary interference with property d. a trespass action on the grounds of interference with property rights 53. Martina is meeting with a group of new trainees. One of management’s main training goals is to improve

employee awareness of the legal risks that can arise under occupiers’ liability. What will Martina most likely stress as a distinguishing feature of this form of liability? a. that an occupier owes a lower duty to a contractual entrant than an invitee b. that each class of visitor is owed a different standard of care c. the importance of ensuring entrants have paid for the right to enter d. the severity of the liability when someone is classified as a trespasser 54. A lawyer is arguing that a promoter hosting a public New Year’s social is liable in tort for negligence causing

injury and loss to his client. Which argument most likely offers the strongest support for the claim for damages he is presenting to the court? a. Occupiers have a moral obligation to keep the premises safe. b. The promoter failed to provide a safe environment. c. The promoter should assume both physical and legal risks. d. The promoter advertised the event.

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Chap 12_7e 55. What must the defendant prove in order to establish the defence of justification? a. The statement didn’t refer to the plaintiff. b. The statement was substantially true. c. The defendant believed the statement was true. d. The defendant did not intend to harm the plaintiff’s reputation. 56. A politician wrongfully accused another politician of election fraud during question period in the provincial

legislature. What defence might the offending politician raise in the event she is sued for defamation? a. absolute privilege b. justification c. fair comment d. qualified privilege 57. A lawyer for a defendant is arguing that the plaintiff negligently failed to keep a proper lookout for pucks at a

hockey arena, causing his own injury. What classification could likely be applied by a court to negatively influence the viability of this defence? a. plaintiff as a trespasser on private property b. flying pucks as a danger clubs ought to anticipate c. flying pucks as substantial interference with enjoyment of the game d. trespassers as presenting a substantially unreasonable intrusion 58. Thane Accounting LLP recently hired Mitchell who was employed by a competing accounting firm and in

doing so, caused Mitchell to violate a term of his contract with his old firm that required him to give one year’s notice before leaving. What legal wrong might Thane have committed? a. injurious falsehood b. intrusion of seclusion c. interference with contractual relations d. negligence 59. What is the most likely outcome of a court’s finding of a defendant’s libellous conduct as being particularly

reprehensible and oppressive? a. punitive damages b. special damages c. general damages d. exemplary damages 60. Which of the following is synonymous with a warranty that “the premises are as safe as reasonable care and

skill on the part of anyone can make them”? a. a duty owed to an occupier’s licensee b. a duty owed to a contractual entrant c. a duty owed to anyone who is a visitor d. a duty owed to an occupier’s invitee

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Chap 12_7e 61. Delwin hosted a family reunion at his home which was attended by over 40 relatives, some of whom parked in

a church parking lot across from Delwin’s home. What tort might Delwin’s family members have committed by parking in the church parking lot? a. occupier’s liability b. nuisance c. trespass d. intrusion upon seclusion 62. Which of the following is synonymous with a misrepresentation causing loss? a. the fraudulent use of dirty tricks b. an uncommon remedy in damages c. the tort of passing off

d. a reckless disregard for the truth

63. Jordan was seriously injured while trespassing on an abandoned industrial site. He had been exploring an

abandoned building when part of a structure gave way under his weight. Why might Jordan’s lawsuit against the site’s owner fail? a. because an injured trespasser cannot sue an occupier b. because the site owner did not intentionally or recklessly cause Jordan’s injury c. because Jordan was only a licensee and not an invitee d. because the site owner had posted a sign prohibiting trespassers from entering the property 64. Which of the following is an example of an interest that is not protected by the tort of nuisance? a. right to peace and quiet b. right to sunlight c. freedom from unpleasant odours

d. freedom from vibration

65. What is a distinguishing characteristic of the tort of battery? a. It requires the plaintiff to prove harm. b. It only requires offensive physical contact. c. It requires proof of intent to harm. d. It is an indictable offence. 66. Jarvis Holdings Inc. owns an office building in which it occupies half of the building but leases the other half of

the building to a tenant. Who is the occupier of the building? a. Jarvis is the owner and therefore the sole occupier of the building. b. The tenant is the sole occupier. c. Jarvis and the tenant are both occupiers in relation to the entire building. d. Jarvis is an occupier of the space it uses and controls, and the tenant is the occupier of the leased premises. 67. Outline the extent of liability of an occupier of a property for harm suffered by a trespasser.

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Chap 12_7e 68. Describe the questions that should be included in an occupier’s liability risk management plan.

69. Arwyn is a highly successful artist. She has recently become aware of a gallery that is selling replicas of some

of her smaller sculptures. Identify the tort claim available to Arwyn in these circumstances and explain what a court will require to be proven to its satisfaction. Briefly discuss the effect satisfying this requirement will have, with respect to providing a remedy for Arwyn.

70. Identify the types of torts that arise from business operations in relation to its customers. Provide a brief

explanation of the assurances the law seeks to provide through the application of these types of torts.

71. Briefly outline the requirements of the tort of intrusion upon seclusion.

72. Explain the general test and related guidelines applied by the courts when considering whether conduct

amounts to nuisance.

73. A new clothing store is training its staff on how to handle suspected cases of shoplifting. What advice should

employees be given?

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Chap 12_7e 74. Identify and describe the questions that would be considered appropriate for inclusion in a risk management

list of questions for use by a business that designs and creates consumer goods.

75. Identify and briefly describe the elements that must be proven by a plaintiff seeking a remedy from a court for

an actionable tort of passing off.

76. Outline the similarities and differences between the torts of defamation and injurious falsehood.

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Chap 12_7e Answer Key 1. False 2. True 3. True 4. True 5. True 6. False 7. True 8. True 9. False 10. True 11. False 12. True 13. False 14. True 15. True 16. False 17. False 18. False 19. True 20. True 21. a 22. b 23. d 24. c 25. b 26. d

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Chap 12_7e 27. d 28. b 29. b 30. b 31. b 32. d 33. b 34. b 35. d 36. b 37. d 38. d 39. d 40. b 41. c 42. a 43. b 44. b 45. d 46. a 47. b 48. c 49. a 50. d 51. b 52. a 53. b 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 12_7e 55. b 56. a 57. b 58. c 59. a 60. b 61. c 62. d 63. b 64. b 65. b 66. d 67.

In provinces that retain the common law, an occupier still owes some responsibility to a trespasser. In particular, the occupier will be liable for any act done with the deliberate intention of doing harm to the trespasser, or an act done with reckless disregard for the presence of the trespasser. Though the trespasser is not owed a common law duty of care as described in Donoghue v Stevenson, the occupier does owe him “at least the duty of acting with common humanity towards him.” In provinces that have adopted specialized occupiers’ liability legislation, responsibility to trespassers differs among the various statutes. In general, however, an occupier must not create deliberate harm or danger, and, in Alberta, the responsibilities increase where the trespassers are children. 68.

An occupier’s liability risk management plan would ask the following questions: 1. Are there dangers on the property? 2. Are adequate warnings and protections against dangers given to visitors? 3. Are there known trespassers, in particular, children, who come onto the property? 4. What could be done to eliminate or reduce risk flowing from known dangers? 5. Is the business operating in compliance with legislative obligations? 6. Is adequate insurance in place?

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Chap 12_7e 69.

A claim can be advanced based on the tort of passing off. As the plaintiff, Arwyn must prove to the court’s satisfaction that the actions of the offending competitor meet the conditions of the tort of passing off. If a court is satisfied with Arwyn’s evidence to that effect, the court may award both an injunctive remedy to stop any further harmful actions by the offending competitor and damages to compensate Arwyn for her losses and any harm to her business reputation. 70.

Torts arising from business operations in relation to its customers are false imprisonment, assault and battery, and deceit. Through these torts, the law seeks to ensure people’s right to move about as they please, to have their bodily integrity respected, and not to be misled about the quality of a product or service. 71. The plaintiff must prove as follows: (1) that the defendant’s conduct was intentional; (2) that the defendant invaded

the plaintiff’s private affairs without lawful justification; and (3) that a reasonable person would regard such conduct as highly offensive causing distress, humiliation or anguish. 72.

The general test is whether the impugned activity has resulted in “an unreasonable and substantial interference with the use and enjoyment of land.” When determining if particular conduct is an unreasonable and substantial interference, the court will apply the following guidelines: ∙ The interference must be substantial and unreasonable. ∙ Nuisance typically does not arise where the interference is only temporary. ∙ Not all interests are protected by the tort of nuisance. ∙ Courts will consider trade-offs in interest. For example, when the noise in question is reasonable and for the public good, the action in nuisance will fail.

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Chap 12_7e 73.

Employees should be informed that an error in judgment when apprehending a suspected shoplifter may result in liability to the store for the tort of false imprisonment. This risk is particularly pronounced if it turns out the employee wrongly assessed the situation and no theft was in fact committed. To defend against the tort of false imprisonment, the retailer and/or its employees must show legal authority to detain under section 494 of Canada’s Criminal Code, which provides as follows: 494(1) Anyone may arrest without warrant (a) a person whom he finds committing an indictable offence; or (b) a person who, on reasonable grounds he believes (i) has committed a criminal offence, and (ii) is escaping from and freshly pursued by persons who have lawful authority to arrest that person. A suspicion or mistaken belief by the person claiming legal authority that he has seen someone commit a crime is not sufficient under section 494(1)(a). The suspect must have actually committed the crime. Furthermore, when store personnel detain a customer in reliance on section 494, the Criminal Code requires them to “forthwith deliver the person to a police officer.” This means that they must immediately call the police. Beyond this, the store owner or his employees can only use as much force as is necessary given the circumstances under section 25 of the Criminal Code. Otherwise, they face liability in tort for assault and battery as well as liability under the Criminal Code. 74.

An appropriate risk management list of questions for a business that designs and creates consumer goods would consist of the following questions: 1. Do staff understand that they cannot innovate by copying others? 2. Is a program in place to review new product ideas, including all aspects of design, to ensure there is no passing off? 3. Is a climate in place that allows a manager to step in and say, “This cannot be done because I believe we crossed the line”? 75.

A plaintiff seeking damages for an actionable tort of passing off must prove the following: 1. That his product existed prior to the offending competitor’s product 2. That his product had an established valuable reputation 3. Names and appearances of products are similar enough to cause confusion in the minds of potential purchasers 4. The confusion has or will result in the loss of sales or harm to the plaintiff’s business 5. The defendant’s conduct compromises the plaintiff’s control over his own business reputation 76.

Both torts endeavour to protect a business’s reputation. The tort of defamation seeks to “protect the reputation of individuals against unfounded and unjustified attacks,” and the tort of injurious falsehood concerns false statements made not about a person but about the goods or services provided by that person.

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Chap 13_7e Indicate whether the statement is true or false. 1. Amir was given verbal permission to buy a truck for his employer with a spending limit of $20 000. Amir’s

agreement to pay $21 000 for a truck will not be binding on his employer. a. True b. False 2. An agent who has been given permission to “download responsibility for performance” is required to

personally perform the obligations arising from the agency relationship. a. True b. False 3. In both agency by estoppel and agency by ratification, the agent has no authority to do what he does. a. True b. False 4. It is possible to form an agency relationship by words or actions. a. True b. False 5. The individual who permits another to act on his or her behalf is legally known as a principal. a. True b. False 6. An agency relationship created when one party adopts a contract entered into on his behalf by another who

acted without authority at the time is legally known as an agency by estoppel. a. True b. False 7. A duty imposed on a person who has a special relationship of trust with another is legally known as a fiduciary

duty. a. True b. False 8. The law of agency is derived largely from tort and contract law. a. True b. False 9. The onus is on outsiders to inquire as to the limits of an agent’s authority. a. True b. False

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Chap 13_7e 10. When an agent acts within the scope of the agent’s authority, the principal is bound by the contract, whether

the principal likes it or not. a. True b. False 11. A principal whose identity is unknown to a third party who has no knowledge that the agent is acting in an

agency capacity is legally known as an undisclosed principal. a. True b. False 12. When the agent has acted outside the scope of her authority in entering into the contract—that is, by exceeding

the powers she has been given—the contract cannot bind the principal. a. True b. False 13. A principal can ratify every contract that his “agent” enters. a. True b. False 14. Agency relationships generated difficult complications resulting from unethical practices, necessitating the

legislation of numerous special statues to govern agent’s duties and responsibilities. a. True b. False 15. If an agent is to issue promissory notes or sign cheques in the name of the principal, then the agency agreement

should be in writing. a. True b. False 16. An agency relationship created when the principal acts such that third parties reasonably conclude that an

agency relationship exists is legally described as an agency by ratification. a. True b. False 17. An agent is bound by a fiduciary duty to avoid undisclosed, unauthorized conflicts of interest. a. True b. False 18. It is always necessary to look at the essence of a relationship rather than merely relying on what the parties call

themselves. a. True b. False

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Chap 13_7e 19. An agent automatically owes a fiduciary duty to his principal. a. True b. False 20. Partners in a partnership are agents and can bind the partnership to contracts. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. The application of which of the following is most likely to be created by the liability arising from agency

principles with respect to employees and independent contractors? a. the doctrine of vicarious liability b. the common law principle of agency c. the common law neighbour principle d. the doctrine of primary liability 22. Hamish is the purchasing agent for an automobile parts chain and regularly goes on buying trips to find new

products for the business. Which of the following is an example of a fiduciary duty owed by Hamish to his employer? a. duty to avoid conflicts of interest b. duty of personal performance c. duty not to breach the agency contract d. duty to ratify on behalf of the principal 23. Which statement best exemplifies the liability of an agent who acts without authority and contracts with a third

party? a. The agent is liable to the principal for breach of warranty of authority. b. The third party is liable to the principal for breach of warranty of authority. c. The principal is liable to the agent for breach of agency by ratification. d. The agent is liable to the third party for breach of warranty of authority. 24. Why do agency relationships, in general, operate with few difficulties? a. Agents simply represent principals in transactions with others. b. Engaging external specialists is a cornerstone of business. c. Businesspeople cannot operate their businesses alone. d. Parties use agents instead of dealing face to face.

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Chap 13_7e 25. Eve’s best friend, Amrita, knew Eve wanted to buy a delivery van for her new business and when Amrita saw

a great van that met all of Eve’s specifications at an auction, she decided to bid on it without telling Eve. Can Eve ratify the contract entered into by Amrita? a. No, because Amrita is not Eve’s actual agent. b. No, because Amrita was not Eve’s employee. c. Yes, provided Amrita was Eve’s employee. d. Yes, but only if Amrita identified Eve as her principal when she bought the van. 26. Which of the following would a risk manager indicate as being a key point with respect to managing agency

relationships? a. Choosing to avoid conflicts of interests is an agent’s duty. b. Choose wisely, instruct carefully, and review regularly. c. Fiduciary duties must be specified in the agency agreement. d. Fiduciary duties are automatically owed to the principal. 27. Which statement best describes fiduciary relationships? a. All fiduciaries are agents. b. All agents are fiduciaries. c. All fiduciaries are employees.

d. All employees are fiduciaries.

28. How will a power of attorney operate if it states that the occurrence of a specific event will make it

operational? a. as a variation of a general power of attorney b. as a variation of an enduring power of attorney c. as a variation of a springing power of attorney d. as a variation of a specific power of attorney 29. Which of the following is a duty owed by a principal in an agency relationship? a. reimburse the agent for out-of-pocket expenses b. fiduciary duty to uphold the trust placed by the agent c. retroactively acknowledge authority of agents d. ratify all contracts within prescribed time limits 30. Although he had no actual or implied authority to do so, while the owner of Acta Investments was away, her

long-time executive assistant entered into a one-year lease contract with a photocopier company. As it turns out, the contract is very favourable to Acta. In which situation would Acta be unable to ratify the lease contract by its “agent”? a. where the contract favours Acta b. where the contract favours the “agent” c. where Acta fails to act within a reasonable time d. where the “agent” lacked actual authority Copyright Cengage Learning. Powered by Cognero.

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Chap 13_7e 31. Marta sold Phillip’s racing cycle to Bill while Phillip was away on business in Toronto. Phillip hadn’t expected

Marta to act in this way, but he happily accepted the $1500 cash and signed a receipt. In this instance, the agency relationship exemplifies which of the following? a. implied authority b. agency by estoppel c. agency by ratification d. actual authority 32. An agent has been given authority to act for the principal in relation to a directive that sets out conditions

required for the removal of life-support systems. What form of authority has the agent been given? a. a general power of attorney b. a specific-care directive c. a personal care power of attorney d. a health care directive 33. What approach would a court most likely take to determine the type of authority an agent has? a. an inherently flexible inquiry b. a fact-specific inquiry c. a broad informal inquiry

d. a narrow informal inquiry

34. Tom’s photographs will be exhibited for two weeks in Natural WildLife Gallery Inc., commencing May 1. The

gallery is authorized to sell any of Tom’s works, as long as they adhere to the agreed price list. What is the nature of the relationship between these parties? a. agency by commitment b. employment agreement c. agency by agreement d. retainer agreement 35. Although Geraldine’s job title at a local car dealership is “sales director,” in reality, all car deals must be

approved by the dealership’s owner. One day, Geraldine exceeded her authority and approved a sales contract when the owner was away. Why might the contract be binding on the dealership? a. because she was acting with apparent authority b. because she was an agent of necessity c. because she is an employee of the car dealership d. because she had actual authority 36. Sherif is the general manager of a clothing store. His authority to hire an electrician to repair a faulty light in the

store would likely arise from which of the following? a. personal care power b. his implied authority c. his fiduciary duty d. his legal authority 37. What do agency by estoppel and agency by ratification have in common? a. The agent is an employee of the principal. b. They are both forms of actual authority. c. The agent has no actual authority to do what he does. d. The principal has mislead the outsider.

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Chap 13_7e 38. Bonita and Laraleigh want to create a relationship with insurance broker Lee Kim. How should they proceed if

they want to use the most common method available to accomplish the desired outcome? a. deposit b. retainer c. contract d. letter of intent 39. A lawyer is researching the damages relating to his client’s breach of a fiduciary duty that ought to be

recoverable. What would the lawyer most likely have to consider? a. damages arising from contract and the equities b. contract, tort, and punitive remedies c. damages arising from contract and tort remedies d. contract, tort, and equitable remedies 40. Connect Industries manufactures electrical components and conducts its sales through its agent who finds

customers and enters into sales agreements on Connect’s behalf. Which statement best describes the relationship between Connect Industries and its agent? a. The agent must be an employee of Connect Industries. b. The agent cannot secretly act for other electrical component manufacturers while working for Connect Industries. c. The agent is in a fiduciary relationship with Connect Industry’s customers. d. Provided he is not an employee, the agent may perform similar duties with competing electrical component manufacturers. 41. Karim’s agent, Monica, was instructed to negotiate a contract to buy a new delivery truck for Karim’s courier

business but not to disclose Karim’s identity, other than to indicate she is acting for ‘an undisclosed buyer’. Which statement best describes this situation? a. Karim and Monica will both be bound by the contract. b. Only Monica will be bound by the contract. c. Only Karim will be bound by the contract. d. Neither Karim or Monica will be bound by the contract. 42. Which of the following employees is mostly likely an agent on behalf of their employer? a. custodian b. sales clerk c. typist

d. maintenance worker

43. Dora is an investment advisor who is also part owner of a new business. Without disclosing her ownership,

Dora has recommended that clients purchase shares in her new business. Which of the following wrongs has Dora likely committed? a. breach of duty of agency b. breach of fiduciary duty c. breach of authority d. estoppel

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Chap 13_7e 44. Kyrie negotiated a contract in good faith with a party whose introductory letter from his employer reasonably

led her to believe he had the proper authority to do so. What would be the most likely outcome of any dispute challenging the existence of an agency relationship? a. The law sides with the principal through ratification. b. A court will determine the agent had actual authority. c. The law sides with the customer through estoppel. d. A court will determine the agent had apparent authority. 45. What are the duties required of an agent? a. reimburse the principal for out-of-pocket expenses b. pay the principal for services rendered c. abide by the terms of the agency agreement d. indemnify the principal for agency business losses 46. What constrains a lawyer’s ability to place herself in a position where her own interests conflict with the

interests of the principal? a. a profit rule b. a trust rule c. a constraint rule d. a conflict rule 47. Which of the following is a distinguishing characteristic of the law of agency? a. It is derived largely from special statutes. b. It is derived largely from tort and contract law. c. It is derived largely from provincial legislation. d. It is derived largely from contract law. 48. A large land developer granted Kyrie authorization to act as agent on its behalf, as an undisclosed principal, for

the purchase of three tracts of land. Kyrie believes that, as long as she remains within the scope of that authority, the developer will be liable on the contracts. Which of the following is noted as being a valid criticism of this rule of agency law? a. The agent has no liability. b. It’s an area of unsettled law. c. It’s inconsistent with the general principles of contract law. d. The terminology in this area is not consistently employed by the judiciary. 49. What would a court require evidence of in order to establish the existence of a fiduciary duty owed to a

plaintiff? a. the principal’s influence and trust b. the defendant’s reliance, power, and influence c. the agent’s influence and reliance d. the plaintiff’s reliance, trust, and vulnerability Copyright Cengage Learning. Powered by Cognero.

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Chap 13_7e 50. What would an insurance agent who fails to advise a client that a form of requested coverage is unavailable

likely be found by a court to have committed? a. breach of insurance standard b. breach of fiduciary duty c. breach of agency of insurance d. breach of enduring contract 51. Garnett Fashions Ltd. just terminated its long-term agency relationship with the Higa Agency, which it has

retained for many years to negotiate purchase contracts with retail outlets for Garnett’s manufactured goods. What advice would you give Garnett at this time? a. that Higa has the onus to inform outsiders that it is no longer Garnett’s agent b. that Garnett has the onus to inform outsiders that Higa is no longer its agent c. that outsiders have an obligation to prove whether or not there is an ongoing agency relationship between Garnett and Higa d. that Higa can no longer bind Garnett to contracts 52. Cory, the owner of ABC Industries, jokingly introduced his executive assistant as the ‘vice-president’ of sales

to a prospective client. Assuming the customer is unaware of the truth, what type of agency may Cory’s action have created? a. actual agency b. agency of necessity c. agency by ratification d. agency by estoppel 53. Blanchett Lighting Supplies has terminated the employment of Drako, its long-time purchasing agent. What an

advisable step for Blanchett to take after terminating this agency relationship? a. Ensure the termination agreement is put into writing. b. Ensure that third parties are notified. c. Ensure an indemnity agreement is in place. d. Ensure the agent is informed in writing of the termination. 54. Although he was not really an agent and had no authority to do so, Gordon thought his employer would be

delighted when he purchased a truck “on behalf of” his employer. Although the price was very reasonable, his employer now refuses to ratify the contract. Which statement best describes the parties’ liability under the contract? a. Gordon and his employer are bound by the contract. b. The employer is solely liable as an undisclosed principal. c. The employer is solely liable under the doctrine of estoppel. d. Gordon is bound by the contract. 55. From which of the following does a third party typically derive an agent’s ostensible authority? a. the conduct of the principal b. reasonable inference of usual authority c. an expression of the limitations of authority d. inferring typical authority Copyright Cengage Learning. Powered by Cognero.

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Chap 13_7e 56. Which of the following terms is synonymous with “apparent authority”? a. actual authority b. implied authority c. ostensible authority

d. agency by estoppel

57. Jack sent a cover letter with his new purchasing agent, Kuan Huo, advising suppliers of Kuan’s authority to

transact purchases under $33 000. How would a court considering a dispute in which a plaintiff alleges Kuan had apparent authority to enter into a $42 000 purchase contract most likely resolve this dispute? a. Deny the third party’s claim based on the principal’s stated limitation. b. Deny the second-party claim because the agent’s limited authority was reasonably known. c. Deny a first-party claim on the grounds it ought to have known of the reasonable limitation. d. Deny the outsider’s claim based on the agent’s unenduring authority. 58. Which statement best describes the actual authority of an agent? a. It must be created in writing. b. It may be express or implied. c. It cannot be easily customized. d. It is always limited in time and scope. 59. The employment contract of a manager of a business expressly recites her authority. How do other

components of her authority come into existence? a. via the more tangible form of a detailed job description b. by conducting a fact-specific inquiry of the position’s job description c. via the nature of the position and business management requirements d. by the strict utterance of instructions to the manager 60. Jacqueline is a real estate agent and her clients are a young couple who are hoping to purchase their first home.

Which of the following statements is true regarding Jacqueline’s role as “real estate agent”? a. She likely has the actual authority to make binding contracts on behalf of her clients. b. She has implied and ostensible authority to make binding contracts on behalf of her clients. c. She likely has no authority to make binding contracts of sale on behalf of her clients. d. She now fulfills the role of purchasing agent for her clients. 61. Which of the following is considered, as a general rule, to be within the scope of an agent’s fiduciary duties? a. full disclosure of acceptance of each secret commission and profit b. absolute prohibition against acting for two principals c. sending a client’s file for storage with an outside storage facility d. personal interests supersede the interests of the principal

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Chap 13_7e 62. Which of the following would a court require confirmation of in order to establish the validity of an agency

relationship where circumstances involve agency by estoppel? a. the adoption by the principal of a contract the agent lacked authority to enter at the time b. circumstances that necessitated acting without authority from the principal c. an agreement by the third party to be bound by commitments made to the agent d. the principal’s actions are readily viewed by outsiders as denoting an existing agency relationship 63. What is a distinguishing characteristic of the implied authority of an agent? a. It may be intuitively deduced by the agent’s position. b. It typically takes the form of an informal power of attorney. c. It is customarily limited to a short time period. d. It is inherently inflexible and narrowly defined. 64. Are principal’s vicariously liable for torts committed by their agents? a. Yes, if the agent is acting within the scope of the agent’s authority. b. No, unless the agent is also an employee of the principal. c. Yes, provided an agency by estoppel exists. d. No, unless the agent is acting for an undisclosed principal. 65. Is fiduciary duty unique to the relationship between an agent and principal or does it also arise in other business

relationships?

66. Identify the typical fiduciary duties of an agent.

67. Briefly outline how an agency agreement can come to an end. What steps should a principal take when

concluding an agency relationship and why?

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Chap 13_7e 68. Identify each type of agency authority and describe what is required of the principal in each instance.

69. Explain why agency by estoppel forces a principal to be bound by an unauthorized contract. Contrast and

briefly discuss this with respect to a principal’s position under agency by ratification.

70. Identify under what circumstances an agent may be personally liable on the contract entered into on behalf of

the principal.

71. Identify and briefly describe the implied power a general manager of a hockey team presumably would have.

Contrast the hockey team general manager’s implied power with that presumably given to a manager of a convenience store.

72. Outline the ways in which a principal can be legally bound to a contract by application of the law of agency.

73. Identify the circumstances under which a principal would be permitted, by law, to ratify a contract.

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Chap 13_7e 74. Briefly discuss the importance of the agency relationship to business, including what it is, what it allows, how it

is used, and the advantage derived from using it.

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Chap 13_7e Answer Key 1. False 2. False 3. True 4. True 5. True 6. False 7. True 8. True 9. False 10. True 11. True 12. False 13. False 14. False 15. True 16. False 17. True 18. True 19. True 20. True 21. a 22. a 23. d 24. a 25. d 26. b

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Chap 13_7e 27. b 28. b 29. a 30. c 31. c 32. c 33. b 34. c 35. a 36. b 37. c 38. c 39. d 40. b 41. c 42. b 43. b 44. c 45. c 46. d 47. b 48. c 49. d 50. b 51. b 52. d 53. b 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 13_7e 55. a 56. c 57. a 58. b 59. c 60. c 61. d 62. d 63. a 64. a 65.

A fiduciary duty is not unique to the relationship between a principal and an agent. A fiduciary duty can arise in any relationship where the facts indicate sufficient elements of power and influence on the part of one party and reliance, vulnerability, and trust on the part of the other. This duty is present, as a matter of course, in many other relationships found in business such as the relationships between: • Lawyers and their clients • Accountants and their clients • Partners • Directors and senior officers of a corporation and the corporation • Senior employees and employers 66.

The content of the fiduciary duty will vary with the circumstances. However, as a general rule, an agent has the duty to: ∙ Make full disclosure of all material information that may affect the principal’s position ∙ Avoid any conflict of interest that affects the interests of the principal ∙ Avoid acting for two principals in the same transaction ∙ Avoid using the principal’s property, money, or information to secure personal gain ∙ Avoid accepting or making a secret commission or profit

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Chap 13_7e 67. There are several ways an agency agreement can come to an end:

∙ The parties may agree to bring their relationship to an end. ∙ One party may give notice of termination to the other. ∙ An agency relationship can cease by operation of the law. Most commonly this occurs due to the death, dissolution (in the case of a corporate agent and/or principal), insanity, or bankruptcy of one of the parties. When an agency agreement is terminated by the parties, the principal should give notice to third parties so that customers do not assume that the relationship is continuing. In the absence of such notice, the principal may face liability to outsiders, based on his agent’s apparent authority. 68.

Actual authority exists when a principal expressly confers authority on the agent. Apparent authority arises when the principal represents that an agent is authorized to act on his behalf or allows a third party to believe that the agent has been authorized to act on his behalf. Agency by estoppel exists when the principal acts such that third parties reasonably conclude that an agency relationship exists. Agency by ratification exists when the principal adopts a contract entered into on his behalf by another who, at the time, acted without authority. 69. Agency by estoppel forces a principal to be bound by an unauthorized contract because the principal has

represented someone as his agent and must live with the consequences when the agent purports to act on his behalf. Under agency by ratification, the agent is often equally out of line, but not due to any fault of or misrepresentation by the principal. For this reason, the law does not force the principal to adopt the contract. Instead, the law permits the principal to make that decision for himself, according to his own best interests. 70.

An agent who acts without authority and contracts with an outsider is liable to the third party for breach of warranty of authority. In this situation, there is no contract between either the principal and the outsider or the agent and the outsider. An agent may also be bound when he contracts on his own behalf to be a party to the contract along with his principal. Similarly, if the agent pretends to be the principal he runs the risk of being personally liable on the contract that is concluded. 71.

A general manager of a hockey team would presumably have the implied power to purchase merchandise, order office supplies, arrange for the appropriate advertising of the business, and hire and fire employees. A manager of a convenience store would typically have less implied power.

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Chap 13_7e 72.

The principal will be obligated by the contract when the agent has actual authority or when the agent has apparent authority. An agent’s actual authority can be both express and implied. Express authority is the written or oral authority granted by the principal to the agent and is an authority that the agent actually has. Implied authority is also an authority that the agent actually has, but it is present by implication only. An agency relationship can also be created by estoppel, such as when the principal acts such that third parties reasonably conclude that an agency relationship exists. An agency relationship is also created when one party adopts a contract entered into on his behalf by another who at the time acted without authority. 73.

The law permits a principal to ratify a contract in the following circumstances: 1. The principal does so within a reasonable time. 2. The principal had the capacity to create the contract at the time the agent entered into it and at the time of ratification. 3. The agent identified the principal at the time of entering the contract. 4. The principal’s ratification may be express or implied. 74. Agency is one of the cornerstone relationships in business. The agency relationship allows one person’s actions to be

attributable to another. In this way, agency permits one party to represent and bind another in contractual matters. A business may use agents in many facets of its operations, such as buying, selling, leasing, and hiring. The practical advantage of agency relationships is their ability to facilitate a significant increase in the scale of commercial activity that is conducted.

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Chap 14_7e Indicate whether the statement is true or false. 1. The duration of existence of a proprietorship is limited by the life of the owner, whereas a partnership is

terminated by agreement and a corporation is perpetual unless dissolved. a. True b. False 2. The law restricts a partner from making a personal profit from partnership property because that would be

putting that partner’s interests ahead of the other partners. a. True b. False 3. The president of EcoAgents must affix the company’s corporate seal to the bank’s lending agreement he

signed because this form of business entity lacks the legal capacity to borrow capital. a. True b. False 4. A partnership is a simple form of legal relationship that automatically arises when two or more people do

business together with the objective of making a profit. a. True b. False 5. As with sole proprietorships, there are no legal requirements for the establishment and conduct of a

partnership. a. True b. False 6. One of the advantages of being a sole proprietor is the ease by which the business can be sold or transferred

to others. a. True b. False 7. A sole proprietorship, a partnership, and a corporation may all be subject to double taxation, depending on the

circumstances. a. True b. False 8. Partners in a partnership are legally obliged to share profits and losses equally. a. True b. False 9. It is almost always more expensive to organize a corporation than a sole proprietorship or partnership. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 14_7e 10. In the context of a business failure, a bankrupt sole proprietor’s diminished credit rating will likely be enduring. a. True b. False 11. A capital contribution clause in a partnership agreement would describe how profits are to be shared, how and

when they are to be distributed, and rights of withdrawal. a. True b. False 12. The potential for a board management base that exists in the corporation creates many levels of authority that

can be an impediment to decision making. a. True b. False 13. Voyageur Enterprises Inc. will continue in existence perpetually unless it is dissolved through voluntary

surrender of its legal status or by court order for failing to comply with statutory regulations. a. True b. False 14. Shareholders may hire officers to assist in running the corporation. a. True b. False 15. A key feature of a partnership is that each partner is fully responsible for all of the debts and obligations of the

business. a. True b. False 16. The vehicle most commonly used as an investment device is a limited liability partnership, in which at least one

partner has unlimited liability and the rest have limited liability. a. True b. False 17. A partnership is much like a sole proprietorship in that neither has a legal personality—or legal existence—

separate from the people who comprise them. a. True b. False 18. The form of business that provides the most limited sources of capital is a sole proprietorship. a. True b. False 19. The profits and losses in a sole proprietorship are simply reported on the owner’s personal income tax return. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 14_7e 20. All of Canada’s common law provinces have a Partnership Act modelled on the British act of the same name. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which of the following will be most influenced by restrictions contained in the incorporating documents or by a

shareholders’ agreement? a. transfer of ownership of shares c. general application laws

b. voluntary surrender of legal status d. perpetual existence of the entity

22. Which of the following will result in the termination of a partnership? a. a change of partnership clause in a partnership agreement b. the death of a partner c. a capital contribution clause in a partnership agreement d. a declaration 23. Which of the following would pertain to provincial partnership legislation relating to the relationship between

business partners and outsiders? a. regulatory provisions b. ostensible provisions c. mandatory provisions d. optional provisions 24. Ray and Mohammed are forming a general partnership but have not yet discussed how profits will be shared

between them. Which statement best describes their legal situation? a. General partners are always required to share profits equally. b. They are automatically entitled to a share proportional their relative contributions to the capital of the partnership. c. They cannot have a partnership until they determined how profits will be shared. d. If they fail to agree, partnership legislation requires them to share profits equally. 25. A court has been asked to resolve a matter involving the disputed interests of partners regarding partnership

property and their respective rights and duties in relation to the partnership. Which of the following would immediately provide the court with a basis for a decision? a. the proportional distribution of the losses b. the proportional distribution of capital c. any terms expressed or implied in the partners’ agreement d. any expressed terms set out in the partnership agreement

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Chap 14_7e 26. What is a positive feature of carrying on business as a limited partnership? a. All partners are completely shielded from negligent or wrongful acts of partners. b. They can be used as an investment device. c. They can be created informally. d. All partners have the same rights. 27. Which of the following is a common characteristic of provincial Partnership Acts? a. each provides that every partner is liable jointly with co-partners b. there are subtle differences between joint and several liability c. each provides that every partner is liable severally from co-partners d. there are pronounced differences between joint and joint and several liability 28. Which of the following is an example of the implied rules contained in the Partnership Act ? a. Each partner may sue the other for breach of fiduciary duty. b. Each partner is a fiduciary to the other partners. c. Each partner is entitled to have their name in the partnership business. d. Each partner may take part in the management of the business. 29. What are the most likely sources of regulation a partnership must be aware of as it conducts its business each

day? a. contract, agency, and corporate law b. partnership, employment, and application law c. agency, contract, and partnership law d. contract, employment, and application law 30. Lita and Linda are partners in a general partnership and have borrowed $10,000 from the bank to finance

their start-up. How is their liability for the bank loan best characterized? a. limited liability b. joint liability c. proportional limited liability d. full and complete impunity 31. Emily, Harry, and Ron are partners in a business partnership called Trinkets. Emily contributed $15 000 to the

business, Harry $10 000, and Ron $5000. The partners agreed among themselves that they will share partnership profits and losses in proportion to their contributions. In addition, the partnership borrowed $30 000 from the bank. The business didn’t work out, and Trinkets is unable to repay the loan. The bank sued Emily personally. She repaid the full $30 000 and then sued Harry and Ron. What amounts may Emily be legally entitled to recover from her partners? a. $7500 from Harry and $7500 from Ron b. $10 000 from Harry and $5000 from Ron c. $15 000 from either Harry or Ron d. $30 000 from either Harry or Ron Copyright Cengage Learning. Powered by Cognero.

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Chap 14_7e 32. Which statement best describes how a partnership comes into existence? a. The partners must sign a written partnership agreement. b. The partners must register the partnership. c. Two or more people carry on business together with a view to profit. d. Two or more people purchase property together. 33. Which of the following would most strongly support Martina’s agreement to an allotment of a 25 percent

interest in her partnership with Lorenzo and Marcella? a. It accurately reflects the partners’ proportionment of her contributions. b. It accurately reflects the value of their varied contributions. c. It doesn’t affect their ability to distribute shared profits equally. d. It doesn’t affect their ability to freely define their proportionate profit share. 34. Why are limited liability partnerships advantageous to professional partnerships? a. Partners are immune from liability arising from the professional negligence of their partners. b. A partner’s liability is limited to his or her capital contribution. c. They are easier to form than general partnerships. d. They ensure equal sharing of profits among the partners. 35. A business with no partners and no board of directors to report to is typically considered to be independent

and positioned to act quickly when required. Which of the following is also typical of this form of business? a. its limited failure expectancy b. its limited life expectancy c. the diversity of profit-sharing plans d. the complexity involved in its formation 36. Which form of a business can issues shares to raise capital for operations? a. an unlimited proprietorship b. a sole proprietorship c. a limited liability partnership

d. a corporation

37. Triston and Quinn jointly own property under a documented agreement. If a dispute arises between the

parties, which of the following would immediately alert a lawyer to the possibility of a court concluding a partnership exists? a. the restriction on ability to share joint liability b. a concurrent incidental relationship c. a restriction on unilateral ability to sell d. the co-ownership of other property

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Chap 14_7e 38. What is the most likely reason, from a financial liability perspective, for a corporation to be viewed as the most

risk-aversive form of business entity? a. It forms a distinct legal entity, liable for its own obligations. b. Any entity that deals with a corporation may demand personal guarantees. c. It shields directors from negligent acts of management. d. It provides limited liability to the corporation’s directors. 39. Which of the following is a distinguishing feature of a limited partnership? a. The liability of each partner is limited to their capital contributions. b. The liability of some partners is limited to their capital contributions. c. Limited partners may participate in the day-to-day management of the firm. d. Limited partnerships are only available to professionals. 40. Which term is “partners” synonymous with regarding the agency relationship and the Partnership Act? a. profits b. principals c. limits on authority

d. capital contributions

41. Why is an owner’s choice of the form of business organization a critical decision? a. It determines financial liability for the business. b. It determines whether the business may have employees. c. It determines where the organization may conduct its operations. d. It determines whether funds can be borrowed to finance operations. 42. What is the term for an arrangement whereby a manufacturer has agreed to provide products and a dealer has

agreed to carry those products or perform services for the manufacturer? a. a strategic alliance b. a sales agency c. a franchise d. a distributorship 43. Which of the following is a characteristic of a franchisor–franchisee relationship? a. fiduciary obligations b. duty of good faith c. a limited partnership

d. a limited liability partnership

44. Which of the following is most likely to be indicated by a description that includes, among other things, the

option to purchase a partner’s interest and the valuation of interests? a. a partnership agreement clause pertaining to dissolution of partnership b. a partnership agreement clause pertaining to changes in partnership c. a clause in a partnership agreement that addresses profit distribution d. a clause in a partnership agreement that avoids litigation and animosity

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Chap 14_7e 45. Aaron owns a food truck that he takes to various festivals each summer. He has not filed any documents at the

registry and is the only owner of the business. In law, how is Aaron’s business characterized? a. limited partnership b. sole proprietorship c. general partnership d. joint venture 46. A court is deliberating whether WestWood Dental Offices should be bound by obligations that allegedly arose

by virtue of apparent authority. The claim relates to a purchase agreement for dental imaging equipment. What will the court most likely strongly rely on when arriving at a decision? a. what a third party knows or ought to know of a partner’s limited authority b. whether the partner understands that the law protects business customers c. what a partner knows or ought to know of an outsider’s limited authority d. whether a third party understood the risks of agents going astray 47. Which statement best describes the profit-sharing feature of corporations? a. Shareholders are paid a pre-determined rate of return. b. Shareholders are automatically entitled to a dividend if the business is profitable. c. The decision of whether to declare dividends is controlled by the shareholders. d. Shareholders are only entitled to dividends if they are declared by the directors. 48. Ellayne manages a busy law practice as a sole practitioner. What is a major risk of Ellayne’s choice of business

form? a. complications arising from the inability to contract for employees b. adverse affects of illness or incapacity c. complications arising from the hiring and firing of employees d. adverse affects of taxation of profits 49. What is the legal outcome when one partner exceeds his or her authority and borrows money on behalf of a

partnership without the consent of the fellow partners? a. The other partners will be liable to the third party because partners are mutual agents. b. Non-consenting partners can avoid liability by proving the partner breached the partnership agreement. c. The third party can collect the debt, but only from the partner who authorized the debt. d. The third party can take collection assets against the partnership assets but not the personal assets of the non-consenting partners.

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Chap 14_7e 50. Len, Jill, and Mark own a partnership called Splats. Len’s capital contribution to the partnership was $25 000,

Jill’s was $12 500, and Mark’s was $20 000. Jill is duly registered as a limited partner and has acted solely as a financier. There is no agreement on sharing profits or losses among the partners, and none of them has drawn any income from Splats. The partnership borrowed $40 000 from the bank, but Splats eventually became insolvent and was unable to repay the loan. The bank sued Len and recovered the full $30 000 from him. When Len’s lawyer gave him advice, what amount would he likely indicate Len is entitled to legally recover from Jill? a. $0 b. $10 000 c. $12 500 d. $20 000 51. What is a distinguishing characteristic of a joint venture arrangement? a. They have perpetual existence. b. They must be registered. c. They can be comprised of individuals, partnerships or corporations. d. They are usually franchises. 52. Rozzi, Shawn, and Rafael have entered into a written limited partnership agreement. Which of the following

would be the most likely action needed to ensure the legal recognition of the limited partnerships’ status? a. registration of the partnership with federal authorities b. registration of the partnership with provincial authorities c. public notification of capital contributions of the entity’s general partners d. public notification of the registration of the limited partnership entity 53. Which form of business organization provides the most control but also the greatest liability risk for the owner? a. partnership b. sole proprietorship c. joint venture

d. corporation

54. Which of the following is a provision of the Partnership Act in matters relating to Sheps & Shaps Law

Offices? a. The managing partner is the authorized agent of the firm. b. Each partner is an agent of the firm. c. Each partnership must designate a managing partner. d. The partners are the firm’s fiduciary agents.

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Chap 14_7e 55. Rose, Lily, and Fawn were shareholders in Style Co., an incorporated company with limited liability. Each

bought one-third of the shares in Style Co. for an aggregate payment of $15 000 each. The corporation borrowed $60 000 from the bank to finance its operations. The bank required personal guarantees from all shareholders for the full amount of the loan. Style Co. became insolvent, and the bank ultimately sued each of the shareholders to recover the $60 000. In receiving advice from their lawyer, what amount would he most likely indicate to be the maximum amount that could be recovered from any one of them? a. $0 b. $15 000 c. $20 000 d. $60 000 56. Ivan is the sole proprietor of Voyageur Transport. He operates Voyageur with three small ships that transport

supplies by the riverways to northern settlements after spring breakup. Which of the following most likely applies with respect to Ivan’s use of the name “Voyageur Transport”? a. Business name use is subject to more specialized rules for this form of business. b. To avoid fines and penalties, the business name must be registered. c. A business name is irrelevant to an owner’s ability to sue for business obligations. d. There are no legal requirements for this form of business organization. 57. Which of the following would most likely be a requirement of provincial legislation with respect to a limited

liability partnership? a. liability insurance to compensate victims for loss b. the use of “limited partnership” or “LP” in the firm name c. a business licence in the partnership name d. access to partners’ personal assets to satisfy claims 58. What is a strategic alliance between commercial parties? a. a partnership in which the liability of one partner is limited to the amount of capital contribution b. an arrangement that may involve joint research, technology sharing, or joint use of production c. a partnership with manufacturing rights associated with the other’s trademarks or other proprietary

rights d. a contract arrangement allowing an agent exclusive access to goods or services supplied by the distributor 59. Which statement best describes the legal requirements for conducting a sole proprietorship? a. They are subject to the same general legislation as any other business form. b. Unlike other business forms, they are unregulated. c. They are governed by sole proprietorship legislation existing in each province. d. They must be licensed under provincial legislation as sole proprietorships.

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Chap 14_7e 60. In what manner are a sole proprietorship and a partnership similar? a. There is no legislated regulation affecting either. b. Both require special steps to create. c. Neither is a legal entity with capacity to contract. d. Both require regulation of their profit motives. 61. Nancie is a shareholder in BlueSky Investments Inc. With respect to BlueSky’s obligations, which of the

following most likely reflects Nancie’s liability? a. Nancie’s liability is dependent on how the obligations were incurred. b. Nancie is liable for these obligations unless she has given her personal guarantee. c. Nancie’s limited liability shield may be negated by her giving a personal guarantee. d. As a shareholder, all of Nancie’s personal assets will be at risk. 62. Which of the following may result in a loss of limited liability in a corporation? a. employee misrepresentation of a product b. fraud on customers c. employee negligence

d. fraud on creditors

63. Glen, Dale, and Al are partners who own Fizz. Glen made a capital contribution of $5000, Dale’s was

$15 000, and Al’s was $10 000. Glen is a general partner and he oversees the management of the Fizz business. The partnership borrowed $30 000 from the bank. The partners have no agreement relating to the sharing of profits and losses. Fizz became insolvent and unable to repay the loan. The bank sued Dale personally and recovered the full $30 000 from him. Dale then sued Glen. When Dale’s lawyer provided him with advice, what amount did she likely indicate he would be able to legally recover from Glen? a. $5000 b. $10 000 c. $15 000 d. $20 000 64. What type of liability would flow to the other partners in circumstances involving a wrongful act or omission by

one partner acting within the course of employment? a. joint liability b. unlimited liability c. joint and several liability d. several liability 65. The Partnership Act provides for the following rule: “all partners are to share equally in the capital and profits

of the business and must contribute equally to the losses.” Which statement best exemplifies this rule? a. The losses are restricted to the capital investments made by each partner. b. This rule is optional and may be varied by written agreement. c. This rule is mandatory and cannot be modified by agreement. d. The rule applies only to limited liability partnerships.

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Chap 14_7e 66. What is a joint venture and what distinguishes it from the forms of business?

67. Identify the factors a court would rely upon to determine whether or not a relationship is a partnership.

68. Identify the basic issues that should be expressly addressed in a partnership agreement, including the

description of each respective clause. Lastly, indicate when a partnership agreement would have to be revisited.

69. 7. On dissolution and after all a partnership’s debts are satisfied, describe how and in what order legislation

requires any excess to be applied.

70. Briefly discuss how the law restricts the actions of a partner in relation to the partnership and its business

activities.

71. Briefly discuss the concept of joint liability and explain how joint liability impacts the liability exposure of

partners in a partnership.

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Chap 14_7e 72. List at least 6 of the 10 optional rules prescribed by the Partnership Act in each province with respect to the

relations between partners.

73. Discuss the distribution of the profits of a corporation.

74. Briefly discuss the advantages and disadvantages of the sole proprietorship as a form of business organization.

75. Briefly discuss the advantages of selecting a corporation as one’s form of business over a partnership or

proprietorship.

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Chap 14_7e Answer Key 1. True 2. True 3. False 4. True 5. True 6. False 7. False 8. False 9. True 10. True 11. False 12. True 13. True 14. False 15. True 16. False 17. True 18. True 19. True 20. True 21. a 22. b 23. c 24. d 25. c 26. b

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Chap 14_7e 27. a 28. d 29. c 30. b 31. b 32. c 33. b 34. a 35. b 36. d 37. c 38. a 39. b 40. b 41. a 42. d 43. b 44. b 45. b 46. a 47. d 48. b 49. a 50. b 51. c 52. b 53. b 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 14_7e 55. d 56. b 57. a 58. b 59. a 60. c 61. c 62. d 63. c 64. d 65. b 66.

A joint venture is usually limited to a specific project or to a specific period of time and consists of an association of business entities—corporations, individuals, or partnerships—that unite for the purpose of carrying on the business venture. Normally, the parties agree to share profits and losses and management of the project and parties to a joint venture can be held to owe fiduciary duties to one another in relation to the activities of the joint venture. The joint venture itself can take a variety of forms. The joint venture may be a partnership, in which case all the legal consequences associated with a partnership apply. It may also be an equity joint venture. This is when the parties incorporate a separate corporation for the project and each party holds shares in that corporation, in which case the consequences of incorporation apply. A joint venture may also simply be a contractual arrangement between the parties. In such a case, the contract may spell out the nature of the relationship between the parties.

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Chap 14_7e 67.

The statutory definition of partnership covers people who expressly intend to be partners as well as people who may not necessarily intend to be partners but act as if they were. That is, a person who conducts himself as if he were a partner—by sharing in profits, managing the business, or contributing capital to establish a business—is a partner in the eyes of the law. Accordingly, in the absence of an agreement, it will be a question of fact whether or not a partnership exists. The Partnership Act sets out a number of circumstances that point toward there being a partnership but not conclusively so. For example, if two or more persons own property together, this does not of itself make them partners. However, if in addition to owning property together, the persons share profits associated with that property and restrict their ability to unilaterally sell their interest in the property, a court is likely to conclude that a partnership exists. It should be noted that this would likely be the result even though the parties have indicated in their written agreement that their relationship is not a “partnership.” The court will look to the essence of the relationship rather than the labels used by the parties. 68.

A partnership agreement should address the following basic issues: • Creation of the partnership: name and address of partners; partnership name; term of partnership, if any; description of the firm’s business • Capital contribution: description of the contribution of each partner, how shortfalls are handled, how the accounts are managed • Decision making: description of the partners’ duties, any limits on authority, dispute resolution mechanism • Profit distribution: description of how profits are to be shared, how and when they are to be distributed, rights of withdrawal • Changes to partnership: rules for changing the relationship, admission of new partners, retirement of partners, option to purchase partner’s interest, valuation of interests • Dissolution of partnership: description of what events trigger dissolution, how it will be handled, valuation of assets. A partnership agreement should be reviewed periodically to reflect changes in circumstances. 69.

After all of the firm’s debts are satisfied, any excess is applied to the following in order: 1. Repayment of loans made to the firm by partners 2. Repayment of capital contributed by the partners 3. Payment of any surplus to partners according to their respective rights to profits 70.

The law does not allow a partner to make personal profit from the partnership property, to compete against the partnership, or to use a partnership opportunity for exclusive gain. Each partner is required by law to put the interests of the partnership ahead of his or her own.

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Chap 14_7e 71.

Joint liability is a key aspect of the law of partnerships. It means that each partner is fully responsible for all the debts and obligations of the partnership and not just for some appropriate proportion. Accordingly, a creditor can proceed against the partner with the most assets and collect from that one individual the entire amount owing on the debt. Each one of the partners has full and complete exposure on each and every obligation incurred. However, if the creditor proceeds only against one partner for repayment of the bank loan, that partner is entitled to be reimbursed by his partners for their share of the debt. Of course, if the other partners have no assets, that partner will end up bearing the partnership debts himself. If a partnership breaches a contract, each of the partners is liable for the entire amount of the damages. The contract is between the customers, on the one hand, and all the partners with whom they share joint liability, on the other. The key point from a liability perspective is that each partner’s personal assets can be seized and sold through the judicial process if the partnership assets are insufficient to satisfy partnership obligations. Each partner’s personal assets are at risk, not just their respective capital contributions. 72. In each province, the Partnership Act provides for the following optional rules:

1. All partners are to share equally in the capital and profits of the business and must contribute equally to the losses. 2. Property acquired for the partnership shall be used exclusively for the partnership and not for the private purposes of individual partners. Property purchased with partnership money is deemed to be partnership property. 3. A partner shall be indemnified by the other partners for any liability incurred on behalf of the partnership. This means that all partners are liable for partnership liabilities and that a partner who pays a debt is entitled to reimbursement from her partners. 4. A payment made by a partner for the purposes of the partnership in excess of his agreed subscription shall earn interest. 5. Each partner may take part in the management of the business. 6. No partner is entitled to remuneration for acting in the partnership business. 7. No new member shall be admitted to the partnership without the consent of all of the partners. 8. Disputes regarding the partnership business may be decided by a majority, but the nature of the partnership may not be changed without the consent of the members. 9. Partnership books shall be kept at the partnership’s place of business, and all partners shall have access to them. 10. No simple majority may expel any partner. 73.

Profits of the corporation are distributed to shareholders through dividends. That is, shareholders are paid a return on their investment in the corporation, but only if there is a profit, and only if the directors declare a dividend.

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Chap 14_7e 74.

Advantages: ∙ If the business is a runaway success, the owner reaps all the benefits. ∙ The sole proprietor, having no partners and no board of directors to report to, can make business decisions very quickly and independently. ∙ The legal requirements for establishing and conducting this form of business organization are minimal—one simply commences business activity. ∙ A sole proprietor (unlike a public corporation) is not required to publish the business’s financial statements. Success or failure in the business is a private matter. Disadvantages: • A major difficulty with “going it alone” is that the sole proprietor has limited access to capital. The sole proprietor has no business partners and is limited to his own assets and to whatever credit he can draw on to finance his operation. Usually this is less than what would be available if more than one person was involved, as in a partnership or corporate form of business. • The sole proprietor carries the risk of the business failing and losing both business and personal assets. • The sole proprietor is responsible for all aspects of the business operation. Though a sole proprietor can hire employees, it is difficult to retain high-calibre people because of the limited opportunities available to them in a sole proprietorship. • The owner’s death terminates the business. The proprietorship cannot be transferred. • 75.

The following are advantages offered by the corporation as a form of business: 1. Limited liability: Because it is a separate legal entity, a corporation can assume its own liabilities. The shareholder stands to lose the amount he invested in the corporation, but no more. 2. Flexibility: A corporation permits differing degrees of ownership and sharing in profits. 3. Greater access to capital: Limited liability makes the corporation a very suitable vehicle through which to raise capital. 4. Continuous existence: The life span of a corporation is not tied to its shareholders. 5. Tax benefits: Though this is a fact-specific issue, a corporation can facilitate greater tax planning, for example, by permitting income splitting. 6. Transferability: Ownership in a corporation is more easily transferable through shares. 7. Potentially broad management base: A corporation is managed by directors and officers who can provide a level of specialized expertise to the corporation.

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Chap 15_7e Indicate whether the statement is true or false. 1. When a right of first refusal is in place, it means that the shareholder wishing to sell must first offer her shares to

the directors at the same price she has negotiated with the outsider. a. True b. False 2. The primary purpose of the legislated requirement that a corporate name contain a legal element is to ensure

the entity is distinctly identifiable for tax reporting purposes. a. True b. False 3. In reality, the distinction between federal and provincial corporations is of little practical significance due to

provincial laws that permit the operation of out of province corporations. a. True b. False 4. Part of the process of organizing the newly incorporated entity involves the appointment of an auditor to hold

office until the first annual meeting of the shareholders. a. True b. False 5. A corporation that does not issue its shares to the general public is usually known as a widely held corporation. a. True b. False 6. A closely held corporation typically has several classes of shares that it offers by invitation to the public. a. True b. False 7. A NUANS report is required to be submitted with the incorporating documents of a shelf company. a. True b. False 8. Shareholders do not have any power to manage the corporation. a. True b. False 9. The fundamental repercussions of a corporation’s possessing a separate and distinct legal identity bind the

internal stakeholders, who are solely responsible for its debts and other liabilities. a. True b. False

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Chap 15_7e 10. If there is only one shareholder, it is not necessary to hold an annual shareholders’ meeting. a. True b. False 11. All Canadian jurisdictions follow a similar procedure for the creation of a corporation, and all require payment

of the filing fee, payable to the Receiver General, to be made concurrent with the submission of the incorporating documents for registration. a. True b. False 12. The board of directors of a corporation is charged with the management functions, including policy

development, and is answerable directly to the shareholders, who may vote them out of office should they perform poorly. a. True b. False 13. An advantage of private corporation status is the potential for a lower rate of income tax. a. True b. False 14. Rolf called Tim to discuss an as yet unannounced corporate takeover. Following Rolf’s call, Tim purchased

securities of both corporations on the basis of relevant material information he received. The securities are held in a joint trading account co owned by Tim and Rolf. In these circumstances, Rolf is a tippee, Tim is an insider, and both Rolf and Tim are guilty of insider trading. a. True b. False 15. Individuals who engage in insider trading are subject to both criminal and civil liability under securities

legislation and corporate legislation. In addition to the penalty of up to ten years in prison for insider trading, amendments to the Criminal Code created a penalty of up to five years in prison for conviction of a tipping offence. a. True b. False 16. The terms bond and debenture are often used interchangeably and refer to a corporate IOU. a. True b. False 17. Prior to incorporation, directors are required to hold an organizational meeting to complete the incorporation

documents and make bylaws, which are the rules specifying the day to day operating procedures of a corporation. a. True b. False

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Chap 15_7e 18. All shares carry the right to vote for directors of the corporation. a. True b. False 19. Among the objectives of securities legislation are to provide a mechanism for the transfer of securities and to

regulate the activities of those engaged in the trading of securities. a. True b. False 20. Ownership of a share does not give the owner or holder any right to use the assets of the corporation or any

right to directly control or manage the corporation. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which term refers to the document that a corporation must publish when offering securities to the public? a. NUANS report b. offering memorandum c. option memorandum

d. prospectus

22. Which of the following would a lawyer most likely require the parties to determine before preparing and filing

incorporation documents? a. the number of shares to be issued, and to whom b. the suitability of federal or provincial jurisdiction c. the number of token directors needed for the board d. a suitable method for capitalizing the entity 23. “Bonds” and “debentures” are terms used interchangeably to refer to financing methods. How is it possible to

understand precisely which type of financing either instrument actually pertains to? a. by noting the securities listed in the corporation’s borrowing bylaws b. by searching the corporate registry c. by noting the securities listed in the corporation’s debt ledger d. by reading the document itself 24. Which stakeholder has the most to gain if the corporation is profitable? a. shareholders b. bondholders c. creditors

d. directors

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Chap 15_7e 25. What is the key feature that distinguishes the corporation from sole proprietorships and partnerships? a. Corporations are easily formed business entities. b. Corporations may have more than one owner. c. The owners’ assets in a corporation are at risk. d. A corporation exists as a separate legal entity. 26. Which of the following is a distinguishing feature of a widely held or public corporation? a. They are exempt from most of the obligations of security legislation. b. Letters patent are filed in each jurisdiction. c. Shares are normally traded on the stock exchange. d. Articles of association are filed in each jurisdiction. 27. Which of the following is a feature of the legislation that regulates securities in Canada? a. The Supreme Court of Canada has held that federal securities legislation is constitutional. b. The provinces and federal government share jurisdiction over securities legislation. c. All securities regulation in Canada falls under the federal jurisdiction. d. Each province and territory has its own distinct securities legislation. 28. What is required to be set out in the incorporation documents with respect to the number of shares for each

class that can be issued? a. unlimited number and type of classes of shares b. maximum number or designation of unlimited for each class c. minimum number or designation of unlimited for each class d. limited number of shares for each class 29. A creditor of an insolvent corporation is unable to seek redress for its losses from the company’s shareholders.

How will the law discern this outcome? a. as limiting the perpetual existence of a corporate entity b. as eminently unjust to the creditor c. as just if the creditor was also a shareholder of the corporation d. as perfectly legitimate and eminently just 30. Remmie Ltd. owns all of the Class B shares in Rex Holdings Inc., giving it 40 percent of the equity and 82

percent of the voting power. How is Remmie able to exert control over Rex? a. through a dual share structure b. through a fractional share structure c. through a multi class share structure d. through a flow through share structure

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Chap 15_7e 31. Amarilla is willing to contribute capital to her son’s new business enterprise. She has asked for qualified

assurance of the return of her share capital if the entity winds down its business activity at some future time. Which of the following most likely provides the qualified assurance Amarilla is seeking? a. redemption rights distributed among the classes of shares b. shares with financial rights for buyback at a set price c. shares with preferred rights on dissolution d. preference shares with redemption rights 32. Why are shareholders required to hold a meeting within the first 18 months of the date of incorporation? a. to authorize the issuance of shares and other securities by the directors b. to replace first directors with directors who have made banking arrangements c. to replace first directors with directors who will hold office until the annual meeting d. to authorize the appointment of officers to manage the operations of the corporation 33. What is the term, in some jurisdictions, for a corporation that does NOT offer its shares for sale to the public? a. closely held corporation b. unlimited liability entity c. non public corporation

d. limited liability entity

34. Why is it wise from a risk management perspective to obtain a NUANS report when setting up a new

corporation? a. It is will reveal whether there are already businesses engaged in that industry. b. It provides notice to creditors of the corporate status of the new entity. c. It provides a list of entities that can provide services to the new corporation. d. It will reveal if existing businesses are already using the new business’ proposed name. 35. Which of the following was one of the issues that was resolved by the decision in Salomon v. Salomon Ltd.,

[1897] A.C. 22 (H.L.)? a. whether incorporation can be undertaken to limit risk of business bankruptcy b. whether shareholders are prohibited from becoming highly protected creditors of the company c. whether companies with few shareholders could be recognized as separate legal entities d. whether shareholders are totally responsible for their own as well as the entity’s obligations 36. Greta and Raven are going to be the sole shareholders of a new catering business that will operate in their city.

What type of corporation are Greta and Raven most likely considering? a. a closely held corporation b. an issuing corporation c. a public corporation d. a federal corporation

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Chap 15_7e 37. What is the most compelling reason for the creation of a corporate business entity? a. to extend director’s liability in the event of bankruptcy b. to limit owners’ liability in the event of bankruptcy c. to share joint liability in the event of bankruptcy d. to proportion liability in the event of bankruptcy 38. ABC Inc. is issuing 10 000 new shares to raise money for its upcoming expansion. What is the name for this

type of financing? a. debt financing c. equity financing

b. interim financing d. conditional financing

39. What is an advantage of a closely held or private corporation? a. the ability to sell preferred shares on the stock exchange b. refund of the GST paid on the first $500 000 of annual business income c. the ability to raise funds by soliciting private investors d. reduced tax rate on the first $500 000 of business income earned in each fiscal year 40. What is a preference right with respect to share ownership? a. the right to receive a dividend before another class of shareholder b. the right to manage the corporation c. the right to buy out other shareholders d. the right to hire officers 41. Which of the following is one of the distinctions between shares and bonds? a. Shares represent units of ownership, whereas bonds are debts owed by the corporation. b. The issuance of bonds is not regulated by securities legislation, whereas the issuance of shares is. c. Bonds are unsecured, whereas shares are secured by the assets of the corporation. d. Shares may be sold at securities exchanges, whereas bonds are never sold on securities exchanges. 42. A court has been asked to answer profound questions raised in a lawsuit regarding the alleged ability of empire

builders to readily defraud investors and shareholders. What would the presiding judge most likely have to develop a working knowledge of? a. the corporation’s fractional share structures b. the corporations’ governance structures c. each of the corporation’s respective tax structures d. each of the corporation’s securities disclosure reports

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Chap 15_7e 43. Sam recently assumed an equity position in a corporation rather than continuing as one of its unsecured

creditors. What right has Sam exercised? a. his redemption right on a convertible debenture b. his redemption right on a convertible bond c. his conversion right on a convertible debenture d. his conversion right on a convertible bond 44. Marion, along with several others, lost substantial funds through an investment based on misrepresentations

stated in a secondary market disclosure their broker recommended. The disgruntled group’s lawyer advised that recent amendments to provincial securities legislation now provide a meaningful civil remedy and facilitate class actions. Which of the following exemplifies the type of amendment made to achieve these goals? a. establishing reliance on the defendant’s investment misrepresentations b. removing the issue of proof of a class action group’s reliance on the disclosure c. removing proof of reliance and substituting deemed reliance by the investors d. pursuing a statutory cause of action for negligent misrepresentations 45. What is the legal term for decision makers who enter contracts on behalf of an artificial entity? a. internal stakeholders b. indirect stakeholders c. direct stakeholders

d. internal shareholders

46. Which of the following describes the purpose of a “prospectus”? a. to provide notice of changes in directors b. to forecast expected profits c. disclosure of financial and other information to potential investors d. disclosure of insider trading 47. What is the possible consequence if one chooses a business name that is too similar to that of an existing

business? a. being sued for abuse of process b. being sued for the tort of injurious falsehood c. having the corporation struck from the register d. being sued for the tort of passing off 48. Jasmine is the sole shareholder of FashionPlusYou Inc., which is planning to borrow $100 000 from the bank

to finance a second store location. What is Jasmine’s legal position should FashionPlusYou Inc. default on the loan? a. She and the corporation are jointly liable for the debt. b. She has no personal liability with respect to the debt. c. She and the corporation are jointly and severally liable for the debt. d. She can be personally sued by the bank but only if FashionPlusYou Inc. defaults on the loan. Copyright Cengage Learning. Powered by Cognero.

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Chap 15_7e 49. Which of the following exempts entities from most of its requirements, provided the definition of a private

corporation is met? a. corporate legislation b. corporate law regulating winding up transactions c. securities legislation d. securities law regulating redemption on dissolution 50. Ilsa and Suri are meeting with their lawyer to discuss the incorporation of their home renovation company.

Which type of incorporation will their lawyer most likely recommend? a. provincial incorporation b. foreign incorporation c. federal incorporation and extra provincial registration d. federal incorporation 51. Which provision in an incorporating document would most strongly support the intention to incorporate a

private company? a. a provision for preference share subscriptions b. a distinct, approved entity name c. a maximum of 50 shareholders d. a provision for common share subscriptions 52. What is meant by the term “secondary market” in terms of equity trading? a. purchasing or selling securities from third parties b. purchasing securities pursuant to a prospectus offering c. buying or selling securities by a securities exchange takeover bid d. buying or selling securities directly from a corporate entity 53. How is a single purpose document, used to facilitate formal communications with a corporate entity,

consistently described in each provincial jurisdiction? a. as a Notice of Directors b. as a Notice of Incorporating Office c. as a Notice of Registered Office d. as a Notice of Incorporation 54. The term “bond” is synonymous with which of the following? a. preferred share b. debenture c. fractional ownership

d. share

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Chap 15_7e 55. Which documents typically set out the rules governing the day to day operations of a corporation incorporated

anywhere in Canada (depending on jurisdiction)? a. general bylaws, banking bylaws, articles of association b. memorandum of association, bylaws, articles c. articles, bylaws, articles of association d. banking bylaws, memorandum of association, general bylaws 56. Bertrand runs a small moving company as a sole proprietorship and is considering operating his business

through a corporation. What is a disadvantage of the corporation as a business form that Bertrand should consider before proceeding? a. It is difficult to transfer ownership. b. Its shareholders cannot be directors. c. There are higher costs associated with filing fees and legal costs. d. It has entirely secured debt arrangements. 57. In August, Martina decided to seek preferable tax status for her business income. She negotiated the novation

of all contractual obligations acquired since November with each of her sole proprietorship’s customers. Novation will allow those obligations to rest with her new corporate entity. What did Martina require in order to realize the tax benefit retroactively? a. a novation ruling from the Canada Revenue Agency allowing the transfer of contracts b. a shelf company with an incorporation date predating the earliest of her contracts c. a numbered company active in business on the date of the earliest of her contracts d. a novation ruling from the Canada Revenue Agency allowing the transfer of earnings 58. Marjorie owns 1000 shares in Martina’s business entity. Under certain circumstances, Marjorie’s investment in

the business will involve having the entity purchase her shares at $30. What rights are attached to Marjorie’s shares? a. redemption rights b. preference rights c. dividend rights d. financial rights 59. Which of the following is a feature of shares in a “widely held” corporation? a. Shares are almost always freely transferable. b. There is a limit on the number of shareholders. c. There are limited rights attaching to a share class. d. It has a lower income tax rate.

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Chap 15_7e 60. Amber has received a lucrative offer to purchase her shares in a closely held corporation. She is required to

give her fellow shareholders an opportunity to acquire her shares at the same price offered by the outsider. Why is Amber required to do so? a. A shareholders’ agreement gives the remaining shareholders a right of first refusal. b. A shareholders’ agreement provides the legal elements for valuing the entity’s shares. c. The corporation is listed on an exchange as a publicly traded entity. d. The share structure prohibits the transfer of shares to outside parties. 61. Which of the following is a feature of the shares within a private corporation as compared to a

widely held corporation? a. a restriction on the transfer of shares b. the right to receive preference shares c. the right to vote d. the right to vote 62. Which term is synonymous with a bond? a. equity share b. preferred share c. debenture

d. convertible note

63. Suppose Marcella is incorporating a new business entity and must consider the matters relating to shares.

Which of the following is a valid question that Marcella must answer? a. How many classes of shares will affect the control of the issuance? b. How many classes of shares should be issued, and what are the rights and privileges for each? c. Who will have the right to manage or control the issuance? d. Who will receive the rights and privileges that attach to stakeholders? 64. Why might a business choose to incorporate federally instead of provincially? a. Provincial corporations can carry on business in only one province at a time. b. It is generally cheaper to register as a federal corporation if carrying on business in more than two

provinces. c. It is more expensive to incorporate a provincial corporation than a federal corporation. d. Unlike provincial corporation, federal incorporation allows a business to conduct international

operations. 65. Daenna resides in Manitoba and is creating a new business entity. She has not settled on a name. She does

intend to carry on business in the Western provinces and will be importing goods from Scandinavian countries in the near term. Which of the following business names will most likely accommodate Daenna’s business needs and expectations, as well as legislative requirements? a. 36993636 Canada Corp. b. 12361239 Manitoba Inc. c. 36993636 Incorporated d. Daenna’s Import Co. Copyright Cengage Learning. Powered by Cognero.

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Chap 15_7e 66. Identify and briefly explain the typical rights and privileges that may attach to a class of shares issued by a

corporation.

67. List and briefly describe the documents that must be submitted in order to establish a federal corporation.

68. Briefly explain the particulars of a NUANS report, including what it is and how it is created. Briefly discuss the

corporate name approval process and explain the major weakness inherent in that process.

69. Compare role and rights of bondholders and shareholders in a corporation.

70. Identify the actions required of first directors under federal corporate legislation, following the issuance of

articles of incorporation.

71. 4. Identify and briefly describe the provisions that must be present in incorporating documents in order to

comply with the Ontario Securities Act and allow the new entity to qualify as a private corporation.

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Chap 15_7e 72. Briefly describe the role and basic features of articles of incorporation.

73. What are the aims of securities legislation?

74. Explain the consequences that flow from a corporation’s ability to exist as a legal entity that is separate and

distinct from its shareholders.

75. 2. A successful sole proprietor is considering incorporating. What are some decisions she must make prior to

filing incorporation documents?

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Chap 15_7e Answer Key 1. True 2. False 3. True 4. True 5. False 6. False 7. False 8. True 9. False 10. False 11. False 12. True 13. True 14. False 15. True 16. True 17. False 18. False 19. True 20. True 21. d 22. b 23. d 24. a 25. d 26. c

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Chap 15_7e 27. d 28. b 29. d 30. a 31. c 32. c 33. a 34. d 35. c 36. a 37. b 38. c 39. d 40. a 41. a 42. b 43. c 44. c 45. a 46. c 47. d 48. b 49. c 50. a 51. c 52. a 53. c 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 15_7e 55. c 56. c 57. b 58. a 59. a 60. a 61. a 62. c 63. b 64. b 65. a 66. The typical rights and privileges that may attach to a class of shares include the following, or any combination of the

following: 1. Voting rights: the right to vote for election of directors 2. Financial rights: the right to receive dividends when declared by directors or the right to receive fixed dividends on a regular basis 3. Preference rights: the right to receive dividends before dividends may be paid to any other class of shareholders and/or the right, on dissolution, to receive investment before any payments are made to any other class of shareholder 4. Cumulative rights: the right to have a dividend not paid in a particular year added to the amount payable the following year 5. Redemption rights: the right to have the corporation buy back the shares at a set price 67. The following documents must be submitted to the federal corporate registry in Ottawa:

• Articles of incorporation: sets out the basic features of the corporation—name, place of the corporation’s registered office, class and number of shares authorized to be issued, any restrictions on the transferring of shares, the number of directors, any restrictions on the business that can be carried on, and any other provisions that an incorporator requires to customize the corporation to meet his needs. • Notice of registered office: provides a public record of the corporation’s official address • Notice of directors: contains the names and residential addresses of the directors and must correspond with the number of directors given in the articles of incorporation. • Newly Upgraded Automated Name Search (NUANS) Report: lists those business names and trademarks—if any—that are similar to the name being proposed

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Chap 15_7e 68.

A NUANS report, or Newly Upgraded Automated Name Search, is a document that lists business names and trademarks that are similar to the name being proposed for a new corporate entity. A NUANS report is prepared using a database containing existing and reserved business names, as well as trademarks. The NUANS report is submitted, together with the incorporating documents, to the registrar of corporations in order to receive approval of the new corporation’s proposed name. The major weakness of the name approval process is that there is no inherent protection to be derived from the act of the registrar giving approval of a corporate name for use. A judge can overrule the registrar and disallow the use of an approved name. Also, since the tort of passing off can be committed unintentionally, a company with a name considered to be confusingly similar to another could end up being liable for damages even though the registrar had given approval for the use of the name. 69. Shareholder:

• Is an owner • Elects directors • Approves major activities • Is entitled to dividends if declared • Upon dissolution is entitled to a share in the proceeds only after all creditors are paid Bondholder: • Is a creditor • Does not participate in management except in special circumstances • Is entitled to interest payments • Upon insolvency is entitled to payment before shareholders 70.

Under federal legislation, the first directors are required to call an organizational meeting to do the following: 1. Make bylaws 2. Adopt forms of share certificates and corporate records 3. Authorize the issue of shares and other securities 4. Appoint officers 5. Appoint an auditor to hold office until the annual meeting of the shareholders 6. Make banking arrangements 7. Transact any other business 71.

The Ontario Securities Act provides that a corporation qualifies as a private corporation if it has the following provisions in its incorporating documents: 1. A restriction on the transfer of shares 2. A limit (with certain exceptions) on the number of shareholders in the corporation to no more than 50 3. A prohibition on any invitation to the public to subscribe for the corporation’s shares

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Chap 15_7e 72.

The articles of incorporation define the basic characteristics of corporations in Newfoundland and Labrador, New Brunswick, Ontario, Manitoba, Alberta, Saskatchewan, and in the federal jurisdiction. The articles set out the basic features of the corporation—name, place of the corporation’s registered office, class and number of shares authorized to be issued, any restrictions on the transferring of shares, the number of directors, any restrictions on the business that can be carried on, and any other provisions that an incorporator requires to customize the corporation to meet his needs. For example, incorporators may include provisions that require directors to own at least one share in the corporation, provisions prescribing how shareholders will fill a vacancy in the board of directors, or provisions that limit the number of shareholders to a certain number. The name or names of the incorporators must also be included in the articles of incorporation. 73. In very general terms, the aim of all securities legislation is to:

• Provide the mechanism for the transfer of securities. • Ensure that all investors have the ability to access adequate information in order to make informed decisions. • Ensure that the system is such that the public has confidence in the market place. • Regulate those engaged in the trading of securities. • Remove or punish those participants not complying with established rules. 74. The consequences that flow from a corporation’s existence as a legal entity, separate and distinct from its

shareholders, are as follows: 1. Limited liability for shareholders 2. Perpetual existence 3. Separation of ownership and management 4. Ease of transferring ownership 5. Separate taxation 75.

She must decide: • Whether to incorporate federally or provincially • What type of shares will be available and to whom • What to name the corporation Her decisions will be influenced by a host of factors, such as the kind of business she intends to operate, where she intends to operate, how she intends to manage the corporation, how she wishes to accommodate future growth, and, in the case of a corporate name, its availability.

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Chap 16_7e Indicate whether the statement is true or false. 1. The directors’ fiduciary duty changes when the corporation moves into the vicinity of insolvency. a. True b. False 2. Corporations are immune from criminal law because they cannot be incarcerated. a. True b. False 3. Traditionally, courts have shown little reluctance to say that a director or officer is automatically liable for a tort

he or she committed on company time. a. True b. False 4. Service on a board of directors carries significant risk. a. True b. False 5. The dissent and appraisal remedy can be utilized to require a corporation to buy the shares of a shareholder

who dissents from certain fundamental changes. a. True b. False 6. A corporation’s preferred shares generally carry the right to share in dividends, the right to vote, and a right to

share in the proceeds on dissolution. a. True b. False 7. SunDials4U Inc. will bear vicarious liability for the commission of torts by its directors and executive officers. a. True b. False 8. Unlike a derivative action, which is brought on behalf of the corporation, the oppression remedy is a personal

action, which can be brought by shareholders and specified stakeholders. a. True b. False 9. Identification theory holds that a corporation is liable when the person committing the wrong is the

corporation’s directing mind. a. True b. False

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Chap 16_7e 10. A director does not generally attract liability for the corporation’s contracts. a. True b. False 11. Jeremy is an elected member of the board of directors of the same corporation where Johanna holds the

position of chief financial officer. Their positions require each of them to uphold their fiduciary duties to act honestly and in good faith with regard to the best interests of the corporation. a. True b. False 12. The oppression remedy is a personal action that can be brought by shareholders, creditors, directors, and

officers. a. True b. False 13. The preferred shares of a corporation typically carry the priority right to the distribution of dividends and the

proceeds on dissolution. a. True b. False 14. A shareholder has no right to have dividends just because the corporation has earned large profits. a. True b. False 15. In assessing a claim for oppression, a court must, among other things, determine whether the evidence

supports a reasonable expectation of the stakeholder. a. True b. False 16. Directors can be personally liable if a corporation fails to remit required taxes. a. True b. False 17. The exercise of care, diligence, and skill in the performance of their duties is seldom enough to reduce the

exposure to personal liability that corporate directors face. a. True b. False 18. A unanimous shareholder agreement is an agreement that defines the relationship among people who have an

ownership interest in a corporation. a. True b. False

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Chap 16_7e 19. A corporate opportunity is a contract in which an officer of the corporation has an interest. a. True b. False 20. The purpose of a unanimous shareholders’ agreement is to convince the court that the directors are in the

wrong and have been oppressive. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Clifton has purchased shares in a corporation that carry a pre emptive right. What right does this confer to

Clifton? a. the right ask questions at the annual shareholders’ meeting b. the right to vote at the annual shareholders’ meeting c. the right to purchase new shares before they are offered to outsiders d. the right to sell his shares back to the corporation 22. Isabella and Emily both attended a recent seminar for directors regarding corporate governance. The seminar

focused on the recent departure of certain courts from the traditional shielding of directors from personal liability where their actions were taken in furtherance of their duties to the company and their conduct was justifiable. What type of liability are Emily and Isabella concerned with? a. liability in tort b. liability in contract c. statutory offence liability d. criminal offence liability 23. Which statement best describes the relationship between directors and officers in a corporation? a. Directors and officers are elected by the shareholders. b. Directors are appointed by officers. c. Officers are appointed by directors. d. Directors but not officers are the directing mind of the corporation. 24. Which statement best describes a corporation’s liability in criminal law? a. Corporations cannot be jailed, and therefore criminal law has no application. b. Corporations can be liable for criminal negligence but not for crimes requiring intent. c. Corporations can be liable for intentional and negligence criminal offences. d. Corporations are liable only if intent and the guilty act reside in the same person.

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Chap 16_7e 25. Which statement best exemplifies the standard of care expected of directors? a. The care, diligence, and skill that a reasonable shareholder would expect in comparable circumstances. b. The care, diligence, and skill that the average person would exercise in comparable circumstances. c. The care, diligence, and skill that a professional would exercise in comparable circumstances. d. The care, diligence, and skill that a reasonably prudent person would exercise in comparable

circumstances. 26. Three directors of a courier business who became aware of a business opportunity resigned and formed their

own corporation in order to take advantage of the opportunity. The opportunity turned out to be very lucrative. Which of the following remedies is a court most likely to order in this situation? a. specific performance b. mandamus c. an accounting of profits d. lifting of the corporate veil 27. Which of the following would be NOT be a responsibility of the directors of a corporation? a. calling a special shareholders’ meeting b. the appointment of executive managerial officers c. the drafting of corporate bylaws d. the declaration of dividends 28. Kramer is the sole director and shareholder of a failing corporation. In his role as director, Kramer has elected

to declare dividends even though doing so will cause the corporation to default on its outstanding loan from the bank. Which statement best describes Kramer’s risk of liability for this decision? a. Kramer is immune from liability because of the separate legal existence of the corporation. b. Kramer can be personally sued for breaching his duty of care to a creditor of the corporation. c. Kramer is immune from liability because he is a director of the corporation. d. Kramer can be personally sued by the creditor because he has breached his duty of competence. 29. Which of the following individuals might be classified as a ‘directing mind’ of a corporation? a. a shareholder b. a supervisor c. a corporate officer

d. an agent

30. What must be used in order to circumvent the general powers of the directors of a corporation to manage or

supervise the ongoing business and affairs of a corporation? a. provisions made in the bylaws or unanimous shareholders agreement b. resolution of the majority shareholders of the corporation c. provisions contained in the bylaws or a shareholders’ agreement d. unanimous resolution of majority and minority shareholders

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Chap 16_7e 31. What evidence would strongly support a judge’s examination of facts and matters giving rise to a question of

whether an individual is in breach of a fiduciary duty with respect to an alleged misappropriation of a corporate opportunity? a. the quantum of knowledge possessed and factors influencing it being obtained b. the amount of profits earned by the individual committing the breach of duty c. the circumstances under which the employment relationship of the officer arose d. the duration of time an individual has held a fiduciary position with the entity 32. In which situation might a shareholder exercise the right of dissent and appraisal? a. where the directors have refused to declare dividends b. where the directors are in a conflict of interest c. where the shareholder dissents in a vote to amalgamate with another corporation d. where a director has breached the duty of competence 33. Why is it preferable for risk management to use a shelf company as the vehicle for taking prompt advantage of

a valuable business opportunity? a. Outsiders retain liability if the corporation fails to come into existence. b. It facilitates direct entrance into contractual obligations by the corporation. c. It facilitates the ability of promoters to sign in a personal capacity. d. Outsiders are restricted from relying on the apparent authority of agents. 34. What is the authority an individual must possess to trigger an organization’s criminal liability? a. the authority to enact organizational policy b. the authority to act as a subordinate manager c. the authority as the directing mind who commits the offence d. a combined authority with two or more individuals in a single chain of command 35. A dispute has arisen among the various factions of shareholders over the proposed change of name of

SunEnergy4U Inc., a publicly traded company. What would a corporate lawyer believe to be important to each of the competing shareholder groups? a. applying the statutory oppression remedy b. exercising their automatic pre emptive rights c. applying the shareholders’ agreement d. successfully soliciting proxy votes 36. Which statement best describes the ‘directing mind’ of a corporation? a. The shareholders are the directing mind of a corporation. b. Any level of employee may be a directing mind depending on the circumstances. c. There may be more than one directing mind of a corporation. d. The incorporators are the directing mind of a corporation. Copyright Cengage Learning. Powered by Cognero.

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Chap 16_7e 37. What is a distinguishing characteristic attributable to preferred shares? a. They include a right to vote. b. They must state “nonvoting” on the share certificate itself. c. They have a preferential right in the distribution of proceeds on dissolution. d. They do not usually share in dividends. 38. The senior vice president of marketing surprised everyone at the meeting with his decision to use the initials

“HjW” on the labels of T Shirt Corp.’s toddlers’ T shirt line. The likelihood of ensuing confusion with a competitor’s products in that market was obvious to all present. If asked to assess responsibility for liability for wrongdoing in these circumstances, would a court apply the theory that holds a corporation directly at fault for the commission of this wrongful act? a. Yes, through the application of vicarious liability principle. b. Yes, through application of the identification theory. c. No; the area of primary liability is inherently problematic. d. No; the courts generally have not followed this approach. 39. The directors of ABC Corporation have voted to form a strategic alliance with Atlas Supplies Ltd., a

corporation owned by a block of ABC’s shareholders. They plan to pay a premium over the market rate for the services of Atlas in recognition of their close relationship. Which statement best describes this situation? a. The directors have entered into a self dealing contract. b. The directors have breached their duty of competence. c. The directors have breached their fiduciary duties by favouring on particular group of shareholders. d. The directors have mis used a corporate opportunity. 40. What is the legal term for the shareholder remedy where the court orders the corporation to purchase the

shares of a shareholder at a reasonable price? a. compensation remedy b. dissent an appraisal c. oppression remedy d. derivative action 41. Ingel is a director in MIV Inc., a large, successful software development company. He entered into a contract

involving the sale of software he developed to MIV Inc. In law, this is a self dealing contract. Why is it enforceable? a. Political lobbying efforts have successfully avoided a blanket prohibition of self dealing. b. Ingel’s self dealing is permissible if the governance committee has given assurance it is not a rip off. c. Ingel provided a written disclosure and abstained from voting on the fair and reasonable deal. d. Self dealing contracts are permissible if an oversight committee has confirmed the deal is not a rip off.

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Chap 16_7e 42. Which of the following are uncommon remedies available to a corporation’s minority shareholders through

common law and legislation? a. appraisal and the return of surplus assets b. winding up and derivative action c. appraisal and derivative action d. winding up and the return of surplus assets 43. What is the role of the fiduciary principle in matters with respect to corporate law relating to governance? a. to impose duties owed to the board of directors b. to impose duties owed to the corporation c. to uphold duties owed to creditors d. to uphold duties owed to a group of shareholders 44. A court is satisfied with plaintiff counsel’s efforts to establish that, based on the facts of the matter, the

defendant corporation is the agent of its shareholders. In presenting this argument, what legal feat was plaintiff’s counsel attempting to accomplish on his client’s behalf? a. lifting of the identification principle b. lifting obligations for a personal guarantee c. piercing the indemnification veil d. piercing the corporate veil 45. What is the most important factor that contributes to a minority shareholder’s ability to commence a derivative

action? a. The action must arise from discrimination against minority shareholders. b. The action must be a pursuit of proper and adequate disclosure of material information. c. The action must arise as a direct result of a fundamental change to the corporation. d. The action must be in the corporation’s cause as a result of some injury to it. 46. Under what circumstances will a court find that a corporation is bound by a contract entered into by an agent

of the corporation? a. where the agent is a promoter of the corporation b. where the corporation will benefit from the contract c. where the agent was acting with actual or apparent authority d. where the contract terms were reasonable

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Chap 16_7e 47. Which of the following would a court most likely require in order to find there is no legal impediment to Marion

proceeding to pursue a corporate opportunity declined by the corporation in which she holds a fiduciary position? a. a resolution enacted by the corporation declining the corporate opportunity b. a consenting resolution passed by the directors of the corporation c. a consenting resolution passed by the shareholders of the corporation d. a resolution enacted by the corporation’s consenting shareholders and directors 48. Of the 1000 issued and outstanding common voting shares of Trunda Adventures Corp., Isaac holds 501,

Marielle holds 250, and Lorenzo holds the remaining 249.Which of the following rests only with Isaac based on this arrangement? a. the right to ask questions b. the right to attend meetings c. the right to control the company d. the right to introduce motions 49. In Peoples Department Stores v. Wise (2004), 244 DLR (4th) 564 (S.C.C.), the court noted that it may be

legitimate for directors to consider inter alia the interests of shareholders, employees, suppliers, creditors, consumers, governments, and the environment. How does this ruling affect the fiduciary duty owed by directors to act in the best interests of the corporation? a. It complicates matters, because directors are now bound to consider these outside interests. b. It is inconsequential, because directors are not bound to consider those interests. c. Duties to the corporations are confounded by duties of corporate social responsibility. d. It is inconsequential, because the duty owed to the corporation is relieved by social responsibility. 50. By a two thirds majority vote, EcoGreen Inc.’s shareholders approved a proposed amendment to the articles

of incorporation allowing for the public ownership of the company’s shares and the adoption of a dual class share structure. Zoe voted against the change. What is Zoe’s best solution to her dissatisfaction? a. seeking a court ordered oppression remedy b. commencing a derivative action c. soliciting proxy votes d. exercising her dissent and appraisal right 51. The exercise of which of the following is required by a duty owed by directors or officers that compares them

to a reasonably prudent person in comparable circumstances? a. honesty, skill, and care b. diligence, honesty, and fairness c. diligence, skill, and care d. prudence, fairness, and honesty 52. Under what circumstances would a court “lift the corporate veil”? a. where the corporation has committed a criminal offence b. where the corporation is a “mere facade” concealing the true facts c. where there are fewer than 50 shareholders d. where the corporation’s shares are traded on the stock exchange Copyright Cengage Learning. Powered by Cognero.

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Chap 16_7e 53. Why is it important that the Supreme Court of Canada has set law in place allowing creditors to pursue an

action based on the obvious and more open ended duty of care? a. The law extends a change in duty in the vicinity of insolvency. b. The law extends the duty of care beyond the corporation. c. The duty of care is to be judged subjectively. d. The court will disregard socioeconomic conditions. 54. What is the most important factor contributing to a shareholder’s decision to exercise her pre emptive right? a. a desire to inspect the register of share transfers b. a need to ask the court to appoint an inspector c. a desire to maintain her current level of control d. a need to know if directors are purchasing shares 55. What type of liability is imposed by a court where it is not open to the accused to show he was without fault? a. primary liability b. absolute liability c. vicarious liability

d. strict liability

56. In which situation might a shareholder resort to the oppression remedy? a. to authorize the issuance of shares b. to obtain leave to bring an action on behalf of the corporation c. to prevent the directors from favouring one shareholder over another d. to permit a shareholder to authorize someone else to exercise his or her voting rights 57. What are the two distinct forms of corporate tort liability? a. direct and indirect b. primary and secondary c. primary and vicarious

d. statutory and vicarious

58. Which of the following is a distinguishing feature of self dealing contracts? a. They are in the best interests of the corporation. b. They have a very high revenue potential. c. They can be either pursued or declined. d. They give rise to conflict of interest situations. 59. Which of the following is a requirement of the CSA? a. Public corporations must ensure financial statements are independently audited. b. Public corporations must ensure their boards have foreign representation. c. Public corporations must explain why the corporation is not adhering to best practices. d. Public corporations must publish quarterly financial statements.

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Chap 16_7e 60. A court has examined evidence regarding how clearly an opportunity had been identified by a corporation and

how close it was to acquiring the opportunity. What subject was the court seeking to determine? a. the amount of knowledge the fiduciaries possessed b. the position or office held by the directors or officers c. the nature of the corporate opportunity d. the nature of the fiduciary’s obligation 61. Remy is the president of Envirotox Inc., a corporation that specializes in the storage of toxic waste. One of

Envirotox’s trucks was in an accident while transporting toxic waste, and the corporation is expecting prosecution under environmental protection legislation. Which of the following describes Remy’s personal liability under environmental legislation? a. He will only be personally liable if he was driving the truck. b. It is possible he will face personal liability because he is an officer. c. Only the corporation itself can be liable for environmental offences. d. He can be personally liable only if it is proven that he ordered the wrongful conduct. 62. Which of the following describes a role of the Canadian Securities Administrators (CSA)? a. to enforce mandatory guidelines that increase the lifting of the corporate veil b. to establish best practices for corporate governance c. to license directors and officers to oversee the financial affairs of public corporations d. to impose licensing requirements for all directors of public corporations 63. What do primary liability and vicarious liability have in common? a. A corporation is subject to accountability for both. b. A corporation cannot be assessed for either using the identification theory. c. Both require the directing mind to share liability from the corporation. d. Both are irrelevant to actual or apparent authority. 64. In litigation involving a promoter, one of the parties named in a contract is described as an entity yet to be

incorporated. Under what circumstances will a court find the promoter NOT to be personally liable? a. if a specific advantage of a valuable business opportunity exists b. if a specific provision expressly relieves such liability c. if the corporation has committed a crime d. if the directing mind has committed a crime

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Chap 16_7e 65. Why is knowing whether directors have been purchasing shares of a corporation a fundamental right belonging

to the shareholders of a corporation? a. It permits shareholders to maintain the optimum proportionate share of ownership. b. It is the simplest and least costly method of earning capital gains. c. It is the simplest and least costly method of soliciting proxies. d. It permits shareholders to determine the use of confidential information for personal profit. 66. The circumstances under which the employment relationship between the officers and the company terminated PTS: 1 DIF: Challenging REF: Directors and Officers BLM: Remember 6. Identify the source of and briefly discuss the present standard of care with respect to the duty of

competence owed to a corporation.

67. Briefly explain how corporate directors are able to meet their statutory standard of care, and identify the

various methods that directors should employ to achieve this goal.

68. Identify five situations that might give rise to statutory liability for a director of a corporation.

69. What is a unanimous shareholder’s agreement, what purpose does it serve and what might it typically contain?

70. Identify two situations where a director may face personal liability in contract for a corporation’s contracts.

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Chap 16_7e 71. Briefly discuss statutory derivative actions, including what they permit and what is required for their

commencement.

72. Identify and briefly explain the factors that a court must consider when setting fines or imposing other penalties

on a corporation found to be responsible for the commission of a criminal offence.

73. Identify the elements that the court has recommended be examined in order to determine whether the

appropriation of a corporate opportunity by a director or officer is a breach of fiduciary duty.

74. What is identification theory and how does it assist the courts to impose criminal and tort liability in the case of

corporate wrongdoing?

75. In assessing a claim for oppression, a court must determine (i) whether the evidence supports the reasonable

expectation of the stakeholder, and (ii) whether the reasonable expectation of the stakeholders was violated by the oppressive conduct. Identify the factors that must be considered by the court in order to answer both of these questions.

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Chap 16_7e Answer Key 1. False 2. False 3. False 4. True 5. True 6. False 7. False 8. True 9. True 10. True 11. True 12. True 13. True 14. True 15. True 16. True 17. False 18. False 19. False 20. False 21. c 22. a 23. c 24. c 25. d 26. c

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Chap 16_7e 27. a 28. b 29. c 30. a 31. a 32. c 33. b 34. a 35. d 36. c 37. c 38. b 39. c 40. b 41. c 42. d 43. b 44. d 45. d 46. c 47. d 48. c 49. b 50. d 51. c 52. b 53. b 54. c Copyright Cengage Learning. Powered by Cognero.

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Chap 16_7e 55. b 56. c 57. c 58. d 59. c 60. c 61. b 62. b 63. a 64. b 65. d 66.

The present standard contained in corporate legislation requires directors and officers to display the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This is an objective standard, and, while directors are not expected to be perfect, they are to act prudently and on a reasonably informed basis. 67.

Directors can meet the statutory standard of care by being attentive, active, and informed. In this regard, directors should do the following: 1. Make all their decisions informed decisions 2. Do what is necessary to learn about matters affecting the company 3. Identify possible problems with the company 4. Stay apprised of and alert to the corporation’s financial and other affairs 5. Regularly attend directors’ meetings 6. Ensure that they receive reliable professional advice. 68.

1. Failure to pay employee wages 2. Directing, authorizing, or permitting the release of toxic substances into the environment 3. Failure to remit required taxes 4. Failure to maintain health and safety standards 5. Insider trading 6. Engaging in anticompetitive behaviour 7. Paying a dividend when the company is insolvent 8. Misrepresentation on a prospectus 9. Improperly transporting dangerous goods Copyright Cengage Learning. Powered by Cognero.

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Chap 16_7e 69.

A unanimous shareholders’ agreement (USA) is a specialized kind of shareholders’ agreement among all shareholders that restricts, in whole or in part, the powers of the directors to manage the corporation and ensures that control over matters dealt with in the USA remains with the shareholders. Typically, the USA will comprehensively set out—by agreement and in advance of any conflict—what the shareholders’ expectations are, how the company is to be managed, and how disputes will be addressed. Typical issues addressed in a USA include: • Management of the company • Protection for minority shareholders • Control over who the other shareholders will be • Provision of a market for shares • Capital contribution • Buy/sell arrangements in the event of a dispute • Mechanism for terminating the agreement 70. A director may face personal liability on a contract if the facts indicate that the director intended to assume personal

liability. For example, liability to a director may accrue where: • The director contracts on his own behalf, as well as on behalf of the company. • The director guarantees the contractual performance of the company 71.

A statutory derivative action permits a shareholder to obtain leave from the court to bring an action on behalf of the corporation, where the shareholder is able to establish the following: 1. The corporation’s directors are unwilling to bring an action 2. The shareholder is acting in good faith 3. It appears to be in the interests of the corporation that the action proceed. 72.

The legislation specifies the following factors that a court must consider when setting fines or imposing other penalties on a corporation held responsible for the commission of criminal acts: 1. Moral blameworthiness; i.e., advantage gained by the organization committing the crime 2. The public interest; i.e., the cost of investigation and prosecution or the need to keep the organization in business 3. The prospects of rehabilitation; i.e., remedial steps directed to preventing the likelihood of a subsequent offence A corporate probation order may involve conditions such as requiring the corporation to provide restitution to victims, publishing the offence in the media, and implementing policies and procedures. 73.

In order to determine whether the appropriation of a corporate opportunity is a breach of fiduciary duty, the court has recommended examination of the following: 1. The position or office held by the directors and officers 2. The nature of the corporate opportunity 3. The director’s or managerial officer’s relation to the opportunity 4. The amount of knowledge the directors and officers possessed and the circumstances in which it was obtained 5. The time between when the opportunity arose and when the officers took the opportunity for themselves Copyright Cengage Learning. Powered by Cognero.

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Chap 16_7e 74.

Identification theory is used by the courts to attribute liability to the corporation by seeking to determine which person or persons are the directing mind of the corporation. When that person or persons commit a tort related to the business enterprise, this conduct is identified with or attributed to the corporation itself. Generally, it is the highly placed corporate officers who are classified as “directing” minds, while low level employees are not. A corporation may have more than one directing mind. Each may be responsible for a different aspect of the corporation’s business. For example, the vice president for marketing may be the corporation’s directing mind in relation to the marketing function, whereas the vice president for finance may be the directing mind in relation to finance. 75. To determine whether a reasonable expectation exists, courts must consider the following factors:

1. General commercial practice 2. Nature of the corporation 3. Relationship between the parties 4. Past practice 5. Steps the claimant could take to protect itself 6. Representations and agreements 7. Resolution of conflicting interests between corporate stakeholders To answer the second question, a claimant must show that the failure to meet reasonable expectations was the result of unfair conduct.

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Chap 17_7e Indicate whether the statement is true or false. 1. A lease is a form of real property. a. True b. False 2. Ross sold his house and went travelling for two months. While he was away, he placed his furniture and other

belongings in storage with Kitt’s Storage Inc. In these circumstances, Ross is a bailee and Kitt’s is a bailor. a. True b. False 3. WeMove4U Inc. is a transport company that operates in Alberta and Saskatchewan. The company has

recently adopted a new standard charge agreement that severely limits its liability in the event of mishap with bailed property. By pointing out this clause to its customers, WeMove4U is shifting the burden for damage or loss to the bailor, who should purchase adequate insurance coverage. a. True b. False 4. A key aspect of a bailment contract is often the limitation of the liability that the common law rules of bailment

create. a. True b. False 5. The practical distinction that exists between carriers and innkeepers relates to the carrier’s shared control over

the property entrusted to it and the innkeeper’s total control over the property of its guests, acquired through their occupancy of rooms. a. True b. False 6. A warehouseman’s general responsibility toward its customers’ property is to treat it as a skilled storekeeper

would deal with its own property, which imposes a standard of reasonableness encompassing responsibility for most foreseeable risks. a. True b. False 7. The rental of a vehicle is an example of bailment. a. True b. False 8. Tangible property is composed of personal property, the value of which comes from legal rights. a. True b. False

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Chap 17_7e 9. All property, other than land and what is attached to land, that can be identified by its mobility is known as

personal property. a. True b. False 10. Normally the rights associated with the ownership of property also include the right to dispose of the property

or transfer the property. a. True b. False 11. Marcella delivered her suits to the drycleaners and arranged for them to be available for pickup three days

later. In this bailment for value, Marcella is a bailor and the drycleaner is a bailee. a. True b. False 12. Aboriginal title arises out of the prior occupation or possession of lands by Indigenous peoples. a. True b. False 13. There is no comprehensive system for registering ownership of personal property as there is with real property. a. True b. False 14. Jordan’s RV Storage business would be required to exercise a higher degree of care toward a holiday trailer

owned by one of its paying customers than would someone who permits a friend to store a holiday trailer on his land free of charge. a. True b. False 15. An insurance policy is an example of tangible property. a. True b. False 16. According to property law principles, all tangible materials are capable of being owned. a. True b. False 17. In Canada, most ownership or custodianship rights associated with bodies of water are vested in the Crown. a. True b. False 18. The duty to consult is triggered by the existence of treaty rights. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 17_7e 19. Ownership can be acquired by taking possession of abandoned personal property. a. True b. False 20. In contractual bailments, bailors warrant that the goods used by their bailees are fit for the purpose for which

they are bailed. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. How does Canadian law provide for the protection of personal property? a. by application of the Charter of Rights and Freedoms b. by application of statutes and common law principles c. through the Constitution Act, 1867 d. by application of common law principles 22. Which statement best describes an innkeeper’s common law liability for guest property? a. They have total control and therefore complete liability. b. They must take great care and are responsible for theft or loss. c. They are only responsible for losses caused by the innkeeper’s staff. d. They are only liable for gross negligence. 23. What is the most significant effect of the responsibility of the standard of care placed on carriers with respect

to the property they carry? a. Defences relate mainly to events within a carrier’s control. b. A bailor is required to prove fault. c. Defences mainly relate to the circumstances of the carrier. d. Carrier liability for mishaps is severely limited. 24. Which of the following is an example of a bailment? a. transportation of personal property b. purchase of personal property c. a right of access to service an oil well

d. depositing a car at a garage for servicing

25. What feature distinguishes bailment from a contract of purchase and sale? a. Most commercial contracts are bailments, requiring payment for use of property. b. Most bailments are gratuitous, requiring no payment for use of property. c. A bailor retains ownership upon transfer of possession to the bailee. d. A bailment is typically short term, while contracts cover a longer term.

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Chap 17_7e 26. What legal mechanism might be used to facilitate the management of a pension fund by administrators on

behalf of the plan members? a. a trust b. an easement c. an endorsement d. a bailment 27. Which of the following is most prominent in bailment transactions? a. proof and protection of ownership b. preservation of economic value c. transfer of risk

d. retention of risk

28. What is the focus of the standard of care required of a gratuitous bailor? a. A bailor must take utmost care to protect the bailed goods. b. Proof of ownership must be provided. c. It must be determined whether the bailor or bailee is receiving the benefit of the bailment. d. It will depend on the common law strict liability rules. 29. Which of the following describes a right of a carrier in the event a customer fails to pay for the transport? a. the right to sell the customer’s property b. the right to impose a common law lien c. the right to punitive damages

d. the right to liquidated damages

30. What is an attractive way for a business to acquire the use of equipment for a specified period of time? a. through a bailment contract b. through a possessory lien c. through a lease

d. through an easement

31. Which of the following would NOT constitute property? a. insurance policy b. lease c. right of citizenship

d. accounts receivable

32. Colleen booked two weeks’ lodging with a bed and breakfast beginning on June 30. What is the legal term

used to describe the individual who takes the booking? a. lodgekeeper b. hostelry c. innkeeper d. hotelier 33. What is the term “choses in action” synonymous with in law? a. tangible property b. pledged property c. intangible property

d. non portable items

34. What term describes the acquisition of ownership of land by occupying land owned by someone else? a. inadvertent ownership b. adverse possession c. lien

d. security interest

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Chap 17_7e 35. Which of the following is NOT a feature of ‘Aboriginal title’? a. the right to decide how land will be used b. the right to the economic benefits of the land c. the right to sell the land d. the right to proactively use and manage the land 36. The owner of Goodfood Grocers has agreed to allow the Goodfood Grocer name to be used by the owner of

a grocery store in a neighbouring city. What legal device should Goodfood Grocers use to give effect this right ? a. licence b. trust c. lease d. easement 37. How is ownership of intellectual property acquired? a. through creation, licence, or transfer b. through purchase, manufacture, or trading c. through creation, registration, or purchase d. through licence, manufacture, or transfer 38. Under what circumstances do the rights and responsibilities relating to a storage bailment apply? a. when standard charge terms limit liability b. when the property has been returned in the same condition as delivered c. when the bailor retains possession of the keys d. when the arrangement meets the definition of a bailment 39. Remmie owns the associated rights to property, the buildings, and everything affixed to them located on that

property, and the property itself. How is this particular asset likely to be classified? a. as chattel property b. as intangible property c. as real property d. as tangible property 40. What are the implications of Tsilhqot’in Nation v British Columbia, 2014 SCC 44, for resource extraction

and other intrusions such as pipelines on Crown lands that have been exclusively and continuously occupied by Indigenous peoples? a. Resource development is no longer possible on such lands. b. The Crown may continue to develop resources on such lands provided it shares revenues with potential aboriginal title holders. c. Intention to develop such lands will trigger a duty to consult. d. There is no impact unless the Indigenous peoples are able to establish aboriginal title

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Chap 17_7e 41. What is a defining characteristic of a lease? a. a lease confers ownership b. a lease confers a temporary right to possess c. a lease confers the right to sell d. a lease confers the right to use the property as security for a loan 42. Which of the following describes one of the key roles of property law? a. to establish who may own personal property b. to determine what counts as property and can thus be owned c. to ensure property can be inherited d. to provide guidelines for the exercise of the constitutional right to protect property 43. Why is a short term lease or rental of property an attractive way for a business to acquire the use of equipment

for a particular task or period of time? a. A lease protects creditors whether the arrangement is contractual or not. b. A lease is a form of sale and is covered by the large number of terms implied through legislation governing the sale of goods c. It makes little sense to purchase something that is not needed for a long period, unless, of course, the rental charges approach the cost of buying. d. The lessee must take reasonable care of the property while that property is in its possession and return it in the state that would be expected 44. Serena found a silver bracelet in the washroom of a hotel. Assuming the bracelet was accidentally left by its

owner, which of the following best describes the rights of the parties to the necklace? a. The hotel has greater rights to the bracelet than Serena. b. Serena has greater rights to the necklace than the original owner. c. The original owner has greater rights to the necklace than Serena and the hotel. d. The hotel has greater rights to the necklace than the original owner. 45. Which of the following exemplifies possession without ownership? a. granting a trademark registration to an applicant b. granting a licence for use of a bio waste technology c. registering a transfer of a freehold interest in land d. registering a company’s truck under its business name 46. What is a difference between a warehouseman’s lien and a carrier’s lien? a. Warehousemen represent themselves to the public as storekeepers for reward. b. Warehousemen have a common law lien right with the right to sell property. c. Common carrier contracts are typically covered by federal legislation. d. Common carriers have a common law lien right without the right to sell property. Copyright Cengage Learning. Powered by Cognero.

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Chap 17_7e 47. What is most likely to result if a bailment is without reward and for the benefit of the person possessing the

property? a. The bailor’s standard of care will be low. b. The bailee’s standard of care will be low. c. The bailor’s standard of care will be very high. d. The bailee’s standard of care will be very high. 48. In what way is Aboriginal title unique compared to other forms of land ownership? a. It includes the right to enjoy and manage. b. It is collectively held. c. It can be used to grant security interests. d. It imposes a duty to exercise reasonable care. 49. What is a distinguishing characteristic the liability of common carriers? a. The owner of property damaged while in the carrier’s possession must prove fault. b. Carriers have the right to sell the owner’s property for failure to pay. c. It is presumed the carrier is at fault if property is lost or damaged in their possession. d. Carriers cannot limit their liability by contract. 50. Shawna received a factory recall notice from her GM dealership. She accepted the dealership’s offer to drive

her to work when she brings the car in for the service recall. What will be the certain result when Shawna hands the dealership her car keys? a. An agreement on price for the service will be created in advance. b. An incidental storage bailment will be created. c. A very high standard of care will be expected. d. The dealership will lose the right to retain property for payment. 51. Which statement best characterizes the nature of most commercial bailment situations? a. The bailee is liable for latent defects. b. The standard of care is very high. c. They typically benefit both the bailor and bailee. d. The standard of care is very low. 52. Which of the following might be used to transfer the right to use a particular method of manufacturing light

bulbs? a. a bailment c. a patent

b. a security interest d. a licence

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Chap 17_7e 53. Which of the following would be the result of a commercial customer’s limited means of monitoring a storage

facility’s treatment of the property given to it for storage? a. Liability is excluded completely or limited to a very small amount. b. The bailee must provide consent for storage at an alternative location. c. The law imposes a high level of accountability for the treatment of the bailor’s property. d. The law imposes a high level of accountability for the treatment of the bailee’s property. 54. Which of the following is an example of intangible property? a. Aboriginal title b. mineral rights c. a car

d. a patent

55. What is a characteristic of a carrier bailment arrangement where possession of the goods rests with the bailee? a. the right to sell property on non payment b. the owner is required to prove fault c. a presumption of carrier’s liability

d. an agreed value of any ensuring repairs

56. Which statement best reflects the approach taken by the courts when determining if something counts as

property? a. If something counts as ‘property’, it has the same features common to all property. b. Only items that have monetary value may be counted as property. c. Only tangible items count as property. d. Something may count as property for one purpose but not another. 57. What should be included in the standard form contract in order for a lessor to maximize its ability to minimize

its exposure for damage caused to a leased vehicle in the lessee’s possession? a. a benefit of relationship clause to ensure reciprocal benefit to the lessor b. the bailee identified as the party to be paid in the event of loss for insurance c. an ordinary diligence exclusion clause to limit liability for ordinary neglect d. the bailor named as the party to be paid in the event of loss for insurance 58. Which of the following would constitute a form of real property? a. a growing crop b. a holiday trailer c. a patent

d. furniture

59. What is the most significant aspect of a bailment contract? a. It provides remedies for the failure to perform obligations. b. It reduces serious defects affecting contractual formation or performance. c. It limits the liability that common law rules of bailment create. d. It avoids legal complications for damage or loss of bailed property.

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Chap 17_7e 60. Which of the following is an example of a legal duty or obligation that is typically associated with the ownership

of land? a. duty to encumber c. obligation to pay tax

b. duty to develop d. obligation to remove squatters

61. Briefly describe the obligations that are typically associated with the ownership of real property.

62. Why is the issue of privatizing fresh water supplies controversial?

63. A bailee performing repairs has a right to a lien against property for the value of repairs made to it. Identify one

example of a legislated legal source of that lien right and provide a brief discussion of a bailee’s legislated lien right in these circumstances.

64. Explain what a court will be require in order to determine who is responsible for damaged goods and for how

much.

65. What are the defining characteristics of Aboriginal title?

66. Remedies for failure to perform obligations arising in a bailment relationship originate in two contexts. Discuss.

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Chap 17_7e 67. Identify the rights that comprise the “bundle of rights” normally associated with the ownership of property.

68. Describe bailment and discuss its key issues.

69. How is personal property categorized and what are the key features of these categories?

70. Are property rights human rights?

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Chap 17_7e Answer Key 1. True 2. False 3. True 4. True 5. False 6. False 7. True 8. False 9. True 10. True 11. True 12. True 13. True 14. True 15. False 16. False 17. True 18. False 19. True 20. True 21. b 22. b 23. d 24. d 25. c 26. a

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Chap 17_7e 27. c 28. c 29. b 30. c 31. c 32. c 33. c 34. b 35. c 36. a 37. c 38. d 39. c 40. c 41. b 42. b 43. c 44. c 45. b 46. d 47. d 48. b 49. c 50. b 51. c 52. d 53. c 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 17_7e 55. c 56. d 57. b 58. a 59. c 60. c 61.

Most municipalities impose a tax on the ownership of real property in order to fund municipal services such as police and fire protection, road maintenance, and infrastructure. Landowners may also have obligations under legislation to cooperate with certain intrusions on their land. Landowners of environmentally sensitive property may have statutory obligations to protect the natural features of the property. A municipality may also impose land use rules in order to regulate local development and bylaws that require property owners to provide proper upkeep of their property. 62.

Most nations place limitations on the ability to privately own watercourses and bodies of water in the theory that the ability to use and access water must be preserved for the benefit of all abutting property owners and for the general benefit of society as a whole that might rely on that water for transportation, consumption, or even recreation. 63.

Most provinces have enacted legislation, such as Nova Scotia’s Mechanics Lien Act, providing a bailee with a right to a lien against property for the value of repairs made to it. The lien right is effective as long as the bailee retains possession of the property. In these circumstances, the bailee’s right to sell the licensed property to recover the repair charges is subject to procedural requirements. 64.

In order to decide who is responsible for damaged goods and for how much, a court will require all of the following: 1. Full investigation of the events that occurred 2. Detailed examination of the terms of the contract 3. Detailed examination of any legislation 4. Detailed examination of applicable international rules

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Chap 17_7e 65.

Aboriginal land interests are distinct from other mainstream legal interests in land, such as fee simple or leasehold interests and in fact Canadian courts have described this form of title as sui generis to denote that it is unique compared to other forms of ownership and cannot be described with reference to traditional property law concepts. The key features of this form of title are as follows: ∙ A Collective Right: Aboriginal title is a collective form of title, held not only for present title holders but also for future generations. As a result, it cannot be alienated (for example, sold) other than to the Crown. Nor can it be encumbered by its owners in ways that could prevent future generations from using or enjoying it. ∙ Right to Possess, Enjoy, Manage, and Occupy: Aboriginal title confers the right of exclusive use and occupation of the land and such uses are not restricted to traditional uses. However, the use of the land must be consistent with the collectively held nature of the title, cannot harm the rights of future generations. ∙ Right to the Economic Benefit of the Land: Aboriginal title includes the right to choose the uses to which land can be put, and that the title holders have the right to profit from its economic development. As a result, and subject to negotiation, the Crown does not have any right to benefit from the use of land subject to Aboriginal title, such as a right to grant timber leases or collect royalties for its development. 66.

The remedies for failure to perform obligations arising in a bailment relationship originate in either of two contexts: 1. When a bailee is attempting to recover a fee for services performed in relation to bailed property. 2. When a bailor is trying to recover for damage done to property while it was in the bailee’s possession. This in turn generally involves two issues: (1) has the bailee met the relevant standard of care, and (2) does the agreement cancel or limit the bailee’s liability? 67.

Normally included in the bundle of rights are the right to exclude, the right to possession, use, and enjoyment of property, and the right to transfer or dispose of property. 68.

A bailment is the temporary transfer of possession with no change in ownership. A commercial bailment (bailment of value) benefits both the bailor (owner) and bailee (possessor). Key issues in bailment are the standard of care that the bailee must observe in relation to the property and the remedies that the parties have for recovering fees. Standard form contracts are common features of bailments. 69.

Personal property includes everything other than what is included as real property and falls into two major categories—tangible and intangible. Tangible property refers to property that is concrete or material. An example of tangible personal property would be the inventory stored in a warehouse. Intangible property derives its value from legal rights, rather than concrete, physical qualities. Examples of intangible property are insurance policies, accounts receivable, bank accounts, and customer records, as well as the various forms of intellectual property such as patents and trademarks.

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Chap 17_7e 70.

In contrast to the United States, Canada’s Charter of Rights and Freedoms does not provide for the constitutional protection of property. This is not to say that Canadian law does not provide protections for property. Alberta, for example, has enacted the Alberta Personal Property Bill of Rights, which echoes the Fifth Amendment of the Bill of Rights of 1791 insomuch as it renders void any provincial law that authorizes the Crown to acquire permanent title in personal property unless the law incorporates a process for providing compensation for acquiring that title. The Canadian Bill of Rights also provides that Canadians have to right to “enjoyment of property, and the right not to be deprived thereof except by due process of law.”

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Chap 18_7e Indicate whether the statement is true or false. 1. The first person who uses or makes a trademark known in Canada is entitled to trademark registration. a. True b. False 2. The shape of a ware or its container or mode of packaging is known in intellectual property law as a

distinguishing guise. a. True b. False 3. A word used in combination with a symbol to distinguish a business as the source of goods is known in

intellectual property law as a trade name. a. True b. False 4. An invention has to actually work in order to be patentable. a. True b. False 5. Any public disclosure, public use, or sale of the invention prior to filing for a patent renders an invention old

and unpatentable. a. True b. False 6. A patent gives the inventor the right to exclude others from making, selling, or using the invention to which the

patent relates for a period of 20 years from the date of filing the application. a. True b. False 7. Ziggy’s ChairsByDesign Inc. protects its rights to the appearance of its articles against copying by registering

its industrial designs and marking its products appropriately. a. True b. False 8. Although the Canadian Patent Office guidelines state that business methods are not automatically excluded

from protection, some business methods are deemed unpatentable for policy reasons. a. True b. False 9. An assignment of intellectual property involves the consent given by the owner of rights to someone to do

something that only the owner can do. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 18_7e 10. Once confidential information such as a recipe, becomes generally known in the industry, it ceases to lose its

protection. a. True b. False 11. Ownership of a trademark is established by establishing or inventing it. a. True b. False 12. Recent changes to Canada’s Trade marks Act include removing the requirement of “use” as a qualification for

registration. a. True b. False 13. A trademark is the name under which a sole proprietorship, a partnership, or a corporation does business. a. True b. False 14. The price of a patent monopoly is the requirement to disclose the invention. a. True b. False 15. The negotiation of the purchase of a domain name from a registered owner may be, but is not always, the

result of the exploitive practice of cyber squatting. a. True b. False 16. Despite consumer lobbyist efforts, the government refused to compromise with a levy on blank recording

media, opting instead for an outright ban on blank tapes and the like, in recognition of the difficulties in policing the copyright infringement of music. a. True b. False 17. Fair dealing is a permitted defence to copyright infringement that allows the copying of works for unlimited

purposes. a. True b. False 18. Fair dealing is a defence to copyright infringement that permits copying for purposes such as private study,

research, criticism, review, and education. a. True b. False

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Chap 18_7e 19. The patent regime is based on a first to file system. a. True b. False 20. A court will grant an injunction before trial in a matter involving the alleged infringement of intellectual property

as long as the plaintiff has demonstrated that there is a serious issue to be tried, irreparable harm may be caused, and the balance of convenience favours the applicant. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What characteristic distinguishes intellectual property identified as “confidential business information” from

other forms of “confidential information”? a. information of a commercial nature b. specific statutory provisions c. a narrow range of information d. creative incentives and rewards 22. Which of the following is NOT a category of intellectual property? a. patents b. industrial design c. an idea

d. copyright

23. Which statement best describes a feature of moral rights? a. They provide authors with some control over how their works are used or exploited. b. They are dependent on copyright. c. They can be assigned. d. They may not be waived. 24. Which form of intellectual property does NOT require registration for its protection? a. trademark b. copyright c. patent

d. industrial design

25. The president of Amanda’s organization has instructed that all strategic business information be protected due

to its confidentiality. How will this secret information receive protection? a. Protection is afforded exclusively through patent claims. b. Protection is afforded exclusively through express or implied confidentiality obligations. c. Protection is afforded by copyright law. d. Protection is afforded through the trade secret application process. 26. Which of the following is NOT exempt under the Copyright Act? a. libraries b. museums c. strategic business use

d. archives

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Chap 18_7e 27. What is the most effective means of exploiting the value residing in protected intellectual property? a. assignment or licensing b. fair dealing c. cyber squatting

d. getting joint copyright

28. What is the function of a certification mark? a. It indicates that a product conforms to a particular standard. b. It indicates that a colour’s distinguished guise is registered. c. It indicates the source of the goods or services. d. It indicates the name of the source of the product. 29. Which of the following is NOT patentable? a. computer program b. computer hardware c. chemical compound

d. pay per use billing system

30. What would most likely result in a protected trade secret being compromised? a. misuse b. divulgence c. mutuality

d. similarity

31. Woddington Farms Ltd. has used its name combined with an outline of a rooster on its deli products for the

past 20 years but has never registered a trademark. Would Woddington be successful in suing a competitor who attempts to use its name and symbol? a. no, because its trademark was not registered b. no, because its name and symbol cannot be the subject of a trademark c. yes, because an unregistered trademark receives protection under the common law d. yes, because the name and symbol are confidential information 32. Liptopia would like to apply for protection for the distinctively shaped wooden container its product is sold in.

What type of intellectual property best describes Liptopia’s unique containers? a. trademark b. copyright c. patent d. confidential information 33. Kyrie enjoys a successful freelance career creating advertisement jingles. What category would the intellectual

property being created by Kylie would fall into? a. moral rights b. copyright c. trademark d. confidential information 34. How would a trademark applicant demonstrate title to a trademark? a. inventive selection b. distinct mark c. registrability

d. ongoing use

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Chap 18_7e 35. Alina is a surgeon and invented a new method for suturing incisions. Why is Alina’s invention incapable of

being patented? a. Permitting the patenting of surgical methods would be contrary to public policy. b. Her idea does not involve an inventive step. c. Her method is based on a scientific principle. d. Her method is merely a new process. 36. Which statement best describes the law of licensing? a. A licence must be registered in order to be enforceable. b. Failure to utilize a licence in a timely manner will result in its forfeiture. c. All intellectual property rights are capable of being licensed. d. A licence involves an exchange of ownership from licensor to licensee. 37. Rosh Pharmaceuticals Corp. is based in Israel but it maintains intellectual property protection of all its drugs

with the Canadian Patent Office. What is most likely to be the result if insufficient quantities of Rosh Pharmaceuticals Corp.’s newly patented pancreatic cancer drug are produced to meet demand in Canada? a. the loss of intellectual property rights b. the licence will go to a Canadian facility c. the assignment will go to a Canadian facility d. the assignment of patent rights 38. Which statement best describes a distinguishing feature of Canada’s patent regime? a. It is a ‘first to invent’ system. b. It is a ‘first to use’ system. c. It is a ‘first to file’ system.

d. It is a collective commons system.

39. What was a consequence of amendments made in 2014 to the Trade marks Act? a. All trademarks must now be registered to qualify for protection. b. Proof of use is now a requirement for trademark enforceability. c. It is no longer possible to trademark a colour. d. The period of protection was reduced from 15 to 10 years. 40. DMB Ballistics Inc. invented a new compound for sheathing bullets and has been displaying and advertising its

newly invented compound at trade shows across North America for the past two years. Why might DMB’s patent application be unsuccessful? a. because items made of naturally occurring materials such as metals cannot be patented b. because its invention has already been disclosed publicly c. because bullets are not a “new” invention d. because the invention is a chemical compound

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Chap 18_7e 41. The trademark office has included EcoGrow Corp.’s trademark in its journal publication. Which statement

best describes the outcome of this inclusion? a. EcoGrow Corp. will now have exclusive right to use the trademark. b. The trademark application can still be opposed by a member of the public who claims prior use. c. EcoGrow Corp. will now have priority to use the trademark over prior users of the trademark. d. All of the procedures necessary to complete the registration process have been satisfied. 42. What is the commonality shared among the emblems of the Royal Canadian Mounted Police, provincial flags,

and anything suggesting a connection with a recently deceased individual? a. prohibition of use in official trademarks b. prohibited scandalous use of a trade name c. public confusion relating to a trade name d. public authority to use official marks 43. How does confidential business information maintain the protection of the law? a. by registration b. by fixation c. by efforts to keep it secret

d. by use

44. What is the purpose of an Anton Pillar order? a. to allow the seizure of material that infringes intellectual property rights b. to order an accounting of profits for trademark infringement c. to prohibit anyone from applying a registered industrial design as ornamentation to any article without

permission the owner d. to order damages for non commercial infringement of copyright 45. What is the source of a description of a product’s manufacturing process with respect to the patent application

process? a. the Canadian patent office b. the opinion of the patent agent c. specifications noted in the application d. claims sequentially detailed in the application 46. Orianna has applied for intellectual property protection for several of her choreographic works. The registrar

advised that her application would have to meet the fixation requirement. Which of the following is most likely the source of the fixation requirement Orianna’s application will have to satisfy? a. Copyright Act b. common law c. Intellectual Property Act d. Trademark Act

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Chap 18_7e 47. Rhianna created a large metal sculpture of a loon that she sold to a shopping mall for display in the main

shopping corridor of the mall. To her horror, the mall owners have turned the sculpture into an amusement ride for youngsters visiting the mall, by painting it a bright colour and adding footholds and a rocker to the bottom of the piece. What legal rights might Rhianna assert in this case? a. fair dealing rights b. patent rights c. association rights d. moral rights 48. Which statement best explains the connection between trademarks and trade names? a. The use of both denotes the registration of the distinguishing guise of business products. b. The use of both gives an indication that a product meets a defined standard. c. Adoption of one by a business may prevent registration by competitors of the other. d. Closely related trademarks are trade names that receive protection under trademark law. 49. Rhafayl Furniture by Design Inc. owns several industrial design patents. Larroyce, Rhafayl’s patent lawyer,

confirmed the apparent infringement of a number of their patents by a national competitor. Larroyce assured Rhafayl’s executive the company will be entitled to claim monetary damages for infringement. Which of the following would most strongly support Larroyce’s opinion in this regard? a. The proper marking of a capitalized “R” is inside a small circle on all its products. b. Rhafayl’s products all bear the registration mark “TM” inside a small circle. c. Rhafayl’s patents are in good standing regarding annual maintenance fees. d. Proper marking denoting the registration is on all Rhafayl’s patented products. 50. What areas of intellectual property are within the federal government’s legislative jurisdiction? a. industrial designs, trademarks, patents b. copyrights, trademarks, patents c. patents, copyrights, industrial designs

d. confidentiality, trademarks, patents

51. What would an author most likely indicate as the purpose of copyrighting and producing creative works? a. assuring fair dealing b. protecting one’s honour and reputation c. maintaining confidentiality

d. making a profit through sales

52. What role does an ISP’s conduit function have to hold in order to receive protection from liability by the

communication exemption? a. intermedial b. primary c. private use d. non disturbing 53. Tyrone’s business has been able to successfully redirect a competitor’s traffic to his website. Which statement

most strongly supports the competitor’s attempt to recover its customer traffic flow? a. Institute injunctive proceedings with ICANN or CIRA. b. Initiate a complaint with the domain name provider regarding bad faith registration. c. Initiate a search by the registrar to ascertain entitlement on a first registered basis. d. Institute court proceedings for copyright infringement. Copyright Cengage Learning. Powered by Cognero.

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Chap 18_7e 54. Works that qualify as industrial designs may also qualify for protection under the Copyright Act. How do the

laws dealing with intellectual property address this overlap? a. Designs of useful articles produced in quantities exceeding 50 are copyright protected. b. A mass produced utilitarian product is protected by the Industrial Design Act. c. Screen display icons are considered not protectable under the Industrial Design Act. d. Copyright protects combinations of configuration and ornamentation. 55. Which of the following best describes the steps necessary to obtain copyright protection? a. marking the work with a copyright notice b. registration under the Copyright Act c. publication of a creative work d. creation of a work that is original and fixed 56. How will a trademark derive value if it is unregistered? a. from a presumption of ownership and validity b. from its perceived goodwill, which is subject to remedy by the tort of passing off c. from its ability to prove identical trademarks in the case of a challenge d. from its creation; it provides broad protection on a geographically national level 57. What valid commonality do the elements of private study, research, criticism, and review share? a. copyright exemption b. fair dealing exemption c. trademark exemption

d. confidentiality exemption

58. Rupert is discussing the various methods available to his company with respect to a domain name registration

that is preventing it from using its trademark as its Internet address with the registrar. What is most likely the cause of this conflict? a. cyber squatting b. domain name abuse c. bad faith registration d. illegitimate registration 59. What is the most important factor contributing to Roger’s review of his organization’s strategic information,

products, databases, and specialized know how? a. implied obligations b. the determination of economic value c. the security of confidential business information d. express obligations 60. What distinguishes the evolution in a particular state of the art or knowledge from an inventive step with

respect to a patent application? a. utility b. obviousness c. industrial value d. novelty

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Chap 18_7e 61. Which of the following elements would a registrar most likely require to be established in order for joint

authorship to be recognized under copyright law? a. intentional shared authorship b. shared origin of the work c. mutual authorization d. public performance by each author 62. With which of the following is the phrase “do what it purports to do” synonymous with respect to intellectual

property law? a. the need to establish utility for patentability b. the need to establish utility for trademark approval c. the need for novelty for trademark registration d. the need for commercial value for patentability 63. How long does the registration of an industrial design remain effective? a. indefinitely b. 5 years c. 20 years

d. 10 years

64. Sun Power Generation Corp. has applied for the registration of its trademark. The company includes a

disclaimer as part of its mark and has noted the disclaimer in the trademark application. Which of the following disclaimers would have the strongest influence on Sun Power’s application? a. Disclaimer of exclusive rights to a distinctive component affects registrability. b. Disclaimer of exclusive rights to use of descriptive words affects title. c. Disclaimer of exclusive rights to descriptive words affects registrability. d. Disclaimer of exclusive rights to a weakly distinctive component affects title. 65. What is the relationship between the qualitative and quantitative aspects of copying a substantial part of

another’s work with respect to copyright infringement? a. determines whether the author has a valid right to object to dealings with or uses of the work b. determines whether the author has a valid right to be associated with the work c. determines infringement based on whether the part taken is a key or distinctive part d. determines infringement based on whether the work is associated with a cause 66. Which of the following is directly related to the specific exemption from copyright protection permitting an

owner to make a copy for adaptation for further use? a. computer software b. ISP providers c. blank recording media d. MP3 players 67. Which of the following would immediately bar the registration of an industrial design? a. payment for the application by another b. novel application of a disclosed design c. disclosure or use in the previous 15 months d. established design with novel application Copyright Cengage Learning. Powered by Cognero.

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Chap 18_7e 68. Which statement strongly supports incurring the expense of having a patent agent search relevant literature for

the purposes of establishing novelty? a. Ninety percent of all patents are for improvements to existing patented inventions. b. The opinion is required to establish both ingenuity and inventiveness. c. Opinions are crucial to the grace period for filing the patent application. d. The date of earliest use becomes the disclosure date used for establishing novelty. 69. What circumstances would prevent the originator of an industrial design from making an application to the

Industrial Design Office for patent protection? a. The high degree of ingenuity has not been attained. b. The originality standard is lower than the standard of inventiveness. c. The design was ordered and paid for by another. d. Foreign filing within preceding 12 months has patent priority. 70. 3. What factors will a court consider when determining whether the copying of copyrighted works falls under

the exemption for fair dealing?

71. What are moral rights?

72. Briefly describe the requirement of fixation as well as its purpose as it relates to copyright law.

73. List the factors identified by the Supreme Court of Canada that must be considered with respect to a

confusion created by similar trademarks.

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Chap 18_7e 74. Identify the requirements that a work must possess in order to attract copyright protection, and briefly discuss

any intended purpose for requiring the same.

75. List the various categories of works to which copyright applies. Provide an example of each.

76. Identify the elements that determine the patentability of intellectual property, the duration of the patent, and

prohibitive elements that an owner of intellectual property should consider, if any.

77. Briefly discuss how parties may acquire an express obligation to keep information confidential and how that

obligation is often expressed in relation to an employee.

78. Identify the general categories of information commonly used in a business or commercial context that would

be considered confidential.

79. Discuss the rights attributable to a registered industrial design.

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Chap 18_7e Answer Key 1. True 2. True 3. False 4. True 5. True 6. True 7. True 8. True 9. False 10. True 11. False 12. True 13. False 14. True 15. True 16. False 17. False 18. True 19. True 20. True 21. a 22. c 23. a 24. b 25. b 26. c

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Chap 18_7e 27. a 28. a 29. a 30. b 31. c 32. a 33. b 34. d 35. a 36. c 37. a 38. c 39. d 40. b 41. b 42. a 43. c 44. a 45. c 46. a 47. d 48. c 49. d 50. b 51. d 52. a 53. b 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 18_7e 55. d 56. b 57. b 58. a 59. c 60. b 61. a 62. a 63. d 64. c 65. c 66. a 67. c 68. a 69. c 70.

In assessing whether the dealing is fair, the following factors are considered: • The purposes of the dealing • The character of the dealing • The amount of the dealing • Alternatives to the dealing • The nature of the work • The effect of the dealing on the work 71. Moral rights are rights owned by the author or creator of a work and they exist independently of copyright. The

purpose of moral rights is to provide authors with some control over how their works are used and exploited. Moral rights include the following: • Paternity: the author has the right to be associated with the work as its author by name or under a pseudonym and the right to remain anonymous if reasonable in the circumstances. • Integrity: the author has the right to object to dealings or uses of the work if they are prejudicial to the author’s reputation or honour. • Association: the author has the right to object to the work being used in association with a product, service, cause, or institution.

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Chap 18_7e 72.

The requirement of fixation means that the work must be expressed in some fixed form, such as paper or diskette. Works such as speeches, luncheon addresses, and interviews that do not exist in a fixed form do not attract copyright. The fixation requirement exists to separate unprotectable ideas from protectable expression and to provide a means of comparison for judging whether copyright has been infringed. 73. The factors identified by the Supreme Court of Canada that must be considered with respect to a confusion created

by similar trademarks are as follows: 1. The difference between goods or services associated with trademarks 2. The distinctiveness of the marks 3. The length of time the marks were used 4. The nature of the wares, services, or business 5. The nature of the trade 6. The degree of resemblance 74.

To attract copyright protection, a work must meet requirements of originality and fixation. Originality means that the work must originate from the author, not be copied from another, and must involve the exercise of skill and judgment. The requirement of fixation means that the work must be expressed in some fixed form, such as on paper or diskette. The fixation requirement exists to separate unprotectable ideas from protectable expression and to provide a means of comparison for judging whether copying has been infringed. 75.

It applies to every original work in the following categories: 1. literary works: books, pamphlets, compilations, translations, and computer programs 2. dramatic works: any piece of recitation, choreographic works, scenic arrangements, and cinematography productions such as plays, operas, mime, films, videos, and screenplays 3. musical works: any combination of melody and harmony, including sheet music 4. artistic works: paintings, drawings, maps, charts, plans, photographs, engravings, sculptures, works of artistic craftsmanship, architectural works of art 76.

Patentability is dependent on the demonstration that the intellectual property is new, useful, and obvious. Patent protection is limited to 20 years. The high cost of patenting intellectual property can be prohibitive when the patent would protect a relatively low priced item. 77.

Parties may acquire an express obligation to keep information confidential through a non disclosure agreement. Non disclosure agreements require recipients of information to respect its confidentiality by agreeing not to discuss, disclose, or use it. Employees are often required by the terms of their employment contracts to keep certain information confidential.

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Chap 18_7e 78.

The general categories of information commonly used in a business or commercial context that would be considered confidential include the following: 1. Strategic business information (e.g., customer lists, price lists, bookkeeping methods) 2. Products (e.g., recipes and formulas) 3. Compilations (e.g., databases) 4. Technological secrets (e.g., scientific processes, know how) 79.

The registration of an industrial design gives the owner the exclusive right to make, import, or sell any article in respect to which the design is registered. As well, the owner of the design can stop competitors from manufacturing and selling a design that looks confusingly similar. An industrial design registration lasts for ten years. The owner of the design will not be entitled to a court award for infringement if its products were not properly marked to give notice of its registration.

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Chap 19_7e Indicate whether the statement is true or false. 1. Before Anya can draft the letter to the purchaser’s lawyer stating the balance due on closing, she must adjust

the sale price to take into consideration such things as prepaid annual municipal property taxes. a. True b. False 2. Commercial leases are highly regulated by provincial legislation. a. True b. False 3. If a bank has foreclosed on a property located in Alberta, Saskatchewan, or British Columbia and has been

left with a deficiency after its sale, the vendor cannot personally sue individual borrowers and can sue only corporations that have waived their statutory protection. a. True b. False 4. Joint tenancy, which is typically the form of ownership in land used for property acquired by spouses as their

marital home, is distinguished by the right of survivorship. a. True b. False 5. A tenant cannot withhold rent, even if the landlord fails to meet a requirement in the lease and must instead sue

for compensation while continuing to pay rent. a. True b. False 6. With the exception of Newfoundland and Labrador, Prince Edward Island, and Quebec, all provinces and

territories in Canada either use the land titles system or are in the process of converting from a registry system to a land titles system. a. True b. False 7. One of the factors that distinguishes registration in a land titles system from registration in the registry system is

that the sequence of registration is unimportant in a land titles system. a. True b. False 8. A tenancy in common is a form of undivided co ownership distinguished by the right of survivorship. a. True b. False

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Chap 19_7e 9. It is typical that a commercial lease will address such important matters as the responsibility for repairs and

maintenance to the leased space and any common areas, as well as permitted alterations a tenant may make to the space and what happens with the alterations once the lease expires. a. True b. False 10. Tenants in common each have an undivided interest in the land and are able to deal with their own interests in

any way they see fit without having to consult with one another. a. True b. False 11. Real property is largely governed by common law, which, by tradition, devotes its focus on protecting rights to

property and, in particular, determining the rights of ownership to a piece of land. a. True b. False 12. The rights of a new purchaser will normally be subject to any previously registered interests against the title. a. True b. False 13. At any point before the foreclosure process is complete, ownership of the land can be regained if the borrower

is able to repay the loan. a. True b. False 14. The highest and most comprehensive level of ownership of land possible is known as a fee simple. a. True b. False 15. The rights of the mortgage lender are limited to a combination of the following three remedies: suing the

borrower, taking possession of the land, and foreclosure. a. True b. False 16. The mortgagor is the party who lends the money, and the mortgagee is the party who borrows the money and

signs the mortgage promising to repay the loan. a. True b. False 17. Although a landlord’s basic obligation is to refrain from interfering with the tenant’s use of property, where a

tenant has willfully damaged that property, the landlord may exercise a right of distress to evict the tenant and preserve the value in the property. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 19_7e 18. The legal right to drive across someone’s land would typically be achieved through a restrictive covenant. a. True b. False 19. Mineral rights—such as rights to oil, gas, or coal and other minerals may be owned separately from ownership

of the surface. a. True b. False 20. The risk associated with borrowing a high percentage of the capital needed to acquire commercial real estate

is that, if there is default in payment due under the loan at any time and the company is unable to negotiate more favourable terms with the lender, the ownership and possession of the property can be completely lost. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What is the term for the system of land registration that guarantees title to land? a. registry system b. land titles system c. first to file system

d. the deed system

22. John and Jackson are purchasing a property together and would like to register their title as joint tenants. What

is the defining feature that distinguishes this form of ownership? a. The property would be subdivided, and each half interest would be sold by auction. b. The survivor would have the right to buy out the deceased owner’s interest. c. Each interest is subject to a right of survivorship, and the rights of the deceased owner would pass to the surviving owner. d. The rights of the deceased owner would be inherited by the deceased’s heirs. 23. Sylvano requested a copy of Certificate of Title No. 12312 from the land titles office. He intends to purchase

the land for development if it is unencumbered by registrations affecting its use. This particular land titles office maintains an insurance fund to compensate for loss due to their error. What significance does that fact have with respect to the copy of title Sylvano will receive in exchange for payment of the prescribed fee? a. Title defects can be fixed to give first priority. b. It is justification of the valuation of the land. c. It provides verified ownership by searching chain of title. d. It is authoritative proof of the status of title.

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Chap 19_7e 24. What is the legal effect of a financing condition in an offer? a. There is no contract until the vender provides the seller with financing. b. The transaction will not proceed unless the buyer’s lender grants a mortgage. c. The lender must approve the price, deposit, and method of payment. d. The lender will be given control of the money needed to complete the deal. 25. In what way is a registry system different from a land titles system? a. conversion of paper records to microfiche records b. sequence of registration is used solely in registry system c. constitutional jurisdiction of the registry system d. absence of responsibility for validity of documents 26. What typically occurs during the “closing” stage of a real estate transaction? a. The seller accepts the buyer’s offer. b. The buyer decides to buy the land. c. The seller delivers the title document, and the buyer makes final payment. d. The seller hires a surveyor to confirm boundaries. 27. What is a distinguishing characteristic of a joint tenancy? a. a right of survivorship b. division of ownership over time c. two undivided half interests

d. right of first refusal

28. Which of the following would NOT typically be contained in an Agreement of Purchase and Sale? a. purchase price b. mortgage terms c. closing date

d. legal description of property

29. What is the main factor in deciding whether a lease has been created? a. the Residential Tenancy Act or Commercial Tenancy Act b. the contract between the landlord and tenant c. the parties’ ability to negotiate their own terms d. the legal concept of exclusive possession 30. Graham has granted a cellphone company permission to erect a transmission tower on his property. What type

of right has Graham granted? a. a restrictive covenant b. a lease c. an easement d. joint tenancy 31. What is the major consequence of the creation of a lease? a. a specified term of tenancy b. an increase in the value of property c. contractual obligations

d. exclusive possession

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Chap 19_7e 32. Why is a commercial lease dependent upon the value, nature, and size of the property? a. they determine the complexity of the lease agreement b. they determine the extent of leasehold improvements c. they determine the permitted alternation of the space d. they determine the responsibility for repairs and maintenance 33. Which of the following is NOT an advantage of land titles systems over registry systems? a. the sequence of registration is irrelevant b. transactions are less time consuming c. transactions are less costly d. there is greater reliability and certainty 34. Before the real estate market took a serious downturn, Prime Lenders Inc. had entered into a high ratio

mortgage agreement with Juha Dally. Dally ceased making mortgage payments six months ago, and Prime now wants to commence foreclosure proceedings, but it appears that the proceeds of the sale will not be sufficient to pay the outstanding debt. Which of the following statements describes Prime’s legal position? a. Prime cannot sue Dally for the shortfall if it elects to proceed with foreclosure. b. Prime cannot sell the property if Dally is still using it as her primary residence. c. Prime cannot sell the property if it will result in a shortfall. d. Prime can sue Dally for the shortfall between the outstanding mortgage and proceeds from the sale. 35. One of MSM Properties’ tenants is now three months behind on its rent and MSM plans to exercise its

remedy of distress. How will this remedy assist MSM? a. MSM can relet the property to a different tenant. b. MSM can lock the tenant out of the property. c. MSM can seize property belonging to the tenant. d. MSM can evict the tenant. 36. What is the purpose of a ‘state of repair’ clause in a real estate transaction? a. to relieve the seller of any liability for hidden defects in the property b. to require the seller to notify the buyer of any defects that would impact its decision to purchase the

property c. to require the seller to ensure the condition of the property remains unchanged until closing d. to require the seller to repair hidden defects in the property

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Chap 19_7e 37. A mortgage covering the loan arranged by Kryhalla Spa Inc. has been forwarded to the land titles system.

What is the most likely result once the document has been registered? a. Registration gives the owner an occupier’s right to the land. b. Registration transfers ownership to the lender for the duration of the loan. c. Registration creates a right to have ownership restored. d. Registration creates a charge on land until repayment is complete. 38. What principle has the Supreme Court endorsed when dealing with the broad social issue of how to balance

the need to encourage development and commercial activity with the need to control and prohibit dangerous activities? a. nuisance principle b. negligence principle c. public policy principle d. polluter pays principle 39. What is the name given to the right of a commercial landlord to seize the property of the tenant located in the

leased premises? a. distress b. seizure c. injunction d. forced sale 40. Drew meets with Sherry to have a second look at an apartment block his corporation may be interested in

purchasing. Why might Drew call an appraiser when he returns to the office? a. to get a report on the structural integrity of the building b. to get a formal valuation based on the structure and market c. to determine the physical boundaries and the building’s location d. to check for environmental hazards 41. The Burtons are selling their home which has long standing basement flooding problems which have damaged

the foundation of the home. Before putting the home up for sale, they renovated the basement and the foundation crack is now behind a wall and cannot be seen. Which statement best describes the Burton’s obligations toward potential buyers of the home? a. They have no obligations to disclose anything to potential buyers. b. They do not have to disclose the crack unless they are asked about the condition of the foundation. c. They have a positive duty to disclose the hidden defect. d. They have an ethical duty but not a legal duty to disclose the defect.

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Chap 19_7e 42. Merrilee and Keith own several of acres of vacant land adjoining the property where their greenhouse

operations and large garden centre facility are located. The greenhouse side of the business is ready to expand. A senior lending officer of ImaBigBank is meeting with Merrilee and Keith to discuss the expansion plans and the financial needs and circumstances of their business. How will the parties most likely be described on the mortgage if ImaBigBank approves the financing? a. Keith and Merrilee’s business is the mortgagee, and ImaBigBank is the mortgagor. b. ImaBigBank is the mortgagee, and Keith and Merrilee are the mortgagors. c. Keith and Merrilee are the mortgagees, and ImaBigBank is the mortgagor. d. ImaBigBank is the mortgagee, and Keith and Merrilee’s business is the mortgagor. 43. A bank took immediate possession of real property for the non payment of a mortgage installment on its due

date. It is taking steps to have the property sold. The bank is aware that, due to poor market conditions, the amount of the mortgage is higher than the value of the property. What are the most likely legal matters that will come before the courts? a. distress and equity redemption b. default and deficiency c. foreclosure and deficiency d. foreclosure and court supervised sale 44. What type of land ownership confers the most comprehensive level of ownership possible? a. life estate b. fee simple c. joint tenancy

d. full estate

45. The city has decided to green up its public transportation system by converting to light rail transit. Plans are

underway to commence compensation negotiations with affected landowners. What is the legal name given to the type of authority that has been exercised in these circumstances? a. authority to regulate zoning b. authority of restrictive covenant c. authority to expropriate d. authority of easement of ownership 46. Martina is purchasing a home in Winnipeg. The closing date is October 1. Each year’s real property taxes are

payable in June for taxes owed up to December 31. The amount of the taxes paid by the vendor for the entire year is $2400. In the circumstances of this transaction, which statement most accurately describes an adjustment on taxes? a. The vendor will receive approximately $600 in adjustment from the purchaser. b. The purchaser will receive approximately $800 in adjustment from the vendor. c. The vendor will receive approximately $1200 in adjustment from the purchaser. d. The purchaser will receive approximately $1800 in adjustment from the vendor. 47. François and Wallace have been neighbours for ten years. François arranged to have a new garage

constructed in his backyard. He provided the builders with his surveyor’s certificate, but after completion the garage encroached onto Wallace’s land. What is the most likely and amicable method of resolving the encroachment? a. a restrictive covenant b. a lease c. civil litigation d. an easement agreement Copyright Cengage Learning. Powered by Cognero.

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Chap 19_7e 48. Which of the following is synonymous with equity of redemption with respect to real property law? a. the right to have legal ownership restored upon the repayment of the mortgage b. damages based on the value of the property on the date of equity redemption c. the right of owners to exclusively control land during the term of a lease d. damages substituted for the court’s decree of a right to equity redemption 49. Minimarket Grocers is in a one year lease of a bay in a strip mall that is subject to a periodic tenancy. The one

year period will be completed in three months. What will happen if Minimarket allows the three months to pass without taking any further steps? a. Minimarket will be in breach of the terms of the lease. b. The lease will expire and Minimarket will have to vacate the premises. c. The lease will automatically renew for another year. d. The lease will renew for an additional one month period. 50. What distinguishes an undivided one half interest held in a tenancy in common from a one half interest held in a

joint tenancy with respect to the co ownership of real estate? a. Each owns an undivided co ownership of the whole. b. Each owns an undivided co ownership of each portion. c. Each owns an undivided interest in ownership of the whole. d. Each owns an undivided interest in ownership of their portion. 51. Often, matters relating to either the supply of water or soil contamination are addressed in an accepted offer

for the purchase and sale of real property. Which statement best describes future legal relevance in instances where such matters are addressed in this manner? a. They are most often influenced by the misuse of erroneous information. b. They are both forms of contractual warranties that survive closing. c. They are both typically excluded by entire agreement clauses. d. They are most often affected by the misuse of negligent information. 52. Andrea manages several strip malls for a mid sized real estate holding company. One tenant appears to have

abandoned the offices he had leased, leaving a lot of possessions of value behind. Andrea has taken all of the necessary steps to sell the property and apply the proceeds to the tenant’s rent arrears. What is the legal description of the remedy Andrea is pursuing? a. assignment of lease b. commercial sublet of lease c. exclusive occupation d. landlord’s right of distress 53. Which investigation step is likely to reveal whether the buildings on a property comply with local setback

bylaws? a. environmental audit c. site assessment

b. land titles search d. survey

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Chap 19_7e 54. What are the circumstances that would allow a party to disregard the particular type of registry system used to

register documents securing a loan against a title? a. where both systems require lawyers to provide an opinion on the accuracy of title b. where the right to an interest prioritized by registration is at issue c. where the authenticity of an individual’s right to ownership is unknown d. where both systems require validation of good or other valuable considerations 55. On May 1, Orianna forwarded her client’s signed title transfer document, keys, and remote control for the

garage door to the purchaser’s lawyer. The items were sent in trust, on the express condition that she receive the payment of the balance of the purchase price in return. John will comply, then submit the transfer document to the registry promptly for registration. In the meantime, which of the following should John’s clients have effectively put in place for the May 1 closing date? a. a certificate of mortgage financing b. a certificate of insurance coverage c. a registrable mortgage to pay the balance of the price due d. mortgage financing and executed mortgage documents 56. Which term refers to the remedy that allows a lender to terminate the mortgagor’s interest in the property? a. exclusive possession b. foreclosure c. action on the deficiency

d. distress

57. Aaron and Janelle enjoyed years of experiences shared through their rewarding ownership of Crystal Lake

Cottage Resort Inc. When Aaron died unexpectedly, the title automatically transferred to Janelle. Aaron’s family has decided to dispute Janelle’s right to ownership. What is the name given to the type of ownership interest enjoyed by Aaron and Janelle that allowed her to acquire ownership in this manner? a. co ownership b. tenancy in common c. joint tenancy d. fee simple 58. Which term refers to the concept of “buyer beware”? a. res judicata b. caveat emptor c. volenti

d. the sophisticated buyer rule

59. The Krays are purchasing a home in a new subdivision and, like all the other homes in the subdivision, the

property’s title contains a prohibition from erecting a storage shed on the property. What is the name for this type of restriction? a. lien b. easement c. restrictive covenant d. forfeiture rule

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Chap 19_7e 60. From a lender’s perspective, which of the following is the focus of a mortgage? a. preserving the value of the land in question b. scheduling payments c. controlling use of the land d. the personal guarantee of the borrower 61. Briefly outline the typical covenants in a commercial lease.

62. Briefly outline the stages in a typical real estate transaction.

63. What remedies are available to the mortgagee (lender) in the event of default by the homeowner?

64. Identify the key features of the land titles system.

65. Identify the basic terms generally contained in an agreement of purchase and sale of real property.

66. Describe the role of the administrators of a land titles system

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Chap 19_7e 67. Briefly discuss joint tenancy.

68. Briefly discuss the relevance of the sequence of registration in a land registry system and a land titles system.

Also identify how the sequence of registration has recently become particularly problematic, and identify the parties affected by those problems.

69. Describe some of the statutory and common law restrictions frequently imposed on land use.

70. Briefly discuss tenancy in common.

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Chap 19_7e Answer Key 1. True 2. False 3. True 4. True 5. True 6. True 7. False 8. False 9. True 10. True 11. True 12. True 13. True 14. True 15. False 16. False 17. True 18. False 19. True 20. True 21. b 22. c 23. d 24. b 25. d 26. c

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Chap 19_7e 27. a 28. b 29. d 30. c 31. d 32. a 33. d 34. d 35. c 36. c 37. d 38. d 39. a 40. b 41. c 42. d 43. c 44. b 45. c 46. a 47. d 48. a 49. c 50. d 51. b 52. d 53. d 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 19_7e 55. b 56. b 57. c 58. b 59. c 60. a 61. There are a number of features typical in a commercial lease, including the following terms:

• The tenant is responsible for repairs unless the lease imposes some obligation on the landlord. • The tenant is entitled to exclusive and quiet possession of the premises for the full term. In return, the tenant must pay rent and observe the terms of the lease. • The tenant cannot withhold rent, even if the landlord fails to meet a requirement in the lease. The tenant’s remedy is to claim compensation from the landlord while continuing to pay rent. • The tenant cannot terminate the lease and move out unless the landlord’s breach of the lease has made the premises uninhabitable for normal purposes. • Ordinarily, the tenant can assign the lease or sublet the property to another tenant. It is common for the lease to require the landlord’s consent for both of these arrangements. Such leases normally also provide that the landlord’s consent may not be unreasonably withheld.

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Chap 19_7e 62. First Stage: Agreement of Purchase and Sale

SELLER: • Decides to sell a piece of land • Determines the value of the land, possibly through a professional appraisal • Engages a real estate agent to find a buyer and signs a listing agreement • Engages a lawyer to advise on the legal requirements • Engages a surveyor to confirm boundaries BUYER: • Decides to buy land • Engages an agent to find suitable land • Engages an appraiser to value the seller’s land • Engages a lawyer to advise on the legal requirements SELLER AND BUYER: • Negotiate, possibly with the assistance of their agents and lawyers • Reach agreement on all terms and conclude a formal written agreement Second Stage: Investigations SELLER: • Addresses any problems discovered through the buyer’s investigation BUYER: • Investigates all aspects of the property, including the seller’s title and any outstanding claims • Confirms the boundaries of the land by retaining a land surveyor • Arranges for financing • Has an engineer assess the structural soundness of the building • Has a consultant investigate environmental soundness Final Stage: Closing SELLER: • Delivers the title document • Delivers the keys to the property BUYER: • Makes final payment • Registers the title document • Arranges for insurance • Moves in

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Chap 19_7e 63. The rights of the lender and the procedures to be followed vary from province to province, but all involve a

combination of four remedies—suing the borrower, taking possession of the land, selling the land or having it sold, and foreclosure. Foreclosure refers to the lender’s right to terminate the borrower’s interest in the property to allow the lender to realize the value of the land by selling it directly pursuant to a power of sale or through a court supervised sale. In some jurisdictions, the bank’s recourse will be restricted to the land and the bank will not be able to pursue the borrower directly unless it is a high ratio mortgage. Most provinces permit the lender to proceed against the borrower for the shortfall—known as the deficiency—between the outstanding amount and the proceeds from sale of the property. At any point before the foreclosure process is complete, ownership of the land can be regained if the borrower is able to repay the loan (assuming of course that another source of financing becomes available). If the borrower cannot repay the loan, it loses the land and may be left owing a substantial debt. If there is more than one mortgage registered against the land, the remedies of the various mortgagees are more complicated. Each mortgagee’s rights and remedies are determined in strict order of registration of the mortgages with mortgagees beyond the first less likely to recover than those that registered ahead of them. 64.

In the land titles system, the certificate of title contains a legal description of the property and identifies the nature of and owners of the various interests in the land. Because the certificate itself is authoritative proof of title, there is less potential for competing claims. Transactions in a land titles system are less time consuming and costly because a person wishing to know the state of the title to a piece of land need only consult the certificate of title and is not ordinarily required to do a historical search. This enhanced certainty and reliability has caused several provinces that used the registry system—such as Ontario, New Brunswick, and Nova Scotia—to move toward the land titles system. 65. The basic terms contained in an agreement of purchase and sale of real property generally include the following:

1. The precise names of the parties 2. The precise identification and description of the property, including reference to the registered title and sufficient detail so as to leave no doubt as to location, size, and boundaries 3. The purchase price, deposit, and method of payment 4. A statement of any conditions on which the agreement depends, such as financing, zoning, or environmental inspection 5. A list and description of exactly what is included in the price (equipment, fixtures) 6. The date for closing and a list of what each party must deliver on that date 66. The administrators of a land titles system evaluate each document presented for registration and maintain a record of

the documents relating to each piece of property. They are also responsible for the accuracy of the information they provide to the public and maintain an insurance fund to compensate those who suffer loss because of their errors. 67. A joint tenancy is a form of undivided co ownership. It is distinguished from other forms of ownership of real

property by the right of survivorship. When one of the joint tenants dies, his or her undivided interest in the real property is automatically transferred to the surviving joint tenant. The heirs of a deceased joint tenant would have no claim to land held under joint tenancy.

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Chap 19_7e 68. The sequence of registration is crucial to both systems. If there are conflicting claims to the same piece of land, the

person who registered his interest has first priority, regardless of which transaction was completed first. So long as the one who registers first has no knowledge of the earlier transaction and has paid valuable consideration for the land in question, that person’s interest in and claim to the land is fully protected. The party who registers second has no claim to the land but may have actions against those who assisted in the failed transactions or who made representations concerning the status of title. This feature of registration is especially problematic in view of the recent increase in fraudulent mortgage activity, resulting in a conflict between an innocent landowner and an innocent bank. 69. The numerous restrictions on land use imposed by statute law and common

law include the following: • Municipal governments have the authority to control land use through planning schemes and zoning regulations. For example, if an area of a town is zoned for residential use, it is normally not available for commercial development. • Environmental regulations affect the use of land by limiting or prohibiting the discharge of harmful substances and may even require owners to clean up environmental contamination caused by previous owners. • The common law of nuisance limits any use of land that unduly interferes with other owners’ enjoyment of their land. A landowner who produces smoke or noise is subject to being sued for the tort of nuisance. • Family law may designate property as matrimonial—to be shared by both spouses—despite ownership registered in the name of one spouse. Both spouses must agree to the disposition of such property. • Many government agencies have the authority to expropriate land for particular purposes. • Government agencies can make use of privately owned land for a particular purpose, such as a pipeline. • Some jurisdictions impose restrictions on foreign ownership of land, particularly agricultural land. 70. Tenancy in common provides each owner in the relationship with an undivided interest in the land. This means each

of the tenants in common is free to deal with her own interest in the land as she sees fit and without having to consult with the other co owner. Should one of the tenants in common die, the tenant’s undivided interest in the real estate forms part of her personal estate and goes to her heirs.

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Chap 20_7e Indicate whether the statement is true or false. 1. An employer is not usually responsible for the torts of an independent contractor committed in the course of

carrying out the contract. a. True b. False 2. A lawyer would describe an arrangement of an employee’s workplace or duties to enable the employee to

perform a work function without undue hardship as an employer’s duty to accommodate. a. True b. False 3. About 10% of all employees are subject to federal employment regulation. a. True b. False 4. Discrimination on the basis of sexual orientation is a prohibited ground of discrimination in every province. a. True b. False 5. Intrusive searches of employees or their belongings are carefully scrutinized by the Canadian courts. a. True b. False 6. Adverse effects discrimination involves a workforce that is overwhelmingly dominated by males, such as the

male dominated federal Parliament. a. True b. False 7. Employment standards legislation seeks to impose health and safety protection for workers in the workplace. a. True b. False 8. The federal Employment Equity Act requires all employers to address the underrepresentation of certain

groups in their organizations. a. True b. False 9. Alcohol and drug testing of employees in safety sensitive jobs is only permissible where the employer has

reasonable cause to believe that the employee is impaired while on duty. a. True b. False

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Chap 20_7e 10. Systemic discrimination involves the application of a rule that appears to be neutral but has discriminatory

effects. a. True b. False 11. The less direction and supervision provided by the employer, the more likely that the relationship is one of

employment. a. True b. False 12. A dependent contractor is an employee who is hired for a specific period of time. a. True b. False 13. Laws that specify minimum standards in a workplace are provided by employment equity legislation. a. True b. False 14. Once the parties have entered into the collective bargaining process, each is bound by a duty of good faith to

make substantive efforts to negotiate a collective agreement that provides for grievance and arbitration procedures for resolving disputes as opposed to strikes by employees and lockouts by employers. a. True b. False 15. The Criminal Code provides that it is an offence to intercept a private communication, but the section does

not apply to communications that are not private or to an interception that is consented to by one of the parties. a. True b. False 16. Human rights legislation prohibits all types of discrimination in employment. a. True b. False 17. Pay equity involves provisions designed to ensure that female and male employees receive the same

compensation for performing similar or substantially similar work. a. True b. False 18. Employers are vicariously liable for any act of harassment by an employee. a. True b. False

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Chap 20_7e 19. BFORs have been subject to much controversy, as there is little consensus on what constitutes legitimate,

meaningful qualifications or requirements for job applicants. a. True b. False 20. One of the factors the court considers in determining whether a worker is an independent contractor is

whether the worker provides her own equipment or tools. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What is a unique feature of an employment contract involving the inclusion of benefit packages, job

descriptions, and company rules and policies? a. inclusion by implied terms b. inclusion by express terms c. inclusion by actual agreement d. inclusion by reference 22. Marne’s contract states her employment arrangement is for one year, while Brelle’s contract is silent on that

point. In what way are Marne’s employment obligations different from Brelle’s? a. Brelle must give notice of termination. b. Marne is an independent contractor. c. Brelle is casual employee who is not entitled to notice of termination. d. Marne must give notice of termination. 23. Which of the following must private sector employees be concerned with, regarding their personal information? a. the duration that personal information is retained by an employer b. the designation of a personal information supervisor c. security safeguards implemented to protect their personal information d. the employer’s control, collection, and use of their personal information 24. Rose’s lawyer obtained compensation for her loss of income, emotional stress, and expenses incurred in

finding a new job. Rose hadn’t contemplated her position being terminated when she accepted the position 18 months ago. To receive an award for these types of damages, which of the following must Rose’s lawyer have had to rely on as the grounds for her claim? a. negligent hiring b. inducing breach of contract c. breach of oral promise d. systemic discrimination

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Chap 20_7e 25. One of JB Industries’ supervisors recently resigned after an internal investigation determined he had sexually

harassed a junior employee. What are the implications for JB if the junior employee sues for damages? a. JB must report the claim to the human rights commission. b. JB is vicariously liable for the supervisor’s conduct. c. JB will escape liability if it can prove it had no knowledge of the supervisor’s conduct. d. There will be no negative implications for JB. 26. Nabamie’s job involves investigating complaints and, when necessary, issuing orders requiring compliance with

the law. What is Nabamie’s occupation? a. Court of Queen’s Bench judge b. employment standards officer c. small claims court officer d. Labour Standards inspection officer 27. What would be most influenced by the distinction between an employment contract with a specified period

and an employment contract where such a specification is absent? a. indefinite term contractual arrangement b. termination of employment arrangement c. duration of fixed term contract d. oral or written form of employment contract 28. What commonality exists in the employment relationships between an employer and an independent contractor

and an employer and employee? a. Both are short term and temporary in nature. b. Tax savings and flexibility can be derived from either relationship. c. Both involve a master. d. Work and services are exchanged for remuneration. 29. Which of the following is a feature of Canada’s Employment Equity Act? a. targets underrepresentation of particular groups in workplaces of 10 or more employees b. targets underrepresentation of particular groups in workplaces of 100 or more employees c. targets reverse discrimination in workplaces of 100 or more employees d. targets reverse discrimination of particular groups in workplaces of 10 or more employees 30. Gia is an airline pilot with a major Canadian airline and was recently terminated from her employment. If Gia

were to challenge her dismissal, which laws would govern the legal dispute? a. Her rights will be determined entirely under the common law. b. She will be protected and compensated in accordance with federal legislation and the common law. c. She will be protected and compensated in accordance with provincial legislation and the common law. d. Special public sector employees’ legislation will protect her interests.

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Chap 20_7e 31. According to the Federal Court of Canada, what question must be asked at step 3 of the test used to

determine the appropriateness of video surveillance? a. Is the measure necessary to the specific needs? b. Is there a less invasive way of achieving the same end? c. Is it likely to be effective in meeting that need? d. Is the loss of privacy proportionate to the benefit gained? 32. Diane provides accounting services to Ablemade Construction, one of her many clients. Each month she picks

up paperwork from Ablemade and takes it to her home office and prepares the month end accounts payable, receivable and payroll, using her own computer and specialized accounting software. Which statement best represents the relationship between Diane and Ablemade? a. Diane is an independent contractor. b. Diane is an employee of Ablemade. c. Diane is a dependant contractor. d. Ablemade must pay Diane statutory termination pay in the event it wishes to terminate their relationship. 33. Divine Decor provides show home decorating services to seven homebuilders in the city. Recently Divine’s

chief decorator who also managed their client relationships, left their employment to join a competitor. Divine is worried the former employee will solicit Divine’s clients. What is Divine’s legal position? a. The former employee has a duty to accommodate. b. Divine has no legal basis to challenge the solicitation of its clients by the former employee. c. Divine can sue the competitor for breach of confidentiality. d. The former employee is likely a fiduciary and is therefore prohibited from soliciting Divine’s clients. 34. What must be proven by an employer who wishes to use video surveillance in the workplace? a. The loss of privacy is proportionate to the benefit gained. b. The affected employees have signed releases. c. There is no expectation of privacy. d. The results of video surveillance will be shared with affected employees. 35. What is the most common defence to an allegation of employment related discrimination? a. approved affirmative action b. approved employment equity plans c. bona fide occupational requirement

d. group insurance or pension plans

36. In Canada, matters such as criminal record, ancestry, and political beliefs are all examples of prohibited

grounds of employment discrimination. What is the most likely source of these types of prohibited grounds? a. all Canadian employment legislation b. legislation in Ontario and Quebec c. legislation in Manitoba and the Yukon d. legislation in some jurisdictions

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Chap 20_7e 37. Which statement best describes the degree of privacy that attaches to text and email messages? a. Employees impliedly consent to waive privacy over such communications. b. There is no right to privacy if the worker is using employer equipment. c. There is an expectation of privacy attaching to such communications. d. There is no right to privacy if the communication takes place in a workplace setting. 38. Which of the following would be most strongly supported by the need for an employer to establish the lack of

consent to a prohibited act, its reasonable steps to prevent the act being committed, and subsequent reasonable steps to mitigate or avoid the act’s consequences? a. negligent hiring defence b. negligent death defence c. BFOR defence d. due diligence defence 39. Although he has appropriate skills and training, Ranjit has been turned down for a job opening at a

construction site because he cannot remove his turban based on his religious beliefs and is unable to wear a hardhat. What would a human rights commission most likely determine if Ranjit was to make a complaint? a. adverse effects discrimination based on a bona fide occupational requirement b. systemic discrimination on the basis of religion or creed c. no duty to accommodate on the part of the employer d. direct discrimination not based on a bona fide occupational requirement 40. Which of the following might an employer have relied upon in its successful bid to convince a human rights

commission that it would incur “undue hardship”? a. evidence that the employer would have to modify its workplace rules b. evidence that it was acting in good faith c. evidence that accommodation will require an outlay of cash d. evidence that accommodation will pose a health and safety risk 41. Which statement most strongly supports the use of written employment contracts? a. The law requires employment contracts to be written. b. Written terms override terms implied by law. c. The law abrogates the parties’ ability to tailor the contract. d. Written terms introduce certainty in the relationship. 42. Which of the following is NOT typically addressed in employment standards legislation? a. hours of work and overtime b. minimum wage c. the right to safe working conditions

d. termination and severance

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Chap 20_7e 43. A senior commercial secretary worked 18 overtime hours on a large commercial deal. Her request for

overtime pay was denied. The lawyer indicated that because he often required her to oversee the work of his junior secretary and her contract provided for salaried remuneration, her entitlement to overtime pay was effectively eliminated. In this regard, what would most likely be the position of the provincial labour board? a. The lawyer’s position is enforceable. b. The lawyer’s position is unenforceable. c. Overtime must be paid at 1.5 times the minimum wage. d. Managers and supervisors are not entitled to overtime pay. 44. Big Guys Construction is hiring new carpenters to work on a new commercial construction project. In its

advertisement, Big Guys specified that preference will be given to workers who are taller than 6 feet. What form of discrimination might this requirement constitute? a. systemic b. direct c. reverse d. adverse effect 45. Which statement best describes random drug and alcohol testing in the workplace? a. Employers may conduct random drug and alcohol test at any time. b. It is permitted only if the employer can prove both a dangerous workplace and an enhanced risk. c. Employers may conduct random drug and alcohol test in any industrial setting. d. It is not permitted under any circumstances. 46. Which of the following groups is protected by the Employment Equity Act? a. women, visible minorities, disabled people, Aboriginal peoples b. women, children, disabled people, Aboriginal peoples c. visible minorities, the elderly, and women d. visible minorities, women, and religious minorities 47. Marjorie and Jean, human resource managers, are meeting to discuss the possible reaction of other employees

to Hector, who has recently become blind. What is most likely the intention of this employer with respect to Hector? a. to prove undue hardship relating to the guidelines for the productivity of the organization b. to accommodate employees with special needs c. to prove the impossibility of accommodating special needs d. to follow the Supreme Court guidelines regarding what constitutes undue hardship 48. What is a key purpose of workers’ compensation legislation? a. to provide a mechanism for enforcing employment standards b. to permit injured employees to sue their employers c. to provide a type of no fault insurance scheme d. to permit injured employees to sue careless co workers Copyright Cengage Learning. Powered by Cognero.

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Chap 20_7e 49. What governing body was given the role of enforcing employment equity legislation? a. the Canadian Human Rights Commission b. provincial human rights commissions c. the Supreme Court of Canada d. the Canadian Employment Standards Commission 50. Six months ago, Mr. Black was hired to manage Tamara’s department. Since then, she has reported two

incidents of sexual harassment to her human resources manager. Tamara is now very uncomfortable under Mr. Black’s supervision, and her health and work performance have suffered. Which of the following is a valid concern for the company’s human resources manager in these circumstances? a. Employer liability for negligent hiring is the incentive for the prevention of such torts. b. Tamara is simply responding in a personal capacity to a perceived affront. c. Employees who hold management positions are exempt from vicarious liability. d. Employers lack sufficient ability to control the conduct of managers. 51. The Prairie Clerical Workers Union has just received recognition as the bargaining agent for a group of

employees. What action would the union president most likely immediately undertake? a. substantive collective bargaining efforts to secure a collective agreement b. voluntary certification of the union by the group’s employer c. voluntary bargaining in good faith with the party of the employer d. a legal strike to demonstrate the substantive increase in bargaining power 52. With respect to employment standards legislation, what is a valid difference between jurisdictions with respect

to bereavement and sick leave? a. Employees are entitled to be paid during leaves. b. Time taken for leaves may be deducted from vacation time. c. Wages paid for leaves may be reduced by 1.5 percent. d. Payment for bereavement or sick leave is optional. 53. What would a legal risk manager say offers the strongest support for an employer developing and

implementing a workplace harassment policy? a. The employer’s liability remains intact, but penalties will be less or nonexistent. b. The employer will be relieved from vicarious liability for offending the employee’s actions. c. The employer’s prima facie interest in workplace safety mitigates the risk of loss. d. The employer’s quick and effective response cancels negligent hiring liability.

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Chap 20_7e 54. In the case of RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, the court stated

that “the duty does not necessarily extend to preventing parting employees from taking client information....” In this instance, what duty is the Supreme Court referring to? a. the duty to give notice b. the duty not to compete c. the duty of confidentiality d. a fiduciary duty 55. What commonality do casual workers, some part time workers, and agricultural workers share? a. exclusion from entitlement to employment insurance benefits b. exclusion from entitlement to paid sick or bereavement leaves c. exclusion from entitlement to be paid for working overtime d. exclusion from entitlement to workers’ compensation benefits 56. Which of the following is an emerging legal category of worker? a. equity employee b. dependent contractor c. distinct contractor

d. independent employee

57. According to the Supreme Court of Canada in Communications, Energy and Paperworkers Union of

Canada, Local 30 v. Irving Pulp & Paper, Ltd., 2013 SCC 34, [2013] 2 SCR 458, in which of these situations might alcohol testing be permitted in the workplace? a. only after a fatal accident b. when an employer has warned workers before hiring of the company’s testing policy c. when an employer has designed a policy in order to reduce workplace accidents d. when there has been an accident or near miss, and the employer has reasonable cause to believe alcohol

was a factor 58. What legislation is based on the basic concept that the employer and employee contribute to a fund that

provides insurance against loss of income? a. the Employment Insurance Act b. various workers’ compensation acts in all provincial jurisdictions c. the Employment Equity Act d. the Canadian Charter of Rights and Freedoms 59. Tara is a website designer and has arranged to meet with Barb at a coffee shop to discuss a website Barb’s

company would like pay Tara to design. If Tara undertakes this project, which of the following will most likely result? a. Barb will assume vicarious liability for Tara’s torts. b. Barb will be obliged to remit payroll taxes from Tara’s earnings. c. Tara’s work will be integral to the business. d. An independent contractual arrangement will be drawn up.

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Chap 20_7e 60. A judge is hearing a matter involving a claim for damages by an employee. The plaintiff alleges she suffered

harm in the course of performing her employment duties, caused by a new manager’s careless actions. What is a distinguishing characteristic of this type of action? a. Claims alleging an employer’s negligent hiring must prove fault by that party. b. Vicarious liability for negligent hiring relieves the errant employee of liability. c. Proof of an employer fault isn’t required for vicarious liability for employees. d. An employer’s vicarious liability for negligent hiring is a strict liability in law. 61. Safehome Alarms has hired Jackson, an independent contractor, to install its alarm systems into customer

homes. What is an important implication of Jackson’s status as an independent contractor? a. Jackson does not have to give notice in the event he wishes to resign his position. b. Jackson has the freedom to determine his own wages. c. Safehome will be vicariously liable if Jackson commits a tort while performing the contract. d. Jackson will not have certain statutory rights and benefits that are typically conferred on employees. 62. Dirk & Howe law firm hired a visually impaired lawyer and is purchasing voice recognition software for the

lawyer’s use when drafting legal documents. What legal obligation is Dirk and Howe fulfilling? a. duty to employ b. duty to accommodate c. systemic accommodation d. employment equity 63. What percentage of employed Canadians who pay income taxes are subject to federal regulation as opposed

to provincial regulation? a. 10 percent b. 15 percent c. 25 percent d. 50 percent 64. Hamal asked Rolene to a lunch meeting. During lunch, he suggested Rolene would enjoy better remuneration

and opportunities for advancement with his company. One week later, Rolene gave her employer one month’s notice of her termination of employment. In these circumstances, which of the following would provide the strongest support for a legal action by Rolene’s former employer? a. Rolene is obliged to give adequate notice of termination to an employer. b. Rolene’s ability to work for competitors is limited by restrictive covenants. c. Rolene owes fiduciary obligations to her past employer. d. Rolene’s past employer may sue Hamal for inducing breach of contract.

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Chap 20_7e 65. After the amalgamation of Satellite Sounds Ltd. with RMK Broadcasting Inc., human resource managers were

assigned the task of changing job duties and reassigning responsibilities among the amalgamated workforce. What is the source of the employer’s ability to effect changes of this nature without incurring liability to the amalgamated employees? a. the recital of management rights in employment contracts b. company policies or reference to the employee policy manual c. the employer’s right to define the description of the work to be performed d. the employer’s defined ownership of intellectual property 66. What body of law has been amended to impose a new legal duty on organizations and individuals to protect

the health and safety of workers? a. the federal Employment Standards Act b. provincial employment standards legislation across Canada c. the Criminal Code of Canada d. each province’s workers’ compensation legislation 67. Under what circumstances might an employer be legally entitled to use video surveillance in the workplace?

68. What is meant by the term ‘vicarious liability’ and what are the justifications for holding employers responsible

for their employee’s actions?

69. Briefly outline the key features of industrial relations legislation in Canada.

70. A company is reviewing each step of its employee hiring process to ensure that it is avoiding discriminating

practices. Identify and list the elements that the company should do to meet this goal with respect to this particular process.

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Chap 20_7e 71. What factors might a court consider when deciding if accommodation would pose an undue hardship upon an

employer?

72. List the essential content that should be included in an employment contract.

73. Define harassment and list the various forms that such conduct may take.

74. Discuss the jurisdiction of both the federal and provincial governments to make laws that affect employees.

75. Describe the test set out in the Supreme Court of Canada’s decision in Meiorin that must be met by an

employer to justify the standard or qualification for a BFOR.

76. Explain the distinction between an employee, a dependent contractor, and an independent contractor.

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Chap 20_7e Answer Key 1. True 2. True 3. True 4. True 5. True 6. False 7. False 8. False 9. False 10. False 11. False 12. False 13. False 14. True 15. True 16. False 17. True 18. True 19. True 20. True 21. d 22. a 23. d 24. c 25. b 26. b

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Chap 20_7e 27. b 28. d 29. b 30. b 31. d 32. a 33. d 34. a 35. c 36. d 37. c 38. d 39. a 40. d 41. b 42. c 43. b 44. d 45. b 46. a 47. b 48. c 49. a 50. a 51. a 52. a 53. a 54. c Copyright Cengage Learning. Powered by Cognero.

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Chap 20_7e 55. a 56. b 57. d 58. a 59. d 60. a 61. d 62. b 63. a 64. d 65. a 66. c 67. IThe Federal Court of Appeal, in assessing whether the use of surveillance equipment is a violation of PIPEDA,

adopted the following tests: (1) Is the measure necessary to the specific needs? (2) Is it likely to be effective in meeting that need? (3) Is the loss of privacy proportionate to the benefit gained? and (4) Is there a less privacy invasive way of achieving the same end? 68. Vicarious liability occurs where one person is legally responsible for the misconduct of another because of the

relationship between them. The employment relationship is the most common relationship that attracts vicarious liability and the common law provides that an employer is liable for the torts of an employee that are committed in the ordinary course or scope of employment. An employee’s wrongful conduct is within the ordinary course or scope of employment if authorized by the employer. The imposition of vicarious liability does not relieve the employee of liability. Both the employer and employee may be liable to the plaintiff. The two major policy rationales for the imposition of vicarious liability are compensation and deterrence. Vicarious liability improves the chances of a victim recovering damages and, at the same time, it provides an incentive for employees to exercise care in the selection, training, and supervision of employees. A further rationale is that because the employer benefits from the work of employees, the employer should be responsible for all the risk that comes from their conduct.

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Chap 20_7e 69. In Canada, both federal and provincial legislation guarantee the right of most employees to join trade unions. The

legislation provides for a certification process, by which the union is recognized as the bargaining agent for a group of employees upon the union being able to show that a majority of the employees in the bargaining unit want the union to represent them. The legislation also provides a mechanism known as collective bargaining, by which the parties enter a collective agreement or contract. The contract applies to all employees in the bargaining unit, regardless of whether they voted for the union representation. The collective agreement sets out the terms and conditions of employment, but a collective agreement is usually far more comprehensive than an individual employment contract. During the term of the collective agreement, there can be no legal strikes by the employees or lockouts by the employer. Finally, the legislation provides a process involving grievance and arbitration procedures for resolving disputes. 70. The steps that can be taken by an organization with regard to its hiring process to ensure that it is not discriminating

include the following: 1. Develop a list of job related duties and responsibilities to be set out in the job description 2. Advertise for qualifications related to the ability to do the job 3. Solicit information that is related to the applicant’s ability to do the job on the application form 4. Ask questions related to the applicant’s suitability during the interview process 5. Provide human rights training for supervisors and other employees 6. Develop policies prohibiting discrimination 71. The courts have declined to set strict guidelines. However, since every employee’s condition and every workplace is

unique, factors such as the size of the organization, its financial resources, the nature of its operations, the cost of the accommodation measures, the risk that the accommodation measures will pose to the health and safety of the employee and his colleagues and the public, and the effect of the accommodation measure on other employees and the productivity of the organization have all been taken into consideration in assessing the scope of the employer’s duty. 72. The essential content of an employment contract includes the following:

1. Names of parties 2. Date on which the contract begins 3. Position and description of the work to be performed 4. Compensation 5. Benefits 6. Probation period, if any 7. Duration of the contract, if any 8. Evaluation and discipline procedures 9. Company policies or a reference to an employee manual 10. Termination provisions 11. Recital of management rights 12. Confidentiality clause, if appropriate 13. Ownership of intellectual property, if appropriate 14. Restrictive covenants, if any 15. “Entire agreement” clause Copyright Cengage Learning. Powered by Cognero.

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Chap 20_7e 73. Harassment is any unwanted physical or verbal behaviour that offends or humiliates the victim and detrimentally

affects the work environment or leads to adverse job related consequences for the victim. Such conduct can take many forms, including 1. Threats 2. Intimidation 3. Verbal abuse 4. Unwelcome remarks or jokes about race 5. Unwelcome remarks or jokes about religion 6. Unwelcome remarks or jokes about sex 7. Unwelcome remarks or jokes about disability 8. Unwelcome remarks or jokes about age 9. The display of sexist, racist, or other offensive pictures 10. Sexually suggestive remarks or gestures 11. Unnecessary physical contact including touching, patting, pinching, or punching 12. Physical assault, including sexual assault 74. The federal government has jurisdiction to make laws that affect employees of the federal government and federally

regulated industries, such as the banking, airline, broadcasting, railway, and shipping industries. The provincial governments have jurisdiction to make laws that affect all other employees, including provincial employees. 75. In Meiorin, the Supreme Court of Canada set out a three step test that must be met by an employer who must

justify the standard or qualification for a BFOR. The onus rests with the employer, who would have to show that the standard 1. Was adopted for a purpose rationally connected to the performance of a job; 2. Was adopted in an honest and good faith belief; and 3. Was reasonably necessary to the accomplishment of the purpose. 76.

Unlike independent contractors, employees are usually controlled in how they perform their duties, do not supply their own tools, and are usually integrated into the organization. Employees have certain statutory rights and benefits, such as paid holidays and paid overtime, which are not conferred on independent contractors. Employers have certain obligations with respect to employees, namely deduction of income taxes and Employment Insurance premiums, the payment of Canada (or Quebec) Pension Plan premiums, the provision of paid vacations, and the like, which they do not have with respect to independent contractors. A dependent contractor is an emerging category of worker. This is a person who is an independent contractor but has a relationship of economic dependency with the employer as a result of working exclusively or nearly exclusively for the employer for a long period.

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Chap 21_7e Indicate whether the statement is true or false. 1. There is no general cap on the amount of notice available in a case of wrongful dismissal. a. True b. False 2. Employment standards legislation typically provides that an employee is, on average, entitled to receive one

month’s notice for each year of employment, up to a maximum of 24 months. a. True b. False 3. One of the primary factors to be considered by an employer when determining an employee’s entitlement to a

specific amount of notice of termination of employment is the availability of similar employment in the local job market. a. True b. False 4. An employer’s substantial efforts to induce a worker to join its organization will increase the reasonable notice

period in the event of wrongful dismissal. a. True b. False 5. A release is a written statement discharging another from an existing duty. In order to be enforceable in relation

to a matter involving termination of the employment relationship, the employee must have obtained independent legal advice with respect to the consequences of her signing the release. a. True b. False 6. Whistle blowing by an employee is an offence punishable by the employer because it directly conflicts with the

employee’s duty of loyalty and good faith to the employer. a. True b. False 7. In circumstances involving the termination of an employment relationship, the duty to mitigate strictly rests with

the employee, who is required to a take lower level employment to offset financial losses. a. True b. False 8. A reduction in damages will be justified in cases of wrongful dismissal where near cause is proven. a. True b. False

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Chap 21_7e 9. The period of notice required to terminate an indefinite term employment contract involves the consideration of

employment standards legislation, contractual provisions, if any, and the common law. a. True b. False 10. Either an employer has just cause to dismiss an employee and the employee is not entitled to any notice, or the

employer does not have just cause to dismiss and the employee is entitled to the full period of reasonable notice. There is no halfway position. a. True b. False 11. The Supreme Court has stated that if an employee can prove that the manner of dismissal caused mental

distress, the damages should be awarded through an extension of the notice period, not through an award that reflects the actual damage. a. True b. False 12. Courts have found a breach of an employer’s duty of good faith and fair dealing for failing to conduct a proper

investigation prior to dismissal and for making it difficult for an employee to find new employment. a. True b. False 13. In addition to severance pay, an employee’s settlement package for termination of the employment relationship

may include financial or career counselling and a factual letter of reference. a. True b. False 14. Younger employees in their 20s and 30s are generally entitled only to short periods of notice despite high rates

of unemployment among youth. a. True b. False 15. Making a claim to an employment standards tribunal is the route most often taken by low level employees, as they are often entitled to no more than the statutory notice. a. True b. False 16. Disputes involving the interpretation, administration, or application of the individual content of a collective

agreement, as it pertains to the wrongful termination of a unionized employee, must be submitted to a grievance process. a. True b. False

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Chap 21_7e 17. In Honda Canada v. Keys, the Supreme Court of Canada has called into question the practice of awarding of

additional damages for bad faith damages, sometimes referred to as the “Wallace bump.” a. True b. False 18. Reasonable notice is determined solely by the employee’s length of service. a. True b. False 19. Bad faith on the part of an employer is often the result of its claiming unfounded allegations of cause for

terminating an employment relationship with an employee. a. True b. False 20. Common law provides an employee considered to have been wrongfully terminated with an option of

enforcing specific performance requirements of the employment contract, reinstatement, or extended notice or pay in lieu thereof. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Kyle was terminated from his position as an accountant. He believes he was unjustly terminated and intends to

sue for wrongful dismissal. The only alternate employment Kyle can find is working as a security guard. Is Kyle obligated to take this job? a. No, because he was wrongfully terminated. b. Yes, because his duty to mitigate requires him to accept any available alternate employment. c. No, because his duty to mitigate does not require him to take a lower level job. d. Yes, because his duty to mitigate requires him to take any available employment while he continues to look for an accounting position. 22. What argument did the Supreme Court of Canada in Dowling v. Halifax [1998] 1 S.C.R. 22 refuse to

accept from an employer that sought to reduce the claim of a worker who had been wrongfully dismissed? a. that any act of dishonesty justifies termination b. that dismissal without notice is justified during economic setbacks c. that ‘near cause’ justifies a reduction in damages for wrongful dismissal d. that reasonable notice should be limited to notice set out in statute

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Chap 21_7e 23. Which of the following is a distinguishing characteristic of the collective agreement, with respect to challenging

an employer’s decision to terminate an employment relationship with a unionized employee? a. The matter will immediately be referred to a binding arbitration process. b. The employee is entitled to a remedy somewhere between dismissal and reinstatement. c. The employee is limited to proceeding through the grievance process. d. The matter is referred to a court if arbitration fails to resolve the grievance. 24. According to policy, Celine’s employer has accumulated a number of minor incidents in her employee

performance records over the course of her three years with the organization. If her employer anticipates that it may be necessary and advantageous to terminate Celine’s employment, which of the following would strongly influence the decision? a. duty to accommodate b. duty of good faith c. duty to mitigate d. duty to warn 25. Before making any changes affecting Kim’s job, his human resources manager discussed the nature of the

changes and the necessity for them. She asked Kim to assess the impact of the changes for the ensuing month. What is the human resource manager’s motive for handling the proposed changes to Kim’s employment arrangement in this manner? a. to minimize the risk of triggering a constructive dismissal b. to avoid the appearance of an employee demotion c. to enact procedures to deal with incidents of bad behaviour d. to avoid positive changes that trigger constructive dismissal 26. After three years of stellar performance, Roddy has begun to miss deadlines. After missing the third deadline,

his human resource manager met with Roddy and gave him his first written warning. In this situation, what is the role of the duty to warn? a. to make the employer fully aware of the wrongful behaviour b. to determine whether there is any excuse for this behaviour c. to argue there is just cause for termination d. to inform the employee of the consequences of failing to improve 27. All week, Jeff consistently ran the Naked News on his computer while Tess was present taking instruction on

his files. Despite her obvious discomfort and repeated requests that he turn the program off, Jeff, a senior partner, ignored the requests. Would a claim for constructive dismissal be justified in this instance? a. A claim is justified by proving a poisoned or intolerable work environment. b. Management needs to enact procedures to deal with bad behaviour. c. Unilateral change in working conditions requires employee consent. d. Unilateral change in working conditions fails to trigger constructive dismissal.

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Chap 21_7e 28. Claudio was recently wrongfully terminated from his job as a professional accountant. The only replacement

position he has been able to find is as a payroll clerk for a local trucking company. Which statement best describes Claudio’s mitigation duty in this circumstance? a. The employee could be required to accept a lower position. b. He must only take reasonable steps to find comparable employment. c. He is expected to accept a lower level job. d. He is required to take the first job available. 29. The case of Dowling v. Halifax (City of), [1998] 1 S.C.R. 22, involved a long serving employee entitled to

24 months’ notice of termination. The employer reduced the notice period to six months due to an incident of inappropriate conduct. What was the position taken by the Supreme Court of Canada in this instance? a. The reduction was rejected, and an assessment of reasonable notice was ordered. b. The reduction was justified because of just cause. c. The reduction was justified because of near cause. d. The reduction was rejected, as the conduct did not merit dismissal with or without notice. 30. Which of the following would be included in the monies prescribed by legislation as due and owing to an

employee at the time of their termination? a. statutory entitlement for medical benefits replacement b. statutory entitlement for disability insurance replacement c. statutory entitlement to stock options d. statutory entitlement to severance pay 31. The defendant’s counsel argued his client’s termination of the plaintiff’s employment without notice after one

incident of incompetence was justified. The court ruled in favour of the defendant. Which statement would most strongly support the trial judge’s decision in these circumstances? a. The conduct is prejudicial to the employer’s business. b. The employee falsely claimed to possess the requisite skills. c. The conduct was incompatible with the employer’s business. d. The employee’s conduct placed him in a conflict of interest. 32. Which term refers to an employee’s deliberate failure to carry out lawful and reasonable orders? a. willful insolence b. insubordinate conduct c. willful disobedience

d. incompatible conduct

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Chap 21_7e 33. With respect to punitive damages, what is meant by the statement “the employer’s bad faith acts must be so

malicious and outrageous that they are deserving of punishment on their own”? a. To attract punitive damages, conduct must amount to an independent actionable wrong. b. An employer’s bad faith act must be particularly egregious to exclude punitive damages. c. Punitive damages are to be awarded through an award that reflects actual damages. d. Punitive damages are contrary to the courts’ policy of balancing commercial interests. 34. Excel Roofing Ltd. terminated an employee for failing to wear a safety harness while working on a project.

What might a court consider when determining whether Excel had just cause? a. the employer’s history regarding occupational health and safety violations b. whether the employee was a full time or part time employee c. whether the employee suffered an injury as a result of not wearing the safety equipment d. whether the employer can show that clear instructions were given to the employee 35. What term implied by common law will influence an employer’s ability to effect the termination of an

employment arrangement? a. condonation b. reasonable notice c. litigation d. Peter principle 36. Which statement best describes the implied rights and duties of an employer that wishes to terminate an

employment relationship without cause? a. Employers cannot be sued provided they provide two weeks of notice. b. Employers cannot terminate without just cause. c. Employers may terminate but must give reasonable notice. d. Employers may terminate provided they have “near cause” and give reasonable notice. 37. Martina’s company is downsizing, and she has been notified that her employment relationship will be

terminated. She has been asked to give up her right of action with respect to the termination. What is the proper procedure to be followed by Martina? a. to seek advice regarding her benefit and severance entitlement before accepting a settlement b. to seek advice regarding severance pay entitlement prior to signing a settlement agreement c. to seek independent advice on the adequacy of the offer prior to signing a release d. to seek independent advice on the benefits of advancing a lawsuit to avoid statutory limits 38. Why is specific performance or reinstatement rarely an option provided by the courts to an employee claiming

wrongful termination from a position in the non unionized sector? a. Employment standards tribunals award these remedies. b. Courts are reluctant to interfere with business decisions. c. Litigation is a slow process, and the employee has a duty to mitigate losses. d. Common law views the employment relationship as irreparably damaged. Copyright Cengage Learning. Powered by Cognero.

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Chap 21_7e 39. To which of the following are factors such as the age of the employee and his or her attachment to the

community relevant in employment law? a. determining whether an employee must mitigate by taking a lower paying job b. determining the adequacy of the national job market to accommodate the mitigation of loss c. determining whether an employee must mitigate by taking a lower level job d. determining whether a duty to mitigate requires an employee to move 40. Due to her firm’s downsizing plans, Marina learned she would be expected to complete clerical work, at her

current rate of pay, for five lawyers rather than two. After 25 years of service to the firm, Marina is unhappy with management’s decision. Which of the following is her lawyer most likely to indicate as being a valid reason for launching a suit for wrongful termination? a. A reasonable person would believe the contract’s essential term was being changed. b. Changing a fundamental term of an employee contract amounts to constructive dismissal. c. The required bad faith element of constructive dismissal is readily apparent. d. The test for determining whether a substantial change is made is an objective one. 41. Kyrie has filed a wrongful termination suit alleging bad faith on the part of her former employer of nine years.

At the time of her dismissal from her law clerk position, Kyrie earned $52 000 annually and fringe benefits of $100 per month. What damage award has Kyrie’s lawyer suggested could be awarded under the labour standards legislation in these circumstances? a. $11 200 b. $32 800 c. $44 800 d. $98 400 42. Which of the following is a distinguishing feature of the grievance process? a. It is used to resolve disputes in union contracts. b. It is available to all employees. c. It can be used in conjunction with a lawsuit for wrongful dismissal. d. It is resolved through the mediation process. 43. Having recently saved the company a half a million in lost productivity, Stan was ill prepared for the

unexpected termination of his employment and the humiliation of being escorted from the building. He advised his lawyer that after 25 years of continuous service, his employment contract provided for an annual salary of $120 000, an annual bonus of no less than $35 000, and monthly fringe benefits of $100. What amount will Stan’s lawyer ask a court for in damages? a. $156 200 b. $276 200 c. $331 400 d. $351 450

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Chap 21_7e 44. Jasmine recently quit her job after enduring six months of unceasing racial harassment from a co worker,

which, despite many complaints, was never properly dealt with by her employer. Which statement best describes Jasmine’s legal position? a. The court will award her one year of her base salary. b. Jasmine may have been constructively dismissed. c. Jasmine will be entitled to no notice because she voluntarily quit her job. d. Jasmine will be awarded damages for bad faith. 45. Jarvis has been employed as a “greeter” in a department store for several years. Recently, his employer

recently advised him that he is being transferred to the shipping bay of the store where he will unload trucks. On what legal basis might Jarvis challenge his employer’s plan? a. His employer has failed to prove that it has a genuine business reason for the transfer. b. An employer cannot change any conditions of employment without first obtaining an employee’s consent. c. The employer has breached employment standards legislation. d. Without his consent, the move will constitute constructive dismissal. 46. Monty works for a trucking company and was recently confronted with video taken by this employer that

shows him stealing a set of tires worth $2,000 from the company’s lay down yard. Which statement best describes the most likely outcome? a. Monty can be fired because a single act of dishonesty can justify dismissal if sufficiently serious. b. Monty can be fired because any act of dishonesty is immediately grounds for dismissal with cause. c. The employee cannot be fired because one time incidents cannot be used as a basis for dismissal with cause. d. The employer cannot terminate unless it provides reasonable notice. 47. On February 16, Angelina’s doctor placed her on total disability, indicating her condition would likely take the

next four months to resolve. On March 1, her employer delivered written notice to Angelina, advising her position of employment would terminate May 1. With regard to the reasonable notice principle, what would be the most likely outcome of any legal proceedings? a. The judge will look strictly to the length of service to assess the reasonableness of notice. b. The judge will find that payment in lieu of notice must be given to effect termination during disability. c. The judge will find that disability negates any advantage of having notice, rendering it ineffective. d. The judge will look to balance competing interests by finding a halfway position. 48. Grundy was hired for a nine month term to fill in for an employee on maternity leave. After six months, the

employer terminated his employment without cause. How much notice should the employer have given Grundy? a. none b. three months c. six months d. nine months Copyright Cengage Learning. Powered by Cognero.

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Chap 21_7e 49. Alex’s employment has been terminated due to a recent amalgamation. She met with Roger, the human

resources senior manager, and reviewed the severance package being offered to her. Roger indicated that in his view the package was very generous and would expire at the end of the day. He urged Alex to accept the deal and sign a release, which she did. Why will Alex NOT be legally bound by the terms of the severance package or the release? a. She was not given sufficient time to consider the package and to obtain independent legal advice. b. The employee’s right to sue cannot be waived. c. The termination package was limited to statutory entitlements. d. The termination package is unconscionable. 50. Which statement best describes the approach of the courts with respect to punitive damage awards in cases

involving wrongful dismissal? a. Punitive damages will be normally be awarded in cases involving wrongful dismissal. b. Punitive damages will only be awarded when there is a separate actionable wrong such as deceit or defamation. c. Punitive damages are not available in wrongful dismissal claims. d. Punitive damages awards must be regularly awarded to ensure employers are not abusive. 51. What are the primary factors that tend to lengthen the period of notice an employee is entitled to on

termination? a. a high degree of specialization, age, and economic climate b. the character of employment, and the availability of similar employment c. the inducement to join, length of service, and industry practice d. the length of service, age, company policy, and industry custom and practice 52. What was the impact of the Supreme Court of Canada’s decision in its landmark case Honda Canada Inc. v.

Keys on the awarding of damages in cases of wrongful dismissal? a. An arbitrary increase in an award for damages based on bad faith dismissal is no longer appropriate. b. Notice periods are now extended where the employer defamed the employee in a wrongful dismissal case. c. Notice periods are now extended to compensate for an employee’s hurt feelings in wrongful dismissal cases. d. Employees may now sue for additional damages for human rights violations when suing for wrongful dismissal. 53. Which of the following is an implied term in an employment contract? a. The employer may only terminate for just cause. b. The employer may terminate the employment upon giving reasonable notice. c. Notice must be given upon termination, regardless of just cause. d. The employer is not required to give notice upon termination. Copyright Cengage Learning. Powered by Cognero.

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Chap 21_7e 54. Tristan’s employment contract with Glengarry Industries was signed 20 years ago when she was first employed

and contains a provision limiting her to two months notice of termination. Which statement best describes the most likely outcome? a. The court will uphold the notice period set out in the contract. b. The court may ignore the contractual provision on the basis that circumstances have changed. c. The court will find the contract void due to undue influence. d. The court will find the contract unconscionable. 55. How should an employee reconcile the duty to uphold the public’s interest with the duty of loyalty and good

faith to an employer with respect to exposing corporate wrongdoing? a. The employee should sacrifice public interest to preserve his livelihood. b. Duty of loyalty to the employer prevails. c. Public interest must always prevail. d. The duty of loyalty and good faith is upheld by policy of the courts. 56. According to the Supreme Court of Canada in Honda Canada Inc. v. Keys, when would it be appropriate to

award punitive damages in the context of a wrongful dismissal suit? a. where the employer attempted to offer the employee less than statutory notice b. in most cases where the dismissal is found to have been without cause c. where the employee has suffered depression as a result of the wrongful termination d. only in exceptional cases where the employer’s acts are malicious or outrageous 57. Fatima has worked as a paralegal with Shep & Shap LLP for 15 years. The firm began to downsize, and

Fatima received notice of termination that she considers to be inadequate. What term of reasonable notice would Fatima’s lawyer believe she is entitled to receive? a. 8 weeks b. 15 weeks c. 8 months d. 15 months 58. Marta’s employment contract specifies she is entitled to four month of notice before termination. What are

Marta’s obligation in the event she is terminated without cause? a. Marta must mitigate by searching for commensurate alternate employment. b. Marta must take any alternate employment that is available to her. c. Marta’s employer may deduct from her payment for failure to mitigate. d. Marta has no duty to mitigate.

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Chap 21_7e 59. Jerry has decided to accept his employer’s termination package, which will give him six months of pay and

benefits in lieu of six months of notice. What condition will the employer likely stipulate in exchange for its agreement to pay Jerry the six months of pay and benefits? a. that Jerry sign a release giving up his right of action against the employer b. that Jerry not seek legal advice c. that Jerry make the decision immediately d. that Jerry retrain his replacement 60. Which of the following would you expect a court to consider when determining the proper amount of notice to

award a wrongfully dismissed employee? a. the employer’s reason for dismissal b. the employee’s duty of honesty c. the age of the employee d. whether the employee objected to a fundamental change to the working conditions 61. Briefly outline the typical contents of a wrongful dismissal settlement package.

62. Is dishonesty always a basis for dismissal for cause? Explain.

63. Identify the changes that are considered to be fundamental to the triggering of an action for constructive

dismissal.

64. Identify the factors to be considered in determining how much notice is required to meet the employer’s

obligation to provide reasonable notice. Include all the primary factors, as well as other factors that tend to lengthen notice.

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Chap 21_7e 65. Discuss the ramifications of failing to mitigate losses resulting from the wrongful termination of employment. List

the factors that must be considered by a court in determining whether an employee’s duty to mitigate requires them to move to find new employment.

66. Explain what “just cause” means, and identify the types of employee conduct that would be considered just

cause.

67. Briefly explain how a low level employee may pursue an action for constructive dismissal and any benefits that

may flow to that employee as a result.

68. Are punitive damages available in cases involving wrongful dismissal? Explain.

69. Discuss the benefits that may be derived by both parties from a termination settlement.

70. Identify the factors that must be examined in each situation of termination of an employment relationship based

on grounds for termination without notice.

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Chap 21_7e Answer Key 1. True 2. False 3. True 4. True 5. True 6. False 7. False 8. False 9. True 10. True 11. False 12. True 13. True 14. True 15. True 16. True 17. True 18. False 19. True 20. False 21. c 22. c 23. c 24. d 25. a 26. d

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Chap 21_7e 27. a 28. b 29. a 30. d 31. b 32. c 33. a 34. d 35. b 36. c 37. c 38. d 39. d 40. b 41. a 42. a 43. d 44. b 45. d 46. a 47. c 48. b 49. a 50. a 51. b 52. a 53. b 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 21_7e 55. c 56. d 57. d 58. d 59. a 60. c 61.

The package offered should contain all monies due to the employee at the time of termination, including statutory entitlements such as severance pay. The package may also include other items such as pension benefits, medical or dental coverage, disability insurance, tax sheltered income, stock options, and financial or career counselling. An employer should also consider providing a factual letter of reference to assist the employee. An employee should be given a period of time (one to two weeks) to consider the termination settlement and should be encouraged to seek independent advice on the fairness of the offer. 62.

A minor infraction by an employee is insufficient to justify dismissal, although the cumulative effect of many minor instances may be sufficient. The cumulative effect must be such that there is a serious impact on the employment relationship. However, a single act of misconduct can justify dismissal if it is sufficiently serious. For example, a single act of dishonesty can be sufficient grounds for dismissal, as when an employee steals a large sum of money from the employer. However, an act of dishonesty, in and of itself, is not necessarily sufficient to warrant just cause for dismissal. The nature and context of any dishonesty must be considered 63.

Generally, the changes that are considered to be fundamental to the triggering of an action for constructive dismissal are adverse changes to the following: 1. Salary or benefits 2. Job function 3. Responsibility 4. The power/reporting structures

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Chap 21_7e 64. The primary factors to be considered in determining how much notice is required to meet the employer’s obligation

to provide reasonable notice are as follows: 1. Character of employment 2. Length of service 3. Age 4. Availability of similar employment 5. A high degree of specialization 6. Inducement to join an organization 7. Company policy 8. Custom and industry practice 9. Personal characteristics 10. Economic climate 65.

A failure to mitigate will result in a deduction from the damages awarded. The amount of the reduction varies and depends on the circumstances. Whether the duty to mitigate requires an employee to move to look for employment depends on a host of factors, including the following: 1. Age of employee 2. Family situation 3. Attachment to the community 4. Prospects of employment in the present area 5. The housing market 66. Just cause exists when the employee is guilty of one or more of the following:

1. Serious misconduct 2. Habitual neglect of duty 3. Incompetence 4. Conduct incompatible with duties or prejudicial to the employer's business 5. Willful disobedience in a matter of substance 67.

In the case of termination of employment by constructive dismissal, an employee is not obligated to go to a court to claim wrongful dismissal. Rather, the employee may proceed with a claim through an employment standards tribunal. This action would limit an employee’s compensation to an amount equivalent to the statutory period of notice. It is the route most often used by low level employees, as they are often entitled to no more than the statutory notice and this method is less expensive. 68. An employee may be entitled to additional damages for the manner of dismissal. Compensation for such treatment may include aggravated damages including mental distress damages, and punitive damages. Punitive damages, which focus on the employer’s conduct, will be awarded only where there is a separate, actionable wrong, such as deceit, breach of fiduciary duty, abuse of power, or defamation. They are generally awarded only in very exceptional circumstances.

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Chap 21_7e 69.

A termination settlement may help the departing employee feel better about termination. A fair offer and settlement may also help keep remaining employees motivated. A fair settlement would ultimately avoid a lawsuit and be less costly for both parties in the long run. It also helps maintain a positive corporate image. 70. Each situation of termination of an employment relationship based on grounds for termination without notice needs to

be analyzed on its facts and examined in relation to the following: 1. Whether the employees’ conduct was a single act 2. Whether the conduct was condoned in some manner 3. Whether the employee had a disability 4. Whether the employee has been warned about conduct and the consequences of the failure to improve

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Chap 22_7e Indicate whether the statement is true or false. 1. If a contract price is not stated in a professional services contract, the principle of quantum meruit will be

deemed to be inapplicable. a. True b. False 2. Professionals are subject to criminal prosecution in addition to discipline from their professional body if their misconduct constitutes a criminal offence. a. True b. False 3. The recent removal of interprovincial barriers to professional practice will only prove themselves to be

beneficial to Canadian society if the professionals are actually competent with various differing legal procedures, forms, and laws in each of the provinces the professional purports to practise in. a. True b. False 4. Where shareholders have detrimentally relied on a negligently prepared professional audit to make investment

decisions, their only recourse against the professional is their indirect right to bring a derivative action on behalf of the company. a. True b. False 5. Lawyer–client privilege belongs to the client—not the lawyer—and can only be waived by the client. a. True b. False 6. Professional service contracts define the parameters of the work that professionals are engaged to do,

provided all essential terms have been included in the agreement at the time it was created. a. True b. False 7. In very limited circumstances, a professional duty of confidentiality must be violated when a patient tells her

doctor that she is going to either hurt herself or intends to cause harm another. a. True b. False 8. The essence of the professional–client relationship is fiduciary. a. True b. False 9. Most Canadian professions are regulated by government agencies. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 22_7e 10. Where professional incorporation is allowed, it typically does not protect the professional from the liability of

greatest concern—personal liability for negligence. a. True b. False 11. LLPs protect individual partners from personal liability for negligence committed by another partner in the firm,

so long as the partner did not know about the negligence or participate in the work that was done negligently. a. True b. False 12. When shareholders use audited statements as the basis for their investment decisions, court imposed policy has

shaped the law to consider this use outside the intended statutory purpose of the audit. In so doing, the courts have allowed the professional to be released from any duty of care to these individuals for any investment losses incurred as a result of relying on the audit. a. True b. False 13. Self regulating professions are empowered by special statutes to create a governing body for themselves and

to specify when individuals may represent themselves as being qualified to practise in a particular province. a. True b. False 14. The fiduciary must comply with the spirit of the obligations owed by it and not merely the letter. a. True b. False 15. In general, an auditor does not owe a duty of care to persons other than its client. a. True b. False 16. The self regulating model applied to professions has come under attack for its alleged failure to protect the

public interest by the sacrifice of professional accountability in favour of self interest and protection of members. a. True b. False 17. In the case of a negligently prepared audit, a reasonably foreseeable use and reliance by a number of individual

third parties establishes that the professional’s duty of care exists. By applying the judiciary’s imposed policy considerations at the second step of the test, the court is able to shield the professional from liability by limiting the use of the audit to its statutory purpose. a. True b. False

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Chap 22_7e 18. Professionals who are employees are governed by the basic principles of employment law. a. True b. False 19. LLPs protect individual partners from personal liability for negligence committed by another partner in the firm. a. True b. False 20. Although courts have traditionally denied the claims of third parties who suffered an economic loss as a result

of the reliance on a professional’s negligent misstatements, modern public intolerance of white collar crime has begun to override the court’s underlying policy of protecting the professions. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What is the key to limiting the duty of care owed by an auditor to third parties as defined by the foreseeability

principle? a. a statutory prohibition against reliance by third parties b. the purpose of performing an audit is mandated by law c. a statutory amendment allowing limited liability partnerships d. a disclaimer against relying on information from third parties 22. Which of the following is a condition of practice in most professions? a. Canadian citizenship b. Ph.D. c. errors and omissions insurance

d. limited liability partnership

23. How were members of the various professions able to secure the right to practise their professions through the

limited liability partnership? a. through a court policy to protect the viability of professions from risk of liability b. through codes of conduct implemented by their self governing bodies c. through the establishment of errors and omissions insurance coverage d. through a concerted effort to lobby governments to enact protective legislation 24. A consulting engineer incorrectly reports that a particular property is free from soil contamination. Several

years later, the property is purchased by Jones. Later, the soil contamination is discovered, and the property is substantially decreased in value. What is the most likely result of the engineer’s erroneous reports? a. The consulting engineer is probably liable for breach of contract. b. The consulting engineer is, due to the passage of time, safe from liability. c. The consulting engineer is probably liable for breach of fiduciary duty. d. The consulting engineer is probably liable for breach of confidentiality.

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Chap 22_7e 25. Breanne is considered to be one of the top family law professionals in her province. She has been retained by

Martha’s lawyer to give an opinion with respect to the standard of care of a reasonably competent family law lawyer. What is most likely the purpose for Breanne’s involvement in this litigation? a. to help the claimant prove her indirect right to bring a derivative action for breach of care b. to determine any other parties in a proximity of reliance on the professional c. to help the claimant prove through expert testimony that the standard of care was breached d. to determine any existing policy considerations that would limited the duty of care 26. Dravena is an accountant and she also regularly dabbles in commercial real estate investments. Recently she

advised one of her accounting clients to invest in an apartment building that her and another accountant are building. Has Dravena breached any of her obligations to her client? a. She has breached her client’s right to privilege. b. She has breached her duty of confidentiality. c. She has breached her duty to provide a reasonably competent service. d. She has placed herself in a conflict of interest. 27. Dr. Walton, a practising psychologist, prepared a report for litigation purposes, as requested by Hayley’s

lawyer. Hayley has been receiving disability benefits, which the insurer would like to terminate if it can prove she has recovered sufficiently. The insurance company has written to Dr. Walton, requesting a copy of the report prepared for Hayley’s lawyer. What will most likely be the appropriate response? a. The report must be forwarded, or Hayley will lose entitlement to benefits. b. The duty of professional–client privilege is inapplicable to psychologists. c. The request is denied, as the report is subject to professional–client privilege. d. All professionals are bound by a duty of confidentiality. 28. Pym and Pike is a law firm that is considering forming an LLP. Which of the following statements correctly

describes the key advantage to Pym and Pike’s partners of forming an LLP? a. Partners will not be obliged to avoid conflicts of interest. b. Partners cannot be sued by one another for contribution or indemnity. c. Partners will have limited liability for the debts of the partnership. d. Partners will not be liable for one another’s professional negligence. 29. Which of the following is a distinguishing characteristic of professions? a. Their self regulation has been curtailed by public body oversight. b. Provincial statues provide for more than one governing body. c. Provincial statues establish the rights of professions to govern themselves. d. The right to perform an audit is defined by provincial legislation.

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Chap 22_7e 30. What was the traditional position of the courts to deny the claims of third parties based on? a. disputes over varying levels of expertise required b. a policy to protect the economic viability of the professions c. a burden of proof pertaining to the causality of the loss d. disputes over who should determine the standard of care 31. With which of the following is the phrase “in an indeterminate amount for an indeterminate time to an

indeterminate class” synonymous with respect to the application of the law to professional relationships? a. third party negligence liability b. corporate share structure c. breach of confidentiality d. professional negligence 32. What type of losses or damages are typically incurred in cases of professional misstatement? a. property loss b. pure economic loss c. punitive damages

d. aggravated damages

33. Michelle, Michael, Savenna, and Hirsch have just concluded their new partnership’s organizational meeting.

The group of busy commercial lawyers determined that a limited liability partnership suited their needs best. Why did they make this choice? a. for preferential tax treatment b. for professional risk management c. for public policy liability concessions d. for insurance purposes 34. Following his accounting firm’s audit team being hired by Canuck Inc. to review Northern Ltd.’s books, Tysan

contacted several members he knew in the profession, advising them to buy Northern’s shares. Trading in Northern’s stock notably increased in ensuing weeks, driving the share price up, making it more expensive for Canuck to complete the takeover and prompting the securities commission to investigate. What did the securities commission find with respect to Tysan? a. The firm will avoid vicarious liability, as Tysan acted independently. b. The firm employing Tysan, not Tysan, owed a fiduciary duty to Canuck. c. Tysan breached the fiduciary duty to maintain confidentiality of client information. d. The claimant’s loss was too remote from the professional’s actions. 35. Valdyn, Jacob, and Bob have just finished a review of their business’s legal expenses for the past year. While

there has been an increase, it hasn’t been substantial enough to warrant changing their ad hoc retainer relationships with either Sheps & Shaps LLP or Dunn & Wright LLP. What is the meaning of “ad hoc” in this instance? a. The professional responsibilities of each firm are identical. b. The firms receive annual retainers. c. The relationships are regularly reviewed for cost effectiveness. d. The firms are hired on a project basis rather than as permanent employees.

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Chap 22_7e 36. Which of the following is synonymous with a “retainer” with regard to professional services? a. the client’s contractual obligation to provide accurate information for the professional opinion b. a document setting out the terms of liability of the professional for professional negligence c. a written promise of the professional to act in the best interests of the client d. the advance payment requested by the professional to fund the professional’s services 37. A professional service contract should provide for unseen developments during the course of the contract. In

so doing, which of the following questions will be addressed? a. How frequently will the client be contacted? b. How will risk be allocated? c. How will fees be charged? d. What expertise is required for the work? 38. What distinguishes professionals from other workers and service providers? a. payment by retainer b. special relationship of trust and loyalty c. regular evaluation of expense and calibre d. professionals are not employees 39. Which statement best represents one of the features of lawyer client privilege? a. It cannot be waived. b. It arises out of contract. c. It belongs to the client and can only be waived by the client. d. It belongs to the lawyer and can only be waived by the lawyer. 40. Why are most professional firms unincorporated? a. because corporations are too costly to establish and maintain b. because partnerships are a preferable mode of business to most professionals c. because legislation prohibits them from avoiding personal liability for negligent work d. because they are required to have liability insurance, and thus incorporation is not needed to protect

from negligence suits 41. Which of the following is a legitimate concern for clients or third parties who rely on professionals who provide

their services through a limited liability partnership? a. the adequacy of the profession’s indemnification fund to cover losses b. whether individual partners remain liable for their own negligence c. whether highly specialized professional protection associations defend claims d. whether there will be compensation for losses caused by the professional

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Chap 22_7e 42. A banker was asked for an opinion about the creditworthiness of a customer. He provided an opinion

describing the customer as a poor credit risk without securing the customer’s consent. Which of the following is most likely to result? a. A claim for the tort of professional negligence will be made. b. A claim for breach of professional fiduciary duty will be made. c. A claim for breach of professional–client privilege will be made. d. A claim for breach of contract will be made. 43. Glenda, a lawyer, has recently established a professional corporation. Which of the statement best describes

her legal position? a. She can no longer be sued for professional negligence. b. Her personal assets remain exposed to claims of professional negligence. c. She is relieved of her fiduciary responsibilities. d. Only her corporation’s assets are available in the event of a claim against her for professional negligence. 44. Accountants owe a fiduciary duty to their clients based on elements of trust and confidence. Which of the

following would also be strongly supported by an accountant’s fiduciary duty? a. reliance on skill, knowledge, and advice b. fulfilling a public function c. reliance on honesty and integrity d. reliance on professional–client privilege 45. In what way are losses resulting from damage to property and pure economic losses similar with respect to

professional liabilities arising in tort? a. neither require proof of reliance on expertise b. claims of this type are more challenging c. both deny liability to third parties d. either is subject to an exemption from duty to mitigate 46. Triston is one of a number of shareholders of TVG Group Inc. who lost a substantial sum by relying on the

negligently prepared audit of the company’s previous fiscal year’s financial circumstances. Which of the following would strongly support a viable avenue of recourse for these shareholders against the negligent professional? a. a class action law suit that includes the company b. a derivative action on behalf of the company c. a derivative third party claim by the company d. a derivative action on behalf of the shareholders

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Chap 22_7e 47. Why must an auditor act independently of any interest of the company that has retained him or her to perform

the audit? a. The auditor must maintain client privilege. b. The auditor fulfills a public function. c. The auditor must maintain client confidentiality. d. The auditor has a duty of care. 48. Peabody and Company, a law firm, prepared a will for a client who has since passed away. Unfortunately, the firm was careless in preparing the will, and two individuals who were inadvertently left out of the will now wish to sue the firm. Which of the following describes the possible basis for this lawsuit? a. breach of contract b. breach of contract and professional negligence c. breach of fiduciary duty d. professional negligence 49. What are the practical implications of the fact that most professions in Canada are self regulated? a. Cost effectiveness is achieved by this arrangement. b. Professionals are not subject to discipline. c. Legislation gives autonomy and sometimes a monopoly over specific professional activities. d. Professionals do not need to be licensed. 50. Which of the following is NOT a typical function fulfilled by professional self regulatory bodies? a. setting standards for admission to the profession b. indemnification and assurance fund c. community service d. discipline of members 51. In the case of Deloitte & Touche v Livent Inc (Receiver of) (Livent), how did the court limit the liability of

auditors for errors in audited financial statements? a. The court held that auditors are liable to anyone who relies on the audited financial statements. b. The court held that only shareholders may sue the auditors in the event of carelessness in preparing the audited financial statements. c. The court held that the auditor’s liability was limited to the specific purpose of its engagement. d. The court held that auditors may only be sued by investors for errors in the audited financial statements. 52. How have limited liability partnerships been introduced into Canadian society? a. through the enactment of amendments to the provincial Partnership Acts b. through changes by each profession’s governing body to its codes of conduct c. through adoption by various professions that carry errors and omissions insurance d. through the enactment of amendments to the Canada Business Corporations Act Copyright Cengage Learning. Powered by Cognero.

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Chap 22_7e 53. Why has the self regulation model of professional regulation been criticized in other jurisdictions? a. Self regulating professions are too expensive. b. Self regulation replaces criminal prosecution. c. Self regulating professions are in a conflict of interest. d. Self regulating bodies may fail to adequately protect the public interest. 54. Grace is a lawyer in a medium sized law firm where she represents a variety of small businesses. Which of the

following describes one of her duties as a fiduciary? a. due care b. loyalty and trust c. honour of profession d. due diligence 55. Which of the following is a feature typical of legislation regulating professions in Canada? a. a fee schedule for professional services b. a requirement of professional corporations c. the control of entry into the profession d. the settlement of disputes between professionals 56. Sheps & Shaps LLP provides legal services by preparing contracts for an architectural firm on a regular basis.

Which of the following best describes the nature of Sheps & Shaps’ duties under this arrangement? a. contractual duties and employee duties b. fiduciary duties and contractual duties c. ethical and contractual duties d. contractual, tort, and fiduciary duties 57. A lawyer met with several members of the community at a social function. During the evening, he spent a great

deal of time discussing one particular client in great detail. The client’s friend, unknown to the lawyer, was not impressed by some of the derogatory comments expressed during the discussion. What will likely be the result when the client’s friend explains the evening’s events? a. A complaint that the lawyer has breached his client's right to privilege will be made. b. A complaint to the Law Society for breach of client confidentiality will be made. c. A complaint that the lawyer breached the duty to avoid commission of torts will be made. d. A complaint that the lawyer breached his duty to perform contractual obligations will be made. 58. George is a lawyer who provides legal services “in house” for a manufacturing company. Which of the

following statements is correct regarding this arrangement? a. George must be an independent contractor. b. George is a fiduciary to his employer. c. His employer is not vicariously liable for his negligence. d. George is no longer a member of the Law Society.

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Chap 22_7e 59. In which of the following circumstances will the lawyer’s indemnification fund compensate the victims of one of

its practising members? a. breach of contract c. breach of confidentiality

b. theft of client money from trust d. professional conflict of interest

60. In what way are professionals similar to one another? a. Both are considered employees of their clients who are, in turn, vicariously liable for their negligence. b. They have ethical obligations that other employees and service providers

do not have and are usually members of professional governing bodies. c. They are governed by employment law and are usually regulated by federal bodies that establish rules of conduct and codes of ethics. d. Both submit bills to an independent panel for review. 61. Identify the profession where the fiduciary obligation to give independent advice free from self interest has a

distinct meaning, and briefly discuss any additional obligations that would apply in this particular profession.

62. Identify the various ways in which a practising lawyer may charge fees for the professional services he or she

renders.

63. How has the Supreme Court of Canada limited the potential for third party claims against auditors in its

decision in Deloitte & Touche v Livent Inc (Receiver of) (Livent)?

64. List three ways professionals can manage risk.

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Chap 22_7e 65. Briefly outline the five requirements for proof of negligent misrepresentation.

66. In what ways are professional relationships related to fiduciary relationships?

67. List the ways in which professionals can manage risk arising from their professional responsibilities.

68. Briefly discuss the effects of a limited liability partnership on liability for partners of a firm and the firm itself.

69. According to the court in Deloitte & Touche v Livent Inc (Receiver of) (Livent), how does a plaintiff in an

action for negligent misstatement establish a duty of care was owed by a professional?

70. Explain how professions derive their ability to be self regulating. Briefly discuss the criticisms of the

professional self regulating model and measures that have been taken to remedy the problem in other common law jurisdictions.

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Chap 22_7e Answer Key 1. False 2. True 3. True 4. True 5. True 6. True 7. True 8. True 9. False 10. False 11. True 12. True 13. True 14. True 15. True 16. True 17. True 18. True 19. True 20. True 21. b 22. c 23. d 24. b 25. c 26. d

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Chap 22_7e 27. c 28. d 29. c 30. b 31. a 32. b 33. b 34. c 35. d 36. d 37. b 38. b 39. c 40. c 41. d 42. b 43. b 44. a 45. b 46. b 47. b 48. d 49. c 50. c 51. c 52. a 53. d 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 22_7e 55. d 56. d 57. b 58. b 59. b 60. b 61. The fiduciary obligation to give independent advice free from self interest has a distinct meaning in the case of the

audit. The auditor, besides acting without self interest, must also act independently of any interest of the company, since she is fulfilling a public function; namely, providing assurance to shareholders that the financial statements have been prepared according to established guidelines. Audit firms are prohibited from involvement in their client’s business and are increasingly limited in their ability to provide services other than the audit to their audit clients. 62. A lawyer may charge fees by the hour, or a flat fee may be negotiated for a particular task. A lawyer may also

charge a fee based on a percentage of the value of the transaction, or on a contingency basis. 63. The Supreme Court of Canada provided the following important directions regarding the scope of liability of

auditors: • The court held that the auditor’s liability was limited to the specific purpose of its engagement. According to the court, the auditor’s liability to its own client was limited to losses that were foreseeable in respect of the statutory audit for which it had been engaged. • An auditor does not owe a duty of care to persons other than its client. 64. Three methods for managing professional risk are through contracts, incorporation or limited liability partnerships,

and insurance. 65. 1. There must be a duty of care based on a special relationship between the professional and the recipient of the

advice. 2. The representation made by the professional must be untrue, inaccurate, or misleading. 3. The professional must have been negligent in making the representation. 4. The recipient must have reasonably relied on the misrepresentation. 5. The reliance by the recipient on the representation must have resulted in damages to the recipient.

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Chap 22_7e 66. One of the hallmarks of a professional is the fiduciary nature of his or her relationships with clients. Professionals act

in a fiduciary capacity and, as such, owe their clients duties of loyalty, trust, and confidence that go beyond the contractual or tort responsibilities that are owed by service providers who are not professionals. The following are specific obligations of a professional as fiduciary: 1. Avoid any conflict of interest between the client’s affairs and those of the professional or the firm 2. Refrain from using the relationship for personal profit beyond charging a reasonable fee for services provided 3. Follow the client’s instructions 4. Disclose all relevant information to the client 5. Act honestly, in good faith, and with due care 6. Maintain the confidentiality of client information 67. There are three ways in which a professional can manage risk, namely:

1. Through contracts 2. By incorporating or forming a limited liability partnership 3. Through insurance 68. Limited liability partnerships protect individual partners from personal liability arising from negligence claims that are

brought against the partnership in general or other partners in the firm. Individual partners remain liable for their own negligence. Likewise, the firm itself retains liability, and the firm’s assets and insurance can be used to compensate for losses. 69. This element involves two stages:

Stage 1: In the relationship between the claimant and professional, is there a prima facie duty of care? This is determined by examining the following questions: a. Is there proximity between the claimant and professional? b. Assessing proximity in the prima facie duty of care analysis entails asking whether the parties are in such a “close and direct” relationship that it would be “just and fair having regard to that relationship to impose a duty of care in law.” According to the courts, this is established by proving the professional undertook or committed to present information to the claimant in a reliable way. c. If proximity is proven, was the claimant’s reliance on the professional reasonably foreseeable and reasonable given the circumstances of the case? The purpose for which the statement was made is pivotal in this analysis and, in each case, one must determine the purpose for which the statement was made and ask whether the loss in question is proximate (or closely connected) to the failure of the defendant to fulfill that purpose. Assuming a prima facie duty of care is established in Stage 1, the court’s analysis moves to Stage 2. Stage 2: Are there residual policy considerations outside the relationship of the parties that may negate imposing a duty of care? According to the court, an analysis of residual policy considerations is not necessary when proximity is based on a category already established by precedent. However, when such is not the case, the policy analysis at Stage 2 is concerned with factors external to the relationship between the parties.

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Chap 22_7e 70. Professions are able to be self regulating because of provincial statutes that establish the right of the professions to

govern themselves. The self regulating model has come under attack for failing to protect the public interest. Critics of the self regulating system point out the sacrifice of the accountability of professions in favour of self interest and the protection of members. As a result, the legal professions in England and Australia have lost much of their autonomy through the legislated imposition of public bodies to oversee the profession’s disciplinary process.

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Chap 23_7e Indicate whether the statement is true or false. 1. The CISG usually orders specific performance (fulfillment of the contract by the defendant) as the primary

remedy. a. True b. False 2. It is an implied condition of the Sale of Goods Act that that the goods will be reasonably fit for their intended

purpose. a. True b. False 3. Unascertained goods must be identified and agreed on at the time a contract is made. a. True b. False 4. When a condition in a sale of goods contract is breached, the sale of goods legislation permits the buyer to ask

the court to reduce the purchase price due to the breach. a. True b. False 5. The Latin phrase caveat emptor forms the foundation of common law’s expectation of purchasers to be

aware of what they are purchasing and to make appropriate investigations before buying. a. True b. False 6. The provincial Sale of Goods Act sets out a series of mandatory rules for determining when title will pass from

seller to buyer. a. True b. False 7. A warranty is implied under sale of goods legislation that requires the seller to have the right to sell the goods. a. True b. False 8. Goods not yet set aside and identifiable as the subject of the contract are to be specifically ascertained at the

time the contract is formed. a. True b. False 9. A customer who has made its purpose for a particular product known to the seller will be deemed to have

relied on the advice of the seller in selecting a product fit for that purpose. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 23_7e 10. Once goods are delivered to a carrier under a c.i.f. contract, the seller typically submits the bill of lading and

certificate of insurance to the buyer in exchange for payment of the price of the goods. a. True b. False 11. The parties to a sale of goods transaction may agree to exclude, or vary, the terms implied by the Sale of

Goods Act. a. True b. False 12. The concept of protecting the consumer implicitly assumes that the commercial purchaser is better able to take

care of itself and does not require any kind of safeguards. a. True b. False 13. In a free on board contract, the seller specifies the type of transportation to be used. a. True b. False 14. Tinsel X Mas Trees received 200 trees from Misty Tree Farms Ltd. for sale during the holiday season. Tinsel

paid a deposit of $500, and Misty granted payment terms of 30 days from the date of delivery. Should Tinsel sell all of the trees but neglect to remit payment within the 30 days, Misty will be entitled to claim an action for the price. a. True b. False 15. Every province has passed legislation that prohibits the parties from excluding, or varying, implied Sale of

Goods Act terms in consumer transactions. a. True b. False 16. The rules contained in the sale of goods legislation that determine when title to goods shifts also affect the

seller’s right to claim damages for non acceptance. a. True b. False 17. The initials c.i.f. stand for “cost, insurance, freight”. a. True b. False 18. The determination of when ownership is transferred is important because of the historic legal maxim that risk

follows title. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 23_7e 19. In the event of a breach of an implied condition, the buyer will be limited to suing for damages. a. True b. False 20. Generally speaking, the Sale of Goods Act does not apply to the provision of commercial software. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Ariafyn Equestrian Farm ordered a maximum of $1200 worth of oats for delivery by October 30 from Mike,

a local farmer. On October 12, Mike stopped at the grain elevator scales to weigh the truckload of oats, which indicated Ariafyn would owe $1293 for the load. Mike was inside the office obtaining the certificate of weight when a passing train derailed, sending a rail car colliding into Mike’s truck. Which party will have the right to sue the railway company for the loss of the oats? a. Ariafyn; risk transfers with the appropriation of unascertained goods b. Mike; the buyer must be notified once the price is ascertained c. Ariafyn; the goods are weighed and the price has been ascertained d. Mike; Ariafyn must signal its adoption of the transaction 22. Which of the following would be essential to determining a remedy with respect to the breach of a term under

the sale of goods legislation? a. product safety classification c. anticompetitive practices

b. the classification of the term d. disclosure on packaging

23. Which statement best describes the Convention on the International Sale of Goods (CISG)? a. The CISG is mandatory in consumer sale of goods transactions. b. The rules in the CISG are virtually identical to those in the Sale of Goods Act. c. It applies to all international commercial contracts for the sale of goods. d. It has been ratified by Canada and the United States. 24. Mack Transmissions Ltd agreed to overhaul Dan’s car transmission for $600. What impact will the Sale of

Goods Act have on this transaction? a. The Act will result in a duty to ensure the overhauled transmission is fit for its intended purpose. b. The Act will have no application to the transaction. c. The Act will impose a statutory duty on the customer to provide payment immediately upon delivery of the services. d. The provisions of the Act governing merchantability will apply.

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Chap 23_7e 25. The owner of ToolShack Rentals Ltd. loaned (free of charge) a carpet steamer to an acquaintance. What

impact will the Sale of Goods Act have on this transaction? a. It will only apply if ToolShack attempts to sue the borrower for damages to its equipment. b. It will import an implied condition of merchantability into the arrangement. c. It will not apply to the transaction. d. It will require ToolShack to supply goods that are fit for their intended purpose. 26. Which statement is a distinguishing feature of the Sale of Goods Act? a. It does not apply to leases of goods. b. It applies to intangible and tangible property. c. Its terms are mandatory and cannot be contracted out of. d. It does not apply to consumer transactions. 27. What is the name given to goods that are identified and agreed on at the time a contract of sale is made? a. specific goods b. appropriated goods c. ascertained goods

d. specified goods

28. Which of the five transfer of title rules would mostly likely be applied to determine when title passed in the case

of a standing order contract? a. Rule 1 b. Rule 2 c. Rule 3 d. Rule 4 29. Which statement is a criticism of the strict application of the common law maxim, caveat emptor? a. It was not codified. b. It unfairly favours the purchaser. c. It is too costly to enforce.

d. It often produces unfair results.

30. Why would a buyer be relieved of the implied statutory requirement to make its intended purpose of

purchasing goods known to the seller of those goods? a. The goods will be used in their ordinary purpose. b. The buyer is reliant on the inspection of goods. c. The goods will be bought by description. d. The seller’s goods are being sold by description 31. Which of the following is relevant to a determination of what is reasonable with respect to the nature, intended

purpose, and price paid for goods under consumer protection legislation? a. warranty of quality and fitness b. seller’s express warranties c. warranty of durability d. warranty of acceptable quality

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Chap 23_7e 32. Why is it important to determine when the title to goods passes from the seller to the buyer? a. because payment is due when title passes b. because the party with title is responsible for delivery costs c. because risk usually passes with title d. because the seller can no longer be sued once title has passed to the buyer 33. What is meant by the term “merchantable quality”? a. a reasonable quality, considering the description of the goods b. the value declared or known to the buyer at the time c. the value of goods corresponds with their description d. the price paid determines the reasonableness of quality 34. Which of the following would most strongly influence the remedies available to a consumer under consumer

protection legislation? a. the reasonable foreseeability of damages b. the seriousness of the breach of implied warranty c. the onus on the party at fault to act quickly d. the onus on the party at fault to correct the breach 35. D.A.D. Enterprises Inc. (DAD) is located in Whitehorse. It has entered into a contract for the purchase of

goods from Finnigan Fishing Rods & Reels Ltd. In accordance with the terms of the contract, Finnigan must, among other things, arrange shipping. What type of arrangement exists between these parties? a. p.p.d. Whitehorse b. c.i.f. Whitehorse c. c.o.d. Whitehorse d. f.o.b. Whitehorse 36. Which of the following is a warranty implied by the Sale of Goods Act? a. that the goods will be of merchantable quality b. that the goods are free of liens and encumbrances c. that the goods are fit for their intended purpose d. that goods sold by sample will correspond with the sample 37. Which of the following is a condition implied by the Sale of Goods Act? a. that the seller has the right to sell the goods b. that the goods will correspond to the sample c. that the goods are free from liens and encumbrances d. that delivery will occur in a reasonable period of time

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Chap 23_7e 38. Jemma wants to purchase a used Rolex watch from a pawnshop but is concerned the watch may have been stolen. Does the Sale of Goods Act imply any terms into the sale that may address her concerns? a. No, this is a buyer beware situation. b. Yes, there is an implied warranty that no third party will attempt to claim rights in the watch. c. No, the Sale of Goods Act only applies to the quality and condition of the goods, not to the state of the

title to the goods being sold. d. Yes, it is an implied condition that the seller paid valuable consideration for the watch. 39. A judge has found that Clear View Windows Inc. is liable to pay damages to a client for breach of one of its

implied obligations under the Sale of Goods Act. Which of the following statements best describes the nature of the implied term breached by Clear View? a. condition b. pre contractual term c. warranty d. covenant 40. EcoGreen Garden Centre Inc. will pay $2400 for the two tons of organic fertilizer it ordered for delivery in

March. The fertilizer is to be packaged in 20 kilogram bags and then packed onto two separate one ton pallets for shipment. What rule under sale of goods legislation will dictate when title to the goods passes to EcoGreen? a. Rule 1 b. Rule 2 c. Rule 3 d. Rule 4 41. EcoDesign Inc. (Eco) purchased 200 weeping caragana trees for spring planting from Abbot Garden Centre

Ltd. Two weeks later, planting was complete and payment forwarded to Abbot. Two months later, Eco was served with a claim issued by Misty Tree Farms Ltd., alleging non payment for the goods by Abbot Garden Centre and naming Eco as a third party to the claim. How was the Sale of Goods Act violated in this instance? a. breach of contract b. breach of innominate term c. breach of implied term d. breach of implied warranty 42. Jasper Tiles prepared a customized order of tiles and informed the client they were in a deliverable state and

ready for pick up. Unfortunately, the client now refuses to pick up and wants to cancel the order. What is Jasper’s remedy in this situation? a. damages for non acceptance b. no remedy because it still has possession of the goods c. an action for the price d. no remedy because it still has title to the goods

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Chap 23_7e 43. At what point will title to goods pass to the buyer when the contract involves the sale of future or

unascertained goods? a. when the goods are accepted by the buyer b. when the goods are unconditionally appropriated to the contract c. when the goods are delivered d. when the goods come into existence 44. SolarPrime Energy Inc. has just delivered five solar power converters to a homeowner who is adding solar

power her electrical service for her home. Which of the following best describes the legal position of SolarPrime now that it has completed delivery? a. Title has now passed to the homeowner. b. Payment is now due from the homeowner. c. Risk has now passed to the homeowner. d. It is impossible to say whether title has passed without more information. 45. Which statement best describes the common law position with respect to the purchase of goods? a. Purchasers are expected to make appropriate investigations before buying. b. Sellers are liable for all defects in their goods. c. Sellers are liable only for major defects in their goods. d. Purchasers have a duty to ensure the goods are fit for their purpose. 46. Which of the following roughly approximates the meaning of the term caveat emptor? a. voluntary assumption of risk b. let the buyer beware c. the thing speaks for itself

d. haste makes waste

47. Which of the following is an implied term when goods are sold “by description”? a. The buyer will enjoy quiet possession of the goods. b. The goods will match the seller’s description. c. The buyer relies on the judgment of the seller. d. The goods will be delivered within 30 days. 48. Which of the following should a legal risk manager insist upon with respect to advertising performance claims

about a new product the company is promoting? a. keeping improper practices secret b. implementing a cynical marketing strategy to cover a lack of due diligence c. establishing a justification through scientific evidence d. speedily retracting false statements

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Chap 23_7e 49. Goodhealth Farms Inc. was sued by a customer, and the court has now ordered that the plaintiff is entitled to a

reduction in the price initially agreed to in the contract. What is the most likely reason for the court’s decision? a. breach of a condition expressed in a contract for the sale of goods b. breach of an innominate term of a contract for sale of goods c. breach of warranty under sale of goods legislation d. breach of a condition under sale of goods legislation 50. Why is the determination of when ownership is transferred important in the context of contracts for the sale of

goods? a. because of the historic legal maxim ‘risk follows title’ b. because goods can be possessed without being owned c. because the right to sue ends when title passes to the buyer d. because the goods must be paid for when title passes to the buyer 51. Which of the following would be considered immaterial with respect to the series of rules contained in the

provincial sale of goods legislation that determine when title transfers? a. under Rule 2, whether the contract for specific goods is unconditional b. under Rule 5, whether goods are sold on approval or on “sale or return” c. under Rule 3, the putting of goods into a deliverable state d. under Rule 1, the postponement of time of payment or delivery 52. Which statement best describes a bill of lading? a. It sets out when title passes from the seller to the buyer. b. It is a contract between the seller and carrier. c. It provides evidence of when the goods have transferred from the seller to the buyer. d. It sets out the purchase price and cost of shipping and insurance. 53. Which transaction would fall under the Sale of Goods Act? a. sale of a house b. sale of a pallet of wood c. sale of stock on the stock market

d. repairs to a motorcycle

54. Which of the following strongly supported the creation of principles set out in a specialized branch of contract

law intended to provide a measure of protection for the purchaser of goods? a. the need for modern law concerning the sale of goods and services b. historic legislation titled the Sale of Goods Act, enacted in England in 1893 c. the civil code set of exceptions to the doctrine of caveat emptor d. unfair results of the strict application of the doctrine of caveat emptor

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Chap 23_7e 55. How did the British Parliament’s passage of the Sale of Goods Act impact the law concerning the sale of

goods? a. The Act extended protection for commercial sale of goods transactions to consumer sale of goods transactions. b. The Act was the first legal recognition of implied terms into contracts for the sale of goods. c. The Act created the principle ‘caveat emptor’. d. The Act summarized the existing common law principles for sale of goods transactions. 56. Which of the following prohibits the defence of privity of contract? a. provincial sale of goods legislation b. federal and provincial consumer protection legislation c. provincial consumer protection legislation d. federal, provincial, and municipal sale of goods legislation 57. Abby purchased a ring from an online vendor which unfortunately gave her a severe rash. The online

description of the ring stated it was made of hypoallergenic materials. According to the Sale of Goods Act, why will the merchant likely have to accept the return of the product? a. The seller refused the opportunity to compare goods with a sample. b. The buyer relied on the description of goods by the seller. c. The buyer made the intended use known at the time of purchase. d. Goods sold by description must correspond to the description. 58. What is the relationship between ownership of the goods and who bears the risk of loss in a sale of goods

transaction? a. There is no relationship because risk passes when the goods are paid for. b. Risk of loss passes from seller to buyer when ownership passes. c. Risk of loss and ownership passes when the goods are paid for and delivered to the buyer. d. Ownership and risk of loss both pass when the contract for sale is formed. 59. Which of the following would strongly influence a seller’s ability to exercise its right to stoppage in transit with

respect to the sale of goods? a. the goods have not been delivered to the carrier b. the goods remain undelivered, and the buyer has become insolvent c. the buyer of the goods has become insolvent d. the seller is unable to arrange for insurance for the goods

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Chap 23_7e 60. Alison advised the sales manager at SpudsRUs Ltd. that she had rejected the shipment of potatoes received

from Spuds that morning. As this was the second consecutive shipment from Spuds contaminated with blight, Alison also advised Spuds she was cancelling the contract. Why is Alison able to do so? a. because of the breach of innominate term b. because of the right of repudiation c. because of the breach of warranty d. because of the doctrine of caveat emptor 61. Which term best describes a minor term in a contract for the sale of goods? a. warranty b. innominate term c. implied term

d. condition

62. Vida commissioned Grundy, a famous local artist, to create a mural on the wall of her store. The paint is now

peeling, and she wants to take action under the Sale of Goods Act. Which statement best describes the most likely outcome? a. She cannot take action under the Sale of Goods Act because Grundy provided an intangible good. b. She cannot take action under the Sale of Goods Act because of the principle, caveat emptor. c. She cannot take action under the Sale of Goods Act because Grundy provided a service, not a good. d. She cannot take action under the Sale of Goods Act because there were no implied terms or conditions in her contract with Grundy. 63. What is the legal term for an unpaid seller’s right to claim under sale of goods legislation in circumstances

where the title to goods has transferred to the buyer? a. account for profits b. breach of contract c. action for price d. stoppage in transit 64. Describe how the Sale of Goods Act determines when title passes between the seller and buyer.

65. Identify the warranties that are implied in sales transactions by the Sale of Goods Act.

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Chap 23_7e 66. Outline three differences between the Convention on the International Sale of Goods (CISG) and provincial

Sale of Goods Act legislation.

67. Briefly outline some of the limitations of sale of goods legislation.

68. In the case of Nikka Traders, Inc. v Gizella Pastry Ltd, 2012 BCSC 1412, the court was asked to

determine whether the Sale of Goods Act condition of ‘fitness for purpose’ applied to a contract for the manufacture of goods for resale in Japan. How did the court respond, and why?

69. Briefly discuss the right of repudiation with respect to the sale of goods.

70. With respect to the sale of goods legislation, briefly discuss the remedies for breach of warranty.

71. Outline the origins and development of modern sale of goods law?

72. Briefly discuss the role of a bill of lading.

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Chap 23_7e 73. Explain the difference between the shipping terms “c.i.f.” and “f.o.b.” Which shipping term imposes the most

obligations on the seller?

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Chap 23_7e Answer Key 1. True 2. True 3. False 4. False 5. True 6. False 7. False 8. False 9. True 10. True 11. True 12. True 13. False 14. True 15. True 16. True 17. True 18. True 19. False 20. True 21. b 22. b 23. d 24. b 25. c 26. a

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Chap 23_7e 27. a 28. d 29. d 30. a 31. c 32. c 33. d 34. b 35. b 36. b 37. a 38. b 39. c 40. b 41. d 42. c 43. b 44. d 45. a 46. b 47. b 48. c 49. c 50. a 51. d 52. b 53. b 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 23_7e 55. d 56. c 57. b 58. b 59. b 60. b 61. a 62. c 63. c 64. The Sale of Goods Act provides five rules for determining when title passes between the parties in the transaction:

Rule 1 – Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery or both is postponed. Rule 2 – Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until the thing is done and the buyer has received notice. Rule 3 – Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining their price, the property does not pass until such act or thing is done and the buyer has received notice. Rule 4 – Where goods are delivered to the buyer on approval or on “sale or return” or other similar terms, the property passes to the buyer: a. When she signifies her approval or acceptance to the seller or does any other act adopting the transaction, or b. If she does not signify her approval or acceptance to the seller but retains the goods without giving notice of rejection, when a time that has been fixed for the return of the goods expires, and if no time has been fixed, on the expiration of a reasonable time. Rule 5 – Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property passes to the buyer, and such assent may be express or implied and may be given either before or after the appropriation is made. 65. The warranties implied in a sales transaction by the Sale of Goods Act are as follows:

1. That the buyer will have and enjoy quiet possession of the goods, which generally means that third parties will not claim rights against them; and 2. That the goods are free from liens and encumbrances in favour of third parties that were not declared or known to the buyer at the time the contract was made.

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Chap 23_7e 66. The CISG states that contracts for the sale of goods need not be in writing or in any particular form. The CISG also

makes no distinction between conditions and warranties and allows parties to make irrevocable offers. Importantly, the CISG also orders specific performance (fulfillment of the contract by the defendant) as the primary remedy with rare exceptions. 67. The Sale of Goods Act:

1. Applies only to sales of goods, not land, intangibles, or services 2. Requires that there be privity of contract between the customer and the “offending” party; breach of warranties by the manufacturer, for example, are not covered 3. Permits contracting out of the implied terms (the buyer and seller can agree that some or all of the terms will not apply) 4. Does not address pre contractual representations made by a seller 68. The court found that the seller knew at the outset that the purpose of the commercial relationship was to provide

goods for sale in Japan and that the seller assured the buyer that it had the expertise to achieve that goal and made representations that their products would clear Japanese customs. These representations, although oral, formed part of their contract, which the court found was partly written and partly oral. The court also held that Act applied and that the defendant had breached s 18 (a) of the Sale of Goods Act (fitness for purpose), finding that the three factors necessary to establish a claim under s 18 had been satisfied: 1. The buyer had made known to the seller the purpose for which it required the goods; 2. The dissemination of that purpose showed that the buyer relied on the seller’s skill or judgment; and 3. The goods were of a description that was in the course of the seller’s business to supply. 69. The breach of a condition, whether in a sale of goods contract or not, may give the innocent party the right not only

to claim damages but also to reject the goods and treat the contract as ended. This is known as the right of repudiation and means that the balance of the contract and further obligations under it can be dismissed, if the non defaulting party so chooses. As the example provided in the text states, the building supply store that received play equipment that was not suitable for the purpose sold is not obligated to accept further shipments from the seller. The customer can bring its contract with the seller to an end, return the equipment, and find another supplier. 70. When a warranty is breached, the sale of goods legislation permits the buyer to maintain an action for damages or

ask the court to reduce the purchase price due to breach. The buyer cannot return the goods and is obligated to continue with the contract in question and comply with any outstanding terms. If the buyer refuses to perform after breach of warranty, the buyer will also be in breach of contract.

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Chap 23_7e 71. Modern sale of goods legislation has its origins in the beginning of the 1800s, when English judges generated the

basic principles that continue to inform the modern law concerning the sale of goods. The principles developed in the common law were intended to address the harshness of the principle of caveat emptor and included rules that implied specific terms into contracts for the sale of goods, whether the parties had expressly agreed to those terms or not. Judges also developed rules regarding the transfer of ownership from seller to buyer, which was particularly important because the owner of the goods was generally considered to bear the risk of any damage or loss in regard to the goods. Over time, a reasonably predictable set of exceptions to the doctrine of caveat emptor was developed. In 1893, the English Parliament enacted the Sale of Goods Act, an influential piece of legislation based on the common law principles which had developed up to that point in time. The Act summarized—rather than reformed—the common law of the time and implied a set of terms into every transaction for the sale of goods unless it was contrary to the parties’ intentions. The legislation also provided remedies if these statutory terms were breached. 72. The bill of lading, generically known as a “shipping document,” is the contract between the seller and the carrier. It

specifies to whom the goods must be delivered and provides evidence that the goods have been transferred from the seller to the carrier. 73. An agreement to send the goods “c.i.f.” imposes the more obligations on the seller than an agreement that is “f.o.b.”

The initials c.i.f. stand for “cost, insurance, freight.” In a c.i.f. contract, the seller is responsible for arranging the insurance (in the buyer’s name) and shipping. The purchase price includes the cost of the goods, insurance, and shipping. The seller must deliver the goods to the carrier and send copies of all documentation and a full statement of costs to the buyer. The initials f.o.b. stand for “free on board.” In an f.o.b. contract, the buyer specifies the type of transportation to be used, and the seller arranges the shipping and delivers the goods to the carrier. The seller has completed its responsibilities when the goods are delivered to the carrier. The seller incurs the cost of delivering the goods to the carrier, and generally the buyer pays for shipping and insurance.

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Chap 24_7e Indicate whether the statement is true or false. 1. From time to time, the Competition Bureau participates in class action settlement agreements on behalf of

consumers impacted by false or misleading advertising claims. a. True b. False 2. Consumer protection regulations relating to door to door selling require that consumers must have the benefit

of a cooling off period during which they may cancel the contract. a. True b. False 3. In many provinces, privity of contract cannot be raised as a defence against the ultimate consumer. a. True b. False 4. Pyramid selling is considered a criminal act if participants pay money for the right to receive compensation for

recruiting new participants. a. True b. False 5. When a seller agrees to sell to the purchaser only if the purchaser buys from it exclusively, that seller has

committed a reviewable offence for anticompetitive behaviour known as refusal to deal. a. True b. False 6. Sources of marketing legal risks that require management include the rules that govern the transfer of title and

delivery of goods aspects of the contract of sale. a. True b. False 7. The Scanner Price Accuracy Voluntary Code requires that clear and legible labels must be affixed to the shelf

next to the product. a. True b. False 8. One of the goals of consumer protection law is to give small and medium sized businesses the ability to compete

in the marketplace. a. True b. False 9. Competition law tries to achieve a balance between wholesalers and retailers, dominant market players and

minor players, and public and private interests. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 24_7e 10. Tied selling is reviewable provided that the action lessens competition substantially. a. True b. False 11. An agreement with a consumer which results from an unfair practice may be rescinded by the consumer. a. True b. False 12. It is considered reviewable conduct to buy up one’s products to prevent the erosion of price levels. a. True b. False 13. A producer’s failure to provide similar pricing terms and conditions to competing wholesalers or retailers for

equivalent volume sales at an equivalent time is recognized as a criminal offence under the federal Competition Act. a. True b. False 14. False, misleading, or deceptive advertising or claims are sources of legal risks that arise from marketing

promotion activities. a. True b. False 15. Price discrimination involves a producer’s attempts to drive the final retail price of goods upward and the

imposition of recriminations upon noncompliant retailers. a. True b. False 16. In most provinces, a consumer who has entered into a contract for a product or service as a result of a

misrepresentation is not entitled the right to rescind the contract and may only sue for damages. a. True b. False 17. The Competition Bureau is particularly concerned about differentials between prices posted on store shelves

and those stored in automatic price scanning systems, as infractions result in the criminal offence of double ticketing. a. True b. False 18. When a dominant company or group of companies engages in anticompetitive behaviour to unduly prevent or

lessen competition, the Competition Tribunal may order corrective action for the reviewable offence of abuse of dominant position. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 24_7e 19. Most packaging and labelling legislation is federal and therefore applies throughout the country. a. True b. False 20. Drip pricing arises when competitors conspire to fix the prices charged for goods or services. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which of the following is recommended in addition to best practices for managing legal risks that require basic

shipping terminology to be defined to facilitate employees’ understanding of the implications of contractual terms? a. avoid structuring anticompetitive distribution channels b. have standard practices that transfer all risk c. completely disclose anticompetitive criminal activity d. create a corporate compliance program 22. What type of criminally offensive product distribution plan fails to provide participants with the ability to return

products on reasonable commercial terms? a. multi level marketing b. pyramid selling c. tied selling d. telemarketing 23. Which statement best describes the use of testimonials as part of one’s advertising campaign? a. Such ads are strictly prohibited. b. Tests are only required if the ad claims the product will provide a savings to consumers. c. Such ads are regarded as “puffery” and do not attract scrutiny of regulatory authorities. d. Using a well known personality will attract close scrutiny by regulatory authorities. 24. The Competition Bureau is investigating a complaint involving allegations of refusals to supply retailers that sell

below the producer’s recommended retail price printed on the product package. Why is the Competition Bureau concerned with this practice? a. Protections for consumers lie in the criminal and civil price maintenance provisions. b. It is considered a serious criminal offence under the Competition Act. c. It attempts to prevent competition and discipline the marketplace. d. Interfering with consumers’ right to the lowest possible price is a criminal offence.

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Chap 24_7e 25. What is the most significant consequence when a seller refuses to sell to a purchaser on the same terms as

those that are offered to the purchaser’s competitors? a. exclusive selling is a reviewable matter under the Competition Act b. refusal to deal is a reviewable matter under the Competition Act c. a surplus supply of product d. damage to the reputation of the business 26. Natasha noted that the discounted price of an advertised item failed to register as the item was scanned. She

had difficulty enforcing her right to receive a $10 reduction off the correct price on account of the retailer’s scanning system error. What code has been promoted to consumers as providing their right to receive this compensation from the retailer for this pricing infraction? a. Canadian Council of Grocery Distributors Scanner Code b. Canadian Retail Association Scanner Accuracy Code c. Canadian Retail Council Voluntary Scanner Code d. Scanner Price Accuracy Voluntary Code 27. What will be the result if a retailer sells a substantial volume of its product at $2.40 within a reasonable period

of time after offering the same item at a $1.85 sale price for two weeks? a. The ordinary price will be established by the time test. b. It proves that the mistaken lower price was immediately corrected. c. An investigation by the Competition Bureau for a reviewable offence will ensue. d. The ordinary price will be established by the volume test. 28. With respect to managing legal risks that often accompany marketing practices, contracting out of express

terms versus implied terms and multi level selling are sources of legal risk associated with which of the following? a. the contract of sale and product b. the distribution and promotion of a product c. the product performance claims and pricing d. the contract of sale and distribution 29. In order for the Competition Bureau to intervene in circumstances where a distributor appears to have set

prices that are unreasonably lower than those of one or more competing suppliers in the market, which of the following must be established? a. Losses will be recouped by the discounter using subsequent price increases. b. The civil burden of proof must be met to attract penalties. c. Differences must be shown to be a direct reflection of cost differentials. d. Upward pressure is being exerted on the retail price of goods.

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Chap 24_7e 30. Drake Hot Tubs is considering a strategy of offering consumers ultra low prices for one year in order to drive

its competitors out of the marketplace. What is the name given to this type of pricing strategy? a. price rigging b. predatory pricing c. price maintenance d. bait and switch 31. In Canada, what distinguishes a pyramid scheme from a legitimate selling scheme? a. a genuine selling opportunity b. timely disclosure c. a genuine business activity

d. multi level marketing

32. Six gas retailers were recently found guilty of agreeing to increase prices in tandem with one another. What is

the name for this type of anticompetitive practice? a. price fixing b. abuse of dominant position c. price manipulation d. bid rotation 33. What purpose does Advertising Standards Canada (ASC) serve in the marketplace? a. to promote public confidence in advertising b. to regulate advertising in the marketplace c. to impose mandatory rules for advertising d. to educate the public 34. What is the recommended source for acquiring knowledge of the standards that must be met for both the

production and labelling of goods produced by a manufacturer? a. trade association and specialized professional advisors b. Trade Association Conformity Continuum Guidelines c. the Competition Bureau d. the Competition Bureau’s immunity program 35. Which of the following would support a retailer’s claim that the price of a particular product is the “regular

price”? a. that the product’s “regular price” was printed on price tags affixed to the goods b. that the product’s “regular price” has been advertised c. that more than 50 percent of the stock was sold at that price d. that 30 percent of the stock was sold at that price 36. Alphabet Toys is considering a large scale promotional contest in which customers will be invited purchase a

ticket for $1 in exchange for a chance to win $3000 dollars’ worth of product. What legal concern does this scheme raise? a. that Alphabet is attempting to run an illegal lottery b. that the contest will be seen as manipulation of the market c. that the contest will constitute “tied selling” d. that Alphabet is engaging in predatory pricing Copyright Cengage Learning. Powered by Cognero.

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Chap 24_7e 37. Which statement best describes the goal of consumer protection legislation? a. imposing terms on all contracts for the sale of goods b. prohibiting unfair market manipulation c. imposing obligations on businesses and consumers d. protecting consumers 38. Which of the following represents an example of direct marketing? a. grocery store display b. catalogue sales c. tied selling

d. door to door selling

39. Which of the following is a distinguishing characteristic of the Consumer Product Safety Act? a. It imposes strict liability on manufacturers of faulty goods. b. It requires manufacturers, importers, and sellers to report dangerous incidents and product defects. c. It is only valid in provinces that expressly “opted in.” d. It provides for penalties of up to $10 million. 40. What competing concerns does consumer protection and competition law attempt to balance? a. the desire for low prices without sacrificing quality b. the desire to protect consumers from high prices and the desire to reduce competitive pressures on

businesses c. the desire to promote the free market while providing regulations in order to ensure fair competition and protect consumers d. the desire to set prices and the desire for a free market economy 41. The Competition Tribunal is investigating a claim that a group of businesses has entered into an agreement in

order to control prices in the market. What is the name of the offence the tribunal is investigating? a. price fixing b. predatory pricing c. price maintenance d. abuse of dominant position 42. To which of the following are the existence of a genuine selling opportunity and a realistic opportunity to

expand relevant with respect to distributorships? a. the upward payment of fees b. the legality of a multi level marketing plan c. pyramid selling schemes d. the timely disclosure of earnings 43. What is the source of legal risk associated with environmental claims and warnings on product labels? a. product and distribution b. price and distribution c. promotion and price

d. product and promotion

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Chap 24_7e 44. Fop Beverages Ltd. is a wholesaler of bottled soft drinks. Unfortunately, it overestimated interest in a new

beverage called Fizzy Grapefruit and now wants to unload its surplus product by requiring its retail customers to purchase a few cases of Fizzy Grapefruit with their orders of other products. In light of the Competition Act, why would this be of concern? a. This practice may constitute a multi level marketing scheme. b. This practice might constitute a refusal to deal. c. This practice may constitute exclusive dealing. d. This practice may constitute tied selling. 45. What distinguishes a door to door salesperson from a telemarketer? a. Licensing requirements for telemarketers are regulated by anticompetition legislation. b. Consumer protection legislation requires individual licences for each telemarketer. c. Licensing requirements for door to door selling are regulated by consumer protection legislation. d. Anticompetition legislation requires licensing of door to door sales forces. 46. Which of the following is a broad concept designed to generate sales, information requests, and store or

website visits that is regulated by the Competition Act? a. tied selling b. telemarketing c. direct marketing d. door to door selling 47. Which term refers to a marketing scheme where participants are distributing products or services and also

recruiting others to become involved in distribution? a. tied selling b. multi level marketing c. inventory loading d. collusion 48. Which of the following is a distinguishing feature the Competition Act? a. reviewable practices under the Act are all criminal in nature b. provincial legislation c. origins in antitrust legislation first passed in 1889 d. reviewable practices under the Act are all civil in nature 49. Jackson Industries recently enacted a new policy in which it will refuse to sell its line of cleaning products to a

major chain of hardware stores, even though it has sufficient inventory and the chain is willing to meet its usual conditions of sale. What is the name of this type of practice? a. tied selling b. refusal to deal c. pyramid selling d. bait and switch

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Chap 24_7e 50. In what way are the practices of predatory pricing and exclusive dealing similar to each other? a. Both are the consequence of distribution policies. b. Both are subject to criminal sanctions. c. Both reduce or eliminate competition. d. Both may be subject to remedial court orders. 51. What is the name of the unlawful practice of using a headline price in advertisements, but when all the

additional fees or charges are added, the real price is much higher? a. pyramid selling b. unattainable pricing c. tied selling d. drip pricing 52. What are the possible implications of a corporation being convicted under the Competition Act of false or

misleading claims? a. up to two years’ imprisonment and/or a fine of $100 000 b. up to 10 years’ imprisonment and/or a fine of $1 million c. up to 14 years’ imprisonment and/or a fine of $10 million d. a stop order issued by the court 53. The Competition Act seeks to ensure commercial customers are free from unfair differential treatment that

could seriously reduce competition in the marketplace. Which of the following is intended to be positively influenced by this legislated policy objective? a. criminal offences b. channel power c. reviewable matters d. number of competitors 54. How could a multi level marketing scheme for the sale of cookware through house parties constitute a pyramid

scheme? a. if the pricing of the product is unreasonably low b. if the participants are prohibited from engaging in door to door or Internet sales c. if participants must pay money for the right to receive compensation for recruiting new participants d. if the participant is prohibited from selling other products 55. Which of the following would strongly influence the ability of the Competition Bureau to apply both the volume

and time tests? a. The due diligence defence offers protection to reasonable sellers. b. Relevant sales data for the entire market must be reviewed. c. There is a high burden of proof for the criminal predatory pricing offence. d. Complaints regarding inflated “regular” prices are commonplace.

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Chap 24_7e 56. Which of the following best practices for managing legal risk may also result if a producer establishes an

informed and properly responsive customer relations process? a. early warning system regarding flawed design and production techniques b. directives targeted at providing a maximum selling price c. insurance coverage to address the majority of expected risks d. employees will understand the implications of contractual terms 57. Ramsay Group Insurance Inc. has been advised by a major insurance underwriter that it must carry a number

of the underwriter’s less popular products and refrain from carrying any competitor’s products. What type of offence has the insurance underwriter committed? a. tied selling b. exclusive dealing c. refusal to deal d. anticompetitive behaviour 58. Which of the following bodies has jurisdiction to administer the Consumer Packaging and Labelling Act? a. Competition Bureau b. provincial regulators c. Canadian Association Advertisers

d. Advertising Standards Canada

59. Ramsha obtained several quotes from fencing companies in his area of the city but found that there was little

variance between them. He contacted fencing companies outside his residential area and was rewarded with a number of competitive quotes. Which of the following would be required if Ramsha were to forward a complaint to the Competition Bureau regarding the fencing quotes received from contractors in his area? a. proof of lessening of competition by agreement b. proof of undue lessening of competition c. continuing proof of an ongoing offence d. proof that key personnel initiated the offence 60. Briefly describe how mergers, acquisitions, and takeovers are regulated by the Competition Bureau.

61. What is predatory pricing and when does it constitute a reviewable matter?

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Chap 24_7e 62. Briefly discuss the regulation of door to door selling.

63. Identify and briefly describe the conditions under which a producer may refuse to sell to retailers that are

selling its products at unreasonably low prices.

64. Briefly discuss abuse of dominant position, and describe the anticompetitive acts involved in this offence.

65. Define “refusal to deal” and “exclusive dealing.”

66. Describe how the provinces typically regulate online retail sales.

67. How should a producer of products designed for children effectively manage its exposure to legal risks?

68. How are promotional contests regulated and under what circumstances are they permitted?

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Chap 24_7e 69. Discuss when an advertiser may legitimately claim a price to be the “ordinary price” of a product.

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Chap 24_7e Answer Key 1. True 2. True 3. True 4. True 5. False 6. True 7. True 8. False 9. True 10. True 11. True 12. True 13. False 14. True 15. False 16. False 17. True 18. True 19. True 20. False 21. b 22. b 23. d 24. c 25. b 26. d

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Chap 24_7e 27. d 28. d 29. a 30. b 31. c 32. a 33. a 34. a 35. c 36. a 37. d 38. d 39. b 40. c 41. a 42. b 43. d 44. d 45. c 46. c 47. b 48. c 49. b 50. c 51. d 52. c 53. b 54. a Copyright Cengage Learning. Powered by Cognero.

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Chap 24_7e 55. b 56. a 57. a 58. a 59. a 60. One of the responsibilities of the Competition Bureau is the review of proposed mergers, acquisitions, and

takeovers. It is recognized that there is a fine line between allowing business to expand through merger, acquisition, or takeover in order to operate profitably in what is a relatively small but geographically dispersed market, and avoiding the negative consequences of what might, through these processes, become harmful, monopolistic behaviour. Under the Competition Act, mergers of all sizes and in all sectors of the economy are subject to review by the Commissioner to determine whether they will likely result in a substantial lessening or prevention of competition. What is considered “substantial” by the Bureau is described in its guidelines as the result of material increase in prices that is not likely to be offset by increased efficiency in the market. If the size of a proposed merger exceeds the pre notification threshold, the businesses proposing the merger must notify the Commissioner of their intentions prior to the merger. If the Commissioner has concerns about the merger, the parties may be ordered to provide further information. Within a specified time the parties are provided with a determination as to whether the Commissioner considers that the merger will substantially lessen or prevent competition. The Commissioner then decides whether the merger can proceed as notified, only on specified conditions, or not at all. 61. Predatory pricing arises when a seller sets prices unreasonably low with the intent of driving out its competition. This

activity can occur at different levels of the distribution chain. What amounts to unreasonably low prices and predatory effect is seldom clear cut and most intervention by the Competition Bureau follows complaints made by competitors or concerned suppliers. 62. Door to door selling is regulated under provincial consumer protection legislation that typically requires:

1. Those selling door to door to be licensed; 2. Contracts in excess of certain amounts to be in writing and to disclose specific matters; and 3. Consumers who sign a contract to be allowed a cooling off period during which they may cancel the contract. 63. A producer may refuse to sell to retailers that are selling at unreasonably low prices, provided it can show that the

retailers were using its products in any of the following ways: i) As loss leaders (typically, below cost) ii) For bait and switch selling iii) In misleading advertising iv) In sales where they fail to provide a reasonable level of service

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Chap 24_7e 64. Abuse of dominant position is reviewable conduct consisting of anticompetitive acts by a dominant company or

group of companies that prevent or lessen competition unduly. Anticompetitive acts include the following: 1. Buying up products to prevent the erosion of price levels 2. Requiring suppliers to sell only to certain customers 3.Selling products below acquisition costs in order to discipline or eliminate competitors 65. Refusal to deal is defined as an event involving a seller’s refusal to sell to a purchaser on the same terms as those that

are offered to the purchaser’s competitors. Exclusive dealing is defined as an event involving a seller agreeing to sell to a purchaser only if the purchaser buys from the seller exclusively. 66. Each province has now adopted legislation regulating online retail sales. The challenge the law faces, similar to other

areas of consumer protection law, is to provide sufficient security and regulation of online transactions without stifling the enormous commercial potential of ecommerce. Typically, these provisions: • Impose a requirement that online vendors disclose: o The vendor’s name, address, and contact information o A description of the goods or services being sold o An itemized list and price of items or services being sold o A description of any additional charges and terms of payment delivery arrangements o The vendor’s cancellation, return or exchange policy • Require the vendor to provide the purchaser with a copy of the contract within a short period of time (such as 15 days) and ensure the purchaser has an opportunity to decline the contract. • Require the vendor to pay for the return of goods where the purchaser cancels the contract in accordance with the legislation. ∙ Permit the purchaser to cancel the contract in the event disclosure requirements are not met, a copy of the contract is not provided, or the goods or services are not delivered. • Require the vendor, in the event of a customer cancellation, to provide a refund, or the credit card company to reverse the charges in the event that the seller fails to provide a refund. 67. In order for a producer of products designed for children to effectively manage its exposure to legal risks, it should:

1. Ensure it maintains a safety first strategy and that all employees follow this fundamental notion 2. Ensure that all promotion of the products are truthful 3. Ensure the use of resources provided by relevant federal and provincial governments, Advertising Standards Canada, and the Canadian Standards Association 4. Develop clear guidelines for sales and shipping staff that indicate practices that are illegal 5. Ensure that it has full risk insurance coverage 68.

Promotional contests are regulated by the Competition Act, the Criminal Code, and provincial legislation in some provinces and improper operation of a promotional contest may lead to civil or criminal liability. Generally, operating a lottery is a criminal offence. In order to avoid being considered a lottery, contest operators will often require a skill testing question or ensure that contestants can enter with “no purchase necessary.” Even where a promotional contest. The Competition Act imposes requirements of disclosure, including the number and approximate value of prizes, the geographical areas in which they may be won, and the odds of winning. Copyright Cengage Learning. Powered by Cognero.

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Chap 24_7e 69. An advertiser may legitimately claim a price to be the ordinary price if it reflects the price at which suppliers generally

in the relevant market area have either a) Sold a substantial volume of the product within a reasonable period of time before or after making the representation (volume test), or b) Offered the product for sale in good faith for a substantial period of time recently before or immediately after making the representation (time test).

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Chap 25_7e Indicate whether the statement is true or false. 1. In situations where the bank fails to detect forged signatures and the customer does not immediately notice that

the forged cheques have been cashed from its account, the courts will look to the bank–customer agreement to determine liability. If there is none, the common law rules apply. a. True b. False 2. A negotiable instrument is markedly different from an ordinary assignment of contractual rights, where there

can be any number of defences against paying. a. True b. False 3. The common law duties of banks include the duty to maintain the secrecy of the client’s affairs. a. True b. False 4. A retailer who has made a substantial sale to an individual who paid cash need not be concerned whether or

not the monies it received are the proceeds of a crime. a. True b. False 5. A cheque endorsed in blank may be cashed by whoever possesses it because, with this type of endorsement,

the bank will consider that the signature is complete. a. True b. False 6. There are no defences available against a holder in due course. a. True b. False 7. With respect to the party bearing the risk where payment of goods is made by cheque, the risk is borne largely

by the payment system. a. True b. False 8. When a commercial retailer accepts a cheque as payment from one of its customers, the retailer becomes the

payee and the customer is the drawer. a. True b. False 9. Standard banking documents are designed primarily to protect the bank, not the customer. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 10. A written contract that contains an unconditional promise or order to pay a specified sum on demand or on a

specific date to a specific individual or bearer is legally known as a bill of exchange. a. True b. False 11. An endorsed cheque is an example of an assignment. a. True b. False 12. Special endorsements stop the circulation of cheques and remove the risk of anyone else acquiring and cashing

them. a. True b. False 13. A bank draft is a form of certified cheque. a. True b. False 14. A cheque is the most common example of a negotiable instrument. a. True b. False 15. The contract that specifies the rights and obligations of a bank and a customer is known as the operation of

account agreement. a. True b. False 16. Normally, the bank is not obligated to give advice or to look out for the best interest of the

customer. a. True b. False 17. A consumer’s obligation to pay a consumer note is subject to remedies the consumer may have against the

seller if the goods or services are defective. a. True b. False 18. A promissory note is a written order to a bank to pay money to a specified person. a. True b. False

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Chap 25_7e 19. Individuals who conduct contractual business with banks need to appreciate the importance of the contract

and become familiar with their basic rights and obligations, and they should understand that not only is the contract written largely to protect the bank but also their bargaining power is very limited. a. True b. False 20. The banks duty to honour cheques and repay deposits is an express obligation imposed by the federal Bank

Act. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. What is the name given to the person in possession of a negotiable instrument? a. a payee b. a holder c. a drawer

d. a third party

22. What is required for an instrument to become negotiable? a. It must be signed by the holder. b. It must be drawn on a bank. c. The obligation to pay must be unconditional. d. It must be made out in blank. 23. Which of the following is synonymous, in legal terms, with the concept that liability for payment of a negotiable

instrument is independent of the original debtor–creditor relationship? a. A negotiable instrument has a life of its own. b. Each cheque is valuable evidence of contractual obligations. c. There is always good reason for liability to be borne by the other party. d. It is convenient and dependable for commerce. 24. What is a distinguishing feature of banking account agreement? a. It is designed primarily to establish the bank’s rights in the event of an overdraft. b. It is designed primarily to protect the interests of the bank. c. It is intended primarily to protect the interests of the customer. d. It is intended to balance the interests of the bank and the customer. 25. Tess deposited the $75 000 she received from the sale of her business into her daily interest savings account.

What is the legal nature of the relationship created between Tess and her banking institution? a. Tess is the debtor, and the bank is the creditor. b. The bank must report the transaction to FINTRAC. c. The bank must verify the viable commercial source of the funds. d. Tess is the creditor, and the bank is the debtor. Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 26. Which statement is a valid criticism of electronic transactions? a. Safeguarding transfer authority is a major challenge for e commerce. b. Authorization codes are necessary in electronic messages. c. There is a tradeoff between increased efficiency and the absence of rules. d. Safeguarding transfer authority is a major challenge for customers. 27. Which of the following is most likely to influence the arrangements concerning the issue of cheques and

instructions for payment by the customer? a. banking practice b. a bank–customer agreement c. a banking agreement d. an operation of account agreement 28. Which of the following international rules deals with, among other things, the obligations of the parties,

consequences for technical problems, and damages? a. Electronic Funds Transfer and Electronic Banking Code b. FINTRAC Financial Transactions and Reports Analysis Code c. UNCITRAL Model Law on International Credit Transfers d. ITRMC Identity Theft and Related Misconduct Code 29. ABC Ltd is endorsing its customer’s cheque with “for deposit only.” Which term refers to this type of

endorsement? a. special endorsement c. blank endorsement

b. direct endorsement d. restrictive endorsement

30. What is a distinguishing feature of a negotiable instrument? a. The holder’s right to collect is subject to the debtor’s obligation to pay. b. It contains an instruction to a bank to pay a particular sum of money. c. It is always drawn on a bank. d. It can be transferred many times from holder to holder. 31. Kellie’s date of possession for the home she recently purchased is October 1. Her lawyer instructed her to

provide the cash to close by way of a certified cheque in the amount of $35 000, payable to “Sheps & Shaps LLP in trust,” by September 29. Why did Kellie’s lawyer require the payment of these funds in this manner? a. It prevents the drawee from requesting a stop payment on the cheque. b. A cheque is a self contained obligation, independent of any outside circumstances. c. The major risk involved with cheques relates to the financial health of the drawee. d. Risk is eliminated, as the payment of funds from bank reserves is guaranteed. 32. What is the name given to a document that consists of a written order by one person to a third person to pay

money to another person? a. promissory note b. direction to pay c. bill of exchange d. promissory order Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 33. Under what circumstances might the relationship between the bank and customer impose fiduciary duties on

the bank? a. where the bank undertakes to provide financial advice b. when the customer makes a deposit c. when the customer opens an account d. when the customer deposits a cheque 34. How would a written contract containing an unconditional order to pay a specific sum on demand to a specific

bearer most likely be classified? a. as a promissory note b. as a cheque c. as a negotiable instrument d. as a bill of exchange 35. Which of the following would strongly support a refusal to honour payment to a holder in due course? a. performance of contractual obligations b. substandard goods c. quantity of purchased goods

d. document alteration

36. Which of the following would strongly suggest to a court that a bank has entered into a fiduciary relationship

with its customer? a. the non traditional provision of financial advice to its customer b. FCAC regulations’ onerous fiduciary duties on banks c. CFSON regulations’ onerous fiduciary duties on banks d. an implied common law expectation of competent financial advice 37. How has the internationalization of financial services impacted Canadian legislation? a. Banks are now permitted to sell insurance in their branches. b. The strict separation between banks, trust companies, stock brokerages and insurance companies was

relaxed. c. Greater restrictions were placed on the ownership rules for banks. d. Institutions in each of the four sectors became separately regulated. 38. Why should a commercial customer be cautious with regard to its bank–customer agreement? a. Banks create agreements to limit their duties and liabilities. b. Banks can transfer funds to cover negative balances. c. Bargaining for greater flexibility can create an advantage. d. Bargaining can limit a bank’s ability to apply service charges.

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Chap 25_7e 39. Which position offers the most security: being a holder in due course of a cheque or an assignee under an

assignment of a debt, and why? a. the holder in due course because he or she are aware in advance of any issues between the drawer of the cheque and the payee b. a holder in due course because he or she can enforce the cheque regardless of any issues between the drawer and payee c. an assignee because the assignee steps into the shoes of the assignor d. an assignee because the assignee can enforce the assignment regardless of any issues between the assignor and debtor 40. Which of the following describes the least restrictive form of endorsement by a holder of a negotiable

instrument? a. without restriction endorsement c. special endorsement

b. endorsement in blank d. open endorsement

41. Which of the following formerly applied to banks, trust companies, stockbrokerages, and insurance

companies? a. participation by banks and trust companies in the insurance sector b. liberal ownership rules for national banking institutions c. prohibition from conducting business beyond a sector d. ability of subsidiary companies to sell insurance on websites 42. Which term refers to a document that contains a written promise to pay another person a specific amount on

demand or at a specified date? a. promissory note b. cheque c. debit card d. credit card 43. Which of the following would be most strongly influenced by an honoured cheque? a. centralized clearing process b. inadequate funds in an account c. evidence of discharge of a debt

d. unambiguous payment instructions

44. To which of the following is the bank’s duty to maintain the secrecy of customer information subject? a. fraud and forgery legislation b. money laundering legislation c. federal privacy legislation

d. provincial privacy legislation

45. Which statement distinguishes the rights of a holder in due course from an assignee? a. Assignees do not have to give notice to the debtor. b. An assignee’s right to collect is subject to the debtor’s obligation to pay. c. The right of a holder in due course to collect depends on the original contract. d. Holders in due course may not look to prior endorsers to recover funds.

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Chap 25_7e 46. Highland Bakery Inc. has forwarded a cheque to Prairie Flour Mills Ltd. to pay Prairie’s invoice for the flour it

recently delivered. Prairie will deposit the cheque into its account upon receipt. How will the actual cash payment represented by the cheque be credited to Prairie Flour Mills’ account? a. through the bank’s bills of exchange clearance centre b. through the instantaneous Internet transfer process c. through the bank’s centralized clearing process d. through the FINTRAC centralized clearing process 47. Why is it risky to endorse a cheque in blank? a. There may be insufficient funds in the account. b. It can no longer be transferred. c. Anyone can cash it. d. It can no longer be deposited. 48. What form of electronic transaction involves a contract between the issuer and the user and a contract

between the issuer and the merchant? a. PayPal transaction b. credit card transaction c. money card transaction d. smart card transaction 49. Which of the following would most likely strongly support a retailer qualifying for a guarantee of payment on

credit card sales? a. negotiability requirements c. the secure status of the Internet provider

b. the irrevocability of the transaction d. the verification of signatures

50. What is the main source of law regulating the rights and obligations of the parties in the bank and client

relationship? a. regulatory law c. federal statutes

b. contract law d. provincial statutes

51. Why are banks placing daily and weekly monetary limits on transactions? a. to shift risk allocation for the finalization of payments b. to shift risk allocation for authentication c. to combat the uncertainty surrounding electronic banking d. to control losses in the event of fraud 52. In circumstances where a bank has been left with liability for a forged cheque, why should every party

accepting that cheque have verified the authenticity of the endorsements on it? a. The bank will deduct the value of the worthless cheque from any endorser’s account. b. A verification agreement will entitle the bank to recover assets of endorsers. c. Without a special endorsement, collection may be a problem. d. All prior endorsers risk the bank’s recovery efforts. Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 53. What concern did the legislation creating consumer notes seek to address? a. unfair debt collection practices b. concern over forged notes c. money laundering

d. to prevent stop payments

54. Kellie went to her bank to obtain a certified cheque for $35 000 cash needed to close her house purchase.

Kellie endorsed a $20 000 cheque that her mother gave her and requested that the remaining $15 000 be withdrawn from her savings account. Kellie requested that the certified cheque be made payable to “Sheps & Shaps LLP in trust.” What types of endorsements were made? a. restrictive endorsement; certified endorsement b. endorsement in blank; special endorsement c. certified endorsement; special endorsement d. endorsement in blank; restrictive endorsement 55. Which of the following is subject to the law of negotiable instruments? a. credit cards b. money laundering c. cheques

d. electronic transfers

56. Which of the following resulted from the reclassification of non commercial promissory notes, enacted to

ensure payment is subject to claims arising from the original contract of sale? a. bills of exchange b. holder in due course c. consumer notes d. letters of intent 57. Emily gave Pierre a cheque for $5000 as payment for the car he sold her. Pierre owed Henry $5000, and he

provided Emily’s cheque to Henry to satisfy the debt. Henry couldn’t make it to the bank, so he gave it Nigel to deposit for him. How did Henry’s bank respond to Nigel’s request to deposit the cheque? a. The Bills of Exchange Act required the bank to hold the cheque for 10 days. b. Provided all endorsements were in order, the bank accepted the cheque for deposit. c. The bank refused the cheque because acceptance effectively extended credit. d. The bank was required by FINTRAC to verify the validity of the transaction. 58. What is the distinction between a “holder” and a “holder in due course”? a. A holder is usually in a stronger position than a holder in due course. b. A holder in due course has no notice of defects between the drawer and payee. c. Unlike a holder in due course, a holder cannot be a payee. d. A holder has absolute rights to collect as against the drawer.

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Chap 25_7e 59. Graham was owed money by Hiram, and in order to repay Graham, Hiram endorsed a cheque that Greta had

previously made out to Hiram as payment for some handiwork he provided to her. Graham has no knowledge of the circumstances or the arrangement between Hiram and Greta. What name describes Graham’s status in relation to the cheque that is now in his possession? a. holder b. drawer c. holder in due course d. payee 60. Which statement best describes the nature of the legal relationship between the bank and customer in terms of

the customer’s deposit with the bank? a. The relationship is governed entirely by the common law of contract. b. The bank is a creditor and the customer is the debtor. c. The bank is always a fiduciary to the customer. d. The bank is the debtor and the customer is a creditor. 61. Describe the various models for electronic cashless transactions.

62. What does it mean to ‘endorse’ a negotiable instrument and what legal effect does this have?

63. Describe the legal nature of the relationship between a bank and its customer?

64. What is a consumer note and what are the implications of a negotiable instrument being classified as a

consumer note?

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Chap 25_7e 65. In the case of SNS Industrial Products Limited v. Bank of Montreal, 2010 ONCA 500, the Ontario Court

of Appeal the bank failed to detect a forged signature on cheques drawn on a client’s account, with the result that $186 488 was fraudulently taken from its customer’s account over a three year period. Who was responsible for detecting the forgeries, the customer or the bank, and why?

66. Explain the distinction between an assignment of contractual rights and a negotiable instrument.

67. Describe the essence of the requirements that must be present for an instrument to become negotiable without

the need to investigate its validity through reference to circumstances of the instrument’s creation or to other documents.

68. The acceptance of cheques for payment creates risk for the businesses that accepts them. The use of cheques

for payment also creates risks for businesses paying for services or supplies. What are these risks?

69. Discuss the purpose of the banking agreement.

70. List the electronic options offered by banks to their customers that were noted in the text.

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Chap 25_7e Answer Key 1. True 2. True 3. True 4. True 5. True 6. False 7. False 8. True 9. True 10. False 11. False 12. False 13. False 14. True 15. False 16. True 17. True 18. False 19. True 20. False 21. b 22. c 23. a 24. b 25. d 26. d

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Chap 25_7e 27. d 28. c 29. d 30. d 31. d 32. c 33. a 34. c 35. d 36. a 37. b 38. a 39. c 40. b 41. c 42. a 43. c 44. b 45. b 46. c 47. c 48. b 49. d 50. b 51. d 52. d 53. a 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 55. c 56. c 57. b 58. b 59. c 60. d 61. There are many models for cashless transactions. Debit cards allow buyers to purchase goods and services and to

transfer payment directly from a bank account to the seller. Money cards carry a computer chip that enables virtual money to be loaded on the card and transferred directly from the card to the seller. Electronic money or digital cash takes no physical form, but instead is loaded onto computer hard drives or electronic wallets, enabling a payment to be made as easily as sending an e mail. Smart cards can now combine all of the foregoing features. Cellphones are gaining wide use as a variation in online banking. They can also be used as virtual wallets by those without bank accounts, who can have cash loaded onto them for transfer by cellphone. This practice is growing for transfers to other countries. Phones with virtual embedded credit cards can also be used to make contactless payments. 62. Endorsement occurs when the holder of an instrument (such as a cheque), signs the instrument over to a new holder.

The legal effect is that the new holder can now present the instrument for payment or transfer it to yet another holder. 63. In terms of the customer’s money on deposit with the bank, the relationship is that of the bank as debtor and the

customer as creditor. Normally, the bank is not obligated to give advice or to look out for the best interest of the customer, unless, for example, the bank provides services such as financial advice, which are outside the normal scope of traditional banking services. In that situation, a fiduciary relationship may exist, and the bank has several additional onerous duties, including to • Provide advice with care and skill. • Disclose any actual or potential conflicts of interest. • Consider the interests of the customer ahead of those of the bank. 64. Historically, if a consumer bought goods on credit, and signed a negotiable instrument such as a promissory note in

favour of the seller, the seller could transfer the note to another party (such as a finance company). The legal result of the transfer of the note was that the financier became a holder in due course. The difficulty with this was that the buyer’s obligation to pay the financier was then nearly absolute and independent of problems with the quality of the purchased goods. This separation of the obligation to pay from the underlying contract enabled collusion between unscrupulous sellers and financiers to sell substandard goods to consumers and require them to make all payments, even if the goods were clearly defective or even worthless. To remedy this situation, the Bills of Exchange Act now classifies a promissory note arising from a consumer credit sale as a consumer note. The holder of a consumer note is not accorded the special status of a holder in due course and is subject to claims arising from the original contract of sale. Thus, the consumer’s obligation to pay the note is subject to remedies the consumer may have against the seller if the goods or services are defective. Copyright Cengage Learning. Powered by Cognero.

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Chap 25_7e 65. The Court of Appeal held that the bank remained responsible for honouring a forged cheque.

In making this decisions, the Court of Appeal relied primarily on the applicable legislation and, in particular, the Bills of Exchange Act, which (s 48)23 states: “where a signature on a bill of exchange is forged, or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative...” According to the Court, it was open to the bank to transfer the risk to the customer, but the agreement signed by the customer did not refer expressly to forged cheques or otherwise to cheques debited to a customer’s account for improper purposes or by illegal means. Although the contract referred to customer liability in some situations involving “error,” “irregularity,” and “omission,” the terms were not defined in the agreement, nor was their meaning clear on a plain reading of the agreement as a whole. The Court of Appeal held that the bank remained responsible for honouring the forged cheques. 66. A negotiable instrument (such as a cheque) is markedly different from an ordinary assignment of contractual rights,

where there can be any number of defences against paying. For example, if A owes money to B, then B can assign the right to collect to someone else (an assignee). In the absence of a negotiable instrument, the assignee’s right to collect from A is subject to any problems with the contract between A and B. Thus, if A has a valid reason for refusing to pay the supplier, it can use the same reason to avoid paying the assignee. In contrast, if A bought goods on credit and signed a negotiable instrument such as a promissory note in favour of B, B could transfer the note to another party, C. The legal result of the transfer of the note is that C becomes a holder in due course. A’s obligation to pay C is nearly absolute and independent of problems with the quality of the purchased goods 67. The essence of the requirements for an instrument to become negotiable without the need to investigate its validity

through reference to the circumstances of its creation or to other documents are as follows: 1. The instrument must be a self contained obligation 2. It must be in written form 3. It must be signed by the person making the promise 4. It must specify the amount of money to be paid 5. It must specify the date on which the specified amount of money is to be paid or state payment is on demand 6. The obligation must be unconditional 68. The major risk involved in accepting a cheque relates to the financial health of the cheque’s creator, more than any

legal rules. The strong and secure legal position of a holder in due course is of no value if the drawer’s account does not contain enough money to cover the cheque when it is presented for payment. Apart from a certified cheque, there is no guaranteed payment. By issuing the cheque, a business makes an unconditional promise to pay the specified sum not just to the supplier, but potentially to anyone (known as a holder) who presents the cheque to the bank of the business for payment. The special status of the cheque and the holder are created by legislation that deliberately places the holder in a strong position in terms of collecting on the cheque. If the holder has acted in good faith (meaning she has no reason to doubt the validity of the cheque), that person acquires the status of a holder in due course.

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Chap 25_7e 69. The purpose of the banking agreement is twofold:

1. To specify who has the authority to issue instructions to the bank on behalf of the customer; and 2. To allocate the risk of loss resulting from problems with verifying the customer’s authority and carrying out the customer’s instructions. 70. The examples of the electronic options offered by banks to their customers that were noted in the text are as follows:

1. Automatic payments from chequing accounts 2. Direct deposit of cheques 3. Automatic teller machines (ATMs) 4. Payment by telephone or computer 5. Point of sale transfers with debit cards

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Chap 26_7e Indicate whether the statement is true or false. 1. A purchase money security interest (PMSI) is a special type of security interest that gives the secured party

priority over existing perfected security interests. a. True b. False 2. Trade credit is usually secured with an interest in the debtor’s property. a. True b. False 3. A letter of commitment contains the actual loan agreement between the lender and the commercial borrower;

the borrower, lacking bargaining power, must meet those terms if it wants the loan. a. True b. False 4. The most common form of perfection is by assuming possession of the collateral of the debtor. a. True b. False 5. A financing statement is required to be registered each time a borrower has acquired assets after giving a

general security agreement over the borrower’s current assets. a. True b. False 6. Because of the uncertain future value of pledged assets, the demand by commercial lenders for as much

security as possible often results in the current value of those assets exceeding the extent of the lender’s risk. a. True b. False 7. Section 89 of the Indian Act may limit the ability of Indigenous people to participate fully in the economy, by

restricting their ability to obtain financing. a. True b. False 8. Once a security interest has been perfected, the secured party will have priority over security interests that

have not been perfected. a. True b. False 9. A deficiency results when a creditor has been forced to sell assets because of borrower default and the price

realized by the sale is less than the outstanding amount of the debt. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 26_7e 10. A secured creditor will achieve secured status only if its loan agreement contains a term that makes the entire

loan due if one payment is missed. a. True b. False 11. A loan granted to an individual for a non commercial purpose is governed primarily through provincial

consumer protection legislation. a. True b. False 12. Assets acquired by a debtor after pledging a security interest in its current assets are commonly described in

financing documents as after acquired property. a. True b. False 13. A credit agreement may require the debtor to refrain from making significant capital expenditures or allowing

certain financial ratios to fall below defined limits. a. True b. False 14. The amount of security derived from a business’s inventory and accounts receivable pledged in a general

security agreement is the value of those assets at any given time. a. True b. False 15. A written promise by a buyer’s bank to a seller’s bank to pay the seller when specified conditions are met is

legally known as a letter of credit. a. True b. False 16. The PPSA applies to some transactions that are not intended as security. a. True b. False 17. Lenders must be extremely cautious and take care that the actual cost of loans does not exceed the 60 percent

rate allowable under the Criminal Code of Canada. a. True b. False 18. Credit bureaus provide a service to consumers by compiling personal credit history information created by an

individual’s lenders and then making the information available to that individual. a. True b. False

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Chap 26_7e 19. If the security agreement is silent on whether or not a receiver may be appointed, the secured party can apply

to a court for an order appointing a receiver or receiver–manager. a. True b. False 20. In the event of default involving a commercial loan, the potential claims against any shareholders personally are

defined by the contracts of guarantee they sign with the bank. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. In what financing context is a letter of credit commonly used? a. consumer loans b. international trade c. payday loans

d. secured loan transactions

22. What must be in place in order for ‘attachment’ to occur? a. The secured party has physical possession of the collateral. b. The secured party has registered a financing statement. c. The secured party has provided valuable consideration. d. The debtor has signed a promissory note in favour of the creditor. 23. A new business, Vale Gifts Inc., hopes to negotiate a loan with BigBank Inc. in order to finance the

improvements it wishes to make in its store. Which of the following should Vale expect BigBank Inc. will require as a condition of granting the loan? a. BigBank will want to assume title of their inventory. b. BigBank will want a letter of credit. c. BigBank will likely require a security agreement. d. BigBank will like provide unsecured credit. 24. Marina borrowed $5000 of the $25 000 she required to purchase her car from ImaBigBank. The only

financing document Marina signed was ImaBigBank’s loan agreement. Marina had a number of problems with the car and subsequently sold it. The outstanding balance of the loan is $1500. What will be the most likely result if Marina defaults on the loan? a. The bank will give Marina notice of its intention to begin collection proceedings. b. Fraud charges will be brought, as the bank holds title to the car pending debt repayment. c. The bank will review Marina’s cash flow projections and extend time for payment. d. A judgment will be obtained and satisfied from Marina’s general financial resources.

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Chap 26_7e 25. What is the combined legal effect of attachment and registration of a security agreement at the Personal

Property Security Registry? a. seizure of the debtor’s property b. credit insurance becomes available c. guarantee of priority over all other creditors d. perfection of the creditor’s security interest 26. Atlas Vehicle Loans Ltd. has a valid security interest in a truck owned by one of its clients. The client is now in

default under the loan agreement and owes $24 000 to Atlas. Atlas has determined the truck will likely only sell for $19 000 on the second hand market. Will Atlas be able to recover this deficiency from the debtor? a. yes, by appointing a receiver b. yes, but only as an unsecured creditor c. no, because Atlas’ collection efforts are limited to its collateral d. no, because Atlas cannot sue if it elects to seize and sell the collateral 27. What is a common feature shared among the provinces with respect to personal property security

arrangements? a. They all involve major inconvenience and expense. b. There is a patchwork of different statutes. c. Each has one set of registration rules. d. They comply with differing sets of rules. 28. Which of the following is a valid characterization of the borrower’s promise to repay a loan and the lender’s

collateral or security if the borrower fails to repay? a. They are the major elements of the credit agreement. b. Each refers to any interest in property that is of value to a lender. c. Each reflects the need for extensive security due to uncertain value. d. They are the lender’s value in any property interest. 29. A loan agreement contains a term which permits the creditor to call the entire loan if the debtor misses one

payment. What is the name for this type of loan term? a. personal covenant b. acceleration clause c. guarantee clause d. indemnity clause 30. What is a common means of dealing with payment risk in international transactions? a. guarantees b. security agreements c. a letter of commitment

d. a letter of credit

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Chap 26_7e 31. The Personal Property Security Act (PPSA) fulfills a number of purposes. Which of the following describes

one of those purposes? a. prohibiting misleading statements in credit applications b. protection of the public from unscrupulous lenders c. determining priority among creditors d. protecting borrowers from exorbitant interest rates 32. Which statement best describes a restriction on collection agencies when attempting to collect a debt? a. They cannot contact the borrower directly. b. They cannot collect a debt when the debtor is deceased. c. They are prohibited from contacting anyone other than the borrower. d. They must make all inquiries in writing. 33. BigBank Inc. is enforcing a security interest against all, or substantially all, of the inventory, accounts

receivable, or other assets of a business debtor. What must BigBank Inc. do before enforcing its security? a. provide the debtor with 10 days’ notice of its intention to enforce its security b. notify the Ombudsman for Banking Services and Investments c. file a statement of claim for the amount outstanding d. first attempt to collect the debt by enforcing personal guarantees 34. Why is the unencumbered status of assets considered to be a distinguishing characteristic? a. They are typically worth more than the existing debt. b. They are typically acquired after giving a security interest. c. Lenders typically find them most attractive as security. d. Lenders typically find their portability to be a risk. 35. Which of the following would typically be requested by a lender being asked to grant a large commercial

operating line of credit? a. blanket coverage over all assets as security in the event of default b. stabilization and enhanced regulation of the credit market c. priority over other creditors’ pre existing secured claims d. maintenance of continued utility in the assets used to secure the loan 36. What is a feature of a general security agreement? a. a right of subrogation b. all personal property is included as collateral c. a personal guarantee is signed by the debtor d. a security interest is created in all real property

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Chap 26_7e 37. Which of the following is a distinguishing characteristic of an unsecured debt? a. the loan must be advanced within a designated period b. the financing arrangements are formal and deliberate c. the incidental feature of routineness d. the absence of security interest in debtor’s assets 38. What is one of the criticisms levelled against new federal legislation regulating payday loans? a. The new rules are too stringent and costly to enforce. b. The new rules are too lax and do not address legitimate business concerns. c. The new rules apply only in limited situations. d. The new rules delegate responsibility to the provincial governments. 39. What is the legal term for the right of a guarantor to recover from the debtor any payments made to the

creditor? a. subrogation c. priority interest

b. joint liability d. subversion

40. Which of the following is a characteristic of a personal guarantee? a. The guarantors cannot be compelled to sign to ensure the granting of a loan. b. Guarantees are independently negotiated arrangements. c. Common law permits creditors to change loan terms without the guarantor’s consent. d. Guarantees are one component of a larger credit arrangement. 41. Which of the following is a valid criticism of the federal government’s delegation of the regulation of payday

lending costs to the provinces? a. The provinces have been slow to establish a regulatory framework. b. The permitted rate of fees, charges, and commissions are often too low. c. The permitted costs of borrowing are inconsistent among the provinces. d. The actual cost of these loans will continue to exceed 1000 percent. 42. Brooker Boat Inc. plans to sell 10 boats to a Holiday Boat Sales Ltd. What is the name of the written promise

by Holiday’s bank to Brooker to pay Brooker when certain specified conditions are met? a. loan agreement b. security agreement c. collateral pledge d. letter of credit 43. With respect to the priority of registered interests in a personal property security registry, which of the

following would be given priority as a result of the limitation regarding after acquired property? a. general financing statements b. blanket financing statements c. specific security agreements d. general security agreements

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Chap 26_7e 44. Max and Sylvia Grundy are an elderly couple who were recently persuaded by their nephew to execute a

guarantee in favour of a bank that was loaning him money to fund a business venture. They are now having second thoughts. Which of the following might form a basis for the Grundys to avoid liability under the guarantee? a. The guarantee was not registered with at the Personal Property Security Agency. b. The court will relieve a guarantor from liability where the guarantor did not receive direct personal benefit from the underlying loan. c. They could rely on the acceleration clause contained in the guarantee. d. A court may relieve a guarantor from liability if it is satisfied that the guarantor did not appreciate the nature and consequences of the guarantee. 45. When a lender has appointed a receiver, its primary objective is redeeming sufficient assets to clear a loan. To

which of the following is the ability of the receiver to control the business to the exclusion of the debtor directly related? a. Courts recognize that creditors are in the lending business. b. Creditors have a duty to deal with assets in a commercially responsible way. c. The survival of the business is secondary to the creditor. d. Creditors must avoid creating conflicts of interest. 46. ImaBigBank has completed its risk assessment for a commercial loan application and has decided to grant the

loan. What is the legal term given to the form of notice ImaBigBank will provide to the application detailing basic terms of the proposed loan? a. letter of intent b. letter of commitment c. letter of acceptance d. letter of credit 47. What role does legislation play with respect to enabling a creditor to begin legal action for arrears, retain or

take possession of collateral, and appoint a receiver or manager? a. confirms and supplements contractual remedies b. protects borrowers’ assets in the event of deficiency c. protects borrowers from acceleration clauses d. classifies the status of creditors as secured or unsecured 48. What is the maximum rate of annual interest permitted by the Criminal Code? a. 40% b. 50% c. 60%

d. 70%

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Chap 26_7e 49. Which of the following would be a major factor in determining the remedies available to a borrower’s creditors

in the event of the borrower defaulting on its repayment? a. the distinction in the creditors’ status between secured and unsecured b. the priority of registration in the personal property security registry c. the amount of deficiency remaining after the sale of assets d. the presence of an acceleration clause in the loan agreement 50. A lender considering a commercial loan application examined the potential customer’s intellectual property and

its accounts receivable history. Which of the following would most strongly influence the lender’s position with respect to advancing the loan in this instance? a. the lender’s unfair bargaining advantage b. regulations ensuring the accuracy of complied information c. the assets’ current value and any existing creditor’s claims d. the respectability of the lender’s credit history 51. Which of the following is a commonality shared by buildings and inventory with respect to financing a

business? a. Each is subject to a particular set of enforcement procedures. b. Both can serve as collateral for business loans. c. Both are commonly used in letters of credit to distribute default risk. d. Each is subject to a particular set of legal rules. 52. What is the role of a receiver? a. to provide notice of existing registrations against the debtor b. to provide credit information to lenders c. to guarantee a debt d. to seize and sell collateral of the debtor 53. Which of the following would likely give a bank unlimited access to the debtor’s assets as an unsecured

creditor? a. the floating charge debenture signed by the debtor b. the creditor’s seizure and sale notice requirements c. the contract of guarantee in favour of the creditor d. the standard form credit agreement for a particular creditor

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Chap 26_7e 54. A lender has been fined, its licence has been suspended, and it is subject to an order by the regulator

prohibiting further violations. What may the complainant seek as additional remedies in these circumstances? a. protection of the personal information the borrower was required to provide b. time to shop for better terms and less restrictive lending conditions c. a prohibition against misleading statements in ensuing credit reports d. loan terms adjusted by a court and a claim for damages 55. Which statement best represents a valid criticism of payday loans? a. They are inconvenient for customers. b. They provide credit to individuals with poor credit ratings. c. They exploit people who are already financially vulnerable. d. They are too risky for lenders. 56. Tiki Imports Ltd. plans to purchase items in inventory from a supplier in China. What would Tiki want to

assure that it has obtained prior to making payment for those goods to a foreign supplier? a. credit arrangements b. a letter of commitment c. title documents d. collateral security 57. Although ConstructCo has already entered into a general security agreement with BigBank that grants a

security interest in all of its existing and after acquired personal property, Alpha Lending Inc has agreed to lend ConstructCo $15,000 to purchase a new forklift. What is the name of the type of security interest that would best serve Alpha Lending Inc in these circumstances? a. letter of credit b. purchase money security interest c. debenture d. indemnity agreement 58. Which statement best describes the unique feature of a guarantee? a. It must be registered to be enforceable. b. It must be in writing to be enforceable. c. It survives bankruptcy. d. It is prohibited in consumer credit contracts. 59. Which of the following companies would risk the revocation of its licence for failing to provide accurate

information? a. banking institution c. credit bureau

b. collection agency d. credit card company

60. How are assets used as security generally classified with respect to a general security agreement? a. as a real property mortgage over the business’s assets b. as an assignment of the business’s accounts receivable c. in terms of the degree of control the lender will acquire upon default d. in terms of whether they are meant to be retained in the debtor’s business Copyright Cengage Learning. Powered by Cognero.

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Chap 26_7e 61. Briefly explain what a purchase money security interest (PMSI) is and what conditions must exist to qualify for

a PMSI.

62. Outline the typical terms contained in a guarantee agreement.

63. Identify the document registered as evidence of a security interest in personal property. Explain the registration

process and requirements that apply to it.

64. Identify four ways that lenders can reduce the risk of non payment by debtors.

65. What is the legal effect of section 89 of the federal Indian Act?

66. What is a general security agreement, and how is it different from a security interest in a specific asset?

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Chap 26_7e 67. Briefly explain what a letter of credit is and discuss the requirements that this type of financing arrangement

involves.

68. Discuss the letter of commitment and describe the basic terms that are detailed in this type of financing

document.

69. What is “perfection,” and why is it important for a creditor to ensure that perfection has occurred?

70. How does the PPSA resolve conflicts when more than one debtor claims a security interest in the same

collateral of the debtor?

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Chap 26_7e Answer Key 1. True 2. False 3. False 4. False 5. False 6. True 7. True 8. True 9. True 10. False 11. True 12. True 13. True 14. True 15. True 16. True 17. True 18. False 19. True 20. True 21. b 22. c 23. c 24. d 25. d 26. b

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Chap 26_7e 27. c 28. a 29. b 30. d 31. c 32. c 33. a 34. c 35. a 36. b 37. d 38. d 39. a 40. d 41. c 42. d 43. c 44. d 45. c 46. b 47. a 48. c 49. a 50. c 51. b 52. d 53. c 54. d Copyright Cengage Learning. Powered by Cognero.

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Chap 26_7e 55. c 56. c 57. b 58. b 59. c 60. d 61.

A purchase money security interest (PMSI) is a special type of security interest that gives the secured party priority over existing perfected security interests. The purpose of the PMSI rule is to enable business debtors to obtain financing after they have entered into a security agreement which includes after acquired property as collateral. In order to qualify for this “super priority,” two conditions must be met: first, the credit advanced must allow the debtor to acquire the assets in which the security interest is taken; and second, the security interest must be registered within a specific period of time. If these conditions are met, the PMSI holder will have priority over an existing perfected security interest in the collateral that was financed. 62. The following are typical terms in a guarantee contract:

1. Guarantors are jointly liable for the entire debt. 2. The guarantee applies to all credit extended to the debtor while the guarantee is in force. Any limitation must be clearly stated in the guarantee contract. 3. The guarantee is in force for an unlimited period. 4. Guarantees normally exclude any terms, conditions, statements, or representations that are not in the written agreement. 5. Bank guarantees usually provide that the bank may deal with the debtor and the debt without affecting the guarantee (e.g., increasing the amount of the loan). This is a direct reversal of the common law rule that terminates the guarantee if the terms of the debt are changed without the guarantor’s consent. 63. The document registered as evidence of a security interest in personal property is known as a financing statement.

The creditor registers a financing statement, which identifies the debtor and the property that is security for the loan. Designated items must be registered by serial number, while other forms of security are described by item or kind, or by including all present and after acquired property. Financing statements are maintained in a public central computerized registry. 64.

First, creditors should employ good credit policies and procedures. This involves steps such as having debtors fill out credit applications and checking debtors’ credit references. Second, creditors may be able to change the structure of a transaction so that it is not a credit arrangement at all. For example, a supplier of equipment may choose to lease the equipment rather than sell it, so that the supplier retains ownership of the equipment. Third, creditors may insist on security, or collateral, to back up the borrower’s promise to pay. If a creditor is able to seize property of the debtor and sell it to pay down the debt, the risk to the creditor is reduced. Fourth, creditors may ask for assurances from other people that the debt will be repaid. If a creditor is able to obtain a guarantee of the debt from another creditworthy person, then the risk is lessened. Copyright Cengage Learning. Powered by Cognero.

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Chap 26_7e 65. Under section 89 of the federal Indian Act, “the real or personal property of an Indian or a band situated on a

reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band.” In other words, a creditor, other than an Indian or a band, cannot go onto a reserve and seize assets in order to satisfy a judgment. 66. As a condition of granting a loan, sometimes banks will require a general security agreement. Instead of having

security in a single asset, a general security agreement will include as collateral all the personal property assets currently held by debtor, as well as all after acquired property during the term of the loan. 67. A letter of credit is a written promise by a buyer’s bank to a seller’s bank to pay the seller when specified conditions

are met. The specified conditions relate to the provision of the seller’s delivery documents, namely the invoice, shipping receipt, proof of insurance, and a customs declaration to the buyer as proof that the goods will be supplied as contemplated in the sale of goods contract. 68. A letter of commitment is a document that is provided by a lender to a borrower, which sets out the terms of a loan.

The detail of the basic terms set out in a letter of commitment includes the following: 1. The amount of the loan 2. The interest rate 3. Repayment terms 4. Renewal 5. Security 6. Requirements for maintenance of the borrower’s financial position 7. Events that constitute default 8. Lender’s remedies 69. Perfection is the combination of (a) attachment, and (b) registration or possession of the collateral. Once a security

interest has been perfected, the secured party will have priority over security interests that have not been perfected, as well as judgment creditors and a trustee in bankruptcy. 70. The general policy behind the priority rules is that a security interest that has been made public (e.g., by registration)

should have priority over a subsequent interest in the same collateral, except where specific policy objectives warrant a different outcome. The priority rules produce predictable outcomes, which promotes the extension of credit generally. ∙ When there are two unperfected security interests that have both attached, the first to attach has priority. • When there is one unperfected security interest and one perfected security interest, the perfected security interest has priority. • When there are two security interests perfected by registration, the first to register (not the first to perfect) has priority.

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Chap 27_7e Indicate whether the statement is true or false. 1. Unlike the BIA, the protection afforded by the CCAA applies to secured as well as unsecured creditors. a. True b. False 2. Martha’s business accountant has suggested that because the business is unable to meet its financial obligations

as they become due and has little prospect of having sufficient assets to meet those obligations in the future, her business is legally considered insolvent. a. True b. False 3. Secured creditors with properly perfected security interests are entitled to take possession of their collateral

and dispose of it, regardless of bankruptcy. a. True b. False 4. If a Division II proposal is accepted by two thirds of the total amount owed and a majority in number by the

creditors, then it is legally binding on all unsecured creditors, whether they voted for or against it. a. True b. False 5. Admitting to one’s insolvency is considered an act of bankruptcy. a. True b. False 6. A preference is a payment that benefits one creditor over another, and these are always prohibited and always

constitute a criminal offence. a. True b. False 7. Preferred creditors are generally unsecured creditors who are given priority over the other unsecured creditors

under the Bankruptcy and Insolvency Act. a. True b. False 8. A secured creditor can waive its security and elect to proceed as an unsecured creditor for the entire debt

owed. a. True b. False

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Chap 27_7e 9. A payment made with the intention of giving a related person priority over at least one other creditor within one

year of a bankruptcy order is described under the Bankruptcy and Insolvency Act as a reviewable settlement. a. True b. False 10. Once discharged, a bankrupt in personal bankruptcy is released from all debts. a. True b. False 11. In order for a payment made by an insolvent debtor within the six month limitation period to be declared void,

the payment must be shown to favour one or more of the bankrupt’s creditors to the detriment of the others. a. True b. False 12. An inspector is a person appointed by the bankruptcy court to act on its behalf and supervise the actions of

the trustee. a. True b. False 13. A contractual agreement between the debtor and creditors that allows an insolvent debtor to reorganize and

continue in business is legally described as an assignment in bankruptcy. a. True b. False 14. A debtor must commit one of the specified acts of bankruptcy prior to creditors being in a legal position to

petition the debtor into bankruptcy. a. True b. False 15. A proof of claim giving formal notice of the amount owed and the nature of the debt must be provided by a

creditor to a bankrupt’s trustee. a. True b. False 16. The provision of the bankruptcy legislation that bars graduates from being discharged from their student loans

for a minimum seven years after graduation has recently been amended to reduce the period to a five year minimum. a. True b. False

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Chap 27_7e 17. One of the purposes of early English bankruptcy legislation that is confirmed in Canada’s version is to ensure,

if possible, that potentially viable businesses are reorganized so they can continue operating for the benefit of creditors. a. True b. False 18. It may be possible for an insolvent debtor to avoid bankruptcy by making a proposal or entering into an

arrangement with creditors. a. True b. False 19. Bankruptcy offences are defined by the Bankruptcy and Insolvency Act and may be committed by debtors,

creditors, and trustees. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 20. What are fraudulent preferences, reviewable transactions, and fraudulent conveyances? a. categories of payments made prior to bankruptcy b. categories of payments made prior to insolvency c. classifications of payments made subsequent to bankruptcy d. classifications of payments made subsequent to insolvency 21. How are secured creditors impacted by the filing of a proposal? a. They will be permitted to vote as a class to reject or accept the proposal. b. They can realize on their security before or after the debtor has filed a proposal. c. Their interest is converted into an unsecured debt. d. They will not longer be able to realize on their security. 22. As between an unpaid supplier who recently delivered inventory, the trustee for its expenses, the Canada

Revenue Agency (CRA) for unpaid remittances and an unpaid employee, which creditor has first priority upon bankruptcy? a. CRA b. unpaid supplier c. trustee for its expenses d. unpaid employee 23. What legislation allows a debtor to seek remedies in order to bring closure to its obligations when a creditor

has indicated that the debt is unworthy of the time it would take to collect? a. the Bankruptcy and Insolvency Act b. the Bankruptcy Act c. the Insolvency and Bankruptcy Act d. the Insolvency Act

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Chap 27_7e 24. What is meant by a debtor’s assignment in bankruptcy? a. the creditor’s choice between legal action and extending the time to pay b. the trustee will try to assess the debtor’s financial health c. the voluntary assignment of all the debtor’s property for the creditors’ benefit d. the debtor can carry on business or cease business 25. Why was the body of law specifically governing insolvency created? a. to assist businesses in coping with specific debt or general obligations b. to address the respective interests of creditors c. to force creditors to make concessions on repayment terms d. to ensure insolvent parties and their creditors are treated fairly 26. Which of the following is a distinguishing feature of a Division II Proposal? a. The proposal is approved if creditors representing two thirds of the total amount owed and a majority in

number vote to accept it. b. A rejection of the proposal does not automatically result in bankruptcy. c. The proposal is accepted if creditors representing half of the total amount owed and a majority in number vote to accept it. d. They tend to be used where individuals have debts that exceed $250 000. 27. What is the significance of a court deeming that a payment made by an insolvent debtor is a fraudulent

preference and, as such, is void? a. Assets will be returned to the estate by way of transaction reversal. b. All payments for services given must be reversed and repaid. c. All payments to trade creditors must be reversed and repaid. d. Assets transferred to relatives prior to insolvency must be reversed. 28. What is the result if a Division I proposal is rejected? a. deemed bankruptcy of the debtor b. debtor may make an additional proposal c. a meeting of the creditors d. debtor is required to seek an arrangement 29. What is the legal name given to contractual arrangements between a debtor and its creditors for payment of

debts that will allow a financially distressed business to continue operating? a. declaration b. debtor in possession financing c. assignment in bankruptcy d. proposal

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Chap 27_7e 30. What is the legal term given to the financing provided during reorganization pursuant to the Companies’

Creditors Arrangement Act (CCAA)? a. interim financing b. arrangement financing c. debtor in possession financing d. bridge financing 31. What is a debtor’s recourse in the all too common circumstances where the debtor’s lack of financial

resources renders it unable to retain the services of a trustee in bankruptcy? a. formal insolvency proceedings b. informal negotiations c. debt counselling services d. a bankruptcy proposal 32. How long after the assignment into bankruptcy should a bankrupt in a first time personal bankruptcy expect to

wait before being discharged from bankruptcy? a. six months b. nine months c. two years d. seven years 33. How is it possible for a business to reduce and perhaps transfer the legal risks of bankruptcy associated with

all aspects of financing its enterprise? a. by following expert advice and carefully reviewing financing contracts b. by filing for creditor protection c. by transferring assets into family trusts d. by declaring bankruptcy at the first sign of financial difficulty 34. In what way are a debtor, a creditor, and a trustee treated similarly under the Bankruptcy and Insolvency

Act? a. All may commit criminal violations known as bankruptcy offences. b. All may commit a bankruptcy offence by violating specific duties established in law. c. All commit a bankruptcy offence if they accept payments exceeding their entitlement. d. All commit a bankruptcy offence if they acting in a conflict of interest. 35. Which of the following would strongly support an exception to a settlement violation of the Bankruptcy and

Insolvency Act? a. The debtor can be shown to be unable to repay debt without the property. b. The transfer took place within one year of the bankruptcy. c. Valuable consideration was paid for a good faith transfer. d. There was only fraud on the part of the debtor making the transfer. 36. What is the nature of a relationship in which a business sells inventory to a customer to which it is not related

or connected in anyway? a. intercommercial c. commercially reasonable

b. arm’s length d. consumer transaction

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Chap 27_7e 37. Which of the following would most likely be applicable to the Canada Revenue Agency with respect to a

bankrupt’s unremitted payroll deductions? a. superior status to all secured and unsecured creditors b. unsecured creditor status c. secured creditor status d. preferred creditor status over unsecured creditors 38. What legislation specifically affects conveyances of real or personal property made with the intent to, among

other things, default or defraud a bankrupt’s creditors? a. Part XIII of the Bankruptcy and Insolvency Act b. Companies’ Creditors Arrangements Act c. federal Bankruptcy and Insolvency Act d. provincial fraudulent conveyances legislation 39. Grundy’s employer recently assigned itself into bankruptcy, leaving Grundy unpaid in the amount of $1,800 for

back wages. Which category of creditor describes Grundy? a. secured creditor b. deemed statutory trust beneficiary c. unsecured creditor d. preferred creditor 40. What is the name given to the person appointed by creditors to act on their behalf and supervise the actions of

the trustee in bankruptcy? a. creditor trustee b. inspector c. manager d. auditor 41. What is the name given to parties who are independent of each other and not related? a. arm’s length parties b. fair market parties c. unbiased parties

d. preferred parties

42. Which of the following best describes the purpose of bankruptcy and insolvency law? a. to ensure that all stakeholders are treated fairly b. a discharge for the unwillingness of creditors to pursue claims c. to deal with creditors individually d. to wind up businesses without expensive proceedings 43. By whom are inspectors typically appointed, with respect to supervising the actions of a trustee, among other

things? a. the bankrupt’s creditors c. the bankrupt’s trustee

b. a bankruptcy court d. the bankrupt

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Chap 27_7e 44. What must be acquired in order for a business to continue to function after its insolvency proposal has been

approved by its creditors? a. approval of the court c. majority approval by creditors

b. appointment of a trustee d. debtor in possession financing

45. What is a requirement in order to satisfy the definition of ‘insolvent’ for the purposes of the Bankruptcy and

Insolvency Act? a. a failed proposal c. debts to multiple creditors

b. a failed arrangement d. debts are greater than $1000

46. Realizing that the financial health of his business was unlikely to recover from the increased competition in the

market, Clive decided to transfer title to his marital home to his wife’s name. Six months after the transfer, Clive was less concerned about the personal guarantee he had signed and was preparing to attempt informal negotiations with his creditors. What will be the most likely result? a. Fraudulent transfer is an act of bankruptcy, and creditors can petition for bankruptcy. b. Clive will have to create a proposal that won’t favour one creditor over another. c. To avoid collection on the guarantee, Clive cannot default on any approved proposal. d. The creditors will file a statement detailing what is owed and to whom. 47. What is the name for the process whereby a debtor voluntarily enters bankruptcy? a. insolvency b. a conveyance c. a facilitation

d. an assignment

48. In which of the following situations would a debtor be considered “insolvent,” as that term is applied in the

Bankruptcy and Insolvency Act. a. The debtor has debts of more than $250 000. b. The debtor’s assets have a fair market value lower than its liabilities, and it owes more than $1000. c. The debtor has committed a bankruptcy offence. d. The debtor has no option other than to liquidate its assets in order to pay all of its debts. 49. What is the legal effect if the creditors reject the debtor’s Division I proposal? a. The debtor is deemed to be a bankrupt. b. The court will be required to approve the proposal. c. The debtor can seek DIP financing. d. The debtor must attend mandatory financial counselling sessions.

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Chap 27_7e 50. Which of the following would most likely influence the creditor’s decision with regard to its options relating to

the deteriorating financial health of a business debtor? a. whether a greater recovery of debt is possible through a proposal or through legal remedies b. the creditor’s ability to accelerate repayment of the debt to payment on demand c. the ability of a secured creditor to take private action against specific assets d. the ability to enter into negotiations with other creditors to gain greater debt recovery 51. Which of the following is a distinguishing characteristic of a preferred creditor, with respect to distributing the

proceeds of a bankrupt’s estate to creditors? a. Each is paid a reasonable amount for supplies according to their order of priority. b. Preferred creditors typically have a security interest in a particular asset. c. Each is paid a reasonable amount for services according to their order of priority. d. Preferred creditors are guaranteed a minimum $3000 recovery. 52. How are details of a bankruptcy provided to the bankrupt’s creditors? a. through a proof of claim b. through formal notice c. through meetings with official receivers

d. at the first meeting of creditors

53. Treats ’n More Bakery Inc. expects that bankruptcy proceedings will be commenced against it within the next

month, and the owner has just transferred the title of its commercial ovens to her sister. How will this transaction be viewed by the bakery’s creditors? a. as a non arm’s length transaction that may be unwound by the courts b. as proof of the bakery’s inability to operate as a going concern c. as an unfortunate event, because now these assets are no longer available to the creditors d. as an arm’s length transaction that may be unwound by the courts 54. How does a creditor provide formal notice to the trustee of the amount owed and the nature of the debt? a. through a financing statement b. through a creditor’s meeting c. through a proof of claim

d. through a statement of claim

55. Which of the following would most strongly support a type of superior priority when distributing the proceeds

of a bankrupt’s estate to creditors that allows employees to be paid from a government fund that would then have a subrogated claim against the estate? a. provincial fraudulent conveyancing legislation b. the Bankruptcy and Insolvency Act c. the Wage Earner Protection Act d. the Wage Earner Protection Program

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Chap 27_7e 56. What official is appointed by creditors to act on their behalf and supervise the actions of the trustee in

bankruptcy? a. an insolvency trustee c. an inspector

b. a receiver d. a trustee in bankruptcy

57. How do creditors provide formal notice to the trustee in bankruptcy of the amount owed and nature of their

debt? a. by attending a meeting of creditors c. by issuing a statement of claim

b. by filing a proof of claim d. by seizing assets of the debtor

58. What is usually the first step for a business that is unable to cope with its financial obligations? a. assignment into bankruptcy b. consumer proposal c. an arrangement under the CCAA

d. negotiated settlement

59. Which of the following debts is not discharged by personal bankruptcy? a. alimony and support payments b. credit card debt c. unsecured debt

d. tax debt

60. What does it mean to be ‘discharged’ from bankruptcy and when does this occur?

61. What is a preference and how does the law treat such transactions?

62. Outline the three main purposes of the Bankruptcy and Insolvency Act.

63. Identify the purposes that a proposal is intended to achieve.

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Chap 27_7e 64. Identify the actions of a debtor that will result in the debtor committing an act of bankruptcy.

65. Discuss the typical actions of a trustee following a commercial operator’s assignment in bankruptcy.

66. Explain the distinction between being a secured creditor and an unsecured creditor for the purposes of

bankruptcy.

67. Under what conditions might a business consider seeking an arrangement under the Companies’ Creditors

Arrangement Act (CCAA), and how does a CCAA arrangement differ from a bankruptcy proposal?

68. Explain the criteria that must be met before a debtor will be recognized as insolvent under the Bankruptcy and

Insolvency Act.

69. What is a “statutory deemed trust,” and how is such a claim prioritized in the distribution of a bankrupt’s

estate?

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Chap 27_7e Answer Key 1. True 2. True 3. True 4. True 5. True 6. False 7. True 8. True 9. False 10. False 11. False 12. False 13. False 14. True 15. True 16. False 17. True 18. True 19. True 20. a 21. b 22. b 23. a 24. c 25. d 26. b

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Chap 27_7e 27. a 28. a 29. d 30. c 31. c 32. b 33. a 34. a 35. c 36. b 37. a 38. d 39. d 40. b 41. a 42. a 43. a 44. a 45. d 46. a 47. d 48. b 49. a 50. a 51. c 52. d 53. a 54. c Copyright Cengage Learning. Powered by Cognero.

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Chap 27_7e 55. d 56. c 57. b 58. d 59. a 60.

During the bankruptcy process, the debtor will usually be required to make payments to the trustee for the benefit of creditors. The amounts of the payments are determined by the trustee, taking into account the debtor’s total income and living expenses. The bankrupt will also be examined under oath in regard to her assets and liabilities, the causes of bankruptcy, and the disposition of any property. The debtor must also attend two mandatory financial counselling sessions. Provided the bankrupt has completed all of the steps described above, has not committed a bankruptcy offence, and is not required to make additional payments, a first time bankrupt will receive an automatic discharge of bankruptcy nine months following bankruptcy. For a second bankruptcy, automatic discharge occurs 24 months following bankruptcy. If an automatic discharge is not available for any reason, the bankrupt must apply to the court for a discharge and the court will conduct a hearing. 61. One of the purposes of the BIA is to ensure that creditors are treated fairly and equitably. This means that ordinary

unsecured creditors should be treated equally. When one such creditor receives payment and another does not, this goal is not achieved. A preference is a payment that benefits one creditor over another. With solvent companies, this is a common occurrence and not a concern. However, when a company is insolvent, the preference may result in the other creditor not being paid at all. If a payment is found to be a preference, the court can rule the payment void, meaning that the creditor in receipt of the payment would have to repay that amount to the bankrupt estate. As with transfers at undervalue, there is a distinction with respect to preferences depending on whether the parties are dealing at arm’s length. If the parties are dealing at arm’s length, a payment is a preference if it is made within three months prior to bankruptcy and it is made with the intention of preferring one creditor over another. If the parties are not dealing at arm’s length, then a payment is a preference if it is made within one year prior to bankruptcy and it has the effect of preferring one creditor over another. In this case, it need only be shown that the effect of the payment was to prefer one creditor over another. The intention of the debtor is irrelevant. 62. The purposes of the BIA are:

• To preserve the assets of the bankrupt for the benefit of creditors. • To ensure a fair and equitable distribution of the assets to creditors. • In the case of personal bankruptcies, to allow the debtor a fresh financial start. 63. A proposal is intended to achieve three purposes, as follows:

1. To reduce the amount to be paid to creditors while the debtor retains assets to carry on business 2. To extend the time for payment of claims 3. To arrange for the trustee to control the assets for the benefit of creditors for the period of the proposal Copyright Cengage Learning. Powered by Cognero.

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Chap 27_7e 64. A debtor who does one of the following commits an act of bankruptcy:

1. Defaults on a proposal; 2. Makes a fraudulent transfer of property; 3. Prefers one creditor over another; 4. Tries to avoid or deceive creditors; 5. Admits to insolvency; or 6. Fails to meet financial obligations as they come due 65. Following a commercial operator’s assignment in bankruptcy, these are the typical actions of a trustee:

1. To secure the business premises and storage facilities 2. To conduct a detailed examination of assets 3. To prepare the appropriate statements 4. To ensure that assets are adequately protected, including insurance coverage 5. To establish the appropriate books and accounts for handling the estate finances 6. To sell any perishable goods immediately 66. Secured creditors with properly perfected security interests are entitled to take possession of their collateral and

dispose of it, regardless of bankruptcy. If there is a deficiency still owed to the secured creditor, after payment of the secured creditor’s expenses and application of the proceeds of sale to the debt, then the secured creditor becomes an ordinary unsecured creditor for the deficiency. A secured creditor can waive its security and elect to proceed as an unsecured creditor for the entire debt owed—this is sometimes done if the collateral is of little value or if it would require undue effort or expense to seize and dispose of the collateral. Unsecured creditors are entitled to funds in the bankrupt’s estate only after the preferred creditors have been paid in full. The remaining funds in the bankrupt estate, if any, are paid to the ordinary unsecured creditors in proportion to the amounts they are owed. Secured creditors with deficiencies are unsecured creditors to the extent of those deficiencies. 67. The CCAA is a federal statute that allows an insolvent company to obtain protection from its creditors while it tries

to reorganize its financial affairs. The CCAA may be used by corporations that have total debt exceeding $5 million. Similar to the situation with a proposal under the BIA, once a company obtains a court order under the CCAA, the company’s creditors are prevented from taking any action to collect money that is owed to them. Unlike the BIA, however, the protection afforded by the CCAA applies to secured as well as unsecured creditors, and even to lessors and critical suppliers. 68. The Bankruptcy and Insolvency Act recognizes that to be insolvent, a debtor must:

1. Owe more than $1000; and 2. Be unable to meet financial obligations as they became due; or 3. Have ceased paying obligations as they become due; or 4. Have insufficient assets to meet obligations. 69. The federal government has passed legislation that deems property to be held in trust in regard to unremitted payroll

deductions and GST/HST which has been collected but not remitted. These amounts are considered not to be part of the bankrupt estate and as such are payable ahead of all creditors. Copyright Cengage Learning. Powered by Cognero.

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Chap 28_7e Indicate whether the statement is true or false. 1. The forfeiture rule provides the right of the insurer to recover the amount paid on a claim from a third party that

caused the loss. a. True b. False 2. All types of insurance policies are typically written so that the insured is responsible for the first part of the loss,

which is paid in the form of a deductible. a. True b. False 3. The test for whether the insured has an insurable interest is whether he benefits from its existence and would be

prejudiced from its destruction. a. True b. False 4. An insurer, the party that purchases the policy of insurance, is required to pay a price for the insurance

coverage known as a premium. a. True b. False 5. A key consequence of the designation of insurance contracts as contracts of the utmost good faith is the

imposition on the insured of a duty to disclose. a. True b. False 6. Some policies, such as fire insurance policies, require the insured to have coverage for a specified minimum

portion of the value of the property in order to fully recover from the insurer in the event of a fire. a. True b. False 7. An insurance adjuster is one who acts for an insurance company in selling insurance. a. True b. False 8. An insurer owes the insured a duty of good faith, including a duty to deal with an insured’s claim in good faith. a. True b. False 9. The purpose of comprehensive general liability insurance (also known as CGL insurance) is to compensate

business enterprises in a comprehensive way for any liabilities they incur outside the course of their normal business operations. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 28_7e 10. Manitoba and Quebec both use a no fault system of automobile insurance. a. True b. False 11. An endorsement is a clause altering or adding coverage to a standard insurance policy. a. True b. False 12. Because financing a buyout on the death of one of the shareholders of a company is challenging, that legal risk

is typically reduced by shareholder life insurance policies that will provide all or a portion of the financing needed to complete the buyout. a. True b. False 13. Errors and omissions insurance typically does not cover investigation costs and legal expenses. a. True b. False 14. Comprehensive general liability insurance coverage generally extends only to unintentional torts, rather than

intentional torts. a. True b. False 15. An insurance company can deny coverage for non disclosure even if the loss has nothing to do with the matter

that was left undisclosed. a. True b. False 16. Each province in Canada has an automobile insurance scheme that is based on either a tort based liability

system or a no fault liability system for compensating claims for bodily injury or death. a. True b. False 17. The subrogation rule provides that a criminal should not be permitted to profit from a crime. a. True b. False 18. An insurance contract is classified as a contract of indemnity because the insured is not supposed to profit

from an insured loss; rather, the insured is meant to come out even. a. True b. False

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Chap 28_7e 19. A duty to disclose exists only at the time of applying for the insurance. a. True b. False 20. An insurance agent is one who provides advice and assistance to the insured in acquiring insurance. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Why is an insured entitled to collect only the amount of the actual loss incurred from its insurance coverage? a. Contracts of indemnity prevent profiting from an insured against event. b. A bank is entitled to an indemnity contribution on a prorated basis. c. Insurance coverage typically covers a minimum portion of the value of property. d. A bank may be entitled to an interest in the proceeds for a secured loss. 22. Which term refers to a clause that alters or adds coverage to a standard insurance policy? a. a coinsurance clause b. an endorsement c. an exclusion clause

d. a rider

23. What insurance product would protect against loss for injury and property damage related to the operation of

a business’s vehicles? a. a product that covers personal injury and negligent property damage b. a product that covers loss of profit while the vehicle is being repaired c. a product that offers replacement value d. a product that covers personal injury 24. Which of the following is a problem that may be addressed by directors and officers obtaining separate

coverage or a further layer of insurance coverage independently from the corporation? a. the rescission of D&O liability coverage b. the cancellation of D&O liability coverage c. exhausting D&O coverage d. exclusions in D&O coverage 25. What does an insurance adjuster do? a. sells insurance products b. evaluates risk c. investigates and evaluates insurance claims d. determines premiums

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Chap 28_7e 26. In what case did the Supreme Court of Canada hold that an insurer could not deny coverage on the basis of

the insured’s alleged breach of the duty to disclose because the risk issue was rectified by the insured before the loss occurred? a. Royal Bank of Canada v. State Farm Fire and Casualty Co. [2005] 1 S.C.R. 799 b. Triple Five Corp. v. Simcoe & Erie Group (1994), AFF’D [1997] 5 W.W.R. 1 (C.A.) c. Lucena v. Caufurd (1806), 2 B. & P. (N.R.) 269 at 301 d. Marche v. Halifax Insurance Co. [2005] 1 S.C.R. 47 27. Why must an insured avoid acknowledging liability for a loss? a. because the insurer has a duty to defend b. because it could jeopardize the insurer’s right of subrogation c. because it may result in increased premiums d. because it would constitute a breach of the insured’s fiduciary duty 28. Allowing people to insure property that they have no real interest in may lead to the intentional destruction of

the property. To which rule does this rationale apply? a. life insurance rule b. indemnity rule c. coinsurance rule d. insurable interest rule 29. What is the purpose of directors and officers liability insurance? a. to extend coverage to include the corporation’s liability against security claims b. to provide coverage that includes a well drafted severability clause c. to reimburse the corporation for amounts paid to indemnify officers and directors d. to provide protection over and above indemnification by the corporation 30. What insurance concern is raised by the ability of genetic testing to reveal information about the genetic

susceptibility to illness and disease of individuals applying for life and disability insurance? a. Insurance will become too costly to insurers unless they have access to genetic testing. b. Genetic testing is invasive and will breach individual privacy if it becomes mandatory. c. Failure to disclose may result in the insurance contract being voided, yet disclosure may result in denial of coverage or higher premiums. d. False positive results will lead to inaccurate assessments of risk. 31. What is the effect of the Genetic Non Discrimination Act on insurers? a. Insurers are required to ensure the privacy of the results of genetic testing. b. Insurers are permitted to request genetic testing for life and disability insurance. c. Insurers are prohibited from requiring a person to take a genetic test or to reveal the results of one. d. Insurers are required to share the results of genetic testing with authorities upon request.

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Chap 28_7e 32. Jasmine is discussing an alteration to her current business insurance coverage. Which of the following will her

insurer most likely recommend to Jasmine for this purpose? a. additional policy b. rider c. new policy d. endorsement 33. What is the purpose of a deductible in the context of an insurance policy? a. Risk of loss is shared between the insurer and insured. b. Certain types of losses are excluded from coverage. c. The insurer is entitled to deduct defence costs from its payout to the insured. d. The amount of the insurance proceeds is reduced if the insured is partly at fault. 34. What is the name given to the rule that prevents an insured from collecting on insurance when the loss has

resulted from the insured’s willful misconduct? a. third party endorsement b. forfeiture rule c. subrogation d. third party rider 35. When an insurer compensates an insured, it has the right to sue a wrongdoer to recover that compensation.

What is the legal term for this right? a. third party rider b. third party endorsement c. forfeiture d. subrogation 36. Which of the following is provided for by statute with respect to life insurance? a. The beneficiaries must contribute to the payment of the premium on a prorated basis. b. Anyone can insure the life of a person who gives written consent to the contract. c. It requires a coinsurance clause that prevents coverage for less than its value. d. Life insurance contracts may require the payment of deductibles on loss. 37. Vida was found guilty of arson after deliberately setting fire to his failing restaurant in order to claim the

insurance proceeds. What is the legal principle that prevents him from profiting from his crime? a. the duty to disclose b. subrogation principle c. the forfeiture rule d. the indemnity rule 38. What is the primary value of insurance to business enterprise? a. It removes all tort and contract liability risk. b. It provides a means to shift risk away from the business to an insurer. c. It shields directors and officers from personal liability. d. It imposes a duty of utmost good faith on the business enterprise.

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Chap 28_7e 39. What options must a business owner decide upon when considering property insurance? a. getting coverage for replacement value or actual cash value b. getting coverage for the various forms of perils that are insurable by law c. negotiating a non cancellation or severability clause d. negotiating to remove the exclusion clauses that fall within the intent of the policy 40. Why would the owners of a successful business operation carry life insurance on the lives of its shareholders? a. to ensure that the business doesn’t suffer financial loss from business interruption b. to offset any deficiency in the value demanded for the deceased’s shares c. to offset the challenging costs of buying out a deceased shareholder’s shares d. to comply with the law’s mandatory life insurance pertaining to shareholders 41. Who would most likely provide advice and assistance in assessing risks from a review of a business’s

operations? a. insurance advisor c. insurance agent

b. insurance broker d. insurance adjuster

42. What is the most likely result of malicious acts or acts of vandalism caused by an insured? a. the denial of coverage by operation of a rider b. the insured’s right of subrogation c. the insured’s right to endorsement d. the denial of coverage by operation of an exclusion clause 43. Which of the following is protected by collision coverage? a. loss or damage to the insured’s vehicle itself b. loss or injury to third parties c. coverage against injury or death of a third party d. loss or injury to the insured and to third parties 44. Which of the following is a distinguishing characteristic of a duty to disclose? a. It is applicable to the point in time the insurance application is made. b. It is considered by law to be an insured’s ongoing obligation. c. It requires the prompt, oral communication of material changes to the insurer. d. Compliance automatically adjusts the policy coverage.

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Chap 28_7e 45. What was the basis for the court’s award of punitive damages in Whiten v Pilot Insurance Co, 2002 SCC

18 [2002] 1 SCR 595? a. breach of duty to disclose b. breach of contract c. breach of the insurer’s duty of good faith d. fraud 46. What legal consequences might arise if an insurer fails to handle a claim fairly and in a timely manner? a. a public inquiry into the insurer’s conduct b. a lawsuit by the adjuster against the insurer c. breach of the insurer’s duty of good faith and a punitive damages award d. double indemnity costs against the adjuster 47. What type of insurance product would a business that produces and sells pesticides most likely require? a. injury and property damage insurance coverage b. business interruption, environmental injury, and property insurance coverage c. financial loss and personal injury insurance coverage d. comprehensive, environmental, and personal injury insurance coverage 48. Which of the following liability risks would be adequately managed by errors and omissions insurance? a. liabilities arising from the performance of obligations of corporate directors and officers b. liabilities arising from negligence in the provision of professional services c. the insured’s portion of the loss that is insured against out of his or her own assets d. the cost of the environmental cleanup of the insured’s property arising from business activities 49. What three general categories do insurance policies fall into? a. auto, life, and property b. liability, property, and disability c. all risks, commercial, property

d. fire, life, auto

50. Which of the following is an implication of the utmost good faith nature of insurance contracts? a. the insurer may subrogate b. the insured has a duty to disclose c. the insurer is a fiduciary to the insured d. the insured is a fiduciary to the insurer 51. What is the name often given to the type of insurance coverage that requires an insurer to compensate for the

loss of profits? a. an all risk policy c. a casualty policy

b. comprehensive risk insurance d. environmental impairment insurance

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Chap 28_7e 52. Upon which of the following qualifications being met on an ongoing basis is insurance protection dependent? a. the worthiness of the insured b. the financial health of the insurer c. the insured’s need for insurable protection d. the payment of insurance premiums 53. Which of the following would occupiers’ liability insurance protection strongly support? a. payment where the insured is held legally responsible for causing loss to a third party b. payment in the event of loss to the insured caused by a fire that is unintentional c. payment in the event of loss to the insured caused by a fire that is started intentionally d. payment when the insured causes damage to the property of a third party 54. What is the purpose of the requirement of an insurable interest? a. to ensure that property may only be insured by its owner b. to discourage an insured from intentionally destroying property in order to make an insurance claim c. to prevent insureds from underinsuring their property d. to permit the insurer to recover from the wrongdoer 55. Which type of insurance is intended to compensate a business enterprise for liabilities incurred during the

course of its business? a. errors and omissions insurance b. comprehensive general liability insurance c. all risks property insurance d. business interruption loss insurance 56. Which type of insurance system emphasizes providing accident benefits without regard to the victim’s fault? a. tort based liability system b. no fault system c. co insurance

d. disability insurance

57. An insured has noted on its insurance application that its restaurant has a wood fireplace, but it has omitted to

comment that occasionally escaped sparks can cause a fire risk. Why would the insured be considered as having complied with its duty to disclose? a. The insured has to be in a position to fully assess the risk. b. The insurer has been candid and forthcoming. c. The insurer is expected to be worldly wise. d. The insured has to show personal judgement. 58. Under which level of government jurisdiction do insurance policies fall? a. provincial jurisdiction b. federal jurisdiction c. executive jurisdiction

d. municipal jurisdiction

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Chap 28_7e 59. How does comprehensive general liability (CGL) insurance differ from automobile liability insurance? a. CGL insurance protects property, whereas automobile liability insurance protects against liability. b. CGL insurance is available only to corporations, whereas auto insurance is available to anyone. c. CGL insurance is optional, whereas auto insurance is mandatory. d. A CGL insurance policy does not have a deductible, whereas auto insurance incorporates a deductible. 60. What type of insurance would provide payment in circumstances where the insured is held legally responsible

for causing the loss or damage to a third party? a. business interruption insurance b. property insurance c. life and disability insurance d. liability insurance 61. Genetic tests can revel predisposition to certain cancers, degenerative diseases, metabolic disorders, and other

conditions. While information of this sort would be invaluable to insurers, particularly for the purposes of life and disability insurance, disclosing a genetic predisposition to certain conditions could result in the denial of insurance coverage, higher insurance premiums or reduced insurance benefits. How has Canadian law addressed this concern?

62. Explain the extent of coverage provided business interruption insurance.

63. Describe the three types of directors and officers insurance (D&O insurance) coverage that are currently

available.

64. List the possible kinds of liabilities and losses that a business typically seeks to insure against.

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Chap 28_7e 65. Explain the nature and purpose of business interruption loss insurance.

66. Explain the distinction between an insurance broker and an insurance adjuster.

67. Identify the test for whether the insured has an insurable interest in the thing being insured, and briefly explain

the rationale behind this rule.

68. What is the relationship between subrogation and indemnity?

69. What does the insurer’s “duty of good faith” refer to, and what does this duty require of the insurer?

70. Briefly explain why the law places the duty of disclosure on the insured.

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Chap 28_7e Answer Key 1. False 2. False 3. True 4. False 5. True 6. True 7. False 8. True 9. False 10. True 11. False 12. True 13. False 14. True 15. True 16. True 17. False 18. True 19. False 20. False 21. a 22. d 23. a 24. c 25. c 26. d

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Chap 28_7e 27. b 28. d 29. d 30. c 31. c 32. d 33. a 34. b 35. d 36. b 37. c 38. b 39. a 40. c 41. b 42. d 43. a 44. b 45. c 46. c 47. d 48. b 49. b 50. b 51. a 52. d 53. a 54. b Copyright Cengage Learning. Powered by Cognero.

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Chap 28_7e 55. b 56. b 57. c 58. a 59. c 60. d 61. To address this concern and to encourage Canadians to make greater use of genetic testing, the federal government

in 2017 enacted the Genetic Non Discrimination Act. The act bars anyone from requiring a person to take a genetic test or to reveal the results of one for the purpose of providing goods and/or services or entering a contract. Fines of up to $1,000,000 and prison terms of up to five years are imposed for violations. 62. There are many different forms of business interruption insurance but in general, they cover the loss of income

suffered when an insured against peril occurs. Typical forms are: • Gross earnings (or limited), which insures for the earnings lost as a result of an insurable claim. Earnings are calculated as revenue minus the expenses that cease while the business is not in operation (e.g., utilities). The coverage usually ends when the business resumes operations regardless of whether or not the business has regained its previous level of earnings. There may also be limits on the time the business is covered and the amount paid by the insurer in any one month. This insurance is commonly used by manufacturers. • Profits (or extended), which covers loss of profits and ongoing fixed expenses. The coverage continues until the business resumes its normal, pre interruption profit level subject to the period of indemnity listed in the policy. This coverage is commonly used by highly competitive businesses where an extended interruption could cost market share and client loyalty. • Extra expense, which covers the cost of getting a business operational. This policy is designed for businesses that must remain operational during the period affected by the damage. It covers the expenses (i.e., telephone, advertising, moving to other location, and outsourcing) incurred to carry on business at another location. 63. The three types of D&O insurance coverage that are currently available are:

1. Side A coverage, which provides coverage for individual directors and officers against specified losses and where indemnification is not provided; 2. Side B coverage, which reimburses the corporation for amounts paid to indemnify directors and officers; and 3. Side C coverage, which extends coverage to include the corporation’s liability with respect to securities claims. 64. The possible kinds of liabilities and losses that a business typically seeks to insure against are as follows:

1. Injury and property damage 2. Personal injury 3. Financial loss and injury caused by product failure 4. Financial loss and injury caused by employee negligence 5. Injury and property damage 6. Loss of profit 7. Environmental damage 8. Death Copyright Cengage Learning. Powered by Cognero.

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Chap 28_7e 65.

Business interruption loss insurance, also known as an all risk policy, provides a business with financial compensation in the event it has to cease or reduce its operations as a result of a fire or another cause of damage to its plant. The insurer is required to compensate for the loss of profits of the business to the extent of the limits of the policy. 66. The term insurance broker refers to the middle person between the insurance companies and the insured. The

broker is usually involved in reviewing the insured’s business operations, assessing the risks it faces, explaining the coverages available, and recommending the appropriate coverage. When an insured makes a claim under its policy, an insurance adjuster will likely investigate the events and evaluate the loss. On the adjuster’s advice, the insurer will offer to settle the claim. There may be disagreements between the insured and the insurer as to the nature or amount of coverage. Should they be unable to resolve these differences, the insured may have to sue the insurer for breach of contract. The claim will be that the insurer has failed to honour its obligations under the policy. 67. The test for whether the insured has an insurable interest in the thing being insured is whether the insured benefits

from the existence of the thing and would be prejudiced by its destruction. The rationale behind this rule is that allowing people to insure property they have no real interest in may lead them to intentionally destroy the property in order to make an insurance claim. 68. Subrogation refers to the right to sue a third party—the wrongdoer—who caused the loss and to recover from that

party what it has paid to its insured. In this sense, the right of subrogation permits the insurer to “step into the shoes” of the insured and sue the wrongdoer. Subject to the policy and applicable legislation, the insurer’s right of subrogation arises only when the customer is fully indemnified for the loss. 69.

In addition to the obligations specified in the insurance policy, an insurer owes the insured a duty of good faith, including a duty to deal with an insured’s claim in good faith. Factors considered in determining whether an insurer has fulfilled its obligation to act in good faith include whether the insurer carried out an adequate investigation of a claim, whether the insurer properly evaluated the claim, whether the insurer fairly interpreted the policy, and whether the insurer handled and paid the claim in a timely manner. When the duty of good faith has been breached, the court may award punitive damages 70.

The law places the duty of disclosure on the insured for a straightforward reason: The insurer has to be in a position to fully assess the risk against which the insured wants protection. The only way the insurer can properly assess risk is if the insured is candid and forthcoming.

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