Test Bank for Contemporary Canadian Business Law 12th Edition
richard@qwconsultancy.com
1|Pa ge
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Jill has written a mathematics textbook. Under the federal Copyright Act, only she or someone authorized by her may reproduce the contents of the book. Jill's rights are an example of a legal privilege. ⊚ ⊚
true false
2) Jill has written a mathematics textbook. Under the federal Copyright Act, only she or someone authorized by her may reproduce the contents of the book. The Copyright Act is an example of a statute. ⊚ ⊚
true false
3) Jill has written a mathematics textbook. Under the federal Copyright Act, only she or someone authorized by her may reproduce the contents of the book. The Copyright Act can be found at R.S.C. 1985. "R.S.C." stands for "Revised Statutes of Canada." ⊚ ⊚
true false
4) Jill has written a mathematics textbook. Under the federal Copyright Act, only she or someone authorized by her may reproduce the contents of the book. Jill's copyright in the textbook is protected everywhere in Canada. ⊚ ⊚
true false
5) Mary is suing Arthur because he breached a contract to sell her 2,000 tonnes of firstgrade steel. There is no legislation that deals with the issue between them. The judge will make her decision based on the Common Law about this sort of issue. ⊚ ⊚
Version 1
true false
1
6) Mary is suing Arthur because he breached a contract to sell her 2,000 tonnes of firstgrade steel. There is no legislation that deals with the issue between them. If the judge did not use the Common Law in this case, she would have to rely on the theory of precedent instead. ⊚ ⊚
true false
7) Mary is suing Arthur because he breached a contract to sell her 2,000 tonnes of firstgrade steel. There is no legislation that deals with the issue between them. The modern law concerning commercial matters such as this has grown out of the ancient Law Merchant. ⊚ ⊚
true false
8) Mary is suing Arthur because he breached a contract to sell her 2,000 tonnes of firstgrade steel. There is no legislation that deals with the issue between them. Mary's rights and obligations in relation to contracts are part of the procedural law. ⊚ ⊚
true false
9) The Minister of Justice for the Parliament of Canada has made an announcement that the federal government will introduce legislation to regulate the use and ownership of firearms in Canada. The new law will be proclaimed before it receives royal assent. ⊚ ⊚
true false
10) The Minister of Justice for the Parliament of Canada has made an announcement that the federal government will introduce legislation to regulate the use and ownership of firearms in Canada This would be an example of substantive private law that has been codified from the Common Law. ⊚ ⊚
Version 1
true false
2
11) The Minister of Justice for the Parliament of Canada has made an announcement that the federal government will introduce legislation to regulate the use and ownership of firearms in Canada. If the government has a majority of seats in the House of Commons, the bill may be passed with two readings and then sent to the Senate. ⊚ ⊚
true false
12) The Minister of Justice for the Parliament of Canada made an announcement that the federal government will introduce legislation to regulate the use and ownership of firearms in Canada. Peters, who later violates this new law by being found in possession of a restricted weapon, will be charged with a violation of the law by the Crown but will not be sued for damages. ⊚ ⊚
true false
13) Ned Stogers wishes to set up a radio station that caters exclusively to the music preferences of senior citizens in a major metropolitan Canadian city. The CRTC, which hears applications and grants licences for new radio stations, may make laws governing its affairs that will affect Ned although it is not a government. ⊚ ⊚
true false
14) Ned Stogers wishes to set up a radio station that caters exclusively to the music preferences of senior citizens in a major metropolitan Canadian city. Most of the laws that affect Ned's application are the procedural laws of precedent. ⊚ ⊚
true false
15) Ned Stogers wishes to set up a radio station that caters exclusively to the music preferences of senior citizens in a major metropolitan Canadian city. The CRTC will apply the principles of equity in deciding whether to grant Ned's licence.
Version 1
3
⊚ ⊚
true false
16) Ned Stogers wishes to set up a radio station that caters exclusively to the music preferences of senior citizens in a major metropolitan Canadian city. The CRTC is an administrative tribunal. ⊚ ⊚
true false
17) The government of Great Britain is seeking, under a treaty, to extradite Ann to face murder charges. She is a Canadian citizen. Ann argues that she has the right under the Charter to remain in Canada. The Supreme Court of Canada would uphold her extradition. ⊚ ⊚
true false
18) Tom, who is 14, wishes to vote in the next provincial election. Since he is a Canadian citizen, there is no means by which he can be prevented from exercising his right under the Charter to vote. ⊚ ⊚
19)
true false
New Brunswick is the only officially bilingual province in Canada. ⊚ ⊚
true false
20) The Barrel-o'-Beer Pub has a dress code for waitresses which require their skirts to be 10 cm above the knee. There is no dress code for waiters. Jacqueline is fired for refusing to shorten her knee-length skirt. If Jacqueline had a case, it would be under the equality rights section of the Charter. ⊚ ⊚
Version 1
true false
4
21) The Barrel-o'-Beer Pub has a dress code for waitresses which require their skirts to be 10 cm above the knee. There is no dress code for waiters. Jacqueline is fired for refusing to shorten her knee-length skirt. Since the Charter doesn't apply to private businesses like the Barrel-o'Beer, Jacqueline has no recourse against her former employer. ⊚ ⊚
true false
22) Suppose the government of Alberta passed legislation that conflicted with rights under s. 8 of the Charter, and the Supreme Court of Canada struck down the legislation. The government of Alberta can pass the legislation under s. 33(1) of the Charter and it cannot be challenged in the courts because of the protection offered by s. 33(1). ⊚ ⊚
true false
23) The provincial government passed legislation that made a new kind of consumer scam a criminal act. Audrey was charged under the legislation. She can successfully defend herself by saying that the legislation is unconstitutional. ⊚ ⊚
true false
24) By placing its proposed same sex marriage legislation before the Supreme Court of Canada, the federal government received the assurance that it had the power to define civil marriage as a lawful union between two persons, and the reminder that freedom of religion could not compel religious groups to change their practices. ⊚ ⊚
true false
25) Online electronic consolidation of statute changes have made printed statute books obsolete. ⊚ ⊚
Version 1
true false
5
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Maxine, an accountant annoyed with her employer for telling her that her work was substandard, created a computer virus that would erase key accounting data if Maxine's name was removed from the payroll. This is a crime under the Criminal Code. If Maxine is caught, she will be
A) B) C) D) E)
prosecuted by the Crown because the Code is public law. sued by the Crown because the Code is private law. sued by her employer under the Criminal Code because it is a civil law matter. sued by her employer under the Criminal Code because it is a private law matter. prosecuted by the Crown for breach of the Civil Code.
27) The federal government placed new legislation before Parliament regarding the regulation of telecommunication companies. Which of the following statements is not true?
A) This proposed legislation is called a "bill." B) This legislation must be brought before the House of Commons three times and then it will be law if it is passed. C) Once passed by the House of Commons, a bill is sent to the Senate for approval. D) Once the proposed legislation has been passed by the Parliament of Canada; it must be given royal assent and be proclaimed. E) Once the proposed legislation has been passed by the Parliament of Canada it can be amended by another statute.
28) The Simpson brothers have applied to the Liquor Licence Board of the province for a wine and beer licence for their new restaurant. Which of the following is not true?
Version 1
6
A) The board is an administrative tribunal, not a court of law. B) The decisions of the board become part of the administrative law of the province. C) Agencies and boards such as this one are part of the expanding government regulation of private citizens and businesses. D) The Simpsons will deal with civil servants rather than elected representatives while applying for their licence. E) The right to make its own rules and procedures is delegated to the board, but these are subject to the approval of the provincial legislature.
29) The government of the province has introduced a bill into the legislature to make the recycling of household garbage mandatory. Once it has passed third reading, the next step is that it must be
A) B) C) D) E)
sent to the relevant committee for clause-by-clause study. given royal assent by the Lieutenant-Governor. debated in principle by the members of the legislature. sent to the Senate for approval. amended and prepared for its final reading.
30) When judges apply the principle of stare decisis in deciding a case before them they are, in effect, applying the
A) B) C) D) E)
Version 1
substantive law. doctrine of precedent. principles of equity. rules of public administrative law. doctrine of precedent and substantive law.
7
31) The Big Time Construction Company is erecting a large office tower for a major commercial property developer. In the course of construction, a dispute arises as to the timing of cash advances from the developer to finance the next stage of construction. The parties had executed a contract between them which stated that each cash advance from the developer would be provided to the builder after the work on the previous stage had been completed and inspected by the developer. The builder now says that the developer is delaying the inspections and that it cannot carry on to the next stage without the cash advance. The developer says that the builder is deliberately delaying the progress of the construction by not beginning the next stage while it waits for the inspection required to release the next cash advance. The developer intends to take legal action against the builder.
A) B) C) D) E)
The developer must use procedural law to sue the builder. The dispute between the parties will be resolved by substantive law. The contract which the parties made will be interpreted by private law. The court will reach a decision in the case using administrative law. All types of law except administrative law will apply.
32) If it were decided to amend the Constitution to make ownership of property a right, it would be necessary to have the agreement of i. at least two-thirds of the provinces, which together make up at least half of the population of Canada. ii. at least half of the provinces, which together make up at least two-thirds of the population of Canada. iii. more than half of the members of the federal Parliament. iv. at least two-thirds of the members of the federal Parliament. v. all ten provinces.
A) B) C) D) E)
Version 1
i. ii. i and iii. ii and iv. iii and v.
8
33) The provincial legislature is about to pass a piece of legislation that conflicts with one of the following rights. It had intended to do so under s. 33(1), the notwithstanding clause, but has just found out that s. 33 is not effective against this right. Which of the following is it?
A) B) C) D) E)
The right to life, liberty and security of the person. Freedom of speech. Freedom of religion. The right to vote. Equality rights.
34) A small Ontario town passes a bylaw which says that shop signs must be only in English. A butcher's shop which caters to the local German-speaking population is charged with infringing the bylaw and the proprietor raises s. 2(b) of the Charter in his defence.
A) Since only political speech is protected by the Charter, he will lose. B) Since the Charter does not apply to non-government bodies like a butcher's shop, he will lose. C) Since the Charter protects commercial expression because it helps individuals make informed economic choices, he will win. D) Since the Charter protects commercial expression, regardless of any value it may have, simply because we must all be free to say what we choose, he will win. E) None of the answers are correct.
35) In response to the growing number of traffic deaths resulting from alcohol-related accidents, many provinces amended existing laws to permit their police forces to conduct arbitrary roadside checks to try to discourage drunk driving. When this practice was challenged in the courts as an infringement of s. 9 of the Charter,
Version 1
9
A) counsel for the Crown would successfully argue that the practice could be continued indefinitely because of s. 33 of the Constitution, which allows the provinces to exempt the legislation from the application of the Charter. B) counsel for the Crown would argue that the roadside checks are permissible on the basis of s. 1 of the Charter. C) the challenging party, a motorist who had been stopped and found to have excessive blood alcohol levels, would successfully argue that the legislation violates his s. 6 mobility rights. D) the Crown would argue s. 33 and s. 1. E) All of the answers are correct.
36) The government of Saskatchewan passed a statute that allocates water on the North Saskatchewan River. The function of this legislation is to
A) B) C) D) E)
settle disputes. establish rules of conduct. provide protection for individuals. settle disputes and establish rules of conduct. All of the answers are correct.
37) Nova Scotia has rules of court that state a party who commences a lawsuit must provide the other parties to the lawsuit with a copy of the document setting out their claim. The function of the rules of court is to
A) B) C) D) E)
38)
settle disputes. establish rules of conduct. provide protection for individuals. settle disputes and establish rules of conduct. All of the answers are correct.
Which Canadian province does not utilize the Common Law system?
Version 1
10
A) B) C) D) E)
British Columbia Newfoundland Ontario Quebec New Brunswick
39) The Alberta Court of Appeal wrote a judicial decision defining a Vespa gas-powered scooter as a motor vehicle pursuant to the Highway Traffic Act. According to the principle of stare decisis, which of the following courts would have to apply this decision in determining whether Vespa scooters required a licence plate?
A) B) C) D) E)
Supreme Court of Canada Ontario Court of Appeal Ontario Supreme Court Alberta Provincial Court All Canadian provincial courts
40) Under the Canadian Constitution the federal government has exclusive jurisdiction over which types of laws:
A) Trade and commerce, criminal law and bankruptcy and insolvency law. B) Trade and commerce, criminal law and incorporation of companies. C) Trade and commerce, the solemnization of marriage and local works and undertakings. D) Criminal law, incorporation of companies, solemnization of marriage. E) Trade and commerce, incorporation of companies and bills of exchange.
Version 1
11
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 41) Helga was charged in 2003 with the theft of confidential information in Vancouver. The only case at the time that was relevant was one in which the Ontario Court of Appeal said that the defendant, in a situation identical to Helga's, was guilty of theft. a. Discuss how the theory of precedent applies here b. If the defendant in the Ontario case appealed and, in the summer of 2004, before Helga's case had come to trial, the Supreme Court of Canada reversed the Ontario Court of Appeal's decision, would this change your answer to the previous question? Why or why not?
42) You believe that trapping fur-bearing animals is inhumane, and you want the province to prohibit it altogether. Discuss why it would be best to use statute law to achieve your goal and explain any problems that could be created by your choice.
43) Occasionally, when the common law is applied to the facts of a case that is before the courts, the injured party faces a financial or personal hardship as a result. This often occurs where the strict application of the law prevents the recovery of damages by the injured party because of some action taken by him, which may have been unintentional of inadvertent. Discuss what the court may do in such an instance at the request of the injured party and explain whether you believe the outcome to be desirable.
Version 1
12
44) Professor Dobson is 65 and, under the mandatory retirement policy of his university, must retire next July 1st. He does not wish to do so. a. Discuss whether he can bring a Charter action against the university. b. Assuming he can bring a Charter action against the university, what would his argument be, and how would the university answer it?
45) Some people argue that Canadians were better off before they had a Charter of Rights and Freedoms entrenched in a Constitution. What do you think?
46)
Describe the evolution of the Civil Code of Quebec.
Version 1
13
Answer Key Test name: Chapter 01 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) TRUE 17) TRUE 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) TRUE 26) A Version 1
14
27) B 28) E 29) B 30) E 31) E 32) A 33) D 34) C 35) B 36) B 37) A 38) D 39) D 40) A 41) a. Where the facts are the same, a judge must apply previous decisions of similar cases, provided the decisions are from his own court, a court of equal rank, or a higher court within the same province, or from the Supreme Court of Canada. Here, the only case is from a higher court but of a different province so, while it is highly persuasive, it is not a precedent that must be followed. b. Now that there is a Supreme Court of Canada case, it is precedent throughout Canada. Therefore it must be followed in Helga's case. 42) A statute is a much faster way of changing the law and has as comprehensive a scope as the legislators choose to give it. The legislature is sensitive to public opinion so, if you can persuade many people to agree with you and to apply political pressure to the members of the legislature, it is comparatively easy to effect change. The courts will, however, interpret statutes strictly so, to achieve its ends, the statute must be very carefully drafted.
Version 1
15
43) At the request of the plaintiff's lawyer, the court may resolve the dispute by applying the principles of equity. These are frequently applied in those cases where the strict interpretation of the plaintiff's legal rights, as under the common law, would result in a hardship for the plaintiff or would create a clearly unfair result. The principles of equity, having evolved from general principles of fairness or natural justice, tend to allocate responsibility for damages according to the actions of the parties in the circumstances rather than according to a set of rigid legal rules. 44) a. It is unclear as yet whether a university is a government body, and therefore subject under s. 32 to compliance with the Charter. If it is not, then the Charter is not a possible protection for him. If his province has a Human Rights Code that forbids employment discrimination on the basis of age, he could use that. If it allows discrimination against those over 65, he could try a Charter challenge against the Code. If it is, then he may do so. b. If he could bring a Charter action, he would show that the mandatory retirement policy interfered with his right under s. 15(1) not to be discriminated against on the basis of age. It would then be up to the Crown, acting for the Government, to show that the retirement policy was either justified under s. 1 of the Charter or passed under a s. 33(1) declaration. If it could not prove this on the balance of probabilities, Professor Dobson would have succeeded in showing his rights had been infringed by the policy, and the Charter, being the supreme law of Canada, would cause the policy to have no force or effect.
Version 1
16
45) Students should discuss the different effect on individual rights of the previous Canadian Bill of Rights and the Charter. The former was a normal piece of government legislation that could be ignored and overridden at the whim of government. In fact it often was, with the result that citizens had little predictability of the extent of their rights or the certainty of their enforcement. The Charter, however, entrenches the rights in a constitutional document which supersedes all other legislation. All government actions must conform to the Charter to retain their validity as enforceable actions and the Charter cannot easily be amended to dilute the rights as happened with the Bill of Rights. Students may like to take the alternative approach and argue that the Charter has entrenched only opportunistic attempts by individuals and groups of individuals to gain guaranteed rights and freedoms, which would have been available in the Common Law under principles of equity in the appropriate circumstances. Some may also argue that the Charter focuses more public attention on the receipt of guaranteed rights than on the, arguably, equally important acceptance of responsibilities in a society.
Version 1
17
46) Quebec made its own Civil Code of Lower Canada in 1866, a right preserved to it by the Quebec Act of 1774, more than a decade after the colony had been ceded by France to Britain. A complete review of the Code was not undertaken for over a century when the new Civil Code of Quebec came into force in 1994. The Civil Code of Quebec is more than just an act of a legislature setting down rules. It was a short evolution from its original philosophical roots shortly after the French Revolution. Its makers intended it to be a complete legal pathway for life: birth, family, business relationships, death, inheritance, and management of chief obligations and assets along the way. The modern code of 3,168 articles preserves this philosophical journey, set into ten books: Persons; The Family; Successions; Property; Obligations; Prior Claims and Hypothecs; Evidence; Prescription; Publication of Rights; and Private International Law. Quebec does have other laws beyond its Civil Code. It creates statute law for specific matters just as the other provinces do. Even the Code itself is a statue of the Quebec legislature.
Version 1
18
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) American cases cannot be used in Canada because the legal systems in each country grew out of very different roots. ⊚ ⊚
true false
2) Patricia successfully sued Mabel because Mabel's negligence in driving her car had caused injury to Patricia. It is up to the judge who heard the case to decide to what extent Mabel is required to compensate Patricia through the payment of damages. ⊚ ⊚
true false
3) The historical development of the court system in England shows a trend away from decisions being made by the community as a whole and towards decisions being made by one authoritative person. ⊚ ⊚
true false
4) The State of Louisiana and the Province of Quebec both base their non-criminal laws on the French Civil Code. ⊚ ⊚
true false
5) Colin has sued Peter, and Peter has just sent a counterclaim. Since Colin has received it, the case can now be set down for trial. ⊚ ⊚
Version 1
true false
1
6) Walter was the only witness to an unprovoked assault by Queenie on June. June was attacked from behind and did not see who hit her. Queenie has denied she did it, but Walter told June that he saw her do so. When the case comes to trial, Walter is serving in West Africa with a non-profit organization and cannot be reached. Since June was there and has the direct evidence of a witness, she may tell the court what Walter saw. ⊚ ⊚
true false
7) Antonella is suing Barbara for failing to pay her for goods she bought. It will be up to Antonella to prove her case based on the evidence provided. ⊚ ⊚
true false
8) Lorna successfully sued the Hot Stuff Restaurant because she was injured by a piece of glass in a pie that she was served there. She believes the judge used too low a duty of care in assessing whether Hot Stuff had been negligent, which was the legal issue. Lorna may appeal on the basis of the judge's error. ⊚ ⊚
true false
9) While researching his family history, Norman discovered that his grandmother was the first Canadian woman lawyer to appear in front of a surrogate court. She was there to deal with a will. ⊚ ⊚
true false
10) James had been dismissed from his employment after being caught stealing cash from the business during his shift. He decided to vindicate himself by bringing a long and costly lawsuit for unjust dismissal against his employer. The court will probably award costs on a party and party basis. ⊚ ⊚
Version 1
true false
2
11) You believe that an error has been made in the court's decision in your case at trial. You may be able to reach a more favourable decision by having a jury rehear and decide upon the case if you wish to appeal it. ⊚ ⊚
true false
12) You are part of a family business which manufactures children's clothing. There is a dispute among some of the family members about the appropriate division of profits. In order to have a judicial resolution of the dispute you would need to enter pleadings in the Family Court. ⊚ ⊚
true false
13) While simple actions can be undertaken by a paralegal in small claims court, the complexities of cases and senior courts require the services of a lawyer. ⊚ ⊚
true false
14) Discovery is a process which is used to clarify points in the statement of claim or statement of defence. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 15) If you were a judge in a court system in Canada, which of the following would not be a role that you might be called upon to perform?
Version 1
3
A) Deciding whether or not federal legislation interfered with provincial legislative jurisdiction. B) Deciding whether or not a plumber has the proper qualifications to be granted a licence. C) Deciding whether or not an individual has breached the terms of a contract with another individual. D) Deciding whether a government agency has interfered with the constitutional rights of a citizen. E) Deciding whether or not a company is licensed to print copyrighted material.
16) Raymond, who lives in Manitoba, appeals a trial court's decision in a case in which he sued a former business partner and lost. The highest court to which Raymond's case can possibly eventually be appealed is
A) B) C) D) E)
the Court of Appeal for Manitoba. the Federal Court of Appeal. the Supreme Court of Canada. the Privy Council of the House of Lords. the Court of Queen's Bench for Manitoba.
17) An electric shaver that you bought exploded and injured your hand. You are now suing the manufacturer. The first document which your lawyer will send to the manufacturer is
A) B) C) D) E)
a writ of summons/statement of claim. the pleadings. a notice of trial. a statement of defence. a demand for particulars.
18) You have won the electric shaver suit and the manufacturer has appealed. Which of the following statements is not true?
Version 1
4
A) You are the respondent. B) The manufacturer is the appellant. C) The manufacturer can bring its appeal on the basis that the judge made an error in interpreting or applying the law. D) The manufacturer's witnesses will all give their evidence before any of your witnesses are called to give their evidence.
19) A customer of the bank for which you work as Chief Systems Analyst is suing your bank. The customer alleges that money apparently withdrawn through an automated teller machine from her account must have been removed through a bank error, since she did not do so, and no one knows her identification number nor has access to her card. You are to testify as to the security processes in the bank's computer system and the accuracy of the computerized automated teller machine's records. In this role you are called upon as an
A) B) C) D) E)
expert witness; you will be giving direct evidence at trial. expert witness; you will be giving opinion evidence at trial. expert witness; you will be giving hearsay evidence at trial. ordinary witness; you will be giving opinion evidence at trial. ordinary witness; you will be giving direct evidence at trial.
20) As the representative of a major newspaper chain you are opposed to the recent tendency of judges to grant publication bans during the court proceedings of controversial and high-profile trials. Together with several of your colleagues from other media organizations you decide to challenge the most recent ban. Which of the following statements is correct?
A) Your challenge would be brought as a proceeding in a court of original jurisdiction. B) If you are not successful you would be granted an appeal of your case to the Supreme Court of Canada. C) The proper forum for your challenge is the Canadian Judicial Council since it involves the actions of a judge. D) You would bring your challenge to an administrative tribunal. E) The process of bringing your challenge would begin with the Court of Appeal.
Version 1
5
21) Your company, a manufacturer of household cleaning products, successfully defended a product liability suit brought by a customer for a serious skin irritation she suffered after using an oven cleaning solution made by your company. Your defence was based on the fact that adequate warnings were placed on the container that users should wear gloves. The plaintiff has appealed the court's decision on the basis that the judge failed to apply the legal principle of strict liability to this case, which would automatically find the manufacturer liable if the product itself were, in fact, found to be inherently dangerous. Select the most appropriate statement from the following:
A) The Court of Appeal may find that the trial judge did not assess the inherent dangerousness of the cleaner sufficiently and order a new trial to assess this point. B) The Court of Appeal may find that the trial judge did not assess the inherent dangerousness of the cleaner sufficiently and admit the appeal and reverse the decision. C) The Court of Appeal may find that the trial judge did not properly apply the principle of strict liability and admit the appeal and reverse the decision. D) The Court of Appeal may find that the trial judge properly considered the principle of strict liability and dismiss the appeal and affirm the decision. E) All of the findings are possible except that the Court of Appeal may not find that the trial judge did not assess the inherent dangerousness of the cleaner sufficiently and admit the appeal and reverse the decision.
22) Hong Kong Bank of Canada v. Wheeler Holdings Ltd. (1989), R.P.R. (2d) 189; affirmed, (1990), 14 R.P.R. (2d) 1; varied, (1993), 6 Alta. L.R. (3d) 337. Which of the following statements is correct?
A) This case was first reported in the Regina Public Reports. B) The cite tells us that the last court that heard and decided this case was in the province of Alberta. C) The case was last reported in 1993. D) The initial 1989 decision was overturned by the 1993 decision. E) The decision of the first judge was upheld by another judge who decided the case in 1990.
23) Each province has a Court of Appeal to review the convictions of accused persons by the following courts:
Version 1
6
A) B) C) D) E)
Youth Court Supreme Court Magistrate's (or Provincial) Court Small Claims Court All of the above except D
24) At the discretion of the court, judges award costs that are frequently referred to as "costs on a party-and-party basis." These involve:
A) the judge awarding incurred costs of the litigation to the unsuccessful party, plus a counsel fee. B) the judge awarding incurred costs of the litigation to the successful party, minus a counsel fee. C) the judge awarding incurred costs of the litigation to the unsuccessful party, minus a counsel fee. D) the judge awarding incurred costs of the litigation to the successful party, plus a counsel fee. E) the judge awarding all costs of the litigation split between both parties with no counsel fee.
25) Easy Money Credit Ltd. is owed $8,000 by Irina for a debt to buy a television and home theatre system. Irena claims she did not pay the debt because two days after installing the system it was stolen by a bunch of 14-year-olds. Which is most likely the court of original jurisdiction?
A) B) C) D) E)
Version 1
Youth Court Criminal Court Family Court Small Claims Court Provincial Supreme Court
7
26) Orange Shop Ltd. sells electronics and grants credit to its customers. It sold a laptop computer system to Kelly and granted a $3,000 loan to finance the purchase. Two days after purchasing the computer it fell off a low bench and the screen cracked. Kelly wanted to either exchange the computer or have it repaired. Orange Shop Ltd. refused to assist Kelly as an extended warranty had not been purchased. Kelly refused to repay the loan. Which is most likely the court of original jurisdiction?
A) B) C) D) E)
Youth Court Criminal Court Family Court Small Claims Court Provincial Supreme Court
27) Orange Shop Ltd. sells electronics and grants credit to its customers. It sold a laptop computer system to Kelly and granted a $3,000 loan to finance the purchase. Two days after purchasing the computer it fell off a low bench and the screen cracked. Kelly wanted to either exchange the computer or have it repaired. Orange Shop Ltd. refused to assist Kelly as an extended warranty had not been purchased. Kelly refused to repay the loan. Which pleading(s) will be filed by Kelly?
A) B) C) D) E)
Statement of Claim Statement of Defence Counterclaim Statement of Claim and Statement of Defence Statement of Defence and Counterclaim
28) Orange Shop Ltd. sells electronics and grants credit to its customers. It sold a laptop computer system to Kelly and granted a $3,000 loan to finance the purchase. Two days after purchasing the computer it fell off a low bench and the screen cracked. Kelly wanted to either exchange the computer or have it repaired. Orange Shop Ltd. refused to assist Kelly as an extended warranty had not been purchased. Kelly refused to repay the loan. At trial, which party presents their case first?
Version 1
8
A) B) C) D) E)
29)
Which of the following statements is false?
A) B) C) lawsuits. D) justice. E)
30)
Orange Shop Ltd. The plaintiff opens the trial. Orange Shop Ltd. The defendant opens the trial. Kelly. The plaintiff opens the trial. Kelly. The defendant opens the trial. The judge determines who opens the trial.
Contingency fees are paid to the lawyer only if the case is won. Contingency fees only recently came into existence in Canada. One of the concerns raised against contingency fees is that they lead to frivolous One argument in support for contingency fees is that they provide greater access to Not all Canadian jurisdictions permit contingency fees.
Which statement does not apply to arbitration of a contractual dispute?
A) Arbitration clauses are contained in a contract. B) Arbitration is mandated by provincial statute. C) Agreements often specifically provide that the arbitration proceedings are confidential. D) Arbitration is a quicker way of resolving disputes. E) Arbitration decisions do not form part of the Common Law.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 31) As a witness for the plaintiff in a large upcoming civil suit, you are feeling nervous about giving testimony, and would like to know how the whole trial process works. A friend of yours explains how a trial proceeds and how witnesses are dealt with during the trial. Repeat here what she tells you.
Version 1
9
32) You have a family member who was unfortunately seriously injured in a train accident. Your friend understands that there might be the possibility of a class action lawsuit against the train company. She asks you to explain the process of a class action and what the advantages of class actions are versus individual lawsuits.
33) Explain in detail the information contained in the following case cite and annotations and explain how and why the information is relevant for the parties to the action. Who else may also find this information relevant and why? In this case, the defendant was successful at trial. Canadian Olympic Assn./Assn Olympique Canadienne v. Olympus Optical Co. (1987), 14 C.I.P.R. 259; reversed, (1990), 31 C.P.R. (3d) 479, Fed. Ct. - Trial Division; affirmed, (1991), 38 C.P.R. (3d) 1, Fed. CA; leave to appeal to SCC refused, (1992), 41 C.P.R. (3d) 11.
Version 1
10
Answer Key Test name: Chapter 02 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) B 16) C 17) A 18) D 19) B 20) A 21) E 22) E 23) E 24) D 25) D 26) D Version 1
11
27) E 28) A 29) E 30) B 31) Students should list the Civil Court Procedure steps found in Chapter 2. Witnesses are usually given the chance prior to the trial to go over their evidence with the lawyer who will be examining them in chief, although he cannot tell them what to say. If you are an expert witness, your lawyer will generally have you first explain how you are qualified to give expert evidence. You would be testifying about the significance of direct evidence or about the background circumstances that explain or help verify the direct evidence. If you are an ordinary witness, you can only give evidence about matters of which you have direct knowledge. If you are being treated unfairly by the other party's lawyer on crossexamination, it is the responsibility of the lawyer for whose client you are appearing to ask the judge to prevent that from continuing. Once you have testified and the trial is over, you would not be called upon at any other stage of the process.
Version 1
12
32) Students can refer to chapter 2 (p.45) for the discussion on class action lawsuits. A class action allows a single person to represent an entire group of plaintiffs injured by a common cause such as a train derailment. In order for a class action to proceed, the ‘class’ of two or more people must be certified by the court. Typically, settlements are reached before the case goes to trial, with such settlements requiring court approval as being in the interest of the entire class. Rather than having hundreds of similar trials, the law permits greater efficiency by having one trial. It also increases the chances that defendants will be more careful given that significant damages can be imposed as a result of a successful class action lawsuit. Damages, if awarded, are then shared among the class of plaintiffs, with some adjustments possible depending on the degree of injury.
Version 1
13
33) The plaintiff is the Canadian Olympic Assn./Assn Olympique Canadienne. The defendant is Olympus Optical Co. The case was first decided at trial in 1987. That trial decision was reported in the 14th volume of the Canadian Intellectual Property Reports at page 259. The unsuccessful party, the plaintiff, then appealed the case to the Federal Court - Trial Division. Therefore, the original trial could not have been heard in the Federal Court. The Federal Court - Trial Division, even though appearing to be a court of original jurisdiction, can hear appeals on matters within its jurisdiction that were decided in provincial trial courts. The plaintiff at trial became the appellant and the defendant at trial became the respondent. The Federal Court - Trial Division made its decision in 1990 and it allowed the appeal thereby reversing the trial decision. This appeal decision was reported in the 31st volume of the third series of the Canadian Patent Reporter at page 479. The party who was unsuccessful at this appeal (the defendant at trial, respondent in the first appeal) then appealed further to the Federal Court of Appeal. So, in this further appeal, Olympus Optical Co. became the appellant and the Canadian Olympic Assn./Assn Olympique Canadienne became the respondent. In 1991 the Federal Court of Appeal affirmed or upheld the decision of the Federal Court - Trial Division in the first appeal which had reversed the trial decision. The decision of the court in this second appeal was reported in the 38th volume of the third series of the Canadian Patent Reporter at page 1. The party who was unsuccessful at this second appeal (the defendant at trial, appellant in the second appeal) then appealed further to the Supreme Court of Canada. The right to be heard on appeal by the Supreme Court is not automatic and the Supreme Court itself will decide whether it believes there is any merit to hearing the appeal. In this case, the Supreme Court decided in 1992 that it would not hear and decide this further appeal. Its reasons for deciding in this way were reported in the 41st volume of the third series of the Canadian Version 1
14
Patent Reporter at page 11. Thus, the original trial outcome remains reversed meaning that the plaintiff at trial has succeeded in obtaining the relief it sought in the action. Other people for whom this would be useful information are those in similar situations trying to decide whether court action is justified or whether these decisions are sufficiently clear to define their legal rights without litigation. Legal researchers and historians will be interested in following and chronicling the decisions and reasoning to develop legal commentary on trends. A lawyer preparing a similar case will also be interested as he or she can present the case reasoning in court to the judge as a persuasive precedent to guide the judge's decision about his or her own client's matter.
Version 1
15
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Administrative laws set out broad policy statements and establish a board, commission or agency to ensure compliance by business. ⊚ ⊚
true false
2) Administrative agencies, boards or commissions usually use registration or licensing to control business subject to the administrative law. ⊚ ⊚
3)
true false
Administrative agencies, boards or commissions enforce criminal laws. ⊚ ⊚
true false
4) Decisions of administrative agencies, commissions or boards that revoke a licence or registration are unenforceable because they are not courts. ⊚ ⊚
true false
5) All administrative laws are criminal laws and enforceable as such even though they are not part of the Criminal Code. ⊚ ⊚
true false
6) The professions of medicine, law and accounting are governed by bodies established under administrative laws. ⊚ ⊚
Version 1
true false
1
7) An administrative body may revoke a licence or registration of a professional person at any time without disclosing its reasons. ⊚ ⊚
true false
8) An administrative agency, commission or board cannot revoke the licence or registration of a business without giving the business an opportunity to object. ⊚ ⊚
true false
9) Administrative agencies commissions or boards are usually given the power to make procedural rules under the legislation that they are required to enforce. ⊚ ⊚
true false
10) Decisions of administrative bodies that affect the right of businesses to operate or professional persons to practise their profession must be made in accordance with the rules of natural justice. ⊚ ⊚
true false
11) Administrative bodies must usually hold a hearing to allow persons affected by a proposed decision to appear and defend against such action before a decision is finalized. ⊚ ⊚
true false
12) There is no appeal from a decision of an administrative body that arbitrarily revokes the licence to practise of a professional person.
Version 1
2
⊚ ⊚
true false
13) The net result of governments exercising greater control over the activities of citizens is the creation of a large bureaucracy at provincial and federal levels of government, and a substantial restriction of the freedom of the individual through many and varied regulations. ⊚ ⊚
true false
14) Quebec is no different than the rest of the provinces in creating administrative law tribunals over most major aspects of commercial activity. ⊚ ⊚
true false
15) In some provinces, if objection is raised to a planning decision at the local level, decisions are not subject to appeal to a provincial body. ⊚ ⊚
true false
16) The concept of ‘natural justice’ includes the notion that procedural rules can be made retroactive. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 17) An administrative law statute was passed and proclaimed in force on January 1, 2003, that prohibited anyone from operating a pet supply business unless they were registered under the Act. Harvey operates a pet supply business. Which of the following statements is correct?
Version 1
3
A) Harvey can ignore the law because he was carrying on his business before the law came into effect. B) Harvey must register with the appropriate agency in order to lawfully carry on his business. C) If Harvey ignores the law, he has violated a criminal law statute. D) Registration is only a guideline, and registration is an option only. E) Harvey has the option of registering with the appropriate agency in order to comply with the law.
18) Harvey decides to register his business as a pet supply firm as required by the new law. He applies for registration but is turned down because the agency's policy rules state that anyone convicted of theft in the last five years may be denied registration. Harvey was convicted of a minor theft as a teenager five years ago. He decides to appeal the denial to the Business Appeal Tribunal established under the Act to hear appeals. Which of the following statements is correct?
A) The Business Appeal Tribunal is an administrative tribunal. B) Bodies like the Business Appeal Tribunal have no powers outside those granted to them under the Act. C) Tribunals such as the Business Appeal Tribunal must treat people who appeal in a fair manner, and give them a fair hearing. D) All of these statements are true. E) All of these statements are false.
19) Legislation is passed to establish a governing body for a specialized medical group, and to grant the body power to control and supervise the particular type of specialists. Which of the following are true?
Version 1
4
A) The governing body normally would not be allowed to set educational and training standards for the medical specialty. B) The governing body would not normally be allowed to prevent persons from practising the medical specialty even though a high degree of skill is required to perform the medical procedures. C) Protection of the public would not be a part of the policy mandate of the governing body. D) None of these statements are true. E) All of these statements are true.
20) Under the Ontario Travel Industry Act, someone who is turned down for registration as a travel agent may appeal from the Registrar's decision to the Commercial Registration Appeal Tribunal, a body appointed by the Ministry of Commercial & Consumer Relations. A conviction for theft within the previous five years is grounds to refuse registration. Ben, who had a conviction for shoplifting ten years ago, has been turned down, and he has decided to appeal. Which of the following is true?
A) The Commercial Registration Appeal Tribunal is an administrative law body, not a court. B) The hearing in front of a Tribunal like this is not conducted in the exact same way as a trial in a court. C) Bodies like the Tribunal have no power to establish procedures outside of those set out under the relevant legislation. D) Tribunals such as this must treat people who appeal to them in a fair manner, but they do not have to follow the same rules of evidence and procedure as a court. E) All of these statements are false.
21) Land development is one very important business regulation that is, for the most part, delegated to which level of government?
Version 1
5
A) B) C) D) E)
22)
Federal Provincial Local/Municipal Land development is unregulated All of these levels of government regulate land development
Administrative tribunals are created under the authority of:
A) B) C) D) E)
A statute A regulation An Order-in-Council A ministerial order A policy
23) Jamal is opening a restaurant in Waterloo, Ontario. He plans to purchase an old house and renovate it to operate his restaurant. Which of the following statements is accurate concerning the issue(s) for which he will be required to seek the approval of a municipal administrative tribunal?
A) B) C) D) E)
Land development Restaurant Licensing Employment Standards Board Land development and Restaurant Licensing All of the responses are correct.
24) Which of these administrative tribunals were created to protect consumers and the public?
Version 1
6
A) B) C) D) E)
Egg Marketing Board Canadian Radio-television and Telecommunications Commission Securities Commission Energy boards All were created for consumer and public protection.
25) How does the Securities Commission protect investors from unfair and fraudulent practices?
A) B) C) D) E)
Require the filing of a prospectus Require distribution of the prospectus Require disclosure of insider trading Licensing investment dealers All of these
26) What sanction can the Ontario Securities Commission not levy on individuals who breach the Securities Act?
A) B) C) D) E)
Fines Damage compensation to harmed parties Retraction of registration as an investment dealer Revocation of licence of a securities salesman Prohibition from acting as a director
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 27) Legislation is passed to protect the public and control the business activities of travel consultants, and to establish an agency to carry out the mandate. If the control is to take the form of licensing, outline a process that the agency might establish to address appeals where a licence is denied.
Version 1
7
28) A large part of the body of administrative law is directed at the control or regulation of business-related activity, and business persons and corporations alike must be aware of the many administrative bodies or agencies that can impact their operations. Explain why this awareness is important and give three examples of some of the activities that fall under the control of regulatory agencies, commissions, boards, or nongovernmental bodies.
Version 1
8
Answer Key Test name: Chapter 03 Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) TRUE 14) TRUE 15) FALSE 16) FALSE 17) B 18) D 19) D 20) A 21) C 22) A 23) D 24) E 25) E 26) B Version 1
9
27) If the agency establishes a licensing requirement for anyone who wishes to engage in the business activity it must ensure that the requirements for obtaining a licence are reasonable and necessary. It must also establish a hearing process that would permit someone denied a licence to appeal the decision to someone other than the original decision maker. The hearing process should be fair, provide the appellant with the reasons for the denial, and provide the appellant with time to prepare a response and to be heard at the hearing. 28) These regulatory bodies usually have regulations and procedures that must be complied with either before a business may lawfully be commenced or during its operation. A failure to comply with these rules or regulations may result in serious penalties or a closure of the business. Examples of some of the activities that fall under the control of these regulatory bodies are: trades, travel agents, real-estate salespersons, the incorporation of business, the sales of securities by public companies, labour relations, human rights, employment standards, workers' compensation, employment insurance, land use, environmental protection, aeronautics, and broadcasting telecommunications.
Version 1
10
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Andy entered a small restaurant and sat on a stool at the lunch counter. Baker entered the restaurant a few moments later and sat down at the lunch counter next to Andy. For no apparent reason, Andy suddenly struck Baker on the side of the head with his fist, knocking Baker to the floor. Baker raised himself from the floor, then seized Andy, and tossed him through the large glass window at the front of the restaurant. Andy was seriously injured and hospitalized as a result of the incident. Andy would be liable for the tort of assault on Baker. ⊚ ⊚
true false
2) Andy entered a small restaurant and sat on a stool at the lunch counter. Baker entered the restaurant a few moments later and sat down at the lunch counter next to Andy. For no apparent reason, Andy suddenly struck Baker on the side of the head with his fist, knocking Baker to the floor. Baker raised himself from the floor, then seized Andy, and tossed him through the large glass window at the front of the restaurant. Andy was seriously injured and hospitalized as a result of the incident. Andy would be liable for his battery of Baker ⊚ ⊚
true false
3) Andy entered a small restaurant and sat on a stool at the lunch counter. Baker entered the restaurant a few moments later and sat down at the lunch counter next to Andy. For no apparent reason, Andy suddenly struck Baker on the side of the head with his fist, knocking Baker to the floor. Baker raised himself from the floor, then seized Andy, and tossed him through the large glass window at the front of the restaurant. Andy was seriously injured and hospitalized as a result of the incident. Baker would not be liable for the injury to Andy, because he had acted in self-defence. ⊚ ⊚
Version 1
true false
1
4) Andy entered a small restaurant and sat on a stool at the lunch counter. Baker entered the restaurant a few moments later and sat down at the lunch counter next to Andy. For no apparent reason, Andy suddenly struck Baker on the side of the head with his fist, knocking Baker to the floor. Baker raised himself from the floor, then seized Andy, and tossed him through the large glass window at the front of the restaurant. Andy was seriously injured and hospitalized as a result of the incident. Baker is liable for the injury to Andy because it was not necessary for him to act in self-defence and his response was excessive. ⊚ ⊚
true false
5) At a social club meeting that was held to discuss an environmental problem in a community, Brown made a speech in favour of a particular course of action that he thought the club should follow. Smith, who did not like the suggestions made by Brown, also made a short speech in which he called Brown an "idiot," and his suggestions "rubbish." Unless it was true that Brown was an "idiot," Smith made a defamatory statement which slandered Brown's reputation. ⊚ ⊚
true false
6) At a social club meeting that was held to discuss an environmental problem in a community, Brown made a speech in favour of a particular course of action that he thought the club should follow. Smith, who did not like the suggestions made by Brown, also made a short speech in which he called Brown an "idiot," and his suggestions "rubbish." Statements made at a social club meeting are subject to absolute privilege. ⊚ ⊚
true false
7) At a social club meeting that was held to discuss an environmental problem in a community, Brown made a speech in favour of a particular course of action that he thought the club should follow. Smith, who did not like the suggestions made by Brown, also made a short speech in which he called Brown an "idiot," and his suggestions "rubbish." Statements made at a social club meeting are subject to qualified privilege. ⊚ ⊚
Version 1
true false
2
8) At a social club meeting that was held to discuss an environmental problem in a community, Brown made a speech in favour of a particular course of action that he thought the club should follow. Smith, who did not like the suggestions made by Brown, also made a short speech in which he called Brown an "idiot," and his suggestions "rubbish." Injury to one's reputation by a false statement, where the statement is not subject to privilege, is a tort. ⊚ ⊚
true false
9) At a social club meeting that was held to discuss an environmental problem in a community, Brown made a speech in favour of a particular course of action that he thought the club should follow. Smith, who did not like the suggestions made by Brown, also made a short speech in which he called Brown an "idiot," and his suggestions "rubbish." Defamatory statements made at social club meeting are generally considered to be less serious than defamatory statements published in a newspaper or magazine. ⊚ ⊚
true false
10) B and C owned adjacent houses in a subdivision. B's house and lot were located on slightly higher ground than C's, and the natural flow of water was downhill towards C's house. The two houses were separated by a 2.5-metre wide driveway, of which each owned one-half. One day, B changed the location of the eavestrough downspout on his house to direct the flow of water from his roof across the driveway, which sloped towards C's house. The first heavy rain resulted in the flooding of C's basement, because B had directed all of the rain which had collected on his roof towards and into C's basement window. C should have foreseen the entry of the water from B's downspout and dug a ditch to direct it away from his house. ⊚ ⊚
Version 1
true false
3
11) B and C owned adjacent houses in a subdivision. B's house and lot were located on slightly higher ground than C's, and the natural flow of water was downhill towards C's house. The two houses were separated by a 2.5-metre wide driveway, of which each owned one-half. One day, B changed the location of the eavestrough downspout on his house to direct the flow of water from his roof across the driveway, which sloped towards C's house. The first heavy rain resulted in the flooding of C's basement, because B had directed all of the rain which had collected on his roof towards and into C's basement window. B is liable for trespass by directing the rainwater collected on his roof towards C's property, if he did so with the intention of flooding C's basement. ⊚ ⊚
true false
12) T borrowed D's automobile for the purpose of delivering a parcel to the post office. On his return, T parked D's automobile in his own garage, and refused to return it to D. T's actions constitute conversion and would entitle D to take legal action to recover his automobile. ⊚ ⊚
true false
13) T borrowed D's automobile for the purpose of delivering a parcel to the post office. On his return, T parked D's automobile in his own garage, and refused to return it to D. Conversion is an actionable tort. ⊚ ⊚
true false
14) T borrowed D's automobile for the purpose of delivering a parcel to the post office. On his return, T parked D's automobile in his own garage, and refused to return it to D. T is liable for the theft of D's automobile. ⊚ ⊚
true false
15) On the way to work on the bus one morning, Martin was worrying about a personal problem and failed to notice that the bus was pulling into a stop. Since he had not braced himself, he fell against Victor, injuring Victor's eye with his briefcase. Martin has committed the tort of battery. Version 1
4
⊚ ⊚
true false
16) At an all-candidates meeting prior to the election, Jones accused the incumbent, Wilson, of having used her office to improperly improve her financial position. This was later proved to be true. Wilson argued that her reputation had been seriously damaged, and sued Jones for slander. Wilson will lose. ⊚ ⊚
true false
17) George borrowed a very valuable art book from the library. He liked it so much that he decided to pay the $20 maximum fine and keep the book. The library is entitled to damages equal to the value of the book since George has committed the tort of conversion. ⊚ ⊚
true false
18) Ms. Winter, an opera singer, consulted with Dr. Brown, an ear-nose-and-throat specialist about polyps in her throat. Dr. Brown recommended an operation, and, when questioned by Ms. Winter as to whether it could affect her voice, told her that he would not do the operation if there was such a risk. In fact, there was one chance in a thousand that she could lose her voice, but Dr. Brown did not tell her because he felt she would overreact, and the polyps, if left, might later lead to serious problems. Dr. Brown performed the operation without negligence. Ms. Winter lost her voice. Ms. Winter can sue Dr. Brown for battery. ⊚ ⊚
true false
19) Natasha was enraged when another driver cut her off, so she deliberately rammed his car. This was a crime but not a tort. ⊚ ⊚
Version 1
true false
5
20) Jason, a department store detective, saw Andrew slip some merchandise into his pocket. Jason followed him out of the store and stopped Andrew without touching him. He then quietly and politely asked him to accompany him to the security office. Andrew agreed, but when his pockets were searched, nothing was found. Andrew can successfully sue the department store for false imprisonment. ⊚ ⊚
true false
21) Winston regularly takes a shortcut across his neighbour's backyard to shorten his walk home. His wife informed him that she had been told by their neighbour that he does not like Winston taking that shortcut, but Winston says "I'm not doing any damage. There's nothing he can do about it." Winston is wrong. ⊚ ⊚
true false
22) Annie was furious because the new car she had bought kept breaking down and the dealer would only repair it according to their contract, and not replace it. Annie made a huge yellow lemon-shaped sign and walked up and down outside the dealership. The sign said, "This is what they really sell here." The dealer could sue her in tort and win. ⊚ ⊚
true false
23) Bob owns a small carpet company. After a dispute, his best salesperson left the company and was hired by a competitor. A client who recently had carpet installed by Bob's company has initiated legal action on the basis of a statement made to him by the former salesperson who told the client that he had received a product of inferior quality. The former employee has committed a slanderous act which is an intentional tort. ⊚ ⊚
Version 1
true false
6
24) Bob owns a small carpet company. After a dispute, his best salesperson left the company and was hired by a competitor. A client who recently had carpet installed by Bob's company has initiated legal action on the basis of a statement made to him by the former salesperson who told the client that he had received a product of inferior quality. The former employee also told the client that Bob does this frequently. He has committed a slanderous act which is an intentional tort. ⊚ ⊚
true false
25) Jim applied for a position with the city's public works department that he had seen advertised in the local newspaper. The advertisement specifically requested experience with heavy machinery, which would be used on a daily basis in this job. Jim did not know how to operate any of the machinery, and in fact, he did not have a valid driver's licence. On his first day at the job Jim caused an accident that will cost the city greatly. Jim's action would constitute deceit under tort law. ⊚ ⊚
true false
26) A newspaper cartoon depicted a well-known international entrepreneur as a greedy villain dressed as Robin Hood who was "stealing from the poor and giving to himself." The entrepreneur would be precluded from seeking damages from the publisher of the newspaper because cartoons are exempt from the defamation laws. ⊚ ⊚
true false
27) A newspaper cartoon depicted a well-known international entrepreneur as a greedy villain dressed as Robin Hood who was "stealing from the poor and giving to himself." The entrepreneur would be precluded from seeking damages from the cartoonist because cartoons are exempt from the defamation laws. ⊚ ⊚
Version 1
true false
7
28) A newspaper cartoon depicted a well-known international entrepreneur as a greedy villain dressed as Robin Hood who was "stealing from the poor and giving to himself." The newspaper could successfully defend any action taken by the entrepreneur by invoking fair comment. ⊚ ⊚
true false
29) A newspaper cartoon depicted a well-known international entrepreneur as a greedy villain dressed as Robin Hood who was "stealing from the poor and giving to himself." Defamation may take the form of either libel or slander. ⊚ ⊚
true false
30) The rising issue of Internet defamation does not change the principles of Common Law surrounding defamation: published slander (libel), whose untruth is given wide circulation as fact,resulting in injury to the victim's reputation. ⊚ ⊚
true false
31) In the Common Law provinces, the limitation period for commencing legal action against governments is set by specific statutes and is usually very short (days or months); but in Quebec, it is even shorter. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 32) While driving, Charles "rear-ended" Francine's car at a stop sign.
Version 1
8
A) B) C) offence. D) E)
Charles can be charged by the police with an offence under the road traffic laws. Francine can sue Charles in tort for the damage done to her car. Francine can only sue Charles successfully in tort if he is convicted of a road traffic Charles can be charged by the police and sued by Francine. None of the responses are correct.
33) Rashid saw Charles “rear-end” Francine’s car at a stop sign. Immediately following the accident he told Charles that he would testify that Francine had been over the white line and had backed up into Charles, if Charles paid him $200. Charles agreed and Rashid provided his testimony in court. The police can prove Rashid is lying.
A) Francine could successfully sue Rashid for slander. B) Francine could successfully sue Rashid for slander and would be awarded punitive damages. C) Francine would lose a slander suit because Rashid could raise the defence of absolute privilege, though Rashid could be charged with the crime of perjury. D) Francine would lose a slander suit because Rashid could raise the defence of qualified privilege, although Rashid could be charged with the crime of perjury. E) If Rashid had lied only out of friendship, rather than for money, he could not be sued by Francine nor charged by the police.
34) Smith, a computer programmer with Computer Company, was approached by its largest competitor and asked whether he would like to join it as its head of research. It was made clear that the job was dependent on his bringing with him Computer Company's secret research data. Smith accepted and resigned from Computer Company.
A) Smith could be sued by Computer Company for breach of confidence. B) The competitor could be prevented from using any trade secret which Smith brings from Computer Company. C) Smith could be subject to an injunction preventing him working for Computer Company. D) None of the responses are correct. E) All of the responses are correct.
Version 1
9
35) Darren sells counterfeit Gucci watches on a downtown street corner for $30 each. If asked, he says they are "genuine imitation Guccis."
A) Gucci can sue Darren for slander of title. B) Gucci can sue Darren for passing-off. C) People who buy the watches can sue Darren for passing-off. D) Since Darren readily admits they are fakes, he has committed no tort. E) People who buy cheap watches on street corners cannot claim they thought they were getting the real thing, so Darren has committed no tort.
36) Claire required a reference for a new job. She asked for a letter from her former employer, Alice. Alice wrote that Claire was honest, hard-working, intelligent and pleasant, and would do best in a job with considerable direction and supervision. Since Claire had applied for work in outside sales, she was turned down as the job needed an independent self-starter. Claire sued Alice for libel.
A) Alice could successfully argue that she had written the letter in good faith and only said what she honestly believed to be true. B) Even if what Alice said was true, Claire will win since, if she was not willing to write only positive things, Alice should have declined to write at all. C) Alice could successfully raise the defence of absolute privilege. D) Unless Alice can prove the truth of what she wrote, Claire will win. E) Alice's freedom of speech must be protected even at the expense of Claire's right to protect her reputation so, even if Alice was not being totally truthful, Claire will lose.
37) Terry responded to a mail-order advertisement for athletic shoes from a magazine. At a cursory glance the offer featured ACME sports shoes, Terry's favourite, on sale for a low price. Terry had failed to notice that the brand name was, in fact, ACNE. When he received the product Terry was infuriated. After an examination of the ad, Terry had realized the mistake but felt that ACNE's marketing tactics were suspect and is considering seeking legal advice on the issue. Which of the following is not true?
Version 1
10
A) ACNE is responsible for a refund for Terry's purchase because its actions make them liable for passing-off. B) ACNE is liable for nothing because it was Terry's blind negligence that placed him in the predicament. C) ACME could sue ACNE for a violation of their company's product rights and reputation. D) The action of passing-off as it exists in this case is a specific charge under the law of unintentional torts. E) ACNE is responsible for a refund for Terry's purchase because its actions make them liable for passing-off and ACME could sue ACNE for a violation of their company's product rights and reputation.
38) Dan had been notified by his landlord, Kevin, that he was being evicted and was to vacate the premises within one month's time. Dan ignored all of Kevin's subsequent notices of the deadline, refused Kevin's help in moving and caused many confrontations on the issue that almost escalated to physical altercations. After the deadline passed, Dan's belongings were still in the apartment, but Dan was nowhere to be found. Kevin put on a new lock, moved Dan's things to the apartment storage units and left a note on the door explaining the arrangement and for Dan to come and talk to him about the situation. Upon investigation the next day, Kevin found the lock smashed and the apartment to be severely damaged. As well, Dan's possessions had been removed from the storage.
A) Dan is liable for trespass and punitive damages as a result of his trespass. B) Dan is not liable for trespass because he was under the impression that the furniture from the apartment was being held from him by the landlord. C) Dan is liable for trespass because the change of locks and notice provided him with proper knowledge that he was not to use the apartment. D) The landlord is liable for trespass to and conversion of Dan's possessions. E) All of the responses stating Dan is liable for trespass are correct.
39) Injurious falsehood is closely related to slander of goods, but its scope is wider. Which of the following statements are also true about injurious falsehood?
Version 1
11
A) B) C) D) E)
40)
The goods may be the subject of the slander. The disparagement can be aimed at the business enterprise as a whole. The disparagement can be aimed at the owners in particular. None of the responses are correct. All of the responses are correct.
Deceit is defined in legal terms as:
A) A tort that arises when a party benefits by acting upon a false representation made by a party with the intention of deceiving the other. B) A tort that arises when a party suffers damage by acting upon a false representation made by a party with the intention of deceiving the other. C) A tort that arises when a party suffers damage by acting upon a false representation made by a party with only good intentions toward the other party. D) A tort that arises when a party benefits by acting upon a false representation made by a party with only good intentions toward the other party E) A tort that arises when a party suffers damage by acting upon a false representation made by a party with the intention of deceiving the public as a whole.
41)
An intentional tort exists under which of the following circumstances?
A) B) C) D)
Version 1
The act that was committed is prohibited by Common Law. The act was intentional. The act was outside of a contract or trust. All of the responses are correct.
12
42) The ACME Toaster Company was searching for a supplier of wire heating elements for its toasters. It located the XYZ Element Company which also supplied good quality elements to the Pop-Up Toaster Company, ACME's main competitor. In order to fill ongoing standing orders for elements, XYZ required ACME to complete a credit survey identifying ACME's bank and trade credit references. ACME, which was in financial difficulty, provided a bank account number which actually belonged to the president personally and in which there were substantial deposits. ACME also wrote a letter to the operations manager of XYZ stating that ACME could purchase the entire production of XYZ's elements and that if XYZ would agree to ACME being its exclusive elements customer, ACME would guarantee the purchase of XYZ's annual production at 1% above the price paid by Pop-Up. XYZ was delighted. It informed Pop-Up that it would no longer be able to meet its supply requirements, effective immediately. ACME received its first shipment of elements within a week.
A) B) C) D) E)
XYZ has committed the tort of fraudulent conversion of goods. XYZ has committed the tort of deceit. Pop-Up may sue for damages actually suffered. Pop-Up may sue for punitive damages. None of the responses are correct.
43) When a person says "I am going to hit you!" and immediately smacks the other person on the cheek, resulting in a cut, he/she has
A) B) C) D) E)
committed the tort of assault. committed the tort of battery. committed the tort of negligence. committed the torts of assault, battery and negligence. committed the torts of assault and battery.
44) Nadeem was a blogger who provided comments about corporate performance. On his blog he stated that Widget Company was in serious financial trouble and was preparing to lay off 200 employees. The price of Widget Company's stock immediately dropped $1.50. The law of defamation states that Nadeem is liable for the loss of Widget Company whether or not the statement was true.
Version 1
13
A) B) C) D) E)
True False True, only if there is absolute privilege True, only if there is qualified privilege True, only if there are special damages
45) Nadeem was a blogger who provided comments about corporate performance. On his blog he stated that Widget Company was in serious financial trouble and was preparing to lay off 200 employees. The price of Widget Company's stock immediately dropped $1.50. What tort will Widget Company use to bring an action against Nadeem?
A) B) C) D) E)
46)
Defamation Slander Deceit Libel Nuisance
Which of the following fact patterns does NOT constitute trespass?
A) B) C) D) E)
Building a crooked fence that is partially on the neighbour's lot. Unintentionally walking through a neighbour's yard to access the garbage can. Stringing of Christmas lights across the neighbour's shrubs without their consent. Directing house eavestroughs so that they overhang the property line. Allowing tree branches to hang over the property line.
47) Karim was replacing the light bulb inside of his refrigerator. The bulb was an odd size, so he put it in his coat pocket when he went to Gnome Hardware to purchase a replacement. While standing in front of the light bulb display Karim removed the old light bulb from his pocket to compare it to those for sale. None of the bulbs on display were the same so Karim put the old bulb back into his coat pocket and walked out of the store. When he left the store, a clerk approached him and asked him to go to the manager's office. Can Karim bring a legal action against Gnome Hardware for false imprisonment?
Version 1
14
A) B) C) D) E)
Yes. Yes, if Karim suffered damages, such as lost time from work. No, he can only bring an action for slander of title. No, Gnome Hardware had reasonable and probable grounds. No, Karim did not suffer any damages, such as lost time from work.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 48) At a meeting of a local business club, someone voiced the opinion that the law interferes in business matters too much, and we would all be better off without it. A discussion ensued. Describe, with some examples, what you would say to demonstrate that the legal limitations on the freedom of businesspeople to operate can act to protect the honest businessperson.
49) You run a large and lucrative bar and restaurant, and you have just hired a new bouncer. You have explained to him that it is always best to be friendly and to calm angry patrons. Describe to him how far he can go to protect himself if attacked, and why he must learn to control himself when provoked. Explain also how his behaviour, if he assaults a patron, could affect you.
50) As you exit a shopping mall you accidentally run into another person and knock her down. As she leaps to her feet you begin to exchange words that escalate, and you find yourself in physical struggle with the other person. After receiving several blows from her you retaliate by striking her on the head with your umbrella, knocking her unconscious and producing a large gash on her head. Discuss the principles of assault and battery as well as self-defence and what actions constitute each by defining them. Write a short decision on this case based on your knowledge and definition of the principles. Version 1
15
51) From a legal perspective discuss those aspects of designing a marketing strategy which a business must keep in mind.
52) Mr. and Mrs. Lacroix purchased a fireplace insert from Dan's Hearth Shop. Dan's was the only local distributor and installer of such units in the town in which the Lacroix's lived. Dan's supplied the unit with the requisite chimney pieces and also performed the installation. Within a month, the Lacroix's revisited Dan's shop to complain about the performance of the fireplace. In particular, they complained that the unit was prone to chimney fires. Dan came to the Lacroix's home to inspect the unit but could not find any evidence of chimney fires. He further advised the Lacroix's to burn only dry wood in the insert and to have the chimney cleaned. On several other occasions, the Lacroix's complained to Dan about chimney fires and eventually demanded their money back. Dan refused, and claimed that the fault was not in the fireplace but in the Lacroix's failure to operate it properly and to have the chimney cleaned. The following week Mrs. Lacroix placed the following advertisement in the local newspaper: 'FIREPLACE INSERT - Comes equipped with rusting steel flue connector. Locally purchased, installed by local vendor, used only 3 months. Poor quality material and workmanship. Has proven record of chimney fires. Brass kettle will be thrown in. Phone 9762734 after 5 p.m.' Discuss the arguments which both sides might raise if Dan's Hearth Shop took legal action against the Lacroix's. Render a decision.
Version 1
16
53) Peter, a professional water skier, was very prominent in his field, having won numerous international championships prior to turning professional. As part of his work he was himself actively involved in promoting and marketing his name and reputation for commercial benefits.Waterski Summer Camps Inc. operated a summer camp for children at which waterskiing was a central part of its camp program. In February, the camp hired ABC Advertising Co. to prepare promotional material for the summer camp. At this time, it attempted to engage Peter to promote and participate in the summer camp. However, due to other engagements and a busy summer work schedule, Peter refused. In connection with Peter's promotional activities he frequently used a famous photograph of himself skiing. ABC Advertising prepared without Peter's consent a live drawing stylisation of this photograph. There was a striking similarity between the drawing and the well-known photograph of Peter. It used the drawing in a pamphlet and advertisement prepared to promote the camp. The camp's general manager approved the use of the drawings in the advertising material. When Peter discovered the drawing, he confronted the camp about its use. The manager stated that the camp did not intend to represent Peter in the drawing, rather to convey the impression of water-skiing. Peter instituted legal proceedings against the camp and the advertising company. Discuss the basis of his claim and the arguments he may use.
54) The Patins had been transferred to a new city and had to sell their home before leaving. They received a full price offer which included a warranty that the home had not been insulated with urea formaldehyde. Shortly before closing, the purchasers came by the home to measure the attic opening and discovered that the home was, in fact, insulated with urea formaldehyde. This was unknown to the Patins who had not asked or obtained a warranty when they purchased the home from a construction company several years before. As a result, the purchasers refused to buy the home and the Patins were forced to delay their move and incur considerable expense. The Patins sued the construction company for deceit, claiming that it had induced them to purchase that home but had kept the existence of the insulation secret. The Patins had inspected the house before they purchased it and their agreement specifically excluded any representations and warranties which were not expressly stated in the agreement. Discuss the nature of the Patins' claim and the defences, if any, which might be raised. What would be the likely outcome?
Version 1
17
Version 1
18
Answer Key Test name: Chapter 04 Test Bank 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) TRUE 17) TRUE 18) TRUE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) FALSE Version 1
19
27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) FALSE 32) D 33) C 34) E 35) B 36) A 37) E 38) E 39) E 40) B 41) D 42) E 43) E 44) B 45) D 46) B 47) A
Version 1
20
48) See text -- Business-Related Torts and Crimes (p. 83) - fair competition is healthy for businesses, but unfair tactics injure others and, in the end, leave an unhealthy commercial atmosphere for business operations. - both consumers and businesspeople can engage in such unfair practices - discussion could include identification of such issues as: e.g., slander of goods/title; breach of intellectual property rights; breach of confidence; agreements in restraint of trade, and other Competition Act matters; fraudulent misrepresentation; consumer protection legislation 49) See text -- Assault and Battery (p. 72) - assault and battery - can be sued in tort - can be criminally charged - has right to defend against force, but it must only entail a reasonable and necessary degree of force; see Bruce v. Dyer - the employer is vicariously liable for the employee's tortious acts while carrying out his job; could lead to the employee's dismissal; employer is not liable for any criminal consequences unless involved 50) Assault (the threat of touching without consent) and battery (actual touching without consent) are both actionable torts. The woman may claim both since a battery occurred when she was knocked over, and then an assault and further battery occurred in the exchange of words and blows. Both parties will claim battery has occurred as a result of the struggle and both will rely on the defences of provocation and selfdefence to lessen their liability. To succeed the act of self-defence must be proven to be only forceful enough to prevent further physical harm and not to inflict serious harm to the assailant. In this case inflicting a gash is probably excessive force.
Version 1
21
51) See text - Business-Related Torts and Crimes (p. 83) Businesses must be careful not to conduct any marketing activity in a manner that might be tortious or constitute a business crime. Products must not infringe intellectual property rights or be packaged or presented so as to constitute passing-off. Advertising must be carefully crafted so as not to constitute slander of goods of a competitor. Pricing policy must also be carefully thought through not to fall within activity that would constitute unfair competition. 52) Based on Dale's Trad'N Post Ltd. et al. v. Rhodes et al. (1987), 43 C.C.L.T. 37 (B.C.S.C.), this case examines both the torts of libel and slander of goods. Dan's arguments will point out that the Lacroix's language in the advertisement made it clear that they were less interested in selling the fireplace than in publicising its allegedly dangerous deficiencies and the poor quality of material and workmanship of the "local vendor" who installed it. Any reasonable person reading the advertisement would conclude that it referred to Dan and was maliciously intended to injure the reputation of his business Dan may further argue that the untrue statements made by the Lacroixes concerning his goods and business practices constitute slander of goods (as they may be highly injurious to his business). The Lacroixes in their defence may argue that the truth of their statements is a full defence to Dan's claims or, at least, that the statements were made on facts which they believed to be true. As such there is neither libel nor slander of goods but rather, a fair statement regarding their experience with Dan. The court in its decision held on the basis of other facts that there was insufficient evidence suggesting that the average reader would interpret the advertisement as referring to the plaintiff's business.
Version 1
22
53) This is based on Athens v. Canadian Adventure Camps Ltd. et al. (1977), 4 C.C.L.T. 20 (Ont. S.C.) The plaintiff's action is based in the tort of slander of title, more particularly, in passing-off and the wrongful appropriation of his personality or image. He may argue that the unauthorized use of the drawing by the camp was a deliberate attempt to market him as promoting and participating in the camp, thus creating confusion between the camp's business and the plaintiff's business. The camp was, in fact, attempting to convey to potential customers that Peter was associated with it and was thereby, trading on the goodwill and reputation he had built up for himself by pursuing his own commercial promotion. Moreover, he was the rightful owner of his own image which could not lawfully be employed without his consent. At trial, the court held that on the balance of probabilities the use of the drawing would not confuse that segment of the public likely to read the brochure between the business of the camp and that of the plaintiff. Nor could any harm to the plaintiff's image be shown. Therefore, the claim for passing-off failed. The claim for misappropriation of personality succeeded, as the plaintiff's exclusive proprietary right to market his personality for gain had been interfered with by the camp.
Version 1
23
54) Based on Flynn v. Steve Butler Construction Ltd. (February 23, 1993), Doc. V01570 (B.C.C.A.). This case examines the tort of deceit based on the principle of fraudulent misrepresentation. The Patins will argue that the construction company deliberately or recklessly misled them by failing to mention the insulation, of which it must have been aware, to induce them into the purchase of the home. The vendor ought to have known that this would be of material importance to their purchase decision. Damages would be based on the costs incurred as a result of the aborted sale of their home and the delay in moving to their new location. The construction company's defence will be that there was no intention to deceive the Patins and that its actions were simply a mistake amounting, at most, to a negligent misrepresentation and not a fraudulent one. At trial the court found for the plaintiffs and awarded damages. However, this was overturned on appeal. There was no evidence supporting a tortious intention to deceive even though the construction company was fully aware of the insulation at the time of the plaintiffs' purchase. The plaintiffs were not induced into the contract by negligent misrepresentation and, therefore, the tort of deceit did not occur.
Version 1
24
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. B would be liable for the injury suffered by A when A slipped on the sidewalk in front of his shop, because he should have foreseen the possibility of injury to customers when he failed to remove the ice. ⊚ ⊚
true false
2) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. B is liable for the injury to A as a result of the automobile accident, because she would not have been travelling in the taxi if she had not injured her ankle at B's store. ⊚ ⊚
true false
3) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. The injured ankle was the proximate cause of A's more serious injury in the automobile accident, because B had hired the taxi to send her to the hospital. ⊚ ⊚
true false
4) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. B's actions were too remote to be the cause of the automobile accident in which A received serious injuries.
Version 1
1
⊚ ⊚
true false
5) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. A was the author of her own misfortune, because she should have foreseen the risk of injury by walking on an icy sidewalk. ⊚ ⊚
true false
6) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. If A took legal action against B, B might plead volenti non fit injuria as a defence. ⊚ ⊚
true false
7) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. B has strict liability for any injury to A, because he was the owner of the sidewalk. ⊚ ⊚
true false
8) On a cold winter day, A slipped on the icy sidewalk at the entrance to B's shop. A injured her ankle as a result of the fall, and B hired a taxi to have her taken to the hospital to have her injured ankle examined. On the way to the hospital another automobile collided with the taxi, and A was seriously injured. The court would consider what a reasonable person would have done or foreseen in determining the duty of care in this case. ⊚ ⊚ Version 1
true false 2
9) Jacques captured a large rattlesnake while on a camping trip and brought it home to his apartment in the city. He kept the snake in a glass aquarium which he had covered with a wire screen. One day, after feeding the snake, he accidentally failed to fasten down the screen cover, and the snake escaped from the aquarium. The snake managed to enter the adjoining apartment by way of an open balcony door. The occupant of the adjoining apartment was bitten and seriously injured when she accidentally stepped on the snake. Jacques would not be liable for the injury to his neighbour, because she was bitten as a result of her own carelessness. ⊚ ⊚
true false
10) Jacques captured a large rattlesnake while on a camping trip and brought it home to his apartment in the city. He kept the snake in a glass aquarium which he had covered with a wire screen. One day, after feeding the snake, he accidentally failed to fasten down the screen cover, and the snake escaped from the aquarium. The snake managed to enter the adjoining apartment by way of an open balcony door. The occupant of the adjoining apartment was bitten and seriously injured when she accidentally stepped on the snake. The neighbour was careless in leaving her balcony door open, and therefore, Jacques would not be liable for her injury. ⊚ ⊚
true false
11) Jacques captured a large rattlesnake while on a camping trip and brought it home to his apartment in the city. He kept the snake in a glass aquarium which he had covered with a wire screen. One day, after feeding the snake, he accidentally failed to fasten down the screen cover, and the snake escaped from the aquarium. The snake managed to enter the adjoining apartment by way of an open balcony door. The occupant of the adjoining apartment was bitten and seriously injured when she accidentally stepped on the snake. Jacques would probably be strictly liable for any injury caused by the snake, since he should have foreseen the danger associated with keeping a poisonous snake in confinement. ⊚ ⊚
Version 1
true false
3
12) Jacques captured a large rattlesnake while on a camping trip and brought it home to his apartment in the city. He kept the snake in a glass aquarium which he had covered with a wire screen. One day, after feeding the snake, he accidentally failed to fasten down the screen cover, and the snake escaped from the aquarium. The snake managed to enter the adjoining apartment by way of an open balcony door. The occupant of the adjoining apartment was bitten and seriously injured when she accidentally stepped on the snake. Historically, the courts have imposed strict liability for loss on persons that keep dangerous things on their property. The rattlesnake would probably be classed in such a way by the court. ⊚ ⊚
true false
13) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. A may take legal action against C, since C sold the chocolate bar. ⊚ ⊚
true false
14) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged one of her teeth. She was obliged to have the tooth repaired by a dentist, and in addition, lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. B may take legal action against A, since it was A who gave her the chocolate bar. ⊚ ⊚
Version 1
true false
4
15) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. B was careless in eating the chocolate bar, and therefore was responsible for her own injury. ⊚ ⊚
true false
16) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. B may take legal action against the manufacturer of the chocolate bar, because the manufacturer was careless in making the bar. ⊚ ⊚
true false
17) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00 The only person liable for B's injury would be the employee of the manufacturer who made the chocolate bar. ⊚ ⊚
Version 1
true false
5
18) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. The manufacturer of the chocolate bar has strict liability if the product it manufactures causes injury. ⊚ ⊚
true false
19) A and B entered a variety store owned by C. A purchased two chocolate bars from C, and gave one to B. Unknown to A, B, or C the chocolate bar which A gave to B contained a piece of metal that had fallen into the chocolate mix when the candy bar was made. When B attempted to eat the chocolate, she damaged a tooth. She was obliged to have the tooth repaired by a dentist, and in addition lost a day's work because of the painful injury to her mouth. Her total loss amounted to $300.00. The manufacturer is vicariously liable for the negligence of its employees in the making of the chocolate bar. ⊚ ⊚
true false
20) Sam had a swimming pool in the rear yard of his suburban home. The pool was enclosed on all sides by a 1.2-metre high wire fence, and entry to the pool area was by a gate, which Sam occasionally locked. One day, Sam drained the pool in order to have some repair work done, and accidentally left the gate closed but unlocked. A four-year-old child who lived in the next house to Sam entered the pool area by opening the gate, and was injured when he fell into the empty pool. Sam is liable for the injury to the child, because he had not warned his neighbours that the pool had been drained of water. ⊚ ⊚
Version 1
true false
6
21) Sam had a swimming pool in the rear yard of his suburban home. The pool was enclosed on all sides by a 1.2-metre high wire fence, and entry to the pool area was by a gate, which Sam occasionally locked. One day, Sam drained the pool in order to have some repair work done, and accidentally left the gate closed but unlocked. A four-year-old child who lived in the next house to Sam entered the pool area by opening the gate, and was injured when he fell into the empty pool. Sam is liable for the injury to the child, because he failed tolock the gate that would prevent the child from entering the pool area. ⊚ ⊚
true false
22) Sam had a swimming pool in the rear yard of his suburban home. The pool was enclosed on all sides by a 1.2-metre high wire fence, and entry to the pool area was by a gate, which Sam occasionally locked. One day, Sam drained the pool in order to have some repair work done, and accidentally left the gate closed but unlocked. A four-year-old child who lived in the next house to Sam entered the pool area by opening the gate, and was injured when he fell into the empty pool. The child's parents would be entirely at fault for allowing the child to enter on Sam's property without supervision. ⊚ ⊚
true false
23) Ping drove his automobile into a parking lot and, in doing so, collided with the side of a parked automobile that was owned by Nelson. Ping has a duty not to damage the automobile owned by Nelson. ⊚ ⊚
true false
24) Ping drove his automobile into a parking lot and, in doing so, collided with the side of a parked automobile that was owned by Nelson. Ping would be liable for the damage to Nelson's automobile if Ping was negligent in the operation of his motor vehicle. ⊚ ⊚
Version 1
true false
7
25) Ping drove his automobile into a parking lot and, in doing so, collided with the side of a parked automobile that was owned by Nelson. Because a motor vehicle is a dangerous object, Ping is strictly liable for any damage caused by his vehicle. ⊚ ⊚
true false
26) A highly corrosive liquid that is stored on the property of Acme Waste Disposal leaks from its container and seeps into the foundations of the business next door, badly damaging the building. Acme will be liable only if the injured party can prove Acme was negligent. ⊚ ⊚
true false
27) Andrew, a newly graduated lawyer, failed to do a proper title search of a property, which resulted in his clients actually owning only two-thirds of the property which they thought they had bought. Andrew will be held to the standard of care expected of the reasonable person. ⊚ ⊚
true false
28) Manish, a hairdresser, applied too much peroxide to Meagan's hair when he was colouring it, causing it to break off at the roots. Manish will be held to the standard of care of the reasonable hairdresser. ⊚ ⊚
true false
29) Teresa is suing the Driver Trucking Co. because she was injured when one of their trucks negligently crashed into the bus shelter in which she was standing. Since Driver Trucking can do nothing to protect itself from its driver's negligence, it is unfair to hold the company liable for its employee's actions. ⊚ ⊚
Version 1
true false
8
30) The Sampson Hair Products company is sued by a user who contracted a painful rash from using their shampoo. If Sampson manufactured the product in the same way and to the same standard as a reasonable shampoo manufacturer, and the rash was simply the result of an unusual allergy, Sampson will not be held liable. ⊚ ⊚
true false
31) Marc intends to sue Colleen for negligence. As a general rule, absent any unusual circumstances, Marc will not win unless he can prove to the courton the balance of probabilities that what he alleges about Colleen's actions is true. ⊚ ⊚
true false
32) James and Mary are artists who have a studio in an industrial part of the city. They decide to live in the studio, which is not against local zoning bylaws, but find themselves disturbed at night by the noise and light from a nearby railway marshalling yard. They decide to institute a nuisance suit against the railway since their enjoyment of their property has been seriously affected. They will be unsuccessful. ⊚ ⊚
true false
33) Dave was injured in a hang-gliding accident at a hang-gliding school and would like to sue the owners of the school. Before they would allow him to take classes, the owners of the school had Dave sign a document which said that the school would not be responsible, legally or physically, for Dave's safety. This kind of document is called a release. ⊚ ⊚
true false
34) Dave was injured in a hang-gliding accident at a hang-gliding school and would like to sue the owners of the school. Before they would allow him to take classes, the owners of the school had Dave sign a document which said that the school would not be responsible, legally or physically, for Dave's safety. This kind of document is called a waiver.
Version 1
9
⊚ ⊚
true false
35) Dave and Ray are teammates on their city's rugby team. Ray was injured early in the season and is unable to play for the remainder of the year. Dave forgot his mouthguard on the day of a game and borrowed Ray's mouthguard which, although it was medically formed for Ray's mouth, fit Dave fairly well. During a game Dave received a high tackle and lost several of his teeth. His attempt to sue Ray as well as the mouthguard manufacturer will be successful. ⊚ ⊚
true false
36) Seth owns a large plot of land on which he plants pear trees. These pears are his sole income and have earned him a reputation as a premier grower. His neighbour owns two horses which constantly break through the fence separating the two properties and maraud Seth's pear trees, costing him lost profits, decreasing production and causing general damage to the orchard. Seth would have valid grounds for a claim of nuisance. ⊚ ⊚
true false
37) A defendant can receive damages as a result of a tortious act even though he or she may not have experienced any monetary loss. ⊚ ⊚
true false
38) The basic premise upon which tort liability is founded is that individuals and corporations living in a civilized society will not (and should not) intentionally cause injury to one another or others' property. ⊚ ⊚
true false
39) Initially, under tort theory, only deliberate, direct injury was open to action, and compensation payable was open to consideration based on the actual loss suffered by the plaintiff. Version 1
10
⊚ ⊚
true false
40) Much attention has been paid to the issue of dog attacks, which remains largely subject to a presumption of strict liability for owners of specific breeds such as pit bulls. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 41) Jacqui and Penny decided to go into partnership in a small baseball equipment manufacturing firm. Jacqui raised $250,000 start-up funds, in large part on the basis of documents which she forged. These documents purported to show that they owned their factory, when in fact, they merely leased it. Jacqui spent all of the money on herself, and she now has no assets and has been jailed for 10 years. The creditors have contacted Penny and told her they will hold her liable for the loss.
A) Since she was unaware of Jacqui's fraudulent actions, Penny cannot be successfully sued by the creditors. B) Since Penny is Jacqui's partner, she is liable for this fraud. C) Penny is both civilly and criminally liable for Jacqui's behaviour. D) Since they should have verified independently everything that they were told by Jacqui, the creditors must bear their own losses. E) Penny can successfully argue volenti non fit injuria in her own defence.
42) Miss Haversham, a guest at a wedding catered by Giardia's Fine Foods, became violently ill, as did several other guests. It was later found that only those who ate the crab salad appetizer became ill. If Miss Haversham were to sue for negligence, she would normally have to prove
Version 1
11
A) that Giardia's was strictly liable for her injuries. B) that Giardia's failure to live up to the duty of care which it owed to her led directly to her injuries. C) that Giardia's had a duty of care, which it failed by its actions, to serve her food that was fit to eat. D) that Giardia's had a duty of care, which it failed by its actions, to serve her food that was fit to eat, and that Giardia's failure to live up to the duty of care, which it owed to her, led directly to her injuries. E) that Giardia's had a duty of care, which it failed by its actions, to serve her food that was fit to eat, and that Giardia's failure to live up to the duty of care, which it owed to her, led directly to her injuries. The plaintiff must also prove causation.
43) Miss Haversham, a guest at a wedding catered by Giardia's Fine Foods, became violently ill, as did several other guests. It was later found that only those who ate the crab salad appetizer became ill. Since Miss Haversham is not able to prove how she was injured by Giardia's but only that she was injured, presumably by them, which of the following concepts could she use to help her establish Giardia's negligence?
A) B) C) D) E)
Agony of the moment Volenti non fit injuria Res ipsa loquitur The doctrine of last clear chance Vicarious liability
44) Richard drank all the beer at the house one evening, and knowing he was not in a fit state to drive, decided to walk down the highway to the beer store for more. In order not to get lost, he followed the centre line on the road. Milton, who was driving too fast for his headlights on low beam, hit Richard from behind, and seriously injured him.
Version 1
12
A) Richard had clearly voluntarily assumed the risk of injury by walking on the highway, and Milton is not liable. B) Richard had waived any right to sue by voluntarily getting drunk. C) If Milton had the last clear chance to avoid the accident, he will be liable unless he can prove that Richard was the only one with the last opportunity to avoid the accident. D) By getting drunk and walking on the highway, Richard was negligent and will have to bear all of the losses caused by his own negligence. E) By getting drunk and walking on the highway, Richard was negligent and will have to bear part of the losses caused by his own negligence.
45) While at a baseball game one afternoon, Jack bought Matt a hot dog. When Matt bit into the hot dog he broke his tooth on a nail in it. i. Jack cannot sue the hot dog vendor for breach of contract. ii. Matt can sue the hot dog vendor for breach of contract. iii. Jack can sue the hot dog manufacturer under the tort of manufacturer's liability iv. Matt can sue the hot dog manufacturer under the tort of manufacturer's liability. v. The hot dog manufacturer will be strictly liable for allowing an inherently dangerous hot dog to leave his property and injure Matt. vi. Jack can sue for his emotional distress caused by the sight of blood coming from Matt's mouth.
A) B) C) D) E)
Version 1
i and iv. i, iv and vi. i and ii. ii and iii. ii, iii, v and vi.
13
46) The Central Hospital, Dr. Cuttham, a surgeon, and the operating room staff are sued by Mrs. Mullen because a scalpel was left in her abdomen after an operation for a burst appendix. It is unclear how the scalpel was missed. i. The hospital will be liable if the operating room staff employed by it is found to have been negligent. ii. Mrs. Mullen must prove on the balance of probabilities that the defendants had the sole care and control of the operating room. iii. Mrs. Mullen must prove on the balance of probabilities that, unless someone has been negligent, scalpels are not left in abdomens after operations. iv. Mrs. Mullen must prove on the balance of probabilities that a reasonable surgeon has a duty of care to ensure that no foreign objects are left inside a patient, that Dr. Cuttham failed to meet the duty of care, and that she was injured because of this. v. Dr. Cuttham will be held liable if he cannot show that he took all reasonable care and the scalpel was left by someone else.
A) B) C) D) E)
i and iv. ii and iii. i, ii and iii. i, ii, iii and v. i, iv and v.
47) Terri was injured by an exploding pop bottle. She lost time from work, for which she was not paid, and had to undergo several painful operations. Her right eye was badly damaged, and she will lose the sight in it over the next few years. If she wins her case against the manufacturer of the pop bottle, she will be entitled to: i. an injunction. ii. an order of replevin. iii. nominal damages iv. punitive damages. v. special damages vi. general damages.
Version 1
14
A) B) C) D) E)
all of these. i, iii, v and vi. ii, iv and v. ii, iv and vi. v and vi.
48) Dennis is the owner of a successful real estate company. His agents are provided with automobiles so they can complete deals more efficiently. One of Dennis' employees takes poor care of his car and frequently produces mechanic's bills for repairs. The last bill indicated that the car was no longer mechanically safe for the road. The employee, when confronted by Dennis with the threat of legal action if he did not repay the excessive maintenance costs for the car, was uncooperative. Shortly thereafter the car, which was occupied by the employee driver and a prospective buyer, skidded out of control seriously injuring the client and destroying the vehicle. With Dennis facing legal action by the client, the employee showed no remorse, refused to compensate for any damages and again dismissed Dennis' threats of legal action.
A) The employee is liable in negligence because of the poor standard of care he exhibited in maintaining the car. B) Dennis has no legal rights because he is the owner of the car and the employer and therefore must assume responsibility for the damages. C) Both parties may be liable because there was mutual responsibility for the car and vicarious liability of the employer. D) All of the above except B. E) None of the above are true.
49) Jean and Donald hired a lawn care company to come to their house and spray for dandelions, which had overtaken their lawn. When the spraying was completed the chemical had not only killed the dandelions but had destroyed the grass to an irreversible state. When the company investigated, it found that the acid content of the soil had caused the reaction. The company stated that the reaction is so rare it seldom does preliminary acid tests and tried to downplay the situation. Jean and Donald are contemplating legal action.
Version 1
15
A) The company, having full knowledge of potential reactions, proceeded without exercising the proper standard of care making them liable for the damages. B) The manufacturer is liable because the potential reaction was not compensated for in the chemical formula even though the product's label bears a suitable warning. C) The company and the manufacturer both acted reasonably and therefore have no legal liability. D) The company may seek compensation from the manufacturer for a defective product. E) All of these.
50) As a result of an explosion while plugging the Wonder "C" Model widget into an electrical socket, Tina was left in a coma for nine years. When she regained consciousness, she wished to bring legal action against the manufacturer, ACME Widget Co., for her injuries. She did not remember much about the events that surrounded the explosion. While doing some research for her case she discovered that there had been an electrical storm on the evening she was using the Wonder "C" when it exploded. Which of the following legal principles would the manufacturer of the widget not be entitled to use?
A) B) C) D) E)
doctrine of laches res ipsa loquitur contributory negligence act of God volenti non fit injuria
51) Four of the five following elements, when proved against a defendant, would constitute a successful action in negligence. Which one of the five would not?
A) B) C) D) E)
Version 1
There was a duty not to injure. The defendant breached the standard of care. There was damage that was foreseeable by a reasonable person. The duty of the defendant was unclear in the legal sense. The defendant was the proximate cause (causation) of the damage.
16
52) Where a negligence harms a business (for example, a factory set on fire), Common Law courts award damages to replace it, but have been reluctant to go further and award damages for economic losses (for example, lost profits from downtime). How do Quebec courts differ in their treatment of negligence?
A) B) damages. C) D) E)
Quebec courts willingly award punitive damages but are less willing to award costs. Quebec courts are much less willing than Common Law courts to award punitive There is little distinction between damages, and full restitution is required. B and C are true. A and C are true.
53) Mr. Ma operated a dry-cleaning plant. Even if there was no intention of harming anyone, he could still be sued by someone harmed by dry cleaning chemicals that escaped from his property. This is an example of what principle of tort law?
A) B) C) D) E)
Vicarious liability Contributory negligence False Imprisonment Strict liability Defamation
54) Mr. Ma operated a dry-cleaning plant. Even if there was no intention of harming anyone, he could still be sued by someone harmed by dry cleaning chemicals that escaped from his property. This is an example of what tort?
A) B) C) D) E)
Version 1
Negligence Occupier's Liability Manufacturer's Liability Nuisance Professional Liability
17
55) Mr. Ma operated a dry-cleaning plant. Even if there was no harm or any intention of harming anyone, he could still be sued for the mere fact that dry cleaning chemicals escaped from his property. No damages resulted. If the plaintiff were successful what kind of damages would the court most likely award?
A) B) C) D) E)
General damages Special damages Compensatory damages Nominal damages Punitive damages
56) A seventy-year-old woman, using the escalator at the airport, dropped a glove. When she attempted to pick it up, she lost her balance and fell. As a result of the accident, she suffered a fractured arm. In an action by her against the company that had the responsibility of maintaining the escalator, the defendant company would argue which of the following for its best defence?
A) B) C) D) E)
57)
Which of the following is a NOT a defence to negligence?
A) B) C) D) E)
58)
It did not owe her a duty of care. It was not operating the escalator below the standard of care. There were no damages suffered. There was no causation. Volenti non fit injuria.
Libel Statute of Limitations Act of God Waiver Volenti non fit injuria
Which of the following is a defence to negligence?
Version 1
18
A) B) C) D) E)
Release Statute of limitations Act of God Waiver All of the above
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 59) Arthur, who is a member of the maintenance staff of Gordon's Mall, was mending one of the revolving entry doors when he realised that he was missing an essential tool. He placed an "Out of Order" sign on the door and went to get the tool. Due to an emergency caused by a washroom flood, he was gone for longer than he expected. Not long after he left, the sign fell off the door, and, while Susan, Antoinette and Gloria were entering, the door collapsed, seriously injuring all three women. Susan was on her way to the pet store to buy cat food, Antoinette came to the mall to get decorating ideas from the paint and wallpaper shop, but was not going to buy anything, and Gloria, thinking she was dying, confessed that she was on her way to rob the jewellery store. a. Who would Susan, Antoinette and Gloria sue and why? b. Identify what, if any, duty of care is owed to each woman, and discuss whether any of them could win a negligence suit.
60) After winning a lottery, Janice consulted Len, a stockbroker and accountant, about how to invest the huge sum she had won. In their discussion she mentioned that her brother, Steve, would probably ask her for the information and advice she received from Len. "Even though he won as much as I did," she said, "he's too cheap to pay for the help we both know we need, so I better make some notes." Among other things, Len advised Janice to buy shares in a company just before it bought heavily into retail stores in the U.S.A. and became overextended. Janice didn't act on that piece of advice, but Steve did. a. Discuss whether Steve can bring a suit against Len. b. IfSteve can bring a suit, is he likely to succeed?
Version 1
19
61) While demolishing a building using a crane and wrecking ball, Thompson, an employee of Bashett's Wrecking Co., accidentally hit Marsden's car, which was parked nearby in a laneway, and totally demolished it. Marsden, who fortunately was not in the car at the time, wishes to sue. a. Who should Marsden sue and why? b. If Marsden is successful, against whom will she execute judgement, and why is that permitted and reasonable?
62) A community ice rink posted a sign at the facility stating that persons using the rink are responsible for damage or any injury which they may incur. While taking a break from a hockey game, Wayne took a seat on the bench. A faulty light used to illuminate the ice surface exploded causing severe burns to Wayne. Using the principles of volenti non fit injuria and res ipsa loquitur discuss the success of Wayne's attempt to sue the community.
63) In this era of global trade, discuss the legal issues of which both manufacturers and consumers of imported products should be aware.
Version 1
20
64) Fun Unlimited Inc. was a manufacturer of children's toys and games. For the Christmas season it produced and offered for sale through its retail distribution channels a toy clown doll. The doll was made of fabric and wore a colourful clown suit with several large, bright red buttons down the front. Mr. and Mrs. Johnson purchased one of the clowns as a Christmas gift for their two-year-old granddaughter. The child was delighted with the toy and played with it for many hours. About a week after Christmas the child's mother noticed two of the buttons missing from the front of the clown suit. A thorough search of the house did not turn up the buttons. Later that day, as she supervised the child's play, the mother observed the little girl pulling a button off the clown suit and placing it in her mouth. Before she could reach the child to retrieve it, the button had been swallowed. In the several days that followed, the child had little appetite and showed considerable abdominal distension. When the child's mother took her to a doctor, Xrays were performed that showed the buttons were lodged in her upper intestinal tract, blocking her entire digestive system. Immediate surgery was required to remove the buttons. The child required considerable postoperative care at home, resulting in substantial time lost from work for both parents. a. Discuss the nature of the legal action which may be taken in this case, including the remedies and damages sought. Also discuss any defences that may be raised and render a decision b. If Fun Unlimited had discovered the ease with which the buttons could be removed by children and had ordered a recall of the product, how would this affect your answer to (a), if at all?
Version 1
21
65) Walter, a chartered accountant, provided services to ABC Manufacturing Inc. owned by Mr. White. Walter took care of all of ABC's financing, bookkeeping, payroll management, financial statement preparation and tax planning and preparation. Early in January, White came to Walter to inform him that he was thinking of selling the business. He explained that the slow economy had considerably dampened his sales and that he wished to sell the business as a going concern before the situation became critical and he might be forced to sell at a loss or liquidate assets to satisfy creditors. Walter listened carefully but suggested that White should wait and sell after he prepared some current financial statements from which he could offer some constructive advice about the fortunes of the company. Walter also told White that, based on his understanding of the situation, ABC could easily be restored to financial health. Walter prepared draft statements using certain assumptions about the availability, terms and cost of bridge financing and the reduction in operating expenses that could be achieved by rearranging production in certain ways. The assumptions were not fully explained on the statements as Walter preferred to meet with White and discuss the matter fully. However, a footnote stated that "the figures are based on receipt of interim financing and predicted cost reductions." Walter then sent the statements to White for his review and invited further discussion. Two weeks later, Walter received a telephone call from White who told him he had sold the business at a substantial profit to Black. The purchaser had been impressed with the financial position of the company based on Walter's most recent statements and had taken the statements to his bank in order to secure a loan for the purchase price. The loan was granted. Within the first six months under Black's ownership, ABC's sales continued to fall. Black's new accountant prepared financial statements that portrayed a much more dismal situation than had Walter's. Within another month, one of ABC's major suppliers forced the company into bankruptcy. Discuss the liability of the parties in this case, if any, and render a decision.
Version 1
22
Answer Key Test name: Chapter 05 Test Bank 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) TRUE 24) TRUE 25) FALSE 26) FALSE Version 1
23
27) FALSE 28) TRUE 29) FALSE 30) TRUE 31) TRUE 32) TRUE 33) FALSE 34) TRUE 35) FALSE 36) TRUE 37) TRUE 38) TRUE 39) FALSE 40) TRUE 41) B 42) E 43) C 44) E 45) A 46) D 47) E 48) D 49) A 50) B 51) D 52) D 53) D 54) D 55) D 56) B Version 1
24
57) A 58) E 59) Susan, Antoinette and Gloria would sue Arthur and his employer, Gordon's Mall. Arthur would be liable for negligence and the mall vicariously liable for its employee's tort. It is unlikely that Arthur would have sufficient funds to compensate those entitled, but his employer (or employer's insurance) would probably have sufficient funds to do so. Both Susan and Antoinette are considered visitors to the property, and thus are owed the general duties and standard of care expected of a reasonable person. Gloria however is a trespasser. In Ontario, both Susan and Antoinette, by statute, would be owed a duty of reasonable care. A trespasser is owed only minimal care—essentially if one has reason to believe that a trespasser may come onto the property, one should not intentionally set out to endanger the trespasser nor act as if they were not there. One should treat a trespasser with ordinary humanity. Here, since there was obviously considerable risk to anyone using the door, Arthur should have done more than simply post a sign so carelessly that it could fall down. The reasonable maintenance person would have rendered the door safe by locking it, and by barricading it so that it was clear it should not be used, either with warning tape or a trestle-barrier. He clearly failed to meet the duty of care owed to visitors and this caused their injuries. It is not clear whether Gloria could succeed. If the steps he did take fail to meet the test of common humanity then Gloria could recover damages.
Version 1
25
60) a. Since Len was aware, from what Janice said, that Steve would probably be relying on whatever advice he gave Janice, Steve would be able to bring a suit against Len for professional negligence even though he is not Len's client. b. If Len's advice met the standards of a reasonable stockbroker—if, for example, it was based on the proper kind of research—then he is not liable for Steve's losses. Len does not have to be perfect; he need only act in accordance with the standards expected in his business. He can be wrong without incurring liability. 61) a. Marsden will sue Thompson and Bashett. Since Bashett is Thompson's employer, it will be vicariously liable for the torts committed by him in the course of his employment. b. She will execute judgement against Bashett, leaving Bashett to collect from Thompson if it can. Bashett's pockets are deeper—it has insurance or at least assets against which she can execute. Since Bashett hired Thompson and gave him a job to do which could cause harm to others, it should have ensured he was properly qualified and trained and should have supervised him properly. Bashett can pass the costs of its increased premiums along to its customers if necessary, so while that might make Bashett marginally less competitive, no one party will suffer unduly, but the victim will be compensated.
Version 1
26
62) Wayne will use res ipsa loquitur as a foundation for a claim of negligence. The principle shifts the burden of proof to the defendant municipality to show that it was not negligent in the installation or maintenance of the light. Wayne will argue that he has no specific knowledge about how the light exploded to cause his injuries, however there must have been negligent action or omission by the municipality for the explosion to have occurred. The municipality's defence of volenti non fit injuria will not likely be successful. To argue this defence, there must be some foreseeable relationship between the plaintiff's activity at the ice rink and injury occurring from the light. While there is a foreseeable risk of harm involved in playing hockey or watching a hockey game, injuries from an exploding light are not foreseeable in this context. The municipality will have to show that it was not negligent to avoid liability. This may be true if the explosion was caused by other factors such as a unique manufacturer's defect. 63) The issues surrounding liability for defective products becomes more complicated when goods are imported from other legal jurisdictions into Canada. Even though Canada recognizes and enforces the principles of manufacturer's liability for defective goods, the country of manufacture may not. This is more acute where the defective product comes from a lesser developed country where the state of the legal system may be very different from that in Canada or commercial laws may be nonexistent. Even if judgement is obtained in Canada against a foreign manufacturer, the judgement may not be enforceable in the courts of the manufacturer's country.
Version 1
27
64) a. This case explores the principles of negligence in manufacturer's product liability. Although the child did not purchase the toy, a claim against the manufacturer may be brought on her behalf by her parents due to her incapacity. The claim will be founded on the duty owed by the manufacturer to ensure its products are not unsafe or hazardous to end-users who are predominantly children. The breach of this duty occurred in the manufacturer's failure to properly secure the buttons to the doll. The tests of foreseeability and the "reasonable man" apply to determine the standard of care required of a company that produces items which it is, or ought to be aware, will be used by children. Students must use their judgement to determine whether that standard was met. The parents are entitled to seek damages, both general and special, if they can be shown. The manufacturer may attempt a defence of contributory negligence on the part of the child's parents. Again, the principles of a reasonable parent and foreseeability would apply to the mother's conduct in permitting the child to continue playing with the toy with the knowledge that the buttons could be easily removed. Furthermore, if it ought to have been foreseeable to a reasonable parent that buttons could be hazardous on a young child's toy, contributory negligence might be established b. The manufacturer's initiative to recall the toy may serve to show that it exercised a greater standard of care in carrying out its duty. Nevertheless, it is unlikely that such action, even though reasonable in the circumstances, would relieve it of liability entirely where harm has been incurred by a user of the toy. At best it may serve to reduce the amount of damages for which it may be found liable.
Version 1
28
65) This case looks at the issue of professional negligence and the duty of care owed by professional accountants. As accountants are generally aware that their statements may be relied upon by third parties, they have a high duty of care to ensure that their work reflects the true financial position of the company to which it applies. Failure to take all reasonable steps to ensure its accuracy would fall below the acceptable standard and constitute a breach of the duty, which, if loss resulted, would incur liability. Here, the accountant did not intend anyone, including White, to rely on the draft statements. Although the purpose of the statements was to present a viable alternative to White to reverse the company's fortunes, Walter failed to meet the standard required of the profession. The assumptions used to generate the statements were not fully explained on their face, thus rendering them inaccurate and misleading. Even in light of the limited purpose for which Walter believed he was preparing these accounts, he ought to have known that they may be relied upon by White or a third party, particularly after White expressed his urgent desire to sell the business. An action may lie by Black and Black's bank, who relied upon the statements against White and Walter for misrepresenting the company's situation. White may in turn seek indemnity from Walter in the amount for which he is found liable as a result of Walter's professional negligence. Students may also raise the issue of some intentional misrepresentation or negligence on the part of White. An argument might be made that he either knew or ought to have known that the statements were misleading and took the opportunity to present them to an innocent third party in order to secure a rapid sale of the business.
Version 1
29
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A professional is a person who possesses special knowledge or exercises special skills not normally possessed by most individuals. ⊚ ⊚
true false
2) Professional associations are not given the authority to limit the use of the professional designation to individuals who are members in good standing in the association, or to take action under the legislation to prevent anyone not a member in good standing from holding him or herself out to the public as a particular professional, or offering the professional services to the public. ⊚ ⊚
true false
3) "Competent lawyer" means a lawyer who has and applies relevant skills, attributes, and values in a manner appropriate to each matter undertaken on behalf of a client. ⊚ ⊚
true false
4) It is suggested, but not legally required, that a lawyer recognize the limitations on his or her ability to handle a legal matter, and to take such steps as may be required to ensure that the client has appropriate advice, such as directing the client, if necessary, to another lawyer with greater expertise in the particular legal manner. ⊚ ⊚
true false
5) Breach of contract cases usually are a result of careless or negligent performance of the professional service. ⊚ ⊚
Version 1
true false
1
6) A fiduciary duty of care may also arise in a situation where a professional agrees to perform a service without a fee. ⊚ ⊚
true false
7) The full and understandable explanation of the risks associated with a course of action, and the clear understanding by the client or patient is known as the duty of care. ⊚ ⊚
true false
8) Professional negligence extends beyond carelessness in carrying out duties but does not extend to statements made and information provided to clients. ⊚ ⊚
true false
9) Normally, a professional is only responsible in tort to the patient or client. However, in recent cases, the courts have held some professionals liable to third parties when the professional's expertise or skill was intended to be relied upon by the third party and the professional was aware of this fact. ⊚ ⊚
true false
10) A surgeon who negligently performs an operation on a patient may be liable in tort to the patient, and only the patient. ⊚ ⊚
true false
11) The duty of a lawyer to keep confidential information provided by a client is called client-professional privilege.
Version 1
2
⊚ ⊚
true false
12) The liability of an engineer is limited to the client that engages the services of the engineer, and not to the subsequent purchasers of the construction project. ⊚ ⊚
true false
13) The failure of architects to maintain their level of skill may result in a breach of their duty of care, and if loss results to the client, it may result in tort liability for negligence. ⊚ ⊚
true false
14) The Civil Code of Quebec establishes a fixed time limit of ten years from the date of completion of the project for any claim of negligence against an engineer or architect in Quebec. ⊚ ⊚
true false
15) Insurance agents, even though they are agents of companies, may be held liable for clients' losses if, when requested to do so, they fail to provide proper coverage for the contemplated loss. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 16) A husband and wife, Michelle and William, contacted an insurance agent for coverage for the wife's business, financed by the husband. The agent negligently arranged for insurance in William's name only. When Michelle suffered a loss, she thought it would be covered by the policy, she discovered that her business was not covered by the insurance. In the court action that followed:
Version 1
3
A) the agent failed in his duty to make proper arrangements for coverage of Michelle's interest but properly performed his duty towards Michelle's business. B) the agent would be held liable for the loss Michelle suffered. C) the agent would not be held liable for the loss Michelle suffered. D) the agent failed in his duty to make proper arrangements for coverage of Michelle's interest. E) the agent would be held liable for the loss Michelle suffered as the agent failed in his duty to make proper arrangements for coverage of Michelle's interest.
17)
A duty to place a client's interest above the professional's own interests is known as:
A) B) C) D) E)
a professional relationship. duty of care. solicitor-client privilege. fiduciary duty. a legal responsibility.
18) The professional under a contract implies promises to perform the services required in accordance with the standard for his or her profession, and a failure to do so would constitute ______________________.
A) B) C) D) E)
a lack of fiduciary duty a breach of contract professional negligence a lack of informed consent a breach of solicitor-client privilege
19) One of the obligations upon professionals acting in fields that can create tort liability is the obligation to _______________________ from the party who will be affected by the professional service.
Version 1
4
A) B) C) D) E)
explain procedures and obtain consent charge fees under the guidelines and explain procedures avoid harm and obtain consent obtain consent to action and assess damages explain procedures and obtain consent to action
20) If an engineer designs a bridge without consideration for the weight of traffic that would travel over the bridge, and the bridge collapses, the engineer may be
A) negligent in the performance of his or her professional duty but not liable for the loss or injury that results. B) negligent in the performance of his or her professional duty and liable for the loss or injury that results. C) not negligent in the performance of his or her professional duty but liable for the loss or injury that results. D) None of the responses are true.
21) Most professionals are members of professional associations that are responsible for the establishment of
A) training and education. B) standards of performance of the members. C) enforcement of the standards by an accredited or licensing process. D) training and education and standards of performance of the members. E) training and education, standards of performance of the members and enforcement of the standards by an accredited or licensing process.
22) For many professions, the standard of care extends beyond the single performance of the service, and the professional may also be required to
Version 1
5
A) B) C) D) E)
consider additional fees. consider subsequent services. consider third parties. consider duty of care. consider additional consent.
23) A successful negligence suit against a member of a profession must measure the ________________ of the particular practitioner with that prescribed by the profession in general and must show in the evidence that the practitioner failed to meet that standard.
A) B) C) D) E)
performance of duty professional standards fiduciary duty duty of care None of the responses are true.
24) In solicitor-client privilege, the lawyer normally has no legal obligation to reveal any confidential information to legal authorities or to anyone, unless:
A) B) C) D) E)
the lawyer has severed the professional relationship. the situation involves a minor. a felony has been committed. the client provides authorization. There are no exceptions.
25) The normal approach for the engagement of the services of an architect is through a contract. Under the terms of the contract, the architect is usually expected to:
Version 1
6
A) B) C) D) E)
perform their duties in accordance with the professional code of conduct. complete the work in accordance with professional standards. to have a duty of care to the client. perform the work in accordance with the terms of the contract. all of these.
26) Rose, a financial advisor, recommended that a client, Maureen, purchase shares in Mad Money Mutual Fund. Relying on Rose's recommendation the client purchased 100 units. The entire stock market collapsed, and the value of Mad Money Mutual Fund was reduced significantly. Maureen was surprised to learn that Rose earned a commission on each unit sold to her clients. Is Rose liable to Maureen?
A) No, mutual fund dealers are not liable to their clients for losses incurred. B) No, Rose met the standards of care for a financial adviser. C) No, Rose's advice did not cause the loss. D) Yes, Rose breached her fiduciary duty by not disclosing that she received a commission on sales. E) Yes, Rose failed to meet the standard of care for a financial adviser by recommending a mutual fund that failed.
27) Manno had injured his knee and required laparoscopic knee surgery. During his appointment with the surgeon, Dr. Cutter, Manno was advised of the risks associated with the surgery including death and limited mobility in his knee. Dr. Cutter did not discuss scarring if traditional surgery was required. Manno signed the consent form. In the operating room, Dr. Cutter concluded that laparoscopic surgery would not repair Manno's knee and he had to make three large incisions in a traditional method. Manno's knee was repaired but he had three large, unattractive scars. Manno was a male model. Can Manno successfully sue Dr. Cutter?
A) B) C) D) E)
No, Dr. Cutter did not have a duty to Manno with regards to his career. No, Dr. Cutter met the standard of care for a surgeon. No, the purpose of the surgery was to repair the knee and it did so successfully. No, damages did not result. Yes, Dr. Cutter failed to obtain informed consent.
Version 1
7
28) Lisa, a three-year-old girl, was having her tonsils removed. Towards the end of the surgery, Dr. Talker answered her cell phone and failed to thoroughly check for sponges in Lisa's throat. Lisa choked to death. Can Lisa's family successfully sue Dr. Talker?
A) B) C) D) E)
Yes, Dr. Talker failed to meet the standard of care for a surgeon. Yes, Dr. Talker had a duty of care to Lisa. Yes, Dr. Talker's negligence caused the injury. Yes, damages resulted. All of the responses are correct.
29) The case of Hercules Management Ltd. v. Ernst and Young (1997) makes the following contribution to the law regarding professional liability of accountants at common law:
A) B) C) D) E) creditors.
accountants do not have a duty of care to the corporation. accountants do not have a duty of care to the directors. accountants do not have a duty of care to the shareholders. accountants do not have a duty of care to the creditors accountants have a duty of care to the corporation, directors, shareholders and
30) Leonard was an entrepreneur who owned a restaurant business called, Blue Moon Diner Ltd. The business was located in an old house owned by Leonard. Lauren, the accountant, was preparing financial statements for the purpose of selling Blue Moon Diner Ltd. She assumed that the house was an asset of Blue Moon Diner Ltd. and did not review the land title or check with Leonard. Alicia purchased the business for $500,000, believing that the house was an asset worth $450,000 and the business was worth $50,000. Can Alicia sue Lauren?
Version 1
8
A) Yes, Lauren had a duty of care to Alicia. B) No, Lauren did not have a duty of care to Alicia. C) Yes, Lauren breached the standard of care for an accountant. D) Yes, Lauren had a duty of care to Alicia and breached the standard of care for an accountant. E) No, Lauren did not have a duty of care to Alicia and breached the standard of care for an accountant.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 31) What is the "threefold test" and how is it applied in cases of negligent misrepresentation? In what way has the Supreme Court of Canada changed the application of this test?
32) Outline the responsibility of a surgeon to a patient. Is it limited only to the actual performance of the medical procedure?
33) How would the duty of care be determined for persons who are not members of a professional association, but who hold themselves out as persons in possession of special expertise? Use an insurance agent as an example.
Version 1
9
34) Outline the steps that an emerging profession must take in order to establish a recognized professional status.
35) An engineer designed an outdoor elevated patio that was expected to accommodate luncheons of up to 100 persons. The engineer considered the load-bearing structure on the basis of the weight of 200 persons as a safety factor. When the structure was completed, the owner decided to use the patio for a local charity concert and sold 400 tickets. In actual fact over 400 patrons attended and packed the patio for a "standing room only" concert. The enthusiastic crowd at one point began jumping to the music, and the additional load pressure caused the structure to collapse, injuring many of the patrons. How would liability be determined in this case?
Version 1
10
36) Terry carried on a relatively successful business as a manufacturer of a cleaning product. After a few years of slow but steady growth, his accountant suggested that he expand the business by incorporating. This would allow the sale of shares to acquire the capital needed for expansion into a new plant with new equipment. The company was eventually incorporated but instead of selling shares, Terry decided to arrange a $200,000 loan from the bank and therefore, asked his accountant to prepare financial statements for the bank. During preparation, the accountant failed to notice that the existing land and plant building were not acquired by the corporation, but retained by Terry and leased to the company on an annual basis. The accountant had included the land and building (value: $250,000) as an asset of the corporation on the financial statements without verifying this information with Terry to determine if the property had been transferred. When the error was later discovered during negotiations with the bank, the bank insisted that Terry guarantee the loan as a principal debtor, and use the land/building as additional security for the loan. A few weeks later, Terry decided that it would be necessary to acquire additional capital to complete the company expansion. He contacted a private investor, Kelly, intending to sell her a block of shares in the corporation. Kelly inquired as to the financial status of the corporation and Terry informed her that the corporation had borrowed $200,000 from the bank for the purpose of expanding the business. He also suggested that Kelly contact either his accountant or the bank for information on the corporation's assets and financial position. Kelly contacted the bank, requesting copies of the financial statements the accountant had prepared. A bank employee, who was unaware that the statements were erroneous, gave them to Kelly without comment. Based on the strength of the financial statements, Kelly invested $50,000 in shares of the corporation. Some months later, she discovered that the corporation did not own the land or buildings, and that the financial statements were in error. Advise Kelly of her legal position, and her rights (if any) against Terry, the accountant, and the bank.
Version 1
11
Answer Key Test name: Chapter 06 Test Bank 1) TRUE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) TRUE 16) E 17) D 18) B 19) E 20) B 21) E 22) C 23) A 24) D 25) D 26) D Version 1
12
27) E 28) E 29) C 30) D 31) The threefold test is determined by: i. Whether harm was foreseeable. ii. Whether there was a relationship of sufficient proximity. iii. In terms of public policy, whether it would be just and reasonable to impose the duty on the party making the statement. See Hercules Managements Ltd. v. Ernst & Young case for Supreme Court comments. 32) The responsibility of the surgeon to the patient is to perform the medical procedure in accordance with the standard prescribed by the professional association. The surgeon must also explain to the patient the need for the operation, and all the risks associated with it in order to obtain informed consent from the patient. 33) In the case of non-professionals, the general standard of others in the business may be used as a determinant of the "standard" of service to be provided, and a failure to meet the "standard" would constitute negligence. 34) A "profession" would require a professional association to establish skill and education standards, and to have the power at law to ensure that members maintain the standard. It must also have the legal authority to impose the penalty of expulsion from the profession of a member who does not maintain the standards.
Version 1
13
35) The issue to discuss here is the obligation on the part of the engineer to design a safe structure as an elevated outdoor patio. The expectation was that it would be used by up to 100 persons. The engineer used a capacity of 200 as his safety factor. Was this reasonable? Should he have foreseen that 400 people might crowd on the patio? The engineer, in his defence, might rely on the fact that the structural failure was due to the added pressure of the crowd jumping on the patio, and that under normal circumstances the structure would have supported as much as 400 persons without failing. It was probably unreasonable to expect the engineer to foresee the event that was held and to have built accordingly. Liability is with the owner.
Version 1
14
36) This case deals with the responsibility of a professional and a banking institution to a third party. The accountant was clearly negligent when he failed to notice that the building was not acquired by the corporation when it bought the business from Terry. The error was discovered when the bank advanced funds, and the bank acquired additional security to secure its loan to the corporation. However, did the bank owe a duty to the investor to inform him of the error on the financial statements before releasing them? Was the accountant liable to the investor on the negligently prepared statements? Professional accountants may be liable when they have produced inaccurate financial statements that result in a loss for third parties that they (the accountants) could reasonably have foreseen would be using them to make investment decisions concerning their client. Should a "reasonable accountant" have foreseen the use of financial statements in the instant case? The statements were prepared at Terry's request for the bank, but the accountant should have foreseen the possibility that they might be used by other investors as well, and corrected the errors contained in them when discovered. By leaving the misleading statements in the hands of the bank, he should have foreseen the possibility of others using them when they contained a known error. The bank was also negligent in this instance by providing the investor with the misleading financial statements, although it is important to note that the investor in the case requested financial information from the bank, and the financial statements were given as a part of this opinion. (The facts of the case are not entirely clear on this point and may give the impression that the bank employee simply delivered up the statements, and said nothing about the corporation's financial position. The question remains much the same, however: did the bank have a duty to warn the investor that the information in the statements was incorrect when it knew the use which the investor intended to make of the Version 1
15
information?). For cases, see: Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465; Goad v. Canadian Imperial Bank of Commerce [1968] 1 O.R. 579. In the case of Haig v. Bamford [1974] 6 W.W.R. 236; affirmed [1977] 1 S.C.R. 466, the accountant was held liable for his negligence in the preparation of financial statements which he ought to have foreseen might be used by other investors.
Version 1
16
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul's offer was merely an invitation to do business. ⊚ ⊚
true false
2) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul's offer to buy the canoe from Jones was a genuine expression of his intention to create a legal relationship. ⊚ ⊚
true false
3) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul's offer lapsed when Jones did not immediately accept the offer before the two parties departed on their separate business. ⊚ ⊚
Version 1
true false
1
4) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul's offer to Jones lapsed when Rahul agreed to purchase Brown's canoe. ⊚ ⊚
true false
5) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Brown's acceptance of Rahul's offer was unconditional. ⊚ ⊚
true false
6) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul and Brown established a binding contract which both parties are obliged to perform. ⊚ ⊚
Version 1
true false
2
7) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. The contract between Rahul and Brown automatically rescinded the offer which Rahul had made to Jones. ⊚ ⊚
true false
8) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul and Jones established a binding contract when Jones telephoned Rahul and accepted Rahul's offer to buy his canoe for $200. ⊚ ⊚
true false
9) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. The acceptance by Jones was ineffective because Jones did not reply to Rahul by way of a written acceptance. ⊚ ⊚
Version 1
true false
3
10) Rahul met Jones at a street corner and made a verbal offer to buy his canoe for $200. Jones replied that he would "think about it." Rahul nodded affirmatively. The two then went about their separate business. Later in the day, Rahul met Brown, who also had a canoe for sale, and Rahul offered to purchase Brown's canoe for $175. Brown agreed to sell Rahul his canoe. At 4 p.m. the same afternoon, after Rahul and Brown had made their arrangement, Jones telephoned Rahul to say he would accept Rahul's offer to buy his canoe. Rahul is not bound in contract with Brown because the prior contract he made with Jones became enforceable when Jones accepted his offer. ⊚ ⊚
true false
11) Giardetti, a retailer, placed an advertisement in a local newspaper on May 5th that read: "Special Sale! New 16" portable TV set available for sale to the first 10 customers at my store on May 10th at a sale price of $100 each. Regular price $199. First come, first served!" Don was the 10th customer in the store on May 10th, but Giardetti refused to sell him a TV set for $100. The advertisement is not an offer because Giardetti did not express the intention to be bound by the statements in the advertisement. ⊚ ⊚
true false
12) Giardetti, a retailer, placed an advertisement in a local newspaper on May 5th that read: "Special Sale! New 16" portable TV set available for sale to the first 10 customers at my store on May 10th at a sale price of $100 each. Regular price $199. First come, first served!" Don was the 10th customer in the store on May 10th, but Giardetti refused to sell him a TV set for $100. Giardetti's advertisement was only an invitation to do business, and not a valid offer to sell. ⊚ ⊚
true false
13) Giardetti, a retailer, placed an advertisement in a local newspaper on May 5th that read: "Special Sale! New 16" portable TV set available for sale to the first 10 customers at my store on May 10th at a sale price of $100 each. Regular price $199. First come, first served!" Don was the 10th customer in the store on May 10th, but Giardetti refused to sell him a TV set for $100. Giardetti's advertisement was a valid offer to sell, which Don accepted by being one of the first 10 customers at the store on May 10th, and verbally accepting the offer.
Version 1
4
⊚ ⊚
true false
14) Giardetti, a retailer, placed an advertisement in a local newspaper on May 5th that read: "Special Sale! New 16" portable TV set available for sale to the first 10 customers at my store on May 10th at a sale price of $100 each. Regular price $199. First come, first served!" Don was the 10th customer in the store on May 10th, but Giardetti refused to sell him a TV set for $100. If Giardetti had placed a notice on his shop door on May 9th which read: "Sale cancelled," his notice would revoke the offer made in the newspaper on May 5th. ⊚ ⊚
true false
15) Giardetti, a retailer, placed an advertisement in a local newspaper on May 5th that read: "Special Sale! New 16" portable TV set available for sale to the first 10 customers at my store on May 10th at a sale price of $100 each. Regular price $199. First come, first served!" Don was the 10th customer in the store on May 10th, but Giardetti refused to sell him a TV set for $100. If Don had seen the notice on the shop door on May 9th; he could still accept the offer, because the offer was irrevocable. ⊚ ⊚
true false
16) Andy offers to sell his car to Bob, but Bob needs to arrange financing, so Andy says he will give Bob three days to do so. Andy can revoke the offer before the three days are up. ⊚ ⊚
true false
17) Jill has been negotiating the purchase of a speedboat with Sandi during the past two weeks. Two days ago, she wrote to Sandi, saying "I won't go any higher than $8,000. Take it or leave it, but that's my final offer." By coincidence, Sandi sent a letter the same day which said "I won't take less than $8,000, so if you can't accept that, I'll have to look elsewhere for a buyer." The letters have both arrived today at their destinations. There is a contract between Jill and Sandi. ⊚ ⊚ Version 1
true false 5
18) A trader on the floor of the Stock Exchange makes a deal with another trader by hand signals for the sale of a block of shares. This is a binding contract. ⊚ ⊚
true false
19) Franklin Motors Ltd. makes an agreement to buy 3,000 widgets for $1,000 from Stovely's Engineering Co. The law presumes that, unless one of them proves otherwise, they intended this agreement to be a legally binding one. ⊚ ⊚
true false
20) Alliston enters into an agreement with Berkley which, for $2,000, gives him the right to agree to purchase Berkley's screen printing business within the next 30 days for $50,000. If he decides to buy, they agree that the $2,000 will be the down payment on the purchase price. This agreement is an option. ⊚ ⊚
true false
21) Paulette Paulson Furs advertises mink coats for sale at 30% off. The demand was much greater than anyone could have predicted, and 14 people who came to the store could not be provided with one of the sale coats. Since they had accepted Paulson's offer, she will have to find coats for them or be in breach of their contracts. ⊚ ⊚
true false
22) Tom offers to buy Jenny's fishing tackle for $500, but she says she wants $600. Tom then proposes a price of $550, but Jenny says she is not interested. Tom is afraid she will walk away from a deal, so he says "OK. I'll accept your offer to sell for $600." There is now a contract between them. ⊚ ⊚
Version 1
true false
6
23) Victor has breakfast at the Kute Kafey. From the menu, he orders buttered muffins "homemade like your mother's," jam "made with loving care and fresh ingredients," and tea "fresh-picked from the cool hillsides of an Indian plantation." Actually, the muffins are nothing like Victor's mum's muffins and are baked in a factory, the jam is mass-produced from industrialquality frozen fruit, and the tea is made with no-name tea bags. Victor has a good case for breach of contract. ⊚ ⊚
true false
24) Rosa offers Valerie the chance to buy her cottage for $25,000. Two days later, while Valerie is still considering the offer, Rosa's sister mentions to Valerie that Rosa has sold the cottage to Ben for $30,000. If Valerie now accepts, Rosa will be liable for breach of contract. ⊚ ⊚
true false
25) Craig makes an offer to Josie by mail, because she cannot be reached by telephone. She replies by mail, accepting the offer. Canada Post mislays her reply for several weeks. Craig, who has given up waiting to hear from her, has entered into the contract with someone else after waiting for a reasonable time. Josie can sue Craig for breach of contract. ⊚ ⊚
true false
26) Mookie, a professional baseball player, negotiated with the Soxville Eagles for a one-year contract. He was given one week to consider the offer and was to sign it by the opening day of the season, one week away. Mookie, in the meantime, was offered a better contract with the Baxton Bulldogs, which he accepted. On opening day, Mookie walked onto the field in the uniform of Baxton. Soxville can sue Mookie for a breach of contract. ⊚ ⊚
Version 1
true false
7
27) Becky is colouring her hair one day and her friend Kamilah asks if Becky will colour hers as well. Becky agrees and does a good job. Two months later, Becky goes to a professional hairdresser to have her hair coloured and pays her $100. Becky should also be entitled to payment for her colouring job. ⊚ ⊚
true false
28) John notices while mowing his lawn one summer day that while his neighbour had been on vacation, his hedge had become unkempt. Worried that people might think it were his hedge, John decided to clip the hedge himself. On his return John's neighbour thanked John for the work. Several weeks later the neighbour hired a handyman to do the same job and paid him $50. John would be entitled to payment for subsequent hedge clippings if requested by his neighbour. ⊚ ⊚
true false
29) The world of commerce requires that the intention to create a legal relationship be proven before any contract can be found to exist between the parties. ⊚ ⊚
true false
30) If GA Stereos sends a fax to Wholesale HiFi Equipment ordering ten car stereos at a particular catalogue price, requesting delivery by courier (or some other means), the fax would not constitute an offer to purchase. ⊚ ⊚
true false
31) When an offeree dies before accepting an offer, the offer does not lapse because the deceased's personal representative can accept an offer on behalf of a deceased person. ⊚ ⊚
Version 1
true false
8
32) If an acceptance is not unconditional, but changes the terms of the original offer, then it would have the effect of rejecting the original offer. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 33) Busy Corp. sent a letter on January 12th to Slow Co. offering to sell its main office building for $250,000, stating that its offer was open only until January 20th, and it must have a response from Slow Co. by then. Slow Co. received the letter on January 14th and prepared a letter of acceptance on that day but had not posted it. The next morning Busy Corp. called and said that it had changed its mind and was withdrawing its offer.
A) There was a contract as soon as Slow Co. wrote the letter of acceptance and the revocation is too late. B) Since the revocation was made by telephone and the offer was made by letter, the revocation is not effective. C) The revocation was effective because it was communicated to Slow Co. before the acceptance was sent. D) The revocation was effective because it was communicated to Slow Co. before the acceptance was received by Busy Corp. E) All of the above are false.
34) Mr. Gatlin went into a supermarket where he saw a new kind of toothpaste on a shelf, priced at $2.69. He decided to try it, so he took it to the checkout and placed it on the moving counter. The staff member at the checkout ran up the sale, took Mr. Gatlin's money and put the toothpaste in a bag, handing it with the receipt and the change to Mr. Gatlin. A contract was formed when:
A) B) C) D) E)
Mr. Gatlin picked up the toothpaste. Mr. Gatlin put the toothpaste on the checkout counter. Mr. Gatlin paid for the toothpaste. The supermarket employee rang in the sale and took his money. The supermarket employee gave Mr. Gatlin the bag, the receipt and his change.
Version 1
9
35) As you are walking out of class one night, you discover a notebook, full of equations, belonging to a professor in your school. You write a note telling him who you are and where and when you found it. Then you put the note in an envelope and drop it into one of the university's internal mailboxes. The next day the campus is covered with notices which say "$100 REWARD. A notebook containing mathematical explanation of the meaning of life has been lost. If found, please return to Professor Doddering in Room A123."
A) You have no legal right to the $100. B) You have a legal right to the $100 since you can prove you put the note in the mail to Prof. Doddering. C) You have a legal right to the $100 provided you can prove you found it after Prof. Doddering posted the reward notices. D) Since this was an offer to the public at large, you have accepted it by mailing it and Prof. Doddering legally must give you $100. E) While you have no legal right to the reward, the court will enforce your moral right to it.
36) Mike responds to Flavio's statement that he would like to buy Mike's motorbike for $3,000 by saying that he would want $4,000, given the work he has put into it. Flavio says OK. I'll give you that. Here's $2,000, and I'll give a promissory note for the balance payable at $500 a month for the next 4 months." 1. There is a contract. 2. There is no contract. 3. Flavio's first statement to Mike was an invitation to do business. 4. Flavio's response was a counter offer. 5. Flavio's final statement to Mike was an acceptance.
A) B) C) D) E)
Version 1
1 and 3. 1, 3 and 4. 1, 3, 4 and 5. 2. 2 and 4.
10
37) Johnson became a member of the Book-a-Month Club under an agreement by which members agree to pay for any monthly selection that they have not notified the Club they do not want. Johnson forgets to tell them when he decides he does not want "How to Cook Small Rodents" and the book arrives at his house.
A) Since silence cannot be acceptance, Johnson does not have to take the book, but must send it back. B) Johnson must pay for the book. C) Johnson must pay for the book unless he decides to send it back. D) Since silence is not acceptance, Johnson can keep the book and he does not have to pay for it. E) Johnson cannot refuse to pay for the book since consumer protection legislation says unsolicited goods delivered to a consumer create no obligation to pay and no liability for loss or damage.
38) Karen offers to sell her antique rocking chair to her friend Julie for $350. Julie has always loved the rocker but, since she is currently short of money, she says to Karen "I will buy the rocker from you, and I'll pay half now and half next month." Don, who has been listening, says "I've always wanted that rocker, too, Karen. I'll pay you $400 cash right now for it."
A) Since there is a contract between Karen and Julie, Karen cannot sell the rocker to Don. B) Karen's offer has lapsed so she may sell the rocker to Don. C) Karen must first revoke her offer to Julie before she can accept Don's offer, since a clear acceptance now by Julie would create a contract between them. D) Julie's inquiry as to whether she could pay in two instalments did not cause Karen's offer to lapse and she can still accept it. E) C and D.
39) Mary invites some friends to dinner, and they accept. They purchase a much more expensive bottle of wine than they would normally drink and a beautiful bouquet of flowers. Mary calls them two hours before the dinner to tell them she has been invited out by the man of her dreams and is postponing the dinner.
Version 1
11
A) The friends can claim the cost of the flowers and the wine since Mary has breached the contract. B) Since Mary is merely postponing the dinner, she has not breached their dinner contract. C) Even though they accepted her dinner offer, this is not a situation in which one party can sue another, since no reasonable person would think that there was any intention on Mary's part to create a legally enforceable contract. D) Mary may not have intended to be bound to her promise, but her friends have suffered a loss and she cannot now claim she did not mean to enter a contract to provide dinner since she did not say that when she made her offer. E) No agreement between friends can be enforced as a contract, including this one.
40) A contract is a legal relationship between parties. The existence or validity of the contract is measured by conditions outlined by law. An indication of the intention to create a contract is built on certain premises. These premises are:
A) The end result will be a meeting of the parties' minds on the terms that are agreed upon. B) A meeting of the minds is only required when the contract deals with personal service contracts and not with commodity agreements. C) Each party will normally agree to do or not do certain things. D) The process of the meeting of the minds by the parties will establish the contract itself. E) All of the above except B.
41) A computer software company advertised a new organizational program as one of the most "user friendly" programs of its kind on the market. The Smallville police department used the program and, during operation, the program collapsed, losing vital information related to the effectiveness of the department in carrying out its duties. Under the law of contract, what is the software company's position with respect to liability?
Version 1
12
A) The company is liable for damages because the program promoted as easy has the capacity to collapse and produce this result when used improperly. B) The police department must bear responsibility because it purchased the program and accepted its limitations without question or instruction therefore this is a situation of caveat emptor. C) The company is liable because a promise is a promise in contract law in relation to advertising. D) The company is not liable because it is permitted to use enthusiasm when describing the product and has made no unproven statements in its contract with the police. E) None of these.
42) On June 1st the Mega Marketing Research Firm sent out a mail survey to 5,000 potential customers of Mega's client company. The survey stated that everyone who completed the survey and mailed it back would receive a prize. Mega did not expect everyone to respond to the survey and had only 1,000 prizes on hand for the respondents. On July 14th Sam mailed back his response and eagerly awaited his prize. On July 15th Mega sent out the last prize it had. Sam's response arrived on July 16th. It was the 1001st and Mega wrote back telling Sam that unfortunately all the prizes were gone, and he would not be able to have one.
A) No contract was formed here as there was no communication of Sam's acceptance before Mega's offer lapsed. B) Sam made a counteroffer by returning the completed survey. C) Mega had essentially revoked its offer before Sam accepted. D) A valid contract was formed between Mega and Sam. E) Mega may assert that silence is not acceptance and Sam did not communicate his acceptance on time.
43)
Which of the following elements does not constitute a legal relationship in contract?
A) B) C) D) E)
Version 1
Familiarity Consideration Capacity Acceptance Intention
13
44)
Which of the following are NOT presumed to be binding?
A) B) C) D) E)
Agreements between suppliers and manufacturers Agreements between family members for the purchase of a business Agreements between strangers Agreements between family members to cook a birthday dinner Agreements between banks and their customers
45) Skinny You is a new "weight loss pill." It is being sold by the company; Skinny Products Inc. Advertisements were placed in the back of Teen Beauty magazine that provided potential consumers with information about the success rate of the pills—"Weight Loss of 10 pounds in 10 days if used as instructed." Skinny Products Inc. guaranteed the weight loss by saying that if customers did not lose 10 pounds in 10 days then they would receive $100. To increase consumer confidence of the money being paid Skinny Products Inc. stated that it had put money in trust. Latisha purchased Skinny You and used it for 10 days, as instructed, but only lost 4 pounds. Can she sue Skinny Products Inc. for breach of contract?
A) No, the advertisement did not amount to an offer. B) Yes, the advertisement amounted to an offer. C) Yes, the advertisement amounted to an offer, but the weight loss claims were marketing claims that were not binding. D) Yes, the advertisement did not amount to an offer, but Latisha's purchase constituted the formation of a unilateral contract incorporating the terms of an invitation to treat. E) No, the advertisement amounted to an invitation to treat.
46) Salem said to Crystal over his cell phone, "Do you want to buy my car for $2,000?" Before she heard him, her cell phone dropped the call. Can she accept the offer?
A) B) C) D) E)
Version 1
Yes. Yes, conditionally if she requires him to repeat it. No, an offer must be received prior to acceptance. No, offers can only be made in writing. All of the responses are incorrect.
14
47) Ian offered to sell his horse to Wanda for $3,500. Wanda wanted to think about it and let Ian know by email. Ian agreed. Wanda emailed Ian at 11:45 that night. At 6 a.m. Ian accepted an offer to sell the horse to William for $3,700. He read his email at 8 a.m. Can Wanda sue Ian for breach of contract?
A) Yes, Wanda accepted Ian's offer prior to William's acceptance. B) Yes, Ian made the first offer to Wanda. C) No, the acceptance must be in the same mode of communication as the offer. Therefore, Wanda's offer was not valid. D) No, the acceptance was not received by Ian until 8 a.m. E) No, the acceptance was for a lesser sum and sellers are entitled to the best deal.
48) Ian offered to sell his horse to Wanda for $3,500. Wanda wanted to think about it and let Ian know by email. Ian agreed. Wanda emailed Ian at 11:45 that night. What type of contract was formed?
A) B) C) D) E)
Unilateral Contract Qualified Unilateral Contract Bilateral Contract Qualified Bilateral Contract Invitation to Treat
49) Microsoft uses a click wrap agreement with a clause requiring all disputes to be heard in the state of Washington, U.S.A. Microsoft has its head office in Redmond, Washington. A consumer resides in Ontario. Is this click wrap agreement binding?
A) No, it is a consumer contract, so the jurisdiction of the consumer prevails. B) No, it is not binding as it is traditional for consumers to not read online agreements prior to clicking "I accept." C) No, the consumer does not have a substantial connection to the State of Washington. D) Yes, the contract became binding when the consumer clicked "I Accept." E) Yes, only for residents of Washington state.
Version 1
15
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 50) Mario responded to an advertisement placed by Serge in a local newspaper. Serge was looking for business investments, and Mario sent him a letter on October 1st which said that he was willing to make Serge a partner in his tie-dyed T-shirt business if Serge was willing to put up $5,000. Serge received that letter on October 6th and wrote back the same day saying he would love to get involved in the business and would send Mario a certified cheque for $5,000 as soon as the bank had transferred the money from his savings account and certified the cheque. This letter was received by Mario on October 9th, and the certified cheque was sent on October 8th and received on October 12th. Meanwhile, Mario mentioned the advertisement to Sonia, and she said she would like to get into the business and would be willing to put up $8,000. Mario sent another letter to Serge, on October 4th, which Serge received on October 7th, saying Mario had changed his mind and would not be willing to have Serge as a partner. a. What is the legal term for i. Mario's letter of October 1st? ii. Mario's letter of October 4th? iii. Serge's advertisement? iv. Serge's letter of October 6th? b. Discuss whether Mario and Serge have a contract or whether Mario is free to enter into a partnership with Sonia. c. Suppose Mario's letter of October 1st has said that there would be no commitment by him to any arrangement with Serge unless and until he received Serge's certified cheque for $5,000. Explain why this would or would not change your answer to (b).
51) At a computer fair, Porter saw a demonstration by Maxwell of an excellent new accounting software package published by Slyckbyte Co., but he felt it was overpriced at $900. "At $500," he said, "I would definitely buy it." Maxwell said that she was not authorized to give deals to anyone, not even such a good customer as Porter. Porter bought another package from a different company. Four days later, he received a package from Maxwell that contained the new software and a letter which said that Slyckbyte was happy to give him the discount he had wanted and that she looked forward to receiving his cheque within the next few days. Discuss whether Porter must pay for the software. Version 1
16
52) Robert has just mailed a letter of acceptance in response to James' letter offering to sell his hardware store to Robert, when he is knocked down by a car and killed. Jane, Robert's wife and sole heir, wants to run the business, since that is what she and Robert had intended, but James does not believe a woman could run a hardware store and tells her that the deal is off. Discuss Jane's legal position.
53) There are requirements predetermined by law to make a contract binding and, therefore, legally enforceable. With your knowledge of the process of arriving at a contract, explain how that process relates to the legal solidification of a contract.
54) Discuss the significance of Carlill v. Carbolic Smoke Ball Co. [1893], 1 Q.B. 256 for modern day marketing practice. Give some examples to illustrate your points.
Version 1
17
55) George was an independent salesman, working sales territories in which various manufacturers did not maintain sales agents. Prior to a trip to Northern Manitoba, George informed a manufacturer of small electrical generators he expected to secure an order for fifty generators on this trip. From a more remote community, George was able to send a fax to the manufacturer which, when received, read "Send by air immediately the generators. Must be here by next Thursday." The fax should have read, "three generators" and the mistake was made solely by the fax office. The manufacturer sent fifty generators. Aside from the fact that one of the parties may have a remedy against the fax office, discuss the relevant principles of contract raised here, and determine whether there was no contract, a contract for three generators, or a contract for fifty generators.
Version 1
18
56) On July 23rd, Carson, who lived in Bytown, wrote a letter to Henri, offering to sell his (Carson's) vintage car for $18,000. The letter was delivered to Henri in his home in Mount Royal, an hour's drive away, on July 27. On July 24th, Carson met his friend Jack on the street. Jack expressed an interest in buying Carson's vintage car. He offered Carson $18,000 for the car, but Carson said only that he would "give the offer some thought," and promised to advise Jack of his decision. Carson did not tell Jack of his offer to sell the car to Henri. On July 25th, while on vacation in York, Jack sent a fax to Carson, offering to buy the car for $18,250 if Carson would deliver the car, on July 30th, to his farm, located some 20 km west of Bytown. Carson received the fax the same day and, that evening, wrote and mailed a letter to Henri, revoking his offer to sell the vintage car. On July 28th, Henri wrote a letter to Carson accepting his offer to sell the vintage car and enclosed a cheque for $18,000 as payment in full. On July 29th, Henri received Carson's letter revoking the offer. Carson had business west of Bytown on July 29th, and since his trip would take him past Jack's farm, he decided to deliver the vintage car on his way. Carson left the car on a trailer at Jack's farm, but finding no one at home, left the keys to the car and a note in Jack's mailbox. The note stated that he had left the car behind the garage. On July 30th, Carson received the letter of acceptance Henri had mailed to him on July 28th. Carson immediately telephoned Henri to tell him he had sold the car to Jack, but Henri was out of town on a business trip. Carson left a message with Henri's wife and, on July 31st, returned by mail the cheque that Henri had sent him with the letter of acceptance Later on July 31st, Carson received a telephone call from Jack who had just returned from Toronto requesting delivery of the car. When Carson explained that the car had been delivered on July 29th, Jack stated that the car was not behind the garage. Carson then requested Jack to call the police to investigate the theft. Later in August, the police located the car in the possession of a minor and an arrest was made. Unfortunately the car had been badly damaged while in the thief's possession. The estimate of damages was $12,000. Discuss the issues raised in this case. Describe the rights of the parties (if any) and the possible outcome of any litigation if legal action should be taken to enforce the rights of the parties.
Version 1
19
57) It was almost time for the Heeleys to renew the mortgage on their home and they were considering their options. The mortgage was currently held by the Big Bank and the Heeleys were not satisfied with the service they had received from the Big Bank's mortgage staff. Recently, the local radio station had been airing commercials for the Little Bank, which suggested that people switch their mortgages to Little Bank to take advantage of better rates and more personal service. As a special incentive, the commercials stated that, for a limited time, for every mortgage over $50,000 which was brought to Little Bank from another financial institution, Little Bank would give the customer an all-expense-paid trip to Mexico. Feeling in need of a vacation, the Heeleys decided to take advantage of this incentive and made an appointment to see the manager of Little Bank. During their meeting the manager explained that the Mexico trip would be given on mortgages brought within the next month. The Heeleys mortgage did not expire at Big Bank for another six weeks, however the manager said it should not be a problem awarding them the trip for having made the commitment within the advertised period to transfer their mortgage. At the end of the six weeks, the Heeleys transferred their mortgage to Little Bank and delivered the paperwork needed by the bank to set up their trip. Several days later the Heeleys received a telephone call from the head office of the Little Bank informing them that they were not eligible to receive the trip as their mortgage had not been transferred within the offer period. Discuss the legal issues that arise as a result of this case. What legal principles might the Heeleys and the bank apply to support their respective positions, and what would be the likely result should legal action ensue?
Version 1
20
Answer Key Test name: Chapter 07 Test Bank 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) FALSE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) FALSE 23) FALSE 24) FALSE 25) TRUE 26) FALSE Version 1
21
27) FALSE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) C 34) D 35) A 36) E 37) B 38) B 39) C 40) E 41) D 42) D 43) A 44) D 45) B 46) C 47) A 48) B 49) D
Version 1
22
50) a. i. offer ii. Revocation iii. invitation to do business iv. Acceptance b. Serge and Mario have a contract. The mailbox rule is in effect and the contract was formed when Serge put the letter of acceptance in the mail on October 6th. The revocation was ineffective because it was not communicated to Serge until October 7th, which was too late c. Mario's offer contains a term that avoids the application of the mailbox rule. There can be no deemed acceptance when Serge mails his acceptance since the terms of the offer are that acceptance is effective only when the cheque is received. Since the revocation is received by Serge on October 7th, but the certified cheque does not reach Mario until October 12th, the revocation is effective and there is no contract. 51) If Maxwell meant that she was refusing Porter's counteroffer when she said she was not authorized to give him a deal, then she has caused his counteroffer to lapse, and her letter and the software is a new offer. This means that Porter can accept it or reject it. While generally, unsolicited goods sent to people create no liability for them, use of the goods here would be an acceptance of the contract. Failing to return it to Slyckbyte might also mean acceptance of their offer, since it had been sent to him because Maxwell thought she was accepting a counteroffer. It is probable however, that while Maxwell could argue that she never intended to reject his counteroffer, a court would say that she should have made that clear to Porter, especially since if no acceptance has been made of the counteroffer, it would normally lapse once they parted at the fair.
Version 1
23
52) While only the person to whom the offer is made can accept it, in this case there is a deemed acceptance of James' offer when Robert mailed the letter. The contract is formed before Robert dies. James' feelings about who is capable of running a store are irrelevant. If the contract had not yet been made, only Robert could have accepted it, and his death would have prevented acceptance. (It would not have been possible for the contract to go ahead if it had been for Robert's personal services and no one else could have substituted for him; for example, if it was a contract for Robert to work as manager in James' hardware store.) 53) Students should discuss the intention to create a legal relationship and the elements of offer and acceptance in the contractual sense. They should point out that the intention is a presumption at law, but that the parties' actions toward one another will define the nature of the legal relationship to which they intend to be bound. The discussion should include the importance of the negotiation process and the fact that the conclusion of that process should produce a meeting of the minds of the parties with respect to the terms and conditions that the negotiations produced. The aspects of offer and acceptance are equally important in the formation of an enforceable contract. When assessing the validity of a contract, there must always be an examination of whether the offer was effectively made and accepted thus creating a valid basis for performance of the agreement. Students should point out circumstances in which either the offer was made improperly (i.e., not communicated to the offeree) or was revoked before acceptance was properly made. Similarly, the numerous rules about acceptance should be discussed together with the consequences to the contract's enforceability of inadequate acceptance.
Version 1
24
54) See text: (p. 136) The Intention to Create a Legal Relationship The creation of advertising as an inducement to purchase must be carefully structured so as not to make representations or claims that potential customers may later seek to enforce unless the advertiser intended to be bound by them. This may be especially important for the celebrity endorsement type of advertising but pertains to all advertising forms.
Version 1
25
55) With respect to George's request for the generators, students should not be permitted to assume away the question by saying that it is not definite enough on its face. It may be assumed that certain terms have been discussed prior to George's departure which would induce the firm to ship generators on the basis of such a fax. There is clearly an intention on both of the parties to create a legal relationship, regardless of the error contained within the fax transmission. George wants to receive generators; the company wants to sell generators. If George's fax constitutes an offer, which it arguably does, the acceptance must be in the form contemplated by the offer, in this case an act, which is complied with. The company's interpretation of the "offer" is probably reasonable on the basis of prior discussions. Students should have no difficulty realising that an unconditional acceptance has been properly made in accordance with the "offer," since the offer may properly be construed on the basis of the cumulative effect of George's negotiations with them prior to his departure and the added triggering of his offer by the fax. The remaining item to create the enforceable contract is of course a meeting of minds of the parties, and the quest for an enforceable contract ends at this point. This is a good case to introduce students into the concept of mistake, while the treatment of the subject itself is a matter for Chapter 11. There is no meeting of the minds of the parties in this instance, and as a result of this mutual mistake there is no contract. No enforceable contract of any kind has been created and hence with respect to the latter part of the question, there is no contract for three generators, nor is there a contract for fifty generators. To mitigate losses to some extent, the parties may reach a contract with respect to the three of the generators that have arrived, but the remaining 47 are purely the responsibility of the manufacturer. The manufacturer of the generators may have recourse against the fax office for the damages incurred with respect to the 47 (or 50) generators shipped as a Version 1
26
result of their error. The fax office was only an agent to transmit the message in the terms in which the sender delivered it to them. It did not have the authority to do any more or less. Given the independent nature of the fax office, it should not be thought of as a mere agent for the offeror Citation: Henkel v. Pape (1870), 6 Exch. 7. 56) Students should work through this case to identify the offer and determine its disposition. The offer of July 23rd by Carson to Henri, was an offer by mail that was communicated to Henri on July 27th. This offer was accepted by Henri on July 28th by mailing a letter of acceptance to Carson with cheque enclosed. The letter sent by Carson to Henri revoking the offer of July 23rd arrived too late to be effective. Returning the cheque has no effect on the agreement itself, because the contract was already formed, and both parties bound. The offer by Jack to Carson on July 24th to buy the car for $18,250 was not accepted on that date but the parties kept the offer open for acceptance. Jack's offer of July 25th was of a unilateral nature, whereby Carson could accept by delivering the car to Jack's farm on July 31st. The delivery on July 29th was not acceptance in accordance with the terms of the offer. Jack would argue that Carson did not comply with the terms of the offer and therefore acceptance was not properly made, and it was therefore not bound by the offer to buy the vehicle. Carson is clearly caught in the middle between Jack and Henri but since the car is now damaged, Henri may also wish to avoid the agreement and accept the return of the cheque as an offer by Carson to terminate the agreement. This would leave Carson with the damaged car. Citation: Dickinson v. Dodds (1876), 2 Ch.D. 463.
Version 1
27
57) Students should analyse the fact situation for each party, identifying the elements of intention, and offer and acceptance of a contract involved with the formation of a contract as described in the text. Answers will vary.
Version 1
28
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A and B are neighbours. Before A left on a holiday, he asked B to "keep an eye on his house." While A was on holidays, B noticed that A's lawn was in need of cutting and proceeded to cut the lawn. On A's return from his holiday, B demanded $10 for cutting the lawn. A and B have a binding contract for the cutting of the lawn, because A's statement constituted an offer to B to cut the lawn, which B accepted. ⊚ ⊚
true false
2) A and B are neighbours. Before A left on a holiday, he asked B to "keep an eye on his house." While A was on holidays, B noticed that A's lawn was in need of cutting and proceeded to cut the lawn. On A's return from his holiday, B demanded $10 for cutting the lawn. A's statement was a request for service, and hence B may claim for his service of cutting of the lawn on the basis of quantum meruit. ⊚ ⊚
true false
3) A and B are neighbours. Before A left on a holiday, he asked B to "keep an eye on his house." While A was on holidays, B noticed that A's lawn was in need of cutting and proceeded to cut the lawn. On A's return from his holiday, B demanded $10 for cutting the lawn. B would not be entitled to claim anything for his service because his act was gratuitous. ⊚ ⊚
true false
4) A and B are neighbours. Before A left on a holiday, he asked B to "keep an eye on his house." While A was on holidays, B noticed that A's lawn was in need of cutting and proceeded to cut the lawn. On A's return from his holiday, B demanded $10 for cutting the lawn. If B should take legal action against A to collect the $10, and the court agreed that he was entitled to recover quantum meruit, he would not necessarily be entitled to the $10, but only to a reasonable price for his services. ⊚ ⊚
Version 1
true false
1
5) A and B are neighbours. Before A left on a holiday, he asked B to "keep an eye on his house." While A was on holidays, B noticed that A's lawn was in need of cutting and proceeded to cut the lawn. On A's return from his holiday, B demanded $10 for cutting the lawn. If B was entitled to claim quantum meruit, and the regular price charged by persons who mow lawns in that area was $10, B would probably be awarded $10 by the court. ⊚ ⊚
true false
6) X owed Y a debt in the amount of $1,000. The debt was payable on June 1st. If X offered Y the sum of $900 on the due date as payment in full, at common law, Y would be entitled to collect the remaining $100 even though he accepted the lesser sum as payment in full on the due date. ⊚ ⊚
true false
7) X owed Y a debt in the amount of $1,000. The debt was payable on June 1st. In Ontario, and in Western Canada under statute law, if Y accepted the lesser sum as payment in full on the due date, he would not be entitled to collect the remaining $100. ⊚ ⊚
true false
8) X owed Y a debt in the amount of $1,000. The debt was payable on June 1st. If X offered the $900 on the day before the due date, and Y accepted the money as payment in full, at common law, he could not later demand the remaining $100. ⊚ ⊚
true false
9) X owed Y a debt in the amount of $1,000. The debt was payable on June 1st. If Z, a friend of X, paid $900 to Y as payment in full of the debt owed by X, and Y accepted the sum, Y could not later demand the remaining $100 from X.
Version 1
2
⊚ ⊚
true false
10) X owed Y a debt in the amount of $1,000. The debt was payable on June 1st. If Z paid $900 as settlement for the debt owed by X to Y, Z would be entitled to an assignment of the debt owed by X and could collect the debt from him. ⊚ ⊚
true false
11) Anderson, a city employee, collected garbage along Smyth's street on Thursday of each week. One day Smyth said to Anderson: "You have done such a good job; I will give you $10 when you come by next week." The next week, when Anderson made his regular garbage pickup for the city, he met Smyth and asked for the $10. Smyth refused to pay. Smyth is obliged to pay Anderson the $10, because he promised him the money. ⊚ ⊚
true false
12) Anderson, a city employee, collected garbage along Smyth's street on Thursday of each week. One day Smyth said to Anderson: "You have done such a good job; I will give you $10 when you come by next week." The next week, when Anderson made his regular garbage pickup for the city, he met Smyth and asked for the $10. Smyth refused to pay. Smyth is not obliged to pay Anderson the $10, because his promise was gratuitous. ⊚ ⊚
true false
13) Anderson, a city employee, collected garbage along Smyth's street on Thursday of each week. One day Smyth said to Anderson: "You have done such a good job; I will give you $10 when you come by next week." The next week, when Anderson made his regular garbage pickup for the city, he met Smyth and asked for the $10. Smyth refused to pay. Smyth is not legally required to pay the $10. ⊚ ⊚
Version 1
true false
3
14) Anderson, a city employee, collected garbage along Smyth's street on Thursday of each week. One day Smyth said to Anderson: "You have done such a good job; I will give you $10 when you come by next week." The next week, when Anderson made his regular garbage pickup for the city, he met Smyth and asked for the $10. Smyth refused to pay. The reason why Anderson would be unable to show consideration is that, as a city employee, he was already bound to collect Smyth's garbage as a part of his duty to his employer. ⊚ ⊚
true false
15) Susan offered to pay $500 for a ring that Daria has agreed to sell to her. Each woman has given consideration to the other for her promise. ⊚ ⊚
true false
16) Jeremy agrees not to sue Angela for having crashed into his car if she agrees to pay for his repairs. Since he only promised not to do something which he could have done, he has not given consideration for her promise to pay. ⊚ ⊚
true false
17) In a letter to his nephew, Peter, Mortimer promised to leave Peter all his money when he died in memory of Peter's father for whom Mortimer had great respect. There is nothing Peter could do to ensure that Mortimer will keep his promise since it is gratuitous, and a gratuitous promise can never be made enforceable. ⊚ ⊚
true false
18) Mr. Ying, a successful lawyer, is asked by his daughter's daycare to do their legal work on a voluntary, unpaid basis and, since it is minimal, he agrees. As the result of an error he makes in drawing up the daycare's standard employment contract, a mistake which would not have been made by the reasonable lawyer, the daycare has to compensate an employee who was let go for failure to meet the job requirements. Since Mr. Ying received no consideration for his work, the daycare cannot hold him liable in contract for its loss.
Version 1
4
⊚ ⊚
true false
19) Zena decided not to honour the pledge form she had filled out for a local charity. Since her pledge was in writing and signed by her, it is enforceable by the charity. ⊚ ⊚
true false
20) McSweeney agrees to clear out Brown's basement, but no price is set at the time. Brown argues, once McSweeney has done the work, that since no price was agreed upon he should pay only a reasonable price and not the excessive amount stated in the bill presented to him by McSweeney. He is right. ⊚ ⊚
true false
21) Mary Jo relied upon a promise made to her by David. As a result of David's failure to fulfill the promise, Mary Jo has incurred expenses for which she cannot now be compensated. She tells you that she wants to sue David and make him live up to his promise. You would be right if you told her that she would have a better chance of succeeding if she were in the United States. ⊚ ⊚
true false
22) Simon is told by his lawyer that a particular document must be signed under seal. When Simon questions whether that isn't cruelty to animals, his lawyer explains that this is simply a process by which a written document can be made binding even if there is no consideration present. ⊚ ⊚
true false
23) June, an underworld enforcer, beats up Jason under an agreement with Monty by which she is to be paid $5,000 for her work. Although each party has given consideration, June cannot use the courts to enforce the contract if Monty will not pay her. Version 1
5
⊚ ⊚
true false
24) Jones Construction asks for bids for subcontracts on a building it is to construct. The successful bid will be an acceptance of Jones' offer. ⊚ ⊚
true false
25) A Canadian multinational was interested in developing a market in a third-world country, which had once been communist, and was moving to a free enterprise system. It negotiated with the government to buy and resurrect the fledging state-owned automobile industry. After presenting a contract under seal, the company got "cold feet" and decided to back out of the deal. The contract will be enforced against the company because the application of a seal together with a signature is considered to represent consideration for the contract. ⊚ ⊚
true false
26) A small municipality advertised a "call for tenders" to complete road construction in several newspapers. After the tender had been closed the job was not awarded to any of the prospective bidders. The municipality, on the recommendation of a neighbouring township contacted another firm and awarded it the contract on the basis of price and reputation. After learning of this development, the companies who had bid on the advertised tender joined forces and brought a suit against the municipality. They will be successful. ⊚ ⊚
true false
27) Quantum meruit and quantum valebant are two legal doctrines which result in essentially similar outcomes. ⊚ ⊚
Version 1
true false
6
28) Rita and her mother visit the bank as Rita wants to borrow money for a car. Her mother will be her guarantor. The banker fills out the loan form and the guarantee form but has only one gummed seal. Considering what might be the most prudent place to put the seal, the banker affixes the seal on the guarantee to be signed by Rita's mother. One seal is enough, this was the correct choice of place to put it, and the bank is fully protected. ⊚ ⊚
true false
29) Consideration is defined as something that has value in the eyes of the law, and which a promisee receives in return for a promise. ⊚ ⊚
true false
30) The court is not concerned about the adequacy of the consideration, only that the consideration is legal and present in the agreement. ⊚ ⊚
true false
31) A party who endorses a bill of exchange (e.g., a cheque) to enable another to negotiate it may not be held liable on the bill, even though no consideration was given as a result of the endorsement. ⊚ ⊚
true false
32) Charlie looks after Brad's motorcycle shop for a weekend, and, on Brad's return, Brad promised to give Charlie $200 for his kind act. In this case, Charlie's act of looking after Brad's shop was gratuitous and past consideration for Brad's later promise of payment. If Brad fails to pay the $200, no contract exists for Charlie to enforce because no consideration can be shown except the past gratuitous act. ⊚ ⊚
Version 1
true false
7
33) Estoppel is defined as a rule whereby a person who has made a promise may later deny the promise when a person relies on the promise to their detriment. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 34) The Queen's Wardrobe, a dressmaking boutique, agrees to make Rhonda's wedding dress for $2,000. The dress is to be ready for her wedding on June 1st. On May 14th, Jane, the owner called Rhonda to tell her that the dress would not be ready on time unless Rhonda agreed to pay an extra $500 so that Jane could hire someone to help her finish the lace embroidery. Rhonda is very upset, and feeling that she has no other choice, agrees. When she picks up the dress, she tells Jane that she does not think that it is fair that she should have to pay more than they had agreed upon and refuses to do so.
A) Since Rhonda has received the benefit of Jane having paid the extra money to get the dress completed on time, she must pay the extra money. B) By agreeing to pay and then refusing to do so, Rhonda has committed tort of deceit and a court would award Jane the $500. C) Since Jane was obligated under the contract to make the dress for $2,000, there is no consideration for Rhonda's promise to pay more and it is therefore unenforceable. D) Since Rhonda agreed to pay more, she has altered the terms of the contract and must therefore pay the extra $500. E) Since the cost of hiring the extra worker to finish the embroidery was the consideration Jane gave for Rhonda for the money, she must pay it.
35) Chu, a non-swimmer, fell off a ferry boat into the lake. "Help!" he cried. "$100 to the person who saves me!" Frances, a passenger on the ferry, then jumped in and held Chu's head above water until the boat's dinghy could reach them.
Version 1
8
A) Chu must pay Frances the reward since, by her action, she accepted his offer and gave consideration for his promise. B) Since Frances did not accept his offer, although what she did would have been consideration if there had been a contract, the offer is revocable and he need not pay her $100. C) If Frances had been under a legal duty to save Chu, even if there was a contract that he should pay her $100 for the rescue, Chu will not have to pay her. D) Chu must pay Frances the reward since, by her action, she accepted his offer and gave consideration for his promise and if Frances had been under a legal duty to save Chu, even if there was a contract that he should pay her $100 for the rescue, Chu will not have to pay her. E) All of the responses are correct.
36) Cyril owed Robert $12,000 but since he had lost his job, he could only pay $7,000. Reluctantly, Robert agreed, since they were old friends, to accept the lesser amount as full payment of the debt, and Cyril gave him the money. Now Robert has heard that Cyril has just won a huge amount in a lottery, but Cyril will not pay him the rest of the debt. "A deal's a deal," he says.
A) Since Cyril gave no consideration for Robert's promise to forgive the rest of the debt, Robert can successfully sue him for the balance. B) While Robert would have been able to sue Cyril under Common Law, statute law says that, having accepted part of the debt as payment for the full amount, Robert cannot now demand the balance. C) Whether or not Robert could successfully sue for the balance of the debt, the courts would not allow a debtor to be unjustly enriched in this way and would order Cyril to pay Robert the balance of the debt. D) All of the responses are correct. E) None of the responses are correct.
37) Mr. Megabucks promises the Turtle Preservation Society of Victoria that he will give it $500,000, provided it names the new headquarters building it wants to erect after him. The President of the Society tells him that his generous donation will allow them to carry on their turtle preservation work while getting decent working conditions for their staff and, at a groundbreaking ceremony soon after, the announcement is made that the building will be named after Mr. Megabucks. Four months later, Mr. Megabucks suffers severe business reversals and decides to withdraw his promise.
Version 1
9
A) Since there was no consideration for his promise, Mr. Megabucks may revoke it at any time without being sued. B) Mr. Megabucks is morally obligated to give the money to the Society, so the courts would enforce the promise. C) The Society can enforce Mr. Megabucks' promise because it would not have begun to build the new headquarters if he had not made it but would have spent it on turtle preservation. D) The Society can argue successfully that it gave consideration for his promise by naming the building after him as he requested, and Mr. Megabucks' argument that that was not adequate consideration for a promise to pay $500,000 will not succeed. E) The Society can enforce Mr. Megabucks' promise because it would not have begun to build the new headquarters if he had not made it, but would have spent it on turtle preservation and the Society can argue successfully that it gave consideration for his promise by naming the building after him as he requested. Mr. Megabucks' argument that that was not adequate consideration for a promise to pay $500,000 will not succeed.
38) Dimitri wrote to Pat offering to sell his neo-expressionist painting, "Red Sails in the Sunset," for $25,000. Pat replied that, since it would require that he redecorate, he could not really pay more than $18,000 for the painting. Dimitri replied that he was greatly hurt and deeply insulted by such an offer, especially from someone who was supposed to be a connoisseur of fine art, but that, since he was a little tight for cash, he would be willing to let it go to Pat for $13,000 for old times' sake. Pat immediately replied, saying that he accepted the painting at $13,000 and enquiring whether Dimitri wanted it in cash. Dimitri then realized that he had typed "$13,000" instead of "$23,000" in his second letter to Pat.
A) Since a reasonable person would have realized that Dimitri had made a mistake, given their prior correspondence, a court would not allow Pat to snap up the offer. B) Since the courts do not consider the adequacy of consideration in determining whether or not a contract has been reached, Pat will be able to enforce the contract for $13,000. C) Pat could not be expected to read Dimitri's mind and, since he accepted the offer in good faith, Dimitri cannot now back out of their contract. D) It is not the function of the court to consider the motives of a party negotiating a contract in asking for what to others might seem to be inadequate consideration from the other party, so Pat will be able to enforce the contract. E) It was up to Dimitri not to make mistakes like this and the court will not allow him to use his own carelessness to excuse him from meeting his obligations under the contract.
Version 1
10
39) The Big Book Store just received a shipment of 100 copies of Contemporary Business Law: Principles and Cases at wholesale price. The store contacted the local university to see if it was interested in purchasing the book. The bookstore faxed an offer of $5,000.00 for the 100 books. Due to a poor quality fax transmission the last three zeros were not visible. Upon receiving the offer, it appeared that the 100 books were on sale for $500. The university accepted the offer, received the books and deposited $500.00 in the store's bank account. Upon receiving its bank statement, the store realized the error and decided to take action against the university. Will it succeed?
A) Yes, the inadequacy of the consideration would render the transaction unenforceable because theuniversity could not adequately determine the store's consideration due to error. B) No, the store has lost on the deal because offer and acceptance both took place. C) Neither side would be held to the contract because it would be ruled invalid. It will be renegotiated and the store will pay a penalty for breach of contract. D) No, the store cannot take action, but none of the above statements are true. E) Yes, the store can take action, but none of the above statements are true.
40) A bicycle repair shop replaced a wheel on Zoe's mountain bike after she had run over a nail in the street. The repairman said that, although the new tire was not the same brand that had been on the bike when she bought it, not only was it of better quality and would be dependable, it was less expensive too. As Zoe biked down a busy street the tire tube popped causing her to lose control and fall into traffic. She suffered broken bones and internal injuries resulting in lost pay at work. Zoe's lawyer suggested using estoppel as grounds for her case. Which of the following are elements upon which estoppel can be used to argue her case?
A) The bicycle repairman made a promise intending it to affect their relationship with Zoe. B) The bicycle repairman intended that the promise should be acted upon by Zoe. C) Zoe relied upon the promise made by the repairman. D) Zoe acted or changed her position because of the promise that was made by the repairman. E) All of the responses are correct.
Version 1
11
41) While Marion was on extended holiday, her property became overgrown, principally with noxious weeds. Her municipality wrote to her home address threatening a $500 fine and the attendance of a municipal crew to control the problem with a further fee of $350. Marion's neighbour, George, who was tending her mail, read the notice and telephoned her and told her he would see to the cleanup job. In time, he forgot to do so, and the municipality performed the work, leaving a bill for Marion of $850. Upon Marion's return she was enraged at George's failure, and sued him in Small Claims Court for the $850.
A) Marion's claim will fail on the basis of George's defence of lack of consideration for his promise. B) Marion's claim based on past consideration will succeed, at least in some measure. C) Marion's claim based on estoppel will succeed, at least in some measure. D) Marion's claim will fail on the basis of George's defence of quantum meruit. E) Marion's claim will fail on the basis of George's defence of quantum valebant.
42) A small company, Software Design Limited, was indebted for $150,000 to a sole individual, and it is now due. This individual was an investor who was a former classmate of the firm's president, Angela. Owing to a reversal of fortunes for the company, Software Design could now only repay $100,000. With her investor chalking the affair up to experience, Angela intended the firm to repay what it could now, and then she would wind up the company. A few weeks after paying off her creditor at $100,000, but before she could wind up the company, a new investor with both ideas and money approached her and encouraged Angela to continue on in the business. Once Angela's former classmate heard of the new investor, she demanded the balance due on her loan. Angela briefly considered repaying more, but her new investor demanded a hardline approach. Angela was holding the repaid note in her hands as her later investor said "Neither you nor she could see the future when she agreed to accept $100,000. But accept she did. Business is business."
Version 1
12
A) Since Software Design gave no consideration for Angela's classmate's promise to forgive the rest of the debt, Angela's classmate can successfully sue the company for the balance. B) While Angela's classmate would have been able to sue the firm under common law, statute law says that, having accepted part of the debt as payment for the full amount, she cannot now demand the balance. C) Whether or not Angela's classmate could successfully sue for the balance of the debt, the courts would not allow a debtor to be unjustly enriched in this way and would order Software Design to repay the balance of the debt. D) None of the responses are correct. E) All of the responses are correct.
43) The act of performing a contract or the offer of payment of money due under a contract is known as a(n):
A) B) C) D) E)
Guarantee Tender Seal Estoppel Consideration
44) Under the Civil Code of Quebec, a contract ___________________ consideration to be enforceable.
A) B) C) D) E)
Version 1
requires suggests obligates expresses does not require
13
45) Regarding consideration, the following questions can help determine whether there is a contract rather than a gratuitous promise: 1. Is the consideration past consideration? 2. Is the proposed consideration legal? 3. Is there consideration flowing in both directions? 4. Does it have value in each direction? 5. If not, is there an exception?
A) B) C) D) E)
Numbers 1 to 5 are vital, no exceptions. Numbers 1 and 2 are optional, but a failure in 3 or 4 can be saved by 5. Numbers 1 to 4 are vital, 5 is optional. Numbers 1 and 2 are vital, but a failure in 3 or 4 can be saved by 5. Any one of numbers 1 to 5 determine there is a contract.
46) Chris offered to take Kelly to the movie. Kelly went to the movie theatre but Chris did not arrive. Can Chris sue Kelly for breach of contract?
A) B) C) D) E)
Yes, there was an offer and an acceptance. Yes, there was mutual intent. No, the offer was an invitation to treat. No, the offer was a gratuitous promise. All of the answers are correct.
47) Which of the following charitable pledges will be sufficient to find consideration on the part of the recipient?
A) B) C) D) E)
Version 1
A $100 pledge made via telephone. A $100 pledge made via a website. A $500 pledge made via a mail in response card. A $4,000 pledge made in a meeting with the recipient. None of these amounts are sufficient.
14
48) Jane looked after Colin's dog in February. In May, Jane went away and asked Colin, in return, to look after her cat. Colin refused. Did Colin breach a contract?
A) B) C) D) E)
Yes, the consideration does not have to be monetary. Yes, the consideration was of value. Yes, Jane was entitled to reciprocal treatment under the law of equity. Yes, the intention was that the services would be reciprocated. No, past consideration is not valid.
49) Jane agreed to look after Colin's dog in February if he would look after her cat in May. In May, Colin refused to look after Jane's cat. Did Colin breach a contract?
A) B) C) D) E)
Yes, the consideration does not have to be monetary. Yes, Jane was entitled to reciprocal treatment under the law of equity. Yes, promissory estoppel requires Colin complete the contract. No, past consideration is not valid. No, quantum meruit would apply.
50) Metro Auto Parts supplies many garages with auto parts. On its invoice it says that the amount is due in 30 days but will be reduced by 10% if paid within 15 days. Is Metro Auto Parts bound in contract to give its customers the discount if they pay early?
A) YES, when a creditor agrees to accept a lesser sum than the full amount of the debt on the due date, there is no consideration for the creditor's promise to waive payment of the debt owed. B) Yes, when a creditor agrees to accept a lesser sum than the full amount of the debt prior to the due date, there is consideration for the creditor's promise to waive payment of the debt owed. C) Yes, promissory estoppel would apply. D) Yes, promissory estoppel does not apply. E) No, the invoice would have to be under seal.
Version 1
15
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 51) Ted rented a store in a mall owned by Oscar. During the two busiest months of the year, renovations to the stores on either side of Ted's caused him to lose a great deal of money. A clause in the commercial lease for the store says that the mall owner is not liable for any losses caused by repairs or renovations, but Oscar agreed to allow Ted to pay only two-thirds of his rent for the following six months because Ted was now in financial difficulties since he had not made the profits he relied on to carry him through the slow period. Three months later, Oscar lost a lot of money speculating in the commodities market and he told Ted that he needed Ted to revert to paying the full amount of the rent under the lease. Ted objected having put all the money he would have used to pay the rent in full into an advertising campaign to try to make up his losses. Oscar got angry and demanded that Ted pay the back rent also. Ted will go bankrupt if he has to do this and he comes to you to ask if he must do it. What will you tell Ted about Oscar's rights and what Ted can do about the situation?
52) One afternoon you find a notebook filled with incomprehensible mathematical notations outside the Faculty of Business building and, realizing that it belongs to a professor in the Philosophy Department whose name is on the cover, you put it under the door of his office with a note telling him that you found it. That night, on the eleven o'clock news, you see an interview with the professor who is telling the reporter that he has lost the notebook in which he had worked out the meaning of life, and you hear him offer $10,000 for its safe return. Discuss your legal position in relation to whether or not you can claim the reward if the professor refuses to pay you.
Version 1
16
53) The Municipality of Minuscule has just hired you as its business manager and the mayor just asked you to draft a call for tenders for the construction of a new municipal recreation centre. a. What is the legal definition of a response to a call for tenders? b. What is the legal effect if the municipality puts out such a call? c. What should you put into the draft of the call for tenders to try to ensure that: i. the Municipality of Minuscule retains the greatest flexibility and range of choice in selecting the successful tender? ii. if the successful tenderer decides not to participate, the Municipality of Minuscule will be compensated for the time and money this costs it, without the necessity of going to court?
54) Your car breaks down and you are stranded on a highway. You call a tow truck which takes your car to a garage and replaces a faulty part. You do not have enough cash to pay, so you give the owner your address to send the bill for towing and repairs, and venture on your way. When the bill arrives, you find the prices are high. After consulting another garage your suspicions are confirmed. The mechanic sends you a notice threatening legal action and you decide to defend it using certain legal principles. What principles will you use for your defence, and what will be the probable outcome?
Version 1
17
55) Mark and his wife Jean had recently built a country home on a one-acre lot. Initially overwhelmed by the size of the lawn Mark arranged for Stanley, a neighbouring farmer, to cut their lawn with his riding mower. The first cut was difficult and time consuming as there were many tall grasses and weeds to cut through. On this occasion, Stanley charged $300. One week later, Stanley cut the lawn again and charged Mark $200. Reflecting on the substantial expense this represented, Mark thanked Stanley for his services and informed him that he planned to purchase his own lawn mower and take over the job himself. Mark also told Stanley that if he were stuck in the future, he would call Stanley to help him out. Shortly thereafter Mark and Jean took a two-week vacation and on arriving home discovered that Stanley had mowed their lawn in their absence. There was an invoice stuck to their door stating $200 for mowing services and $100 for weed spraying. When questioned about the bill Stanley explained that he understood Mark wanted him to mow the lawn if he were unable to. What legal issues does this situation raise and what arguments would be used by the parties involved?
56) Jackson Excavation Ltd. provides services to contractors by supplying heavy machinery and operators for excavation and various types of fill for building lots. Jackson managed to obtain for the first time a contract with a prominent residential builder for work on a 10-home development. The value of the work and fill was $60,000 and this was agreed upon as the contract price. After the work was completed and the invoice sent, Jackson learned that the builder had just been granted approval for a 50-home subdivision. Hoping to secure the excavation work for this project as well, Jackson immediately sent a letter to the builder stating that it would accept $50,000 as payment in full for the job just completed. He also mentioned in the letter that he hoped they would continue to do business together. What legal problems does this situation present and how might the parties solve them?
Version 1
18
57) Save-A-Lot Food Stores Limited regularly purchased large quantities of raisins for its bulk food section from a Canadian food wholesaler. The purchase of raisins was carried out with a separate purchase order and invoice each time although a full, written contract had been executed between the parties governing the relationship in its entirety. One of the terms of the contract specified that for individual orders in excess of 100 kg, a quantity discount of 15% would be applied to the purchase price. Since these were very favourable terms, Save-a-Lot regularly ordered quantities ranging between 500-700 kg of raisins to adequately supply all of its stores. After it had been purchasing raisins for over a year, Save-A-Lot received a note attached to its most recent invoice informing it that the contract was in error. The wholesaler's policy was that only purchases in excess of 1000 kg were entitled to the quantity discount of 15%. The invoice showed the full amount owing for the most recent purchase of 650 kg with no discount applied and also a cumulative amount equal to the 15% discount which had been granted to Save-A-Lot on all previous orders. Save-A-Lot refused to pay the extra amount. Discuss the arguments which may be raised by the parties and render a decision.
Version 1
19
58) Pop Co. was a small producer and bottler of carbonated beverages and employed the services of Distribu Co. to promote and distribute its products to grocers and restaurants. The sales of Pop Co.'s products had been steadily increasing and they were gaining considerable popularity among consumers. Distribu Co. had an agreement for five years with Pop Co. under which it received a commission of 10% of gross sales revenue as remuneration for its services. As the costs of advertising and promotion increased Distribu Co. wished to renegotiate its arrangement with Pop Co., particularly since its other clients were paying between 25% and 35% for similar services. During the negotiations that ensued, Distribu Co. pointed out that it was no longer profitable to work for Pop Co. Moreover, if Pop Co. did not increase its commission to 30% of gross sales, Distribu Co. would be forced to remove its services. Pop Co. finally agreed to double the commission as it had always been very satisfied with the services provided by Distribu Co. and did not want to have to establish a relationship with a new distributor. Pop Co.'s sales showed a substantial increase over the next quarter. When Pop Co. received the first quarterly commission invoice pursuant to the new arrangement it was astounded to discover the amount represented by 30% of gross sales revenue. Pop Co.'s president immediately telephoned Distribu Co. and told its finance officer that had Pop Co. realized how much the new commission would cost in dollar terms he would never have agreed to it as it was both unfair and exorbitant. He also stated that he would pay the invoice but at the long-standing rate of 10%. Discuss the legal issues and arguments which may be raised by the parties involved and the likely outcome if legal action should ensue.
Version 1
20
Answer Key Test name: Chapter 08 Test Bank 1) FALSE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) TRUE 23) TRUE 24) FALSE 25) TRUE 26) FALSE Version 1
21
27) TRUE 28) TRUE 29) FALSE 30) TRUE 31) FALSE 32) TRUE 33) FALSE 34) C 35) D 36) B 37) E 38) A 39) A 40) E 41) C 42) B 43) B 44) E 45) D 46) D 47) E 48) E 49) A 50) B
Version 1
22
51) Since Ted gave Oscar no consideration for his promise, Oscar's promise was gratuitous and unenforceable. Oscar can return to demanding his legal rights under the contract. However, if Ted refuses to pay and Oscar sues him, Ted can raise the defence of equitable or promissory estoppel with success since he has relied on Oscar's promise not to enforce the terms of their contract and it would now cause him hardship if the promise is revoked. Oscar cannot claim the back rent owing, but, if Ted can pay the full rent from now on without hardship, Oscar could demand that he do so, since a gratuitous promise can be revoked. See: Central London Property Trust v. High Trees House. 52) Since returning the notebook was gratuitous, and not made in response to the offer of the reward, no contract has been created by the return of the notebook. The consideration was past consideration and not effective to bind a contract. 53) a. The call for tenders is an invitation to do business or to make an offer. The response to a call for tenders is therefore an offer b. Since the call for tenders is not an offer, the municipality cannot be bound by any response, but can pick which, if any, of the offers it wishes to accept c. i. You should ensure that the wording of the call makes it clear that Minuscule is not bound to accept the lowest bid or any bid at all. You should also demand that the bids be made under seal so that they cannot be revoked before Minuscule has had the opportunity to consider it. ii. When bids are submitted, they should be required to provide a substantial deposit, which would then be forfeited if they are chosen as the winning bidder but refuse to exercise the contract.
Version 1
23
54) Since the calling of the tow truck was a request for services, and no price was mentioned, the legal principle would be "quantum meruit." This obliges the person requesting the services to pay a reasonable price. A "reasonable price" is normally the usual price in the area for the service, but a judge may decide what a reasonable price should be if the parties cannot agree. 55) This case explores the principles of consideration and quantum meruit. Students should point out that the act of lawn mowing while the residents were on vacation was a gratuitous act although the argument may be raised by Stanley that a prior agreement existed to provide the services. This argument would be based on the notion that a unilateral agreement existed that Stanley interpreted as an invitation to perform his services when Mark was unable to, in return for payment on a quantum meruit basis. The appropriate amount to be assessed as reasonable would be $200, the amount previously paid by Mark for the same service. The facts here do not adequately support this notion. Furthermore, it is clear that the weed spraying service was entirely gratuitous, and Mark need not make any payment for this. Students should outline the principles of these issues in discussing the arguments of the parties.
Version 1
24
56) This case looks at the debtor-creditor relationship and the problems of consideration when a lesser sum is accepted by a creditor for a debt owing. Unless there is some consideration given or benefit flowing to the creditor for accepting the lesser sum, the debtor may face an action by the creditor for the remainder of the unpaid debt. In this case the builder will want to ensure that paying the lesser amount will extinguish his debt to Jackson. He will, therefore, wish to structure this arrangement so that consideration flows to Jackson. This may be done in a number of ways: i. the builder may promise Jackson a contract for the 50-home subdivision; ii. the builder may ask Jackson to formalize this arrangement by preparing a document that is under seal and signed by Jackson; or iii. the builder may pay the lesser amount before the due date on the invoice. In each of these solutions either the lack of consideration has been eliminated or something of value or benefit has flowed to Jackson.
Version 1
25
57) The issues of equitable-estoppel and adequacy of consideration are raised in this case. The grocery chain will raise an argument that the wholesaler is estopped from now charging the terms of the contract negotiated between the parties. The wholesaler had openly negotiated these terms with Save-A-Lot upon which the latter relied in entering into the agreement in calculating the timing and quantity of its purchases. The grocery chain will argue that it relied on the wholesaler's promise of discount to its detriment and would have acted otherwise had it been aware from the outset that the policy gave discounts only for greater quantities. The wholesaler in turn may argue that Save-A-Lot was merely attempting to "snap up" its offer. In a business such as food wholesaling the quantity stated in the contract as eligible for the discount should have been readily apparent as being too low. The grocery chain was attempting to take advantage of the error and, thus, there is inadequate consideration for the contract.
Version 1
26
58) Based on Waldock v. Bissett (1992), 92 D.L.R. (4th) 532 although the facts have been changed considerably This case concerns the nature of consideration and, more specifically, what constitutes mutual promises. Both parties to this agreement are experienced businesspeople with equal bargaining power. Both parties agreed to provide the other with something of value. Pop Co. agreed to increase its commission and Distribu Co. agreed not to withdraw its services. Pop Co. will contend that it received no consideration for its promise of increased commission, thus rendering the agreement void. Specifically, it will argue that Distribu Co.'s promise amounts to nothing more than past consideration and that Distribu Co., for its increased commission, has provided nothing more of value than it was previously committed to provide. Distribu Co. will counter with the argument that it, indeed, promised to provide value to the new agreement. Firstly, it agreed not to withdraw its services and secondly, it achieved increased sales as a result of more promotional activity made possible through the greater resources available from the increased commission. Although the court will not concern itself with the adequacy of the consideration it is concerned with unconscionable transactions. In this situation, there is nothing to suggest unconscionability or unfairness. The parties negotiated on an equal footing and each received something of value. Even though am increase to 30% was a substantial increase, it was not unfair considering the promotional costs involved to Distribu Co. and it appears to fall within the customary range in this industry. There appears to have been a mutual exchange of promises constituting valid consideration between the parties. Each has received something of value under the new agreement and it ought to be enforceable.
Version 1
27
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. As a minor, Mariah would not be liable to pay any of the debts. ⊚ ⊚
true false
2) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. Mariah would be liable for the payment for the coat, if the coat was a "necessary." ⊚ ⊚
true false
3) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. If Mariah already has an adequate supply of coats, the coat which she purchased would be a non-necessary item. ⊚ ⊚
true false
4) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. Minors are not liable for non-necessary purchases, and Mariah would only be required to return a non-necessary coat to avoid the contract.
Version 1
1
⊚ ⊚
true false
5) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. Mariah is not bound by the contract to purchase the silver bracelet, because it is a non-necessary item for a minor. ⊚ ⊚
true false
6) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. The merchant was entitled to a return of the goods sold when Mariah repudiated the agreement to purchase the watch and silver bracelet. ⊚ ⊚
true false
7) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. If Mariah accidentally damaged the watch while it was in her possession, the merchant cannot hold her liable for the cost of repair. ⊚ ⊚
Version 1
true false
2
8) Mariah, a young woman aged 17, went shopping. She purchased a new coat on credit at a clothing store. Later the same day, she took her expensive watch to a jewellery shop to have a new watch band installed. While in the shop, she purchased on credit an additional watch for herself, and a silver bracelet as a gift for a friend. When the merchants later requested payment, Mariah refused to pay. All gifts purchased by minors are non-necessary items, and therefore Mariah is not bound by such a contract. ⊚ ⊚
true false
9) Dale, while in a drunken state, purchased a large sailboat from Sonja. Dale may avoid the contract with Sonja, if, on his return to a sober state, he promptly repudiates the contract, and can prove that Sonja was aware that he, Dale, was intoxicated at the time the contract was made. ⊚ ⊚
true false
10) Dale, while in a drunken state, purchased a large sailboat from Sonja. If Sonja was unaware that Dale was intoxicated at the time that the contract was made, Dale would not be permitted to avoid the contract. ⊚ ⊚
true false
11) Dale, while in a drunken state, purchased a large sailboat from Sonja. If, on his return to a sober state and when made aware of the contract, Dale affirmed it, he could not later avoid the contract on the basis that he was in a drunken state at the time the agreement was made. ⊚ ⊚
true false
12) X sold his retail clothing business to Y. The business was located in a small town, and most of the customers lived within a radius of eight kilometres of the clothing shop. As a part of the sale agreement, X agreed not to set up a similar business in competition with Y for a period of five years or within a radius of eight kilometres of the shop. The agreement which restricts X's right to set up a business in competition with Y will only be enforceable if it is reasonable and does not adversely affect the public interest.
Version 1
3
⊚ ⊚
true false
13) X sold his retail clothing business to Y. The business was located in a small town, and most of the customers lived within a radius of eight kilometres of the clothing shop. As a part of the sale agreement, X agreed not to set up a similar business in competition with Y for a period of five years or within a radius of eight kilometres of the shop. The "five-year; eight-kilometre radius" restriction is probably reasonable, as it protects the goodwill purchased by Y, and does not unnecessarily restrict X's right to set up business elsewhere. ⊚ ⊚
true false
14) X sold his retail clothing business to Y. The business was located in a small town, and most of the customers lived within a radius of eight kilometres of the clothing shop. As a part of the sale agreement, X agreed not to set up a similar business in competition with Y for a period of five years or within a radius of eight kilometres of the shop. If the restrictive covenant was considered to be unreasonable by the court, the restriction would be amended to make it reasonable. ⊚ ⊚
true false
15) X sold his retail clothing business to Y. The business was located in a small town, and most of the customers lived within a radius of eight kilometres of the clothing shop. As a part of the sale agreement, X agreed not to set up a similar business in competition with Y for a period of five years or within a radius of eight kilometres of the shop. A court will strike down an unreasonable restriction, and thereby leave the purchaser unprotected from competition from the seller. ⊚ ⊚
true false
16) Sarah is 18 years old. No matter where she lives in Canada, she is fully responsible as an adult for any contracts that she makes. ⊚ ⊚ Version 1
true false 4
17) Jack, who is 16, makes a contract with Thomas, who is 24, to cut Thomas' lawn all summer. If Jack breaches the contract, Thomas cannot sue him. ⊚ ⊚
true false
18) Rita, who is 15, makes a contract with Ahmed, who is 30, to babysit Ahmed's two children over March break. If Rita instead goes to Miami Beach with her parents, Ahmed can sue her. ⊚ ⊚
true false
19) Alex is asked by Greta why minors cannot generally be sued for breach of contract. "It's because they don't have much money, usually, and it would be unfair to let a big corporation take it away from them," he says. ⊚ ⊚
true false
20) Sue, aged 15, bought an expensive calculator from Biggs & Little Office Supplies to use in school, paying for it in full. She paid the normal price and the calculator works as expected. Sue would now like one with some extra functions. Therefore, she can take back the one she bought and get her money back from Biggs & Little, even though she no longer has the instruction manual that went with it. ⊚ ⊚
true false
21) Moshir ordered a custom-made winter coat from a mail-order catalogue. He is 17.After the coat arrived, he contacted the seller and told them he did not want it. He has no winter coat. The coat is a necessary. ⊚ ⊚
Version 1
true false
5
22) Gavin ordered a custom-made winter coat from a mail-order catalogue. He is 17. Before the coat arrived, he contacted the seller and told them he did not want it. He has no winter coat. It is likely that he cannot be forced by the seller to take the coat and pay for it. ⊚ ⊚
true false
23) A public utility corporation was created under legislation that gave it the right to build and maintain power stations, and to raise money within the province to do so. If the PUC enters into a contract to supply power to a group of companies in another province, with the intent to use the money thus raised to build more power stations in the province, that contract is enforceable by the corporations if the PUC decides not to honour it. ⊚ ⊚
true false
24) Mr. Martin, who has been declared bankrupt, decided to rent an apartment for $600 per month, since his house is to be sold to satisfy his creditors. Prior to the sale of his house, he cannot enter into such a contract, since he lacks the capacity to contract except for necessaries. ⊚ ⊚
true false
25) Samuel, who has been declared bankrupt, decided to rent an apartment for $800 per month, since his house is to be sold to satisfy his creditors. Assuming this is a contract for necessaries, Samuel must tell the landlord that he is a bankrupt or he cannot make the contract. ⊚ ⊚
true false
26) Drew, a five-year-old boy, saved his allowance to buy his mother a present for her birthday. After a talk with his father, Drew discovered that the present was on sale and he would not have to use all of his allowance. When Drew returned home, his father learned that he had been charged the full price for the gift. When his father confronted the store owner, he refused to refund the sale. At the father's request pursuant to the contractual Right of Repudiation, the store owner must refund the sale, thus voiding the contract. Version 1
6
⊚ ⊚
true false
27) James, a 16-year-old boy, got a job for a catalogue company selling household items that he ordered from the business and sold to his customers. James' grades at school suffered as a result of his job, and he was forced to give it up. He returned the goods he had purchased on credit and notified the company that he was discontinuing his employment. The company contacted James and told him that by having the goods in his possession the company had lost revenue opportunities. It then billed James for the cost of the goods. James is obliged to pay. ⊚ ⊚
true false
28) Acme Life Insurance refused to pay out on a life insurance policy on the late Mr. Smith. Since such policies are essentially contracts betting on the length of life of the insured, this contract is enforceable in law by Mr. Smith's family only because the need to protect its business reputation makes an insurer pay. ⊚ ⊚
true false
29) Janine, a dental student, does some dental work for a friend even though she is not yet licensed. Since the work, though not negligent, did not achieve the promised results, Janine's friend can sue her for breach of their contract. ⊚ ⊚
true false
30) Jasmine wagered $10,000 on the tables at Las Vegas, where gambling is legal. She paid her gambling debt by a cheque drawn on her Ontario bank account, but immediately put a stop payment on the cheque when she got home where gambling is illegal. Our courts will not enforce the Nevada court's judgment for the casino owners. ⊚ ⊚
Version 1
true false
7
31) Any business firm or merchant that decides to enter into a contract with a minor assumes the risk (in the case of a contract for a non-necessary) that the minor might repudiate the agreement. ⊚ ⊚
true false
32) The protection extended to a minor under the rules of contract may be used by a minor to perpetrate a fraud on an unsuspecting merchant. ⊚ ⊚
true false
33) An agreement with a public official, whereby the official would use his or her position to obtain a benefit for the other party in return for payment, is both legal and enforceable. ⊚ ⊚
true false
34) In general, the courts are reluctant to place any impediment in the way of a person seeking employment. As a consequence, a restrictive covenant in a contract of employment will not be enforced unless serious injury to the employer can be clearly demonstrated. ⊚ ⊚
true false
35) The legality of the subject matter of a contract determines its validity and enforceability. Legality is generally determined on the basis of public policy or public interest; any agreement contrary to these considerations may be illegal or void. ⊚ ⊚
36)
true false
The Indian Act recognizes First Nations bands as legal entities. ⊚ ⊚
Version 1
true false
8
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 37) Wade, an Ontario resident, ordered a customized motorbike on February 1st with delivery on June 1st. On his 18th birthday, on May 1st, Wade decided that he wanted a windsurfer instead, so he called the motorbike company the next morning and cancelled the contract. The payments would have been made on a 24-month basis.
A) Wade cannot be held to this contract since he would have had to ratify it when he turned 18, and he did not. B) Wade cannot be held to the contract since he repudiated it within a reasonable time after turning 18. C) Wade can be held to the contract since he failed to repudiate it in writing within a reasonable time after he became 18. D) Wade cannot be held to this contract since he would have had to ratify it in writing when he turned 18 and he did not. E) Since Wade has caused the motorbike company to incur the extra expense of removing the customization from the bike, he can be required to pay for that, but not to accept delivery and pay for the bike since he repudiated the contract within a reasonable time after he turned 18.
38) Sashi and Leon were having marital problems and had an argument one morning over whether or not Leon should buy a motorbike. Sashi went to her sister Nancy's home where the two women talked about life and drank vast quantities of wine. Very drunk, Sashi decided everything was her fault. She went to a local motorbike store, selected one she knew Leon wanted, but had rejected as being too expensive, and paid for it with her credit card. The salesman had no idea she was drunk. The next day, she had no memory of the transaction and was horrified to find out what she had done. Sashi discovered the sales slip and the motorbike outside and called the company at once to tell them she is returning it immediately.
Version 1
9
A) Since she was so drunk that she didn't know what she was doing, Sashi lacked the capacity to make the contract, and cannot be held to it under any circumstances. B) Sashi cannot use her own voluntary behaviour in getting drunk to excuse her from responsibility for this contract. C) Since Sashi repudiated the contract immediately once she became sober, she cannot be held to it. D) Even though Sashi repudiated the contract promptly once she became sober, she can be held to the contract since the salesperson had no idea she was so drunk that she did not know what she was doing. E) Since she made the contract to save her marriage, it is a contract for a necessary and, drunk or not, she is bound to it.
39) While in the manic-depressive stage of mental illness, Alec ordered 20,000 paper bags, believing that he could sell them to small supermarkets as an ecologically sound marketing device. His doctor then placed him back on his medication, and he was upset to realize what he had done. Trying to make the best of a bad job, he contacted a number of small supermarkets, but they were not interested. Recalling his business school law course, he called the paper bag supplier and cancelled the contract on the grounds that he lacked capacity when he made it.
A) Alec is bound to the contract because he affirmed it by trying to sell the bags when he became unimpaired, instead of promptly repudiating the contract. B) Since this is a contract for necessaries, he is bound to it even though he was mentally impaired when he entered into it. C) Since this is not a contract for necessaries, Alec is not bound to it, provided he repudiated it promptly. D) Alec's reasonable attempts to resolve the problems caused by his making the contract when he was impaired should not affect him negatively now. E) C and D.Scrambling: Locked
40) Ross's family lives in Ontario. His parents gave him a credit card in his own name for his th 14 birthday. For the past 20 months they have always paid the bills for charges made on the card. Last night, Ross's father told him that they were tired of his extravagance and that from now on, he will have to pay any charges himself, including the one which triggered Ross's father's statement. This bill is for $1,200 for a Florida spring break holiday from which Ross has just returned.
Version 1
10
A) Since the credit card is in Ross's name, he is responsible for making the payments, including the one for $1,200. B) Since a holiday is a necessary, the credit card company can hold Ross's parents to paying the bill since they are obliged to support a child under age 16. C) Ross's parents are liable for any charges on the credit card until they inform the credit card company that they will no longer pay such bills. D) Since Ross may, as his parents' "agent of necessity," pledge their credit to provide for himself, the parents are liable for his bills until he is 18 years old. E) A minor cannot be sued for non-necessaries, so Ross's parents must continue to pay for his purchases until either he turns 18 or the credit card company takes back the card, whichever comes first.
41) War has just been declared between Canada and the U.S.A. Ellen Lewis, a Canadian resident with American citizenship, has been carrying on her cosmetics manufacturing and direct sales business only in Canada for about 10 years. She has a contract with Basic Chemicals, a Canadian company, for the supplies she needs to make her cosmetics. i. Ms. Lewis is classified as an enemy alien because of her citizenship. ii. The contract made between Ms. Lewis and Basic is void and illegal from the moment war is declared. iii. Ms. Lewis is not an enemy alien. iv. The Crown may grant Ms. Lewis the right to continue her business if it is in the public interest. v. The contract between Ms. Lewis and Basic is not affected by the outbreak of war.
A) B) C) D) E)
Version 1
i and ii. i, ii and iv. iii and v. iii, iv and v. ii, iii and iv.
11
42) On leave from the navy, Bart and his buddies ventured into town for a night of partying. After a good many drinks a friend suggested they all get tattoos. When Bart's turn came he, in his inebriated state, chose a large tattoo to cover his entire forearm. When they were done the sailors returned to their ship. When Bart woke the next morning his tattoo was there, large as life, on his arm. Bart, after a discussion with a friend decided to contact his lawyer to see what he could do about this tattoo.
A) Bart, realizing his mistake on his return to sobriety, can sue for damages. B) Bart does not have a case against the tattoo parlour because alcohol is not a ground for which a person can repudiate a contract. C) Bart may have a case against the tattoo parlour since it either knew or ought to have known that he was drunk and should not have performed the service. D) Bart does not have a case because there is no provision for drunkenness in contract law. E) A and C.Scrambling: Locked
43) Margaret operates a large business based in a Central American country, which sells automobile tires. Margaret moved to Central America from Canada to start her venture but has retained her Canadian citizenship. After five years of successful sales, her Canadian supplier ceased sending her tires. She contacted the supplier to find out its reason for discontinuing the sales. The company replied that because Canada was party to a U.N. sanctioned trade embargo against this country, she had been deemed an enemy alien by the government of Canada. The supplier company had, on that basis, decided to break the supply contract. Margaret was desperate to maintain supplies and threatened legal action for the broken contract. Would she be successful?
A) Yes, because her "enemy alien" status does not provide grounds for the breach of contract that has happened. B) No, because her "enemy alien" status automatically renders the contract null and void. C) No, because the "enemy alien" status results from the implementation of the "War Measures Act" which makes all contracts abroad null and void. D) Yes, because this may not be a valid declaration of an "enemy alien" as Canada is not at war and there are no grounds for a breach. E) A and D.Scrambling: Locked
Version 1
12
44) Ruth sold her craft shop to Mary. The contract of sale had a clause which said that Ruth could not open a similar store for two years within a five-kilometre radius. This kind of clause is called
A) B) C) D) E)
a restrictive covenant. an employment contract. a protection of the freedom to compete clause. public policy clause. None of these.
45) Ruth opens a craft store one block east of Mary's store six months later and customers start going there instead of to Mary.
A) If the court finds the clause in the contract of sale to be reasonable, Mary will want damages as her remedy. B) If the court finds the clause in the contract of sale to be reasonable, Mary will want an injunction as her remedy. C) If the court feels that clause was not reasonable, but that Mary should have protection from Ruth, it will imply a more reasonable restriction into the contract. D) A and B. E) A, B and C.Scrambling: Locked
46)
The Competition Act is a statute that
A) affects certain kinds of contracts and that, in part, is criminal law. B) renders illegal any contract or agreement between business firms that represent a constraint of competition. C) covers a number of business practices that are contrary to the public interest. D) attempts to provide a balance between freedom of trade and the protection of the consumer. E) All of these statements are true.
Version 1
13
47) When Peter is 16, he enters into an agency agreement whereby he rents commercial property in exchange for a commission valued at 2% of the lease. When he turned 18 (the age of majority) he took no action. Does the contract continue?
A) Yes, it remains binding unless repudiated within a reasonable time of attaining the age of majority. B) Yes, it remains binding unless ratified within a reasonable time of attaining the age of majority. C) No, it is not binding unless repudiated within a reasonable time of attaining the age of majority. D) No, it is not binding unless ratified within a reasonable time of attaining the age of majority. E) No, it is not binding. It is automatically repudiated upon a minor attaining the age of majority
48) In May, Joey, a 17-year-old, enters into a contract to factory order a car. He gives the dealer a $2,000 deposit. The car will be delivered in September. Joey reached the age of majority in July. He took no action. Is he bound by the contract and required to take delivery of the car in September?
A) Yes, it remains binding unless repudiated within a reasonable time of attaining the age of majority. B) Yes, it remains binding unless ratified within a reasonable time of attaining the age of majority. C) No, it is not binding unless repudiated within a reasonable time of attaining the age of majority. D) No, it is not binding unless ratified within a reasonable time of attaining the age of majority. E) No, it is not binding. It is automatically repudiated upon a minor attaining the age of majority
Version 1
14
49) In May, Joey, a 17-year-old from, Charlottetown, P.E.I., enters into a contract to factory order a car. He gives the dealer a $2,000 deposit. The car will be delivered in September. Joey reached the age of majority in July. In August he called the dealer to see if the car was still scheduled for delivery in September and assured him that he would be ready to take delivery at the Charlottetown, P.E. I. dealership. Is he bound by the contract and required to take delivery of the car in September?
A) Yes, it remains binding unless repudiated within a reasonable time of attaining the age of majority. B) Yes, it remains binding unless ratified within a reasonable time of attaining the age of majority. C) No, it is not binding unless repudiated within a reasonable time of attaining the age of majority. D) No, it is not binding unless ratified within a reasonable time of attaining the age of majority. E) No, it is not binding unless ratified, in writing, within a reasonable time of attaining the age of majority.
50) Eric, a 14-year-old, was an excellent painter. His teacher, Mr. Ryan, commissioned him to paint a picture of the city skyline and gave him a $50 deposit. Eric did not complete the painting. What is the position of Eric and Mr. Ryan?
A) B) C) D) E)
The contract is void under the law of equity. The contract is void in Newfoundland as it is not in writing. The contract is voidable at the minor's option and Eric must return the deposit. The contract is valid under the Sale of Goods Act. The contract is valid under the Capacity Act in Ontario.
51) Bernie Nohave is operating a scheme whereby investors' money is purportedly utilized to buy AIDS drugs in Africa. The money is then deductible as a charitable donation for tax purposes. Tom invests in this scheme to generate tax losses knowing that medicine is not being purchased. Is the contract valid?
Version 1
15
A) B) C) D) E)
No, everyone knows that Bernie is bankrupt. No, this transaction is ultra vires Bernie Nohave's corporation. No, there is no consideration. No, there is no capacity. No, the subject matter of the contract is illegal.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 52) Doug, the 17-year-old brother of a friend of yours, bought your old car from you three months ago to get him to and from his new job. He needed a car because there was no public transportation in that area. You agreed to let him pay in 36 monthly installments of $200, but he has paid you only once so far. Yesterday, you asked him to pay up and he told you he had spent all he had earned. When you told him you would have to take him to court, he said that an adult cannot sue a minor on a contract. Today, a tow truck left the remains of the car in your driveway; it had been so badly damaged in an accident that was Doug's fault that it was a write-off. A note on the windshield said "Your car doesn't run too well, but I won't sue. Let's call it quits. Best wishes, Doug." Under your contract he was to have insured the car, but he did not. a. Discuss whether you have any recourse against Doug. b. If Doug had bought the car, simply for normal driving, would your answer be any different, and why or why not?
Version 1
16
53) Jolene, aged 16, is hired by the Sparkle Company, a costume jewellery manufacturer, to learn the design and manufacture of costume jewellery for the upscale market. Under the contract she signs, she will receive quite a low salary for the first three years, and then will be put on the regular pay scale once her apprenticeship is completed. After a year, her designs are being sought by stores in Europe and the U.S.A. The world's largest and most prestigious costume jewellery firm, located in Paris, wishes to hire her and pay her a fabulous salary as well as give her the free use of a large apartment in a very desirable neighbourhood in Paris. Jolene wants to accept the offer from the firm in Paris. Sparkle's management refuses to release her from her contract because her designs are building their reputation. "We taught her everything she knows," says the president of Sparkle. Discuss the positions of Sparkle and Jolene in these circumstances.
54) Don rented a small store from a landlord to carry on a business. Don stated that he was of legal age, 18, to carry out the deal when, in fact, he was only 17 years old. After a short period of time Don realized that his business plans were not working out and it would be in his best interest to return to school. By this time, the landlord was wondering why he had not received a cheque for Don's rent. When he confronted Don about this, Don informed him of his plans. The landlord told Don he would have to pay for the time he occupied the premises. Don said that he would not pay, and the landlord could not force him to pay because he was not of legal age and was insolvent. Discuss this situation using your knowledge of the law governing age of majority.
Version 1
17
55) At age 16, Smith was a promising young hockey player. He was drafted by the Fredericton Firebirds to play for their club, a junior team one step below the professional league. One year into the contract, the Firebirds terminated the contract and required all of their players to sign new four-year contracts. Smith was to receive $250 weekly, along with room and board and the flexibility to complete his high school studies. In return, Smith agreed to play only for Fredericton and gave them the right to trade him to any other team or terminate the contract at any time. On his 18th birthday, Smith visited the general manager of the Firebirds, and repudiated his contract. Smith had received offers from the professional league, which promised him far greater instruction with superior coaching, as well as $200,000 per season. Smith felt that an early jump on a professional career was vital to him, considering the early retirement age of most hockey players. The general manager was upset with Smith and vowed to bring a suit against him if he signed with the professional league to set an example for the other players. Smith signed the contract with the professional team, and the general manager brought suit against him. Discuss the contractual issues raised in this case, and discuss in particular the issues of capacity, enforceability, and repudiation that bear in this instance. What aspects would a judge take into account in rendering a decision and why?
56) Two weeks before Susan's 18th birthday, her father gave her $3,000 to purchase a car. She chose a used car from the local dealer for $2,700, and having paid cash, drove the car home. After 300 kilometres the brakes needed considerable work. She felt that it might be more prudent to use her father's money as a start to savings for a new car. Accordingly, she returned the car and the keys to the dealer along with a letter that she was repudiating the contract. She had written the letter almost a week prior to her 18th birthday but was unable to deliver the car and letter until three days after her 18th birthday. The dealer refused to refund her money, and Susan was forced to bring an action to recover her funds. Discuss the issue of capacity and repudiation that arise in this fact situation.
Version 1
18
57) Nancy was the administrator of her deceased father's estate. Several years before he died, Wilbur, the father, had entered into a lease agreement with an oil exploration company. The company had leased the rights to explore and drill for oil on Wilbur's farm for a period of 20 years. About two years after entering into the lease, the oil company began drilling. According to the terms of the lease, the company was requested to pay Wilbur a basic monthly fee regardless of whether any drilling was underway, and regardless of the outcome of the drilling. In addition, Wilbur was to receive a substantial additional payment if any drilling proved to be profitable. For about six years before his death, Wilbur suffered from a mental illness that had impaired his ability to remember things. While he seemed generally lucid and aware of his actions in present time, he would be unable to remember events which had occurred only an hour before. The oil company was not aware of Wilbur's illness at the time it entered into the lease. It became apparent, however, once drilling was underway as Wilbur did not seem to remember that the company had paid him extra amounts as the result of successful drilling. Nancy, who believes that the oil company can afford to pay more for the lease rights wishes to void the lease on the basis of her father's mental incapacity and renegotiate it herself. Discuss the legal principles she will rely upon and the response of the oil company. What would be the likely outcome of Nancy's challenge?
Version 1
19
58) Winston was an engineer of great repute in the field of fluid mechanics. Some years ago, he took out a patent on a general theory of how fluid moves through a particular shape of valve, and a patent on a unique valve specifically adapted for use in a nuclear reactor. He had formed a company that had produced this latter valve in the Canadian market and other countries which used Canada's CANDU reactor. After a number of years of successful business operations, Winston was approached by a group of investors interested in purchasing his company, and a deal was concluded. As part of the contract of purchase and sale, Winston sold the patent to the valve and agreed that he would not work in or carry on any other business manufacturing valves, nor would he engage in any other business that might compete in any way with the purchasers business for a period of ten years. The restrictions applied on a worldwide basis. Winston retired to Florida and after five restless years again became involved in the field of fluid mechanics, making designs for certain parts for nuclear reactors for submarines of the United States Navy. One particular part that he designed and built was based on the patented principles of his general theory, which he had never sold, and while it was similar to his former valve in many ways, a slight change had rendered it patentable in its own right. On learning of the multimillion dollar sales that Winston had effected to the U.S. Navy, the purchasers of his former business brought suit for his breach of the contract. With his new valve, Winston had generated profits of $5 million before the "ten-year waiting period" had expired and $10 million after the period had expired. Discuss the relevant issues of contract bearing on this case, the relevant aspects of business which would assist the court in determining damages, if any, and render your own decision.
Version 1
20
Answer Key Test name: Chapter 09 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) FALSE Version 1
21
27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) TRUE 32) FALSE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) B 38) D 39) A 40) C 41) C 42) E 43) B 44) A 45) D 46) E 47) A 48) D 49) E 50) C 51) E
Version 1
22
52) a. This is an executor contract for a necessary, so Doug as a minor can be held to it. Since he has not paid, he is in breach of the contract and can be sued. He must take responsibility for the payments for the damaged car. b. If he does not need the car to go to and from work, it is not a necessary and he therefore is not liable, as a general rule, if he chooses to repudiate the contract. He is, however, required to return the goods in whatever condition they are in and this he has done. You cannot sue him in tort for the damage because you clearly expected him to drive the car and had required him to have insurance, so you contemplated that there might be damage. You would be trying to recover the payments not made, a contractual matter, through the use of a tort action and this the court will not allow. 53) An ordinary contract of employment that has an indefinite time period can be ended by a minor giving reasonable notice. Sparkle can argue that this is a beneficial contract of service, since Jolene is being taught the trade by them. If, however, she is to expect that the company is already dependent on her ability to create its growing reputation, it may be questionable how beneficial, in an educational sense, the contract is to her. A court may release her from the contract if what she has learned is minimal, on the grounds that Sparkle did not teach her everything or even very much of what she knows. 54) As a general rule, a minor may only incur liability for necessaries, and a business activity is usually not considered a necessary. Business contracts are usually not binding upon a minor. However, where a minor has fraudulently misrepresented his age in order to obtain benefits under a contract that would normally not be binding upon a minor, the courts will usually not assist the minor to avoid liability.
Version 1
23
55) Smith's contract, signed when he was an infant, falls into the category of contracts of service, which are only enforceable if the contract was for the benefit of the infant at the time it was made. Students will no doubt argue that the contract was beneficial to Smith since experience in the junior leagues is the only avenue to a career in professional hockey. It would be further argued by the general manager that the Firebirds were taking a chance on Smith, giving him the benefits of instruction and exposure to the scouts of the professional league. On the other hand, students have been presented with good reasons why the contract under its current formulation is disadvantageous to Smith, as it reduces his potential playing time as a professional, and the level of his achievable professional income. The text is quite right but emphasizes that beneficial contracts of service are enforceable against minors, so there is indeed basis for a student to conclude that Smith is bound by the contract. The courts do look to the long-term nature of the benefit conferred upon the minor and if the contract is in fact in the long term prejudicial, it will be held unenforceable against the minor. Since Smith's repudiation is timely and he has not ratified the contract he is quite likely to be excused from its performance. This case is based upon the case of the professional hockey player John Tonelli, who for these reasons of long-term benefit, was allowed to repudiate his contract with the Toronto Marlboro Junior A Hockey Club. Citation: Toronto Marlboro Major Junior A Hockey Club v. Tonelli (1979), 23 O.R. (2d) 193.
Version 1
24
56) The contract is completed, and fully executed by both parties; it is doubtful that Susan can show that she has been taken advantage of by the merchant given that the price of the car at $2,700 sounds reasonable, and the passage of 300 kilometres before requiring brake work does not suggest a particularly one-sided deal in favour of the dealer. There are quite a number of issues in this case from the source of funds being Susan's father through to the fact that repudiation was delivered after Susan's 18th birthday, however none are relevant to the central issue at hand. Given that the contract is fully performed there is nothing to repudiate, and Susan is the owner of the car. The question is structured in its final line to discourage students from a discussion of the merchantability of the goods, and therefore, students should centre on the binding nature of fully performed contracts by minors. Citation: Fannon v. Dobranski (1970), 73 W.W.R. 371.
Version 1
25
57) Based on Hill Estate v. Chevron Standard Ltd. (1991), [1993] 2 W.W.R. 545 This case examines the consequences of mental incapacity on the validity of a contract. The oil company was unaware of Wilbur's mental state at the time it entered into the contract with him, although it did learn of his condition after performance was underway. Nancy's argument will be founded on the premise that Wilbur, regardless of appearances, did not have adequate mental capacity to appreciate his actions in entering into an agreement with the oil company. Therefore, he may have agreed to terms that were not in his best interest and which, in fact, would be disadvantageous. Nancy will be required to enter evidence as to his mental state in order to support her contention. The oil company will respond with the argument that it was unaware of his condition when it entered the contract. Even if it had known of Wilbur's mental state at the outset, the nature of the condition did not appear to impair his ability to comprehend and appreciate the nature of his actions in present time. The fact that he had difficulty remembering them later should not impair the quality of his decisions. This fact ought to prevent Nancy from voiding the contract as there was no action by the oil company to take unfair advantage of Wilbur's state. The contract itself appears to be fair and reasonable on its face and Wilbur profited from it. The fact that the oil company later became aware of Wilbur's incapacity should not affect the validity of the contract. Since Wilbur had, prima facie, a mental incapacity when he entered into the contract, Nancy can attempt to void the contract if she acts quickly after his death. As discussed above, the oil company may rebut her ability to void the contract by setting out evidence regarding its knowledge of Wilbur's condition at the time the contract was negotiated and on the basis that it had dealt fairly and reasonably with Wilbur throughout. The outcome at trial, although the facts of the original case Version 1
26
differ somewhat from those here, favoured the oil company on the basis of the arguments set out above.
Version 1
27
58) The relevant principles of contract in this case are centered around legality at common law and public policy issues of contracts that may be in restraint of trade. In particular, we are concerned with the legality of restrictive covenants concerning the sale of a business. The central business issue to be discussed by students is the nature of goodwill as an asset being sold under contract amongst the other physical assets of the business. There are two levels of analysis that may be applied to a restrictive covenant of this nature. The first is a question of public policy with respect to the validity of the covenant. With respect to the restriction of not carrying on business in manufacturing valves, given Winston's stature in the field, a ten-year worldwide restriction may well be reasonable. On the other hand, the prohibition against engaging in any other business that may compete with the investors would be considered prima facie void as a restraint of trade, as it effectively prevents Winston from earning a living in the field in which he has been trained. This would be unreasonable and, as stated prima facie void. The court would strike it out of the contract leaving the remainder intact within its four corners. Given this, Winston has violated his contract in the manufacturing of the valves, but we must turn to the second level of analysis, being the quantum of damages. We then turn to the value of the goodwill that Winston had developed in his business and sold to the investors. In this instance, Winston sold a firm which was engaged in, and had goodwill in, the field of valves for CANDU reactors worldwide. If Winston had been engaged in the manufacturing and sale of such an item there would be no question that significant damages would flow from this breach. He is, however, engaged in the manufacture of a valve sufficiently distinct as to be patentable itself, and in a geography and application which is not in direct competition with the investors manufacture for CANDU reactors. Version 1
28
Clearly, the question is whether the firm now owned by the investors would likely have obtained the contract to supply the U.S. Navy, and have come up with the research required to create this separate patentable item, had Winston not appropriated the opportunity to himself. If the answer is no, there is very likely very little in the way of damages that the investors may receive. If on the other hand it can be concluded that this was a contract that the investors would likely have been participating in, and Winston has appropriated back unto himself the goodwill of his former firm to obtain the contracts, then the investors will likely receive their damages. Again, if the answer to this question is yes, the investors would receive their damages, being the $5 million earned before the expiry of the ten-year period, but not likely all of the profits generated by Winston after the ten-year period had expired, as Winston would have been free to compete in the field at that time. Unfortunately, students will have widely different opinions with respect to the facts of this scenario, and whether Winston has appropriated the goodwill of the firm unto himself. Merit should be given to all opinions except those which attempt to take the position that since the valve was a separately patentable item this should prove a complete defence by any claim of the investors, assuming that answers with merit have covered the topics of legality, restraint of trade, restrictions on one's ability to earn a living, goodwill involved in the sale of a business as an asset, and the fact that void restrictions do not void the entire agreement. Based on: Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd., [1894] A.C. 535.
Version 1
29
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Painter and Hawe discussed the possibility of Hawe entering the employ of Painter as the general manager of Painter's firm. A written contract was prepared and signed by the parties on December 1st, 2018. The contract provided for a salary of $3,000 per month and specified that the contract was to run for a period of two years from January 2nd, 2019. On December 28th, 2018, Painter notified Hawe that he was cancelling the contract. Hawe sued Painter immediately. Hawe may sue Painter for breach of the contract. ⊚ ⊚
true false
2) Painter and Hawe discussed the possibility of Hawe entering the employ of Painter as the general manager of Painter's firm. A written contract was prepared and signed by the parties on December 1 st, 2018. The contract provided for a salary of $3,000 per month and specified that the contract was to run for a period of two years from January 2 nd, 2019. On December 28 th, 2018, Painter notified Hawe that he was cancelling the contract. Hawe sued Painter immediately. When Painter cancelled the contract, Hawe was released from his obligation to perform. ⊚ ⊚
true false
3) Painter and Hawe discussed the possibility of Hawe entering the employ of Painter as the general manager of Painter's firm. A written contract was prepared and signed by the parties on December 1 st, 2018. The contract provided for a salary of $3,000 per month and specified that the contract was to run for a period of two years from January 2 nd, 2019. On December 28 th, 2018, Painter notified Hawe that he was cancelling the contract. Hawe sued Painter immediately. The Statute of Frauds requires the contract to be in writing, and signed, to be enforceable by Hawe against Painter. ⊚ ⊚
Version 1
true false
1
4) Painter and Hawe discussed the possibility of Hawe entering the employ of Painter as the general manager of Painter's firm. A written contract was prepared and signed by the parties on December 1st, 2018. The contract provided for a salary of $3,000 per month and specified that the contract was to run for a period of two years from January 2nd, 2019. On December 28th, 2018, Painter notified Hawe that he was cancelling the contract. Hawe sued Painter immediately. The Statute of Frauds would render the contract illegal if it was not in writing and signed. ⊚ ⊚
true false
5) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. The verbal agreement is valid and enforceable if the witnesses testify in court that an agreement of purchase and sale was made. ⊚ ⊚
true false
6) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. The verbal agreement is unenforceable. ⊚ ⊚
true false
7) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. The verbal agreement is void. ⊚ ⊚
Version 1
true false
2
8) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. If A had given B $10 in cash as a deposit the agreement would be enforceable. ⊚ ⊚
true false
9) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. Assuming the verbal agreement is unenforceable, the contract would still exist. ⊚ ⊚
true false
10) In the presence of several witnesses, A verbally agreed to purchase B's farm for $175,000. The next day, B changed his mind, and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm. B may successfully plead the Statute of Frauds as a defence. ⊚ ⊚
true false
11) X wished to purchase a motor vehicle from Y on credit, but X was unemployed, and Y was hesitant to sell to him for that reason. Z, who was quite wealthy, said to Y: "Sell X the automobile on credit, and if X does not pay you, I will." Z has made an offer to guarantee the payment of the debt of X. ⊚ ⊚
Version 1
true false
3
12) X wished to purchase a motor vehicle from Y on credit, but X was unemployed, and Y was hesitant to sell to him for that reason. Z, who was quite wealthy, said to Y: "Sell X the automobile on credit, and if X does not pay you, I will." Z's promise would be unenforceable, unless it was made in writing and signed by Z. ⊚ ⊚
true false
13) X wished to purchase a motor vehicle from Y on credit, but X was unemployed, and Y was hesitant to sell to him for that reason. Z, who was quite wealthy, said to Y: "Sell X the automobile on credit, and if X does not pay you, I will." The contract of guarantee is subject to the Statute of Frauds. ⊚ ⊚
true false
14) X wished to purchase a motor vehicle from Y on credit, but X was unemployed, and Y was hesitant to sell to him for that reason. Z, who was quite wealthy, said to Y: "Sell X the automobile on credit, and if X does not pay you, I will." If Z made the guarantee in writing, and signed the document, the guarantee would not be enforceable until X defaulted on a demand for payment by Y. ⊚ ⊚
true false
15) Ravi, an art collector, had been made a standing offer by a gallery to purchase one of his paintings for $150,000. At shows and luncheons of the art community he had previously rejected the entreaties, knowing the painting to be worth at least twice as much. On the latest occasion of a luncheon at which Ravi was to deliver an art commentary to the guests, the gallery made its offer once more. To himself, Ravi considered the offer and concluded he could use the charitable tax relief that such a sale at a loss would generate. In the course of his speech, he acknowledged and accepted the offer. Two days later, Ravi's lawyer advised him that the purchasing gallery was NOT a charitable foundation, and no tax deduction for such a "donation" could be expected. Ravi then refused to sell the painting to the gallery. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, the gallery sued Ravi for breach of contract, and for a decree of specific performance to compel Ravi to sell it the painting. The verbal agreement is valid and enforceable if the witnesses testify in court that an agreement of purchase and sale was made.
Version 1
4
⊚ ⊚
true false
16) Ravi, an art collector, had been made a standing offer by a gallery to purchase one of his paintings for $150,000. At shows and luncheons of the art community he had previously rejected the entreaties, knowing the painting to be worth at least twice as much. On the latest occasion of a luncheon at which Ravi was to deliver an art commentary to the guests, the gallery made its offer once more. To himself, Ravi considered the offer and concluded he could use the charitable tax relief that such a sale at a loss would generate. In the course of his speech, he acknowledged and accepted the offer. Two days later, Ravi's lawyer advised him that the purchasing gallery was NOT a charitable foundation, and no tax deduction for such a "donation" could be expected. Ravi then refused to sell the painting to the gallery. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, the gallery sued Ravi for breach of contract, and for a decree of specific performance to compel Ravi to sell it the painting. The verbal agreement is unenforceable. ⊚ ⊚
true false
17) Ravi, an art collector, had been made a standing offer by a gallery to purchase one of his paintings for $150,000. At shows and luncheons of the art community he had previously rejected the entreaties, knowing the painting to be worth at least twice as much. On the latest occasion of a luncheon at which Ravi was to deliver an art commentary to the guests, the gallery made its offer once more. To himself, Ravi considered the offer and concluded he could use the charitable tax relief that such a sale at a loss would generate. In the course of his speech, he acknowledged and accepted the offer. Two days later, Ravi's lawyer advised him that the purchasing gallery was NOT a charitable foundation, and no tax deduction for such a "donation" could be expected. Ravi then refused to sell the painting to the gallery. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, the gallery sued Ravi for breach of contract, and for a decree of specific performance to compel Ravi to sell it the painting. Ravi may successfully plead the Statute of Frauds as a defence. ⊚ ⊚
Version 1
true false
5
18) Ravi, an art collector, had been made a standing offer by a gallery to purchase one of his paintings for $150,000. At shows and luncheons of the art community he had previously rejected the entreaties, knowing the painting to be worth at least twice as much. On the latest occasion of a luncheon at which Ravi was to deliver an art commentary to the guests, the gallery made its offer once more. To himself, Ravi considered the offer and concluded he could use the charitable tax relief that such a sale at a loss would generate. In the course of his speech, he acknowledged and accepted the offer. Two days later, Ravi's lawyer advised him that the purchasing gallery was NOT a charitable foundation, and no tax deduction for such a "donation" could be expected. Ravi then refused to sell the painting to the gallery. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, the gallery sued Ravi for breach of contract, and for a decree of specific performance to compel Ravi to sell it the painting. Ravi may successfully plead that his words were agreement in principle only. ⊚ ⊚
true false
19) Ravi, an art collector, had been made a standing offer by a gallery to purchase one of his paintings for $150,000. At shows and luncheons of the art community he had previously rejected the entreaties, knowing the painting to be worth at least twice as much. On the latest occasion of a luncheon at which Ravi was to deliver an art commentary to the guests, the gallery made its offer once more. To himself, Ravi considered the offer and concluded he could use the charitable tax relief that such a sale at a loss would generate. In the course of his speech, he acknowledged and accepted the offer. Two days later, Ravi's lawyer advised him that the purchasing gallery was NOT a charitable foundation, and no tax deduction for such a "donation" could be expected. Ravi then refused to sell the painting to the gallery. On the strength of the verbal agreement of purchase and sale made in the presence of witnesses, the gallery sued Ravi for breach of contract, and for a decree of specific performance to compel Ravi to sell it the painting. The gallery can successfully answer all of Ravi's case by raising the parol evidence rule. ⊚ ⊚
true false
20) Hrushka is the executor of her father's will. She does not want to liquidate any part of his stock portfolio at this time to pay off a large debt he owed Tom, because the market is very low right now and she would get a better price later in the year. Her verbal promise to Tom that she will repay him herself is unenforceable. ⊚ ⊚
Version 1
true false
6
21) Lev and Drew have been negotiating verbally and in writing concerning the purchase by Lev of a number of items manufactured by Drew's company. Lev insists that they have only reached the stage of having an agreement in principle but Drew says they have a binding contract. If one of the terms they agreed upon verbally was that they would execute a written contract, the court will hold that a contract does exist. ⊚ ⊚
true false
22) Pashi promises, in an unsigned note, to give Neve, her daughter-in-law-to-be, the family jewellery and some share certificates worth $100,000 on the day she marries Pashi's son. If she does not do so, Neve can enforce the agreement since it is evidenced in writing and she, by marrying, gave Pashi consideration for her promise. ⊚ ⊚
true false
23) Mr. Guimond was teaching his son, Jacques, to drive in the family car when Jacques failed to apply his brakes soon enough and hit the car in front, causing considerable damage. Mr. Bouchard, the driver of the other car, should get Mr. Guimond's promise to pay for his repairs in writing or it will be unenforceable. ⊚ ⊚
true false
24) Joyce's son, Al, borrowed money from Verity Finance. He lost his job last month and has not made the latest payment on the debt. When Verity's collections department telephones, Joyce answers the phone. She agrees to make the payments if Al does not because she is worried about his state of mind due to his job loss. Joyce's promise is called an indemnity. ⊚ ⊚
Version 1
true false
7
25) Joyce's son, Al, borrowed money from Verity Finance. He lost his job last month and has not made the latest payment on the debt. When Verity's collections department telephones, Joyce answers the phone. She agrees to make the payments if Al does not because she is worried about his state of mind due to his job loss. Verity must first try to get the money from Al before approaching Joyce. ⊚ ⊚
true false
26) Joyce's son, Al, borrowed money from Verity Finance. He lost his job last month and has not made the latest payment on the debt. When Verity's collections department telephones, Joyce answers the phone. She agrees to make the payments if Al does not because she is worried about his state of mind due to his job loss. Joyce's promise does not have to be in writing to be enforceable. ⊚ ⊚
true false
27) Joyce's son, Al, borrowed money from Verity Finance. He lost his job last month and has not made the latest payment on the debt. When Verity's collections department telephones, Joyce answers the phone. She agrees to make the payments if Al does not because she is worried about his state of mind due to his job loss. If Verity, without Joyce's knowledge, extends the time Al has to make the payments but increases the interest rate by ½%, because he explains about his job loss, they could no longer enforce Joyce's promise, regardless of whether or not it was in writing and signed by her. ⊚ ⊚
true false
28) Audrey agrees verbally to do some repair work on the retaining walls in Douglas's terraced gardens. After she has turned down another contract from someone else, Douglas tells her he has changed his mind. It is now too late to get the other contract. Since the contract concerning the work on Douglas's land was a verbal one, Audrey cannot enforce it due to the Statute of Frauds. ⊚ ⊚
Version 1
true false
8
29) A verbal contract concerning the sale of land to Jack by Jill will not be enforceable by either one of them unless it can be shown that the one who wishes to enforce it dealt with the land as if there was such a contract and no other interpretation could be put on their actions; that the non-enforcement would perpetrate a fraud and a hardship on the one who wishes to enforce it; and there is clear verbal evidence, such as witnesses to the transaction, to establish that there was such a valid verbal contract between them. ⊚ ⊚
true false
30) The act of putting a contract under seal was born in the King's Courts of the 13th century. It was used as an expression of the intent to be bound by the person making the contract to which the seal was affixed. Today in some provinces formal agreements such as power of attorney and a deed of land must bear a seal to be made enforceable. ⊚ ⊚
true false
31) Raimondo has been named as executor of his father's estate. Raimondo's father was a very wealthy man who had made a lot of money in real estate and then reinvested his money in mutual funds and other long-term investments. This left few of his finances in a position to be quickly liquidated. Since his father's death, bills have been piling up and creditors are starting to knock on his door. Raimondo has decided that, because there is no way to utilize his father's money in the near future, he will pay the debts out of his own pocket and be reimbursed later from his father's estate. Raimondo is allowed to do this but must clearly state the intention in writing as outlined in the Statute of Frauds. ⊚ ⊚
true false
32) A power of attorney is a legal document usually signed under seal in which a person appoints another to act as his or her attorney to carry out the contractual or legal acts specified in the document. ⊚ ⊚
Version 1
true false
9
33) To comply with either the Statute of Frauds or most statutory writing requirements, evidence of the contract in writing needs to be embodied in a formal document. ⊚ ⊚
true false
34) A collateral agreement is defined as an agreement that has its own consideration and does not support another agreement. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 35) Martin enters into a verbal contract with Marlowe Ltd. to investigate their operations and their accounting systems, make recommendations as to how to improve them, and help implement the changes Marlowe Ltd. accepts. In the negotiations, Martin makes it clear that he cannot give Marlowe Ltd. a definite timetable and that it is clear that the whole process will take longer than a year. Part of their agreement is that either party may terminate the contract on 60 days' written notice to the other if the work is progressing unsatisfactorily. The agreement that the arrangement can be terminated is
A) B) C) D) E)
a condition precedent. a collateral agreement. an implied term of the contract. a condition subsequent. past performance.
36) Martin enters into a verbal contract with Marlowe Ltd. to investigate their operations and their accounting systems, make recommendations as to how to improve them, and help implement the changes Marlowe Ltd. accepts. In the negotiations, Martin makes it clear that he cannot give Marlowe Ltd. a definite timetable and that it is clear that the whole process will take longer than a year. Part of their agreement is that either party may terminate the contract on 60 days' written notice to the other if the work is progressing unsatisfactorily. In this situation,
Version 1
10
A) since the contract is for an indefinite period, it falls under the Statute of Frauds and is not enforceable. B) if this contract is not completed within a year, it will fall under the Statute of Frauds and will become unenforceable at that point. C) since this is a contract for services, it is not covered by the Statute of Frauds and is enforceable. D) since this contract cannot be performed within the period of one year from the date it was made, it falls under the Statute of Frauds and is not enforceable. E) since this contract could be terminated within one year of being made, it does not fall under the Statute of Frauds even if it is not terminated within the year and is enforceable.
37) Steve orally agrees, at a family reunion picnic, to buy Bob's farm for $250,000, and all the terms of the agreement are settled. Bob agrees to let Steve come onto the property before the closing date so that Steve can renovate the farmhouse kitchen and build a new barn before he takes over formally. By the time Bob tells Steve that he has changed his mind and that he will not be completing the transaction on the closing date, Steve has spent $40,000 on the property.
A) Because of the Statute of Frauds, Steve cannot get the farm, but he can sue Bob for the tort of deceit and recover the $40,000. B) Under the Statute of Frauds, since their agreement was not evidenced in writing, Steve cannot enforce it in court, and cannot recover the $40,000. C) Steve can use the doctrine of promissory estoppel to force Bob to complete the transaction and give him the farm in exchange for $250,000. D) Steve can ask a court to order specific performance of the contract because he has spent a lot of money on the property. E) Under the doctrine of part performance, Steve can request that the court order specific performance of the contract.
38) Mary verbally agrees to purchase Carrie's cottage for $75,000 and gives her a deposit cheque for $7,500. Carrie later sends her a letter thanking her for the cheque and confirming all the details of the contract. Mary later refuses to go through with the deal.
Version 1
11
A) Carrie can sue Mary for specific performance of the contract since there is a written memorandum of it. B) Carrie cannot sue Mary for specific performance but is entitled to keep the deposit. C) Carrie can sue Mary for specific performance because the deposit was part performance. D) Carrie can sue Mary for specific performance of the contract since there is a written memorandum of it and Carrie can sue Mary for specific performance because the deposit was part performance. E) None of the responses are correct.
39) Travis verbally ordered a new $500 dinette set from Timpson's Furniture and the salesman accepted the order verbally. Taking his name and address, the salesman having run out of sales contracts, said he would send Travis a copy of the contract the following day, and asked Travis to sign and return it. When the copy of the contract arrived, Travis did not sign it and he refused delivery of the dinette set when it arrived. Timpson's sued Travis for breach of contract.
A) Timpson's cannot enforce the contract because, under the legislation governing sales such as this, the contract had to be in writing to be enforceable. B) Travis cannot raise the defence that the contract had to be in writing to be enforceable. C) If Travis had accepted delivery of the dinette set, and then had returned it and refused to pay, Timpson's could still not enforce the contract. D) The contract sent to Travis would defeat his defence that the contract was not evidenced in writing. E) All of the responses are correct.
40) Cal has just co-signed a car loan for his friend, Peter. This action made Cal the guarantor of the loan. In the event that Peter defaults on payment, Cal has been made liable for payment. After a few months without incident, Cal receives a notice from the bank that Peter missed a payment, and that Cal is to pay. After writing a cheque, Cal confronts Peter who said he could not afford it this month because he bought a new stereo. Cal is annoyed with Peter's irresponsible actions and informs Peter that next month he will have to pay two installments, one to the bank and one to him to make up for this month.
Version 1
12
A) Cal does not have the right to be reimbursed by Peter because the co-signing by Cal as guarantor automatically shifts the liability to him in the case of default and he is therefore responsible for the loss personally. B) Cal has the right to request the missed payment because he can assume the role of a creditor after he has made the missed payment following Peter's default. C) Cal can not reclaim the payment from Peter because Peter has not put into writing the intention to repay Cal in case of default, which makes the demand of repayment unenforceable. D) Cal is in the risky position of becoming the principal debtor on Peter's car loan in this situation. E) Cal can not reclaim the payment from Peter because Peter has not put into writing the intention to repay Cal in case of default which makes the demand of repayment unenforceable and Cal does not have the right to be reimbursed by Peter because the co-signing by Cal as guarantor automatically shifts the liability to him in the case of default and he is therefore responsible for the loss personally.
41) In the presence of several witnesses, A verbally agreed to purchase B's farm for $25,000. The next day, B changed his mind and refused to sell the farm to A. On the strength of the verbal agreement of purchase and sale in the presence of witnesses, A sued B for breach of contract and for a decree of specific performance to compel B to sell him the farm.
A) The verbal agreement is valid and enforceable if the witnesses testify in court that an agreement of purchase and sale was made. B) The verbal agreement is unenforceable. C) The verbal agreement is void. D) B may successfully plead the Statue of Frauds as a defence. E) The verbal agreement is unenforceable and B may successfully plead the Statue of Frauds as a defence.
42)
The parol evidence rule
Version 1
13
A) widens the scope to admit into evidence facts proving other agreed terms of a contract. B) applies to both written and verbal contracts. C) is circumvented by the existence of a condition precedent. D) is irrelevant where a written contract cannot be performed within one year. E) supplies terms to a contract that are otherwise only implied, and by operation of the rule, need not be proven in evidence.
43) The effect of the Statute of Frauds (or any other statutory provision in provinces that have repealed it) is that none of the following may be brought in a court of law unless they are in writing and signed by the party to be charged:
A) a contract concerning an interest in land; B) a promise by an executor or administrator to settle a claim out of his or her own personal estate; C) a guarantee agreement; D) a contract concerning an interest in land and a guarantee agreement; E) All of the responses are correct.
44) Greentree Financing Ltd. enters into an agreement to lend $25,000 to Mai for the purchase of a car. The loan is guaranteed by her father, Mao. What agreements have to be in writing to be enforceable?
A) B) C) D) E)
Loan Agreement. Guarantee Agreement. The loan agreement if Mai is a minor. Both the Loan Agreement and the Guarantee Agreement. Neither the Loan Agreement nor the Guarantee Agreement.
45) Greentree Financing Ltd. enters into an agreement to lend $25,000 to Mai for the purchase of a car. The loan is guaranteed by her father, Mao. At a minimum, what must be in writing to constitute a written agreement in accordance with the Statute of Frauds?
Version 1
14
A) B) C) D) E)
46)
Date, parties identified, terms of agreement, signature of both parties. Parties identified, terms of agreement, signature of both parties. Date, parties identified, terms, signature of guarantor. Parties identified, terms, signature of guarantor. Date, terms, signature of both parties.
A subsequent agreement involves which of the following?
A) May alter the original written agreement. B) May cancel the original written agreement. C) Is a verbal agreement made after the written agreement is effected. D) Is a new agreement made by the parties that has as its subject matter the existing agreement. E) All of these.
47) David wants to sell one of his properties but will be out of the country for an extended period. He decides to ask his brother John to sell the property on his behalf. For John to be able to legally enter into a purchase and sale agreement on behalf of his brother David, the following should take place:
A) John should be granted power of attorney by David; B) David should make sure the document specifies the ability to enter into agreements for the sale and purchase of land; C) The power of attorney document should be made under seal; D) All of these. E) None of these.
48) Parties sometimes enter into verbal agreements but then only partly perform their obligations. For the claim of part performance to succeed, what needs to be established?
Version 1
15
A) The acts performed by the party alleging part performance must be demonstrated to be acts that refer only to the agreement of the lands in question, and to no other. B) It must be shown that to enforce the statute against the party who partly performed that the lack of a written memorandum would perpetrate a fraud and a hardship on the person. C) The agreement must relate to an interest in land. D) The agreement itself must be valid and enforceable apart from the requirement of writing, and verbal evidence must be available to establish the existence of the agreement. E) All of these
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 49) The Carpenters bought a house from the Taylors for $250,000, paying a $25,000 deposit with the balance of $225,000 to be paid on the closing date. To save money on lawyers, they used a standard contract purchased from a stationery store. Thinking that the appliances, drapes and carpets, which the Taylors were to sell them for $5,000, could not be included in a contract for the sale of real estate, the Carpenters simply agreed to that verbally, and paid the extra $5,000 on the date of closing. They were horrified to arrive at their new house and find no carpets, drapes or appliances. The lawyer to whom they went said, "You have nothing here that says they are selling you those things." a. What rule of law would the lawyer tell them about which could cause them difficulty in suing the Taylors for the missing furnishings, and how would it apply in this case? b. What solution could the lawyer suggest, once she knew all the facts, and how would it apply in this case? c. If the verbal agreement about the furnishings had been made sometime after the contract of purchase and sale, would the same problem exist and why or why not?
Version 1
16
50) The Consumer Protection Act states that the parties to a contract must each have a copy of the contract or it will not be enforceable. Tim and Tess go to the Rapacious Furniture Co. to buy a couch. They have saved $500 from their salaries as employees in a sheltered workshop forindividuals with learning disabilities and do not intend to spend more than that, but the salesman takes advantage of their slower thought processes to fast-talk them into a couch which costs $1,200, the balance of which they must pay for in installments of $50 per month, a sum which is really beyond their means. Having read a book on contract law, the salesman makes sure that all the formalities are followed when Tim and Tess sign the contract, and he makes sure he gives the couple one copy of the contract and keeps one for Rapacious' files. Tim and Tess realize later that day that they cannot afford the couch and they ask Rapacious to tear up the contract. They are upset to find out that the furniture salesman will not do so. Can you advise them of any way out?
51) Randy, an avid hunter, wishes to build a hunting cabin for himself and his companion to use during hunting season. He travelled around the area and found a farm that had an ideal piece of land. Randy telephoned the farmer and asked to meet him over coffee. Bob, the farmer, decided to sell Randy the lot for $3,000. Randy agreed, handing Bob $500 in cash as a deposit. When Randy arrived for hunting season three months later, having erected a cabin in the summer, he offered Bob another $1 000 towards the purchase price. However, he found quite a surprise. Bob decided he no longer wishes to sell the land and informs Randy he will have to tear down his building. Bob tells Randy that he may do this because they did not have a written agreement. Apply the four criteria of the "doctrine of part performance" to the circumstances and explain their relevance to both Randy's arguments and Bob's defence.
Version 1
17
52) Sandra offered to purchase Jean's car for $3,500, and Jean accepted this offer. This contract was reduced to writing and signed by the parties, when Sandra discovered that Jean was searching for an evening gown to wear to a social affair some months in the future. Sandra offered then to make a dress for Jean, if Jean would accept $3,200 for the car. Jean agreed to the modification and in return for Sandra's cheque in the amount of $3,200 gave her the keys to her car. Sandra finished the dress in time for the social event; however Jean was not pleased with the final result, and declaring it worthless to her, returned the dress to Sandra and brought an action on the face of the written contract for the $300 balance outstanding. Discuss the legal issues raised in this fact situation, its likely resolution, and treat explicitly how Sandra may counter in procedural terms with a defence against the document for $3,500, which is clear on its face and bears her signature.
53) Karen, a marketing consultant, entered into an agreement with Better Life Consumer Products Co. whereby she agreed to assist in test marketing their products for a year. The verbal agreement was made on June 12th, and Karen was to begin work for the firm on November 1st of that year. The contract was to terminate on November 1st of the following year. Better Life offered to prepare a formal agreement for her signature which would be available for signature on her first day of work. However, the August prior to her starting work, Better Life was forced to drop plans to test market their intended products as a result of a patent infringement suit. They notified Karen that there was no need for her services Discuss Karen's rights (if any) and Better Life's position at law.
Version 1
18
Answer Key Test name: Chapter 10 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) FALSE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) FALSE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) FALSE 25) TRUE 26) FALSE Version 1
19
27) TRUE 28) FALSE 29) TRUE 30) TRUE 31) TRUE 32) TRUE 33) FALSE 34) FALSE 35) D 36) E 37) E 38) B 39) A 40) B 41) E 42) C 43) E 44) B 45) D 46) E 47) D 48) E
Version 1
20
49) a. Since the agreement to sell the furnishings was verbal, and the written contract actually excluded them, the parol evidence rule would say that evidence of a verbal agreement, such as this which alters the contract, will not be permitted by the court. Thus the Carpenters could not bring in any evidence of the verbal agreement which supplemented the contract of purchase and sale. b. The Carpenters could use the collateral agreement exception to the parol evidence rule. They can show that there was separate consideration paid for the verbal contract, since the Taylors received $5,000 more than the contract of purchase and sale entitled them to. The court would allow them to bring evidence of the terms of this separate verbal contract, even though it altered the written contract. c. A verbal agreement made after the written contract is formed, which alters the terms of the original contract, is enforceable since it is not purporting to be part of the original written contract, but a subsequent agreement to alter it. 50) The courts always interpret statutes very strictly and, in this case, might be glad to do so. Since the Act says that each party must have a copy of the contract, and Tim and Tess only have one copy which both signed, the court could hold that the contract is not binding because of the statute. Tim and Tess can get their money back and need not accept the expensive couch.
Version 1
21
51) Contracts concerning land are not enforceable under the Statute of Frauds unless in writing—Bob's defence. To satisfy the doctrine of part performance the acts of part performance must refer only to the land in question. Here, the building of the cabin would be an act of part performance, as only an "owner" would do such a thing. The cash deposit would not be an act of part performance, because it could refer to something else (e.g., a lease, etc.). Randy could argue that the failure to enforce the contract would be a fraud on him, as he built the cabin on the strength of the verbal agreement All of the other requirements of a valid contract exist (offer, acceptance, etc.) and the contract concerns an interest in land—Randy would be expected to establish these facts.
Version 1
22
52) This is not a case to which the Statute of Frauds applies, however the parties have sat down and written a memoranda of their contract for the exchange of the car in return for $3,500. Upon the basis of the facts given in the question there is no foundation to suggest that the memorandum of agreement would not satisfy the requirement for written memoranda, and the contract would be complete on its face. It will be on the basis of the contract being complete on its face that Jean will base her argument. Jean will further resist any attempt by Sandra to adduce evidence outside the contract by the invocation of the parol evidence rule, alleging that the contract is clear and unambiguous on its face. Sandra will have to avail herself of an exception to the parol evidence rule, and students should indicate what exceptions are available. These are the conditions precedent, the doctrine of an implied term, and the collateral agreement. Of these, the collateral agreement is the exception to the parol evidence rule upon which Sandra should rely. The parties made a separate agreement for separate consideration (being the reduction of an existing debt in return for the dress) and the collateral agreement has in effect replaced the existing written contract. As courts have a strong preference for written evidence of a contract, Sandra will have to meet the case laid out by Jean by likely bringing the dress into evidence itself (presumably in Jean's size). Based on: Johnson Investments v. Pagritide, [1923] 2 D.L.R. 985. 53) The parties have created a contract, which is verbal, and they have created it in June of one year, to be completed in November of the following year. On that basis it is a contract for more than one year in line of the reasoning of Smith v. Goldcoast & Ashanti Explorers Ltd., [1903] 1 K.B. 285. On this basis, the contract could not be completed within one year and therefore must be in writing to be enforceable. Since it is not in writing it is not enforceable, and Karen has no rights against Better Life. Version 1
23
Version 1
24
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A met B while shopping, and in the course of conversation, mentioned that he had a motorcycle for sale. B was familiar with A's motorcycle and offered to purchase it for $500. A accepted the offer and A and B walked to A's home to get the motorcycle. When they reached A's house, they were told by A's father that the motorcycle had been stolen earlier in the day and was subsequently found by the police in a badly damaged and burned condition in a local stone quarry. A and B made a valid contract, and A must deliver to B the motorcycle in the condition that it was in before it was stolen. ⊚ ⊚
true false
2) A met B while shopping, and in the course of conversation, mentioned that he had a motorcycle for sale. B was familiar with A's motorcycle and offered to purchase it for $500. A accepted the offer, and A and B walked to A's home to get the motorcycle. When they reached A's house, they were told by A's father that the motorcycle had been stolen earlier in the day and was subsequently found by the police in a badly damaged and burned condition in a local stone quarry. B is bound in contract and must purchase the motorcycle even though it is badly damaged. ⊚ ⊚
true false
3) A met B while shopping, and in the course of conversation, mentioned that he had a motorcycle for sale. B was familiar with A's motorcycle and offered to purchase it for $500. A accepted the offer, and A and B walked to A's home to get the motorcycle. When they reached A's house, they were told by A's father that the motorcycle had been stolen earlier in the day and was subsequently found by the police in a badly damaged and burned condition in a local stone quarry. B may avoid the contract on the basis that the parties had made a mistake as to the existence of the subject matter. ⊚ ⊚
Version 1
true false
1
4) Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. Castillo may take action against Rob to have the contract rescinded on the basis of fraudulent misrepresentation by Rob. ⊚ ⊚
true false
5) Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. The contract is voidable by Castillo on the basis of innocent misrepresentation. ⊚ ⊚
true false
6) Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. Banya is liable to Rob in tort for fraudulent misrepresentation of the vase if he knew the vase was only a reproduction, and the paper a forgery. ⊚ ⊚
Version 1
true false
2
7) Rob purchased an old glass vase, which Banya represented as an antique made by a famous Italian glassmaker in the 17th century. As proof of its authenticity, Banya produced an old paper with a rough sketch of the vase on it, along with some writing, and what appeared to be the glassmaker's name. Rob later sold the vase to Castillo, after telling Castillo the story of the vase as told to him by Banya. After Castillo had purchased the vase, he discovered it to be a reproduction of the original, and of very little value. Castillo should act promptly to void the contract on discovery of the misrepresentation, as Castillo will lose the right to do so if much time is allowed to pass. ⊚ ⊚
true false
8) While George was visiting his physician, he mentioned to him that he wished to sell his expensive sailboat. The physician expressed an interest in buying the boat and offered to pay George $10,000 for it. George had intended to advertise the boat for $12,000 in the local newspaper but agreed to sell it to the physician for $10,000. Some weeks after the boat had been sold; George wished to avoid the contract. George may raise the claim of undue influence in an attempt to recover the sailboat. ⊚ ⊚
true false
9) While George was visiting his physician, he mentioned to him that he wished to sell his expensive sailboat. The physician expressed an interest in buying the boat and offered to pay George $10,000 for it. George had intended to advertise the boat for $12,000 in the local newspaper but agreed to sell it to the physician for $10,000. Some weeks after the boat had been sold; George wished to avoid the contract. In this case, there is a rebuttable presumption of undue influence, because the purchaser was George's physician. ⊚ ⊚
true false
10) While George was visiting his physician, he mentioned to him that he wished to sell his expensive sailboat. The physician expressed an interest in buying the boat and offered to pay George $10,000 for it. George had intended to advertise the boat for $12,000 in the local newspaper but agreed to sell it to the physician for $10,000. Some weeks after the boat had been sold; George wished to avoid the contract. In this case, the physician would be obliged to prove that there was no undue influence on his part
Version 1
3
⊚ ⊚
true false
11) While George was visiting his physician, he mentioned to him that he wished to sell his expensive sailboat. The physician expressed an interest in buying the boat and offered to pay George $10,000 for it. George had intended to advertise the boat for $12,000 in the local newspaper but agreed to sell it to the physician for $10,000. Some weeks after the boat had been sold; George wished to avoid the contract. The physician could rebut the presumption of undue influence by proving that he paid a reasonable price for the sailboat, and that George had freely offered to sell him the boat. ⊚ ⊚
true false
12) Wes, a neighbour of Stan, wished to borrow a sum of money from a local bank. Stan was quite wealthy, but elderly, with very poor eyesight. He frequently requested Wes to read his newspaper to him when Wes would drop by for a visit, because reading bothered his eyes. One evening, Wes placed a paper before Stan, and explained to him that he wished to borrow a sum of money but required a letter of reference before the bank would make the loan. He requested Stan to sign the paper to satisfy this requirement. Stan trusted his friend Wes and signed the paper at his request without reading it. Unknown to Stan, the paper was a guarantee of Wes's indebtedness, and not a letter of reference. Wes later defaulted on his debt. Stan may plead non est factum as a defence to a claim by Wes's creditor on the guarantee. ⊚ ⊚
true false
13) Wes, a neighbour of Stan, wished to borrow a sum of money from a local bank. Stan was quite wealthy, but elderly, with very poor eyesight. He frequently requested Wes to read his newspaper to him when Wes would drop by for a visit, because reading bothered his eyes. One evening, Wes placed a paper before Stan, and explained to him that he wished to borrow a sum of money but required a letter of reference before the bank would make the loan. He requested Stan to sign the paper to satisfy this requirement. Stan trusted his friend Wes and signed the paper at his request without reading it. Unknown to Stan, the paper was a guarantee of Wes's indebtedness, and not a letter of reference. Wes later defaulted on his debt. If Wes had told Stan that the paper was a guarantee for $1,500 when it was in fact for $2,000, Stan could still successfully plead non est factum as a defence.
Version 1
4
⊚ ⊚
true false
14) Wes, a neighbour of Stan, wished to borrow a sum of money from a local bank. Stan was quite wealthy, but elderly, with very poor eyesight. He frequently requested Wes to read his newspaper to him when Wes would drop by for a visit, because reading bothered his eyes. One evening, Wes placed a paper before Stan, and explained to him that he wished to borrow a sum of money but required a letter of reference before the bank would make the loan. He requested Stan to sign the paper to satisfy this requirement. Stan trusted his friend Wes and signed the paper at his request without reading it. Unknown to Stan, the paper was a guarantee of Wes's indebtedness, and not a letter of reference. Wes later defaulted on his debt. Wes required Stan's signature on the paper because the Statute of Frauds requires a guarantee to be in writing, and signed by the guarantor to be enforceable. ⊚ ⊚
true false
15) Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. It will be up to Sarah Burns to prove on the balance of probabilities that she was unduly influenced by Tom Lachey. ⊚ ⊚
true false
16) Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. If Sarah Burns had not yet given him the property, she would not be obligated to do so since it was simply a gratuitous promise on her part. Since she has given it to him, she must prove duress on his part to get it back. ⊚ ⊚
Version 1
true false
5
17) Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. It is up to Tom Lachey, under these circumstances to prove that he did not unduly influence Sarah Burns, if she simply alleges that he did. ⊚ ⊚
true false
18) Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. If Sarah Burns, through embarrassment, fails to do anything about the return of the property for several months, it is unlikely that she would then win an undue influence suit even if she might have done so if she had acted promptly. ⊚ ⊚
true false
19) Sarah Burns is suing her lawyer, Tom Lachey, for the return of property worth $20,000 that she had given him. She had signed a properly sealed document making the gift to him. She says she knew what she was signing but felt overwhelmed by his manner. If Sarah Burns is married to Tom Lachey, she cannot sue him for undue influence. ⊚ ⊚
true false
20) Diana receives a phone call late one night from Robert, her former husband. He says that if she does not agree in writing to drop her action for support to put herself through university, he will distribute copies of compromising photographs he took of her when they were married. Diana signs the agreement under seal. This is a clear case of duress. ⊚ ⊚
Version 1
true false
6
21) Oni bought a variety store franchise because he thought that its position on a bus route near some high-rise apartments would make it very lucrative. He had misread the transit map, however, for the bus ran along the street parallel to the one the store was on, and the occupants of the high-rises stopped off at a store on that street. Since Oni has made a mistake of fact, the court will grant him rescission of the franchise contract. ⊚ ⊚
true false
22) Sunjai, who is functionally illiterate, asks her friend Hahna to read a document aloud to her. She is to sign it in order to purchase chinchillas from Patrice to start a breeding farm. Actually it is a deed transferring ownership of Sunjai's farm to Patrice and, unknown to Sunjai, Patrice and Hahna have made a secret agreement to sell the farm and share the proceeds. Since Sunjai did what was reasonable to deal with her own inability to read, she could raise the defence of non est factum to an action by Patrice to get possession of the farm. ⊚ ⊚
true false
23) Sunjai, who is functionally illiterate, asks her friend Hahna to read a document aloud to her. She is to sign it in order to purchase chinchillas from Patrice to start a breeding farm. Actually it is a deed transferring ownership of Sunjai's farm to Patrice and, unknown to Sunjai, Patrice and Hahna have made a secret agreement to sell the farm and share the proceeds. If Sunjai is successful in her defence of non est factum, the courts will grant rectification of the deed transferring the land, and Sunjai will be able to keep the farm. ⊚ ⊚
true false
24) Sunjai, who is functionally illiterate, asks her friend Hahna to read a document aloud to her. She is to sign it in order to purchase chinchillas from Patrice to start a breeding farm. Actually it is a deed transferring ownership of Sunjai's farm to Patrice and, unknown to Sunjai, Patrice and Hahna have made a secret agreement to sell the farm and share the proceeds. Sunjai could not raise the defence of non est factum if the document she signed was one to purchase chinchillas, but for a much higher price than Hahna read to her. ⊚ ⊚
Version 1
true false
7
25) Jax, a university student commuted to and from classes by public transit. He decided that he must buy a car because the bus service was terrible. A friend was discussing this problem with Jax and said that he wanted to sell his car in order to purchase a motorcycle. Knowing the car's good condition, Jax said he would buy it. Jax's friend told him to come by to pick up the car in two days. Neither of them knew that the friend's roommate had borrowed the car that day and had destroyed it in an accident. This is not a cause of mistake of fact because the two were both clear as to what was the subject matter of the contract. ⊚ ⊚
true false
26) Duane applied to the municipality of Smallville for a permit to build an addition onto his home. He contacted the municipal offices by telephone to enquire about the fee for the permit. The building official was unavailable, but the municipal clerk told Duane she thought the current fee was $100 per 1,000 square feet. Duane's new addition was planned to be 3,500 square feet, so he attached a cheque in the amount of $350 to his application and delivered it to the building office. When the permit was approved and returned a note was attached to it which read that all building permits now cost a flat fee of $250. No money accompanied the note. Duane contacted the municipal offices requesting a refund of his $100. He was told by the clerk that there was no municipal bylaw authorizing the repayment of excess fees paid to the municipality so she had no authority to process his refund. She suggested he could apply the extra amount to his municipal property taxes. Duane would probably be unable to obtain the money he paid in error. ⊚ ⊚
27)
Fraudulent misrepresentation renders a contract void ab initio. ⊚ ⊚
28)
true false
true false
Innocent misrepresentation renders a contract voidable at the option of either party. ⊚ ⊚
Version 1
true false
8
29) Misrepresentation by nondisclosure renders a contract voidable at the option of the party misled. ⊚ ⊚
30)
true false
Where there has been rescission, there must have been reliance. ⊚ ⊚
true false
31) For there to be punitive damages, there must have been the tort of deceit, and therefore there must have been fraudulent misrepresentation. ⊚ ⊚
true false
32) Generally, a party is under a duty to disclose material facts to the other contracting party, and failure to do so is a violation of his or her duty of utmost good faith. ⊚ ⊚
true false
33) Undue influence is not the same legal concept as duress. Despite this, both constitute grounds for rescission by the affected party. ⊚ ⊚
true false
34) Given the degree to which courts are willing to enforce contracts subject to mutual mistake, cases of this sort tend to place greater hardship upon defendants than plaintiffs. ⊚ ⊚
Version 1
true false
9
35) Your car dealer hands you documents for your signature, "the paperwork on the deal" you have just shaken hands on. Among the papers is an undiscussed extended warranty plan. You sign all the documents where the dealer so indicated. You first become aware of the warranty when its cost is automatically debited from your chequing account. Your successful defence to further payments will be non est factum. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 36) Jahara Ltd. enters into a contract to supply glass bottles to Brine Co. for its line of baby dill pickles. Since it is a new relationship, both parties want the option to end the contract without problems, so they include a clause that allows either one of them to terminate the contract on 30 days written notice. Jahara finds that Brine Co. is too slow in paying its bills and too quick to question quality. On March 1st, Jahara Ltd. gives Brine Co. notice in writing that the contract will end on March 31st. Brine Co. insists that the 30 days notice clause means 30 working days, not 30 calendar days, and thus Jahara must supply them until April 1. Jahara refuses. Brine Co. loses two weeks of production when its supply of bottles runs out and sues Jahara for breach of contract. In this situation,
A) B) C) D) E)
This is a mistake of law, specifically the law of contract. This is a mistake of fact. This is an example of a mistake of utmost good faith. This is a case of innocent misrepresentation. This is a mistake about the existence of the subject-matter of the contract.
37) Jahara Ltd. enters into a contract to supply glass bottles to Brine Co. for its line of baby dill pickles. Since it is a new relationship, both parties want the option to end the contract without problems, so they include a clause which allows either one of them to terminate the contract on 30 days written notice. Jahara finds that Brine Co. is too slow in paying its bills and too quick to question quality. On March 1st, Jahara Ltd. gives Brine Co. notice in writing that the contract will end on March 31st. Brine Co. insists that the 30 days notice clause means 30 working days, not 30 calendar days, and thus Jahara must supply them until April 1. Jahara refuses. Brine Co. loses two weeks of production when its supply of bottles runs out and sues Jahara for breach of contract. In this situation,
Version 1
10
A) the court would allow evidence about the negotiations leading up to the contract to help them decide who is right here. B) the court will rectify this contract to reflect what it considers to be a reasonable solution, if it cannot decide which of them is right. C) if the court cannot decide, for lack of clear evidence, which of them is right, Brine Co. will lose. D) the court would allow evidence about the contractual negotiations and may order rectification. E) the court would allow evidence about the contractual negotiations leading up to the contract and consider existing case law.
38) Mathieson wanted to lease a suite in the new office building owned by Logan, which is the most prestigious one in town. He knew that Logan would not rent to him because of a business deal several years ago that had gone bad, costing Logan a great deal of money. Logan swore he would never do business with Mathieson again. Mathieson paid Muir to act as an agent for his company, and Logan rented to him. Several months later, Logan found out who had really rented the suite.
A) This is a unilateral mistake, which would entitle Logan to declare the lease contract to be at an end. B) This is a mutual mistake, which would entitle either party to declare the contract to be at an end. C) This is a unilateral mistake, but Logan cannot end the contract because the identity of the other party is not a material term of the contract. D) Since the contract has been in existence without problems for several months, Logan cannot now withdraw his agreement to the contract as Mathieson has relied on it. E) A contract based on a lie is void.
39) Brianne discovered that her younger sister, Alda, desperate to break her addiction to cocaine and unable to get into a Canadian addiction program for many months, has made a contract with a doctor from the U.S.A. The doctor will treat at his centre immediately, in return for which Alda has signed over to him the inheritance from her grandmother to which she will have access when she turns 22 next year. Since the cost of the treatment is only a fraction of the value of Alda's inheritance, Brianne promises to pay for the treatment if Alda can reimburse her next year. However, the doctor refuses to release Alda from their contract, and she does not know what to do. Version 1
11
A) Alda must go through with the contract since she signed it and she is of age and mentally competent. B) This is a case of duress and it is possible for Alda to repudiate it. C) This is a case of undue influence, and, if Alda can prove it, she can avoid the contract. D) This is a case of undue influence and, since the doctor cannot show that the agreement was fair to Alda, she can avoid the contract. E) Although this is a case of undue influence, since Alda will be able to kick her habit at the doctor's clinic which is an invaluable benefit, she cannot show the price is unfair to her.
40) Anderson Ltd. was negotiating a contract with the Bolton Manufacturing Co. for a large number of components for the office equipment Anderson Ltd. sells. The normal way of pricing the components is "by the piece," but Bolton Manufacturing sent a written offer to Anderson to sell the components at $5 a kilogram. The components would normally cost about $5.50 each and there are about two of them to the kilogram. After receiving Anderson Ltd.'s acceptance of the offer, Bolton realized the mistake it had made and is now refusing to perform the contract. Anderson has sued for breach of contract.
A) Bolton will succeed since a mistake as to value makes the contract void. B) Since the mistaken phrase is ambiguous, the courts will not interpret it and Bolton will succeed. C) A reasonable person would have realized that there was a mistake about the price so Anderson will not be allowed to snap up the offer. D) There is offer, acceptance and consideration from each party and, since the court will not consider the adequacy of consideration in a contract, Bolton has no grounds to refuse to perform the contract. E) While a reasonable person might not have realized that there was a mistake in the offer, the court will not allow Anderson to enforce the contract if doing so will cause hardship for Bolton.
Version 1
12
41) Trent purchased a car from Veritas Motors. The sales agent stated that the car was new, although, in fact, it had been used as a demonstrator for three weeks. Two days after the purchase was completed, Trent learned that the car had previously been in an accident while a customer was test driving it. The sales agent had known all of this but had not informed Trent of it. Two weeks later, a problem arose with the brakes, which necessitated repairs on three occasions. After the first repair, Trent wrote to Veritas claiming rescission of the contract and asked for a refund of his payment. Veritas refused. Two months later, Trent sued Veritas for rescission of the contract and damages equal to the amount he had spent on the car.
A) Trent will succeed because of innocent misrepresentation. B) Trent will succeed because of fraudulent misrepresentation. C) Trent will obtain rescission but is not entitled to receive any damages. D) Trent will succeed because of innocent misrepresentation and will obtain rescission but is not entitled to receive any damages. E) None of the responses are correct.
42) Bev and Renee moved to a large farm they recently purchased. The couple wish to subdivide some of the land and sell a lot. They contracted a local surveyor who completed the survey of the prospective lot to be severed. After the deal had been completed and the lot sold, the couple was confronted by the new lot owner, and a neighbour of the couple. They produced an older deed showing the newly severed lot belonged to the neighbour's farm and did not belong to Bev and Renee. With the threat of legal action looming, the couple confronted the surveyor who told them they cannot sue him because he is an unlicensed professional and is free from any responsibility for the services he renders.
A) The contractor is right. Bev and Renee used an unlicensed professional and this action makes them responsible under contractual law for all mistakes that the person has made. B) Bev and Renee can sue him because although he is unlicensed, he is still responsible for the damage they incurred under a breach of contract. C) Bev and Renee are responsible for their own damages, because according to law you are required, when using an unlicensed professional to have their work checked by a professional. D) All of the responses are correct. E) None of the responses are correct.
Version 1
13
43) Fronia, a neighbour of David, wished to borrow a sum of money from a local bank. David was quite wealthy but elderly, with very poor eye sight. He frequently requested Fronia to read his newspaper to him when Fronia would drop by for a visit because reading was exceedingly difficult for him. One evening, Fronia placed a paper before David and explained to him that she wished to borrow a sum of money but required a letter of reference before the bank would make the loan. She requested David to sign the paper to satisfy this requirement. David trusted his friend Fronia and signed the paper at her request without reading it. Unknown to David, the paper was a guarantee of Fronia's indebtedness, and not a letter of reference, and Fronia later defaulted on her debt.
A) David may successfully plead non est factum as a defence to any claim by Fronia's creditor. B) If Fronia had told David that the paper was a guarantee for $1500 when it was in fact for $2000, David could still successfully plead non est factum as a defence. C) Fronia required David's signature on the paper because the Statute of Frauds requires a guarantee to be in writing and signed to be enforceable. D) Fronia required David's signature on the paper because the Statute of Frauds requires a guarantee to be in writing and signed to be enforceable and David may successfully plead non est factum as a defence to any claim by Fronia's creditor. E) All of the responses are correct.
44) A tort that arises when a party suffers damage by acting upon a false representation made by a party, with the intention of deceiving the other is called
A) B) C) D) E)
45) that
fraudulent misrepresentation. mistake. deceit. rescission. non est factum.
Undue influence involves a state of affairs whereby a person is so influenced by another
Version 1
14
A) B) C) D) E)
the person is considered to be in a special relationship. the person is liable to seek out other advice. the person's judgment allows them to act illegally. the person's judgment is not his or her own. the person does not act in good faith.
46) If the formation of a contract is affected by mistake, which required element of a contract is not present?
A) B) C) D) E)
Offer Acceptance Consideration Intent Legality
47) When the seller unknowingly makes an erroneous statement regarding the type of processor contained in a computer during negotiations leading to the sale of the computer, the contract
A) B) C) D) E)
contains a common mistake. contains a mutual mistake. contains a unilateral mistake. contains an innocent misrepresentation. contains a fraudulent misrepresentation.
48) Red Stripe Beer Ltd., located in Kingston, Jamaica enters into a sales contract to sell beer to the Manitoba Liquor Board. The contract states the beer will be sold for a price of $4 per 12bottle case plus transportation and delivery costs. The Manitoba Liquor Board receives 200 cases and an invoice for $800. It writes a cheque for JMD$800 (approximately CDN$400). Red Stripe replied saying the $4 price is in Canadian currency, not Jamaican currency. When a contract does not specify the currency but only contains the $ symbol, the contract
Version 1
15
A) B) C) D) E)
contains a common mistake. contains a mutual mistake. contains a unilateral mistake. contains an innocent misrepresentation. contains a fraudulent misrepresentation.
49) Red Stripe Beer Ltd., located in Kingston, Jamaica enters into a sales contract to sell beer to the Manitoba Liquor Board. The contract the beer will be sold for a price of $4 per 12-bottle case plus transportation and delivery costs. The Manitoba Liquor Board receives 200 cases and an invoice for $800. It writes a cheque for JMD$800 (approximately CDN$400). Red Stripe replied saying the $4 price is in Canadian currency, not Jamaican currency. What is the effect of the flaw on the agreement?
A) B) C) D) E)
50)
Void Voidable Rectification Invalid Unenforceable
Which of the following is not a true statement about innocent misrepresentation?
A) B) C) D) E)
Version 1
False statement of fact Intention to induce contract formation Induced contract formation The parties discover the fallacy after the contract is formed. The contract is voidable
16
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 51) Deirdre bought a secondhand car from Honest Harry's Autos after being assured by Harry, in response to her questions, that the car had been driven only in good weather by the little old lady from whom he had purchased it. He claimed that was why its mileage was so low, and that it had never, (according to the little old lady), had so much as a scratch. "That's excellent," said Deirdre. "If it had been otherwise, I wouldn't have bought it." Deirdre soon began having trouble with the car pulling to one side when she applied the brakes, so she took it into the garage for a wheel alignment. The mechanic said "Why on earth would you buy this old heap? Granny Moses, that wild old lady, drove this thing like a madwoman, and it's never been the same since her last crash." a. Assuming that Honest Harry had also been fooled by Grandma Moses, what rights would he and Deirdre each have? b. Suppose Honest Harry found out after he sold the car to Deirdre that he had been cheated by Grandma Moses, but decided not to tell Deirdre. How would that affect Deirdre's rights and why?
52) Innis Ltd. reach a verbal agreement with McKenzie Co. to sell them 16 tonnes of firstgrade steel for $2,100 per tonne. At the request of McKenzie, Innis drew up a written version of the contract and both parties signed it. Shortly after delivery, Innis received a cheque from McKenzie for $19,200 in full settlement of the account, and was horrified to discover that the figures 1 and 2 had been reversed in the written contract and the price read "$1,200 per tonne" instead of "$2,100 per tonne," and neither party had noticed it at the time. Discuss what Innis Ltd. may do in this case.
Version 1
17
53) Garth and Elizabeth are husband and wife. Garth is a real estate agent and Elizabeth an artist. Although her occupation does not expose Elizabeth to a great deal of business-related matters, the couple have entered into many real estate deals and business ventures as full partners. Garth has an opportunity to buy into a condominium complex. He asks Elizabeth to sign as his loan guarantor so that he may invest in the project. Before the project is complete, the contractor abandons the job and all partners are left to answer the debt. Garth cannot produce sufficient funds to cover his loan, and the bank turns to Elizabeth as guarantor for payment. Outraged at the course of events, Elizabeth refuses to pay, and seeks legal assistance to nullify the contract. As her lawyer, what do you tell Elizabeth?
Version 1
18
54) Indrek, a university student, owned a small automobile, which he desired to sell for $800. He placed an advertisement in the university newspaper offering the vehicle for sale, and included his telephone number for further information. A few days later, he received a telephone call from a man who identified himself as Mr. Green. Green asked Indrek a number of questions concerning the car, and then expressed a desire to examine the vehicle. A meeting was arranged for later that evening, and Indrek gave Green the opportunity to test drive the automobile. Green agreed to purchase the vehicle for $800 and offered Indrek a personalized cheque bearing the name "R. Green" as payment. Indrek was reluctant to accept the cheque without further identification and suggested the two men meet the next day at the bank to close the deal. Green explained that he would not be available for the next week or two as he was leaving town on some business. Instead, he offered the driver's licence and a number of credit cards bearing the name "R. Green" as evidence of his identity. He offered to leave his credit cards with Indrek as security. With some hesitation and concern, Indrek signed the blank motor vehicle registration, and handed Green the papers necessary to transfer the ownership. In return he received the cheque and the credit cards which he agreed to hold until Green's return. The next day, Indrek presented the cheque at Green's bank only to discover the cheque had been forged. A customer at the bank whose name was "R. Green" had apparently lost his wallet sometime before, and the wallet contained the cheque book as well as the credit cards and licence. In the meantime, the purchaser of the automobile, posing as Indrek, sold the vehicle to Smith for $500, and disappeared. A few weeks later, Smith wrote a letter to Indrek asking if he might have the owner's manual to the automobile, and at that point, Indrek demanded the return of his vehicle. Smith refused to return the vehicle. He maintained that it was now registered in his name as a result of the transaction that, from his point of view, was a bona fide purchase from the person who possessed the registration documents for the automobile. Indrek brought an action against Smith for the return of the automobile. Discuss the points of law which are raised in this case and indicate how the courts might decide the matter.
Version 1
19
55) Chris and Sally were successful professionals who decided that the time had come to escape city living and move to a country home. While their tastes led them to desire all the conveniences of modern living, they had further decided that they wanted a home with "character." In the course of their search, they met Johnston, a real estate agent. They told him they were looking for "an older home with character." Johnston showed them a number of country homes, all of which were older. Each was rejected in turn, for a variety of reasons. In a number of instances, the home did not appear suited to being remodeled with cathedral type ceilings or did not lend itself to the addition of a large glass solarium, which was a feature that the couple wanted. In each case, upon finding one of these two facts to be evident, they left the properties with Johnston and returned to his car with him to view the next home on the list. At one of Johnston's listings, Chris and Sally finally found what they were after. The home clearly lent itself to the modifications they desired, and it certainly had the character they were looking for. Chris and Sally were delighted when they and Johnston noticed a decorative brass plaque six inches square beside the front door which read "Old Taylor Farmstead, 1855," and underneath "Heritage Canada." Chris and Sally signed Johnston's standard offer-to-purchase form, which was later accepted, and took it to their lawyer to close the sale. While in their lawyer's office, Chris mentioned the addition of the solarium to the home, and their lawyer informed them that since the property had been designated as a heritage property by Heritage Canada, modification in any material way to the property would be impossible. Chris and Sally immediately instructed their lawyer to commence action against the owner of the property and the agent, Johnston. Discuss the legal issues raised in this case.
Version 1
20
56) ABC Construction Co. was building a large condominium complex in two phases. Phase 1 was to commence immediately, and construction of Phase 2 would get under way once a minimum of 50% of the Phase 1 units had been presold. ABC had asked for bids for certain aspects of the construction project. Company X had bid on the stucco work and Company Y on the drywall. Both bids were accepted by ABC and the respective contracts awarded. Moreover, ABC used the bids to prepare its budgeting for the project and to acquire its financing. Shortly after commencement of Phase 1, Company X ran into financial difficulties and was forced to withdraw from the project. ABC then approached Company Y with a request for a bid on the work which Company X could no longer complete. ABC emphasized the urgency to move on with Phase 1, which was falling behind schedule, and requested Company Y's bid as quickly as possible. Company Y believed from the conversations it had with various representatives of ABC that it was to quote only on Phase 1. ABC accepted Company Y's bid as it was very close to the prior bid of Company X. Sometime later it became apparent that ABC expected Company Y to do all of the stucco work on both phases of the project for the bid price. The president of Company Y contacted the president of Company X to inquire what X had understood the bid terms to be. X's president replied that he had been unclear at the time just what he was bidding on but that he had submitted a bid for one phase only. In fact, he mentioned to Y's president that if ABC had taken even a brief look at his bid, it would have realized that the bid would have been substantially below cost if it were for both phases. After this conversation, Company Y undertook the further work on Phase 2 but insisted on additional payment. ABC contended that the bid was to be for both phases, and brought legal action for breach of contract against Company Y. Company Y countered with a claim for the money owing for Phase 2. Discuss the legal issues which arise as a result of these facts and the principles of law each party will rely on.
Version 1
21
Answer Key Test name: Chapter 11 Test Bank 1) FALSE 2) FALSE 3) TRUE 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) TRUE 18) TRUE 19) FALSE 20) FALSE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) FALSE 26) FALSE Version 1
22
27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) TRUE 32) FALSE 33) TRUE 34) FALSE 35) FALSE 36) B 37) E 38) A 39) D 40) C 41) E 42) B 43) D 44) C 45) D 46) D 47) D 48) B 49) B 50) B
Version 1
23
51) a. Deirdre can get rescission of the contract since there has been an innocent misrepresentation about material terms of the contract. This means she can return the car and get her money back from Honest Harry. She is not, however, entitled to damages over and above that since there was no deceit on his part. Harry can sue Grandma Moses for fraudulent misrepresentation since she clearly lied about the mileage, the use of the car and any accidents, all of which affect the price he paid her for the car. He is entitled to return the car to her, and claim for damages, such as repairs and his lost profit on the sale to Deirdre, because there has been deceit on Grandma Moses' part. b. By not informing Deirdre of Grandma Moses' deceit, Honest Harry turns what was an innocent misrepresentation into a fraudulent one, thus entitling Deirdre not only to rescission but also to any damages she may have incurred. 52) While normally a court will not alter a contract, since the verbal agreement was for $2,100 per tonne and the mistake was simply a typographical error, Innis Ltd. can ask a court to give them the remedy of rectification. However, in order to get the contract rectified, Innis will have to satisfy the court that the written contract does not reflect the true agreement. To do this, Innis must show that there was no ambiguity in the agreed-upon term, that there were no further negotiations about price between the making of the verbal contract and the signing of the written one, and that neither party realized there was an error at the time of signing. 53) To succeed in avoiding the debt, Elizabeth would be obliged to establish that she was unduly influenced by Garth to sign the guarantee, and was unaware of the legal consequences of signing. Elizabeth may have some difficulty here, as she has engaged in other business ventures with Garth. However, these may not have involved loan guarantees, and if so, she may be able to establish undue influence in this situation. Version 1
24
54) It may safely be assumed that Smith has no interest in seeing his deal with a fraud artist be declared void, as he has probably received a good deal from the fraud artist, who was interested in a quick sale. The question turns on the fact as to whether Indrek will be successful against Smith for the return of the automobile. Only if Indrek is successful, will Smith have any interest in finding and recovering from "Mr. Green." If Green still had the car, and the sale to Smith had not taken place, Indrek would have an action that would succeed under the head of fraudulent misrepresentation. The fraud artist has misrepresented his identity to Indrek and in making the statements is open to this action which is based on the tort of deceit. As the tort of deceit allows for an equitable remedy, rescission would be possible, which would be to restore the parties to the position they were in before they entered into the contract. Upon learning of the misrepresentation, Indrek is doing what he can to refrain from taking any benefits under the agreement, which is the normal bar to a future action for rescission. Indeed, Indrek has acted promptly in his attempt to have the agreement rescinded. Unfortunately for Indrek, while his remedy is not precluded by any delay on his part, recovery from Smith is barred as Smith is a third-party bona fide purchaser for value without notice of any defect of title to the vehicle in the hands of "Mr. Green." As a result, Indrek 's action against Smith will fail, and Indrek will be left with the task of finding and taking action against "Mr. Green." Should Indrek be successful in finding "Mr. Green," his action will continue to lie in fraudulent misrepresentation, but rescission will not be available. In this incidence, the compensation that Indrek will be allowed will be in damages, without question restitution damages, and very likely punitive damages as well for the tort of deceit. The fraudulent misrepresentation in this case will likely be stressed by students in preference to the view of unilateral mistake. To that end, an Version 1
25
outright fraud is suggested in this case to steer students in that direction. Students generally have difficulty in the distinction between unilateral mistake and fraudulent misrepresentation, as do many courts as well. In its simplest form, the distinction may be based on what active steps have been made by a party to deceive the other. The more this situation has been "cooked" by a party, and the more unreasonable it is to blame the innocent party as a victim of his own misconceptions, the greater likelihood the "mistake" will be termed to be a fraudulent misrepresentation. The following case seeks to underscore the conditions prevailing for a unilateral mistake.
Version 1
26
55) Chris and Sally should be successful in their action to rescind the contract. Students should recognize that the remedy being sought would be rescission as opposed to damages. The facts of this case are sufficiently clear that students will recognize that Johnston a. knew full well of Chris and Sally's intention to modify the property, b. knew or ought to have known the restrictions placed on a Heritage Canada property, and c. took no action to correct Chris and Sally's false assumption. On that basis some students will categorize Johnston's actions as misrepresentation by nondisclosure. While there may be a glimmer of truth to this, it would be insufficient upon which an answer to this case may be based, as an action by Chris and Sally under that head would not succeed since this is not a contract of utmost good faith. The information, with respect to the implications of a Heritage Canada designation is not something that is only known by Johnston, and that fact alone would take it out of the realm of contracts of utmost good faith. It should be noted that this contract is very close to an utmost good faith contract, as there is arguably a special trust or confidence that exists between Johnston, and Chris and Sally, but there is not a sufficient factual basis to proceed on the basis as contracts of utmost good faith are narrowly construed so as to exclude this instance. There is also a procedural difficulty which, while possible to overcome, exists in that no contract of utmost good faith exists between the vendor and purchaser, and the relationship of special trust exists between the purchaser and the third-party agent for the vendor. Students should properly treat this case as one of unilateral mistake on the part of Chris and Sally, and acknowledge that Johnston, agent for the vendor, is aware of that mistake, and allows it to exist. Students should not extend this to fraudulent misrepresentation, as Johnston did nothing Version 1
27
to actively encourage the false assumption by either his words or conduct. Students should go on to discuss that the buyers believed the property to have qualities which it did not, and that the agent for the seller is aware of the buyer's mistake. As the agent, Johnston allows it to go uncorrected, and Chris and Sally, upon being apprised of their mistake, take action promptly, the court would be likely to permit Chris and Sally to rescind the agreement. Based on: Amalgamated Investment Property Co. Ltd. v. John Walker and Sons Ltd., [1976] 3 All E.R. 509. 56) Students should focus their analysis on the areas of mistake and possible misrepresentation as discussed in the chapter. Answers will vary.
Version 1
28
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) On March 6th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the LimestoneUniversity Students' Union on March 31st. On March 29th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The Limestone Student Society must allow the substitute rock group to perform by virtue of the legal doctrine of vicarious performance. ⊚ ⊚
true false
2) On March 6th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the LimestoneUniversity Students' Union on March 31st. On March 29th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The contract, by its nature, is not subject to vicarious performance. ⊚ ⊚
true false
3) On March 6th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31st. On March 29th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The contract, by its nature, is not subject to assignment. ⊚ ⊚
Version 1
true false
1
4) On March 6th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31st. On March 29th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The privity of contract rule would entitle the Limestone Students' Society to reject the substitute rock group and prevent them from performing. ⊚ ⊚
true false
5) The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. Terry may only sue Rod, the mechanic that negligently performed the service. ⊚ ⊚
true false
6) The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. The Four Guys Garage is liable to Terry under the vicarious performance rule for Rod's negligence. ⊚ ⊚
Version 1
true false
2
7) The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. Money damages awarded by the court for the negligence would be approximately equal to Terry's loss. ⊚ ⊚
true false
8) Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. The assignment by Kirk to Bryce must be in writing to be an effective assignment. ⊚ ⊚
true false
9) Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. The assignment must be of the entire agreement between Chris and Kirk. ⊚ ⊚
true false
10) Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. Notice in writing of the assignment must be given to Chris before Chris is obliged to pay Bryce. ⊚ ⊚
true false
11) Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. If Bryce fails to give Chris notice of the assignment, Chris may lawfully make payment to Kirk. ⊚ ⊚
Version 1
true false
3
12) Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. Payment by Chris to Kirk of the $1,000 before notice in writing of the assignment was given to Chris would require Bryce to recover the payment from Kirk, as he could not sue Chris for the money. ⊚ ⊚
true false
13) Dev contracts to build a computerized printing press for Tyrone. He subcontracts some of the work on the computerized components to another company, Charlie Co., which wired a vital component negligently. The repairs are very costly for Tyrone. He can sue Dev for the losses caused by Charlie Co. ⊚ ⊚
true false
14) If Martin bought a property from Nevin, knowing (because it was noted on the title deeds) that Nevin had agreed to a restrictive covenant in his contract to purchase the property from Olan, Martin must conform to the restrictive covenant even if it is not included in his contract with Nevin. ⊚ ⊚
true false
15) If the restrictive covenant said that the land was never to be sold to a woman of Scottish descent, Martin could ignore it and sell to whomever he pleased, on the grounds that the clause breached public policy. ⊚ ⊚
true false
16) Gerry and Juanita agree that Tracey must pay each of them $10 per month. They sign a contract and show it to Tracey, who makes no objection to it. Either Gerry or Juanita may enforce the contract against Tracey if she fails to pay. ⊚ ⊚
Version 1
true false
4
17) If Alan is a beneficiary of his father's life insurance with Avuncular Life, he has the statutory right to enforce payment if his father dies and Avuncular refuses to pay on the grounds that Alan lacks privity of contract with it. ⊚ ⊚
true false
18) Kevin was injured when a bottle of pop, purchased by Katie and given to him, exploded in his hand. Kevin cannot sue the manufacturer and receive damages for his injuries because he lacks privity of contract. ⊚ ⊚
true false
19) Mr. Richards instructed the contractor who was building his new house to face it with a special synthetic marble made by Messier Ltd. Messier had promised Mr. Richards in writing that the synthetic marble would last longer than the Parthenon and be in better shape. Within three months of its installation, which was properly done, the "marble" was cracking, discolouring, and crumbling at the seams. Mr. Richards can sue Messier successfully although it was not he but the contractor who made the purchase from Messier. ⊚ ⊚
true false
20) A student from another class says that assignments were originally common law concepts but are now a statutory process. You disagree with him. ⊚ ⊚
true false
21) York Co. assigns a conditional contract with Bevier to Zeno Finance on November 10th. Zeno Finance notifies Bevier of the assignment on November 17th. Bevier had mailed his cheque to York Co., due on November 15th, on November 12th. Bevier must put a stop payment on the cheque to York Co. and issue a new one to Zeno Finance for the November 15th payment.
Version 1
5
⊚ ⊚
true false
22) York Co. assigns a conditional contract with Bevier to Zeno Finance on November 10th. Zeno Finance notifies Bevier of the assignment on November 17th. Bevier had mailed his cheque to York Co., due on November 15th, on November 12th. If Zeno Finance gave Bevier notice on November 13th that the November 15th payment was to be made to them, but Bevier had already mailed the cheque on the 12th to York Co., then Bevier must put a stop payment on the cheque to York Co. and send a new one to Zeno Finance for the November 15th payment. ⊚ ⊚
true false
23) Pulpco contracts for logs from A1 Timber Co., who later made a statutory assignment of its rights and obligations to Forest Green Co. (FGC). The quality of FGC logs was less than the fine product usually delivered by A1 Timber, and for which they were known, and Pulpco brought suit against A1 Timber on the grounds that the contract was not assignable. The court would find that the contract was assignable. ⊚ ⊚
true false
24) Ace Engineering needed cash and assigned a block of its accounts receivable to Wellington Finance Company. A week later, it assigned another block to Bagot Finance Company. By an oversight, the second block contained an account, a receivable from Smith, which Ace had already assigned to Wellington. The notice of assignment from Bagot arrived at the Smith offices before that of Wellington. Smith should pay against the demand of Bagot Finance Co. ⊚ ⊚
Version 1
true false
6
25) Carl agrees to buy a refrigerator from his local appliance store under an installment plan, with eight monthly payments of $100. The store immediately, and properly, assigns the deal to a finance company for $750 in cash. After the refrigerator is delivered it utterly fails to operate, and Carl refuses to make his payments to the finance company. The finance company demands continued payments and indicates that any issue of faulty goods must be taken up with the store as a separate matter. In this regard, it is in Carl's best interest to continue to make his payments lest he be successfully sued for being in breach of the agreement himself. ⊚ ⊚
true false
26) Boyz Finance Company approaches merchants and gives immediate cash to them in return for the right to collect the series of monthly payments made on account by the merchant's customers. Boyz pays $75 now for the assignment of right to collect $100 in the future. For good reason, Boyz should be examining the business practices of the merchants from whom it accepts assignments as much as it examines the credit-worthiness of the accounts that it purchases. ⊚ ⊚
true false
27) An expert landscape architect, known for special skill in designing Japanese gardens, is engaged under contract by a municipality for the creation of a public park with a Japanese theme. The architect becomes unable to fulfill the obligation, but to the satisfaction of the municipality can name a replacement architect who will agree to execute the same work on the same terms. The legal mechanism required to affect this will be an equitable assignment. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 28) Simon bought a used yacht from Marvel's Marina and Boatyard for $70,000 to be paid in installments over six years. He traded in his smaller yacht for $10,000 at the same time, but Marvel wanted to keep the two transactions separate for financial reasons and he promised to issue a cheque to Simon for the trade-in. Marvel assigned the $70,000 contract to Strait and Naro Finance (S and N). The first Simon knew of this was when he received copies of both contracts and a notice to pay the payments to S and N. In the situation given, which of the following is most correct?
Version 1
7
A) Simon must make the payments to S and N from now on. B) Simon can make the payments to either Marvel or S and N, and, if he makes them to Marvel, Marvel is obligated to forward them to S and N. C) Marvel cannot pass its contractual rights to someone else without Simon's agreement. D) S and N cannot force Simon to pay them since they lack privity of contract with him. E) C and D.Scrambling: Locked
29) Simon bought a used yacht from Marvel's Marina and Boatyard for $70,000 to be paid in installments over six years. He traded in his smaller yacht for $10,000 at the same time, but Marvel wanted to keep the two transactions separate for financial reasons and he promised to issue a cheque to Simon for the trade-in. Marvel assigned the $70,000 contract to Strait and Naro Finance (S and N). The first Simon knew of this was when he received copies of both contracts and a notice to pay the payments to S and N. Assume there was a valid assignment. Simon still has not received the $10,000 and, when he calls Marvel, he finds the Marina has been sold to someone else and Marvel's whereabouts is unknown. He has a copy of the trade-in contract.
A) Simon can try to find Marvel and get his money from him but he must pay S and N. B) Simon may deduct $10,000 from what he owes S and N and make payments to them totaling $60,000. C) S and N must try to find Marvel and get the $10,000 from him, but if they cannot, Simon must pay them. D) A and C. E) B and C.Scrambling: Locked
30) Having made it clear that she would not buy any tractor that had been involved in a fatal accident, and having been assured that the one she chose had never been in such an accident, Shelly bought a tractor from Cornfeldt's Farm Machinery for $15,000 under a conditional sales contract. Cornfeldt assigned the contract to Titewood Finance which gave proper notice of the assignment to Shelly. Shortly after, Shelly found out that this tractor had rolled over on another farmer and killed him, so she immediately returned the tractor to Cornfeldt and demanded a refund because of the misrepresentation. The salesman had known of the accident when he sold the tractor to her.
Version 1
8
A) Shelly can get her money back but she has no right not to pay Titewood and must continue to do so. B) Titewood took the assignment subject to the equities and any defence to a suit for non-payment launched by Cornfeldt would also be a defence to a suit for non-payment launched by Titewood. C) Shelly can get her money back and does not have to pay Titewood. D) Titewood can get its money back from Cornfeldt even though there was no misrepresentation to Titewood. E) B, C and D.Scrambling: Locked
31) Marion buys a very expensive television set as a gift for her mother. In the store, she explains that it is a gift to reconcile her mother to the fact that she is emigrating to Australia and to give her some company once Marion leaves. Shortly after Marion leaves, the television stops functioning and, despite heroic efforts by the T.V. repairman it never works again. Marion's mother cannot get a refund from the store, so she brings an action for breach of contract.
A) There is no privity of contract between Marion's mother and the store so she would not win a breach of contract suit. B) Since Marion's mother can show the television is not working and cannot be made to do so, she can prove under the Sale of Goods Act that there has been a breach of the contract with her and she will win. C) Since the store knew that the television was a gift for her, and Marion cannot enforce the contract because she is in Australia, the judge will treat the contract as one between Marion's mother and the store. D) B and C. E) None of the above are true.Scrambling: Locked
32) Kathy sells her business to Lucy for $40,000 including the stock, the goodwill, and the remainder of the lease. The landlord agrees that Kathy may end her involvement with the leased premises and that Lucy may take over the remainder of the lease on the same terms, and a new lease reflecting this is drawn up and signed by the landlord and Lucy. This new lease is an example of
Version 1
9
A) B) C) D) E)
an equitable assignment. a statutory assignment. a novation. a constructive trust. a negotiable instrument.
33) Acme Engineering needed cash and on March 14th assigned a block of its accounts receivable to Wellington Finance Company. On March 21st, it assigned another block to Bristol Finance Company. By an oversight, the second block contained an account, a receivable from Smith, which Acme had already assigned to Wellington. The notice of assignment from Bristol arrived at the Smith offices on March 24th, and Wellington's notice arrived on March 28th. What is the most correct action that Smith should take? A) Pay any demand of Acme made on March 16th or 23rd; pay any demand of Bristol on or after March 24th. B) Pay any demand of Acme made on March 13th; pay any demand of Wellington on or after March 28th. C) Refuse to pay all Wellington demands. D) Refuse to pay all Acme demands made after March 24th. E) A, C, D.
34) Sylvia obtained a full release from the payment of her car loan when she gave the car to her friend, Victoria, who agreed to make all the remaining payments. The arrangement was acceptable to the bank that had made the loan. The bank cancelled the loan and replaced it with one in Victoria's name. This is
A) B) C) D) E)
Version 1
an example of a chose in possession. an example of a chose in action. a novation. a guarantee. an equitable assignment.
10
35) Hammond sells her house to Mendoza for $165,000 subject to a mortgage from Imperial Bank for $90,000. Hammond's mortgage had been arranged at a time when interest rates were low, and prevailing interest rates are now much higher. Mendoza would very much like to assume Hammond's obligation to pay under the existing mortgage, rather than arrange a more costly replacement from his own banker. Imperial Bank is indifferent as to who is repaying the debt as Mendoza is just as acceptable a credit risk as was Hammond. Mendoza pays Hammond the $75,000 difference and takes over both the house and her mortgage. This arrangement is an example of
A) B) C) D) E)
a statutory assignment. a chose in possession. an equitable assignment. a constructive trust. a novation.
36) The party who holds property for the benefit of another under a trust agreement or arrangement is known as the
A) B) C) D) E)
beneficiary. trustee. rights holder. guarantor. principal.
37) Carten Printing receives an unexpectedly large order for shipping envelopes from one of its regular clients, a major Canadian CD-ROM retailer. In order to meet the order delivery date, Carten farms out part of the printing to another firm, Serger Printing. Serger, in an attempt to raise its own profit margin on the deal, uses lower grade adhesive and cuts corners on printing quality. The faulty shipping envelopes show up as returns made to the retailer from dissatisfied customers. The retailer takes action against Carten for damages. What is the most likely outcome?
Version 1
11
A) The retailer will not succeed against Carten but will have a right of recovery against Serger. B) The retailer will succeed against Carten, and Carten will have no right of recovery against Serger. C) a novation. D) The retailer will succeed against Carten, and Carten will have a similar right of recovery against Serger. E) The retailer will have a right of recovery against both Carten and Serger.
38)
Transfer of rights can be accomplished through which of the following:
A) novation, equitable and statutory assignment, and by operation of law B) novation, equitable and statutory assignment, vicarious performance, and by operation of law C) novation, by operation of law, and vicarious performance D) equitable and statutory assignment, vicarious performance, and by operation of law E) novation, vicarious performance, and by operation of law
39) Precision Engineering receives a contract to design and build a sewage treatment plant from the town of WaWa. It designs the project and assigns the construction to Dynamic Construction Ltd. The contract has no provisions regarding assignment. Can Precision make the assignment to Dynamic?
A) B) C) D) E)
Version 1
No, it can only do a novation. Yes, if it obtains the approval of WaWa. Yes, if it notifies WaWa. Yes. No.
12
40) Mr. Black enters into a contract with Build-It Construction Ltd. for the construction of a house. The house is not built in accordance with the contract. Mr. Black sues Build-It Construction Ltd. seeking $200,000 in damages. He is successful, but discovers that Build-It Construction Ltd. has insufficient assets to satisfy the judgment as it regularly transfers its assets to its parent company Build-It Holding Company Inc. Can Mr. Black collect the $200,000 from Build-It Holding Company Inc.
A) B) C) D) E)
Yes, according to the doctrine of promissory estoppel. Yes, according to the Statute of Frauds. Yes, this is a statutory novation. No, according to the doctrine of privity of contract. No, according to the parol evidence rule.
41) A business may raise capital by assigning its existing accounts receivable to a collections company or bank in return for an immediate lump-sum percentage payment. What is this method of raising capital called?
A) B) C) D) E)
Bonds Factoring Indemnification Novation Assignment
42) The Block furniture store granted credit to many customers for the purchase of furniture and appliances. It had separate categories for furniture credit and appliance credit. It statutorily assigned its furniture credit to Prestige Financing Inc. and its appliance credit to Gold Stream Financing Ltd. Karim purchased a bed for $700 and a stove for $700 from The Block and received financing for both purchases on the same contract. When The Block's contracts were assigned, Karim's was assigned to both assignees. On Monday he received a notice of assignment from Prestige Financing Inc. and on Tuesday from Gold Stream Financing Ltd. To whom should Karim make his next payment?
Version 1
13
A) B) C) D) E)
The Block Gold Stream Financing Ltd. Prestige Financing Inc. 50% to Gold Stream Financing Ltd. and 50% to Prestige Financing Inc. Karim should not make a payment.
43) Luxury Homes Ltd. contracts with Eliza to build her house. The electrical work is completed by Firefly Electric Ltd. under a contract it entered into with Luxury Homes Ltd. The electrician was Wilbur, an employee of Firefly. Eliza moves into the house and three months later it burns to the ground as a result of faulty wiring. Who can Eliza sue for breach of contract?
A) B) C) D) E)
Luxury Homes Ltd. Firefly Electric Ltd. Wilbur Luxury Homes Ltd., Firefly Electric Ltd. and Wilbur Firefly Electric Ltd. and Wilbur
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 44) James owed Christie $2,500. She asked him to make the payments to her friend, Amira, and they drew up and signed a contract to that effect. After he had made a couple of payments, Christie died, and James told Amira he would not give her any more money. $2,300 is still outstanding. a. Explain why Amira cannot simply sue James for breach of contract to get the balance of the money. b. Identify the equitable remedy available to Amira and describe how it would operate to help her here. c. What should Christie have done to make sure that Amira could enforce the contract if Christie was not there to do so?
Version 1
14
45) Harvey sold a quantity of his hand-carved birdhouses to Keaton's Ltd., stipulating in the contract that they were not be to resold for less than a stated price, so that Keaton's would not cause him to lose business when he sold them direct at craft fairs and shows. Keaton's found they could not sell them, so they resold them to Tom Terrific, a discounter, for the minimum price stipulated in the Harvey-Keaton contract. Tom Terrific then sold them at an even lower price as a loss leader since they had just become very popular. Discuss whether or not Harvey, whose own sales are now slumping, can sue Tom Terrific.
46) George was approached by a travelling salesperson, who convinced him to purchase an automatic weaving machine at a price of $900. To encourage the sale, the salesperson had verbally agreed to purchase, for a very modest price, any goods George wove which were up to a marketable standard. It was suitable for a home business, and George undertook a series of payments under a written agreement. The machine did a poor job, producing nothing marketable. The salesperson had disappeared in the meantime, having assigned the agreement to a finance company. The finance company was now looking to George for payment. George refused to pay. Explain the rights and liabilities of the parties.
Version 1
15
47) Creighton owned a commercial property on the main street of a large city, which he leased for 15 years to a franchise of a nationwide department store. The lease contained a covenant prohibiting the department store tenant from establishing another one of its stores within a 15-kilometre radius of its current location. The main reason for the restrictive covenant was to protect the landlord's rental revenues. The rent for the property was set at a $24,000 minimum per year plus 3% of gross sales receipts. In reality, another franchisee of the department store had been operating a store within six blocks of Creighton's property for the last 10 years. Creighton was well aware of this fact but had never taken any steps to enforce the covenant in his lease. In December, Creighton sold his property to Murdock and assigned the lease in its entirety. Creighton and Murdock arranged the deal such that Murdock made a lump sum down payment and Creighton held a mortgage that Murdock would pay, in part, with the monthly rental revenues from the property. The assignment was executed under seal and immediately written notice was sent to both the store manager at the leased property and to the national office of the department store chain. The notice informed the tenant that the assignment had occurred and that all future rental payments were to be directed to Murdock. The tenant properly forwarded its monthly payments to Murdock for several months. In March, Murdock telephoned the tenant to inform it that he had reassigned the right to receive the rental income to Creighton and that future payments should again be made directly to Creighton. The purpose of the reassignment was to reduce the length of time it took each month to get the payments processed from the tenant to Murdock and on to Creighton. In return, Creighton reduced the rate on Murdock's mortgage by one-quarter percent. Murdock pointed out, however, that he retained his capacity as landlord, having assigned only the rental income back to Creighton. One week later, Creighton brought an action against the tenant for damages for breach of the lease's covenant prohibiting the existence of the second store within 15 kilometres. Creighton sought damages in the amount equal to lost rental revenue for the previous 10 years. What legal issues are raised in this case? What arguments will be used by both Creighton and the tenant and what will be the likely outcome?
Version 1
16
48) Andrews, wished to sell his home and contacted Theo, one of the real estate agents associated with a busy local brokerage. Theo came to the home in order to prepare a specification sheet of the home's features, to take some photographs and to enter into a listing agreement with Andrews. The listing agreement provided that: "In consideration of your listing and agreeing to offer my property for sale, I hereby give you sole and exclusive authority to sell my said property at the price of $189,000 and upon the terms particularly set out below or at such other price or terms to which I may agree. I further agree to pay you a commission of 6% of the sale price." Theo held numerous open houses at Andrews' home and generated considerable interest among prospective buyers. Within a short period of time an acceptable agreement of purchase and sale for the home was entered into by Andrews with a purchaser. That agreement contained the following provision: "THE UNDERSIGNED (Andrews) accepts the above offer and agrees with the Agent above named (Theo) in consideration for his services in procuring the said Offer, to pay him on completion of the sale, a commission of 6% of the sale price which commission may be deducted from the deposit. I hereby irrevocably instruct my solicitor to pay direct to the Agent any unpaid balance of commission from the proceeds." On the day of closing, Andrews' solicitor received a certified cheque in the full amount from the purchaser. Before the solicitor disbursed the funds, Andrews instructed him not to honour the direction in the agreement of purchase and sale to pay directly to the agent any unpaid commission from the proceeds. The solicitor complied with Andrews' instructions and did not pay the funds to the agent. What legal issues are raised in this situation and what are the rights and liabilities, if any, of the parties involved?
Version 1
17
49) The Smalltown Sawmill entered into a contract with the Little Lumber Co. to supply the sawmill with logs. The sawmill produced a great deal of softwood lumber, particularly pine, for furniture making. The mill especially liked the logs supplied by Little Lumber Co. because they were from older stands of trees, which made the wood a higher quality. Little's logs were also somewhat larger, which made for less waste when cutting the larger pieces of wood required for furniture making. There was a written agreement between the parties which stipulated that the parties "for themselves, their executors and administrators and successors respectively" each covenanted to abide by and perform the terms of the agreement. The relationship continued over several years until the Little Lumber Co. assigned its rights under the agreement to another lumber company, Logs Ltd., which carried on the supply. The sawmill accepted shipments from Logs Ltd. for nearly a year when it decided not to accept any further shipments on the grounds that the contract it had with the Little Lumber Co. was not assignable. The Little Lumber company decided to take legal action to enforce the agreement on the sawmill. Explain the nature of the action taken and the legal principles the lumber company would rely on. What arguments would the sawmill raise in its defence? Render a decision.
Version 1
18
Answer Key Test name: Chapter 12 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) TRUE 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) TRUE Version 1
19
27) FALSE 28) A 29) B 30) E 31) A 32) C 33) E 34) C 35) E 36) B 37) D 38) B 39) D 40) D 41) B 42) C 43) A 44) a. Amira lacks privity of contract with James. At common law, since she was not a party to the contract and gave James no consideration for his promise to pay the money to her, she cannot enforce the contract. b. Amira can invoke the equitable doctrine of constructive trust in which the contractual promise to pay Amira made by James is treated as if it were a trust of which Amira is the beneficiary. Trust law allows the beneficiary to sue if the trustee (James, constructively) will not pay money from the trust to the beneficiary as he should. c. Christie should have made sure that it was a formal contract signed under seal, addressed to Amira, and that it was delivered to Amira. This act of signing, sealing and delivering the contract to Amira would make it enforceable by her.
Version 1
20
45) Although the contract said the birdhouses were not to be resold for less than a stated price, this was a term of the contract between Harvey and Keaton's, and Keaton's did not breach it. Nothing in that contract limited the rights of third parties, and Tom Terrific clearly was not a party to that contract, so it is unenforceable against him. 46) George has the responsibility to pay under the agreement but has defences against the finance company in the same measure that he had against the salesperson; misrepresentation regarding the capability of the machine being foremost. He has a considerable evidentiary problem however in proving that any set-off exists or had been arranged, particularly as he has no marketable product or written agreement.
Version 1
21
47) The case examines the principles of assignment, both statutory and equitable. The first of the two assignments is a statutory assignment meeting the requirements of writing, absoluteness and notice. It transfers all rights and obligations of the lease contract to the assignee, Murdock, who steps into the contract in precisely the same position as Creighton. As such, the assignee inherits the lease covenant and the right to enforce it. The second assignment is equitable. It is not absolute in the sense that only the right to receive the rental income was transferred in return for an interest rate reduction. The facts are unclear whether the assignment was written or oral, however, it is clear that no written notice was given to the tenant. Murdock has retained the remaining rights under the lease, and he is the only party entitled to enforce them. Moreover, as an assignee under an equitable assignment, Creighton may not institute an action in this matter without joining Murdock in the action as assignor. Some students may make an equitable argument for Creighton's entitlement to damages for breach of the covenant at least prior to the original sale, and assignment to Murdock. The tenant's defences to such a claim would include the absolute assignment to Murdock as a bar to action by Creighton. Murdock inherits all rights and claims in the contract once the assignment is valid. Furthermore, the tenant may raise the defence of estoppel in light of Creighton's open acquiescence to the breach for a 10-year period. This defence, if successful against Creighton, would also prove effective against Murdock if he should at some future time attempt to enforce or sue upon the covenant.
Version 1
22
48) Based on Family Trust Corp. v. Morra et al. (1987), 39 D.L.R. (4th) 762, this case deals with the rights of third-party beneficiaries to a contract. The agreement of purchase and sale in which the vendor directed his solicitor to pay the agent's commission directly may not be enforced by the agent. The vendor and solicitor are protected against any action taken by the agent to enforce the provision under the concept of privity of contract. The agent is merely a third party to that agreement upon whom a benefit is purportedly conferred. Thus, the agent who is not a party to the contract may not enforce its performance. Moreover, the promise or benefit to the agent under this agreement is merely gratuitous. There was no new or additional consideration flowing from the agent to the vendor for the inclusion of the irrevocable direction to the solicitor. In addition, the provisions of the purchase and sale agreement add nothing to the already existing obligation of the vendor to pay the agent's commission under the separate listing agreement, which is the governing agreement between vendor and agent. Thus, any argument by the agent that the terms of the agreement of purchase and sale essentially constitute a constructive trust for his benefit may be refuted by the vendor on the grounds that the agent is already entitled to the commission. On this basis the vendor is free at law to withdraw his direction to the solicitor without incurring further liability to the agent. He is still liable for payment of the commission but cannot be compelled to effect direct payment by his solicitor from the proceeds. 49) Answers will vary.
Version 1
23
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Shamira had offered Brendan exactly $3,050 in cash, she had made a valid tender of payment. ⊚ ⊚
true false
2) Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Brendan refused the tender of the exact amount of money, Shamira would be entitled to take legal action against Brendan for breach of contract. ⊚ ⊚
true false
3) Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Shamira had in her possession three $1,000 bills, and one $100 bill, her tender would be invalid, even though she had cash in excess of the amount requested. ⊚ ⊚
Version 1
true false
1
4) Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. Brendan would be entitled to reject the tender of payment if it consisted of $3,100 in cash, instead of the required $3,050 in cash. ⊚ ⊚
true false
5) Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. Because Kirk is bound in contract, Yemmi can require Kirk to purchase a new truck to perform the agreement. ⊚ ⊚
true false
6) Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. Kirk need not perform the contract, as the contract was frustrated by the destruction of the truck. ⊚ ⊚
true false
7) Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. If Kirk deliberately destroyed his truck, Yemmi can insist that he perform the agreement or compensate Yemmi for any loss that might result from Kirk's non-performance. ⊚ ⊚
Version 1
true false
2
8) Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. If Kirk owned a fleet of trucks, and Kirk had a number of spare trucks, the doctrine of frustration would not apply to the case, and Kirk would be obliged to perform the contract. ⊚ ⊚
true false
9) Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. If the bank refused to lend Lucas the money, the contract would be enforceable against Lucas. ⊚ ⊚
true false
10) Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. If Baker claimed against Lucas for breach of the contract, Lucas could raise the agreement concerning the need for a bank loan as a collateral agreement, allowing him to avoid the contract. ⊚ ⊚
true false
11) Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. The proviso "if he could arrange a loan with the bank for the funds" would be a condition precedent. ⊚ ⊚
true false
12) The effect of a condition precedent is that the contract does not come into effect unless the condition is satisfied.
Version 1
3
⊚ ⊚
true false
13) Ms. Sherbourne bought a candy bar costing 80 cents. She paid for it by presenting the storekeeper with a $5 bill. While this is not a legal tender, it is so customary to give change that the storekeeper would have to warn customers if he was only prepared to accept exact tender of the price of the goods. ⊚ ⊚
true false
14) Julian decides that he would like the house being built for him, under contract with Porter Developers, to have a blue tile roof instead of a red tile roof. The two kinds of tile are equally available and are the same price, and no roofing of the house has yet been done. Porter alleges that this is a material alteration of the terms of the contract, since the roof is one-tenth of the value of the house, and that, therefore, it cannot be done without their agreement to the change, which they will only give for a further payment of $5,000. They are right. ⊚ ⊚
true false
15) A judgment by Mr. Justice Exx for the plaintiff Wy, in his suit against Zedd for breach of a condition of a contract, has the effect of discharging the contract, so that Wy has no further obligations under it, and substitutes the terms of the judgment for the terms of the contract, which Zedd must then perform. ⊚ ⊚
true false
16) Sangster and Williams enter into a verbal contract with each other. They later decide to put it in writing. This is a substituted agreement. ⊚ ⊚
Version 1
true false
4
17) Damian and Raja agree in writing that Raja will buy Damian's cottage. On the date set for closing the sale, it is up to Raja to come to Damian to make payment of the purchase price, unless the contract says otherwise. ⊚ ⊚
true false
18) Damian and Raja agree in writing that Raja will buy Damian's cottage. If Raja changes her mind and refuses to buy the cottage, Damian can get specific performance provided he can prove that he tried to transfer the title deed to the property on the closing date and Raja would not accept it. ⊚ ⊚
true false
19) Joe sold a barn full of hay to Sheila but, before Sheila could transfer it to her own barn, a hurricane blew the roof off Joe's barn, and that part of the hay that did not blow away was ruined by the torrential rains. The contract is frustrated. ⊚ ⊚
true false
20) Cecilia agreed to buy an antique Japanese sword from Andrew. After the contract is formed but before Andrew delivers the sword or Cecilia pays any money to him, the government passes a law that makes it a crime to buy a sword other than a fencing foil. Since the contract was made before the law was passed, it is not frustrated. ⊚ ⊚
true false
21) Bronson signs up to join the army because the advertisements make it look like summer camp. Later, he changes his mind and shoots himself in the foot, so he won't have to go. This does not frustrate the contract, though the contract may be avoidable on other grounds. ⊚ ⊚
Version 1
true false
5
22) The case of Turney et al. v. Zhilka accurately describes the state of the law in Canada with respect to the effect of conditions precedent. ⊚ ⊚
23)
true false
The vast majority of contracts are discharged by operation of law. ⊚ ⊚
true false
24) Gavin is in the business of local transport of goods, as well as running a rural bus service. He contracts for a delivery van from his local truck dealer, but before the dealer places the order with the manufacturer, Gavin amends the order to request the minibus model of the delivery van. Gavin and the dealer have created a new contract that replaces the prior one. ⊚ ⊚
true false
25) Imperfect tender, also referred to as imperfect performance, does not represent a breach of contract. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) John Stevenson, a plumber, had a contract to repair a slow leak in a toilet in Dr. Ibsen's medical clinic. Because it had to be done when no patients were there, John Stevenson agreed to come on a Saturday. However, when he got there, he found a notice on the door saying "Got a chance for a free trip to Hawaii. Come next Saturday at the same time. Thanks. Dr. Ibsen." John Stevenson did not turn up the next Saturday and, when Dr. Ibsen called to find out why, John Stevenson said he had promised to take his wife shopping that day, and he doubted if he would be able to find the time in the future.
Version 1
6
A) Dr. Ibsen breached the contract on the first Saturday. B) John Stevenson breached the contract on the second Saturday. C) Neither man has breached the contract; it is simply suspended. D) The contract was not breached since it was frustrated on the first Saturday because Dr. Ibsen could not be there. E) Dr. Ibsen breached the contract on the first Saturday and John Stevenson breached the contract on the second Saturday.
27) In the contract of sale of Jones' house to Greenwood, no particular method of payment was specified. Greenwood's lawyer has heard rumours that Jones got a much better offer after he signed the deal with Greenwood, and, from the attitude displayed by Jones recently, Greenwood's lawyer thinks Jones may be hoping the deal will fall through. Greenwood
A) should make sure he has a certified cheque for the full amount on the date of closing. B) should make sure he has cash for the full amount on the date of closing. C) should make sure that, if he has a personal cheque for the full amount, it is accompanied by a banker's letter guaranteeing the funds are there. D) need not worry about how payment is made since, as long as it is the exact amount, Jones cannot legally refuse any mode of tender, provided that the contract did not stipulate a particular mode.
28) King, a library sciences student, was hired at $400 a week to catalogue the library of the very wealthy Earle family. He estimated that the work would be completed in early August, giving him a month of vacation, which he felt he badly needed. For the first three days on the job, King was kept busy running errands for Mr. Earle, who had a sprained ankle, and keeping him from getting bored. On the fourth day, Mrs. Earle was using the library for her bridge club and a meeting of her church Flower Committee, and on Friday she kept King busy running errands for the dinner party she was giving that night. After two weeks of this, King quit and took a labouring job for $275 a week.
Version 1
7
A) If a court agrees that the Earles' behaviour rendered the performance of the contract impossible, King may be able to recover the difference between the salaries for the two jobs. B) Since King was getting paid, it was irrelevant that he was not able to do the cataloguing and, when he quit, he breached the contract. C) If the Earles can convince a court that King abandoned the contract, he will get nothing. D) Since King was getting paid, it was irrelevant that he was not able to do the cataloguing and, when he quit, he breached the contract. If the Earles can convince a court that King abandoned the contract, he will get nothing. E) None of the responses are true.
29) In the contract between Bayson's Department Store and Clem's Manufacturing, there is a clause that allows either party to end the contract on 60-days' notice and the payment of liquidated damages, which are set at a reasonable amount. This clause is
A) B) C) D) E)
a force majeure clause. an option to terminate. a condition subsequent clause. a frustration of contract clause. an example of laches.
30) Bacall, a building contractor, bid for and won the tender to construct Klegman's Shopping Centre. Due to rampant, unexpected inflation, she found she would not quite break even on the project and she asked Klegman to renegotiate the price. Klegman pointed out that there was no provision in the contract for that and said, "A deal's a deal."
Version 1
8
A) Bacall can assert that this is a frustrated contract, and, since no work has been started, claim back the bid deposit of $50 000 and walk away from the whole thing. B) Bacall is stuck with the contract and there is nothing she can do but take the loss. C) Bacall can say that there has been a material alteration of the terms of the contract, and that this has discharged the contract's terms regarding payment, so she can renegotiate them without losing the contract. D) Because Klegman will be unjustly enriched if the contract is not renegotiated, Bacall can insist on a substitute agreement, which will discharge the old one. E) Any of the responses can be true.
31) For contracts concerning the purchase of land, once payment in full in accordance with the terms of the contract has been offered by the purchaser, if not provided in turn by the vendor with a deed to the property, the purchaser may
A) B) C) D) E)
bring an action for tender. bring an action for termination. bring an action for specific performance. bring an action on the condition subsequent. bring an action for delivery of legal tender.
32) Carson, a fruit wholesaler, delivered bananas to Phil's Fruit Market. A sizeable portion of the truckload was of questionable quality, but no one at Phil's Fruit Market had objected to delivery. After a falling out over another contract a year later, Phil's Fruit Market sued Carson over the banana shipment. Of the following, Carson's best defence would be:
A) B) C) D) E)
Version 1
merger. waiver. laches. novation. extinguishment.
9
33) In the contract between Gamil's Building Materials store and Hightrees Logging and Lumber Company for the supply of lumber, there is a clause that allows either party to end the contract on 10-days' notice should actions of logging protesters on Hightrees' property bring logging operations to a temporary halt. This clause is
A) B) C) D) E)
a force majeure clause. an option to terminate. a condition subsequent clause. a frustration of contract clause. an example of laches.
34) In the contract between Canada Oil Company and the Government of Iran for the supply of Iranian crude oil, there is a clause that allows either party to end the contract on declaration of war between Canada and Iran, or the imposition of United Nations trade sanctions on either country. This clause is
A) B) C) D) E)
a force majeure clause. an option to terminate. a condition subsequent clause. a frustration of contract clause. an example of laches.
35) In the contract between Canada Oil Company and the Government of Iran for the supply of Iranian crude oil, there is a clause that allows either party a period of one year to bring forward to court any claim arising from events subject to the contract. Any claim raised after one year from the events which give rise to it is agreed to be unenforceable. Had the parties not provided for this themselves, the common law would have provided a somewhat similar measure, represented by the doctrine of
A) B) C) D) E)
Version 1
force majeure. option to terminate. condition subsequent. condition precedent. frustration.
10
36) The University of Excellence has decided that it wants to only accept cash payments for tuition. Its current contract states that payment may be made by cash, cheque or credit card. How can it amend the contract?
A) Amend the payment clause to state that payment may be made by cash. B) Amend the payment clause to state that payment by cheque or credit card will not be accepted. C) The payment clause can be deleted. D) The clause must be amended to reflect the payment of cash and not by cheque or credit card. E) The clause must be amended to reflect the payment of cash and not by cheque or credit card or the clause may be deleted.
37)
How can contracts be discharged?
A) B) C) D) E)
Tender of performance Operation of law Agreement of the parties Condition subsequent All of the responses are correct.
38) Delores is an opera singer who is scheduled to perform in Toronto on October 17th. She gets laryngitis and is unable to sing. The contract does not include any provisions regarding Delores' health. Is she obliged to perform?
A) Delores is not required to perform. The contract is frustrated as there is an implied term of continued good health. B) Delores is required to perform as there is no provision terminating the agreement in the event of illness. C) Delores is required to perform, but because of her laryngitis she is allowed to lip synch. D) Delores is required to perform as there is an implied term of continued good health. E) Delores is not required to perform because of human rights legislation.
Version 1
11
39)
Under the Frustrated Contracts Act; can Delores keep a $20,000 deposit?
A) B) C) D) E)
40)
Yes. Yes, if the contract included a termination clause. No. No, unless the contract included a termination clause. None of the responses are correct.
When does a waiver have to be in writing and under seal?
A)
If the original contract was required to be in writing pursuant to the Statute of
Frauds. B) If the original contract was in writing due to the parol evidence rule. C) If both parties have partially performed the contract. D) If one party has partially formed the contract. E) If one party has fully performed the contract.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 41) Shortly after entering into a contract with Prentice Co. to provide consultation on integrating their office systems, Antonio discovers he is the victim of a neurological disease that will kill him very rapidly. Because of his situation and the excellent service he has provided them in the past, Prentice's president decides to write off the whole of the $30,000 they had advanced him, which was to cover the investigatory and recommendation stages of his work for them, even though failure to perform was cause for rescission of the contract. a. Prentice's action is either a waiver or a release. Which is it and what is the difference between them? b. What danger does Antonio face if the president now leaves Prentice Co. and the new president reviews the matter? c. What should be done to protect Antonio from that problem, at the time the promise is made?
Version 1
12
42) Morton, a famous entertainer, agreed to host a telethon for the Society of Feathered Friends at half his usual $50,000 fee. A week before the telethon, the $25,000 was paid into his account. Morton had spent many hours working up jokes about the Society of Feathered Friends, since his normal materials were not really suitable for the expected audience. On the morning of the telethon he awoke with laryngitis and no voice, and the doctor says he cannot perform. a. Describe how this will affect the contract between Morton and the Society of Feathered Friends. b. If Morton had done some promotional ads for the telethon, would that change your answer to a?
43) Jamil, a prospective purchaser of real estate, visited his lawyer with three completely executed agreements of purchase and sale, each for a different piece of real estate. Each offer was conditional upon "the purchaser being able to obtain $50,000 financing to his satisfaction within ten days at a rate of interest not exceeding 10%, failing which this offer is void." Financing of this type was easily available, over the counter, from any local bank for a person of Jamil's financial circumstances. Discuss the position that Jamil has found himself in, particularly if he should obtain such financing, informing one purchaser of his intention to proceed, and the other two that he could not obtain funds.
Version 1
13
44) On April 13, the Barclays signed an agreement to purchase certain property owned by the Taylors for the sum of $15,500. The purchase and sale agreement did not specify a form of payment except that the purchasers were to pay a deposit of $500 in cash and the balance on closing. The date of closing was set out in the agreement as July 1st. The agreement also contained the following provision: "This sale is conditional for a period of 15 days from the date of acceptance upon the Purchaser being able to obtain a first mortgage in the amount of ten thousand dollars ($10,000), otherwise, this agreement shall be null and void and all deposit monies shall be returned to the Purchaser without interest or penalty. This sale is also conditional for a period of 15 days from the date of acceptance upon the Purchaser being able to secure a second mortgage in the amount of $2,500 for a period of five (5) years, otherwise, this agreement shall be null and void and all deposit monies shall be returned to the Purchaser without interest or penalty." The Barclays were able to arrange for a first mortgage of $12,000 and, on April 28th, a notice in the following form was delivered to the Taylors: "This is to notify you that the condition specified in the agreement of purchase and sale between the Vendors and Purchasers has been met. The transaction will therefore close as per the agreement." On July 1st the Barclays presented a certified cheque to the Taylors in the amount of $15,000. The Taylors, however, refused to deliver the deed to the Barclays on the grounds that the condition in the purchase and sale agreement had not been complied with. The Barclays then instituted legal action against the Taylors. Discuss the nature of this action and the defences, if any, which may be raised. Render a decision.
Version 1
14
45) In 1969, XYZ Co. Ltd., a manufacturer of small appliances, entered into a 20-year contract with ABC Smelters Inc. who agreed to process molten aluminum for XYZ's manufacturing needs. The parties undertook lengthy negotiations to determine the terms of the complex agreement which governed their relationship. In particular, the pricing clause was quite complicated based upon various factors. The price to be paid by XYZ was to vary in accordance with two of those factors. After a base price was agreed upon, 20 percent of that price would vary with changes in the Wholesale Price Index for Industrial Commodities (WPI). This portion was referred to as the "production charge." An additional 20 percent of the price would vary with changes in the hourly wage rates of ABC Smelter employees. A major component of the production charge for the smelting of aluminum was the cost of electricity. The parties performed under the contract for several years applying the pricing formula appropriately to the basic price. However, in 1973, the Arab oil producing nations imposed an oil embargo that severely affected most of the world's economies causing rapid inflation, particularly in sectors which were substitutes for oil based energy. The cost of electricity rose at a rate greatly in excess of the rate of increase in WPI, of which electricity was only one of many factors. At this point, ABC Smelters realized that continuing with the contract as it stood to the end of its term would result in a loss of over $60 million to the company and would likely result in its bankruptcy. ABC then ceased performing under the contract and instituted legal action to attempt to relieve its onerous obligations under the agreement. a. Discuss the nature of the action and the arguments which may be used by ABC. b. Whether ABC is successful or not, what further steps may the parties take to revive their contractual relationship?
Version 1
15
46) Joe's Jazz Quintet contracted with Larry's Lounge to provide music in the lounge each evening for a two-week period. The terms of the contract provided for payment of a weekly fee of $5,000.00 for Joe's services. During the course of the first week Larry sold the lounge to a group of investors who decided to convert it to a country and western line dancing bar. The new owners immediately terminated Joe's contract but paid the quintet the full weekly fee for one week even though only three performances had taken place. Joe's group had the opportunity to move on to its next booking early and did so, commencing performances the next evening. At the end of their touring season, some ten months later, Joe and his musicians reflected on business matters that had transpired over the season. They realized that they had had to forgo one week's pay of $5,000 at Larry's Lounge and, even though they started their next job early, it had only paid $3,000 for the week. Moreover, Joe felt that it did not help the reputation of the band to essentially be "fired" from a job. Joe and his friends decided to get some advice about taking legal action against Larry or the new owners of the lounge for the damages they had suffered as a result of the termination of their contract. Identify the issues that their legal counsel would discuss with them about their claim. What argument(s), if any, would Larry or the investors raise in response to Joe's action?
Version 1
16
Answer Key Test name: Chapter 13 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) FALSE 26) A Version 1
17
27) B 28) A 29) B 30) B 31) C 32) C 33) C 34) A 35) E 36) E 37) E 38) A 39) C 40) E 41) a. This is a release. Once rights to sue have materialized, the plaintiff's relinquishment of his rights is called a release. If the plaintiffto-be has not yet suffered any injury, an agreement not to sue, if any injury should be done at a future time, is called a waiver of that future right to sue. b. Since Prentice has been given no consideration by Antonio for its promise not to take back the advance, the promise is gratuitous and could be revoked by the new president (unless Antonio could demonstrate grounds for a defence of promissory estoppel). c. If Antonio gives Prentice something in consideration of its promise— and, since the court would not consider the adequacy of the consideration in this case, its value can be minimal—or if the promise is made under seal, then it will be enforceable and Prentice's new president could not revoke it.
Version 1
18
42) a. The contract is frustrated by Morton's inability to perform, since his laryngitis is something beyond the control of either party. Since the money was paid on the basis that Morton would perform but he did not, there was a total lack of consideration on his part and he must return the money to the Society. While he had done much preparatory work, this had not benefited the Society at all and so, even in those provinces which have Frustrated Contracts Acts, he will not be entitled to keep anything. b. In a province in which there is a Frustrated Contracts Act, Morton could argue that he conferred a benefit on the Society by doing the ads. He might then be entitled to retain some money equal to the benefit obtained by the Society from the ads. 43) Each agreement is separate and is only conditional upon Jamil obtaining financing. Jamil is expected to act in good faith and endeavour to obtain the financing. Assuming Jamil could obtain financing on all three agreements, he would be bound to do so, otherwise he would be in breach of any contracts for which he failed to seek financing.
Version 1
19
44) Based on Beauchamp v. Beauchamp (1971), 32 D.L.R. (3d) 693, this case explores the issues of tender, condition precedent, specific performance and, tangentially, waiver. The purchasers will attempt to succeed in an action for specific performance. Having offered payment in the full amount of the contract and exhibiting their readiness and willingness to complete the transaction they will argue that the vendors must deliver the land. Also, the conditions in the agreement for the benefit of the purchasers were met to their satisfaction. Having notified the vendors to this effect, the purchasers argue that performance is now essential to discharge their agreement. The vendors are entitled to raise defences with respect to the tender of payment and the condition precedent. The fo.rm of payment was not specified in the agreement with the exception of the deposit in cash. The implied form is, then, cash in the exact amount. The purchasers, by tendering a certified cheque, albeit in the exact amount, have failed to properly tender payment and the vendors may properly refuse to accept the payment and deliver up the land. Moreover, the agreement set out a sequence of events in the form of conditions precedent that must be met prior to the agreement becoming enforceable. The conditions stipulated the occurrence of two specific events but failed to state that either party has the right to waive the condition in order to establish the contractual rights and to enforce the agreement on the other party. Essentially, waiver or the right to waiver, must be mutually agreed upon by the parties in order to establish consideration for the promise. Therefore, one party alone may not waive the condition upon which the right to enforcement of the contract rests. On the grounds that the conditions were not waived, the vendors argue that they cannot be forced to deliver up land under a contract which has not come into effect. The condition as specified in the agreement was Version 1
20
never met and, thus, both parties are discharged from performance. The Ontario Court of Appeal found for the purchasers on the basis of facts concerning the nature of the condition precedent which are beyond the scope of the text discussion.
Version 1
21
45) Based on Aluminum Company of America v. Essex Group, Inc. (1980), 499 F. Supp. 53, this situation examines the doctrines of frustration and the principles of substituted agreement. a. The legal action brought by ABC is based in frustration in order to bring the contract to an end and relieve the parties from further performance. The external event of an oil embargo causing huge increases in the cost of electricity was neither foreseeable nor caused by any fault of the parties. Its effect was to change the circumstances and conditions under which the agreement was to be performed such that performance becomes virtually impossible for ABC without risking the company's demise. Furthermore, given the long-term nature of the contract, it was an event for which the parties would likely have provided for discharge of the agreement had it been foreseeable and the changes in conditions apparent. The defendants may raise an argument that ABC is attempting to have the contract declared frustrated simply because performance became more expensive than contemplated at the outset. However, the courts, recognizing the difficulty in predicting future conditions in longterm contracts, especially those of an unexpected nature, would likely treat the contract as frustrated. This is particularly true in light of the great care and thorough negotiations which the parties undertook at the outset. Thus, the frustrated contract is brought to an end and the parties would be relieved of further performance. b. The parties may agree to substitute their original contract with a new agreement with material alterations to the terms. The new substitute agreement will discharge the existing agreement if it has not already been discharged as frustrated by the courts. The alteration in the pricing terms of the agreement would be sufficiently material to effectively discharge the original agreement. 46) Answers will vary.
Version 1
22
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Robin's decision not to proceed with the sale was an express repudiation of the contract. ⊚ ⊚
true false
2) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Repudiation before the date fixed for performance is known as anticipatory breach. ⊚ ⊚
true false
3) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Because Robin's bicycle was stolen, Felicia is entitled to demand that Robin replace the stolen bicycle with a similar one and sell it to her. ⊚ ⊚
Version 1
true false
1
4) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Felicia is entitled to claim damages for the difference in value between the agreed price and the price of a similar bicycle on the market. ⊚ ⊚
true false
5) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Felicia cannot recover anything from Robin for repudiation of the contract, because the contract was frustrated before the date fixed for performance. ⊚ ⊚
true false
6) Robin offered to sell her 10-speed touring bicycle to Felicia for $200 on her return from a two-week bicycle trip to a distant city. At the end of the first week, Felicia received a long distance telephone call from Robin, in which Robin advised Felicia that she had decided not to sell the bicycle on her return. Felicia was disappointed, as a similar bicycle on the market would cost her at least $250. She decided to wait until Robin returned then urge her to go through with the sale. Before Robin reached home, her bicycle was stolen, and never found. Had the bicycle not been stolen, Felicia would be entitled to specific performance of the contract if Robin had refused to sell. ⊚ ⊚
Version 1
true false
2
7) Mario, a professional entertainer, entered into a one-year contract with Barnum to perform exclusively at Barnum's theatre, and to perform nowhere else during that period of time. A week after the agreement was signed, Mario entered into another agreement with a competitor of Barnum to perform at his opera house. Barnum is entitled to treat Mario's actions as a breach of his contract. ⊚ ⊚
true false
8) Mario, a professional entertainer, entered into a one-year contract with Barnum to perform exclusively at Barnum's theatre, and to perform nowhere else during that period of time. A week after the agreement was signed, Mario entered into another agreement with a competitor of Barnum to perform at his opera house. Barnum may request the court to issue an injunction to prevent Mario from performing at the competitor's opera house. ⊚ ⊚
true false
9) Mario, a professional entertainer, entered into a one-year contract with Barnum to perform exclusively at Barnum's theatre, and to perform nowhere else during that period of time. A week after the agreement was signed, Mario entered into another agreement with a competitor of Barnum to perform at his opera house. An injunction is a discretionary remedy. ⊚ ⊚
true false
10) Mario, a professional entertainer, entered into a one-year contract with Barnum to perform exclusively at Barnum's theatre, and to perform nowhere else during that period of time. A week after the agreement was signed, Mario entered into another agreement with a competitor of Barnum to perform at his opera house. The court may order Mario to continue to perform at Barnum's theatre, because he had promised to work only for him. ⊚ ⊚
Version 1
true false
3
11) Mario, a professional entertainer, entered into a one-year contract with Barnum to perform exclusively at Barnum's theatre, and to perform nowhere else during that period of time. A week after the agreement was signed, Mario entered into another agreement with a competitor of Barnum to perform at his opera house. The monetary amount which Barnum would be entitled to receive as compensation from Mario would be the amount of the loss that Mario could reasonably have foreseen at the time that the contract was entered into by the parties. ⊚ ⊚
true false
12) Andrew, a carpenter, entered into a contract with Steven for the construction of a garage on Steven's property for $5,000. Andrew had constructed the entire garage except for a small door, when he refused to complete the contract. Andrew's refusal to complete the agreement would entitle Steven to treat the contract as being at an end. He may therefore refuse to pay Andrew for his work. ⊚ ⊚
true false
13) Andrew, a carpenter, entered into a contract with Steven for the construction of a garage on Steven's property for $5,000. Andrew had constructed the entire garage except for a small door, when he refused to complete the contract. Andrew would not be entitled to claim payment, because he has not finished his part of the agreement. ⊚ ⊚
true false
14) Andrew, a carpenter, entered into a contract with Steven for the construction of a garage on Steven's property for $5,000. Andrew had constructed the entire garage except for a small door, when he refused to complete the contract. Andrew has substantially performed his part of the agreement and would be entitled to payment of the contract price, less the amount necessary to finish the building. ⊚ ⊚
Version 1
true false
4
15) Andrew, a carpenter, entered into a contract with Steven for the construction of a garage on Steven's property for $5,000. Andrew had constructed the entire garage except for a small door, when he refused to complete the contract. Steven is entitled to ask the court for an order of specific performance of the contract. ⊚ ⊚
true false
16) Guthrie Caterers failed to turn up as contracted to cater Dev and Rabinda's wedding reception. The deposit, which was the only money paid to that point, was returned by courier the next morning without comment. There was an express repudiation of the contract when Guthrie failed to arrive when and where they should have. ⊚ ⊚
true false
17) Guthrie Caterers failed to turn up as contracted to cater Dev and Rabinda's wedding reception. The deposit, which was the only money paid to that point, was returned by courier the next morning without comment. This was an implied repudiation since they did not contact Dev and Rabinda and actually tell them "We will not be catering your wedding." ⊚ ⊚
true false
18) Guthrie Caterers failed to turn up as contracted to cater Dev and Rabinda's wedding reception. The deposit, which was the only money paid to that point, was returned by courier the next morning without comment. If Guthrie had called a week before the wedding, this would have been a breach de minimis of the contract. ⊚ ⊚
true false
19) Guthrie Caterers failed to turn up as contracted to cater Dev and Rabinda's wedding reception. The deposit, which was the only money paid to that point, was returned by courier the next morning without comment. If, because they had received a week's notice, Dev and Rabinda were able to hire Cameron Caterers and that had cost $10,000 instead of the $7,000 which Guthrie would have charged, Dev and Rabinda would be able to get $10,000 damages from Guthrie. Version 1
5
⊚ ⊚
true false
20) Nature's Flowers is required, as a condition of their contract, to supply the Ubiquitous Chip, a trendy restaurant, with 45 flower arrangements for tables and three large displays, twice a week. This week, it was two table arrangements short one day and three short on the other. The Ubiquitous Chip can argue that Nature's Flowers have breached a condition of the contract and treat the contract as being at an end, which means they would not have to pay for the flowers delivered. ⊚ ⊚
true false
21) Nature's Flowers is required, as a condition of their contract, to supply the Ubiquitous Chip, a trendy restaurant, with 45 flower arrangements for tables and three large displays, twice a week. This week, it was two table arrangements short one day and three short on the other. Nature's Flowers is entitled to invoke the doctrine of quantum meruit and be paid for the value of what was delivered. ⊚ ⊚
true false
22) Nature's Flowers is required, as a condition of their contract, to supply the Ubiquitous Chip, a trendy restaurant, with 45 flower arrangements for tables and three large displays, twice a week. This week, it was two table arrangements short one day and three short on the other. Nature's Flowers is entitled to be paid the amount of the contract less the value of the five table vases because there has been substantial performance of the contract. ⊚ ⊚
true false
23) Marnie fails to deliver any of the fruit pies she had contracted to make for Benny's Bakery. Since this is a breach of a condition of the contract, Benny is released from any obligations he has under the contract, and the contract is at an end. ⊚ ⊚
Version 1
true false
6
24) Marnie fails to deliver any of the fruit pies she had contracted to make for Benny's Bakery. If Benny really wanted the pies and felt that Marnie would be able to meet her commitments, he could choose to treat the breach of condition as if it were a breach of warranty. ⊚ ⊚
true false
25) Marnie fails to deliver any of the fruit pies she had contracted to make for Benny's Bakery. If Benny treated Marnie's failure to perform as a breach of warranty, the contract would not end but, to the extent that Marnie's breach had caused him injury, she would have to pay Benny damages. ⊚ ⊚
26)
true false
A condition may become a warranty ex post facto. ⊚ ⊚
true false
27) When faced with a seller's onerous exemption clause, it would be time well spent for an aggrieved purchaser to consider the effect of the law as it relates to fundamental breach. ⊚ ⊚
true false
28) Antoine, a bush pilot, agrees to ferry an exploration crew from Gamma Oil to a remote part of Alberta in his helicopter, and to retrieve them a month later. Three weeks into the bush, the Gamma team learn through listening to local radio chatter on their short-wave radio that Antoine has sold his helicopter to a pilot in New Brunswick. Antoine is in breach of contract. ⊚ ⊚
Version 1
true false
7
29) Antoine, a bush pilot, agrees to ferry an exploration crew from Gamma Oil to a remote part of Alberta in his helicopter, and to retrieve them a month later. Three weeks into the bush, the Gamma team learn through listening to local radio chatter on their short-wave radio that Antoine has sold his helicopter to a pilot in New Brunswick. The circumstances indicate express repudiation by Antoine. ⊚ ⊚
true false
30) Antoine, a bush pilot, agrees to ferry an exploration crew from Gamma Oil to a remote part of Alberta in his helicopter, and to retrieve them a month later. Three weeks into the bush, the Gamma team learn through listening to local radio chatter on their short-wave radio that Antoine has sold his helicopter to a pilot in New Brunswick. If Gamma Oil arranges on its own for another helicopter to pick up the crew, it runs the risk of having to pay both the new pilot, and Antoine, should Antoine have made some alternative provision to honour his obligation to extract the crew. ⊚ ⊚
true false
31) Antoine, a bush pilot, agrees to ferry an exploration crew from Gamma Oil to a remote part of Alberta in his helicopter, and to retrieve them a month later. Three weeks into the bush, the Gamma team learn through listening to local radio chatter on their short-wave radio that Antoine has sold his helicopter to a pilot in New Brunswick. In any future dispute over the situation, Gamma's position will be that Antoine's actions constituted anticipatory breach. ⊚ ⊚
true false
32) Antoine, a bush pilot, agrees to ferry an exploration crew from Gamma Oil to a remote part of Alberta in his helicopter, and to retrieve them a month later. Three weeks into the bush, the Gamma team learn through listening to local radio chatter on their short-wave radio that Antoine has sold his helicopter to a pilot in New Brunswick. Should Antoine have failed to make arrangements for the extraction of the crew, he can successfully claim for half of his fee by virtue of the doctrine of substantial performance, and in fact his full performance of the first half of his obligation. ⊚ ⊚ Version 1
true false 8
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 33) In which of the following cases will a court order specific performance of the contract? i. Gigantic Electrical Warehouse repudiates its contract with Video Co. to purchase 2,000 VCRs. The loss of this deal might push Video into bankruptcy. ii. Joan, a great opera singer, decides it is too far from New York to the National Arts Centre in Ottawa and so she will not perform at the sold-out concert there next week for which she had contracted months ago. iii. Mitsuko had a contract with Refined Galleries to purchase a small Rembrandt drawing, which Refined wants now to sell to a regular and very wealthy customer of theirs. They will not give Mitsuko the drawing. iv. John is refusing to perform a contract to sell his house to Eli. Eli has wanted to live in that house since he was a small boy. v. Alvin is refusing to perform a contract to purchase Huma's house. Huma has another purchaser but her highest offer is $10,000 less than Alvin's.
A) B) C) D) E)
iii and iv. i, iii and iv. i, iii, iv and v. i, ii, iii and iv. All of the responses are correct.
34) Ming was dismissed from his senior management position by his employer. He was very upset and said "I'm going to fight this in court." He did not look for another job. The court held that he had been wrongfully dismissed and said that the proper notice period was 6 months.
A) Ming's damages will be 6 months' pay. B) Ming's damages will be 6 months' pay plus punitive damages. C) Ming's damages will be 6 month's pay minus an amount for failure to mitigate damages. D) Ming's damages will be 6 month's pay determined in accordance with the principles of quantum meruit. E) None of these.
Version 1
9
35) Trendy Imports entered into a contract on June 1st with Neat Things, a small upscale gift shop, to supply it with 100 tooled leather boxes. Delivery was to be made on September 15th so that the boxes could be on display in the store by October 15th, ready for the pre-Christmas rush. On August 6th, Trendy notified Neat Things that a dock strike in Italy was holding up the shipment and, if the boat on which they were loaded could not leave port within a very few days, Trendy would not be able to make the delivery on September 15th. In this situation,
A) Neat Things can sue Trendy immediately for breach of contract as this is an anticipatory and express breach of contract. B) Neat Things can wait until September 15th and then sue Trendy for breach of contract as this is an express breach of contract if the boxes are not delivered. C) Neat Things must wait until September 15th and if the boxes are not delivered then it may sue Trendy for breach of contract as this is not an anticipatory breach but only an express breach. D) Neat Things must until September 15th and then sue Trendy for implied breach of contract. E) None of the responses are correct.
36) Trendy Imports entered into a contract on June 1st with Neat Things, a small upscale gift shop, to supply it with 100 tooled leather boxes. Delivery was to be made on September 15th so that the boxes could be on display in the store by October 15th, ready for the pre-Christmas rush. On August 6th, Trendy notified Neat Things that a dock strike in Italy was holding up the shipment and, if the boat on which they were loaded could not leave port within a very few days, Trendy would not be able to make the delivery on September 15th. Suppose Neat Things does nothing immediately, the boat sails and the delivery would have been made on time, but the boat sinks in a hurricane on August 23rd.
Version 1
10
A) There is nothing Neat Things can now do since the contract is frustrated by the sinking of the ship. B) Neat Things can sue Trendy because of its anticipatory breach on August 6th. C) There is nothing Neat Things can now do. It could have sued when the boat sank, if the delivery could not have been made on time even if the boat had not sunk, since the sinking of the boat would not then have been relevant to the breach of contract. D) Trendy will lose if Neat Things sues now because, as of August 23rd, it is in breach of its contract with Neat Things. E) Neat Things still retains the right to wait until September 15th and sue if Trendy does not perform its part of the contract.
37) Zenia contracts with Yvonne for a supply of specialized computer components worth $6,000, which she needs to meet a contract to supply Wendy with 60 laptop computers, a contract which is worth $65,000 to Zenia. Zenia makes it clear to Yvonne that her contract with Wendy is vital to let her get established in the market and that it is imperative that Yvonne meet the deadline. "If you can't," she says, "I'll take the business to someone who can." Yvonne wants the business badly, so, against her better judgment, she agrees to a clause in the contract which says that, for every day delivery is late, she will pay Zenia $10,000.
A) This is a liquidated damages clause and it will be enforceable against Yvonne. B) Because liquidated damages clauses are against public policy, Zenia will not be able to enforce this clause if Yvonne is late performing. C) Although the court would not normally enforce this clause, since Yvonne was aware of the vital importance in this case of prompt delivery, the court will uphold the clause if she is late delivering. D) This is a penalty clause and the court will refuse to enforce it. E) Since Yvonne was under duress to sign this contract, the court will not enforce the clause, although under normal circumstances they would.
Version 1
11
38) Vince agreed to paint Jen's house for $4,000, inside and out. Normally, it would have cost Jen $6,500 but Vince felt sorry for her because she was a single mother with four children and not much money, so he decided to give her a good deal. When Vince had painted everything except the kitchen ceiling, Matt asked him to go on a fishing holiday with him, and Vince, who was rather irresponsible, decided he had had enough painting. He left a note for Jen saying "You've had more than your money's worth with what I've done already. I'll expect your cheque for $4,000 to be at my office when I return in two or three weeks." Which of the following statements is correct?
A) Vince is entitled to the full amount of $4,000 since, as he has in fact done at least $4,000 worth of work, he should get that on a quantum meruit basis. B) Vince abandoned the contract before he had completed performance and is not entitled to any money since he has breached the contract. C) Vince is entitled to $4,000, less what it costs Jen to finish having the kitchen ceiling painted, since he has substantially performed the contract. D) The court will order specific performance of the contract and Vince will have to complete the painting for the agreed-upon $4,000. E) None of the statements are correct.
39) Petra agreed to purchase franchise rights from Valley Cream Inc. to sell VCI ice cream from small trucks in a large metropolitan area. Her deposit on the transaction was $15,000 against a final price of the rights at $40,000. The contract contained a term, of which Petra was aware, that the deposit would be forfeited as liquidated damages if she did not follow through on the deal. Early on in the process, Petra could not get the financing she needed, and was forced to back out. Valley Cream, whose file contained only the copy of the agreement, refused to return the money. The most important part of Petra's Statement of Claim will be that relating to
A) B) C) D) E)
Version 1
performance in equity. the doctrine of part-performance. the duty to mitigate loss. punitive damages for ordinary breach. the doctrine of quantum meruit.
12
40) Paul ordered a motorbike from Moto-Haus. He had reviewed all the specifications and told the salesperson of his final choice. When the bike arrived, Paul found that it did not live up to the fuel efficiency that he expected or that was claimed in the brochure. He took the bike back to Moto-Haus, and demanded the return of his money, which was refused. Paul would be best advised to:
A) B) C) D) E)
treat the contract as at an end, sue for breach of warranty. treat the contract as at an end, sue for breach of condition. treat the contract as at an end, sue for fundamental breach. treat the contract as on going, sue for breach of warranty. treat the contract as on going, sue for breach of condition.
41) Catherine agreed to purchase franchise rights from a hamburger restaurant chain to open her own restaurant. Her deposit on the transaction was $10,000 against a final price of the rights at $750,000. The contract contained a term, of which Catherine was aware, that the deposit would be forfeited if she did not follow through on the deal. Early on in the process, Catherine could not obtain ownership of the site upon which she intended to construct her restaurant and was forced to back out. The hamburger chain refused to return her deposit. The most correct statement below is:
A) Catherine, as plaintiff, will succeed in arguing that the $10,000 deposit is a penalty. B) Catherine, as defendant, will argue return of the $10,000 on the doctrine of partperformance. C) Catherine, as plaintiff, will fail in arguing that the $10,000 is a penalty. D) The chain, as plaintiff, will successfully argue that the $10,000 is liquidated damages. E) Catherine, as plaintiff, will fail in arguing that the $10,000 is liquidated damages.
42) Awards which are not compensation of the plaintiff but rather punishment of the defendant for a breach of contract which is deceitful, malicious, or offensive to ordinary standards of morality are known as which kind of damages?
Version 1
13
A) B) C) D) E)
Consequential damages. Special damages. General damages. Punitive damages. Liquidated damages.
43) In rare cases, where monetary damages would be an inadequate compensation for breach of contract, the courts may decree an order of specific performance of the contract. How does this differ from an ordinary monetary judgement?
A) The decree of specific performance carries with it the power of the courts to fine or imprison the wrongdoer for failure to comply with the order. B) A failure to comply with the decree of specific performance does not constitute contempt of court. C) The decree of specific performance does not carry the power of the courts to fine or imprison the wrongdoer for failure to comply with the order. D) A failure to comply with the decree of specific performance specifies immediate imprisonment.
44) Eric was painting the interior of Erna's house. While he was painting, Erna was constantly nattering at him. One day, he quietly packed up all of his equipment, waved good-bye and left. He had almost completed the job and had two walls left in the small bedroom. What did Eric's actions constitute?
A) B) C) D)
Express Repudiation. Implied Repudiation. Mitigation. Specific Performance.
45) Eric was painting the interior of Erna's house. While he was painting, Erna was constantly nattering at him. One day, he quietly packed up all of his equipment, waved good-bye and left. He had almost completed the job and had two walls left in the small bedroom. What remedy is available to Erna?
Version 1
14
A) Damages. B) Liquidated Damages. C) Specific Performance. D) Injunction.
46) Joe agreed to hire Ron to shovel his sidewalk but they did not agree on a price. Ron shovelled the snow, but they could not agree on a price. Does quantum meruit apply?
A) B) C) D)
Yes. Yes, if there is substantial performance. No, this is a contract for services. No, there is no substantial performance.
47) Princess Alicia hires Renaldo, the artist, to paint her portrait. The two disagreed. Renaldo said, "I'm done!" He left the palace. What did Renaldo's actions constitute?
A) B) C) D)
Express Repudiation. Implied Repudiation. Mitigation. Substantial Performance.
48) Princess Alicia hires Renaldo, the artist to paint her portrait. The two disagreed. Renaldo said, "I'm done!" He left the palace. What remedy is available to Princess Alicia?
A) B) C) D)
Version 1
Damages. Injunction. Specific Performance. Quantum Meruit.
15
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 49) Mardo, a brilliant cloth designer, contracted to work for Texture, a textiles company that is world famous for its superb materials. A clause in the employment contract says Mardo will not work for anyone else but Texture for the five-year period of their contract. Shortly after starting to work for Texture, Mardo realizes she has always wanted to be a doctor and that, if she does not start soon, she will never achieve her goal. Texture refuses to let her out of the contract and points out that she has promised not to work for anyone else but them. Mardo leaves anyway. Discuss whether Texture can get an injunction to stop Mardo working as a cocktail waitress while she puts herself through medical school.
50) In the six months since Zippy Worldwide Courier bought a truck from the Solidbuilt Motor Co., the truck has broken down constantly and has only been in use for a total of two weeks, never for more than half a day at a time. Zippy wants to return it and get a new truck, but Solidbuilt insists it is repairable. The contract has a replacement warranty clause for defective parts, and another clause says that only the warranties, conditions and other obligations set out in the contract are valid, and that all others, no matter how they might arise, have no force or effect. Discuss whether or not Zippy could get a court to permit them to rescind the contract.
51) You are the president of Haverland Fruit Company, and you ended negotiations with Western Jam and Jelly Co., having been highly insulted by the WJJ bid for Haverland strawberries at $12,000 per 10,000 baskets. Just before the harvest you found a buyer in Anderson Bakeries at $30,000 for the baskets, but once the trucks had been loaded and sent off, word arrived that Anderson would refuse the shipment as it had been shut down by a strike. The berries will rot in two more days on the trucks. The WJJ President is now on the phone to you with an offer of $8,500 for the berries. What do you do, in what order, and what principles of law are in play?
Version 1
16
52) Jackson Asphalt Co. Ltd. had been informed of upcoming requirements of the Ministry of Transportation for the supply of $600,000 worth of asphalt for a nearby road project. To comply with the requirements for tenders, Jackson Asphalt was required to have their bid submitted to the Minister of Transport no later than 3 p.m. on October 2nd of that year. Jackson Asphalt prepared their bid and contacted Swisher Couriers Limited and requested them to pick up the envelope. Swisher attended at the Jackson offices at 12 noon on October 1, and their driver was met by an engineer of Jackson Asphalt. "I do not know if you can do this or not, but this must get to the addressee by 3 p.m. tomorrow. If you can do it, that's great, it will save me driving up myself." In response the driver said, "Well, we have our noon next day service." The engineer answered, "Well, noon would be three hours grace, do you have any problem doing that?" The driver responded, "They probably build in a little lead time anyway, but I do not think they would advertise it if we could not come through." The engineer nodded and the driver handed him the bill of lading. The engineer filled it out, marked it as a tender, and removed his copy. On it was a clause which read in fine print, "Maximum liability $2 per pound, not responsible for any further loss, damage, or injury, however caused." The envelope arrived at the provincial capital at 11:00 a.m. the following morning but missed the local routine morning deliveries. The envelope was finally delivered at 3:25 p.m. that day but was rejected by the government clerk as not being submitted in time. As matters would have it, when the tenders were opened, had the tender from Jackson Asphalt been delivered on time, it would have received the government contract and would have made a profit of $85,000. On learning this, Jackson Asphalt Co. Ltd. brought suit against Swisher Courier Ltd., for the amount of its lost profits. Discuss the issues with respect to breach of contract that arise in this case and render a decision.
Version 1
17
53) Hygrade Fruit Juice Co. entered into a contract with Citrus Suppliers Ltd. for the supply of orange concentrate for its juice production operation. The terms of the contract provided that Citrus would supply Hygrade with 1,000 cases of oranges at $10, per case one month later, subject to a deposit of $4,000 on signing the contract and the balance on delivery. The contract further provided that in the event of breach or repudiation of the agreement by Hygrade, the deposit would be forfeited as liquidated damages. A week after the contract was signed, a senior representative from Hygrade was meeting with a broker from Citrus on a particular matter when their discussion degenerated into an argument that culminated with the representative from Hygrade saying "We've suffered along with your substandard product long enough. We've paid you too much in the past and you're ruining the reputation of our juices. Are you getting this next shipment from the same source?" The citrus representative responded affirmatively. "Then you can just stuff the next shipment." At that, the representative from Hygrade left. The fruit to be supplied to Hygrade was costing Citrus $5,000 from their source in Florida, USA. Taking the actions of Hygrade as repudiation, Citrus commenced negotiations with Cake & Cookie Co. for their purchase of the fruit. Cake & Cookie required the fruit for flavouring certain of their products, but certainly did not require high-grade fruit. As this was the case, regardless of the quality of Citrus's offering, Cake & Cookie was prepared to offer only $5,000 for the shipment to take it off Citrus's hands. At the time, other juice manufacturers for whom the fruit was suitable were offering $9,000 for a similar product. On learning of the impending sale between Citrus and Cake & Cookie, Hygrade immediately brought an action for an injunction against the sale and a return of their deposit, which they alleged was not liquidated damages. Citrus immediately filed an action against Hygrade in response, holding on to their $4,000 deposit and suing Hygrade for the $1,000 of lost profits that would have been generated by a sale to Hygrade. Discuss the arguments that will be raised by the parties and render a decision.
Version 1
18
54) Al was a farmer who grew cash crop vegetables on a large-scale commercial basis. He purchased seeds from his usual supplier for a certain type of cabbage that his brother, also a farmer, had recommended. Al's brother had had particular success growing these cabbages, which matured later in the season than most varieties. It became apparent to Al partway through the growing season that the cabbages were not doing well. Very few of the plants were maturing and the crop would probably produce less than 60% saleable cabbages. The summer had been quite cool and rainy, and Al suspected that this may have played a part in the cabbages' performance. Al also suspected that his supplier might have sent him the wrong seeds. The sales contract that accompanied Al's order contained an exemption clause which permitted the supplier to substitute seed products without notice depending on availability. It also required the buyer to make full payment of the contract price in the event of such substitution. The clause also stated that the supplier would not be liable for any loss or damage experienced by a purchaser, however caused, and that a purchaser may not escape the obligation to make payment for seeds purchased on the basis that he experienced loss or damage. Al referred to the supplier's seed catalogue and found the description of the cabbages. The brochure stated that the cabbages were a hearty variety that could withstand extremes of temperature and moisture making them ideal for late planting to mature in the late autumn. The catalogue further stated that this particular cabbage had a higher than average crop recovery rate among cabbage varieties, although results could vary depending on soil composition. Apparently, this variety performed less well in acidic soil. Al contacted his seed supplier and told it about the failure of his cabbage crop. He asked to confirm the variety of seeds that had been supplied and was told that he had, in fact, been shipped the correct seeds. Al, convinced that he had been supplied defective seeds, decided to initiate legal proceedings against the seed supplier. Identify and discuss the legal issues that will be raised by the parties and render a decision.
Version 1
19
Answer Key Test name: Chapter 14 Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) TRUE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) TRUE 26) TRUE Version 1
20
27) TRUE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) B 34) C 35) B 36) A 37) D 38) C 39) D 40) D 41) C 42) D 43) A 44) B 45) A 46) B 47) A 48) A
Version 1
21
49) The clause in the contract is a negative restrictive covenant which is normally enforceable by means of an injunction. (If she had agreed to work exclusively for them, rather than not to work for anyone else, the restrictive covenant would not be negative but positive, and ordering Mardo to carry it out would be like ordering specific performance of a personal services contract, which the court will not do.) If the court were to enforce this negative covenant, however, Mardo would have no means of support. It clearly is not a reasonable covenant, directed simply towards protecting Texture's interests but one designed too broadly. It would have been enforceable if they had convinced her to agree not to do similar work for anyone else, but, as it is, since it prevents her from doing any other work, it is too broad. Texture will not get its injunction. 50) Normally, but especially where (as here), the bargaining power of the parties is approximately equal, the court will enforce an exemption clause such as the one in this contract, which would mean that Zippy could not rescind the contract but would simply have to live with the terms it had negotiated. However, given the almost total inability of Solidbuilt to get the truck to run, Zippy could argue that the failure was so severe as to amount to a total failure of consideration on the part of Solidbuilt and a fundamental breach of the contract, and that entitles Zippy to rescission. The court will not grant this easily but may agree to do so in such an extreme case as this. However, it will not grant consequential damages, such as lost profits on delivery contracts that Zippy could not fulfill due to the truck's breakdowns. Solidbuilt might also argue that Zippy's failure to repudiate the contract and demand rescission much earlier amounted to changing a condition into a warranty ex post facto, which would entitle it only to direct damages, without any rescission.
Version 1
22
51) The principles at work are express repudiation (possibly implied repudiation and anticipatory breach depending on the reading of the question) together with the concept of compensation of loss that must come from Anderson to Haverland, and Haverland's duty to mitigate by selling to Western Jam. Given such a self-destructive crop, the comment of the earlier offer being rejected as too low is a red herring. The steps are to confirm rejection from Anderson, sell to Western Jam, and sue Anderson for the difference between $30,000 and the selling price to Western.
Version 1
23
52) Swisher can only be found liable after the determination of three factors. The first is whether Jackson Asphalt's damages were actually caused by a breach of the contract, the second that the damage was reasonably foreseeable as liable to result from the breach, and finally that Swisher is not protected by an exemption clause. Students may attempt to argue that various aspects of the tendering process make it difficult to suggest that Swisher caused the damages suffered by Jackson Asphalt. The line of reasoning tends to be centred around the uncertainty whether Jackson Asphalt would have got the contract in the first place. Students suggest that for further reasons such as reliability, the Ministry of Transport might not have awarded them the contract in any event. While this is possible, it is an evidentiary question, and to approach the case answer in this manner is to assume away the question. Students should proceed on the assumption that the damage suffered by Jackson Asphalt is very real. Given that, there is no doubt that the failure of timely delivery as per the contract by Swisher caused the loss suffered by Jackson Asphalt. The second question is whether the damages were reasonably foreseeable by Swisher as liable to result from the breach. Again, there are evidentiary matters in play; however, the driver was informed that the envelope contained a tender, and that the engineer was prepared to drive the item to the Ministry if necessary. Students will often conclude that since the actual quantum of damages could not be ascertained until after the fact, that somehow these damages were not foreseeable. This approach is incorrect. The important factor is that Swisher should be able to foresee the nature of the damages that may be potentially suffered, that is to say, lost profits on a contract. Only if the quantum of damages was so extraordinary, as to warrant perhaps special warnings to Swisher regarding the consequences of breach, would questions of quantum relate to foreseeability. Version 1
24
The final aspect before visiting liability on Swisher is whether the exemption clause included on the bill of lading is sufficient to relieve them of responsibility for the consequences of breach. Again, students are called upon to recognize the distinction between what is required at law as opposed to what was done in reality. Exemption clauses usually fail as a result of their bar to liability even in cases of fundamental breach. In strict contractual terms, Swisher has not committed a fundamental breach, in the sense that they bound themselves to a delivery which they performed but violated a condition of the contract regarding time of delivery. The fact that this condition was so central to the nature of the contract may in fact be sufficient to term it as fundamental breach, (i.e., may be sufficient to suggest that there has been a total failure of consideration on the part of Swisher) however, this line of analysis is not necessary. The question that students must focus upon is the fact that the exemption clause attempts to exculpate Swisher in situations even where fundamental breach exists. For this reason, the exemption clause must fail, regardless of the quality of Swisher's performance in reality, and regardless of whether or not Swisher's performance in this instance was a fundamental breach itself or a breach of condition or warranty. The exculpation clause therefore having been made void Swisher is open to the liability that results from the fact that the nature of the damages was foreseeable. Without better drafting of the exculpatory clause, Swisher will be liable for the damages flowing from their breach, being Jackson Asphalt's loss of profits on the contract. Based on: Cornwall Gravel Co. Ltd. v. Purolator Courier Ltd. (1978), 83 D.L.R. (3d) 267.
Version 1
25
53) This question raises the issues of damages, injunctions, efforts required to mitigate, liquidated damages and deposits, and repudiation. The facts given are sufficient for students to conclude that Hygrade has at least impliedly, if not expressly, repudiated their contract with Citrus. Given the willingness of Citrus to perform, and aside from issues of quality of the goods (which students should avoid drawing into the case), Citrus is entitled to the damages that may be reasonably foreseen to flow from this repudiation and breach. The best method of analysis of this fact situation is to dispense with the issue of liquidated damages first. On a contract of sale wherein the goods cost the supplier $5,000 with a sale price of $10,000, a deposit of $4,000 (40% of the contract price) would not be viewed by the courts as liquidated damages, but rather as part payment of the price. The fact that $4,000 represents 80% of Citrus's acquisition cost and 40% of the contract price is far too significant for this to be termed as liquidated damages. On that basis, Hygrade may be termed as having made a $4,000 contribution to the purchase price of the fruit and this must be taken into consideration in any assessment of damages. With respect to the deal between Citrus and Hygrade, given a deposit of $4,000 and a final payment of $6,000, Citrus stood to earn $5,000 profit on the deal. This is the benchmark from which damages must be assessed. If the deal between Citrus and Cake & Cookie is allowed to stand, Citrus would have revenues of $9,000 (retaining the deposit of $4,000 plus Cake & Cookie's $5,000 payment) and would stand to make $4,000 profit. On that basis Hygrade should forfeit its deposit and be liable for a further $1,000 in damages. Hygrade will argue that Citrus's efforts in mitigating their damages was insufficient. Where a liquid market exists for the fruit at $9,000 (assuming it continues to exist) Citrus should have made such a sale, retained $1,000 of the deposit paid by Hygrade, representing their loss Version 1
26
on a sale to another juice manufacturer, and returned the balance of the deposit of $3,000 to Hygrade. Citrus's argument will be that the parties freely negotiated what would constitute the parties' assessments of damage of breach by Hygrade and that this was assessed as equivalent to the amount of the deposit. They would further maintain that they were under no obligation to seek the best deal in mitigating their losses, but rather merely make sufficient attempts to find any willing purchaser. On that basis they will contest the injunction and advance their claim for a further $1,000 payment from Hygrade. After reviewing these arguments, the court will likely decide in the following manner: As noted above, the payment made by Hygrade cannot in good conscience be termed liquidated damages but rather part payment of the purchase price. On the assumption that the market for this fruit is liquid, it is not unreasonable to have required Citrus to make sufficient effort in mitigating its loss to secure a sale at the going market price. Given this, the court will likely decide that Citrus should be permitted to retain $1,000 as a more appropriate measure of liquidated damages, require them to return the remaining $3,000, grant an injunction against the sale to Cake & Cookie, and require Citrus to find a purchaser at the going market rate of $9,000. In this manner, Citrus will be restored to the position it would have been in but for the breach of Hygrade, and a more reasonable assessment of liquidated damages would have been determined. Based on: Stephenson v. Colonial Homes Ltd., [1961] O.R. 407; Asamera Oil Corp Ltd. v. Sea Oil & General Corp. et al. (1978), 89 D.L.R. (3d) 1. 54) Answers will vary.
Version 1
27
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. Adrienne's instructions required the agent to sell the goods as agent for an undisclosed principal. ⊚ ⊚
true false
2) Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent sold the goods to Simple, and in the course of the negotiations indicated that the furniture was his, the agent alone would be liable. ⊚ ⊚
true false
3) Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent indicated that he was acting as the agent for an undisclosed principal, when Adrienne refused to deliver the furniture, Simple would be obliged to elect to sue either the agent or Adrienne, if he discovered her identity. ⊚ ⊚
true false
4) Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. Simple could sue both the agent and Adrienne, if he discovered her identity, since he knew the agent was acting as an agent only. ⊚ ⊚
Version 1
true false
1
5) Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent merely does not disclose that he is acting as the agent for a principal, Simple may elect to sue either the agent or Adrienne, if he discovers her identity. ⊚ ⊚
true false
6) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. Ted may ratify the contract made by Phil, if he wishes to do so, provided that he could have made the agreement himself at the time that the agreement was made by Phil. ⊚ ⊚
true false
7) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted wished to ratify the agreement, the act of ratification would make the agreement effective as of the date that it was negotiated by Phil. ⊚ ⊚
true false
8) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. Ted is bound by the contract made by Phil, because Phil had apparent authority to purchase the lumber on Ted's behalf. ⊚ ⊚
Version 1
true false
2
9) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted was bound by the contract which he had not authorised Phil to make, he (Ted) would be entitled to take legal action against Phil for any loss which he suffered. ⊚ ⊚
true false
10) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted had died the day before the contract negotiated by Phil was made, Chris would be entitled to sue Ted's estate to enforce the agreement. ⊚ ⊚
true false
11) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil intended to advise Ted of the purchase later. If Ted had died before the contract was negotiated by Phil, the purchase agreement would be unenforceable, because the principal did not exist at the time when the agreement was made. ⊚ ⊚
true false
12) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted had died, Phil would be liable to Chris on the basis of Phil's implied warranty that he had authority to negotiate the contract on behalf of a principal that existed. ⊚ ⊚
true false
13) Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. As an agent, Phil must make certain that his principal is in existence at the time the contract is negotiated, otherwise, he would be liable for breach of warranty of authority.
Version 1
3
⊚ ⊚
true false
14) Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. Jim acted in breach of his duty to act in good faith when he obtained commissions from both parties. ⊚ ⊚
true false
15) Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. If the secret commission was discovered, Nick would be entitled to collect the secret commission paid to Jim by the landowner. ⊚ ⊚
true false
16) Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. The owner of the property, who also thought that Jim was his agent, would be entitled to recover the commission he paid to Jim. ⊚ ⊚
true false
17) In an agency relationship all of the general rules of contract apply to all of the parties except the rules of capacity. ⊚ ⊚ Version 1
true false 4
18) The role of an agent is to carry out a specific task for its principal with a third party such that there are no direct dealings between the principal and third party. The third party need never be told of the existence of the principal. ⊚ ⊚
true false
19) An agent was engaged by a developer to arrange financing and obtained a favourable arrangement from a local lending institution. The lender gave the agent a fee for bringing in such a large account. The agent must disclose this fee to his principal. ⊚ ⊚
true false
20) Certain high-technology components may not be exported to nations on the Export Controls List. The export broker for a manufacturer of such components could be held liable for any loss to the manufacturer as a result of recording incorrect part numbers on government export approval applications which the manufacturer reviews and signs. ⊚ ⊚
true false
21) Certain high-technology components may not be exported to nations on the Export Controls List. The export broker for a manufacturer of such components could be held liable for any loss to the manufacturer as a result of incorrectly classifying prohibited components on the export approval applications. ⊚ ⊚
true false
22) The apparent authority of an agent is not sufficient to bind a principal in a contract with a third party which is negotiated after the agency relationship has been terminated. ⊚ ⊚
Version 1
true false
5
23) A principal who ratifies a contract may begin accepting benefits under the contract before it has been ratified in writing. ⊚ ⊚
true false
24) Katrina entered into a contract to purchase a computer system from Stacey Systems after a call from Stacey System's sales representative who mistakenly informed Katrina that she would receive a 40 percent discount. When Katrina is billed for the full amount, her only recourse is to pay the bill and bring an action against Stacey Systems and the sales representative for the difference. ⊚ ⊚
true false
25) An agency for the purpose of carrying out a specific task automatically terminates once the task has been accomplished without giving notice to third parties. ⊚ ⊚
true false
26) An agent who makes a contract but does not disclose the identity of his principal may be held personally liable on the contract. ⊚ ⊚
true false
27) It will only be on rare occasions that individuals who are principals will find themselves in a position of having to ratify contracts made by their agents. ⊚ ⊚
true false
28) Where "Jane Doe per John Doe" appears executed on a signature line, Jane Doe is the agent.
Version 1
6
⊚ ⊚
true false
29) The law of agency has its roots in all of tort, contract, quasi-contract, and the law of equity. ⊚ ⊚
30)
true false
Where one is an agent by conduct, it may equally be said that one is an agent by estoppel. ⊚ ⊚
true false
31) The most common form of agency by necessity is the relationship between a real estate agent and his or her principal. ⊚ ⊚
true false
32) Ramona is departing on vacation and the home she has put up for sale has sold unexpectedly quickly. She asks her friend Veronica to execute documents related to the sale of her house on her behalf while she is away. Veronica will be appointed as principal under a power of attorney executed by Ramona. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 33) Binding agency relationships may arise in a number of ways, which include:
Version 1
7
A) conveying the impression that one person has the authority to act on behalf of another. B) an agreement in compliance with the Statute of Frauds. C) circumstances in which a person may act on behalf of and bind another to avoid or mitigate an emergency. D) agency by estoppel. E) all of the responses are correct.
34) Ted Johnson is employed by a large securities brokerage firm as a junior account executive. The nature of Ted's responsibilities is to manage the portfolio accounts for approximately 25 clients. Ted's relationship with his clients is characterized by which of the following?
A) Ted may be liable to a client for failure to trade securities for the account in certain circumstances if the client experiences a loss as a result. B) When Ted receives information about a pending stock split for a client's stock, Ted's client is attributed with this knowledge whether he actually receives it or not. C) Ted must deposit any proceeds from the sale of a client's securities in a separate account identified as the client's. D) All of the responses are correct.
35) Where the actions of a person convey the impression to third parties that he or she has given authority to a particular person to act as an agent,
A) the authority is real and of binding legal effect. B) a contract negotiated by such an agent may not be adopted by the principal at a later time. C) third parties may assume that the agent has authority to bind the principal until notice to the contrary has been given to the third parties. D) the agent may be liable to the principal for acting under implied but not actual authority. E) all of the responses are correct.
Version 1
8
36) Agents may expose themselves to personal liability on a contract by entering into an agreement with a third party
A) without disclosing the fact that they are an agent. B) by expressly describing themselves as an agent, but without disclosing the identity of the principal. C) on behalf of a fictitious principal. D) on behalf of a principal for whom the agent did not have authority to act. E) all of the responses are correct.
37)
A principal may incur liability
A) if a third party is induced to enter into a contract by the fraudulent misrepresentation of an agent. B) by revealing his or her identity in a situation where an agent negotiated a contract without disclosing his agency. C) where an agent reveals his agency in concluding a contract and acts within his authority. D) where an agent reveals his agency in concluding a contract and exceeds his authority. E) all of the responses are correct.
38) Jane acted as agent for the ACME Construction Co. as a buyer of materials. On Monday, while Jane was travelling on a buying trip, one of ACME's creditors petitioned it into bankruptcy. The following day, Jane purchased three boxcar loads of lumber on behalf of ACME.
A) B) C) D) E)
Version 1
ACME is liable to pay for the lumber. Jane is in breach of her warranty of authority. Jane's agency relationship with ACME will terminate as soon as Jane is notified. ACME may ratify the lumber contract when it becomes aware of it. All of the responses are correct.
9
39) While an agent is travelling in Northern Ontario, his principal dies. Before he is informed of this, but after the death, the agent signs a contract within his authority with a third party. Which of the following statements is true?
A) B) C) D) E)
40)
The principal's estate must honour the contract. The agent becomes liable on the contract. The principal is in breach of the agency agreement. The agent is in breach of the agency agreement. The third party can sue the agent for breach of warranty of authority.
An agent may be liable on contracts of its principal
A) where it has entered those contracts in breach of its authority. B) where it has breached a warranty of authority. C) where the agent signs in his own name without disclosing the agency to the other contracting party. D) where it breaches authority and fails to disclose the principal. E) all of the responses are correct.
41) Where an agent enters a contract, not under seal, without disclosing he or she is an agent, the other contracting party
A) may bring an action for misrepresentation. B) must first consent to ratification of the contract by the principal, for the principal to displace the agent. C) may sue either the agent or the principal, but not both, if the principal is later revealed, and there is breach. D) may sue either the agent or the principal, or both, if the principal is later revealed, and there is breach. E) all of the responses are correct.
42)
Which of the following statements is true? Agency agreements
Version 1
10
A) may only be terminated by notice given, or by the death, insanity, bankruptcy of either principal or agent. B) are agreements of utmost good faith on the part of the agent. C) if arising other than through operation of law or by necessity, must be in writing to be valid. D) would not include, by definition, Powers of Attorney.
43) While an agent is travelling in the United States on sales calls, his principals—a husband and wife in partnership—die in an auto accident. He is informed of the deaths, and knowing that the children of the deceased, who are also active in the business will take it over, the agent signs a contract within his authority with a third party. Which of the following statements is true?
A) B) C) D) E)
44)
Which of the following statements is false? Agency agreements
A) B) C) D) principal.
45)
The principals' estate must honour the contract. The children, on assuming ownership of the business, must honour the contract. The agent becomes liable on the contract. The third party can sue the agent for breach of warranty of authority. The principal is in breach of the agency agreement.
are agreements of utmost good faith on the part of the agent. which are by express agreement need to be in writing to be valid. include, by definition, Powers of Attorney. entitle a third party to expect that notice to the agent constitutes notice to the
How may an agency arise?
Version 1
11
A) B) C) D) E)
46)
Who are the parties to an agency?
A) B) C) D) E)
47)
Trustee, Agent, Third Party. Beneficiary, Agent, Third Party. Trustee, Beneficiary, Third Party. Beneficiary, Agent, Principal. Agent, Principal, Third Party.
Who can be an agent?
A) B) C) D) E)
48)
Contract. Necessity. Conduct. Contract or conduct. Contract, necessity or conduct.
Employee. Independent contractor. Partner in a partnership. Manager. Any of these individuals can be an agent.
Which parties are bound by the contract arising from a properly fulfilled agency?
A) B) C) D) E)
Version 1
Trustee and Agent. Trustee and Beneficiary. Principal and Agent. Agent and Third Party. Principal and Third Party.
12
49) Newsome Enterprises Ltd. hired Joe as its purchasing agent. Joe was given the authority to purchase up to $20,000 of inventory. He discovered inventory at 50% off the normal cost so purchased $15,000. Is Newsome Enterprises Ltd. bound by Joe's agreement?
A) B) C) D)
No, it is not bound, and Joe is liable as it exceeded his authority. It can be bound if it ratifies the contract. Yes, it is bound. None of the responses are correct
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 50) Occasionally circumstances arise that force an agency relationship to exist although no authority is given to the agent. Explain the circumstances that would create such a situation and indicate the legal obligations and tenets which exist. Give two examples (other than those in the textbook) of situations in which this type of agency relationship may be involved.
51) Describe the various duties owed by agents to their principals and illustrate the consequences of breaching these duties by giving examples.
52)
Explain the nature of the agency relationship in light of the principles of contract law.
Version 1
13
53) Linda, a real estate broker, listed a house and property for sale at $145,000 having told the vendor, Ann, that this would leave some "bargaining room" above its true value of $140,000. She set about finding a purchaser and eventually met Steven. When Steven was shown a copy of the listing and appeared interested, Linda closed the sale by advising Steven that Ann was asking too much, and to offer only $140,000 for the property. The transaction went forward to a natural conclusion at $140,000. Discuss where Linda's responsibilities lay, and any outcome should Ann and Steven ever "compare notes."
54) The Regal Flour Milling Co. Ltd. was engaged in the processing of flour, which it packaged and sold to a wide variety of customers ranging from commercial producers of food products to retail grocery stores. Regal processed primarily wheat flour, although a small part of its business was devoted to specialty flours such as rice and corn. For some time, Regal had employed Barber as its wheat buying agent, but handled the purchasing of other grains itself. Barber was an independent buying agent who pooled orders from several large processors, and then negotiated and purchased on their behalf large quantities of wheat that were then shipped directly to the respective processors. In the course of his dealings with grain sellers, Barber learned that the Midwest United States had experienced a bumper crop of soybeans, and that growers were attempting to export as much of the surplus as possible. Knowing that Regal also processed certain quantities of other grains, and wanting to take advantage of the opportunity, Barber entered into a contract on behalf of Regal for the purchase of 500 tonnes of soybeans at an unprecedented low price. He then directed shipment of the soybeans to Regal's processing facilities. Barber then notified Regal of his purchase and the expected date of delivery. a. Regal has no equipment capable of processing soybeans into flour, and upon learning of its commitment through Barber to purchase, refused to accept delivery of the beans. What are the rights and liabilities of the parties involved? b. What may Regal do if, upon learning of the soybean contract, it believes it may be able to resell the beans even though it cannot process them itself?
Version 1
14
55) In November, Moira and Alex, wishing to get away to a sunny climate, visited the office of Relax Travel Co., and discussed a number of possible destinations with one of the travel agents. The agent described five different locations and the hotels at each. One location in particular, the Five Star Hotel on the island of Trinidad, was highly recommended by the agent, who described the property as a "luxurious, club-like atmosphere, directly on the beach in a tropical paradise." She gave Moira and Alex a detailed explanation of the hotel facilities and the rooms, and then gave them colourful brochures about the hotel and island. The brochure had been prepared and provided to the agents by the travel wholesale company, Sunwest Skies, which was offering the trips. Moira and Alex asked the agent if she had ever visited the hotel. She replied that she had not, however she had attended an extensive briefing given by Sunwest Skies for agents, covering this and other properties. Several days later, Moira and Alex decided to go to that particular hotel and revisited the agent where they booked and paid for the trip. When they arrived in Trinidad, the couple discovered that their hotel was under construction, and no guest rooms were ready for occupancy. They were taken instead to a dilapidated hotel offering few services, located in the middle of a town twenty minutes from the beach. Discuss the rights and liabilities of the parties.
Version 1
15
56) The ACME Sheet Metal Co. was planning to add a new product to its line and required some new, customized equipment. ACME contacted Evans who advertised as an independent dealer in industrial machinery. Evans told ACME representatives that he was a sales agent for XYZ Machinery Inc. and that he would be able to order the equipment from XYZ custom made. ACME signed an agreement with Evans subject to confirmation by XYZ for the manufacture, sale and installation of the equipment. ACME gave Evans a deposit for part of the price and a promissory note for the remainder. Evans then delivered the agreement and note to XYZ. The note was accepted as payment and the contract approved. Delivery of the machinery was delayed and ACME faxed XYZ on several occasions requesting a progress report. XYZ responded to only one of ACME's faxes, but never indicated that it did not consider itself bound by the agreement with ACME. Eventually, XYZ delivered and installed the machinery. The equipment was completely unsatisfactory and did not perform in any way to specifications. When ACME contacted XYZ to demand the machinery be corrected, XYZ said that it had no contract with ACME. As far as XYZ was concerned, it had sold Evans the machinery and that ACME's contract was with Evans, not XYZ. XYZ explained that it never deals directly with customers and that it deals only with Evans. It accepts responsibility for its business dealings and machinery only from Evans and, therefore, denied any liability to ACME. ACME sued XYZ for breach of contract. Discuss the rights and liabilities of the parties and render a decision.
Version 1
16
Answer Key Test name: Chapter 15 Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) TRUE 24) FALSE 25) TRUE 26) FALSE Version 1
17
27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) FALSE 32) FALSE 33) E 34) D 35) C 36) E 37) E 38) B 39) E 40) E 41) C 42) B 43) D 44) B 45) E 46) E 47) E 48) E 49) C
Version 1
18
50) Agency of Necessity: - involved only in an emergency to act on behalf of and bind another in contract if impossible to obtain the authority to act - limited to situations in which a pre-existing legal relationship exists between principal and agent of necessity on the grounds that no legal obligation should be forced on another until at least express or implied consent has been given - presumably, the agency arises as an implied obligation to act in the best interests of the party with whom the pre-existing legal relationship is established 51) Agent's Duties: - obey lawful instructions of principal - keep confidential any information received from principal - maintain contract with and inform the principal of developments in their affairs, since notice to agent is notice to principal - agent must maintain the standard required for any special skills possessed, and may be liable to principal for failure to maintain the standard if a loss results - funds or goods received on behalf of the principal must be recorded, accounted for, and kept separate - to place interests of principal above the agent's - duty to disclose commissions or benefits received from third parties, failure of which results in loss of entitlement to commission and/or liability to turn over the benefit to the principal
Version 1
19
52) Students should touch on such things as: - it is a contractual relationship to which the normal rules apply - aspects of intent, capacity, consideration - as a contract of personal service it may not be readily assignable - nature of performance and methods of termination - types of and remedies for breach - special aspects of the fiduciary relationship 53) Linda's responsibility as an agent is to her employer, the vendor Ann. Her responsibility is to deliver the best possible price, whether that be more or less than the "true value." Steve should have been encouraged to put in an offer for the full asking price when he showed interest, not guided to a sum that was planted in Ann's mind which also represented some saving for Steven. Ann would be in a position to sue on the tort of deceit, and for breach of the contract of agency.
Version 1
20
54) a. Barber was given authority by Regal to act on its behalf for the purchase of wheat alone. There was no history of Barber entering into contracts for any other grains for Regal. On this basis, Barber may be acting outside his authority as agent by purchasing soybeans for his principal. If the principal subsequently refuses to perform its obligations under the contract negotiated by Barber—acceptance and payment—the seller may look to Barber for any damages. The seller's action against Barber would be for damages arising from Barber's breach of warranty of authority by holding out to the seller that he had the authority to enter into such contracts for Regal. The seller may not hold Barber liable to perform the contract itself, as Barber clearly indicated that he was acting as agent for Regal in this transaction. Regal also must be careful to promptly repudiate the contract, or the seller, if there is a time lag before such repudiation, may properly infer that Regal has accepted its obligations under the contract. b. Regal may ratify the contract negotiated on their behalf by Barber outside his authority. Regal must ratify the contract in its entirety, but it need not do so by express agreement. The ratification may be effectively completed by Regal's conduct in accepting delivery and making payment for the beans. Generally, as silence will not constitute acceptance, it must do some positive act of ratification, in the absence of express acknowledgement. Once the contract has been properly ratified, it is binding on Regal as of the date it was negotiated by Barber.
Version 1
21
55) The travel agent in this case is an agent of the travel wholesaler. The issue is one of misrepresentation on the part of the agent and the travel wholesaler. If it can be shown that the agent was aware of the state of the hotel, there is a strong case for fraudulent misrepresentation. The customers were induced into the contract as a result of the fraudulent statements of the agent and the untruthful depictions of the property in the brochure. In this case, the customers would bring an action for the tort of deceit, and both Sunwest Skies and the agent would be liable for damages since the misrepresentation was made in the ordinary course of the agent's employment.Some students may decide that only Sunwest Skies was truly aware of the state of the hotel. On the facts this may also be a reasonable interpretation. The customers in this case would have been induced to book the trip on the basis of false statements innocently made by the agent, who was relying on the accuracy of the information provided by the principal. If this is so, the customers may repudiate the contract upon becoming aware of the misrepresentation and would not be faulted for taking further "benefits" under the contract as they may look through the agent to the principal for damages on the basis of its fraudulent misrepresentation. 56) Answers will vary.
Version 1
22
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Greg, Mike, and Charlie carry on business in partnership as "tree surgeons." Serena contacted Greg and arranged to have a large tree removed from her front yard on a Saturday morning. Greg arrived, and cut the tree in such a way that it fell on Serena's house, causing considerable damage. Serena may bring an action against Greg, Mike, and Charlie for the negligence of Greg. ⊚ ⊚
true false
2) Greg, Mike, and Charlie carry on business in partnership as "tree surgeons." Serena contacted Greg and arranged to have a large tree removed from her front yard on a Saturday morning. Greg arrived, and cut the tree in such a way that it fell on Serena's house, causing considerable damage. Only Greg is liable, because he cut the tree on a Saturday morning. ⊚ ⊚
true false
3) Greg, Mike, and Charlie carry on business in partnership as "tree surgeons." Serena contacted Greg and arranged to have a large tree removed from her front yard on a Saturday morning. Greg arrived, and cut the tree in such a way that it fell on Serena's house, causing considerable damage. Only Greg would be liable, because he did not inform Mike and Charlie of the agreement he made with Serena. ⊚ ⊚
true false
4) Greg, Mike, and Charlie carry on business in partnership as "tree surgeons." Serena contacted Greg and arranged to have a large tree removed from her front yard on a Saturday morning. Greg arrived, and cut the tree in such a way that it fell on Serena's house, causing considerable damage. If the partnership is held liable for Serena's loss, Mike and Charlie would be entitled to recover the loss from Greg, because Greg was careless in doing the work. ⊚ ⊚
Version 1
true false
1
5) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Harry and Pete are entitled to claim their share of the profits earned by Clyde from his weekend selling activity. ⊚ ⊚
true false
6) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Because Clyde was not selling the goods in the area where Harry, Clyde, and Pete carry on business, he is entitled to keep his profits. ⊚ ⊚
true false
7) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde must pay over to the partnership the profit earned by his weekend selling, because he used partnership assets to earn the profits. ⊚ ⊚
Version 1
true false
2
8) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde's only liability to Harry and Pete is for expenses for his use of the truck. ⊚ ⊚
true false
9) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. The partnership is automatically dissolved because of Clyde's actions. ⊚ ⊚
true false
10) Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde's actions were in breach of the partnership agreement, since the agreement is a contract of utmost good faith. ⊚ ⊚
Version 1
true false
3
11) Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is liable for the furniture, because the furniture was delivered to the partnership's place of business. ⊚ ⊚
true false
12) Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is liable, because Angie, as a partner, could bind the firm in contracts made in the ordinary course of partnership business. ⊚ ⊚
true false
13) Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is not liable, as the goods were not purchased in the ordinary course of partnership business. ⊚ ⊚
true false
14) Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. If the goods were not purchased in the ordinary course of partnership business, and purchased in Angie's name only, the partnership would be liable, because the partnership is liable for the personal debts of the partner.
Version 1
4
⊚ ⊚
true false
15) Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The sharing of business profits is insufficient to indicate the existence of a partnership agreement. ⊚ ⊚
true false
16) John and Pat purchased a joint interest in a two-hectare campground with a variety store and mini-golf course and retained the existing manager to handle day-to-day operations. From time to time they made improvements to the site and each year they divided the profits (or losses) from the campground equally. John and Pat are partners. ⊚ ⊚
true false
17) John and Pat purchased a joint interest in a two-hectare campground with a variety store and mini-golf course and retained the existing manager to handle day-to-day operations. From time to time they made improvements to the site and each year they divided the profits (or losses) from the campground equally. If Pat takes over operational management and John assumes the administrative tasks associated with the campground, a partnership exists in respect of the business. ⊚ ⊚
true false
18) The partners of a small accounting firm delegate responsibilities among themselves for various duties. Davis is responsible for professional development. After reserving a banquet room and food for a seminar at which a leading tax accountant will speak, Davis learns on the eve of the seminar that the guest cannot attend. The firm is liable for the banquet cancellation charge.
Version 1
5
⊚ ⊚
true false
19) The partners of a small accounting firm delegate responsibilities among themselves for various duties. Davis is responsible for professional development. After reserving a banquet room and food for a seminar at which a leading tax accountant will speak, Davis learns on the eve of the seminar that the guest cannot attend. If at another time Davis arranges a Christmas party at a local restaurant for partners and their spouses, the restaurant can demand payment from Davis if the firm fails to pay the bill. ⊚ ⊚
true false
20) A partner who acts beyond his actual authority in dealings with third parties will be liable to the other partners under the notion of "breach of warranty of authority." ⊚ ⊚
true false
21) An ex-partner can never be liable for partnership debts incurred after he leaves the partnership. ⊚ ⊚
true false
22) The provisions of the Partnership Act supersede the terms of a partnership agreement with respect to the rights and obligations of the partners to one another. ⊚ ⊚
true false
23) The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. Four out of six of the partners may vote to successfully dismiss James from the partnership. ⊚ ⊚
Version 1
true false 6
24) The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. The partners must unanimously vote to dismiss James from the partnership. ⊚ ⊚
true false
25) The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. James may not transfer his share in the partnership to another person. ⊚ ⊚
true false
26) Any partner may terminate a partnership agreement that is for a specified period of time upon giving notice of dissolution to the remaining partners. ⊚ ⊚
true false
27) SpeedPlus Delivery Service, an unregistered partnership in Toronto, has been sued by the injured party in a motor vehicle accident that occurred with one of SpeedPlus's delivery trucks. SpeedPlus believes it has a good defence in contributory negligence. ⊚ ⊚
true false
28) SpeedPlus Delivery Service, an unregistered partnership in Vancouver, has been sued by the injured party in a motor vehicle accident that occurred with one of SpeedPlus's delivery trucks. SpeedPlus believes it has a good defence in contributory negligence. SpeedPlus may immediately file a Statement of Defence in these proceedings. ⊚ ⊚
Version 1
true false
7
29) A partner's share in the partnership is unascertainable until the firm's assets are liquidated. ⊚ ⊚
true false
30) A partnership is a relationship of mutual trust that may or may not be a contractual relationship. ⊚ ⊚
true false
31) To the extent that there is no express agreement to the contrary, provincial partnerships legislation will "fill in" gaps in defining the partners' relationship, and generally speaking, any agreement of the partners regarding their relationship will supersede the provisions of the legislation. ⊚ ⊚
true false
32) A limited partner who allows his or her name to appear on the partnership's letterhead will likely be considered to be a fully liable general partner. ⊚ ⊚
true false
33) The identity of a limited partner is rarely disclosed to third parties engaged in general business relations with the partnership. ⊚ ⊚
true false
34) The liability of a limited partner is restricted to his or her contribution to capital, and the limited partner may manage this exposure by either increasing or decreasing that contribution during the life of the partnership.
Version 1
8
⊚ ⊚
true false
35) Limited partners may actively participate in the control of the partnership without jeopardizing their limited liability status. ⊚ ⊚
36)
true false
No general partner of a registered partnership may be a minor. ⊚ ⊚
true false
37) When one joins an existing partnership, care must be taken to examine the records of the partnership as any new partner automatically becomes jointly and severally liable for the existing partnership debts along with the existing partners. ⊚ ⊚
true false
38) Limited liability partnerships (LLP) are suitable forms of organization for professionals such as accountants and lawyers. ⊚ ⊚
true false
39) In an accounting limited liability partnership (LLP), the partnership firm remains liable for the negligence of a partner in the performance of his or her professional duties. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 40) A partner
Version 1
9
A) B) C) D) E)
may freely transfer his or her partnership interest to another. holds shares in the real and personal property of the partnership. is an agent of every other partner. must have capacity at law. all of the responses are correct.
41) The partnership form of business organization should be entered into with caution because
A) the firm will be bound to perform any contract entered into by a partner with third parties. B) a third party may claim damages against the partnership for injury incurred as the result of any tort committed by a partner. C) partners may leave the firm to avoid debts or claims against the partnership. D) the admission of a new partner to the firm does not automatically render the new partner liable for the existing debts of the partnership. E) all of the responses are correct.
42) Unless there is an agreement to the contrary in the partnership agreement, which of the following events will automatically bring a partnership to an end?
A) The personal bankruptcy of a partner. B) The death of a partner. C) The expiry of the term of a fixed-term contract. D) The willful and persistent breach of the partnership agreement by a partner. E) The personal bankruptcy of a partner, the death of a partner or the expiry of the term of a fixed-term contract.
43)
In the absence of any express or implied agreement to the contrary,
Version 1
10
A) a new partner may be admitted to a partnership by the decision of a majority of the partners. B) no partner is entitled to payment for acting in the partnership business. C) all partners may share equally in partnership capital and profits and must contribute equally towards all losses. D) a new partner may be admitted to a partnership by the decision of a majority of the partners and no partner is entitled to payment for acting in the partnership business. E) all partners may share equally in partnership capital and profits and must contribute equally towards all losses and no partner is entitled to payment for acting in the partnership business.
44) When Peter gave notice to Paul and Mary of dissolution of their entertainment partnership business, the capital accounts were as follows: Peter: $30,000Paul: $50,000Mary: $20,000 The partnership assets were liquidated to $30,000. Outstanding liabilities to third parties totaled $39,000. Peter, Paul and Mary will each respectively receive:
A) B) C) D) E)
45)
$20,000; $30,000; $50,000. $27,000; $47,000; $17,000. $27,000; $45,000; $18,000. $30,000; $50,000; $20,000. $28,500; $41,250; $16,000.
Limited partnerships are generally subject to specific legislation, providing that
Version 1
11
A) limited partners have limited authority to bind the partnership. B) the inclusion of a limited partner in the firm name automatically makes them a general partner. C) at least one partner has unlimited joint and several liability for partnership debts. D) limited partners' liability is capped by the amount of capital contributed but profits may be shared in any proportion as long as a limited partner does not assist in running the business. E) all of the responses are true.
46) Zack was a partner in a management consulting firm that specialized in assisting small businesses in the area of financial planning. The firm did not perform income tax services. However, since Zack had personal expertise in tax accounting, he frequently assisted friends, as well as some firm clients, in preparing their income tax returns. Usually he borrowed the firm's adding machine and other office supplies to perform this work from his home unbeknownst to his partners. Zack may be required to
A) B) C) D) E)
retire from the partnership for breach of warranty of authority. account to the other partners for any money received from his income tax service. assign his share in the partnership to another to take his place in the partnership. All of the responses are possible None of the responses are possible.
47) Sandra, Allison, and Colette joined in partnership to provide commercial marketing research services. Allison became dissatisfied with the relationship and unilaterally assigned her interest to Katrina. Which of the following are true?
A) B) C) D) E)
48)
Katrina has received nothing in return for what she might have paid Allison. The partnership is terminated. Katrina has acquired a right to a share of the assets, but not to participate. Katrina has acquired the right to participate but not a share of the assets. Katrina is a full partner with Sandra and Colette, without limitation.
In a limited partnership, which of the following are true?
Version 1
12
A) There is no practical need for a general partner. B) Only a general partner may actively transact business. C) A limited partner cannot become a general partner without consent of the all other partners. D) Limited partners may draw against capital, prior to dissolution, only up to the amount of their own contribution to capital. E) A limited partner who agrees not to actively transact business on behalf of the partnership may avoid public disclosure of his or her contribution to capital.
49) Sunny is a sole proprietor operating a flower shop. She called the shop Sunny Daze. Does she have to register the name of the business?
A) No. Sole proprietorships do not have to be registered. B) No. Sole proprietorships do not have to be registered unless they are being carried on under a name other than the proprietor's. C) Yes. Sole proprietorships have to register the name in all circumstances to protect all of those doing business with it. D) Yes. Sole proprietorships must be registered when dealing with consumers.
50) Jim, Rob and Emily are partners in a consulting business. Jim's initial contribution was $30,000, Rob's was $20,000 and Emily's was $10,000. The partnership also borrows $60,000 from Vancouver Credit Union. The partners agree that profits and losses will be shared in proportion to their capital contributions. The business fails. What is Jim's liability to Vancouver Credit Union?
A) B) C) D) E)
Version 1
$60,000 $30,000 $20,000 $10,000 Nothing
13
51) Jim, Rob and Emily are partners in a consulting business. Jim's initial contribution was $30,000, Rob's was $20,000 and Emily's was $10,000. The partnership also borrows $60,000 from Vancouver Credit Union. The partners agree that profits and losses will be shared in proportion to their capital contributions. The business fails. Jim pays the entire $60,000 debt to the Vancouver Credit Union. How much can he collect from Rob?
A) B) C) D) E)
$60,000 $30,000 $20,000 $10,000 Nothing
52) Jim and Rob are partners in a consulting business. Jim's initial contribution was $30,000, Rob's was $20,000. Emily is a limited partner who contributed $10,000. The partnership also borrows $60,000 from Vancouver Credit Union. The partners agree that profits and losses will be shared in proportion to their capital contributions. The business fails. Jim pays the entire $60,000 debt to the Vancouver Credit Union. How much can he collect from Emily?
A) B) C) D) E)
$60,000 $30,000 $20,000 $10,000 Nothing
53) Jim, Rob and Emily are partners in a limited liability partnership where they practise law. Jim's initial contribution was $30,000, Rob's was $20,000 and Emily's was $10,000. The partners agree that profits and losses will be shared in proportion to their capital contributions. Jim is sued $60,000 for negligence. How much can he collect from Rob?
A) B) C) D) E)
Version 1
$60,000 $30,000 $20,000 $10,000 Nothing
14
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 54) Set out the terms and provisions that should be contained in a written partnership agreement together with a brief rationale for each.
55) Discuss the way(s) in which a partnership may be dissolved and the various issues that arise upon dissolution, including the process of liquidation.
56)
Describe the purpose and effect of partnership registration.
57) Explain the circumstances where it would be preferable to use a partnership as a form of business organization. What are the risks?
Version 1
15
58) What matters, in the absence of an express agreement to the contrary, will partnerships legislation impose regarding partners' interests with respect to each other?
59) Nancy, aged 17 years, and Jean, 19, planned to earn money in the summer by sewing children's clothing and placing it on consignment at a local clothing store. Each of the girls owned their own sewing machine and worked from their own home. The girls decided to pool their funds for the purchase of necessary supplies. The proceeds of any sales would be deposited in the pool. Nancy, with Jean's consent, placed an order with a fabric store for 100 metres of fabric, which she planned to use for a line of dresses she had designed. After the fabric was delivered and she had completed several dresses, Nancy informed Jean that she was going to spend the remainder of the summer travelling with her family. She then gave the remaining fabric to Jean and asked for her share of the profits to date. The fabric had not yet been paid for. Discuss the nature of this relationship, and the duties and liabilities of the parties, if any.
Version 1
16
60) Chrissie and Mark have formed a partnership under the firm name of "Fresh Face," to make and market their own line of natural cosmetics. Each contributed $15,000 in capital, but they needed a further $30,000 to start up. They persuaded Mark's mother and Chrissie's father to contribute $15,000 each as limited partners. The limited partnership was properly registered. Mark's mother, a lawyer, occasionally gave them some free legal advice. Chrissie's father, a plastics manufacturer, advised them on aspects of managing a business, and at one point, found them a better and cheaper packaging supplier through his own industry contacts. Maggie, a famous model, tried their products, and became permanently scarred by a piece of glass in one of their pots of face cream. Maggie sued for $1 million for damages for breach of warranty of fitness for the purpose intended. The business has assets of $120,000. Chrissie and Mark each have personal assets of $20,000. Mark's mother has personal assets of $50,000, and Chrissie's father is a millionaire twice over. The capital accounts of the partners are still $15,000 each. There are no other creditors. a. If you were representing Maggie, what action would you take, and against what parties? Assess the success of your action as against each party you name. b. Regardless of your answer in a), if your argument was successful against Chrissie, Mark, and Chrissie's father, but not against Mark's mother, who would pay (and what amount) Maggie's million dollar claim? c. Would any of the foregoing be different if the limited partnership had not been registered?
Version 1
17
61) Sumir and Pete each had operations selling business communication equipment. Sumir's business was incorporated and Pete worked as a sole proprietor. Each promoted different lines of business equipment. The two friends were discussing business one evening when it occurred to them that they could pool their resources and work together for greater combined profit. Pete decided to combine his sole proprietorship with Sumir's corporation in return for an equal share of Sumir's business shares. They then combined their inventories. Sumir assumed Pete's accounts receivable and payable and line of credit. Pete obtained signing authority from the bank for cheques drawn on Sumir's business accounts. Pete also brought his client base and line of products with him to the venture. Some time after they had combined their businesses, Pete and Sumir began having disagreements about certain business matters. In particular, they could not agree on a uniform marketing plan or customer territory. Most notably, they could not agree on an appropriate division of commission based on who provided what client base and, making matters worse, Pete had little cash to inject into the business. These difficulties occurred before Pete and Sumir's solicitor had been able to transfer to Pete his equal share of stock. The business was dissolved, and Pete sought an equal share of profits and capital. Discuss the legal issues which will be raised by the parties. What would be the likely outcome should litigation ensue?
Version 1
18
Answer Key Test name: Chapter 16 Test Bank 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) FALSE 23) FALSE 24) FALSE 25) FALSE 26) FALSE Version 1
19
27) FALSE 28) TRUE 29) TRUE 30) FALSE 31) TRUE 32) TRUE 33) TRUE 34) FALSE 35) FALSE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) E 41) D 42) E 43) E 44) B 45) E 46) B 47) C 48) B 49) B 50) A 51) C 52) E 53) E
Version 1
20
54) Terms of Partnership Agreement: - management of capital contribution - duties and responsibilities for management activities - business procedures - sharing of profits and losses - treatment of property acquired by partnership - indemnification of partners' expenses - procedure for admission to and departure from partnership - remuneration of partners - procedure for decision making - standards and procedures for accounting and firm finances - events causing and method of dissolution - application of partnership proceeds on dissolution - disposition of firm name on dissolution - restrictions on partner's business activities after leaving the partnership - dispute resolution process - procedure for valuation of partnership assets
Version 1
21
55) Dissolution: - at end of specified term or completion of specified task - giving notice of dissolution by one partner to others - death or insolvency of a partner - partnership organized for unlawful purposes - dissolution by court order upon application of partners where business reasons warrant or a partner is no longer able to perform in part of the business or willfully breaches the partnership agreement Issues: - liquidation of assets to determine partners' shares - priority of application of proceeds - coverage of losses (special procedure if insolvency of partner occurs) - notification of customers and public Liquidation: - assets applied to: a. external liabilities b. pro rata repayment of partner's advances c. pro rata repayment of capital contributions d. proportional payout of profits and coverage of losses depending on solvency of partners
Version 1
22
56) Purpose of registration. - to provide creditors and others with information concerning the business and persons operating it - disclosure of names and addresses of all partners, date of commencement of partnership, confirmation that partners are not minors (or details if they are) must be filed in appropriate public office - some jurisdictions require registration before a partnership obtains status to maintain legal proceedings, thus, failure to register prohibits initiating or defending any legal action 57) Advantages of partnership: - less costly than incorporation - sharing risk of loss with others - pooling of capital and expertise - potential for every person investing to participate in the business activity - personal relationship not freely alienable, thereby allowing conscientious choosing of business associates Risks: - partners' total personal assets exposed to claims of others who deal with partnership and suffer loss or injury due to the actions of a partner - partners can bind the partnership in contracts in the ordinary course of business - partnerships are liable for breaches of contract or torts committed by partners on third parties - difficult to expel undesirable partners without express procedures, thus increasing risk of liability due to actions of such partners
Version 1
23
58) The nine-item list appears in the text, and in brief, they are: a. all partners share equally in capital and profits and losses, b. indemnity for personal payments of partners, c. interest permitted on loans by partners, d. no interest on capital subscribed, e. each partner may take part in management, f. no remuneration for acting in the business, g. no new partners without consent, h. decisions are by majority, but changes in the nature of the business require unanimity, i. partners may inspect the books.
Version 1
24
59) This case is intended to examine the elements of a partnership and the implications of infant partners. Students must decide whether the relationship is a partnership on the basis of the intention and interaction of the parties. Their activities seem to suggest they are carrying on a business in common with a view to profit. Both girls share in profits, have contributed capital, and are participating in the management of the business. Partnership by estoppel may also be established on the conduct of Nancy of holding herself out as a partner in purchasing the fabric. Nancy, the infant, may become a legitimate partner, although the regular contract principles regarding infants will apply. Nancy may repudiate the partnership agreement before reaching the age of majority. If she does so, she erases her responsibility for partnership debts or liabilities, in particular, payment for the fabric. As an infant, however, Nancy is not entitled to her share of profits until all the partnership liabilities have been paid. Nancy's departure potentially triggers a dissolution of the partnership to which the standard rules and procedure of dissolution would apply. The assets must be liquidated, debts satisfied, capital advances returned and then profits, if anything remains, are distributed on the agreed proportional basis.
Version 1
25
60) This case looks at the liability of a partnership and at general and limited partners. a. Maggie may bring a claim in contract under the Sale of Goods Act for breach of implied warranty or an action in tort for negligence of the manufacturer. Maggie is well advised to bring the action against the partnership itself, both Chrissie and Mark as general partners and also against the limited partners. If liability is proven, the partnership will be responsible for payment of damages. In this type of product liability action, the finding of liability is almost certain on the principal of res ipsa loquitor and the associated burden of proof. Also, if partnership assets are insufficient to cover the claim, Chrissie and Mark as general partners have exposed their total personal assets to the claim of Maggie, and will also be liable for damages to the extent of their total assets. To succeed in overcoming the protection of limited liability of the two limited partners Maggie must show that they have in some way acted beyond their scope as limited partners, either by appearing in the firm name or on letterhead or by actively participating in the control of the business. If any of these occur, the limited partners are treated as general partners and would lose their limited liability protection. The action against Chrissie's father will likely succeed in this regard as he has taken an active role in assisting and managing the partnership business. As a result his personal assets will also be exposed to the claim as if he were a general partner. The case against Mark's mother will not be successful as her role in providing occasional legal advice cannot be said to have any direct control in the business, thus making her a general partner. She will retain her limited liability status. b. Award to Maggie = $1,000,000 Distribution of Liability: The partnership will be responsible for Version 1
26
payment of the damages to the extent of its assets. If the assets are insufficient, and on the presumption that Chrissie’s father is found to be a general partner, the general partners, jointly and severally, would be personally liable. %media:image001.png% c. Only registered partnerships in some provinces may take or respond to actions in the courts. Thus, the partnership is not entitled to defend this action until it is registered. The consequences may be default judgment and imposed liability for the full amount. NOTE: Bonus marks could be awarded if students recognize that if a limited partner's capital contribution is not paid up it may be liable to pay the remainder to satisfy a judgment. 61) Answers will vary.
Version 1
27
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Braun was a director of Cable Shipping Ltd., a corporation which leased a large wharf from Valdez. Braun gave instructions to the person in charge of the wharf that the S.S. Cambridge would be using the wharf to unload its cargo. The S.S. Cambridge damaged the wharf on its arrival, and the wharf owner brought an action against Cable Shipping Ltd. for repairs. If Cable Shipping Ltd. was the ship owner, it would be liable for the damage. ⊚ ⊚
true false
2) Braun was a director of Cable Shipping Ltd., a corporation which leased a large wharf from Valdez. Braun gave instructions to the person in charge of the wharf that the S.S. Cambridge would be using the wharf to unload its cargo. The S.S. Cambridge damaged the wharf on its arrival, and the wharf owner brought an action against Cable Shipping Ltd. for repairs. Braun would be personally liable to Valdez for the damage, because he gave permission for the corporation's ship to use the wharf. ⊚ ⊚
true false
3) Braun was a director of Cable Shipping Ltd., a corporation which leased a large wharf from Valdez. Braun gave instructions to the person in charge of the wharf that the S.S. Cambridge would be using the wharf to unload its cargo. The S.S. Cambridge damaged the wharf on its arrival, and the wharf owner brought an action against Cable Shipping Ltd. for repairs. If the S.S. Cambridge was owned by another corporation in which Braun had an undisclosed financial interest, Braun would be liable to Cable Shipping Ltd. for granting unauthorized permission for the ship to use the wharf. ⊚ ⊚
true false
4) The Freestanding Company Limited is the owner of a number of commercial buildings in a large Ontario city. One of the directors, Denise, suggested that the corporation purchase a large apartment building. Another director, Zaida, was the owner of a one-third interest in the building. Zaida has a duty to disclose her interest in the apartment building and must refrain from voting on the proposal.
Version 1
1
⊚ ⊚
true false
5) The Freestanding Company Limited is the owner of a number of commercial buildings in a large Ontario city. One of the directors, Denise, suggested that the corporation purchase a large apartment building. Another director, Zaida, was the owner of a one-third interest in the building. If the corporation must sell securities to the public to raise the capital, a prospectus must be prepared and approved by the Ontario Securities Commission before a sale of securities may be made. ⊚ ⊚
true false
6) The Freestanding Company Limited is the owner of a number of commercial buildings in a large Ontario city. One of the directors, Denise, suggested that the corporation purchase a large apartment building. Another director, Zaida, was the owner of a one-third interest in the building. If the corporation must sell securities to the public to raise the capital, the purpose for which the securities are sold must be set out in the prospectus. ⊚ ⊚
true false
7) The Freestanding Company Limited is the owner of a number of commercial buildings in a large Ontario city. One of the directors, Denise, suggested that the corporation purchase a large apartment building. Another director, Zaida, was the owner of a one-third interest in the building. Zaida may be obliged to pay over to the corporation any profit earned on the sale of the building if she fails to disclose her interest at the directors' meeting. ⊚ ⊚
Version 1
true false
2
8) Marisa was the Secretary-Treasurer of HotShot Enterprises Inc., a tea and coffee importer. She contacted Wes, who carried on business as a wholesaler, to determine if Wes might be interested in the purchase of the corporation's coffee import business. Wes expressed an interest in the purchase, and Marisa advised Wes that she would arrange to have the sale of the coffee business approved by the shareholders, as required by the corporation's bylaws. Marisa eventually produced a shareholders' resolution authorizing the sale. Later, it was discovered that proper notice of the shareholders' meeting had not been given, and no quorum of shareholders was present at the meeting. The agreement to sell the coffee business was void, because proper shareholder approval had not been given for the sale. ⊚ ⊚
true false
9) Marisa was the Secretary-Treasurer of HotShot Enterprises Inc., a tea and coffee importer. She contacted Wes, who carried on business as a wholesaler, to determine if Wes might be interested in the purchase of the corporation's coffee import business. Wes expressed an interest in the purchase, and Marisa advised Wes that she would arrange to have the sale of the coffee business approved by the shareholders, as required by the corporation's bylaws. Marisa eventually produced a shareholders' resolution authorizing the sale. Later, it was discovered that proper notice of the shareholders' meeting had not been given, and no quorum of shareholders was present at the meeting. When Wes discovers the mistake, he may sue Marisa personally as a result of her representation that proper authorization had been given for the sale. ⊚ ⊚
true false
10) Marisa was the Secretary-Treasurer of HotShot Enterprises Inc., a tea and coffee importer. She contacted Wes, who carried on business as a wholesaler, to determine if Wes might be interested in the purchase of the corporation's coffee import business. Wes expressed an interest in the purchase, and Marisa advised Wes that she would arrange to have the sale of the coffee business approved by the shareholders, as required by the corporation's bylaws. Marisa eventually produced a shareholders' resolution authorizing the sale. Later, it was discovered that proper notice of the shareholders' meeting had not been given, and no quorum of shareholders was present at the meeting. Wes may enforce the contract notwithstanding the mistake, on the basis of the "indoor management rule." ⊚ ⊚
Version 1
true false
3
11) Marisa was the Secretary-Treasurer of HotShot Enterprises Inc., a tea and coffee importer. She contacted Wes, who carried on business as a wholesaler, to determine if Wes might be interested in the purchase of the corporation's coffee import business. Wes expressed an interest in the purchase, and Marisa advised Wes that she would arrange to have the sale of the coffee business approved by the shareholders, as required by the corporation's bylaws. Marisa eventually produced a shareholders' resolution authorizing the sale. Later, it was discovered that proper notice of the shareholders' meeting had not been given, and no quorum of shareholders was present at the meeting. Marisa and the other directors of the corporation may be liable to the shareholders if they acted improperly, and in violation of the corporation's bylaws, in the sale of the business. ⊚ ⊚
true false
12) Smith, a Director of Alfa Industries, discovered a business opportunity mentioned in a foreign magazine that would work well for Alfa in Canada. Rather than bring it up at the next directors' meeting, Mr. Smith takes advantage of it himself. He is in breach of his fiduciary duty to Alfa. ⊚ ⊚
true false
13) Where a director of a corporation appropriates to himself a benefit that should properly be seized upon by the corporation, a trust is established of the benefit for the corporation by the Doctrine of Corporate Opportunity. ⊚ ⊚
true false
14) Jerry is a corporation's sole director, owns 55% of its preferred shares. Sam, the owner of the one common share will have difficulty in having a say in the appointment of officers. ⊚ ⊚
Version 1
true false
4
15) Where a corporation issues both debentures and mortgage bonds on its assets, an investor can expect its debentures to pay higher interest. ⊚ ⊚
16)
true false
A chartered bank, e.g., The Bank of Nova Scotia, is not a partnership. ⊚ ⊚
true false
17) All corporations must identify to the general public their corporate nature, except letters patent corporations. ⊚ ⊚
true false
18) The "indoor management rule" governs the activities of officers and directors but not agents of the corporations. ⊚ ⊚
true false
19) An application for incorporation of a non-Special Act corporation is either a memorandum of association, or articles of incorporation. ⊚ ⊚
true false
20) In all but limited circumstances, an investor lending money to a corporation need not be concerned that the act of borrowing money by that corporation is ultra vires. ⊚ ⊚
Version 1
true false
5
21) Beta Corporation is about to be wound up. The Corporation has cash assets of $1.5 million, liabilities of $1.1 million, 50 000 preferred shares with a fixed 10% dividend, and 50 000 common shares. Sufficient information is present to determine the value of the common share on winding up. ⊚ ⊚
true false
22) Shareholders and directors of a corporation both have personal limited liability as against the liabilities of the corporation, but shareholders have their liability even more limited than do the directors. ⊚ ⊚
true false
23) Where a director who is a shareholder is accused of a conflict of interest, that director may vote with his or her shares on a motion regarding that conflict at a shareholders' meeting. ⊚ ⊚
24)
true false
The Canadian Broadcasting Corporation is an example of a Letters Patent corporation. ⊚ ⊚
true false
25) There is little privacy for a director of a public corporation, insofar as that director's personal trading in the shares of his or her own company will be a matter of public record. ⊚ ⊚
true false
26) Where an investor is offered either common or preference shares in a corporation on otherwise equally satisfactory terms, the investor who seeks to have his or her voice heard in management will choose to invest in common shares.
Version 1
6
⊚ ⊚
true false
27) Shareholder agreements are useful devices to protect the interests of minority shareholders in small private corporations. ⊚ ⊚
true false
28) Tax legislation provides shareholders with a dividend tax credit which protects them from being taxed twice when they receive dividends. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 29) A person may rely on the acts of the officers of a corporation without inquiry by virtue of
A) B) C) D)
30)
The greatest control over the acts of a corporation may be exercised by
A) B) C) D)
31)
the doctrine of constructive notice. the doctrine of promissory estoppel. the doctrine of ultra vires. the indoor management rule.
the majority owner of preferred shares. the board of directors. the majority owner of common shares. the bond holders.
A third-party businessperson must be most careful when dealing with
Version 1
7
A) B) C) D)
32)
a letters patent corporation. a special act corporation. a general act corporation. a statutory corporation.
Directors have a personal liability for all of the following except
A) B) C) D) E)
losses from a corporate ultra vires act. failure to make filings under corporate legislation. employee wages outstanding on bankruptcy. dividends that impair the corporate capital. losses arising from a good faith business decision.
33) Where a director's acts are in violation of his duty of loyalty to the corporation, the most likely principle to be applied is the
A) B) C) D)
doctrine of ultra vires. doctrine of constructive notice. doctrine of corporate opportunity. doctrine of derivative action.
34) If a shareholder believes that he or she suffered loss as a result of a failure of the directors to do their duty,
A) B) C) D) E)
35)
the corporation must sue the directors. the shareholder must sue the directors. the remedy will be found in the Canada Business Corporations Act. the shareholder must bring a derivative action. the shareholder can only resort to internal dispute settlement procedures.
The priorities of corporate security are usually
Version 1
8
A) fixed charges in preference over floating charges, debentures in preference over mortgage bonds. B) fixed charges in preference over floating charges, mortgage bonds in preference over debentures. C) floating charges in preference over fixed charges, debentures in preference over mortgage bonds. D) floating charges in preference over fixed charges, mortgage bonds in preference over debentures.
36)
Those persons legally responsible for the execution of management of a corporation are
A) B) C) D) E)
directors. officers. shareholders. employees. incorporators.
37) Where a shareholder believes that a director has acted improperly as against the interests of the corporation, he or she will commence
A) B) C) D) E)
a rectification action. a dissolution action. a derivative action. a prejudicial relief action. an ultra vires declaration action.
38) Under corporation law, a person elected by the shareholders of a corporation to manage its affairs is known as a
Version 1
9
A) B) C) D) E)
shareholder. officer. director. partner. CEO.
39) The Quebec Charter of the French Language (Articles 63 and 64) requires corporations to utilize the French version of their name within the province. Translations may be offered
A) B) C) D) E)
40)
A corporation may exempt itself from audit only if
A) B) C) D) E)
41)
in a distinct colour. in a less predominant typeface. in a document on file with the province. in a more predominant typeface. only in a footnote format.
qualified examiners review the books. the director agrees. a civil action has been brought. all the shareholders agree. an ultra vires declaration action has commenced.
Why is the U.S. Sarbanes-Oxley Act a factor in Canadian business?
Version 1
10
A) It applies to the operations of publicly traded U.S. firms (who may have subsidiaries in Canada). B) It applies to any Canadian firm whose securities are traded in U.S. markets. C) It applies to any Canadian firm who is already subject to U.S. reporting requirements. D) It applies to the operations of publicly traded U.S. firms (who may have subsidiaries in Canada), and it applies to any Canadian firm who is already subject to U.S. reporting requirements A and C. E) All of the responses are correct.Scrambling: Locked
42) ABC company is insolvent. It has two employees to which it owes $7,000 in wages for the last month, owes Canada Revenue Agency $15,000 and the Bank of Winnipeg $20,000. Jill is the sole director. What is her personal liability
A) B) C) D) E)
43)
$7,000 $15,000 $22,000 $29,000 $49,000
What does the business judgment rule mean?
A) Directors have an obligation to ensure that effective systems are in place to comply with legislation and to monitor the systems to ensure compliance. B) Directors must act prudently, and on a reasonably informed basis when making business decisions. C) Directors must use their judgment to determine whether the use of corporate information would create a personal benefit to the detriment of the corporation. D) Directors must act in the best interests of the corporation. E) None of the answers are correct.
Version 1
11
44) Ali and Tom are both shareholders in ABC Electrical Ltd. Ali has 51% of the shares and Tom has 49%. Ali is offered $100,000 to sell his shares to DEF Electrical Ltd. Tom is not offered anything for his shares. Does Tom have any rights?
A) Tom may have statutory rights under the derivative action. B) Tom may have contractual rights under a shareholders' agreement. C) Tom may have statutory rights under the oppression remedy. D) Tom may have contractual rights under a shareholders' agreement and statutory rights under the oppression remedy. E) Tom may have contractual rights under a shareholders' agreement and statutory rights under the derivative action.
45) Susan, Alice and Wanda are shareholders in Flip Flop and Fly Inc., a children's yoga store. Each own 33% of the shares. Susan and Alice have decided they no longer want to work with Wanda. They sell all of the corporate assets to Bendy Girl Ltd. Does Wanda have any rights?
A) Wanda may have statutory rights under the derivative action B) Wanda may have contractual rights under a shareholders' agreement. C) Wanda may have statutory rights under the oppression remedy D) Wanda may have contractual rights under a shareholders' agreement and statutory rights under the oppression remedy. E) Wanda may have contractual rights under a shareholders' agreement and statutory rights under the derivative action.
46) ABC Oil Company Ltd. owns 40 oil wells, 4 have potential environmental liability resulting from contamination. DEF Oil Company Ltd. wants to acquire ABC. Should it purchase assets or shares?
A) B) C) D) E)
Version 1
All of the shares. All of the shares but exclude the four wells. All of the assets. All of the assets but exclude the four wells. Do not buy any of the shares or assets.
12
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 47) The most significantpercentage in corporate finance and corporate structure is 51%. Discuss.
48) The doctrine of ultra vires has no place in modern corporate law. The public should be entitled to assume a corporation has all the rights and duties of a natural person, and the doctrine should be abolished. Discuss this statement and any other issues it raises.
49) Many corporations are formed simply so individuals may hide themselves from debts. Serious flaws exist in this respect and are in need of reform. Argue both sides of this statement and render a conclusion.
50) Identify the major aspects in which corporations differ from partnerships and explain why each aspect may be preferred in the corporate form to the partnership arrangement.
Version 1
13
51)
Discuss some of the issues that may arise in shareholder's agreements.
52) Sharon Sullivan built her business selling Registered Savings Plans as a sole proprietorship and reached the point that for further expansion she would require additional capital. She transformed her sole proprietorship into a corporation and sold shares to a number of friends who had admired her progress in business, a few of whom took positions as salespeople and managers in the expanded company. The business continued to grow in spite of numerous arguments over management and five years after incorporation, Sharon felt she was best off as a sole proprietor. She sold her 50% ownership in the company to the other shareholders and started out once again alone. To prevent a future lawsuit, Sharon left behind her client lists for the use of the remaining shareholders in continuing their business. However, once it became public knowledge that Sharon was on her own, many former clients switched their business to her, preferring her approach to service. On her own, Sharon approached other former clients and suggested to them that if they too preferred her business style, that they were welcome as her clients as well. On discovering this practice, the shareholders of Sharon's former corporation took action against her. Discuss the nature of this cause of action, the rights and duties of the parties, and the appropriate rationale that would be used by a court in rendering a decision. Render a reasoned decision of your own.
Version 1
14
53) Phillip, Robert, and Mike, are the directors of Smithfield Warehouse Limited. The three directors had decided to increase their warehouse space and were looking for a suitable property to lease. The bylaws of the corporation with respect to entering a lease required such a document to be ratified by a two-thirds majority of the directors. Each director was scouting for possible properties when Phillip chanced upon a warehouse which appeared to suit their purposes. Phillip entered into a lease with the warehouse property owner on behalf of Smithfield Warehousing Limited, telling the owner that before the lease would be valid that it must be approved by his company. To this the owner of the warehouse agreed. Robert viewed the property the following day and paid the $1 000 deposit on rent that was required under the lease. Robert paid this out of his own pocket, and then wrote himself a company cheque for reimbursement. At a later meeting, the three brothers decided that a property found in the meantime by Mike was more suitable for their purposes and informed the warehouse owner that they did not intend to pass a resolution approving the lease, and that the deal was off. The warehouse owner, who was aware that the three brothers represented all the directors, claimed that the company ratified its lease by the actions of the two directors. Discuss the issues raised by this case and render a decision.
Version 1
15
54) Aztech Oil Corporation and Empire Oil Corporation are two of the world's largest petroleum companies. Aztech Oil Corporation assets are all in Mexico, and all Empire Oil Corporation assets are in Canada. While normally fierce competitors, they agreed that oil developments in Russia were too risky for each of them to handle alone, given the uncertainties of the business environment. Accordingly, they decided to work together on Russian oil ventures. To keep matters financially apart from their other operations, two new companies were formed in Canada, Aztech Oil (Russia) Corporation and Empire Oil (Russia) Corporation. They operated as "Russian North Oil Ventures." The capital of RNOV was $2 million, being the combined assets of AO(R) Corp. and EO(R) Corp. Each had been capitalised with $1 million in cash, which had been then given over to RNOV. Neither AO(R) Corp. nor EO(R) Corp. had any other physical existence beyond their corporate minute books and corporate seals. RNOV set about business and had established base camps on the Russian coast near Japan. Alan was a director of Empire Oil Corporation, Empire Oil (Russia) Corporation, and worked as an employee of Russian North Oil Ventures. He arranged for $4 million worth of oil exploration equipment from Vancouver and Calgary suppliers to be delivered to the base camps. At that time, RNOV had $750,000 remaining in its bank account, and unknown to Alan, the remaining directors of AOCorp. and EOCorp. were locked in a dispute on a number of matters. Alan's request for another $3.25 million was sent via two copies, one each to AO(R)Corp. and EO(R)Corp. As these two corporations had no more money than that which they were given, they sent requests for funds back up the chain to AOCorp. and EOCorp. The suppliers were looking for payment from RNOV when Alan got word that the alliance had fallen apart, and that there would be no further funds forthcoming. Advise the suppliers, stating the applicable principles of corporate law, and suggest what the final recovery of the suppliers will be.
Version 1
16
Answer Key Test name: Chapter 17 Test Bank 1) TRUE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) TRUE 23) TRUE 24) FALSE 25) TRUE 26) TRUE Version 1
17
27) TRUE 28) TRUE 29) D 30) B 31) B 32) E 33) C 34) D 35) B 36) A 37) C 38) C 39) B 40) D 41) E 42) D 43) E 44) D 45) E 46) D 47) Students should recognize that 51% (or as a bonus (50% + 1 share)) is an absolute majority with respect to the power of common shareholders, but that it is virtually meaningless in any other aspect of corporate finance. The power conferred is most importantly to elect and influence the directors, and through them the appointment of officers. Students should also note that minority shareholder positions also have protection at law through oppression remedies.
Version 1
18
48) Ultra vires can result in unfairness at times where a person incurs a loss dealing with a corporation that had no power to act as it did. On the other hand, useful social purposes are served by limiting corporate power, as well as protecting shareholders whose decision to invest (and price of the investment) may be made on the basis that the corporation is prohibited from entering into certain transactions. One possible form of change may be to abolish the doctrine of ultra vires and limit corporation behaviour by regulation, whereby the advantages and disadvantages of greater direct government regulation of the marketplace can be discussed. Other reform proposals/discussion (such as trends to global deregulation) may be assessed and marked accordingly. 49) This is a second question with respect to social value versus social harm. Undoubtedly the corporate form does serve to shield individuals from debt and the corporation is only as morally good as the shareholders behind it. On the other hand, many enterprises require so much capital that if personal liability could be attached to the accumulation of capital, no one would be willing to undertake useful social enterprises such as constructing buildings and hydro dams. In between lies a compromise, wherein investors must examine those persons behind the corporation before deciding whether to invest in it or loan money, and hopefully sufficient disclosure is required of corporations to allow these decisions to be informed decisions.
Version 1
19
50) The major aspects as text sections are: Control, Limited Liability, Transfer, Term of Operation of the Business, Operation of Business Entity, and Separate Existence of the Corporation. The distinctions under these headings between corporations and partnerships, in short, are: control in hands of majority of directors, rather than by any partner; personal liability is limited as opposed to unlimited for general partners; transfer of interest is easier in corporations; corporations are not limited in term as partnerships are by the lives of the partners; more aspects of corporate governance are set out by statute; and, corporations are more readily identifiable as separate from their owners than are partnerships. 51) Issues may include: parties and number/class of share subscribed and paid; business objects of the corporations; restrictions on powers of directors, special rules on number, nomination, election, or vacancies of directors; required notice of meetings, their place, quorum and voting powers; special powers for shareholders for special (critical decisions); appointment and remuneration of officers; plans and budgets; appointment of bankers and auditors; recordkeeping, access, and shareholder rights to information; policies regarding future financial needs, policy on shareholder loans; dividend payment/retained earnings policies; requirements of confidentiality and non-competition; terms of employment and termination for executives; dispute resolution mechanism (arbitration, mediation); and dissolution mechanism.
Version 1
20
52) This case examines the duties owed by directors to their corporations, even after their departure. The corporation would likely allege that Sharon was using client lists that she had taken with her upon her departure. This may or may not be the case and is irrelevant in this particular setting. The breach of fiduciary duty is that of Sharon approaching former customers. The court is likely to reason that the other shareholders paid Sharon for her shares based on the existing value of business of the company. By soliciting business from former customers, Sharon has made herself liable to the company for commissions lost by it. There would be no liability attached to Sharon as a result of the unsolicited preference by clients for her approach to business over that of her former company. Based on: Stoyles Insurance Services Limited. v. Lacey (1986), 12 C.P.R. (3d) 140 (Nfld. T.D.). 53) Phillip was not authorized to enter into a binding lease and indicated this to the warehouse owner. The fact that he did, however, is sufficient to imply his ratification of the lease as a director of the corporation. The actions by Robert in payment of the $1,000 do not constitute ratification immediately. However, upon his payment to himself of $1,000 from company funds, he is indicating his ratification of the deal. This is likely sufficient to constitute acts of acquiescence on the company's part, sufficient to ratify and confirm the agreement pursuant to the requirements of the bylaws. At this point the lease becomes enforceable, and the landlord becomes entitled to an action for damages as it may lie. Based on: Pulford v. Loyal Order of Moose (1913), 5 W.W.R. 452; 14 D.L.R. 577 (Man. C.A.). 54) Answers will vary.
Version 1
21
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. Gunnar was obligated to file a Material Change Report after receipt of the first test results. ⊚ ⊚
true false
2) Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. Gunnar was obligated to file a Material Change Report on receipt of Henrik's telephone call. ⊚ ⊚
Version 1
true false
1
3) Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. Gunnar's trade was in violation of the relevant provincial Securities Act. ⊚ ⊚
true false
4) Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. Henrik would be considered a "tipper" under the relevant provincial Securities Act. ⊚ ⊚
Version 1
true false
2
5) Gunnar and his brother Henrik were directors, officers and each 26% shareholders in Evergold Resources, a mining exploration company with claims in Indonesia. Evergold was undertaking exploration on its claims when Henrik's laboratory results on site yielded the existence of a major gold find. The result was a dramatic departure from other samples and seemed to indicate an isolated high-quality vein of gold. Gunnar, in Vancouver, released a press report as to the find. The shares of Evergold began a dramatic run-up in price as a result. Henrik double-checked his work, and the results (though very exceptional) were correct. A further week later, Henrik discovered an anonymous note in his tent at the camp that one of his locally hired laboratory geologists had been involved in a tampering scandal some years before. He telephoned this information to Gunnar, who advised Henrik to thoroughly check the results again. Gunnar immediately sold a third of his own shares in Evergold and reported his trade. The insider trade alarmed the market, which also promptly sold Evergold, depressing its price. The anonymous note proved baseless, and on subsequent announcement of the repeated test confirming the gold strike, Evergold shares rebounded to their previous level. If Gunnar repurchases his shares at a later date, he will be subject to the provisions respecting takeover bids. ⊚ ⊚
true false
6) The purpose of securities regulation is to seek a balance between market efficiency and market integrity. ⊚ ⊚
true false
7) Federal and provincial jurisdictional responsibilities for securities regulation in Canada mirror those found in the United States at their federal and state levels. ⊚ ⊚
true false
8) Self-Regulating Organizations make a major contribution to securities regulation in Canada. ⊚ ⊚ Version 1
true false 3
9) The process of purchasing newly created securities en bloc from an original issuer as inventory for later resale is known as "securitization." ⊚ ⊚
true false
10) Prospectus disclosure allows the investing public to sensibly decide whether a material event in the affairs of a company makes the continued ownership of shares of that company prejudicial or advantageous to the investor. ⊚ ⊚
true false
11) A prospectus may or may not be required for a new issue of shares, and it is a question that often depends on the nature and number of the proposed purchasers. ⊚ ⊚
true false
12) Material Change Reports, financial statements and the Annual Information Form together are the backbone of the continuous reporting regime. ⊚ ⊚
true false
13) A brokerage firm may not, under any circumstance, have a financial interest in a security that it offers for sale to the public. ⊚ ⊚
true false
14) Attempts by a market participant to influence the market price of a security can result in sanctions under both provincial and federal law in Canada.
Version 1
4
⊚ ⊚
true false
15) A person holding 25% of shares of a reporting issuer is considered to be in a "special relationship" with the reporting issuer. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 16) Which of the following is NOT an insider of a reporting issuer?
A) B) C) D) E)
17)
The reporting issuer itself. A senior officer of a subsidiary firm of the reporting issuer. A shareholder owning 10% of voting rights in the reporting issuer. A senior officer of the parent firm of the reporting issuer. Any director of the parent firm of the reporting issuer.
A transferred right to vote shares in a reporting issuer is a
A) B) C) D) E)
plebiscite. bid. corporate ballot. proxy. absentee ballot.
18) Where a single class of voting shares has been issued by a reporting issuer, the provisions of securities regulation relating to takeover bids are first triggered when a bidder holding 1% of those shares bids for a further
Version 1
5
A) B) C) D) E)
9%. 10%. 19%. 49%. 49% + 1 further share.
19) When a takeover bid is initiated, the board of directors of the target firm has the legal obligation to its shareholders to
A) B) C) D) E)
20)
A short-form prospectus is available
A) B) C) D) E)
21)
recommend acceptance or rejection, or remain neutral, with written reasons. defend against the bid. remain neutral on the merits of the bid. remain silent on the merits of the bid. resign.
for firms already listed. for listed firms with more than 50 million dollars in market value. as part of the Prompt Offering Qualification System. under the authority of SEDAR. for exempted underwriting firms only.
A firm that chooses to raise funds through a distribution of securities is known as
A) B) C) D) E)
Version 1
an underwriter. an issuer. a Self-Regulatory Organization. an open-market trader. a qualified offeror.
6
22) Which of the following are NOT exempt from the requirement of registration as investment advisors?
A) B) C) D) E)
23)
True, full and plain disclosure is a standard of disclosure set in 1978 by
A) B) C) D) E)
24)
Brokers. Lawyers. Bankers. Accountants. Financial market commentators.
the Supreme Court of Canada. the Self-Regulatory Organizations the Provincial Securities Commissions. Canada's Securities Administrators. Stock Exchanges
A exemption from the prospectus requirement exists for an issuer where
A) the purchase is one of a regular series made by an issuer in a security of its own issue. B) C) security. D) issuer. E)
the purchaser is a bank, buying on its own account. the purchaser is an individual buying at least $25,000 in market value of one the recipient of the security receives it in satisfaction of a debt owed to it by the None of the responses are correct.
25) A financial intermediary who, through deceit or fraudulent means, affects the public market price of securities can face a maximum of
Version 1
7
A) B) C) D) E)
a monetary fine of three times the loss avoided or gain received. two years less a day in custody of a provincial institution. five years imprisonment in a federal penitentiary. ten years imprisonment in a federal penitentiary. None of the responses are correct.
26) The most important exemption from the prospectus requirement are the "Accredited Investors" provisions in the Securities Act. Who are defined as Accredited Investors?
A) Banks and investment dealers. B) Governments. C) Individuals and their spouses owning net financial assets exceeding $1 million; and individuals who, either alone or with a spouse, have net assets of at least $5 million. D) Banks, investment dealers and governments. E) All of these are accredited investors.
27)
When considering insider trading, the "insiders" of a reporting issuer are
A) B) C) D) E)
28)
its directors and senior officers. the directors and senior officers of its parent or subsidiary firms. its shareholders with more than 10 percent of outstanding voting rights. the reporting issuer itself (the company is its own insider). All of these are reporting issuers.
Which is not a security, as defined by the Securities Act?
A) B) C) D) E)
Version 1
Shares Bonds Debentures Mutual fund units Insurance contract
8
29) NewTech Ltd. requires $2 million in capital to finish developing its new solar-powered lighting system. What is the simplest and most likely way to raise the money?
A) B) C) D) E)
Initial public offering Short-form prospectus Accredited investor exemption Private issuers exemptions Unanimous shareholders' agreement
30) CompuDream Ltd. has been led by its imaginative founder, Frank Foresee, for the past 15 years. Frank is thought to be one of the top corporate leaders of the day. Unfortunately, Frank has just discovered that he has terminal cancer. Does this information have to be disclosed?
A) The information does not have to be disclosed until Frank dies. B) The information does not have to be disclosed until Frank is unable to make further contributions to the company. C) The information has to be disclosed fairly soon. D) The information has to be disclosed in the annual report. E) None of the responses are correct.
31)
What is the Canadian electronic filing and disclosure system called?
A) B) C) D) E)
SEDAR EDGAR SEC TSE ASE
32) Helen is the receptionist for First Well Ltd., a junior oil and gas company. On Thursday at lunch she told her friend Alice that a takeover bid had arrived by courier that morning. Alice purchased First Well Ltd. stock. How is the share purchase impacted by the Securities Act?
Version 1
9
A) B) C) D) E)
Alice's share purchase is allowed. Alice is an insider and must report the purchase within 10 days. Alice and Helen are both insiders and must report the purchase within 10 days. Alice is a tippee and liable for prosecution. Alice is a tippee and Helen is a tipper and both are liable for prosecution.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 33) Takeover bids have required special rules to evolve within securities regulation to promote fairness. Describe the operation of a takeover bid, highlighting why and how the regulation achieves its desired fairness.
34) Explain what rights a proxy confers, why and by whom are they actively sought, and the procedure that must be followed to conduct such a solicitation.
Version 1
10
35) The following is an agreed statement of facts in a court case, Roma v. Carthage and Troy Stock Brokerage Corporation: Mrs. Roma: I'm glad to meet you Mr. Carthage. My daughter has told me all about you and the wonderful way you have managed her stock portfolio. It is a blessing for her not to have to worry about such decisions, she's just so busy; she's starting out as a network engineer, you know. I'm so proud of her. She's the first in the family to graduate from college. If only my dear Caesar had lived to see that! Mr. Carthage: I'm very sorry to hear of your loss Mrs. Roma, I'm sure Mr. Roma would have been very proud. And thank you for your compliment to me, as well. I understand from your daughter you would like me to undertake some work on your finances. Mrs. Roma: That is right. Since my dear husband died, I have not known what to do, as he took care of the family finances. I have $250,000 to invest from his life insurance proceeds, and I'm really not well enough myself anymore to get out often. Mr. Carthage: That's fine Mrs. Roma, not to worry. I'll set up your account as discretionary and do the trades for you. You'll of course get confirmation slips in the mail, so you needn't come here to the office. If there is anything in particular you want me to buy or sell, of course I'll follow your instructions to the letter. Mrs. Roma: Thank you very much. If you can do for me what you've been doing for my daughter, I'd be very pleased. She told me her $10,000 had become $11,000 in the space of three months, thanks to you. Mr. Carthage: Well, we try pretty hard to follow the right trends here at Troy. So that you don't think that you are out there on your own, I'll set up a portfolio that is a carbon copy of your daughter's. Mrs. Roma paid over her funds, but never told her daughter that their portfolios were identical. Confirmation slips were duly delivered after trades, as were monthly statements, and Mrs. Roma filed them in a folder, not fully understanding them. She would ask about her daughter's portfolio finances now and again, and her daughter provided generally vague but upbeat comments. Unknown to Mrs. Roma, market downturns were forcing the two portfolios steadily down in value and her daughter, embarrassed at what she thought were solely her own losses, was covering up the truth of her own financial position. When the truth came to light, Mrs. Roma held 10,000 shares in Mega.com at $1.50 per share, 1,000 shares of Antarctic Oilfield Exploration Ltd at $0.25 per share, and 1,000 shares of a major Canadian bank at $50 per share, for a portfolio value $65,250. The shares were essentially the same as those originally purchased at the time of account opening. Mrs. Roma sued both Mr. Carthage and the Troy stockbrokerage firm for her losses. Discuss, drawing conclusions and making assumptions as required.
Version 1
11
Version 1
12
Answer Key Test name: Chapter 18 Test Bank 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) FALSE 16) C 17) D 18) C 19) A 20) C 21) B 22) A 23) A 24) B 25) D 26) E Version 1
13
27) E 28) E 29) C 30) C 31) A 32) E 33) A takeover bid is deemed to exist where an offeror's own present holdings together with those that are expected to result from the bid meet or exceed 20% of that class of security of the target firm. Present shareholders are probably ill informed as to the competency and plans of the proposed new management; therefore, fairness demands delivery of information. This comprises (a) information from the bidder about the bid and (b) a response/recommendation from the existing management within 10 days of the bid. Importantly, fairness demands that the bid must be made open to all holders of the targeted class of securities. Shareholders have 21 days to deposit their shares with a neutral trustee. These fixed timings are important to ensure that information has time to spread, that no well-placed person can snap up the entire opportunity due to a short time limit, and that no one can profit from out-waiting others due to a long time limit. A 10-day extension is granted if there are changes to the bid. Ten days after the bid expires, the offeror must take up the securities that have been tendered, and pay for them within another three days, again being fixed time limits. Where the bid was made for less than all of shares, and more were tendered than the offeror desired, they must be taken up and paid for on a pro rata basis. Fairness demands that no preference be made to buy the shares of one shareholder over another. All of these elements are based on principles of fairness to ensure that all shareholders are treated equally and without preference.
Version 1
14
34) A proxy transfers the voting rights of one shareholder to another person and is frequently executed by those shareholders who wish their voice to be heard at a meeting of shareholders, which they are unwilling or unable to attend. By the same token, these votes may be actively solicited by someone who does plan to attend and is seeking a block of votes to sway a particular decision to be made at the meeting. As these meetings are the shareholder's opportunity to exercise power in reviewing the efforts of the existing board of directors and to re-elect them or elect their successors, this voting is a powerful right. The existing board will be interested in soliciting proxies to ensure their continued tenure, and disgruntled shareholders will be interested in solicitation to see the reverse. As such, proxy solicitation from shareholders who have no particular strong feelings in either direction and no interest in attendance, will be lively. Even a small block of votes, where the remainder are widely held, not voted, or voted with a random dispersion, can be an effective control block. A solicitation of proxies must be accompanied by an Information Circular which discloses who is doing the solicitation and their ownership or interest in the company. Information requirements depend on whether the solicitation is being made by management or by other parties. Any limitations on revocation of the proxy must be stated, as well as the manner in which the proxy is to be employed. The proxy can well be used for matters beyond the election of directors, such as particular acts of management under consideration, the appointment of a particular firm of auditors, property acquisitions, or changes to share capital. 35) Answers will vary.
Version 1
15
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. Baxter is not entitled to any notice of termination, because his written contract of employment expired in 2011. ⊚ ⊚
true false
2) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. At Common Law, Carrothers is required to give Baxter reasonable notice of termination. ⊚ ⊚
Version 1
true false
1
3) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. One week's salary as severance pay would be the equivalent of reasonable notice for Baxter under the circumstances. ⊚ ⊚
true false
4) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. Baxter, on receipt of notice of termination from Carrothers, must immediately seek other employment to mitigate his loss, if he intends to take legal action against the company for lost wages. ⊚ ⊚
Version 1
true false
2
5) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. Any earnings received by Baxter for a reasonable time after he left the employ of the company would be taken into consideration in determining the damages to which he might be entitled as a result of his termination. ⊚ ⊚
true false
6) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. The type of action which Baxter might bring against the company would be for wrongful dismissal. ⊚ ⊚
Version 1
true false
3
7) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. In a wrongful dismissal case, to determine reasonable notice, the judge would take into consideration Baxter's position in the firm, his age, years of service, and the opportunities for him to find other employment. ⊚ ⊚
true false
8) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. For a person in Baxter's position, reasonable notice might be in the range from six months to a year or more. ⊚ ⊚
Version 1
true false
4
9) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. In determining the amount of damages to which Baxter would be entitled, the judge would total the salary and benefits that Baxter would ordinarily have received during the period of reasonable notice, and deduct any earnings made by him during that time. ⊚ ⊚
true false
10) Baxter, at age 45, was hired as the general manager of the CountrySide Shipping Company by Carrothers, the company president. The initial contract of employment was for a three-year term and was embodied in an exchange of letters between Baxter and Carrothers in 2008. At the end of the three-year term, Baxter continued on as general manager, receiving annual increases in salary, executive profit sharing, pension contributions, and discretionary bonuses, if business was exceptionally good in a given year. In January 2020, for no apparent reason, Carrothers called Baxter into his office, and told him his services were no longer required. Carrothers offered Baxter a week's salary as "severance pay." At the time of termination, Baxter was earning a salary of $70,000 per year, received company paid pension contributions of $5,000 annually, and, in 2019, had received $3,000 from profits shared, and a $5,000 bonus. If Baxter wished to have his job back, rather than receive damages, he could ask the court for an award of specific performance. ⊚ ⊚
true false
11) Nuvolari was employed by Simple Delivery as a truck driver. While engaged in the delivery of goods for a local merchant, Nuvolari was involved in a serious motor vehicle accident. If the accident was due to the negligence of Nuvolari, he alone would be liable to the injured party for the damages caused.
Version 1
5
⊚ ⊚
true false
12) Nuvolari was employed by Simple Delivery as a truck driver. While engaged in the delivery of goods for a local merchant, Nuvolari was involved in a serious motor vehicle accident. Simple Delivery, Nuvolari's employer, would be vicariously liable for his negligence. ⊚ ⊚
true false
13) Nuvolari was employed by Simple Delivery as a truck driver. While engaged in the delivery of goods for a local merchant, Nuvolari was involved in a serious motor vehicle accident. If Nuvolari, as a driver for Simple Delivery, was delivering the goods for a local merchant, the local merchant would be liable for the damages, because Simple Delivery was engaged by the merchant to make the delivery. ⊚ ⊚
true false
14) Nuvolari was employed by Simple Delivery as a truck driver. While engaged in the delivery of goods for a local merchant, Nuvolari was involved in a serious motor vehicle accident. If the delivery that Nuvolari was making for the local merchant was in Nuvolari's spare time, and not during his working hours for Simple Delivery, Simple Delivery would not be liable. ⊚ ⊚
true false
15) The most accepted manner of determining whether an individual is an employee is to examine the services provided by the individual on the basis of whether the work which is done is an integral part of the business or accessory to it. ⊚ ⊚
true false
16) A contract of employment that allows an employee to terminate the employment relationship at will must be in writing to be enforceable. Version 1
6
⊚ ⊚
true false
17) Jennifer is employed as a data entry clerk. Her job involves typing each day the information gathered from financial markets around the world into the firm's computer system. When Jennifer learns that she is pregnant, she asks her supervisor to change her job responsibilities to a position that does not require her to sit in front of her computer terminal for the duration of her pregnancy. Jennifer's doctor has advised her that low-level radiation given off by video display terminals may be harmful to the baby. Jennifer's employer is obligated to comply with her request only if it does not cause a serious disruption to his business. ⊚ ⊚
true false
18) Jennifer is employed as a data entry clerk. Her job involves typing each day the information gathered from financial markets around the world into the firm's computer system. When Jennifer learns that she is pregnant, she asks her supervisor to change her job responsibilities to a position that does not require her to sit in front of her computer terminal for the duration of her pregnancy. Jennifer's doctor has advised her that low-level radiation given off by video display terminals may be harmful to the baby. If Jennifer's employer cannot accommodate her request, he may dismiss her for inability to perform her duties. ⊚ ⊚
true false
19) Jennifer is employed as a data entry clerk. Her job involves typing each day the information gathered from financial markets around the world into the firm's computer system. When Jennifer learns that she is pregnant, she asks her supervisor to change her job responsibilities to a position that does not require her to sit in front of her computer terminal for the duration of her pregnancy. Jennifer's doctor has advised her that low-level radiation given off by video display terminals may be harmful to the baby. Jennifer has heard of a special shield which covers video display terminals to reduce radiation emissions. She may refuse to resume her work, without fear of dismissal, until her employer provides her with a shield. ⊚ ⊚
Version 1
true false
7
20) Graham, aged 45 years, served as plant manager at a manufacturing firm for five years. His annual salary was $55,000. As a result of a corporate reorganization, Graham was given one month's notice of termination which was considered by management to be the length of time necessary for an employee to find a similar paying job. Graham's employer has considered the most important factor in determining his notice period. ⊚ ⊚
true false
21) Graham, aged 45 years, served as plant manager at a manufacturing firm for five years. His annual salary was $55,000. As a result of a corporate reorganization, Graham was given one month's notice of termination which was considered by management to be the length of time necessary for an employee to find a similar paying job. Graham may bring an action for reinstatement in his former position if he feels he has been wrongfully dismissed. ⊚ ⊚
true false
22) Graham, aged 45 years, served as plant manager at a manufacturing firm for five years. His annual salary was $55,000. As a result of a corporate reorganization, Graham was given one month's notice of termination which was considered by management to be the length of time necessary for an employee to find a similar paying job. In an action for wrongful dismissal an employee's damages are calculated as the net loss actually incurred from the date of termination to the end of the reasonable notice period as it is determined. ⊚ ⊚
true false
23) Ted Johnson is employed as vice-president of marketing for a large consumer products corporation whose products include dishwashing and laundry detergent. Ted recently spoke out at a marketing conference at which media were present that his company's products are harmful to the environment and the public should avoid using them. Ted's employer may terminate him without notice. ⊚ ⊚
Version 1
true false
8
24) Any unilateral action by an employer which alters the terms or conditions of employment is actionable as wrongful dismissal. ⊚ ⊚
true false
25) An employer is vicariously liable for any loss or damage suffered by a third party as a result of an employee's actions. ⊚ ⊚
true false
26) After the company's delivery van broke down, Cynthia was sent by her employer, Perfect Printing Ltd., to deliver a rush order of printed forms to a customer in a neighbouring city. In order to do so, Cynthia rented a car in her own name and completed the delivery. On her way back Cynthia rear-ended another car that was stalled at an intersection. The accident victim may bring an action against Cynthia's employer for damages. ⊚ ⊚
true false
27) After the company's delivery van broke down, Cynthia was sent by her employer, Perfect Printing Ltd., to deliver a rush order of printed forms to a customer in a neighbouring city. In order to do so, Cynthia rented a car in her own name and completed the delivery. On her way back Cynthia rear-ended another car that was stalled at an intersection. The rental car company is entitled to bring an action only against Cynthia for damages. ⊚ ⊚
true false
28) The Workers' Compensation Act provides compensation for employees injured during the course of their employment in addition to their right to take legal action for damages. ⊚ ⊚
Version 1
true false
9
29) The organization test is replacing the fourfold test as the determinant of the existence of an employment relationship. ⊚ ⊚
true false
30) A formula of one-and-a-half weeks' pay for each year of service, with a further oneweek's pay for each year of age over age 45 is reasonable severance pay, with respect to employment law, on termination due to plant closure for a 50-year-old person with 29 years' service as a skilled machinist. ⊚ ⊚
true false
31) One who accepts a job only to find that the responsibilities and authority of the position are much less than were described may obtain damages for negligent misrepresentation, but importantly they will have to show that they have suffered a loss of something other than high expectations. ⊚ ⊚
true false
32) While an employee may exhibit morally reprehensible behaviour or character away from the workplace on his or her own time, a court will not allow employers to raise this in support of dismissal of the employee. ⊚ ⊚
true false
33) While employers must ensure that they conduct their management without discrimination, there is also an obligation on all employers to ensure that employees do not behave in a discriminatory manner between one another in the workplace. ⊚ ⊚
Version 1
true false
10
34) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. The employees must first establish a union or invite an existing union to accept them as members before they may request the employer to bargain collectively. ⊚ ⊚
true false
35) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. If the employer refuses to voluntarily bargain with the chosen bargaining agent of the employees, the bargaining agent must be certified by the Labour Relations Board before it may require the employer to engage in collective bargaining. ⊚ ⊚
true false
36) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. The Labour Relations Board determines the appropriateness of the bargaining unit before it certifies the union as the bargaining representative of the employees. ⊚ ⊚
true false
37) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. In a regular certification, the union must show that a majority of the employees in the bargaining unit wish to be represented by the union. ⊚ ⊚
true false
38) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. Where the Labour Relations Board is in doubt as to the support for the union, but a large number of employees appear to be in favour of collective bargaining, the Board will usually hold a vote to determine the wishes of the employees. ⊚ ⊚
Version 1
true false
11
39) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. Employees in a bargaining unit represented by a trade union are not permitted to negotiate with their employer on an individual basis. ⊚ ⊚
true false
40) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. If a collective agreement is negotiated by the union and the employer, it will be binding on the employees as well. ⊚ ⊚
true false
41) A group of employees who are employed in the plant of the Crosscut Lumber Company decided to form a union. The method of resolving disputes which arise out of the collective agreement is by way of compulsory arbitration. ⊚ ⊚
true false
42) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. If the strike is lawful, the pickets may block the roadway into the mine. ⊚ ⊚
true false
43) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. If violence occurs on the picket line, and in spite of police assistance damage results, the company may apply to the court for an injunction to reduce the number of pickets and prevent blockage of the entrance to the property. ⊚ ⊚
Version 1
true false
12
44) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. The union would be held liable for all illegal acts of individual members that occur on the picket line on the basis of vicarious liability. ⊚ ⊚
true false
45) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. The purpose of the picket line at law is limited to the peaceful conveyance of information, and not to prevent entry into the employer's place of business. ⊚ ⊚
true false
46) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. Non-striking employees must take care not to injure pickets as they enter or leave the mine. ⊚ ⊚
true false
47) When collective bargaining negotiations broke down between the Soft Rock Miners' Union and Consolidated Moose Pastures Mining Company, the union called a lawful strike of its members. Picket lines were set up at the entrance to the mine. The union may also set up lawful picket lines during a lawful strike at the premises of all customers and suppliers of the employer for the purpose of shutting down their businesses, and to require them to buy from competitors of their employer. ⊚ ⊚
Version 1
true false
13
48) A union may be certified as bargaining agent for the employees of a chartered bank pursuant to the provisions of the Canada Labour Code. ⊚ ⊚
true false
49) Manisha has been employed by Peterman Manufacturing Ltd. for several years as plant nurse. She is paid an hourly wage and reports to the plant manager with respect to accident reports and establishing safety procedures. Recently, an international union applied to the provincial labour relations board for certification as the bargaining representative of the 76 Peterman plant employees. The union will be unsuccessful in including Manisha in the bargaining unit. ⊚ ⊚
true false
50) Manisha has been employed by Peterman Manufacturing Ltd. for several years as plant nurse. She is paid an hourly wage and reports to the plant manager with respect to accident reports and establishing safety procedures. Recently, an international union applied to the provincial labour relations board for certification as the bargaining representative of the 76 Peterman plant employees. If the union has signed up 30 members at the time of the certification hearing the board will waive the requirement of a representation vote. ⊚ ⊚
true false
51) Manisha has been employed by Peterman Manufacturing Ltd. for several years as plant nurse. She is paid an hourly wage and reports to the plant manager with respect to accident reports and establishing safety procedures. Recently, an international union applied to the provincial labour relations board for certification as the bargaining representative of the 76 Peterman plant employees. Once certified, the union may compel the employer to comply with the terms and conditions of employment that the union sets for its membership. ⊚ ⊚
Version 1
true false
14
52) A demand by an employer for terms in a collective agreement which limit or eliminate the union's right to determine certain aspects of the employment relationship would not constitute good faith bargaining. ⊚ ⊚
true false
53) If negotiations fail to produce an agreement acceptable to the parties, any further action is prohibited until third-party assistance has been introduced. ⊚ ⊚
true false
54) Employees at Space-Age Industries staged a lawful strike after all attempts to reach a collective agreement had failed. The employees printed pamphlets stating that the nature of their dispute with Space-Age was inadequate wage increases and hours of work. Picket lines were set up at the entrance to the employer's premises and each person who came to the premises was stopped by the picketers and given a pamphlet. The actions by the employees in this case do not constitute lawful picketing. ⊚ ⊚
true false
55) Employees at Space-Age Industries staged a lawful strike after all attempts to reach a collective agreement had failed. The employees printed pamphlets stating that the nature of their dispute with Space-Age was inadequate wage increases and hours of work. Picket lines were set up at the entrance to the employer's premises and each person who came to the premises was stopped by the picketers and given a pamphlet. This situation would constitute unlawful picketing only if entry were refused to any person refusing to accept a pamphlet. ⊚ ⊚
Version 1
true false
15
56) Employees at Space-Age Industries staged a lawful strike after all attempts to reach a collective agreement had failed. The employees printed pamphlets stating that the nature of their dispute with Space-Age was inadequate wage increases and hours of work. Picket lines were set up at the entrance to the employer's premises and each person who came to the premises was stopped by the picketers and given a pamphlet. An employer who believes there to be an excessive number of picketers at any one time may apply for a court order to limit the numbers. ⊚ ⊚
true false
57) Compulsory arbitration is not restricted to the essential services sector and may be used by any parties facing a strike situation. ⊚ ⊚
true false
58) Disputes arising out of the interpretation, application or administration of the collective agreement must be resolved by compulsory mediation provided for under collective bargaining legislation. ⊚ ⊚
true false
59) A member of a bargaining unit who is dismissed for just cause may be entitled to a lesser penalty or reinstatement. ⊚ ⊚
60)
true false
A member may be expelled from a trade union on the grounds of breach of contract. ⊚ ⊚
Version 1
true false
16
61) Laura Chan worked as a primary school teacher in a small town for 10 years. She and her colleagues were represented by the Teachers' Association in collective bargaining. Recently, the school board received complaints from some irate parents that Laura was teaching her students elementary Cantonese vocabulary which they felt was unnecessary and detracted from the more important core curriculum. The school board, having previously asked her to refrain from this practice, decided to suspend Laura for the short period of ten days until the end of the school year and hoped that the issue would be forgotten by the fall when classes commenced. Laura grieved the suspension. If the Teachers' Association decides to take Laura's grievance to arbitration on the basis that this dispute may be founded on racial prejudice contrary to the Charter of Rights and Freedoms, (and would, therefore, be precedent setting) it may be acting in a discriminatory manner. ⊚ ⊚
true false
62) Laura Chan worked as a primary school teacher in a small town for 10 years. She and her colleagues were represented by the Teachers' Association in collective bargaining. Recently, the school board received complaints from some irate parents that Laura was teaching her students elementary Cantonese vocabulary which they felt was unnecessary and detracted from the more important core curriculum. The school board, having previously asked her to refrain from this practice, decided to suspend Laura for the short period of ten days until the end of the school year and hoped that the issue would be forgotten by the fall when classes commenced. Laura grieved the suspension. If the Teachers' Association refuses to take Laura's grievance to arbitration, Laura may initiate her own legal action against the school board and the Teachers' Association. ⊚ ⊚
true false
63) Laura Chan worked as a primary school teacher in a small town for 10 years. She and her colleagues were represented by the Teachers' Association in collective bargaining. Recently, the school board received complaints from some irate parents that Laura was teaching her students elementary Cantonese vocabulary which they felt was unnecessary and detracted from the more important core curriculum. The school board, having previously asked her to refrain from this practice, decided to suspend Laura for the short period of ten days until the end of the school year and hoped that the issue would be forgotten by the fall when classes commenced. Laura grieved the suspension. It would constitute a breach of duty of fair representation for a union to weigh the cost of arbitrating a grievance with the likelihood of its success.
Version 1
17
⊚ ⊚
true false
64) A union has voted to strike. It subsequently, arranged for picket lines to be set up by its members at points around the employer's worksite, as well as at sites of the company's customers. The picket lines remain small and peaceful, with the only purpose being to inform the public and other workers of a grievance under their collective agreement. However, the union has violated the Labour Relations Act by staging an unlawful strike. ⊚ ⊚
true false
65) The employees of a small factory have many complaints about their employer and their working conditions. They gather for a meeting to discuss possible pursuits to solve the problem. By vote, they decide to create a bargaining unit and join a union to represent their collective interests. The union representative contacts the employer to inform him of the employees' actions. The employer refuses to bargain in any fashion. The basis is that he does not recognize the union as the representative of his employees and will not proceed to bargain until the union is "certified." He does not have this right. ⊚ ⊚
true false
66) On occasion, pickets block the entrance to an employer's premises, or may be found on an information-only basis at the premises of an employer's customers or suppliers. Both of these actions are illegal in principal. ⊚ ⊚
true false
67) While an employer may choose to recognize a union as a bargaining representative, only the employees may certify a union as a bargaining representative. ⊚ ⊚
Version 1
true false
18
68) The notion of "suspending" an employee, while a common disciplinary measure under collective agreements, has no basis in the Common Law. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 69) An employer is liable to third parties where
A) the employer is found vicariously liable for the actions of his employee. B) the employee is found vicariously liable for actions of the employee. C) the third party is harmed by the negligent action of the employer. D) the employer is found vicariously liable for the actions of his employee and the third party is harmed by negligent action of the employee. E) the employee is found vicariously liable for actions of the employee and the third party is harmed by negligent action of the employer.
70)
The employer is liable for injury to the employee
A) B) C) D)
71)
where the employee has a complaint against a senior employee for negligent action. where the employee failed to properly perform his duties. where the employer negligently harms a third party. None of the responses are correct.
Laws dealing with the employment contract deal with matters including
A) B) C) D) E)
Version 1
health and safety inspection. minimum wages, maximum work hours, holiday and vacation pay. training in safe handling of equipment and substances. All of the responses are correct. None of the responses are correct.
19
72)
Implied duties of the employee include
A) the duty to obey all reasonable orders of the employer in the ordinary course of employment. B) the duty to use property of the employer in a careful manner. C) the duty to keep confidential all information obtained. D) the duty to obey all reasonable orders of the employer in the ordinary course of employment and to use the property of the employer in a careful manner. E) All these are implied duties.
73)
To be enforceable, a contract of employment must be
A) B) C) D)
74)
The fourfold test has been described by the court to involve consideration of
A) B) C) D)
75)
in writing if for a fixed period greater than one year and not terminable on notice. in writing if for a fixed period less than one year and terminable on proper notice. in writing if for a period not fixed. None of the responses are correct
duties of employee, control, organization and adjunct business activities. control, organization, chance of profit, complex interpersonal relationships. risk of profit, organization and risk of loss. ownership of tools, risk of loss, chance of profit, control.
Laws regulating employee working conditions deal with matters such as
A) B) C) D) E)
Version 1
physical aspects of employment and minimum terms of employment. sanitary facilities. health and safety in a plant or building. minimum wage rates and fumes, dust and equipment. sanitary facilities and health and safety in a plant or building.
20
76)
Notice of termination must be
A) B) C) D)
reasonable. in writing. timely. All of these criteria are required.
77) After a falling out with his boss at a very large industrial company, Gary, a junior executive, finds that he receives more than his share of the "undesirable" work around the office. His parking spot is reassigned to a more distant parking lot, and an office shuffle results in his desk being moved out of his private office, and into an area the staff calls "the bullpen." Which of the following most relate to Gary's situation?
A) B) C) D) E)
Fundamental breach of employment relationship. Termination without cause. Doctrine of disruption of corporate culture. Doctrine of constructive dismissal. Doctrine of vicarious liability.
78) The Statute of Frauds must be complied with to make an employment contract enforceable where the contract
A) B) C) D) E)
79)
has only been reduced to an exchange of letters. is of fixed duration greater than one year. is of indefinite hiring. is for a salaried position. meets the organizational test.
Disruption of the corporate culture is
Version 1
21
A) B) C) D) E)
80)
a requirement for a finding of wrongful hiring. grounds for an action against an employer. grounds for dismissal of an employee. an element of constructive dismissal. None of the responses are correct.
Contracts of indefinite hiring
A) B) C) D) E)
give rise to the most claims of unjust dismissal. are not subject to the Statute of Frauds. do not meet the fourfold test. exempt the employer from findings of vicarious liability. All of the responses are correct.
81) Where the first knowledge of termination received by a bank employee is from an automated bank machine that refuses to return their staff-encoded credit card on the basis of "Staff privilege revoked",
A) B) C) D) E)
the dismissal is unjust. an action for punitive damages may succeed. the bank has engaged in tactics of constructive dismissal. All of the responses are correct. None of the responses are correct.
82) In most provinces, occupational health and safety legislation requires the employer to ensure that
Version 1
22
A) employees are fairly compensated with "danger pay." B) employees are fully protected from occupational and safety hazards on the job. C) employees are fully trained to safely perform their duties where hazards are associated with the work. D) employees are fully protected from occupational and safety hazards on the job and employees are fully trained to safely perform their duties where hazards are associated with the work. E) All are required by occupational health and safety legislation.
83) Willy and Sid both work for a concrete company. They are constantly circulating jokes about "newfies" on the company email. The company recently hired Ed, a "newfie." What law will prohibit this activity?
A) B) C) D) E)
Employment standards laws Workers compensation Occupational health and safety laws Common Law Human rights laws
84) Jamal is hired as a personal account representative. When he starts work, he is dismayed to discover that he will be a cashier. What law will apply to Jamal's lawsuit?
A) B) C) D) E)
Employment standards laws Workers compensation Occupational health and safety laws Human rights laws Common Law
85) Tim was an employee working at a ski resort. While repairing a chairlift, he was seriously injured. The court ruled that the employer should have posted warning signs about the danger of working on chairlifts. Which law would the court have used to make their decision?
Version 1
23
A) B) C) D) E)
Employment standards laws Workers compensation Occupational health and safety laws Human rights laws Common Law
86) Anil just received a job offer to be a waiter at the Zen 7 restaurant. He was told he will be paid minimum wage plus 60% of the tips from his tables. Which law will establish minimum wage?
A) B) C) D) E)
Employment standards laws Human rights laws Occupational health and safety laws Workers compensation laws Common Law
87) Mei owns a Chinese food restaurant. Her cook, named Humin, speaks only Chinese and no English. The clientele is a mixture of Chinese-speaking and English-speaking people. Mary, who only speaks English applies for a job as a server. Mei does not hire her even though she has a lot of experience. Mei will only hire someone who can speak Chinese as well. Can she do this?
A) Yes, the ability to speak Chinese is a bona fide occupational requirement; therefore, there is no discrimination under the human rights legislation. B) Yes, human rights legislation does not apply to the employment of servers. C) No, human rights legislation prohibits discrimination in the hiring of employees. D) No, human rights legislation does not apply to the employment of servers. E) No, the ability to serve food is the only bona fide occupational requirement, therefore there is discrimination under the human rights legislation.
88)
Labour relations boards have authority to
Version 1
24
A) B) C) D) E)
certify unions as bargaining agents. determine the appropriate bargaining unit. arbitrate disputes arising from the administration of collective agreements. hold representation votes. certify unions, determine the appropriate bargaining unit and hold representation
votes.
89)
Representation votes are held
A) to determine which group of employees should comprise the bargaining unit. B) to determine that a new union is bona fide and not supported by the employer. C) to approve the terms and conditions of a collective agreement negotiated between the employer and union representatives. D) to determine employee support for a union in a bargaining unit. E) All of the responses are correct.
90)
A lawful strike may not occur
A) after all required third-party assistance has been attempted. B) in certain jurisdictions before a first collective agreement has been negotiated. C) when a collective agreement is not in effect. D) unless it is limited to the premises of the employer. E) unless it is limited to the premises of the employer and in certain jurisdictions before a first collective agreement has been negotiated.
91)
Parties must include the following clauses in their collective agreement:
A) B) C) D) E)
Version 1
union recognition. management rights. no strikes or lockouts. grievance procedure and arbitration. union recognition and no strikes or lockouts.
25
92)
Arbitrators
A) are expected to hold a hearing to investigate the circumstances surrounding a dispute. B) may not directly examine witnesses. C) render awards which are binding on the parties and may not be altered. D) are restricted to determining disputes which arise out of violations of the collective agreement. E) All of the responses are correct.
93) An employee's rights under collective bargaining differ from the Common Law employment relationship with respect to
A) B) C) D)
94)
right to strike. discipline and discharge. freedom to contract. All of the responses are correct.
A trade union
A) is essentially a partnership. B) may not engage in activities in restraint of trade. C) may not deny membership to persons already belonging to other unions. D) may compel an employer to recognize it as the exclusive bargaining representative of the employees by means of a lawful strike. E) None of the responses are correct.
95) The ACME Widget Co. has just received notice from the newly certified Widget Union requesting a meeting with management to bargain for a first collective agreement with its employees.
Version 1
26
A) The union has been uncooperative throughout the negotiation process which will force the negotiations to first agreement arbitration. B) If an agreement cannot be reached the parties may choose between third party intervention or strike/lockout. C) ACME would be bargaining in good faith if it negotiated with the union, but ultimately rejects most of the union demands. D) During the negotiations the union may run advertisements in the local newspaper setting out its requests in order to gain public support for its position. E) All of the responses are correct.
96) The ACME Widget Co. reached an agreement for a first collective agreement with the Widget Union.
A) The collective agreement encourages employees to make individualized contracts with the employer to meet an employee's special needs. B) A common option for resolving disputes that arise under the agreement is third-party mediation. C) An arbitrator's decision regarding a dispute arising under the collective agreement is binding on the parties. D) Arbitrators are generally reluctant to reinstate wrongfully dismissed employees and usually limit compensation to monetary damages, thereby avoiding the creation of an unpleasant personal relationship. E) All of the responses are correct.
97)
Choose the most correct statement: Where a place of employment is a union shop,
A) the employer may only hire persons who are already members of the union. B) the employer may only hire persons who are already members of the bargaining unit. C) an employee's employment is conditional on maintaining his or her union membership. D) secondary picketing is prohibited. E) all employees will have been provided from a hiring hall.
Version 1
27
98)
Compulsory Arbitration eliminates
A) B) C) D) E)
the right to strike. the right to lockout. arbitration boards. information pickets and secondary picketing. the right to strike and the right to lockout.
99) A process under labour legislation whereby a trade union acquires bargaining rights and is designated as the exclusive bargaining representative of a unit of employees is called
A) B) C) D) E)
100)
the union process. the selection process. the bargaining process. the negotiation process. the certification process.
Labour legislation establishes the parameters for which processes?
A) B) C) D) E)
Certification, Negotiation, Administration. Creation, Negotiation, Disciplinary, Collective Agreement. Certification, Negotiation, Arbitration. Creation, Arbitration, Administration. None of the answers are correct.
101) The university's collective agreement states that it agrees to only hire trades people who belong to a trade union. What kind of clause is this?
Version 1
28
A) B) C) D) E)
Restrictive covenant. Certification clause. Closed-shop clause. Union-shop clause. Bargaining unit clause.
102) The university's collective agreement states that part-time instructors must become union members after they have instructed more than two consecutive terms. What kind of clause is this?
A) B) C) D) E)
Restrictive covenant. Certification clause. Closed-shop clause. Union-shop clause. Bargaining unit clause.
103) Where the employees decide that collective bargaining no longer serves its purpose, they can terminate their collective bargaining relationship with their employer. What is the first step in terminating this relationship?
A) B) C) D) E)
Certification request. Decertification request. Decertification hearing. Certification hearing. Labour relations board declaration.
104) Where the employees decide that collective bargaining no longer serves its purpose, they can terminate their collective bargaining relationship with their employer. What is the final step in terminating this relationship?
Version 1
29
A) B) C) D) E)
Certification request Decertification request Decertification hearing Certification hearing Labour relations board declaration
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 105) It is not always clear whether a person is an employee. Numerous methods have been developed for examining the nature of the relationship. Describe the various methods which have been established and the relative usefulness of each. Include in your answer an explanation of why the determination is relevant.
106) Describe the various laws which impose obligations on employers and govern employment relationships.
107) Employees who are terminated may seek remedies from the court if they believe they have been wrongfully dismissed. Discuss the nature of such remedies available and the factors which are considered in evaluating such cases.
Version 1
30
108) Explain the nature of the relationship between senior employees and their employers. Use examples to clarify your answer.
109) Explain the philosophy behind the original (and today's) Worker's Compensation legislation. What significant benefit did workers obtain beyond simply an insurance scheme, and why was this benefit particularly significant to them?
110) Stanley Morgan was employed by Pharmaco, a pharmaceutical manufacturer, as a commissioned drug salesman. Stanley's responsibilities involved driving throughout the province marketing Pharmaco's product line to medical practitioners and drug retailers. In order to carry out his duties Stanley owned a station wagon which allowed him to carry his samples as well as his luggage for overnight trips. Stanley's employer gave him a substantial fixed, car allowance for using his own vehicle for company business. One sunny Friday in July, Stanley, having completed his sales calls for the day, decided to take the afternoon off and went to play golf. On his way to the course, Stanley was driving into bright sunlight, and failed to see Mrs. Seymore crossing the street, and struck her with the car. Mrs. Seymore suffered numerous injuries from the accident. What are the rights and liabilities of the parties in this case? If legal action were taken, what would be the outcome?
Version 1
31
111) Following 22 years of employment as an accounts' manager with a medium-sized manufacturing firm, Chandrani's employer was placed into receivership and the assets of the firm were sold. As a result, her contract of employment was terminated. Chandrani completed an application for employment with Xenco Inc., which had purchased the assets from the receiver. Xenco accepted Chandrani's application and she commenced employment immediately. All of Chandrani's employment records were transferred from the defunct files of her former employer. She was given the responsibility of supervising a department of fifteen employees, and within six months was awarded a substantial wage increase commensurate with other employees at Xenco with long standing. Shortly thereafter, Xenco began to experience declining sales as the result of an economic downturn and, after 18 months of employment, Chandrani's services were terminated. Discuss the issues presented by this fact situation. What responsibilities rest with Chandrani?
112) Amanda was employed full-time for five years as a salesclerk by Shop 'n' Save department store. Occasionally she was required to work on Friday evenings and Saturdays. Amanda, who had never had any strong religious beliefs, married the young son of a devout family. After her marriage, Amanda adopted her husband's religion which prohibited her from working from sundown Friday to sundown Saturday. She then informed her employer that she would no longer be able to work during these times. The store manager advised her that Saturday work was a prerequisite for a fulltime position and offered her a part-time position as an alternative. Amanda accepted the position which reduced her hours and, thus, her salary by 30%. She subsequently filed a complaint with the Human Rights Commission. What arguments would be available to the parties involved in this dispute? Render a decision.
Version 1
32
113) Asturi was a newly graduated dentist who worked as an associate dentist with Richards at Richards' dental office. Richards had been a dentist for nearly twenty years and had a large patient base. Asturi was responsible for attracting new patients to the practice. Richards did not pay Asturi a salary, rather, Asturi paid a percentage of his gross billings to the practice's management company. Asturi felt that he was paying over too much of his profit and decided to leave the arrangement with Richards and set up his own office. He did not give Richards any notice before he left to open his own practice directly across the street. Asturi also photocopied his patients' records and sent them announcements of his new location. Richards was very upset by Asturi's actions and decided to take legal action. He claimed that Asturi was not entitled to set up a competing dental practice in such close proximity to his own and that Asturi had no right to solicit patients or to misappropriate patient records. Discuss the rights and liabilities of the parties involved and render a decision.
114) Explain the process by which a trade union may become the exclusive bargaining representative of a group of employees and, in particular, the method by which a labour relations board may determine the extent of employee support for the union in a particular bargaining unit.
115) Compare and contrast the treatment of employees with respect to discharge and discipline under a collective agreement and in the common law employment relationship. What are the implications of the unionized situation for an employer's hiring decisions?
Version 1
33
116) Our society and our laws place great importance on the right of an individual to earn his or her livelihood. Describe the law and the attitude of the courts with respect to the relationship of a union with its members.
117) A union has just announced to a pool of prospective workers that there will be an upcoming "hiring hall." This event occurs when a union matches its unemployed members with employers who require workers. At a later general membership meeting some of the union members were discussing the results of the "hiring hall." As discussion progressed the participants noticed a pattern of hiring. All the new people hired were visible minority females. A group of white males, feeling the practice had been unfair, filed a collective complaint against the union on the basis that the union neglected its duty of Fair Representation. Discuss this scenario with respect to union, government and public policies dealing with standards and qualifications hiring.
118) The employees of Willows Department Store in Meadowvale Shopping Centre had been represented by a union for several years. Shortly before the most recent collective agreement was about to expire and before a notice to bargain was given to management by the union, the employer sent a memo to all employees announcing that it would no longer provide free parking for its employees in the shopping centre's parking garage. Within a week, notice to bargain was given by the union and in the subsequent negotiations the free parking matter was made a bargaining issue. The union also alleged that the employer had breached the law in its announcement of this matter. What issue(s) does this situation raise?
Version 1
34
119) In an effort to obtain support for their cause, members of the Shipworkers' Trade Union picketed the unloading of a non-Canadian ship. The picketing blocked the unloading of the nonCanadian ship, and in the violence that followed, several of the crew of the non-Canadian ship were injured when assaulted by the pickets. The union members were dissatisfied with the Canadian government's policy of allowing non-Canadian ships to take part in the Canadian coastal trade. The union hoped to force the government to implement the recommendations of a report which had been completed earlier and which favoured the limitation of trade to Canadian ships. a. What rights, if any, do the parties have in this case? b. If legal action were taken, what would be the outcome?
120) The Beer Workers Union was attempting to organize a small local brewery. Over the course of the organization drive the president of the brewery had frequently told employees that they would be better off without the union and that he would personally see to it that they all got pay raises if they did not vote for the union. The employees complained to the Labour Relations Board which ordered the employer to stop discussion of union representation with the employees. Soon thereafter the president sent a letter to each employee in which he mentioned the Board's order. He stated that the company would be pleased to work with the union if the employees felt it necessary, even in the wake of their upcoming pay increases. When the union again complained to the Board, the employer responded by saying that its intentions were innocent and had been done in this manner so as not to violate the order. Discuss the issues which will be raised by the parties in this case. Render a decision.
Version 1
35
Version 1
36
Answer Key Test name: Chapter 19 Test Bank 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) TRUE 23) TRUE 24) FALSE 25) FALSE 26) TRUE Version 1
37
27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) TRUE 32) FALSE 33) TRUE 34) TRUE 35) TRUE 36) TRUE 37) TRUE 38) TRUE 39) TRUE 40) TRUE 41) TRUE 42) FALSE 43) TRUE 44) FALSE 45) TRUE 46) TRUE 47) FALSE 48) TRUE 49) TRUE 50) FALSE 51) FALSE 52) FALSE 53) TRUE 54) FALSE 55) TRUE 56) FALSE Version 1
38
57) TRUE 58) FALSE 59) FALSE 60) TRUE 61) FALSE 62) TRUE 63) FALSE 64) TRUE 65) FALSE 66) TRUE 67) FALSE 68) TRUE 69) D 70) D 71) B 72) D 73) A 74) D 75) E 76) A 77) D 78) B 79) C 80) B 81) B 82) D 83) E 84) E 85) C 86) A Version 1
39
87) A 88) E 89) D 90) E 91) E 92) A 93) D 94) C 95) C 96) C 97) C 98) E 99) D 100) A 101) C 102) D 103) B 104) E
Version 1
40
105) Employment tests: a. Control test: - useful for simple relationships - not conclusive as employment relationships become more varied and complex b. Fourfold test: - may not be conclusive in some situations where independent contractors assume a role that resembles employment by taking direction from and using the facilities of the other party c. Organization test: - usually most useful to identify independent contractors in the context of the employer's usual business d. Relevance: - to determine existence of vicarious liability - to distinguish employees from agents and independent contractors and the various rights and duties of parties under these relationships
Version 1
41
106) Laws governing employment relationship: a. Legislation: - health and safety imposes obligations to provide proper equipment and training with penalties for violation - employment standards set minimum conditions for wages, hours of work, vacation pay and termination - human rights prohibits discrimination - pay equity in some jurisdictions provides for equal pay for work of equal value b. Common Law: - duty to pay wages or other remuneration in return for services - duty to indemnify an employee's expenses in the normal course of employment; - duty to provide sufficient tools - duty to provide sufficient information to allow employees to calculate remuneration due
Version 1
42
107) Remedies for Wrongful Dismissal: - monetary damages for failure to give reasonable notice of termination intended to place the employee in the same financial position as if reasonable notice had been given - occasionally compensation for mental distress resulting from improper notice - no punitive damages of recovery for injury to reputation or status - no reinstatement Factors Considered: - just cause for dismissal thus requiring no notice - reasonableness of notice based on position held, nature of contract, method of payment, age, and length of service and business customs; employee's mitigation of loss 108) Senior employees: - fiduciary relationship - duty to devote all effort initiative and talent to the benefit of the employer - obligation to make employer's business more profitable - breach of this duty may justify termination without notice 109) Having been harmed by an employee, or faulty equipment of the employer, the injured worker had only the option of suing his boss. As this was a very risky career move at best, the legislation removed the need to jeopardize one's employment to recover damages for injury at work, by creating a compensation fund.
Version 1
43
110) This case looks at the issues of negligence covered in earlier chapters of the text with the added dimension of employer liability for the torts of employees which cause injury to third parties. The victim may bring action against both the employee and the employer under the notion of vicarious liability and the defendants may then be held jointly and severally liable. An important point in vicarious liability of employers is that the employee must have been negligent and caused injury or damage while acting within the scope of his or her employment. Otherwise, the employer is relieved of liability. In this fact situation, the employee had ceased his work-related duties for the day and was pursuing personal pleasure at the time of the accident. He was driving his own vehicle and, although he received a fixed allowance for the car, it was not engaged in the pursuit of the employer's business at that time. In a suit for damages for personal injury, it is unlikely that the employer would be found liable. However, once Stanley took the afternoon off, he ceased to be under the control of his employer and was not acting within the scope of his duties. He would, thus, be held responsible for the injury. Based on Moore v. Fox and Abbott Laboratories Ltd., [1945] O.W.N. 247.
Version 1
44
111) The main issue in this case is the determination of reasonable notice; in particular, whether she should be treated as having 18 months or 24 years of employment service. It is clear that her employment with the former company terminated and that employment with the purchaser company became new employment. However, she was not treated as a new employee in this case. She received a highly responsible position, a substantial wage increase, in line with that of senior employees, and her records indicated that she commenced employment 24 years earlier. The most convincing evidence in favour of a more generous notice period is the implicit recognition by the "new" employer that it was receiving, not only a 24 year employee but also the benefit of the services of a very experienced manager and one which was fully familiar with the operation of the business. This was clear from observing the responsibility and rewards she was given in the "new" employment. Consequently, recognition should be given to the period of service spent with the predecessor employer. Other factors to be considered in assessing reasonable notice are the employee's age, gender, type of position held, salary and customs of the business. The dismissed employee is obliged to mitigate and seek suitable new employment immediately. Any earnings received from employment during the established proper notice period would be deducted from any damages to which she is entitled. Based on Addison v. M. Lock Ltd., [1986] 1 D.C.L.D., Issue 1, 3.
Version 1
45
112) This case explores the issues of human rights discrimination on the basis of religion and the requirement of employers to reasonably accommodate the religious constraints of employees. The employer department store will argue that it has sound business reasons for its rule that full time employees must be available for Friday and Saturday shifts and that the "bona fide requirement" does not intend to discriminate. In order to maintain this rule, however, an employer must be able to demonstrate that its business operations would be adversely affected by accommodating the special needs of the employee. In this case, Amanda was unable to comply with the condition of Saturday work without violating her religion. The fact that she had complied for a number of years during which she had no strong religious affiliation is not relevant in light of her new circumstances, provided they are real and honest. In human rights cases such as this one the focus is not on whether the employer intends its rules to be discriminatory. Rather, it is on the effect of the rule. If it is one which adversely affects an employee or group of employees on a prohibited ground it may be unlawful discrimination. Where a rule does have a discriminatory effect, an employer must make a reasonable effort to accommodate itself to the employee's needs although it is not expected to incur undue burden or expense in so doing. In this case, the court found that the employer failed to demonstrate how its business would be unduly affected by allowing the employee to retain a full time position and by rearranging her hours accordingly. The court found the employer in violation of the Human Rights Code. Based on Ontario Human Rights Commission et al v. Simpson's-Sears Ltd. (1985), 34 A.C.W.S. (2d) 109.
Version 1
46
113) Based on Bacher v. Obar (1989), 28 C.C.E.L. 160. The initial thrust of this case is to determine whether Asturi is an employee or an independent contractor. His responsibilities toward Richards will be vastly different depending on the outcome of that determination. After applying the fourfold and organization tests to this arrangement the outcome is not absolutely clear. However, it resembles more the independent practitioner than employee. The control over Asturi by Richards appears to be limited. The ownership of tools is unclear, however the chance of profit and risk of loss seem to lie squarely with Asturi. As he is not paid a salary as an employee would be, he bears considerable risk for both profit and loss as an independent practitioner would. His work does not exactly resemble that of an independent contractor in that his services are not accessory to the business of Richards although the initiative to do the work and the manner in which it is done are largely within Asturi's control. Concluding then that Asturi in not an employee, he does not owe that same duty of care to Richards. He has his own practice which he is entitled to locate where he wishes. There is no evidence of a restrictive covenant in any contract which may exist between Asturi and Richards. Asturi is also entitled to take his patients with him and to copy their records. However, whether Asturi is an employee or an independent practitioner does not relieve him of the obligation to provide sufficient and reasonable notice to Richards of his intention to leave the arrangement and set up his own practice elsewhere. At trial the leaving dentist was found not to be an employee and was free to set up the separate practice in close proximity and to take his patients with him. He was found liable for damages for failing to give reasonable notice which was determined by the court as six weeks.
Version 1
47
114) Certification process: - establishment of a new union or international local - solicitation of members from the appropriate group of employees - written application for certification to labour relations board - certification hearing - determination of appropriate bargaining unit - determination of employee support by evidence and/or representation vote - representation votes are usually held if there is a dispute as to the extent of membership or if evidence of support falls within a marginal range 115) Discharge and Discipline: - employer's ability to suspend or discipline - use and importance of progressive discipline - role of arbitration to review an employer's actions - discretion of arbitrator to substitute penalties and order reinstatement with compensation for wrongful dismissal - careful hiring is necessary since termination of an employee is difficult under a collective agreement unless just cause is shown
Version 1
48
116) Union-member relationship: - contractual nature of relationship - prima facie ability of union to expel members for failure to abide by the contract - duty of union to act fairly and without discrimination towards members or potential members particularly in light of onerous closed shop and union shop requirements - duty to allow a member to be heard and defend his position to the membership before expulsion - ability of the court to examine decisions of union memberships regarding expulsion of members - individual member's lack of bargaining power to affect the rules of union membership to which he must submit 117) The issue here is the conflict between affirmative action policies of the provincial government and the employment practice of 'fairness' in the distribution of work amongst unemployed union members. The purpose of the hiring hall is normally to assign jobs on the basis of the longest unemployed individual to be given the first job opportunity if qualified to do the work. The union has a statutory duty under the Labour Relations Act to fairly represent all its members, and this duty should be examined in the light of the affirmative action policies of the government. Students should also suggest how the issue might be resolved to ensure fairness to all. e.g.: by allowing employers to decide, the union is not an employer, but merely a facilitator in the hiring process, and not subject to the affirmative action policies.
Version 1
49
118) This case is meant to explore the issue of alternate working conditions or the work relationship during the negotiation process. Here the issue is the timing of the change in working conditions. From the employer's point of view the revocation of free parking privileges was announced before the negotiation process had begun and, as such, did not constitute an alteration of working conditions during negotiation. The union contends that the revocation announcements, made immediately prior to the renegotiation process, was in anticipation of the matter being a bargaining issue or, at least an indication of expectations in the bargaining process, and, thus, constitutes a unilateral change in conditions. The Labour Relations Board held that the union's complaint was valid on the grounds that once the notice to revoke free parking was given, the parties placed the issue on the bargaining agenda. By doing so, the parties gave effectiveness to the prior notice, encompassing it in the negotiation process. Based on: Ont. Nurses' Association v. Scarborough Centenary Hospital Association, [1979] O.L.R.B. Rep. 56.
Version 1
50
119) a. The owner of the picketed ship has the right to seek an injunction to prohibit the picketing as secondary picketing. The union members were not employees of this particular ship owner nor were they performing any services of any kind. Furthermore, the picketed ship was not a customer of the picketers' employer and could not carry any direct influence in the outcome of the picketers' cause. The picketing activity, however, created financial risks for the ship through delay. The union members have a right to convey their message to the government, however, through established and lawful channels. The picketing of another party lawfully carrying out its business and uninvolved in the political decision process in this case amounts to harassment. b. Even though there was no existing labour dispute between these union members and their employer, the court in this case decided that this amounted to prohibited secondary picketing. Accordingly, the injunction was granted. The dispute which provoked the picketing was between the union and the government. While secondary picketing to peacefully convey information is not illegal, the interference with the operation of the ship and the violence that took place would be an illegal activity. 120) Answers will vary.
Version 1
51
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Barton boarded a large commercial aircraft at Kingston for a flight to Toronto. He placed his coat on the seat beside him but was told by the flight attendant to place his coat on the shelf above his seat. He did so, but at the end of the flight, left the plane without taking his coat with him. He later realized that he did not have his coat and went back to the aircraft to retrieve it. His coat was missing. Barton has no rights against anyone because he failed to take his coat with him when he left the aircraft. ⊚ ⊚
true false
2) Barton boarded a large commercial aircraft at Kingston for a flight to Toronto. He placed his coat on the seat beside him but was told by the flight attendant to place his coat on the shelf above his seat. He did so, but at the end of the flight, left the plane without taking his coat with him. He later realized that he did not have his coat and went back to the aircraft to retrieve it. His coat was missing. The airline is liable for the loss of Barton's coat, as it was in possession of the coat at the time it was taken. ⊚ ⊚
true false
3) Barton boarded a large commercial aircraft at Kingston for a flight to Toronto. He placed his coat on the seat beside him but was told by the flight attendant to place his coat on the shelf above his seat. He did so, but at the end of the flight, left the plane without taking his coat with him. He later realized that he did not have his coat and went back to the aircraft to retrieve it. His coat was missing. The airline is not liable for Barton's loss, as it never received possession of the coat. ⊚ ⊚
true false
4) Barton boarded a large commercial aircraft at Kingston for a flight to Toronto. He placed his coat on the seat beside him but was told by the flight attendant to place his coat on the shelf above his seat. He did so, but at the end of the flight, left the plane without taking his coat with him. He later realized that he did not have his coat and went back to the aircraft to retrieve it. His coat was missing. Only the flight attendant is liable for the loss, as he instructed Barton to place his coat on the shelf above his seat. Version 1
1
⊚ ⊚
true false
5) Sharif agreed to store Bartle's canoe for the winter months in a garage that was attached to his house. The next June, Sharif moved the canoe from the garage to a shed at the back of the house, "where it would be safer." The house and shed were later struck by lightning and burned to the ground. Bartle's canoe was destroyed in the fire. The storage of the canoe was a bailment for reward. ⊚ ⊚
true false
6) Sharif agreed to store Bartle's canoe for the winter months in a garage that was attached to his house. The next June, Sharif moved the canoe from the garage to a shed at the back of the house, "where it would be safer." The house and shed were later struck by lightning and burned to the ground. Bartle's canoe was destroyed in the fire. Sharif 's only duty was to care for the canoe as if it were his own. ⊚ ⊚
true false
7) Sharif agreed to store Bartle's canoe for the winter months in a garage that was attached to his house. The next June, Sharif moved the canoe from the garage to a shed at the back of the house, "where it would be safer." The house and shed were later struck by lightning and burned to the ground. Bartle's canoe was destroyed in the fire. Sharif is liable for the loss of the canoe because he moved it from the garage. ⊚ ⊚
true false
8) Sharif agreed to store Bartle's canoe for the winter months in a garage that was attached to his house. The next June, Sharif moved the canoe from the garage to a shed at the back of the house, "where it would be safer." The house and shed were later struck by lightning and burned to the ground. Bartle's canoe was destroyed in the fire. Sharif is not liable for the loss of the canoe, because it was destroyed by an act of God. ⊚ ⊚ Version 1
true false 2
9) Henry parked his automobile in Allison's Car Park and was requested by the attendant to leave the keys in the car and the car unlocked. Henry received a receipt for the parking which contained the following note on the reverse side of the ticket. "Proprietor of lot will not be responsible for damage to car or contents." A similar sign was located at the entrance to the car parking area. When Henry returned to the lot, he discovered that his car had a damaged front fender. Because Henry did not give the keys to the attendant, there was no transfer of possession, and therefore, no bailment created. ⊚ ⊚
true false
10) Henry parked his automobile in Allison's Car Park and was requested by the attendant to leave the keys in the car and the car unlocked. Henry received a receipt for the parking which contained the following note on the reverse side of the ticket. "Proprietor of lot will not be responsible for damage to car or contents." A similar sign was located at the entrance to the car parking area. When Henry returned to the lot, he discovered that his car had a damaged front fender. The parking of the unlocked automobile in the car park with the keys left in the car was a bailment for reward. ⊚ ⊚
true false
11) Henry parked his automobile in Allison's Car Park and was requested by the attendant to leave the keys in the car and the car unlocked. Henry received a receipt for the parking which contained the following note on the reverse side of the ticket. "Proprietor of lot will not be responsible for damage to car or contents." A similar sign was located at the entrance to the car parking area. When Henry returned to the lot, he discovered that his car had a damaged front fender. Even if Henry was fully aware of the disclaimer of liability, Allison's Car Park would be liable for the damage to his car. ⊚ ⊚
Version 1
true false
3
12) Henry parked his automobile in Allison's Car Park and was requested by the attendant to leave the keys in the car and the car unlocked. Henry received a receipt for the parking which contained the following note on the reverse side of the ticket. "Proprietor of lot will not be responsible for damage to car or contents." A similar sign was located at the entrance to the car parking area. When Henry returned to the lot, he discovered that his car had a damaged front fender. The disclaimer of liability on the back of the receipt would not by itself allow the proprietor to avoid liability, unless the notice was brought to Henry's attention before he parked his car. ⊚ ⊚
true false
13) Carl requested Simple Delivery Service to pick up a refrigerator at his home and deliver it to his cottage, some 160 kilometres away. Simple Delivery picked up the refrigerator, but through a mix up in delivery bills, lost the refrigerator. In this case, the pickup of the refrigerator by Simple Delivery Service created a bailment. ⊚ ⊚
true false
14) Carl requested Simple Delivery Service to pick up a refrigerator at his home and deliver it to his cottage, some 160 kilometres away. Simple Delivery picked up the refrigerator, but through a mix up in delivery bills, lost the refrigerator. A common carrier, such as Simple Delivery Service, is virtually an insurer in the event of a loss of goods placed in its possession. ⊚ ⊚
true false
15) Carl requested Simple Delivery Service to pick up a refrigerator at his home and deliver it to his cottage, some 160 kilometres away. Simple Delivery picked up the refrigerator, but through a mix up in delivery bills, lost the refrigerator. Simple Delivery Service would not be liable for the loss if it could prove that the refrigerator was destroyed as a result of an act of God. ⊚ ⊚
Version 1
true false
4
16) Carl requested Simple Delivery Service to pick up a refrigerator at his home and deliver it to his cottage, some 160 kilometres away. Simple Delivery picked up the refrigerator, but through a mix up in delivery bills, lost the refrigerator. Common carriers, such as Simple Delivery Service, are bailees for reward. ⊚ ⊚
true false
17) Under no circumstance may a valid sub-bailment be made without the consent of the original bailor. ⊚ ⊚
true false
18) Once a plaintiff shows that bailed goods have not been returned to him, he may rely on the principle of res ipsa loquitur. ⊚ ⊚
true false
19) Sandra leaves her car in a commercial parking lot and pockets the keys. She sees a sign that reads "Use of space only-not responsible for loss or damage however caused." Her car is damaged by persons unknown and she sues the operator. The operator relies on his warning. He will likely succeed. ⊚ ⊚
20)
true false
To be a common carrier is to be a virtual insurer of the goods carried. ⊚ ⊚
true false
21) Chris stops at a motel and leaves his bags in the room. As the nearest restaurant is some distance away, he is occupied for some time. Upon his return he finds his valuables gone and sues the owner. The liability of the owner is absolute by statute law.
Version 1
5
⊚ ⊚
true false
22) A bailment without monetary reward, even if a benefit exists for both parties, is gratuitous. ⊚ ⊚
true false
23) A bailee for storage faces the same standard of care of a skilled shopkeeper, that is to say, absolute liability for all foreseeable risks. ⊚ ⊚
true false
24) Where goods have been bailed for repair, and a dispute arises, the bailee will likely claim a right of lien while the bailor will claim conversion. ⊚ ⊚
25)
true false
A lease of goods is not a bailment of goods. ⊚ ⊚
true false
26) A way to avoid liability is for all bailees to say, "I will treat these goods as prudently as I would treat my own in similar circumstances." ⊚ ⊚
Version 1
true false
6
27) Kamala shipped a parcel with a passenger bus company acting as a private carrier. The parcel contained semi-breakable gifts for her parents in another city. When the parcel arrived Kamala's parents notified her of damage to the parcel's contents. Kamala visited the bus station to complain. An employee of the bus company who dealt with her complaint told her she should have used a courier and, as a private carrier, the company had no obligation to exhibit reasonable care of shipped goods. ⊚ ⊚
true false
28) Henry and Juan left their car at a parking lot and deposited their keys with the attendant. They then left the lot and carried on with their day's business. On return to the lot the pair realized that their car was not there. They approached the attendant and brought the situation to his attention. Fearing reprisal for the theft from his lot, the attendant flipped Henry's pay stub over and showed him the limitation of liability printed on the back. This warning is sufficient to protect the parking lot from any liability under the law of bailment. ⊚ ⊚
true false
29) Since there is no common law right for a warehouse operator to hold goods until storage charges are paid, the operator must rely on either express provisions in the storage contract, or statutory provisions for lien. ⊚ ⊚
30)
true false
Private carriers face a higher standard of care as bailees than do common carriers. ⊚ ⊚
true false
31) One of the principal functions of a bill of lading is to act as evidence of title to the goods being carried. This allows for considerable ease in transferring ownership of the goods during transit. ⊚ ⊚
Version 1
true false
7
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 32) Perishable goods were carried by a common carrier. The goods arrived in an unsaleable condition because a bridge was washed out by flooding during transport. The occurrence was in no way foreseeable or avoidable by the bailer. The bailee will be required to
A) B) C) D)
pay nothing because the event was unforeseeable. compensate for the value of the goods because it was a bailee for reward. compensate for the value of the goods because he is, in fact, an insurer. None of the responses are correct.
33) The following are types of bailments for which a bailee is required to protect the goods from foreseeable harm:
A) B) C) D) E)
34)
gratuitous bailment. bailment for reward. bailment for the benefit of the bailee and the bailor. bailment for reward and bailment for the benefit of the bailee and the bailor. All of the responses are correct.
A bailee for reward
A) has a duty to protect the goods from theft. B) has a duty to use all reasonable care in respect of the goods while in its possession. C) will not be found liable where the goods are damaged or lost without evidence of fault on behalf of the bailee. D) has a duty to protect the goods from theft and has a duty to use all reasonable care in respect of the goods while in its possession. E) All of the responses are correct.
35) Once the goods are delivered by the ________ into the charge of the ________, the bailment is ________. Version 1
8
A) B) C) D) E)
bailee; bailor; in existence bailor; bailee; in existence bailee; bailor; completed bailor; bailee; completed None of the responses are correct.
36) Mary takes her engagement ring to Sparkles Jewellers for cleaning and appraisal. She is to pay for the work when she picks up the ring. While the jeweller's back is turned, someone slips behind the counter and steals a number of the boxes containing repaired jewellery, including Mary's ring.
A) Since this is a bailment for reward and the jeweller was negligent, Mary can sue the jeweller successfully. B) Since Mary has not yet paid the jeweller, this is a gratuitous bailment and he would only be liable if he were grossly negligent. C) Since the bailment was for Mary's benefit, she cannot sue the jeweller. D) Since the bailment is not complete until the possession of the ring is returned to Mary, bailment law is not applicable here. E) If Mary's ring were insured, the insurer would be the only party with any liability to compensate for the loss of the ring.
37)
When a bailor's goods are not returned or are returned in a damaged condition
A) the bailor must satisfy the court that the standard of care fixed for the bailment was not maintained. B) the bailor must prove that a bailment existed and show his loss. C) the bailee's liability will be limited by the existence of an exemption clause which is brought to the bailor's attention before the bailment is completed. D) a bailee will not be liable if it was a gratuitous bailment as there was no consideration in the arrangement. E) All of the responses are correct.
Version 1
9
38) The parking garage in Hana's office building offers a valet parking service at no extra charge for customers in a hurry. The customer leaves the car with the keys in it just outside the attendant's booth. The attendant then parks the car somewhere in the garage and retains the keys until the customer returns. If a car is damaged after it is parked by the valet attendant,
A) there is no liability because the valet service is a mere adjunct of the garage's principal business of renting parking spaces to patrons, and most park their own cars. B) there is no liability because the free valet service is a gratuitous bailment and the garage operator would only be liable for gross negligence. C) the garage operator is liable because a true bailment exists. D) the garage operator's liability would be limited to the cost of the parking if a large red sign explaining the limitation is posted at the payment booth. E) the car owner is liable.
39) Nelson agreed to store Zarah's canoe for the winter months in a garage that was attached to his house. The next June, Nelson moved the canoe from the garage to a shed at the back of the house, "where it would be safer." The house and shed were later struck by lightning and burned to the ground. Zarah's canoe was destroyed in the fire.
A) The storage of the canoe was a bailment for reward. B) Nelson's duty was to take special care of the canoe as he is liable for any damage while it is in his possession. C) Nelson is liable for the loss of the canoe because he moved it from the garage. D) Nelson is not liable for the loss of the canoe, because it was destroyed by an act of God. E) Zarah is liable.
40) The Mobile Garage advertised automobile repairs by "Licensed Mechanics." Lars, a car owner, took his automobile to the Mobile Garage for repairs. The garage owner Fred examined the car and indicated that extensive repairs were required. Lars left his car with Fred who sent the car to ABC Engines Ltd. for specific work. There the repairs were carried out by another licensed mechanic, Rodney, an employee of ABC. Lars paid $1,500 for the repairs, but on his way home discovered that the repairs had been done negligently, and they had ruined the engine.
Version 1
10
A) Lars may only sue Rodney, the mechanic that negligently performed the service. B) The Mobile Garage is liable to Lars under the vicarious performance rule for Rodney's negligence. C) Money damages awarded by the court would attempt to put Lars in the same position that he would have been in had the contract been properly performed. D) Lars was entitled to expect that the car would be repaired by Mobile. E) Lars was entitled to expect that the car would be repaired by Mobile and money damages awarded by the court would attempt to put Lars in the same position that he would have been in had the contract been properly performed.
41) An important distinction is that between a bailment and a licence. While a bailment requires the transfer of possession and a common law duty of safekeeping and return, the licence
A) B) C) protection. D)
lacks the exclusivity of possession. lacks the responsibility for protection. lacks either or both of the exclusivity of possession and the responsibility for lacks the transfer of possession only.
42) The transfer of securities by a debtor to a creditor as security for the payment of a debt is known as
A) B) C) D)
carriage of goods. a pledge. a pawn. bailment.
43) The transfer of possessions (but not ownership) of chattels by a debtor to a creditor who is licensed to take and hold goods as security for payment of debts is known as
Version 1
11
A) B) C) D)
bailment. a pledge. a pawn. carriage of goods.
44) Magda was on a ski trip and staying at the Alpine Lodge, a bed and breakfast. The Alpine Lodge did not allow skis in the guest rooms and provided a ski rack outside the front doors where the guests were allowed to store them. Guests were provided with complimentary locks. Who has possession of the skies when they are in the rack?
A) Magda, as the owner still maintains possession as the lodge has no actual knowledge of whose skis are on the rack at a given time. B) Magda, as she has the ability to unlock the skis. C) Magda, as the bailor. D) Alpine Lodge as the bailee.
45) Magda was on a ski trip and staying at the Alpine Lodge, a bed and breakfast. The Alpine Lodge did not allow skis in the guest rooms and provided a ski rack outside the front doors where the guests were allowed to store them. Guests were provided with complimentary locks. Geoff, an employee operates a ski rental business renting out skis from the rack. Can he do this?
A) B) C) D)
No, a bailees cannot grant title (via rental) to something he does not own. No, a bailee cannot interfere with a bailor's right of possession. No, a bailee is liable for failing to meet the standard of care for ski storage. No, there is no exculpatory clause on a sign by the ski rack.
46) Magda was on a ski trip and staying at the Alpine Lodge, a bed and breakfast. To prevent damage to the rooms, the Alpine Lodge did not allow skis in the guest rooms. It provided a ski rack outside the front doors where the guests were required to store them. No extra fee was charged. Guests were provided with complimentary locks. What type of bailment is this?
Version 1
12
A) B) C) D)
Gratuitous bailment Bailment for reward Storage of goods Warehouse storage
47) Gord was on a ski trip and staying at the Caker Creek Chalets, a large hotel and cabin complex. To prevent damage to the rooms no skis were allowed in the guest rooms. It provided a ski rack outside the front doors where the guests were required to store them. No extra fee was charged. Guests were provided with complimentary locks. Gord's skis were stolen. Is Caker Creek Chalets liable?
A) B) C) D)
Yes, they were the bailee. Yes, they were the bailee and the Innkeepers Act applied. Yes, pursuant to the Innkeepers Act. All of the answers are correct.
48) Don loans his jet ski to his friend Sasha for the weekend. While driving to the lake the jet ski fell off the trailer and was badly damaged. Don loaded the jet ski on the trailer. Who is liable for the damage?
A) B) C) D)
Don, as bailor. Don, as he was negligent in loading the jet ski. Sasha, as the bailee. None of the responses are correct.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 49) Bailments can arise in a wide variety of situations and may provide vastly different benefits for the contracting parties. Discuss the differing standards of care associated with bailments and explain the rationale for each.
Version 1
13
50) The liability of innkeepers has a long history evolving out of necessity. Briefly explain the development of this form of liability and discuss its context in modern society.
51) Compare and contrast the nature of bailments for warehouse storage and common carriage of goods.
52) Douglas, a businessman, rented a car from Lemon's Auto Rental. He intended to use the car to distribute products from his business to those of his customers. In the course of his commuting around the city, Douglas encountered many streets laden with "potholes." Just before returning the car to the rental lot the car suffered a breakdown resulting from problems with the suspension system. Three weeks later Douglas received a bill for the repair of the car he had rented. Douglas appealed his bill to the company stating that they should be responsible for the repair. The company replied that the rental agreement stated that the lessee is responsible for problems created by normal "wear and tear." Discuss the relevant issues of bailment in light of this situation.
Version 1
14
53) Compare and contrast the nature of bailments between private carriers and common carriers.
54) Mrs. Rich took her mink coat and fox jacket to Fun Fur Ltd. for summer storage. She also requested that Fun Fur clean the furs and make some minor repairs. Fun Furs, not having proper facilities, sent the items out to Kleen-All for the cleaning and repair work. In September, Mrs. Rich returned to Fun Furs to pick up her coats and pay for storage and repair costs. Fun Furs discovered that the items had never been returned by Kleen-All. On telephoning Kleen-All they were informed that the furs had been stolen although no one knew exactly when or how. Discuss the rights and liabilities, if any, of the parties involved if legal action was taken, and determine the outcome.
55) Johnson was injured in an automobile accident and was taken by ambulance to the nearest hospital. At the time, he had in the pocket of his jacket a sum of money, some credit cards and a sapphire ring he intended to give to his girlfriend. While Johnson was being treated at the hospital, the money, credit cards and ring disappeared from his jacket. Once he was feeling better, Johnson brought an action against the hospital to recover his loss. What principles of law might Johnson advance in his claim, and what defences might be raised by the hospital? Render a decision.
Version 1
15
56) The Empire Theatre Co. operated a movie theatre and a free parking lot which was adjacent to the theatre building. The lot had posted a prominent "FREE PARKING" sign as well as another much smaller sign which disclaimed the lot's liability for loss or damage. Scarlett parked her car in the theatre's lot while she attended the theatre to see her favourite classic film, "Gone With The Wind." While in the theatre, Scarlett's car was stolen. It was subsequently recovered, although some damage had resulted, and the car needed repairs. Scarlett brought an action against the Empire Theatre for recovery of damages with respect to the car. What arguments might the parties raise in this case?
Version 1
16
Answer Key Test name: Chapter 20 Test Bank 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) FALSE Version 1
17
27) FALSE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) C 33) E 34) D 35) B 36) A 37) B 38) C 39) D 40) E 41) C 42) B 43) C 44) C 45) B 46) B 47) C 48) B
Version 1
18
49) Standards of care: a. gratuitous bailment - if for benefit of bailor, an obligation exists only to take reasonable care of the goods by protecting against foreseeable harm - if for benefit of bailee, the obligation is to use reasonable care in dealing with the goods or liability for negligence would arise - if for benefit of both, the standard applies of a prudent person caring for his own goods b. bailment for reward - depends on the relationship in each case, ranging from protection against foreseeable harm (warehouse operators) to virtual insurers of the goods (common carriers) - degree of care required depends in each case on the control which the bailee has over the goods, any representation of skill or facilities made by the bailee, the relative extent of the benefit to the bailee and any statutory provisions respecting liability
Version 1
19
50) Innkeeper's liability: - historically, inns consisted of large sleeping chambers in which theft was common or frequently assisted by the innkeeper - to prevent such occurrences, a high standard of care with ensuing liability was placed on the innkeeper. - more recently, legislation has limited that liability to nominal amounts if loss is incurred due to negligence of the innkeeper - no liability will ensue if the loss occurred as a result of the guest's negligence, however, full liability applies where goods were given to the innkeeper for safekeeping or were refused for safekeeping - to obtain the statutory protection the innkeeper must offer both accommodation and meals and post the relevant sections of the legislation in all guest and public rooms 51) Students will find the information for warehouse storage (Storage of Goods) at pages 455-458 and for common carriage of goods at pages 463-464. 52) The rental of an automobile is a bailment for reward. The standard of care would probably be the standard of the reasonable person, but this may be altered by the parties to the bailment by a term of their contract. They did so in this case, and Douglas may be liable. He might, however, be able to shift the loss to the municipality for failing to repair the roads. 53) Students will find this information at pages 462-464 of text.
Version 1
20
54) This case, based on Pearlman v. Silverberg Brothers (1921), 21 O.W.N. 74, concerns the sub-bailment and standard of care in a bailment for reward. The bailor is entitled to bring action against the bailee for loss of the coats. Similarly, the bailee/sub-bailor may maintain an action against the sub-bailee for the loss or conversion, but must hold any monies received for the bailor. For the sub-bailment to be permissible it must be shown to be a custom of the trade or one made by express agreement. The business of fur storage and cleaning are ones for which a reasonable case may be made that a trade custom exists in favour of sub-bailment. If so, the bailor will not be responsible for an improper sub-bailment but may be liable if it failed in its duty of care. Both the main and sub-bailments were bailments for reward which raises the issue of the standard of proper care to be employed by the bailees. Generally, the courts have held that bailees for reward owe a duty to the bailor to safeguard the property of the bailor as a reasonably prudent person would do to safeguard his or her own property. The onus is on the bailee and here, particularly on the sub-bailee, to show that any loss which occured did not result from its neglect to use the required degree of care and diligence. If reasonable care was taken and the bailee was not negligent with respect to the loss or damage it will not normally be held liable. In the Pearlman case, supra, the court held that there was no satisfactory evidence to show under what circumstances the furs were lost or stolen. As a result, the sub-bailee had not discharged the onus of showing it was not negligent in refusing to return the goods.
Version 1
21
55) This case is based on Germina v. Toronto General Hospital (1920), 19 O.W.N. 547 and raises the issue of the nature and formation of the bailment relationship. The patient will attempt to establish that a bailment of his clothing and possessions contained in the clothing arose when he was admitted to the hospital. He will argue that the goods were delivered and the hospital took possession of the goods for the purpose of holding them until he was discharged, at which time they would be returned to him. In essence, it is a gratuitous bailment for the benefit of the bailor, in which case the bailee's obligation is only to take reasonable care of the goods by protecting them from foreseeable risk of harm. The hospital will raise the defence that no bailment existed on the basis that all three elements of bailment were not present. In particular, the hospital may have been delivered the patient's goods, but possession of them was never officially taken. This was essentially the court's view in this case. In the absence of proof that the goods had, at any time, been taken charge of by anyone connected with the hospital, the plaintiff could not recover.
Version 1
22
56) This case is based on Way Sagless Spring Co. v. Bevradio Theatres Ltd., [1942] O.W.N. 236. The plaintiff will claim a bailment in which the bailee, the theatre, has a duty of care to protect vehicles in its lot from risk of harm, and will be liable if damage occurs as a result of a failure to meet its standard of care. The theatre, in its defence, will argue that the relationship was not one of bailment, as in the typical parking lot cases where the lot requires the vehicle to be left in its care and the keys deposited with the attendant. This situation is simply the use of space for the convenience of the patron and for which the theatre receives no remuneration. Moreover, the disclaimer sign was posted in the lot. The arrangement here may be described as a gratuitous bailment for the benefit of both the bailor and bailee. The patron receives the benefit of free parking while attending the theatre and the theatre receives the benefit of the patron's attendance by providing the service. In such a case, the standard of an ordinary prudent person applies. The court held that the theatre, having invited the public to attend, offered a further inducement to do so in the form of free parking. By offering this inducement it undertook to take care of the patrons' cars. There was no evidence that the disclaimer sign was brought to the driver's attention. Furthermore, after noticing the free parking sign, patrons were unlikely to look for additional signs.
Version 1
23
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Wally visited the showroom of the MayDay Company, and verbally ordered an $800 refrigerator. The MayDay Company verbally accepted the order, and later (the next day) sent Wally a duplicate purchase order for the appliance, along with a request that he sign and return one copy. Wally did not sign the order, and when the appliance was delivered, refused to take delivery. MayDay sued Wally for breach of contract. Wally could raise the requirement of writing in the Sale of Goods Act as a defence. ⊚ ⊚
true false
2) Wally visited the showroom of the MayDay Company, and verbally ordered an $800 refrigerator. The MayDay Company verbally accepted the order, and later (the next day) sent Wally a duplicate purchase order for the appliance, along with a request that he sign and return one copy. Wally did not sign the order, and when the appliance was delivered, refused to take delivery. MayDay sued Wally for breach of contract. The purchase order sent by MayDay to Wally would defeat Wally's defence based upon the writing requirements in the Sale of Goods Act. ⊚ ⊚
true false
3) Wally visited the showroom of the MayDay Company, and verbally ordered an $800 refrigerator. The MayDay Company verbally accepted the order, and later (the next day) sent Wally a duplicate purchase order for the appliance, along with a request that he sign and return one copy. Wally did not sign the order, and when the appliance was delivered, refused to take delivery. MayDay sued Wally for breach of contract. If Wally had accepted delivery of the refrigerator, and a week later refused to pay, MayDay Company would not require a signed purchase order to enforce the contract. ⊚ ⊚
Version 1
true false
1
4) Wally visited the showroom of the MayDay Company, and verbally ordered an $800 refrigerator. The MayDay Company verbally accepted the order, and later (the next day) sent Wally a duplicate purchase order for the appliance, along with a request that he sign and return one copy. Wally did not sign the order, and when the appliance was delivered, refused to take delivery. MayDay sued Wally for breach of contract. In its suit against Wally, the only remedy available to the MayDay Company would be specific performance of the contract. ⊚ ⊚
true false
5) Semple agreed to purchase a quantity of bird feed for his canary from a local pet shop. The shopkeeper agreed to weigh the feed and have it in a package for Semple when he returned in one hour. The shopkeeper weighed the feed, and wrote the weight, price, and Semple's name on the package. Before Semple returned, the package was stolen from the shop. The title to the goods passed when the agreement was made, and the goods belonged to Semple when they were stolen. ⊚ ⊚
true false
6) Semple agreed to purchase a quantity of bird feed for his canary from a local pet shop. The shopkeeper agreed to weigh the feed and have it in a package for Semple when he returned in one hour. The shopkeeper weighed the feed, and wrote the weight, price, and Semple's name on the package. Before Semple returned, the package was stolen from the shop. The title to the goods had not passed, because Semple had not paid for them. ⊚ ⊚
true false
7) Semple agreed to purchase a quantity of bird feed for his canary from a local pet shop. The shopkeeper agreed to weigh the feed and have it in a package for Semple when he returned in one hour. The shopkeeper weighed the feed, and wrote the weight, price, and Semple's name on the package. Before Semple returned, the package was stolen from the shop. The title to the goods had not passed because the shopkeeper had not notified Semple that the goods were weighed, and in a deliverable state. ⊚ ⊚
Version 1
true false
2
8) Semple agreed to purchase a quantity of bird feed for his canary from a local pet shop. The shopkeeper agreed to weigh the feed and have it in a package for Semple when he returned in one hour. The shopkeeper weighed the feed, and wrote the weight, price, and Semple's name on the package. Before Semple returned, the package was stolen from the shop. The goods were unascertained goods, and title passed when they were unconditionally appropriated to Semple by the seller's act of writing Semple's name on the package. ⊚ ⊚
true false
9) Baker agreed to purchase a set of books on display in Flack's Book Store. The price for the set was $300, and Baker gave Flack $150 to "bind the bargain." Flack delivered the books to Baker's home the next day, but Baker refused delivery, as he had found a similar set in another shop at a slightly lower price. Flack is entitled to keep Baker's $150, as it was a deposit. ⊚ ⊚
true false
10) Baker agreed to purchase a set of books on display in Flack's Book Store. The price for the set was $300, and Baker gave Flack $150 to 'bind the bargain'. Flack delivered the books to Baker's home the next day, but Baker refused delivery, as he had found a similar set in another shop at a slightly lower price. Baker is entitled to a return of his $150, because the title to the goods had not passed. ⊚ ⊚
true false
11) Baker agreed to purchase a set of books on display in Flack's Book Store. The price for the set was $300, and Baker gave Flack $150 to 'bind the bargain'. Flack delivered the books to Baker's home the next day, but Baker refused delivery, as he had found a similar set in another shop at a slightly lower price. Flack may retain the $150 and sue Baker for the remainder of the purchase price, if he is prepared at all times to deliver the goods to Baker. ⊚ ⊚
Version 1
true false
3
12) Baker agreed to purchase a set of books on display in Flack's Book Store. The price for the set was $300, and Baker gave Flack $150 to 'bind the bargain'. Flack delivered the books to Baker's home the next day, but Baker refused delivery, as he had found a similar set in another shop at a slightly lower price. Baker is obliged to take delivery, as the title passed when the contract was made. ⊚ ⊚
true false
13) Sidu sells his expensive watch to Sylvester in return for Sylvester's almost new mountain bike. The watch stops working immediately and the jeweller tells Sylvester that it is not repairable. Under the Sale of Goods Act, Sylvester is entitled to the return of his bike provided he gives Sidu back the watch. ⊚ ⊚
true false
14) Sunnil agrees to sell the quilt she is making to Gianna when it is finished. This is not a contract for the sale of goods until the quilt is completed. ⊚ ⊚
true false
15) Ari telephones the stationery store to purchase an electric pencil sharpener for her office for $65. This contract for the sale of goods is unenforceable if Ari changes her mind because it is not in writing. ⊚ ⊚
true false
16) You hear someone in your office talking about the necessity of "home-grown" laws to properly protect Canadians. "You can't just adopt another country's laws," your colleague says. "You have to tailor them carefully to the Canadian scene or they will not work." The Sale of Goods Act is a good example of what that person is talking about. ⊚ ⊚
Version 1
true false
4
17) "Title and the right of ownership have the same meaning in law," says Vivienne. She is right. ⊚ ⊚
true false
18) Domenic and Ben Ltd. has a standard form contract which contains a clause that says all warranties and conditions, implied or expressed, at common law, under statute or by custom, are excluded from the contract. The Sale of Goods Act allows them to do this. ⊚ ⊚
true false
19) A doctor ordered 20 boxes of tongue depressors by mail. The suppliers had them in stock and sent them off by return mail, but they were never delivered to the doctor's office although the parcel was correctly addressed. They were the property of the doctor when they were lost. ⊚ ⊚
true false
20) Dom bought a new car, after looking it over carefully and taking it for a test drive. Due to a defect in the manufacture of the steel from which the back axle was made, the axle collapsed the next day when Dom was driving to work. He was unhurt but the car is a write-off. The loss is his since he had the opportunity to examine the car before buying. ⊚ ⊚
true false
21) "What does caveat emptor mean, Daddy?" said Shirley. Unwilling to admit he was not sure, Shirley's dad said, "It means let the seller beware." "That's not what this law book says" said Shirley, and she was right. ⊚ ⊚
Version 1
true false
5
22) Antonella is slow to pay the invoice on the computer printer delivered to her. Nothing is mentioned in the contract about payment except that it is due on receipt of the invoice. Antonella has breached a warranty. ⊚ ⊚
true false
23) Business transactions have been a process which has evolved over centuries. With this evolution of business has come the need for a system to govern it and to provide protection for both parties to the transaction. The Sale of Goods Act is the result of that need for a piece of legislation, the Act governs all business transactions, for both monetary and non-monetary reward. ⊚ ⊚
true false
24) Since any Sale of Goods may give rise to a dispute, the Sale of Goods Act provides remedies to the parties involved in any given transaction and help to alleviate conflict. Remedies for the Buyer include, Liens, Action for Price, Damages and Resale. Remedies for the Seller include Rescission, Specific Performance and Damages. ⊚ ⊚
true false
25) Katz purchases a piano from LeBlanc's Music Store. Some weeks later a representative from a finance company approaches Katz and claims a secured interest in his piano. LeBlanc is in breach of implied warranty of quiet possession under the Sale of Goods Act. ⊚ ⊚
true false
26) Denuta builds a house on Evan's property. Subsequently, much of the work is found to be substandard, and the municipal building inspector refuses to issue an occupancy permit to Evan. With Evan having relied on Denuta's skill and judgment, Denuta is in breach, under the Sale of Goods Act, of implied condition of fitness for use intended. ⊚ ⊚
Version 1
true false
6
27) While delivery of goods is a condition and payment is merely a warranty under the Sale of Goods Act, a seller is under no obligation to deliver goods unless payment has been made, or credit terms have been granted. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 28) PlastiCo. contracted to buy 45,000 litres of a chemical from Natural Chemicals Ltd. The chemical still had to be refined at the time the contract was made. Once it was refined, Natural had it pumped into 2,200-litre barrels, and loaded them onto a truck owned by Heavy Haulage Inc., a common carrier. The truck pulls out of Natural's yard, and it is struck by a falling boulder on the mountain road nearby and goes over the cliff. Almost all of the barrels are damaged, and the chemicals leak into the ground.
A) Since the loss of the chemicals was due to an act of God, the two parties will split the loss between them. B) The loss will be Natural's since the barrels were not yet delivered to PlastiCo. C) Since the chemical was unconditionally appropriated to the contract when it was loaded onto Heavy's truck, the loss is PlastiCo's. D) Title to the chemicals was PlastiCo's from the moment the contract was formed and so PlastiCo. must bear the loss. E) Since Natural had not yet notified PlastiCo. that the chemicals were being delivered, the risk of loss remains with the seller, Natural.
29) PlastiCo. contracted to buy 45,000 litres of a chemical from Natural Chemicals Ltd. The chemical still had to be refined at the time the contract was made. Once it was refined, Natural had it pumped into 2,200-litre barrels, and loaded them onto a truck owned by Heavy Haulage Inc., a common carrier. Suppose PlastiCo. is petitioned into bankruptcy and Natural hears about this the day after Heavy Haulage picks up the barrels. Which of the following statements is true?
Version 1
7
A) Since only the buyer may normally recover goods from a carrier, Natural cannot intercept the shipment and repossess it, so Natural may never receive payment for it if there are many creditors with a better claim to PlastiCo's assets. B) If a buyer is bankrupt before delivery of goods, it cannot take title to them so title will remain with Natural and it can repossess them. C) If Natural and PlastiCo. had inserted a clause into the contract which said that title would remain with Natural until the goods were paid for in full by PlastiCo., it would not be effective because it would conflict with the Sale of Goods Act. D) None of the responses are true. E) All of the responses are true.
30) PlastiCo. contracted to buy 45,000 litres of a chemical from Natural Chemicals Ltd. The chemical still had to be refined at the time the contract was made. Once it was refined, Natural had it pumped into 2,200-litre barrels, and loaded them onto a truck owned by Heavy Haulage Inc., a common carrier. Suppose PlastiCo. was not in bankruptcy but was only insolvent. Prior to its insolvency, it had realized that the chemical was going to be surplus for it and had sold its rights to the shipment to Tiny Co. and had instructed Heavy Haulage to deliver it to Tiny. By the time Natural contacts Heavy to stop the delivery in transitu, Heavy has already delivered the barrels to Tiny.
Version 1
8
A) Although Tiny had no notice of the stoppage in transitu and it had bought the shipment in good faith for a reasonable price, nevertheless Tiny has no rights to the barrels since PlastiCo. would have had no rights to them, so Tiny cannot keep them unless it pays Natural. It can then recover the money it paid already to PlastiCo. B) Since Tiny bought the rights to the barrels in good faith at their proper value, and PlastiCo. had no notice of the stoppage in transitu, Tiny has the right to keep them and Natural must look to PlastiCo. for payment of the purchase price. C) Natural is entitled to place a lien on the barrels, preventing Tiny from using their contents until Natural is paid by PlastiCo. D) Although Tiny had no notice of the stoppage in transitu and it had bought the shipment in good faith for a reasonable price, nevertheless Tiny has no rights to the barrels since PlastiCo would have had no rights to them, so Tiny cannot keep them unless it pays Natural. It can then recover the money it paid already to PlastiCo. and Natural is entitled to place a lien on the barrels, preventing Tiny from using their contents until Natural is paid by PlastiCo. E) Since Tiny bought the rights to the barrels in good faith at their proper value, and PlastiCo. had no notice of the stoppage in transitu, Tiny has the right to keep them and Natural must look to PlastiCo. for payment of the purchase price and Natural is entitled to place a lien on the barrels, preventing Tiny from using their contents until Natural is paid by PlastiCo.
31) Farmer Kate bought a truck load of processed goat manure at $1 per kilo from Organic Fertilizers Ltd. for use on her organic vegetable farm. She could not pay for it until it was ascertained how many kilos her truck would hold, so, while it was being put in her truck, she went to make some other purchases in the town. The owner of Organic wrote up the bill once the truck was full and left it at the counter with the clerk. Before Kate got back, the truck was hotwired and stolen along with the manure. The truck was found the next day, but the manure was never seen again.
A) The loss is Kate's because title passed once the contract was formed. B) The loss is Kate's because title passed once the manure was on her truck. C) The loss is Kate's because title passed once the owner of Organic had established the price, since there was nothing left for him to do. D) The loss is Organic's because title did not pass until Kate was notified that the manure had been weighed. E) The loss is Organic's because, until Kate pays for the manure, title does not pass to her.
Version 1
9
32) Flavia bought 4 kilos of onion seeds from Greene's Nurseries while she was waiting for Organic to load her truck with manure. The packages were labelled "Greene's Rose Red Onions." Unfortunately, the seeds were really "Greene's Marigold Yellow Onions," but Flavia could not tell that until they had grown, since the two kinds of seeds are identical to the naked eye. Rose Reds bring a much higher return because they are very popular with those who buy organically grown vegetables and who are willing to pay high prices for them.
A) The rule of caveat emptor applies here and there is nothing that Flavia can do. B) Since the seeds did not correspond with their description, Flavia is entitled to and will claim damages, since there is no point in her treating the contract as being at an end. C) Flavia is entitled to damages, but these cannot include her lost profits. D) Since Flavia bought the seeds under their trade name, she is not entitled to the remedies under the Sale of Goods Act. E) Since the seeds did not correspond with their description, Flavia is entitled to and will claim damages, since there is no point in her treating the contract as being at an end and Flavia is entitled to damages, but these cannot include her lost profits.
33) Sandra visited her usual hair salon and had her long hair conditioned and styled. While there she told her hair stylist that she would like to purchase a shampoo and conditioner for her hair that would keep it moisturized and manageable at home. The stylist recommended several products and described the attributes of each one. Sandra chose Hair So Soft from among the recommended products, particularly because of its fruity perfume. When Sandra uses the products at home her hair became dry and brittle and began to fall out.
A) Sandra can repudiate the contract by returning the products for a return of her money. B) Sandra is entitled only to claim damages for breach of contract. C) The implied condition that the products will be reasonably fit for their intended use does not apply in this case. D) Sandra examined the products before purchasing one, therefore caveat emptor applies. E) Sandra can repudiate the contract by returning the products for a return of her money and the implied condition that the products will be reasonably fit for their intended use does not apply in this case.
Version 1
10
34) Todd visited the showroom of the Bloom Company and orally ordered a $300 microwave. The Bloom Company verbally accepted the order, and later (the next day) sent Todd a duplicate purchase order for the appliance along with a request that he sign and return one copy. Todd did not sign the order, and when the appliance was delivered, refused to take delivery. Bloom sued Todd for breach of contract.
A) Todd could raise the Sale of Goods Act as a defence. B) The purchase order sent by Bloom to Todd would defeat Todd's defence based upon the Sale of Goods Act. C) If Todd accepted delivery of the microwave and a week later refused to pay, Bloom Company would not require a signed purchase order to enforce the contract. D) In its suit against Todd the only remedy available to the Bloom Company would be specific performance of the contract. E) Todd could raise the Sale of Goods Act as a defence and if Todd accepted delivery of the microwave and a week later refused to pay, Bloom Company would not require a signed purchase order to enforce the contract.
35) In Canada, a contract for the sale of goods valued at $1,000 would have to be in writing, unless
A) B) C) D) E)
the buyer accepts part of the goods sold. the buyer makes a part payment of the contract price. the buyer gives something "in earnest" to bind the contract. the contract takes place in British Columbia. Any of these are exceptions are correct.
36) Terry pre-orders a DVD of this year's hit show: Cold Canadian Winter Hobbies online. He received a confirmation number. The $40 will be paid when it is delivered to his home. Is this an enforceable agreement pursuant to the Sale of Goods Act?
Version 1
11
A) Yes, this contract does not have to be in writing. B) Yes, this contract must be in writing and the electronic record constitutes writing. C) No, the contract is still executory and therefore must be in writing. D) No, Terry did not receive the goods, pay a deposit or give something of earnest to bind the contract. Therefore, it must be in writing. E) No, the Sale of Goods Act does not apply to e-commerce.
37) Reuben, the market gardener had a reputation for growing the biggest potatoes in the district. Barb, a gourmet cook, pre-ordered 7 kilograms of potatoes at the market garden. Reuben said that he would weigh and package them and that Barb could return and pick them up when she had completed her shopping. She paid Reuben the $15 price before she left. While she was shopping, a truck, owned by Norbert, backed into Reuben's market garden stall, destroying 100% of his vegetables. Who owns the potatoes?
A) B) C) D) E)
38)
Reuben, title did not transfer until the goods were weighed and packaged. Reuben, he had not yet given possession of the potatoes to Barb. Reuben, the contract was unfulfilled. Barb, she had already paid for the potatoes and Reuben was doing her a favour. Norbert, he negligently destroyed the potatoes.
Which of these is not a rule relating to the passing of title to goods?
Version 1
12
A) If 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, the time of delivery or both are postponed. B) Where the seller must do something to the goods to put them in a deliverable state, title will not pass until the seller does whatever is necessary to put the goods in a deliverable state and notifies the buyer that the goods are now ready for delivery. C) If there is a contract for the sale of specific goods in a deliverable state, but where the seller must weigh, measure, test, or do something to ascertain the price, the property in the goods does not pass until the act is done. Notice to the buyer is not required. D) Where there is a contract for the sale of goods "on approval" or with return privileges the title will pass if the buyer, on receipt of the goods, does anything to signify his or her acceptance or approval of the goods, or the adoption of the contract. E) As soon as the goods ordered by description are produced and in a deliverable state and are unconditionally appropriated to the contract, either by the seller or by the buyer, the property in the goods will pass.
39) A toy store orders 500 stuffed pink pigs and receives 500 stuffed brown dogs. What remedy does it have against the supplier?
A) B) C) D) E)
Rescission. Repudiation. Rectification. Damages. Specific Performance.
40) Jamie ordered a custom-made fireplace screen. The price was $500, and he gave the blacksmith, Vern, a $100 deposit. Vern built the screen and called Jamie advising him of its readiness for pickup. Jamie refused to pick up. What are Vern's damages?
A) B) C) D) E)
Version 1
Damages. Retention of Deposit. Resale. Damages, Retention of Deposit and Resale. Damages or Resale and Retention of Deposit.
13
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 41) Mrs. Sydor took her car to National Automotive to have four new radialtires put on it. A copy of the order for tires of the appropriate size was sent down to the stock boy in the warehouse and he took down four tires, tied them together and taped the order to them, leaving them standing on the floor of the storage space to be picked up by the shipping person with her forklift. Workmen for the telephone company were digging a hole outside and ruptured a gas main which exploded, destroying the warehouse including the four tires. National Automotive says Mrs. Sydor must pay for them. a. Identify the legislation which would clarify whether Mrs. Sydor is responsible for paying for the tires. b. What do you think each party would argue in this case? c. If the tires had been attached to the wheels of Mrs. Sydor's car which had been parked beside the service bay, and someone had then slashed the tires, would your answer change and why or why not?
42) Andy orders a meal in a restaurant. The meal makes him ill with botulism poisoning. Can Andy sue for breach of contract or must he take the more difficult and complex route of suing in tort?
Version 1
14
43) Donald is the owner of a recently closed gas station. John, a neighbouring filling station owner, agreed to buy the gasoline remaining in Donald's tanks. Donald tested the gasoline for the presence of water, which would destroy the gasoline, and found it to be "clean." He then called John informing him of the test results and quoted him a price. John reaffirmed his agreement to buy and arranges pickup of the gas two days later. During the intervening 18-hour period a large amount of rain fell and with the excess amount left on the ground, water drained into the tank and ruined the gas. Upon hearing this, John refused to buy, but Donald pointed out that the gas was already John's and insisted on payment. a. Discuss how the rules of title transfer would help effect a resolution to this situation. b. How would the outcome differ if Donald sold the gas by the litre and if the amount of gas in the tank was unknown and had to be measured, when John came to remove it?
Version 1
15
44) Sam Oakes runs a sole proprietorship known as "Oaks by Oakes." Sam is a man in his late fifties who for a number of years has produced turned oak spindles for staircases. A number of people had approached him to do oak baseboard and trim for custom homes, and he decided to enter this field as well. Sam spoke to his friend George who produced this line of products in pine and asked him what to do about equipment. George told him Eric of "Eric's Tool Shop" had sold him a Model SS90 table router made by Carsoncraft Tools, as being "just the ticket for baseboard and trim." Sam approached Eric, told him he had spoken with George "about the SS90," and told him that he was interested in making baseboard and trim. Eric said he remembered a sale to George a year ago and said "if you want to do up baseboard and trim, the 90 series is the best on the market. I hear George does about 5,000 linear feet a year. Would you do more?" Sam said no, that he would produce only about 4,000 linear feet of trim a year. "Then this will do you fine," said Eric. The shop phone rang, and while Eric was on the line, Sam wrote out a company cheque in the amount on the tag. Eric returned, and Sam handed him the cheque. Eric looked at the amount and pocketed it. He said, "I can deliver to you by the end of the month." "Done deal then," said Sam, and he left. Sam immediately entered into a contract to produce oak trim over the course of the month to follow delivery of his router. The router was delivered on time, and Sam began work. The machine laboured through the wood, but progressively slowed. Suddenly, smoke poured out of the motor, and the machine quit working altogether. Sam complained to Eric. Eric was astonished that Sam was using oak stock to make the baseboard and trim. "Nobody makes that anymore. I assumed when you said you spoke to George that you were going to use pine. The SS90 is for Soft Stock, if you were going to use hardwoods, you would need the HS90. I will go to bat for you and replace it with an HS machine and see if I can get credit from the manufacturer. HS machines are special order items though, and they cost more. If you pay the difference on it, I will put in the order. It should arrive within a couple of months." Sam protested, "If I don't have the trim done in two weeks, my purchaser will sue me because the homes he is building won't be finished on time." Eric: "Look, I'm being more than fair, you asked for that machine, and then you wrecked it. There's nothing more I can do. Do you want the HS or not?" Advise the parties and render a decision.
Version 1
16
45) Smith Meat Processors of Abbottown, Canada, contracted to supply Beef Importers PLC, of Manchester, England, with monthly shipments of sides of beef. The buyer from BI would attend at Canadian stockyards and select cows that were then weighed and processed by SMP. The standard form SMP contract provided for title to the beef to pass when the beef was loaded on ships in Toronto Harbour. In practice, once the live cows were weighed, on the basis of an industry formula, the BI buyer was given the bill of lading (ownership slip) to the prepared beef ahead of time, so that he could return quickly to England and pledge it as security for a loan to pay for the shipment. On a particular shipment (five months into the one-year contract) the buyer had pledged the bill of lading, and the beef was in the course of transit by rail to the Harbour when the train derailed, causing the complete loss of the beef. BI insisted that SMP send another shipment, and SMP sent BI an invoice demanding payment for "BI's beef." Litigation resulted. Discuss the arguments of the parties.
Version 1
17
46) Doug and Bonnie Jackson built an addition onto their house which they planned to cover with brick on the exterior. They went to the nearest brick manufacturer to get some advice and to select and order the bricks for their home. The manufacturer's sales representative showed them several styles and colours of brick. He recommended one particular type of brick which was available in several colours and which the Jacksons selected. Within a week the manufacturer had delivered the bricks to the Jackson's home. Bonnie then arranged for bricklayers to lay them. After the first winter Doug and Bonnie noticed that the bricks were blistering and flaking and that small holes were appearing on the surface of the bricks. They immediately contacted the manufacturer who told them that this was a normal part of the weathering process and did not constitute a defect in the brick. The manufacturer refused to send someone to the Jackson's home to look at the bricks. Doug then contacted an experienced mason to investigate the condition of the bricks. He told them that the bricks had been improperly fired so that they lacked the durability to withstand the temperature extremes of freezing and thawing. He told Doug and Bonnie that the bricks would have to be replaced immediately as they would not withstand one more winter. When the Jacksons confronted the manufacturer with this information, the manufacturer sent its own mason to inspect the brick. It then sent a letter to the Jacksons stating that its mason had found nothing fundamentally wrong with the bricks and that there was no need to replace them. Doug and Bonnie decided to take legal action against the brick manufacturer. Discuss the arguments that will be raised by the parties and render a decision.
Version 1
18
Answer Key Test name: Chapter 21 Test Bank 1) TRUE 2) FALSE 3) TRUE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 26) FALSE Version 1
19
27) TRUE 28) C 29) A 30) B 31) D 32) B 33) A 34) E 35) E 36) B 37) A 38) C 39) A 40) E
Version 1
20
41) a. Sale of Goods Act. b. Mrs. Sydor would argue that the tires had not been unconditionally appropriated to her contract since, if someone had mistakenly used those tires, neither party would have cared but would simply have taken four more off the shelf. Thus, she would argue, title had not passed to her and, since there was nothing in their contract saying otherwise, the loss falls to National Automotive. National Automotive would argue that, once the tires were identified as being for her car (and tying them together with the invoice attached was sufficient to do so), they were unconditionally appropriated to her contract and title passed. She, therefore, is liable for the price. c. It is clear here that the tires are unconditionally appropriated to the contract and, unless Mrs. Sydor can show that National Automotive was negligent in leaving the car where they did and that contributed to the injury done to her property, she will have to bear the loss herself. If National Automotive was negligent, she could set off against her payment the amount of the loss caused by their tort. 42) If Andy is to sue for breach of contract, he will be alleging that the restaurant sold him a meal of un-merchantable quality, which, under the Sale of Goods Act, is a breach of a condition. The issue would be whether there is a sale of goods or whether a restaurant meal is a sale of services. (Case law in B.C. and Ontario suggests that the courts will hold that a restaurant meal is a sale of goods). If it is a sale of goods, then the Act will apply and Andy will be able to sue successfully in contract. If it is not, Andy would have to sue in tort for negligence.
Version 1
21
43) a. Under the Sale of Goods Act, the rule for transfer of title in this case provides that in the sale of specific goods that need to be tested, checked, etc. before delivery, the title will pass when the testing, checking etc. is completed and the buyer notified. This was done. Since risk follows title, the gas belonged to John when it was contaminated by the rain. b. If the measuring had to be done to determine the quantity, the title would not pass until John came to remove it (and measure it at that time). In this case the title and risk would be with Donald when the gas was contaminated, and John not obliged to buy it.
Version 1
22
44) Students must recognize that this case falls under the umbrella of the Sale of Goods Act. There is a contract between Eric and Sam for the sale of goods for a money consideration. While the consideration is likely valued in excess of the minimum for written evidence of the contract to be required, the payment of the price by Sam in the shop negates the requirement of writing. Beyond this there is authority to suggest that Sam's cheque is a sufficient written memorandum. The question of passage of title to the goods does not come into play in this situation. The central question in this case for students to recognize is whether Sam was relying on the skill and judgment of the seller, or was he ordering goods by their trade-name. Sam is likely to find protection under the Sale of Goods Act, and relevant common law, as it most probably can be inferred that he was relying on the seller to recommend the product he needed. He informed the seller the purpose for which the machine was intended, being baseboard and trim manufacture, and all the limitations on the machine were solely known to the seller. The onus of asking sufficient questions on hearing the intended use lies with the seller so he may disqualify goods as those that are unfit for the particular purpose. There is law to suggest that these questions need not be exhaustive probing into different areas when the product can be put to a wide variety of uses, but in this instance, where the manufacturer makes dedicated machines for different uses the onus properly falls on the seller to determine which product is suitable for his customer within the range of possibilities that arise when the customer merely says "trim and baseboard." The seller's question should be "of hardwood or softwood—I have machines for one or the other." The risk of assumption of one over the other, when the knowledge that it makes a difference in the selection of the machine, rests solely with the seller as the one who knows the capabilities and limitations of the goods. Version 1
23
The fact that Sam said he had discussed the SS90 with George does not reduce the duty upon Eric to make the necessary inquiries. This discussion, and relating it to Eric, would not constitute ordering by tradename, despite the fact Eric will argue that it is. Further, although few students may recognize this, Sam's company cheque would have read "Oaks by Oakes," and this should have but Eric on his guard as well that machine may be unfit for the use intended. Eric's recommendation of the HS90 and offer of getting a new machine if Sam pays the difference is not likely sufficient "amends" to the question of damages. Eric is doing nothing more than what he should have done in the first place but ignores the damage Sam is going to suffer. The question is the usual one for damages for breach, being whether the damages were reasonably foreseeable as flowing from the breach. It is left to the imagination and analysis of the student with respect to quantum, but judgment should be to Sam. The question of this being merely caveat emptor (even though it would be doubtless argued by Eric) cannot apply in this instance of reliance by Sam where the seller knew of limitations to the goods that could not be seen by inspection. Based on: Sale of Goods Act, R.S.O. 1980, c. 462, s. 15 Baldry v. Marshall, [1925] 1 K.B. 260.
Version 1
24
45) BI will argue that the contract provided for title to pass on loading of the processed beef aboard ship in Toronto, and that the contract on its face should govern. The parties have expressly allocated the risk of loss under the contract, and therefore the Sale of Goods Act should not apply. SMP will argue that the Sale of Goods Act should apply, that goods unascertained at the time of contract have been put into a deliverable state, and have been unconditionally appropriated to the contract by the seller with the implied assent of the buyer (the buyer pledged the ownership as security—an act consistent with ownership). This is a "Rule 5" based argument. At this level of analysis, the result would be that a contractual provision by the parties would govern over the effect of the Act, and the loss would be borne by the seller. However, if the contract governs, just what is the actual contract? There is the standard form, which would put the loss at the seller's feet, but what of the practice of the parties? Students should not forget the other principles of contract in their answers. The parties by their actions may well have impliedly modified the terms of their contract. The seller has permitted, as we can guess, at the request of the buyer (but for the benefit of both), the buyer to treat the goods as though he was the actual owner and has given him evidence of ownership. In accepting the evidence of the ownership and dealing with the goods as though he owned them, title has probably passed to the buyer, through what amounts to a modification of the terms of the standard form contract. Particularly if SMP can show that the custom of the trade is such that this type of deal is commonly considered by participants to constitute passage of title, the argument that modifications have taken place by conduct is strengthened. In summary, the provisions of the Act are subordinate to the provisions of the contract, but the written contract putting the loss at the seller's feet Version 1
25
has probably been modified by the parties, such that title passed the moment the buyer did an act consistent with ownership. This places the loss with BI.
Version 1
26
46) This case highlights the issues of implied conditions in contracts for the sale of goods and remedies for the breach of those conditions. Here the plaintiffs bought the bricks on the recommendation of the seller. They explained their needs to the seller, which was in the business of manufacturing and supplying these types of products. They relied on its skill and judgment to supply a suitable product. In this circumstance, there is an implied condition that the bricks will be reasonably fit for the use intended. They were clearly not fit, and the buyers are entitled to repudiate the contract and seek the return of the money paid under the agreement. The buyers may also elect to treat this breach of condition as a breach of warranty. In this case the contract would continue to be binding on the brick manufacturer, however, the buyers would be entitled to sue it for damages arising from the breach, namely the cost of removal of the bricks and any increased cost of replacement, including the labour cost. The manufacturer will argue that the bricks are not unfit and that if any damage has occurred that it must be as a result of improper laying, over which it had no control. Furthermore, the buyers had chosen that particular brick themselves. The sales representative had made recommendations of several types which would be suitable for the buyers' purposes. The final decision was up to the buyers and not based on the expertise of the seller. In the case upon which the question is based the trial court found in favour of the buyers, holding that the manufacturer had breached the implied condition and the bricks were unfit for the intended purpose. Based on Fenn v. Windsor Builders Supply Ltd. (January 21, 1992), Doc. Windsor 89-DC-09497 (Ont. Gen. Div.). This case it to be reported in C.L.R.
Version 1
27
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boathouse a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. The lot owned by Gottlieb is the dominant tenement. ⊚ ⊚
true false
2) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boat house a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. The lot owned by Baxter is the dominant tenement. ⊚ ⊚
true false
3) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boat house a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. The lot owned by Gottlieb is the servient tenement. ⊚ ⊚
true false
4) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boat house a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. The grant of the right of way is an estate in land. Version 1
1
⊚ ⊚
true false
5) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boat house a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. Baxter was not entitled to build a boathouse on the right of way. ⊚ ⊚
true false
6) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boat house a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. Gottlieb was entitled to take legal action against Baxter to have the boathouse removed. ⊚ ⊚
true false
7) Gottlieb owned a cottage lot which had frontage on a lake. He later granted a 30-metre wide right of way to Baxter, who had a lot behind his lot, to enable Baxter to reach the lakeshore to launch his power boat. The next year, Baxter built a boathouse on the 30-metre strip in which to store his boat during the winter months. When Gottlieb discovered the boathouse a few months later, he hired a bulldozer, and pushed the boathouse off the land, and into the lake. Gottlieb is the owner of the land, subject only to Baxter's right of way on the 30-metre strip of property. ⊚ ⊚
Version 1
true false
2
8) Brady acquired a block of land in fee simple under a Crown Patent. He divided the block into two parcels: Whiteacre and Blackacre. He kept Whiteacre, but granted Blackacre to Drucker for life, then to Evans. Brady died possessed of Whiteacre, leaving the land to Crader. Brady, as the holder of Blackacre in fee simple was entitled to grant a life estate to Drucker. ⊚ ⊚
true false
9) Brady acquired a block of land in fee simple under a Crown Patent. He divided the block into two parcels: Whiteacre and Blackacre. He kept Whiteacre, but granted Blackacre to Drucker for life, then to Evans. Brady died possessed of Whiteacre, leaving the land to Crader. Drucker is not free to charge or dispose of any part of Blackacre without Evans' consent. ⊚ ⊚
true false
10) Brady acquired a block of land in fee simple under a Crown Patent. He divided the block into two parcels: Whiteacre and Blackacre. He kept Whiteacre, but granted Blackacre to Drucker for life, then to Evans. Brady died possessed of Whiteacre, leaving the land to Crader. Evans is not entitled to possession of Blackacre until Drucker's death. ⊚ ⊚
true false
11) Brady acquired a block of land in fee simple under a Crown Patent. He divided the block into two parcels: Whiteacre and Blackacre. He kept Whiteacre, but granted Blackacre to Drucker for life, then to Evans. Brady died possessed of Whiteacre, leaving the land to Crader. Evans is called a remainderman. ⊚ ⊚
true false
12) Brady acquired a block of land in fee simple under a Crown Patent. He divided the block into two parcels: Whiteacre and Blackacre. He kept Whiteacre, but granted Blackacre to Drucker for life, then to Evans. Brady died possessed of Whiteacre, leaving the land to Crader. Crader acquired Whiteacre in fee simple under Brady's will.
Version 1
3
⊚ ⊚
true false
13) The Crown ultimately holds all land in Canada and ownership by people is a mere form of tenancy. ⊚ ⊚
14)
A life estate may not be reserved by a vendor who sells land in fee simple. ⊚ ⊚
15)
true false
true false
An estate in fee simple may not be sold by a person who holds a life estate. ⊚ ⊚
true false
16) A person who crosses another's land which surrounds his own may be said to have a prescriptive right of covenant. ⊚ ⊚
true false
17) Only an adjoining landowner may enforce a restrictive covenant on the use of a neighbour's land. ⊚ ⊚
18)
true false
An injunction is the most appropriate remedy in the breach of a restrictive covenant. ⊚ ⊚
Version 1
true false
4
19) A lease of 21 years where the tenant acts as an owner will create a claim of adverse possession for the tenant. For this reason, no single lease is permitted for a period greater than 20 years. ⊚ ⊚
true false
20) Where the roof of one person's home overhangs the lot line of the property of another person, a situation of possessory nuisance has been created. ⊚ ⊚
21)
A residential water heater is a fixture in law. ⊚ ⊚
22)
true false
A residential water heater, rented from an electric or water utility, is a fixture in law. ⊚ ⊚
23) one.
true false
true false
The death of one of two tenants-in-common vests ownership of the property in the other
⊚ ⊚
true false
24) Mary was left her grandfather's interest in lands by his will. Her grandfather was a joint tenant with a third person. Mary decides to mortgage her interest in that land to the bank. The bank will give her the money. ⊚ ⊚
Version 1
true false
5
25) Only the Registry System requires a search of title back 40 years to determine the true owner of a property. ⊚ ⊚
true false
26) The death of one of two joint tenants vests ownership of the property entirely in the survivor. ⊚ ⊚
27)
true false
The feudal notion of "escheat to the Crown" has no modern day counterpart. ⊚ ⊚
true false
28) Two distinct systems of registration of land interests exist in Canada, the Registry System and the Land Titles System. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 29) To exit to the street, a third-floor condominium owner is most likely to have
A) B) C) D)
30)
a right of way of necessity. an express easement. a dominant tenement. a prescriptive right of easement.
The __________ rests in the selected person on the death of a life tenant.
Version 1
6
A) B) C) D)
31)
The practice of the Crown in Western Canada is to grant land, but reserve unto itself
A) B) C) D) E)
32)
leasehold interest. fee simple. reversion interest. subservient tenement.
gold and silver rights. all mining rights. riparian water rights. white pine trees. nothing.
A riparian owner is a person who owns land
A) B) C) D) E)
adjacent to a natural stream. on both sides of a natural stream. on both sides and underneath a natural stream. above an underground stream. in any of these locations.
33) Andrew and Sanjiv purchase land as joint tenants. Sanjiv sells his interest to Antonetta. Subsequently, Andrew dies. Which of the following statements is correct?
A) B) C) D) E)
34)
Andrew's interest vests in his wife by reason of survivorship. Andrew's interest vests in Antonetta by reason of survivorship. Andrew's interest vests in Antonetta and Sanjiv by reason of survivorship. Andrew's interest vests in his wife and Antonetta by reason of survivorship. None of the responses are correct.
Which of the following statements are true?
Version 1
7
A) A "good chain of title" in the Registry System is 30 years. B) If B grants land "to C for his life, then to D," D is formally known as the reversioner. C) Restrictive covenants can only be enforced against a subsequent owner of land if he or she has contractually agreed to the restrictive covenant at the time of purchase. D) The major, and desirable, feature of tenancy in common is the right of survivorship. E) None of the responses are true.
35) Green owned a cottage lot which had frontage on a lake. He later granted a 5-metre wide right of way to Brown who owned a lot behind Green's property, to enable Brown to reach the lake to launch his power boat. The following year, Brown built a boathouse on the 5-metre wide strip in which to store his boat in the winter months. When Green discovered the boathouse a few months later, he wrote to Brown and requested that it be removed. When Brown refused, Green hired a bulldozer and pushed the boathouse off the land and into the lake. Which of the following statements are not true?
A) Brown was not entitled to build a boathouse on the right of way. B) Instead of removing the boathouse personally, Green was obliged to have taken legal action against Brown, as Brown had an interest in the lands. C) Green is the owner of the land subject only to Brown's right of way on the 5-metre strip of property. D) Brown is liable to Green for the cost of removal of the boathouse. E) All of the responses are true.
36) Henry has completed his 21st year in possession of land under the Registry System which he does not "own." He comes to you for advice; he does not have a lease from the owner. His "interest," such as it is, most specifically, is better than ______________ and less than ____________.
A) B) C) D) E)
Version 1
fee simple; a freehold an easement; a riparian right a leasehold; a life estate an encroachment; a freehold a life estate; fee simple
8
37)
A condominium unit owner has
A) B) C) D)
38)
Common elements in condominium law are
A) B) C) D)
39)
a declaration or strata plan. rights of lien for unpaid condominium fees. all areas other than exclusive use areas. rights provided to successors in title.
A unit owner of a condominium
A) B) C) D) E)
40)
fee simple ownership of a unit, and is a tenant-in-common in the remainder. exclusive ownership of a unit, and is a tenant-in common in the remainder. fee simple ownership of a unit, and is a joint tenant in the remainder. exclusive ownership of a unit, and is a joint tenant in the remainder.
owns one share in the capital of the corporation. owns a given proportion of the shares of the corporation. has a vote, but not a share in the corporation. has a proportion of the votes, but not a share in the corporation. has a proportion of the shares and votes in the corporation.
The condominium corporation is responsible on its own for all of the following, except
A) creating a scheme regulating the use of the common elements. B) creating a scheme regulating the winding up of the condominium. C) creating a scheme regulating the assessment and collection of common expense contributions. D) exercising a right of lien, if necessary. E) maintenance and repair of common elements.
Version 1
9
41) The reversion of land to the Crown when a person possessed of the fee dies intestate and without heirs is called a(n)
A) B) C) D) E)
42)
Which statements accurately reflect characteristics of the Registry System
A) property. B) C) D) E)
43)
a title search of 40 years is required to determine what claims exist against the the certificate of title is proof of title. the land titles office guarantees the validity of all documents affecting the title. Is in effect in regions of the country that were settled at a later date. Only applies to the surface title and not the sub-surface title.
How is real property described on the electronic registration system?
A) B) C) D) E)
44)
deed. escheat. life estate. tenure. fee simple.
PIN-Personal Identification Number. PIN-Parcel Identification Number. PIN-Postal Identification Number. MIN-Municipal Identification Number. TIN-Tax Identification Number.
Squatters rights are more correctly known as
Version 1
10
A) B) C) D) E)
encroachment. adverse possession. trespass. riparian rights. restrictive covenants.
45) Tammy sold a house to Andy for $200,000. Andy breached the contract. The market was falling, and Tammy was only able to sell the house, to another buyer, for $150,000. Tammy sued Andy. What will her remedy be?
A) B) C) D) E)
Specific performance, land is unique. Damages in the amount of $150,000. Damages in the amount of $50,000. Specific performance and $50,000. Specific performance and $150,000.
46) The City of Calgary wants to construct a new rapid transit line on 17th Avenue. It requires more land along the road, so it enters into negotiations to purchase the land from the current owners. Some owners refuse to sell. What can it do to acquire the property?
A) B) C) D) E)
Escheat. Expropriation. Injunction. Specific Performance. Nothing.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 47) Describe the process by which possessory interests in land are created, and the ways in which they are defeated both in Registry and Land Titles Systems.
Version 1
11
48) Describe the types of, and rights attached to, estates in land, including in your answer a treatment of easements and restrictive covenants.
49) Discuss the rights and duties associated with being the owner of land adjacent to a watercourse.
50) There is no true ownership of land in Canada. We are in the same position as the former Communist countries were, where without ownership, land was leased from the state. Discuss.
51) Describe how a condominium development is operated, how the rights and obligations of unit owners are defined, and how the condominium deals with the problem of a unit owner who fails to pay his or her share of the operating expenses of the condominium.
Version 1
12
52) In 1951, George purchased a piece of property in a cottage resort area. The property was subject to a restrictive covenant running with the land until August 1, 2050, that the property shall never be sold, assigned, transferred, or leased to any person born in the State of Israel. In January 2004, George entered into an agreement of purchase and sale with another individual. The purchaser through his solicitor submitted the following requisition on title: "in view of the fact that the purchaser herein was born in the State of Israel, I require a release from the restrictions imposed on the land, and that the restrictive covenant be struck out, voided and of no effect." George was only too happy to provide this release, however, an adjoining landowner wished to enforce the restrictive covenant. Together, George and his purchaser made an application to the courts to have the restrictive covenants struck down as against public policy. Discuss the issues raised in this case, from a perspective of the 1950s and the perspective of the 21st century and render a reasoned decision. Regardless of your answer, if the covenant was upheld, suggest an alternative way this sale may be affected without violating the covenant.
53) Colin operated an apartment building in which he had installed dishwashers in the kitchen cabinets. The dishwashers were attached by a flexible plastic hose to the copper plumbing system of the apartment and were plugged into the wall electrical wiring by means of a normal socket. As an express term of Colin's mortgage, all appliances in the apartments were considered to be fixtures. Colin soon ran into financial difficulties in his operation and found himself pressed by his creditors. The holder of the mortgage foreclosed on the building, and the local hydro utility obtained a judgment against Colin. The hydro company seized upon the appliances of the building, including among them, the dishwashers. The mortgage holder brought an action to recover the property and appliances, including the dishwashers. Discuss the issues raised with respect to fixtures, treating the situation of the dishwashers as well as other appliances. Discuss the issues that both creditors may raise in their argument and explain why the mortgage holder should not simply limit his argument to the provisions of the mortgage. Render a decision. Version 1
13
Version 1
14
Answer Key Test name: Chapter 22 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) FALSE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) FALSE 18) TRUE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 26) TRUE Version 1
15
27) FALSE 28) TRUE 29) A 30) C 31) B 32) E 33) E 34) E 35) B 36) E 37) B 38) C 39) C 40) B 41) B 42) A 43) B 44) B 45) C 46) B
Version 1
16
47) Possessory interests in land arise from open, notorious, visible, uninterrupted, and undisputed defiance of the true owner's title. The period for which this activity must span varies between 10 and 20 years, depending on the province, and the occupier will receive an indefeasible title if the true owner fails to take action within that period. It must be noted that a possessory interest can only be created under a Registry jurisdiction. It is normally not possible to create a possessory interest in a Land Titles jurisdiction, anywhere in Canada. Any break in the chain of time in any of the foregoing aspects will invalidate the continuity of the period and the time for possession will have to begin over again. To gain title in this manner, an occupier will have to do all the acts normally associated with ownership. This would include taking steps to exclude others (including the true owner) from possession, payment of taxes, and general use and upkeep of the lands, all with the knowledge of the person with title to the lands.
Version 1
17
48) The highest estate in land is that of fee simple, being distinguished from all others as ownership that may be passed to an heir through inheritance. An owner has complete freedom to deal with the lands as he sees fit, and is answerable to no-one other than taxation authorities, encumbrancers, and his neighbours at common law. The second highest estate in land is that of a life estate which allows the recipient all the rights, privileges, and duties of an owner in fee simple, however the interest of the life tenant terminates on his death, and reverts to the holder of the remainder of the fee simple, or his designate. The life tenant is under a further obligation not to commit waste, but not to maintain buildings, and to pay mortgage interest but not principal. The remaining estate is that of a leasehold estate, wherein possession is granted to an individual for a period of time, but no other trappings of title. Possession is the only right conveyed by the lessor, and the lessee will be obligated to perform all duties prescribed by the lease, as well as be obligated not to commit waste. Easements are a subsidiary interest in land, but represent a powerful encumbrance, as they entitle the dominant tenement rights of use or passage over the land of the servient tenement. They are more than leases, as unless specified as time-limited, they run with the land in perpetuity, and must be purchased back for the servient tenement to be restored. They can be created by express grant, statute, necessity, and in certain Registry jurisdictions, by prescriptive right, which is akin to adverse possession. Restrictive covenants are conditions which run with the title to the land, and are efforts by one with an interest in the land to maintain control over use of the land by successors in title. They are normally used by individuals who plan to retain an interest in nearby land, and therefore have some concern over the uses that successors to their title in the former land may subject it (and them) to. Similarly, they are often Version 1
18
attached by municipalities to enforce agreements reached between a municipality and land developers, as against the future homeowners. Generally, any restriction made by such a covenant must not be against public policy, or the covenant will be void. 49) An owner of lands adjacent to a watercourse, or one who has land through which a natural stream flows either above or below the surface, is known as a riparian owner. At common law, a riparian owner has the right to take water for consumption or for use in commercial endeavours. That which is not consumed must be returned to the watercourse, and the amount consumed must be reasonable regarding the rights of downstream users to do the same. In the same light, the riparian owner cannot restrict the flow of water to downstream users, nor pond it across the lands of upstream riparian owners by damming. In terms of water quality, a riparian owner may not change it in any way at common law, however statute law permits certain levels of pollution to occur. Like adverse possession of land, it is possible to develop a prescriptive right to pollute, extinguishing the right of other owners to complain, but it must always be within the limits of public health, otherwise a criminal charge may result. 50) Students should note that there are similarities, in that land in Canada is owned in the shadow of the Crown Patent, and that failure to pay taxes on land results in an escheat to the Crown (or municipality acting through the Crown). To the extent that property tax can be considered rent paid to the state, the statement made in the question is true. By the same token however, in Communist countries it was rare that land (or what rights went with its occupancy) could be transferred directly from individual to individual for profit.
Version 1
19
51) The modern condominium is operated by a corporation formed for the express purpose of doing so. The founding documents of the condominium, known as the "description" or "plan," set out the physical aspects of the condominium, and the corporation's founding documents set out the bylaws that all initial and future unit owners must abide by. Once completed, the bylaws regulate the operation of the condominium, particularly with respect to the "common elements" that are shared in tenancy-in-common by all unit owners. A contribution to the operating costs and maintenance of these facilities is required, and any unit owner who fails to pay their share will face action by the corporation to make that contribution. This action is normally a right of lien against the unit itself and is in most provinces provided for statutorily. In most instances this right would be one to put the unit up for sale for the amount of the arrears, not unlike an action for arrears by lenders under a mortgage.
Version 1
20
52) The restrictive covenants may be found void for either uncertainty or on the basis of public policy. In this particular case, it is not likely that an attack on the basis of uncertainty would succeed. The covenant is time limited, specifically, and is intended to be effective against a very specific group of people. This group is readily ascertained as those born in Israel. The ground of attack of public policy is likely to be far more successful. From the perspective of the 1950s this type of covenant may have been perfectly acceptable to the vast majority of Canadians, however in light of the public policy of the 21st century it is reprehensible. What is important to the argument is that the public policy at the time of the attack is the critical aspect, not at the point of creation of the restrictive covenant. It is imminently possible that a restrictive covenant which was perhaps void in 1950 for reasons of public policy, could now be perfectly reasonable in light of the public policy of the 21st century. This would render such a covenant proof from attack. Students should recognize that judges are very careful in adopting reasons of public policy as their basis for decision, because we tend as a society to delegate the matter of defining public policy to be a matter which members of the legislature only are competent to decide. Since the legislature has enacted legislation against discrimination on the basis of nationality, public policy in this instance is fairly clearly defined. In that case a judge would have very little hesitation in finding such a covenant to be contrary to public policy and therefore void. The vendor and purchaser in this instance would likely receive their order making the covenant void. If by an odd turn of events this covenant was found to be enforceable, the easiest way in which the sale may still be effected is for the vendor and purchaser to declare the offer to purchase itself to be null and void, and re-offer for the property on the basis of a newly formed corporation as the purchaser for which the individual from the state of Israel may be the sole shareholder. In this manner the Version 1
21
corporation may own the land, and the individual may occupy without offending any of the terms of the restrictive covenant. The corporation of course is a resident and "citizen" of the jurisdiction in which it was formed. Based on: Re Noble and Wolf, [1948] 4 D.L.R. (Ont. H.C.) Re Drummond Wren, [1945] 4 D.L.R. 674 (not followed).
Version 1
22
53) The "other appliances" will be treated as chattels, in spite of the mortgage provisions. An agreement may exist between the mortgagor and mortgagee as to the nature in which they are to be treated, but any other third-party creditor will be entitled to take the definition at law that exists for chattels as opposed to fixtures. A refrigerator or stove would not fit the definition of a permanent improvement to the value of the freehold land, and therefore would be considered to be a chattel, particularly in light of the lack of any permanent connection other than "plugging in" which attaches it to the building. Thus, the creditor who has seized the refrigerators and stoves is entitled to their sale and proceeds thereof. Since the agreement is between the mortgagor and the mortgagee and does not involve the third party creditor as a party to the agreement, they should not rely on the provisions of the mortgage as a defence or cause of action against the third party. The mortgage only defines the rights between the parties to it. The question of the dishwasher falls considerably more to the mortgagee's favour. They are considered fixtures as between himself and the mortgagor as noted above, and in fact they may well be fixtures at law as well. Since they are built in and have a permanent connection to the plumbing of the building, this raises an aspect which suggests a permanent improvement to the freehold value of the land. The third-party creditor may wish to dispute the permanency of this, but it is likely sufficient to establish a claim as a fixture. In summary, the third-party creditor will have been entitled to realize upon the other appliances of the apartment as they quite properly be considered chattels, and would likely be forced to turn over the dishwashers, or the proceeds from their sale, to Colin (for the benefit of the mortgagee). Based on: Amic Mortgage Investment Corp v. Investors Group Trustco Limited (1985), 37 R.P.R. 56.
Version 1
23
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. Dante would be entitled to foreclose on the mortgage when Jones defaulted on the payment. ⊚ ⊚
true false
2) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. Dante would be entitled to sell the land when Jones defaulted on the payment. ⊚ ⊚
true false
3) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. As an alternative, Dante might take action against Bondi, the original mortgagor, on his covenant to pay. ⊚ ⊚
true false
4) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. If Dante took action against Bondi, and Bondi paid the amount owing on the mortgage, Bondi would be entitled to an assignment of Dante's rights against the land and against Jones. ⊚ ⊚
Version 1
true false
1
5) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. If Dante institutes foreclosure proceedings against Jones, Jones may ask the court to convert the foreclosure to sale proceedings. ⊚ ⊚
true false
6) Bondi gave a mortgage to Dante on a parcel of land (located in Ontario), which he owned. Bondi later sold the mortgaged land to Green. Green, some time later, sold the land to Jones. Jones defaulted on payment of the mortgage. If Dante forecloses on the land, and later sells it for less than the amount of the mortgage, he may then take action against Jones for the deficiency. ⊚ ⊚
true false
7) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon and Clayton, and did not examine the title to Blackacre when he registered his deed. Dayton was unaware of the mortgage to Banyon, and consequently, Dayton's title to Blackacre would not be subject to the mortgage. ⊚ ⊚
true false
8) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon and Clayton and did not examine the title to Blackacre when he registered his deed. Consider the title to Dayton's property, and Dayton's legal position with respect to Clayton and Banyon. Clayton's unregistered mortgage would take priority over Banyon's registered mortgage, because it was signed and given by Ashton first.
Version 1
2
⊚ ⊚
true false
9) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon andClayton and did not examine the title to Blackacre when he registered his deed. Dayton's title would not be subject to the mortgage to Clayton. ⊚ ⊚
true false
10) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon andClayton and did not examine the title to Blackacre when he registered his deed. Ashton would be obliged to pay Clayton the $10,000 covered by the unregistered mortgage. ⊚ ⊚
true false
11) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon andClayton and did not examine the title to Blackacre when he registered his deed. Dayton would be obliged to pay Clayton the $10,000 secured by the unregistered mortgage, if Ashton defaulted in payment. ⊚ ⊚
Version 1
true false
3
12) Ashton wished to raise additional capital for his business and arranged with Banyon for a $10,000 mortgage on his estate, Blackacre. Ashton did not disclose the fact that he had previously borrowed $10,000 from Clayton by way of a mortgage, and Clayton had not registered his mortgage against the title of Blackacre. Shortly after the mortgage to Banyon was registered, Ashton conveyed the estate to Dayton, for $25,000. Dayton was unaware of the mortgages to Banyon andClayton and did not examine the title to Blackacre when he registered his deed. Dayton would be obliged to pay Banyon's registered mortgage to obtain a clear title to Blackacre. ⊚ ⊚
13)
The mortgagee advances money to the mortgagor. ⊚ ⊚
14)
true false
A "charge" is a "mortgage" under the Land Titles System. ⊚ ⊚
16)
true false
As long as money is owing, the lender under the mortgage owns the lands. ⊚ ⊚
15)
true false
true false
The only "legal mortgage" that can be made is the "first mortgage". ⊚ ⊚
true false
17) The debtor under a mortgage must give his consent before a lender can assign a mortgage to another lender.
Version 1
4
⊚ ⊚
18)
true false
An "open mortgage" may be repaid at any time. ⊚ ⊚
true false
19) A mortgage dated and signed on February 28, 2008, registered March 3,2008 would be the first mortgage over another dated and signed January 19, 2008, registered March 6, 2008. ⊚ ⊚
true false
20) In a situation of default, it is easier for the lender to realise on her security by obtaining a final order of foreclosure, rather than conducting a power of sale. ⊚ ⊚
true false
21) Where a debtor in default under a mortgage is in possession of the premises, a Writ of Possession would be required prior to conducting a sale. ⊚ ⊚
true false
22) A mortgage given verbally, before witnesses, is an equitable mortgage and is enforceable in Canadian courts. ⊚ ⊚
true false
23) Where a mortgagor sells property that he or she has mortgaged, in the absence of an agreement to the contrary, he or she will remain liable for payment of the mortgage.
Version 1
5
⊚ ⊚
true false
24) It would be customary for a developer to deliver only partial discharges of a development mortgage to purchasers of homes on residential building lots. ⊚ ⊚
25)
true false
An equity of redemption is a mortgageable estate in land. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Where a mortgagor obtains a "second mortgage", the mortgagor has mortgaged
A) B) C) D) E)
27)
the legal title. the hypothecation. the equity of redemption. the first mortgage. the right to avoid default.
Where a first mortgagee completes a foreclosure action
A) it has foreclosed only against the interest of the mortgagor, not any subsequent mortgagee. B) a second mortgagee has a right of action against the first mortgagee. C) a subsequent mortgagee loses its rights in the property, and is left only with an action against the mortgagor. D) the mortgagor receives the equity of redemption.
Version 1
6
28) Empire Bank and Smith execute a mortgage in favour of Empire Bank. Empire Bank informs Standard Bank, which later executes another mortgage of the property with Smith. Unknown to both Banks, Smith has already mortgaged the property to Jones. After registration by all, the register shows Standard, followed by Empire, then Jones. The priority of these mortgages is (from 1st down)
A) B) C) D) E)
Jones, Empire, Standard. Jones, Standard, Empire. Standard, Empire, Jones. Empire, Standard, Jones. Jones, Empire, Standard is void.
29) Where default occurs, and real estate markets are falling, the mortgagee will likely want to realise on the security in the quickest suitable manner, which is
A) B) C) D) E)
30)
Sale. Sale under Power of Sale. Foreclosure. Discharge. Possession.
Which of the following are true statements?
A) A mortgage given in support of a promissory note is a "collateral mortgage". B) On default, where real estate markets are swiftly rising, foreclosure proceedings would be desired by a mortgagee. C) A registered discharge is a transfer of title. D) All of the responses are true. E) None of the responses are true.
31)
The following are the usual covenants of the mortgagor under a mortgage, except:
Version 1
7
A) B) C) D) E)
32)
to pay the mortgage in accordance with its terms. to pay municipal taxes. not to remortgage without consent. to insure the premises. not to commit waste.
A system of advances is common under
A) B) C) D) E)
a collateral mortgage. a residential mortgage. a commercial mortgage. a building mortgage. an equitable mortgage.
33) The _________________ transfers the _______________ to the ________________ who later reconveys it with a _______________.
A) B) C) D) E)
mortgagee; collateral; mortgagor; deed owner; fee; mortgagor; discharge mortgagor; hypothec; lender; covenant mortgagor; fee; mortgagee; equity of redemption mortgagor; fee; mortgagee; discharge
34) Harlanowns a rural farm in Nova Scotia. There is a mortgage on the farm in the amount of $100,000. The farm has a house, a barn and two machine sheds. He obtained a mortgage from the bank.Harlan decided that the house was too expensive to heat in the winter, so he turned the heat off and moved into one of the smaller machine sheds. All of the pipes burst. What action can the mortgagee take?
Version 1
8
A) B) C) D) E)
Take action for possession. Take action for full payment. Take action for specific performance. Take action for foreclosure. Conduct a judicial sale.
35) Harlanowns a rural farm in Nova Scotia. There is a mortgage on the farm in the amount of $100,000. The farm has a house, a barn and two machine sheds. He obtained a mortgage from the bank. Harlan decided that the house was too expensive to heat in the winter, so he turned the heat off and moved into one of the smaller machine sheds. All of the pipes burst. Which of the mortgage covenants were breached?
A) B) C) D) E)
Quiet possession Not to commit waste Acceleration clause Equity of redemption Maintenance and improvement
36) Gladys wants to purchase Francesco's home and assume his mortgage from the Bank of Vancouver, which has an excellent interest rate of 3.5%. Can the mortgage be assumed?
A) Yes, if Francesco obtains consent of the Bank of Vancouver to the sale and assignment of mortgage. B) Yes, if Francesco obtains the consent of the Bank of Vancouver to the assignment. C) No, the Bank of Vancouver must discharge the mortgage. D) Yes, if Francesco gives the Bank of Vancouver notice of the assignment. E) Yes, if Gladys gives the Bank of Vancouver notice of the assignment.
37) Rita, an Alberta resident, has just paid off a mortgage on property located in Nova Scotia. She has a right to demand that the mortgagee provide her with a Release of Mortgage that can be registered. Why will title be returned to Rita?
Version 1
9
A) B) C) D) E)
She has legal title to the property. It was an equitable mortgage. Repayment fulfilled the acceleration clause. She has the equity of redemption. She is foreclosed.
38) Holly purchased a home in Manitoba. The home was mortgaged for $225,000. She lost her job and missed three mortgage payments. The bank decided to exercise its rights under the mortgage. What can it do?
A) Invoke the acceleration clause. B) Invoke the default notice clause. C) Obtain an order for foreclosure. D) Invoke the acceleration clause and then obtain an order for foreclosure. E) Invoke the default notice clause then the acceleration clause and then obtain an order for foreclosure.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 39) List the four common covenants of a mortgagor and discuss the four principal remedies of a mortgagee on default.
40) Illustrate by example the use of mortgage financing in the course of land development by each of the land developer, the builder who buys a lot on speculation that someone will buy the house he intends to build and from the perspective of a purchaser of such a home. Use of specific numbers is not required unless desired.
Version 1
10
41) Prevailing interest rates on second mortgages are invariably higher than rates paid against first mortgages. Explain fully the reasons for this phenomenon.
42) Jamil and Kevin purchase a residential property as an investment for $50,000. Each contributes $10,000 in cash and together they mortgage the property for $30,000 to raise the remainder of the purchase price. A few weeks later, Kevin decides to end the partnership and Jamil buys his interest in the property for $10,000. Advise Kevin.
43) Does the legal idiom "possession is nine-tenths of the law" apply in the context of mortgages?
Version 1
11
44) Empire Bank registered a first mortgage against Johnston's property in the amount of $250,000 as security for an irrevocable letter of credit it had given on Johnston's account. Johnston posted the letter of credit with a municipality to which the municipality could look should Johnston fail to execute his obligations with respect to a subdivision he was building. Sometime later the Commonwealth Bank registered a second mortgage against Johnston's property in the amount of $750,000. When the second mortgage was registered, Commonwealth Bank advanced the full face value of the loan of $750,000. The Empire Bank received actual notice of the Commonwealth Bank's mortgage. Ultimately a demand was made by the municipality against the letter of credit in the sum of $35,000. The Empire Bank paid the money to the Municipality and claimed priority over the Commonwealth Bank as it had been first to register, even though it knew that the Commonwealth had made prior advances against the security and the property. Does the Empire Bank have priority over the Commonwealth Bank and, if so, to what extent? Discuss the issues of priority raised here.
45) Phillip owns a home in fee simple, which he subsequently mortgages for $150,000 to the Empire Bank. Two years later Phillip decides to move to another city and sells the property to Carl, who assumes the mortgage to the Empire Bank. Carl is later laid-off from work and runs into serious financial difficulties resulting in the mortgage going into default. Describe the options open to the Empire Bank with respect to each of the parties and follow these options through to their natural conclusion. Speculate as to any mechanisms which may commonly be put in place for greater certainty between the parties on the assumption of a mortgage.
Version 1
12
Answer Key Test name: Chapter 23 Test Bank 1) TRUE 2) TRUE 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) FALSE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) TRUE 24) TRUE 25) TRUE 26) C Version 1
13
27) C 28) D 29) B 30) D 31) C 32) D 33) E 34) A 35) B 36) E 37) D 38) E
Version 1
14
39) The mortgagor's four common covenants are to pay the mortgage in accordance with its terms, pay taxes and municipal assessments, maintain insurance, and not to commit waste. The four principal remedies of the mortgagee on default of the mortgagor are: a. Sale under Power of Sale, which allows the mortgagee, after notice and an opportunity for the mortgagor to put the mortgage back in good standing, to sell the property at a reasonable price, to satisfy the principal and arrears outstanding. This must be provided for in the mortgage, but is the easiest and quickest method of realizing on the security. b. Foreclosure, which is the most difficult and lengthy method, as the mortgagor is allowed significant opportunities to redeem the property, results in the extinguishing of the right of redemption of the mortgagor, and the mortgagee becomes the sole owner at law of the property. It is mostly desired by mortgagees when the property is quickly rising in value, but the mortgagor has the right to force a judicial sale. c. Sale (Judicial) is a more cumbersome version of the Power of Sale approach, invoked by the mortgagee when the mortgage does not provide for a Power of Sale, or by the mortgagor when foreclosure proceedings are commenced. This type of sale is conducted under the supervision of the court. d. Possession, which is usually requested as part of an order in either foreclosure or sale proceedings. This permits the mortgagee to step into the place of the mortgagor, into possession of the premises pending the outcome of proceedings. This is normally requested, particularly if the mortgagor has leased the premises and is collecting rents from his tenants but is behind in his mortgage payments.
Version 1
15
40) The developer of the land would purchase the land by making a down payment to the vendor and obtaining the remainder of the price from a mortgage lender. Once a number of the vacant lots were ready for sale to builders, a builder would obtain a mortgage to finance the purchase of a lot and the cost of construction of a home. The initial advance to the builder would be sufficient to cover the cost of the lot and would be paid over to the developer and flow to the developer's lender in return for a partial discharge of the developer's mortgage, sufficient to clear the title to that lot. The builder's mortgage would go on title next. It would now be the first mortgage, and the builder would have the equity of redemption. As the house is built, the builder would receive further advances up to the face value of his mortgage. Once the home is finished and a purchaser is found, the proceeds of the purchaser's mortgage advance pay off the builder's mortgage, which is then discharged. The purchaser's mortgage then takes over as the first mortgage on the property.
Version 1
16
41) Interest rates are a measure of risk, and second mortgages (or beyond) are much more risky propositions than first mortgages. Only the first mortgagee receives the legal title in return for the funds advanced under its mortgage as the legal title is indivisible. All subsequent mortgages are merely mortgages of the right to redeem preceding mortgages and fall behind in priority to any surplus should the first mortgagee sell the property. This becomes risky if property values have fallen since there will be no surplus after the first mortgage is paid out. Even more risky, if a second mortgagee allows foreclosure proceedings to go ahead, his interest in the property will be extinguished with that of the mortgagor. Although he would have rights against the mortgagor personally, if the mortgagor has allowed the foreclosure to go ahead, it is probably an indication that the mortgagor has no funds, and any judgment obtained would be fruitless. Consequently, the position of any encumbrancer following a first mortgagee is much more precarious and a greater compensation for the risk being borne will be required. The rate payable on a second mortgage will, therefore, invariably be higher than that on first mortgages. 42) Kevin must obtain a release from the bank on the covenant of the mortgage, as he remains liable on the mortgage despite his sale of his interest in the property. The sale price of his interest (being the mere return of his equity) indicates that he has not taken into account his newfound and continuing liability under the mortgage.
Version 1
17
43) The mortgagor retains possession of the property having transferred the fee to the mortgagee. If the mortgagor defaults, the mortgagee has a right to possession of the property. However, if the mortgagor has remained in possession of the property and not leased or abandoned it, the mortgagee will have to take active steps to displace the mortgagor's possession. The remedies available to mortgagees facing default require that the mortgagor be given time to redeem the mortgage and place it in good standing. Then, if the mortgage remains in default, the mortgagee must institute legal proceedings against the mortgagor asking a court for an order for the remedy sought (sale or foreclosure) and for possession. This process can take months during which time the defaulting mortgagor may remain in possession of the mortgaged property. Until there is a court order for possession, the mortgagee, even though entitled, may not take possession of the property unless the mortgagor has voluntarily given it up.
Version 1
18
44) The answer to this case is a simplistic result, being that the first in time of registration of the mortgage takes priority as to the legal title to the extent of any advances made thereunder. This does allow, however, some interesting aspects of priority to be examined. The first of these is the question of whether an advance need be money. When was the advance made in this instance? Was it made at the time of issue of an irrevocable letter of credit, since demand can be made at any time to that extent in money, or was the advance made at the time of demand against the letter of credit? The difference is important since only those advances made on or before the time of default under the mortgage can be considered to be protected in priority. Thus, if a letter of credit for $500,000 is extended but no demand is made when default occurs, then if subsequently a demand against the letter of credit is made, there is a question whether or not this amount paid would have priority. If the letter of credit was irrevocable, there is jurisprudence to suggest that it is protected because once the letter of credit was issued there was no way for the mortgagee to protect himself against future demand against the letter of credit. He is thus entitled to his priority granted to him by virtue of having first registration. A further and more detailed examination of the mechanics of the transfer of title is possible within this question as well, should this type of detail be warranted on the basis of the lectures that have been given. Where a situation arises that a first mortgage has been registered but no advance made thereunder and a second mortgage has been registered and advanced against, the technical position of priority is worth examining. From the perspective of the first mortgagee who has advanced no funds, he is not likely to care as to the disposition of his priority. However, the treatment of priority may well define the hurdles which the second mortgagee must pass in order to realize upon his security. Since legal title is in the hands of the first mortgagee, we must question whether or Version 1
19
not he is entitled to have such title since there is a total failure of consideration on his part in return for the mortgage that has been granted to him. The second mortgagee is likely to have to undertake some process of extinguishing the legal title which is in the hands of the first mortgagee before he can realise on the security. At least as a matter of formality, the second mortgagee will have to go through the motions of removing the first mortgagee and his interest which exists on paper, before he can move to vest legal title in himself. Based on: Kingsway Electric Co. Ltd. v. 330604 Ontario Limited et al. (1979), 107 D.L.R. (3d) 172 (Ont. High Crt.). 45) The critical thing for students to realize is that the original mortgagor under a mortgage remains responsible for payment of the debt in the event of default by a future purchaser who assumes the mortgage. The bank's options therefore are to look to the original mortgagor for payment of the debt. In this case, the original mortgagor, in return for payment in full, is entitled to an assignment of the mortgage from the bank and to pursue its remedies against the purchaser—namely, power of sale or possession. As noted, if the bank/mortgagee seeks payment from the original mortgagor, it is an assignment of mortgage which is granted to that mortgagor. This amounts to an assignment of the legal title, subject to the equity of redemption held by the purchaser of the property. If the original mortgagor can find the purchaser of the property, the original mortgagor may demand payment of the mortgage under its terms. However, since the purchaser went into default it is more likely that it will now be the responsibility of the original mortgagor to pursue the remedies of foreclosure or power of sale in order to vest into himself the full legal title of the property and extinguish the equity of redemption of the purchaser.
Version 1
20
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Severin leased a small shop from Matthew for a five-year term. The shop was located in a small town. Any lease for a term of more than one year is an agreement that must be in writing to satisfy the Statute of Frauds. ⊚ ⊚
true false
2) Severin leased a small shop from Matthew for a five-year term. The shop was located in a small town. Any lease for a term of more than three years must be in writing and under seal to comply with the Statute of Frauds. ⊚ ⊚
true false
3) Severin leased a small shop from Matthew for a five-year term. The shop was located in a small town. The right to distrain against the goods of Severin would be a remedy available to Matthew, if Severin should default in the payment of his rent. ⊚ ⊚
true false
4) Severin leased a small shop from Matthew for a five-year term. The shop was located in a small town. Default in the payment of rent would be a basis upon which Matthew could re-enter the premises leased by Severin. ⊚ ⊚
true false
5) Smitty leased an apartment from Batten that was located immediately above Batten's shop. Smitty moved into possession on a monthly tenancy. The noise created by Batten in his shop disturbed Smitty, although it would not disturb most people. The noise created by Batten in his shop was in violation of his covenant of "quiet possession." ⊚ ⊚
Version 1
true false
1
6) Smitty leased an apartment from Batten that was located immediately above Batten's shop. Smitty moved into possession on a monthly tenancy. The noise created by Batten in his shop disturbed Smitty, although it would not disturb most people. If the noise constituted a nuisance at law, Smitty would be entitled to obtain an injunction to stop Batten from making the noise. ⊚ ⊚
true false
7) Smitty leased an apartment from Batten that was located immediately above Batten's shop. Smitty moved into possession on a monthly tenancy. The noise created by Batten in his shop disturbed Smitty, although it would not disturb most people. If the noise was such that it rendered living in the apartment impossible, Smitty would be entitled to have the lease terminated. ⊚ ⊚
true false
8) Smitty leased an apartment from Batten that was located immediately above Batten's shop. Smitty moved into possession on a monthly tenancy. The noise created by Batten in his shop disturbed Smitty, although it would not disturb most people. Smitty has quiet enjoyment of the premises. ⊚ ⊚
true false
9) Larry entered into a two-year lease with Netta, the landlord, to rent a small plot of land for a garden. Once the lease was made, Larry promptly sublet the land to Nayib. Nayib must pay rent to Netta under the sublease. ⊚ ⊚
true false
10) Larry entered into a two-year lease with Netta, the landlord, to rent a small plot of land for a garden. Once the lease was made, Larry promptly sublet the land to Nayib. Larry would be liable on the lease, even though the property was now in the possession of Nayib. Version 1
2
⊚ ⊚
true false
11) Larry entered into a two-year lease with Netta, the landlord, to rent a small plot of land for a garden. Once the lease was made, Larry promptly sublet the land to Nayib. Once the subtenancy is established, Nayib may remove any trees on the property. ⊚ ⊚
true false
12) Larry entered into a two-year lease with Netta, the landlord, to rent a small plot of land for a garden. Once the lease was made, Larry promptly sublet the land to Nayib. A sublease must terminate at a point in time on or before the point in time that the lease between Larry and Netta expires. ⊚ ⊚
true false
13) A lease creates both privity of estate and privity of contract between the lessee and the landlord. ⊚ ⊚
14) end.
true false
Where a tenant sublets, privity of contract between himself and the landlord comes to an ⊚ ⊚
true false
15) To be enforceable against a tenant, a lease of over three years must be registered on the title of the property. ⊚ ⊚
Version 1
true false
3
16) The legal responsibility for payment of property tax, even if provided for in the lease, rests with the lessee. ⊚ ⊚
true false
17) A water purifier attached to a residence by a tenant at his own expense may not be removed by him on expiry of the lease. ⊚ ⊚
18)
true false
Distress is the right of a landlord to seize and sell a tenant's goods to satisfy rental arrears. ⊚ ⊚
true false
19) The day following expiry of a residential tenancy, the landlord has an absolute right to reenter the premises. ⊚ ⊚
true false
20) A lease which does not specify a definite term to expiry but where rent is paid monthly (a) renews itself monthly, and (b) need not be in writing. ⊚ ⊚
true false
21) The major advantage to a lessee in a sale-and-lease-back transaction is that what are now rental payments are a deductible expense. ⊚ ⊚
Version 1
true false
4
22) Where the leased premises are subject to a covenant that runs with the land, a third party with the right to enforce the covenant should sue the lessor for a breach of that covenant. ⊚ ⊚
true false
23) In the case of a periodic tenancy, after one year and in the absence of a notice to quit, the tenancy becomes a tenancy at sufferance. ⊚ ⊚
24)
No lease other than a written lease may be brought before the Courts for enforcement. ⊚ ⊚
25)
true false
true false
One individual may be both the landlord and tenant for the same parcel of land. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) A lease creates __________, between lessee and lessor.
A) B) C) D) E)
27)
privity of estate privity of contract privity of reversion All of these relationships. privity of estate and privity of contract
The interest transferred in a lease is
Version 1
5
A) B) C) D)
28)
less than a conveyance in fee simple, but more than a licence or easement. less than either a conveyance in fee simple or licence but more than an easement. less than all three. more than all three.
A lease bears similarity to a transfer of property in that
A) if its term exceeds one year, it must be registered. B) the lessee is entitled to "quiet possession." C) any fixtures a tenant installs become part and parcel of the real property, as is the case for an owner. D) both must be in writing to be enforceable. E) any fixtures a tenant installs become part and parcel of the real property, as is the case for an owner and the lessee is entitled to "quiet possession."
29)
With respect to any right of a lessee to assign (sublet) its leasehold interest,
A) B) C) D) E) tenancy.
30)
it is an absolute right under common law, but greatly restricted by statute. it is greatly restricted at common law, but significantly expanded by statute. it is entirely governed by statute. it would be entirely governed by the terms of the lease. it would be entirely governed by the terms of the lease if it was a commercial
"Action on the covenant," and at common law, "distrain" are both remedies open to
A) B) C) D) E)
Version 1
a tenant to enforce a right of quiet possession or repair. a landlord for non-payment of rent. a landlord to terminate a tenancy-at-sufferance. a tenant to enforce a pre-existing right to sublet. either party to a lease.
6
31) Freder was a director of Cable Shipping Ltd., a corporation that leased a large dock from Sandro. Freder gave instructions to the person in charge of the dock that the "S.S. Oxford" would be using the dock to unload its cargo. The "S.S. Oxford" damaged the dock on its arrival.
A) Freder would be personally liable to Sandro for the damages. B) Only the owner of the "S.S. Oxford" is liable to Sandro for the damages. C) Cable Shipping Ltd. is liable for the damages. D) Cable Shipping Ltd. would be liable to Sandro only if the "S.S. Oxford" was owned by persons other than Cable Shipping Ltd. E) Cable Shipping Ltd. would be liable to Sandro only if the "S.S. Oxford" was owned by Cable Shipping Ltd.
32)
Which of the following are remedies available to the lessee?
A) B) C) D)
Distress. Distrain. Action on the covenant. Right of re-entry.
33) Lucy rents a commercial storage space every summer to store her possessions while she is not at school. She pays the storage fees by cheque each month to the owner of the facility.
A) Lucy is in a periodic tenancy. B) Lucy is a subtenant. C) Lucy is in a tenancy at will. D) Lucy will have to pay additional monthly rent unless she gives notice to quit when she removes her belongings. E) Lucy is in a periodic tenancy and will have to pay additional monthly rent unless she gives notice to quit when she removes her belongings.
34)
From a business perspective, a leasehold interest may be the only option where
Version 1
7
A) B) C) D) E)
35)
the perfect location is not for sale. there is a tax advantage to leasing. ownership requires additional, unwanted responsibilities. a mortgage is unworkable for cash flow reasons. All of the responses are correct.
What happens to the real property when the lease terminates?
A) B) C) D) E)
The real property repudiates to the lessor. The real property repudiates to the lessee. The real property reverts to the lessor. The real property reverts to the lessee. The real property distrains to the lessee.
36) Ron has a two-year commercial lease with Southward Realty Inc. for his insurance business located in Calgary, Alberta. The lease was entered into on July 1 of year 1 and runs until year 3. It is a monthly periodic lease. In October of year 1 Ron decides that he wants to terminate the lease and move to new premises on May 1 of year 2. If there is no termination clause in the lease, when must he give notice of termination?
A) B) C) D) E)
March 31; the notice must be equal to one tenancy period. April 1; the notice must be equal to one tenancy period. February 1; the legislation requires notice of 60 days. February 1; the rule at common law is notice of 60 days. As there is no termination clause, Ron cannot give notice to terminate the lease.
37) Ron has a two-year commercial lease with Southward Realty Inc. for his insurance business located in Calgary, Alberta. The lease was entered into on July 1 of year 1 and runs until year 3. It is a yearly periodic lease. In October of year 1 Ron decides that he wants to terminate the lease and move to new premises on May 1 of year 2. If there is no termination clause in the lease, when must he give notice of termination?
Version 1
8
A) B) C) D) E)
38)
April 1, year 2; the notice must be equal to one tenancy period. May 1, year 2; the notice must be equal to one tenancy period. February 1, year 2; the legislation requires notice of 60 days. February 1, year 2; the rule at common law is notice of 60 days. As there is no termination clause, Ron cannot give notice to terminate the lease.
Which is not a reciprocal right under a lease?
A) B) C) D) E)
Right of exclusive possession General repair Payment of utilities Payment of rent Right of reversion
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 39) Discuss the application of the Statute of Frauds and the requirement of registration with respect to leasehold interests, give reasons why these conditions are imposed, and explicitly treat the situation of a lease of indefinite term.
40) List the right of, and the duties imposed upon a landlord and tenant at common law, and the remedies available to each party.
Version 1
9
41) Describe the major ways in which commercial leases differ from residential leases, and any terms which are commonly found only in commercial or shopping centre leases.
42) If no date for the end of the lease is discussed by the parties, what type of lease is this? How is the end of the lease determined in the normal course of matters? What facts would you need to know to determine the scope of the landlord's rights upon termination?
43) How does the legal interest in land under a leasehold compare to the interests of the parties to a mortgage. If the landlord has mortgaged the property, how does that affect the actual legal interests of the various parties in the land?
Version 1
10
44) Savesure Department Stores were a chain of discount stores offering low-priced consumer products in a no-frills environment. They had found great success, particularly in urban centres where they offered many name-brand or comparable products at prices far below the competition. As a result, Savesure had built a network of over 50 franchised stores, many located in shopping centres. One of its stores was located in a leased building on the main street of a large city directly opposite a major shopping centre. The lease provided for a minimum annual rent of $24,000 payable monthly plus 10% of gross sales revenue. The lease also contained a covenant that the tenant would not open one of its stores within an eight-kilometre radius of the existing leased premises. After several years the landlord sold the property and assigned the lease to the purchaser. The new owner then discovered that Savesure had been operating a store in the shopping centre across the street for five years. What issues does this case present? What rights, if any, does the new landlord have?
45) The Elegant Gift Shop had been a tenant in Meadowvale Shopping Centre for ten years. The commercial lease contained a term in which all tenants agreed to participate in all Centre promotional activities and to be open for business during the hours which the landlord stipulated as hours of operation for the centre. At the time Elegant entered into the lease, legislation was in place which prohibited the opening of retail establishments on Sundays and statutory holidays. Recently, the provincial government's legislation was challenged and was found unconstitutional by the courts, thus allowing retail stores to remain open on Sundays and holidays. The manager of Harborvale Centre immediately sent notices to all mall tenants that the Centre would now be open on Sunday and all shops were required to be open for business. The notice referred to the clause in the lease entitling the landlord to require tenants to be open during the hours designated by the landlord as hours of operation. What issues does this situation present? Discuss the rights of the parties involved.
Version 1
11
Version 1
12
Answer Key Test name: Chapter 24 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) FALSE 17) TRUE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) FALSE 23) FALSE 24) FALSE 25) TRUE 26) E Version 1
13
27) A 28) E 29) E 30) B 31) C 32) C 33) E 34) E 35) C 36) A 37) C 38) C
Version 1
14
39) Any lease for a period of more than three years must be, pursuant to the Statute of Frauds, in writing and under seal. Even though a lease is an interest in land, it need not be in writing if for a period of three years or less, if the tenant goes into possession of the property. Registration of leases is required under the Land Titles System if it is for three years or longer, or in a Registry jurisdiction, if it is for seven years or longer. Both the requirement of writing and registration are attempts to introduce further certainty into our system of interests in land. The need for writing of long-term leases is to establish an evidentiary basis for judicial decision-making, and for conciliation before litigation. If the relevant rights and duties are written and acknowledged, the adjudication process has something more to go on than the now-hazy memories of those parties seeking redress on the basis of a long-ago bargain. While the same may be said of many other types of agreements, the historical importance of land again shows through in this attempt to bring as much certainty as possible to disputes with respect to land. On the same basis, registration is required to give notice of a preexisting interest in land to any person contemplating taking a subsequent interest. Since a lease is a powerful interest in land when not in default of its terms, a tenant represents a substantial liability on the property in the eyes of a prospective purchaser, and full notice of such a tenancy is the intent of registration. The choice of the number of years of term required to be registered is one of balance of convenience versus need. A lease of indefinite term is one where the term is payment-to-payment, and as long as this is less than three years, the term is less than three years, and therefore not subject to the requirement to be in writing. As a bonus, a student may in the context of this question raise the notion of a lease for an infinite term amounting to a transfer of the land in fee simple. While this is not covered in the text, any lease for a period greater than twenty-one years is void in Ontario and other jurisdictions, Version 1
15
for exactly that reason. An option to renew would be possible, but not a lease which on its face purports to be for any longer period.
Version 1
16
40) Rights of Landlord/Duties of Tenant at Common Law: - specifically to receive/pay rent - any other legal contractually bargained right/duty Rights of Tenant/Duties of Landlord at Common Law: - specifically to receive/provide quiet possession - any other legal contractually bargained right/duty Remedies of Landlord at Common Law: - Action on the Covenant - Distrain (seize and sell tenants chattels for unpaid rent) - Distress (seize and hold tenants chattels as security for unpaid rent) - Injunction (against a particular activity) - Right of Re-entry (commonly thought of as eviction) Remedies of Tenant at Common Law: - Action for damages (or on the Covenant) - Injunction (against the actions of the landlord, usually for interference with quiet possession) - Termination (commonly thought of as "giving notice") Students should realize that in the instance of residential tenancies, there is substantial support to the tenant provided by statute law to mitigate the harshness of a landlord's common law rights, and to enforce the landlord's obligations. Commercial leases are not provided support of this nature as the parties are believed to have far more equality of bargaining power. This should be recognized, but the question is posed in light of the common law rights and duties, and students should not
Version 1
17
base their answers solely on their own experience with residential leases; commercial leases, as noted, are offered none of this protection. 41) Commercial leases differ from residential leases, particularly in light of the fact that the former receive virtually none of the statutory protection of rights enjoyed by the latter. Commercial leases are most often for much longer terms than residential leases and are likely to have options to renew contained in them. Rent is usually expressed in terms of dollars per square foot per year, rather than a fixed yearly sum; it is merely the custom of the trade. Shopping centre leases have unique clauses in that the tenant usually must also deliver up to the landlord a specific percentage of gross or net sales in addition to rent. Other unique terms are those requiring a merchant to honour the business hours of the premises, restrictions on the type of business that may be undertaken (often to ensure a particular mix of shops that the centre offers), and obligations with respect to common areas shared by the merchants such as parking lots. A perceptive student may notice that in many respects, shopping centre leases have elements that make them very similar to condominiums, and this similarity has led to the development of the commercial condominium. 42) The lease is a periodic tenancy, and termination would be made by the delivery of a Notice to Quit from one party to the other. The required notice period would generally be found in Provincial statutes, but at common law it would be one full period of the tenancy. To define the rights of the landlord it would be necessary to know whether it was a residential tenancy or a commercial tenancy, as residential landlords are generally more limited in their powers.
Version 1
18
43) With both mortgage and leasehold interests, the possession and title in the property are separated and given to different parties. In a mortgage, the mortgagor keeps the possession of the property but transfers the title to the mortgagee. In a leasehold interest it is the possession which is transferred by the landlord (owner) to the tenant and the landlord retains the title to the property. In the instance where the landlord has mortgaged the property, he or she has only the possessory interest to deal with as the mortgagee now holds the title. If the landlord now leases the property, he or she actually divests of any interest in the property and retains only the right to regain both possession or title on the completion of certain contractual obligations by the landlord or tenant or both.
Version 1
19
44) This case is meant to explore the issue of recovery of rent and breach of covenant in leasehold agreements. However, it also draws upon material from earlier chapters in the areas of assignment and restrictive covenants. The purchaser/assignee acquires all the rights and obligations under the lease of the vendor. As such, it may sue upon the lease for a breach of the covenant and for recovery of rent. The new owner is entitled to claim damages for inadequate present and past rents on the basis of the covenant incorporated in the lease. The existence of the second store in the shopping centre may have had a detrimental effect on the revenues earned by the Savesure store which is the subject of the lease. This would have effectively reduced the rents paid by Savesure under the percentage of revenue formula. Furthermore, the new landlord may give Savesure notice of its breach of the covenant and require it to correct the breach. If the tenant fails to do so the landlord may take action to regain the premises or request the courts to order the tenant to correct the breach or to pay appropriate damages. The tenant may argue in its defence that the former landlord failed to enforce the lease covenant previously and is now estopped from doing so. Even though the purchaser/assignee acquires the right to enforce the covenant it is also subject to any defences which the tenant may have had against the vendor/assignor.
Version 1
20
45) This case examines the nature of the landlord-tenant relationship in the specific context of the lease agreement entered into between the parties. In order to determine the enforceability of the clause with regard to Sunday openings the general principles of contract may be applied. From the landlord's perspective, the clause was negotiated and agreed upon by the parties at the time the lease was entered into. Both parties intended it to permit the landlord to alter hours of operation from time to time as it saw fit given local competition and market conditions. Requiring Sunday opening is, then, analogous to extending weekday hours into the evening and is well within the intention of the clause as negotiated by the parties. On the other hand, the tenant may argue that at the time the lease was entered into, the issue of opening for business on Sunday was illegal and therefore beyond the contemplation of the lease. It is so fundamental an issue in the management of a retail business that it cannot be considered to be equivalent to entering weeknight hours. Mandatory Sunday openings which require more extensive scheduling and inventory planning cannot be said to be a term which the parties intended and agreed upon when executing the lease. Therefore, the landlord will attempt to enforce the term of the lease on its face. The tenant will defend on the basis that this requirement was beyond the contemplation of their agreement and, therefore, unenforceable on the basis that it does not represent the intentions of the parties. The tenant may further seek an injunction to prevent the landlord from compelling its Sunday opening on this basis.
Version 1
21
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Bradford entered into a purchase and sale agreement with Frank, the vendor, to purchase a building lot for $45,000. Bradford arranged for a survey of the property, and the completed survey revealed that the width of the lot was narrower than the width stipulated in the purchase agreement. Under the terms of the contract, the vendor is obliged to provide the purchaser with a parcel of land as stipulated in the agreement. ⊚ ⊚
true false
2) Bradford entered into a purchase and sale agreement with Frank, the vendor, to purchase a building lot for $45,000. Bradford arranged for a survey of the property, and the completed survey revealed that the width of the lot was narrower than the width stipulated in the purchase agreement. Where the parcel of land actually owned by the vendor is less than the parcel which the vendor has agreed to sell, the purchaser may still take the land, but demand an abatement of the purchase price. ⊚ ⊚
true false
3) Bradford entered into a purchase and sale agreement with Frank, the vendor, to purchase a building lot for $45,000. Bradford arranged for a survey of the property, and the completed survey revealed that the width of the lot was narrower than the width stipulated in the purchase agreement. If the discrepancy between the survey dimensions and the land described in the agreement is substantial, the purchaser may avoid the transaction. ⊚ ⊚
true false
4) Bradford entered into a purchase and sale agreement with Frank, the vendor, to purchase a building lot for $45,000. Bradford arranged for a survey of the property, and the completed survey revealed that the width of the lot was narrower than the width stipulated in the purchase agreement. If the agreement described the dimensions of the lot using the words "more or less," the vendor would not be required to make an abatement of the purchase price if the difference was minor.
Version 1
1
⊚ ⊚
true false
5) Leo engaged Raveen, a real estate agent, to sell his house and lot for him. Without disclosing the fact to Leo, Raveen arranged for his brother-in-law to offer to purchase the house at a relatively low price, because he knew Leo was anxious to sell the property. After the transaction closed, Leo discovered the true facts. Leo would be entitled to recover the commission he paid to Raveen on the sale. ⊚ ⊚
true false
6) Leo engaged Raveen, a real estate agent, to sell his house and lot for him. Without disclosing the fact to Leo, Raveen arranged for his brother-in-law to offer to purchase the house at a relatively low price, because he knew Leo was anxious to sell the property. After the transaction closed, Leo discovered the true facts. Raveen would be liable to Leo for any difference between the market price of the property, and the price at which the property was sold, because Raveen failed to disclose the true circumstances concerning the offer made. ⊚ ⊚
true false
7) Leo engaged Raveen, a real estate agent, to sell his house and lot for him. Without disclosing the fact to Leo, Raveen arranged for his brother-in-law to offer to purchase the house at a relatively low price, because he knew Leo was anxious to sell the property. After the transaction closed, Leo discovered the true facts. The relationship between Leo and Raveen is basically one of utmost good faith. ⊚ ⊚
true false
8) Leo engaged Raveen, a real estate agent, to sell his house and lot for him. Without disclosing the fact to Leo, Raveen arranged for his brother-in-law to offer to purchase the house at a relatively low price, because he knew Leo was anxious to sell the property. After the transaction closed, Leo discovered the true facts. The transaction is valid. ⊚ ⊚ Version 1
true false 2
9) Jared engaged Mackenzie as his lawyer to handle a real estate purchase on his behalf. Mackenzie examined the title to the property and discovered that the land was subject to a registered outstanding mortgage in favour of Steven. If the purchase agreement did not provide for the assumption of the mortgage by Jared, the vendor of the property would be obliged to obtain a discharge of the mortgage before Jared would be required to complete the transaction. ⊚ ⊚
true false
10) Jared engaged Mackenzie as his lawyer to handle a real estate purchase on his behalf. Mackenzie examined the title to the property and discovered that the land was subject to a registered outstanding mortgage in favour of Steven. If Jared proceeded with the purchase without obtaining a discharge of the mortgage from Steven, Steven would be entitled to claim payment from Jared for the mortgage amount. ⊚ ⊚
true false
11) Jared engaged Mackenzie as his lawyer to handle a real estate purchase on his behalf. Mackenzie examined the title to the property and discovered that the land was subject to a registered outstanding mortgage in favour of Steven. The mortgage would be extinguished if the vendor gave Jared a deed to the land, as the mortgage is an agreement between Steven and the present owner. ⊚ ⊚
true false
12) Jared engaged Mackenzie as his lawyer to handle a real estate purchase on his behalf. Mackenzie examined the title to the property and discovered that the land was subject to a registered outstanding mortgage in favour of Steven. If Jared wishes to purchase the property subject to Steven's mortgage, he would only pay the vendor the difference between the mortgage value and the purchase price. ⊚ ⊚
Version 1
true false
3
13) A real estate agent is bound by a duty of utmost good faith as he acts as agent for both parties as negotiations go back and forth. ⊚ ⊚
true false
14) In most cases a vendor must pay an agent his commission based on the sale price in the offer even if the prospective sale falls through. ⊚ ⊚
true false
15) A "letter of requisition" is the purchaser's formal demand on closing that the vendor deliver the property up in return for payment. ⊚ ⊚
true false
16) A lawsuit for monetary damages is the only remedy open to a purchaser should the vendor improperly attempt to rescind the Agreement of Purchase and Sale. ⊚ ⊚
true false
17) Where a purchaser has viewed the property to his satisfaction before offering, but a survey reveals significantly less land than what was alleged by the vendor, the purchaser may accept it with abatement, or walk away from the sale. ⊚ ⊚
18)
true false
A solicitor's fee for handling a sale would exceed his fee for a purchase. ⊚ ⊚
Version 1
true false
4
19) One would not normally expect to find a Bill of Sale as part of the closing documents on the sale of ten hectares of pasture lands. ⊚ ⊚
20)
true false
On closing, a purchaser obtains from the vendor a certificate as to writs of execution. ⊚ ⊚
true false
21) Following closing, should a third party show a legal right to ownership over the purchaser, the purchaser's first recourse is to the vendor in damages. ⊚ ⊚
true false
22) An offer contains a statement that: "the agent, for procuring this offer, will be paid by the vendor on the date fixed for completion of this sale, a commission of 6% of an amount equal to the above-mentioned sale price." This places the vendor in a materially better position than an offer which contains a statement that: "the agent, for procuring this offer, will be paid by the vendor on completion of this sale, a commission of 6% of the sale price." ⊚ ⊚
23)
true false
Livery of seisin has been replaced by delivery of keys. ⊚ ⊚
true false
24) The appraisal and survey must be handed over to the purchaser as part of the document package on closing of the real estate transaction. ⊚ ⊚
Version 1
true false
5
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 25) A real estate agent is an agent for
A) B) C) D)
26)
A survey will establish
A) B) C) D) E)
27)
encroachments by adjoining landowners. the existence of easements over the land. the accuracy of description of the land in prior deeds. the physical boundary points and lines. All of the responses are correct.
A search in the Sheriff's Office is required
A) B) C) D) E)
28)
the vendor at all times. the purchaser at all times. the vendor in listing, the purchaser in offering, and the vendor in counter-offering. both parties at all times, in an agency of utmost good faith.
to determine the vendor's title to the land. to determine if executions have attached to the land. to determine if the land is mortgaged to a third party. to determine if tax arrears against the land exist. to determine if the property conforms to zoning.
Which is most correct? On closing, the purchaser's solicitor completes
Version 1
6
A) a sub-search and executions search, while the vendor's solicitor delivers compliance certificates and cash. B) a sub-search and executions search, while the vendor's solicitor delivers a deed and keys. C) a sub-search, while the vendor's solicitor delivers a deed and keys. D) a sub-search, while the vendor's solicitor delivers a deed, keys, and compliance certificates.
29)
The Torrens or Land Titles System
A) is more complicated from the purchaser's perspective than the Registry System. B) is only marginally different from the Registry System. C) differs from the Registry System in that the province guarantees the title as shown in the register. D) eliminates the need for a purchaser's letter of requisitions. E) provides the purchaser's solicitor with any outstanding executions as well as the chain of title.
30)
Not among a solicitor's customary searches in a real estate transaction are
A) B) C) D) E)
31)
execution searches. zoning searches. work order searches. title searches. unpaid Land Transfer Tax searches.
The rarest of permitted actions of a real estate broker is to:
Version 1
7
A) B) C) D) E)
actively seek out purchasers and advertise the property at the agent's own expense. inspect the property and value it for the purposes of establishing an offering price. act as agent for both vendor and purchaser. execute the purchase agreement on behalf of the vendor under a power of attorney. prepare a written offer to purchase for the prospective purchasers to sign.
32) Lucy made an offer to purchase the Lucky Star Tavern that was accepted by the property owner. During the title search process her solicitor discovered that the property had been used 20 years previously as a gas station and shop. There were no gas pumps visible on the property when Lucy inspected it prior to making her offer to purchase. No record could be found of any removal of the underground tanks.
A) Lucy could avoid the contract to purchase the property. B) Lucy may not order an environmental audit be performed on the property at this stage. C) Lucy needed to make her offer to purchase conditional on a clean environmental audit in order to now avoid the contract. D) If Lucy completes the transaction, she can make the current landowner-vendor jointly responsible for the cost of cleaning up the property since the problem was discovered before closing. E) All of the responses are true.
33) On March 1st, Sam enters into an offer to purchase with Geraldo to purchase his home. The closing date is June 15th. On May 1st, Sam discovers that the city is planning to re-zone the land next door as commercial. Sam is very unhappy and no longer wants the property. What legal/non-legal action might Sam take?
A) B) C) D) E)
Version 1
Sam may bring an action against Geraldo for misrepresentation. Sam may fail to complete the transaction. Sam may notify Geraldo of an anticipatory breach. Sam may fail to complete the transaction of notify Gerald of an anticipatory breach. Sam may take any of these actions.
8
34)
Which of the following is most often completed by the real estate agent?
A) Prepare a written offer of purchase. B) Conduct an expert property inspection. C) Search the title to the property. D) Where the property is a new dwelling, ensure that the dwelling is registered under the new home warranty program. E) Close the transaction.
35)
Why are environmental audits conducted?
A) B) C) D) E)
To ascertain whether the property is contaminated. To estimate the clean-up costs. To fulfill a condition precedent. Environmental statutes have remediation requirements. All of these are reasons to conduct an environmental audit.
36) In a real estate transaction, who has the obligation of searching the title to determine which encumbrances must be discharged?
A) B) C) D) E)
37)
Purchaser's realtor. Vendor's realtor. Purchaser's lawyer. Vendor's lawyer. Surveyor.
Who has the obligation of discharging encumbrances from title prior to closing?
Version 1
9
A) B) C) D) E)
Purchaser's realtor. Vendor's realtor. Purchaser's lawyer. Vendor's lawyer. Surveyor.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 38) Describe the major steps a solicitor undertakes and completes in the course of handling a residential real estate purchase.
39) Describe the role, duties (and to whom they are owed) of a real estate agent in the course of listing a property for sale and conducting negotiations. A complete answer will contain the pitfalls an agent faces in light of general common law principles of agency.
40) A lawyer obtains on closing a Sheriff's Certificate with respect to Writs of Execution against a vendor. Explain why he or she might (or must) also obtain one as against his or her own clients, particularly if there is to be mortgage financing.
Version 1
10
41) Outline from a legal perspective the differences one would expect to experience between a residential and a commercial real estate transaction.
42) Steven approached an agent of Any Lands Brokerage Ltd., Johnson, for his assistance in finding a home to purchase. Steven explained that the maximum monthly payment he could make under a mortgage was $1,100 and he wanted Johnson to find him a home with a mortgage he could assume such that the payment would not exceed this sum. Johnson did not have listings that suited Steven's needs, and as he was aware that Steven did not know where to turn, he offered to search the Multiple Listing Service for a suitable property. Steven asked him to do so. Any Lands Brokerage Ltd. was a member of the local Multiple Listing Service and received the listing of cards for various properties that described their attributes, including the existing mortgages. Based on the information that was contained on the MLS cards, Johnson picked a house for Steven, which Steven later purchased. Johnson's attention had been drawn to this particular property as the listing card showed a mortgage which could be assumed at 8% with a monthly payment of $1,125 and a term that expired the next year. As matters turned out, the vendors were in receipt of a special mortgage rate and subsidy from the Canada Mortgage and Housing Corporation for as long as they occupied the premises and when the house was sold the mortgage rate would increase from 8% to 12 ¾%. A month after closing Steven discovered that the payment expected of him was, in fact, $1,600 per month rather than $1,100. Steven brought a suit against the agent, Johnson, and Any Lands Brokerage Ltd. for the difference of his payments for the remaining term of the mortgage. Discuss the issues raised in this case and the arguments upon which each party will rely.
Version 1
11
43) Victoria agreed to purchase a restaurant owned by Gordon. Victoria's intention was to remodel the restaurant on a particular theme and then turn around and resell it as a going concern. She had done this quite a number of times in the past and made her living this way. Victoria had given clear instructions to her solicitor that she wanted no title problems to arise that may haunt her later in her attempt to resell the property, and that she would "walk away from the deal" if there were any. About a month before closing, her solicitor discovered that the building that formed the restaurant encroached upon city lands to the extent of six centimetres. On hearing this, Victoria instructed her solicitor to inform Gordon that she had no intention of completing the transaction. Gordon immediately brought an action for specific performance to force Victoria to purchase the property and was willing in so doing to either accept an abatement of the sale price or obtain a licence from the city renewable yearly at a very nominal cost (currently $5). It was, however, impossible for Gordon to obtain an actual deed for the six centimetres from the city at any cost. Discuss the questions of surveys, financing, and intentions of the parties, and discuss the arguments of the parties. Render a decision.
Version 1
12
44) In June of 2000, Bernie acquired a parcel of land consisting of 100 hectares, which he intended to farm as had many owners of the property before him. At the time he purchased the property, Bernie's lawyer told him that, in the course of her search of title to the property, she had found a deed to a logging company registered in 1910. The deed was for a 15-metre wide strip of land, which appeared to lie on the same property that Bernie was purchasing. The deed seemed to be the result of purchase which had occurred in 1910, across the lands Bernie was going to buy (then owned by Smith) and continuing across the lands of the neighbours to both sides. Most likely, it had been purchased to build an access road into a forest. The road had never been built. In fact, there were no physical structures on the strip that had been constructed by the logging company. The lawyer further explained that she had found another deed, dated in 1938, in which an owner of the lands named White had sold them to Green, but that the deed in that case was allencompassing, and had included the strip in the description of the lands to be conveyed. There had been several further transactions up to the present owner from whom Bernie would be purchasing the lands. Bernie instructed his lawyer to continue with the purchase and close the deal. After closing, Bernie continued to farm the lands as had his predecessors, including the 15metre strip. In2013 Bernie registered a sworn document on the title of the property in which he declared himself to be the owner in fee simple of the 15-metre strip. The successor to the logging company, upon becoming aware of the registration, wrote to Bernie threatening legal action to challenge his assertion to any rights in the strip The land registration system of the province in which Bernie resided stipulated that there be a clear chain of title for 40 years. Discuss the rights and liabilities, if any, of the various parties involved in the case. If the successor to the logging company took legal action, what would be the outcome?
Version 1
13
Answer Key Test name: Chapter 25 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) FALSE 16) FALSE 17) TRUE 18) FALSE 19) TRUE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) FALSE 25) A 26) E Version 1
14
27) B 28) B 29) C 30) E 31) D 32) A 33) E 34) A 35) A 36) C 37) D 38) The major steps performed by a solicitor in this instance are: - review the offer - conduct a full search of title - submit requisitions to the other lawyer with respect to defects of title - search for tax arrears, zoning, compliance, and work orders on the property (searches related to the municipality that the property is situated in) - corporate searches if vendor or predecessor in title was a corporation - search as to writs of execution - review draft documents provided by vendor - attend closing, subsearch title and executions for subsequent registrations or filings - check and register documents - release cash - report to client
Version 1
15
39) The general role of the real estate agent is to seek out prospective purchasers, arrange for their inspection of the property, prepare offers to purchase, and hold deposits of the purchasers. The duty of a real estate agent is always owed to the vendor who engaged him or her, unless he or she is expressly engaged and directly paid by the purchaser to find a property for the purchaser. If the agent takes a commission-percentage out of the sale price, he or she is acting as the agent for the vendor. The general duties of a real estate agent are those as described as roles above, but they must be executed within the principles of agency law. In this regard, the agent may not exceed his authority (e.g., offer for sale chattels not already listed for sale), accept a secret profit from the transaction (e.g., accept a benefit from the purchaser for encouraging the vendor to accept a lower offer). The agent will be personally responsible for any damages that so arise and will be in breach of his duty of utmost good faith. Further liability may arise as the real estate agent is professing to have a special skill, and will be held to the duty expected of a professional in the circumstances. 40) The certificate against the vendors is obtained to ensure that no executions exist against the vendors, for if they did, they attach to the land and the purchaser will be taking the property subject to the executions. The lawyer would make a search against his or her own clients where the clients intend to mortgage the property to finance its purchase. Any executions in place against the lawyer's own clients will attach to the land once the transaction is closed and will impair the security of the mortgage lender and the quality of the title so given to the mortgage lender. Thus, the lawyer, who is customarily acting for the commercial mortgage lender as well as the purchaser, is discharging an obligation to protect both the lender and the purchaser.
Version 1
16
41) Residential transactions are primarily concerned with establishing valid title to the property and ensuring that no liens, taxes or other claims encumber the title. It is usually clear in residential transactions what the intended and approved use of the property will be. In commercial transactions, however, the purchaser must ensure not only that there is clear title to the property but also that the permitted use of the commercial property corresponds to his or her intended use. Therefore, zoning matters are often more complex. Also, commercial and industrial properties are more susceptible to environmental contamination and must be investigated to ensure that the purchaser does not inherit expensive problems. Commercial properties must also be examined for equipment or other chattels which either are not owned by the vendor or are not of use to the purchaser and must be excluded from the transaction or disposed of.
Version 1
17
42) The central issue raised in this case is the duty of an agent to a purchaser. Johnson and Any Lands Brokerage Ltd. will attempt to rely on the established principles of law that a real estate agent is agent for the vendor alone. They will allege that Steven had an obligation upon himself to investigate those terms which may be of relevance to him and his decision whether or not to purchase the property. Steven will argue that the issue is not one of agency, but rather a question of reliance by Steven upon the skill and expertise of the real estate agent in his field. In fact, the arguments of both parties are correct; however, the fact that a real estate agent is an agent for the vendor is of little relevance in this situation. Regardless of whether the agent is agent for vendor or purchaser, there is no doubt that the purchaser was relying on the skill and judgement of the agent, and the agent should have confirmed the mortgage details to a sufficient degree where Steven could make an informed decision on the basis of the mortgage. Based on: Creyke v. Royal Trust Corporation of Canada, c.o.b. Royal Trust et al. (1980), 17 R.P.R. 298 (Alta. Q.B.).
Version 1
18
43) The case illustrates the importance of an accurate survey to a perspective purchaser. It is the survey alone which uncovers encroachment of vendor's property by adjoining property owners, and its own encroachments on the property of others. It is the survey which acts as a link between the paper description of the property in abstract, and the reality of the physical attributes of the property. When both are in conformance with each other, there is little problem; however, difficulties arise when the title description of the property does not match the realities uncovered by the survey. Typically, this is a source of difficulty with respect to the financing of a purchase. A prospective purchaser may be content to accept that the property of another encroaches upon his or that he will not own in entirety what he thinks he is purchasing; however, this will be of immense importance to a mortgage lender. In that case, the mortgagee will not be receiving as security all that he expects to in return for the advance that is to be made. Thus, any difficulties with description or survey tend to cause numerous difficulties in financing, regardless of the attitude of the principal parties involved. The normal response by the courts, in situations such as is described in this question, is to allow a degree of specific performance but with some abatement of the purchase price to accommodate for the deficiency or defect of title. In cases where the deficiency is substantial, there is no doubt that it is the purchaser's right to avoid the transaction. In this case, we have a situation where the discrepancy is at best minimal; however, early in the negotiations the intention is clearly expressed that any deviation would be considered grounds for rescission of the contract, in spite of any of the actions including a license (which is still short of delivering title). In this case, it must be asked then, which should win out: the expediency of an order of specific performance with an abatement, or to give effect to the intention of the parties. In cases concerning land it must be remembered that land Version 1
19
occupies a much cherished place in jurisprudence and every effort is made to effect the will of the parties in this respect. Specific performance is a remedy which is sparingly exercised by the courts. It is not ordered where purchaser's objection is material, prompt and bonafide and (if not sustained) would compel into taking a property substantially different from that which he had agreed to purchase. In this case, the parties have made a bargain which Victoria could not have repudiated any more promptly and which is consistent with her attitude throughout and followed from a specific term of the contract. There does appear to be a reason behind her insistence which would be in accord with wise business practice, given her intention of quick resale of the property. On that basis it is likely that rescission would be granted in a situation such as this where the deficiency is minimal. To an extent this would be a rarity. It is only the clarity of the objection and the timeliness of Victoria's action which probably entitles her to a rescission. In any other instance, something of this magnitude would result in specific performance with an abatement of the price. These other situations might typically be an encroachment by a fence or a house which could be corrected by an actual deed, or an easement such as for underground sewers that does not prejudice the buyer's enjoyment of the surface Based on: Boyko et al. v. Wakal et al. (1974), 48 D.L.R. (3d) 607 (Man. Q.B.). 44) Answers will vary.
Version 1
20
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Kimberley developed a novel type of bottle opener that incorporated a new and different method of removing a bottle cap. She applied for a patent on her invention, and then began manufacture of the product. She stamped each unit with the words "patent pending." Another manufacturer copied her designand began marketing the same type of opener. Because Kimberley had marked her bottle openers with the words "patent pending," Kimberley is entitled to take action for infringement against the other manufacturer. ⊚ ⊚
true false
2) Kimberley developed a novel type of bottle opener that incorporated a new and different method of removing a bottle cap. She applied for a patent on her invention, and then began manufacture of the product. She stamped each unit with the words "patent pending." Another manufacturer copied her design and began marketing the same type of opener. The words "patent pending" have no legal significance. ⊚ ⊚
true false
3) Kimberley developed a novel type of bottle opener that incorporated a new and different method of removing a bottle cap. She applied for a patent on her invention, and then began manufacture of the product. She stamped each unit with the words "patent pending." Another manufacturer copied her designand began marketing the same type of opener. Kimberley may ask the Patent Office to speed up the issue of her patent, because the other manufacturer is copying her product, and she cannot take steps to stop the infringement until the patent is issued. ⊚ ⊚
true false
4) Kimberley developed a novel type of bottle opener that incorporated a new and different method of removing a bottle cap. She applied for a patent on her invention, and then began manufacture of the product. She stamped each unit with the words "patent pending." Another manufacturer copied her designand began marketing the same type of opener. Once the patent is issued to Kimberley, she may take action against the other manufacturer for infringement.
Version 1
1
⊚ ⊚
true false
5) Farrahtook a photograph of a parade that passed by the window of the office where she workedand submitted it to the local newspaper along with a short report on the celebrations. Farrahmay claim copyright in the photograph and the writing. ⊚ ⊚
true false
6) Farrahtook a photograph of a parade that passed by the window of the office where she workedand submitted it to the local newspaper along with a short report on the celebrations. Once the newspaper publishes the picture and the written account, her copyright no longer exists, as the picture is then in the hands of the public. ⊚ ⊚
true false
7) Farrahtook a photograph of a parade that passed by the window of the office where she workedand submitted it to the local newspaper along with a short report on the celebrations. Because Farrahtook the photograph while she was at work, her employer would be entitled to the copyright in the picture. ⊚ ⊚
true false
8) Farrahtook a photograph of a parade that passed by the window of the office where she worked, and submitted it to the local newspaper along with a short report on the celebrations. If another newspaper copies the picture that was published by the newspaper to which Farrahgave the picture, the second newspaper would be liable for infringement. ⊚ ⊚
Version 1
true false
2
9) Charlie designed a piece of furniture that had a novel appearance. He registered the design, then later discovered that another manufacturer was producing exactly the same piece of furniture. Charlie may take action against the other manufacturer for infringement of his registered design. ⊚ ⊚
true false
10) Charlie designed a piece of furniture that had a novel appearance. He registered the design, then later discovered that another manufacturer was producing exactly the same piece of furniture. The only defence available to the other manufacturer would be that he had developed the design before Charlie registered his own design. ⊚ ⊚
true false
11) Charlie designed a piece of furniture that had a novel appearance. He registered the design, then later discovered that another manufacturer was producing exactly the same piece of furniture. The design of a piece of furniture would not be subject to registered design legislation. ⊚ ⊚
true false
12) Ida has just invented a machine that diffuses radar but looks like a pair of fluffy dice. It causes police radar traps to greatly underestimate the speed at which a car is travelling. Ida can protect her new invention using the law of patent. ⊚ ⊚
true false
13) Gianna first marketed her automatic backscratcher to the public 30 months ago and has been tinkering with its design ever since. Deciding that the original design was as good as it was going to get, she took it to a patent lawyer last week. He told her that, under the Patent Act, she will not be able to patent it because she has left it too late. He is right. ⊚ ⊚
Version 1
true false
3
14) Gianna first marketed her automatic backscratcher to the public 30 months agoand has been tinkering with its design ever since. Deciding that the original design was as good as it was going to get, she took it to a patent lawyer last week. He told her that, under the Patent Act, she will not be able to patent it because she has left it too late. He would not have said that if Gianna had approached him two months after she first started marketing it. ⊚ ⊚
true false
15) Artistic Goods Ltd. has registered the design of a new wooden coat rack under the Industrial Design Act. The design would not be protected if it was not registered. ⊚ ⊚
true false
16) Artistic Goods Ltd. has registered the design of a new wooden coat rack under the Industrial Design Act. Artistic Goods must have intended to produce more than 50 of these coat racks. ⊚ ⊚
true false
17) Artistic Goods Ltd. has registered the design of a new wooden coat rack under the Industrial Design Act. Artistic Goods must have intended that the coat racks would not be made entirely by hand by craftsmen. ⊚ ⊚
true false
18) Artistic Goods Ltd. has registered the design of a new wooden coat rack under the Industrial Design Act. If Artistic Goods had intended to make only 20 of the coat racks as a limited edition, there would be no way the company could protect the design. ⊚ ⊚
Version 1
true false
4
19) Anne has created a computer program that will help conserve energy in the home. Since computer programs cannot be copyrighted, she must go through the long and difficult process of patenting the program. ⊚ ⊚
true false
20) Amanda and Cynthia wrote a calculus textbook, which was published in 1970. Amanda died in 1975 and Cynthia in 1990. The copyright will expire in 2025. ⊚ ⊚
true false
21) While preparing an essay for her MBA class on the increased need for employers to take steps to protect confidential information in the age of computers, Margaret photocopied several journal articles, parts of which she later quoted in her paper. She did not get the permission of the authors to do so. She has not breached the Copyright Act. ⊚ ⊚
true false
22) If Kleenex had registered its trade name when it first started making paper handkerchiefs, it might well have lost its exclusive right to that name by now in North America. ⊚ ⊚
true false
23) Speedy Stationery Ltd. registered the design of its line of desk accessories in 2015. Its exclusive rights to reproduce these designs will expire, at the latest, in 2025. ⊚ ⊚
Version 1
true false
5
24) When Lee, a patent agent, draws up the petition for a patent for a particular invention, she must submit detailed specifications of the invention, usually along with drawings of it, and a statement as to what is new in this invention and what uses it can be put to. ⊚ ⊚
true false
25) When Lee, a patent agent, draws up the petition for a patent for a particular invention, she must submit detailed specifications of the invention, usually along with drawings of it, and a statement as to what is new in this invention and what uses it can be put to. Lee can leave out an essential feature of the invention until the patent is granted, so that no one browsing through the patents pending descriptions could steal the idea. ⊚ ⊚
true false
26) The words "Patent Pending" on a product have no particular significance at lawand serve as no protection at law for a manufacturer of goods that uses such a mark. ⊚ ⊚
true false
27) A registered design is normally a design that would be subject to copyright if it was not for the fact that it is reproduced by an industrial process. ⊚ ⊚
28)
true false
A licence is simply the right to use an intellectual asset. ⊚ ⊚
true false
29) Confidentiality or non-disclosure agreements can be used to protect trade secrets such as recipes or processing techniques.
Version 1
6
⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 30) Melissa applied for a patent in May, 2012 and it was granted in May, 2014. The patent will expire in
A) B) C) D) E)
May, 2027. May, 2030. May, 2032. May, 2035. 50 years after her death.
31) Bell Canada created an extremely attractive, totally new design for a touchtone telephone keypad for use in all its new telephones in public telephone booths. Bell wishes to protect the design. It should do so under
A) B) C) D) E)
the Patent Act. the Copyright Act. the Industrial Design Act. the Trademarks Act's distinctive guise provisions. the Trademarks Act's service marks provisions.
32) Janelleworked as an employee of MegaByte Industries, a computer conglomerate. As part of her job, she produced a unique program for routing emergency calls to the appropriate public emergency services departments. There is no written employee contract dealing with ownership of the program. This program can only be
Version 1
7
A) B) C) D) E)
copyrighted by MegaByte. copyrighted by Janelle. patented by MegaByte. patented by Janelle. copyrighted by the public emergency services which use it.
33) Janelleworked as an employee of MegaByte Industries, a computer conglomerate. As part of her job, she produced a unique program for routing emergency calls to the appropriate public emergency services departments. There is no written employee contract dealing with ownership of the program. If the program were copyrighted, under a written employer/employee contract, by MegaByte,
A) Janellewould have the right to have her name associated with it unless the contract said otherwise. B) Janellewould have the right to have her name associated with it no matter what the contract said. C) the length of copyright protection for the program would be 50 years. D) only Janellecould licence the program to the public emergency services who wished to use it. E) neither MegaByte nor Janellewould have any rights unless the copyright were registered.
34) Small Brothers Ltd. patented an invention here in Canada in 2015 for which there is great public demand. i. If Small Brothers Ltd. is not able to come anywhere near supplying the demand, MegaCorp could apply for a compulsory licence so that it can manufacture the product ii. If MegaCorp. is granted a compulsory licence, it does not have to pay Small Brothers Ltd. royalties as a normal licensee must do. iii. If MegaCorp. is granted a compulsory licence, it must pay a reasonable royalty fee to Small Brothers Ltd. iv. Small Brothers Ltd. might lose its patent altogether if it cannot meet the demand. v. If MegaCorp. had independently come up with the same inventionbut applied for a patent after Small Brothers Ltd. applied, it could also be granted a patent.
Version 1
8
A) B) C) D) E)
i and ii. i and iii. i, ii and iv. i, iii and iv. i, iii, iv and v.
35) For her new invention, Stephanie applied for a patent on May 12, 2004 in Canada, on June 19, 2004 in England, and on September 28, 2004 in France. Her patent was duly granted under the Union Convention of Paris on October 17, 2004. Her patent protection in France will expire
A) B) C) D) E)
May 12, 2024. June 19, 2024. September 28, 2024. October 17, 2024. May 12, 2034.
36) A business consulting service calling itself "Enterprise Canada" would likely fail in a bid to register such a name because "Enterprise Canada"
A) B) C) D) E)
is probably a prohibited mark. is not a service mark. is a certification mark. is an insufficiently distinctive guise. does not meet the "coined" requirement to be a trade name.
37) A ________________ is a right in a new invention, a _______________________ is a right to manufacture an artistic design, a ________________ identifies a product or service and a ________________________ is ownership in an artistic or literary work.
Version 1
9
A) B) C) D) E)
38)
Who can make application for a patent?
A) B) C) D) E)
39)
50 years. life of the author + 15 years. life of the author + 50 years. 50 years, if registered. 50 years, if unregistered.
The following marks may be registered:
A) B) C) D) E)
41)
Assignee. Inventor or the inventor’s agent. Universities. Assignor. Manufacturer.
If a video is produced by WK Productions Ltd. the term of the copyright is
A) B) C) D) E)
40)
patent; industrial design; trademark; copyright industrial design; patent; trademark; copyright patent; trade name; distinctive guise; certification mark compulsory licence; licence; trademark; patent trademark; compulsory licence; industrial design; copyright
Service mark. Certification mark. Distinctive guise. Service and certification marks. Service and certification marks and distinctive guises and sound marks.
The most important document in a patent application is
Version 1
10
A) B) C) D) E)
42)
the patent search. the fee receipt. a short abstract of the disclosure. the claims statement. an affidavit of intention.
Who is the beneficiary of a compulsory licence?
A) B) C) D) E)
The patent holder. The patent office. The licensor. The licensee. The public.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 43) The Eaton Centre in Toronto commissioned Michael Snow, an artist, to create a work of art for the Centre. Snow's sculpture of a great flight of Canada geese is now a tourist attraction. At one point, the Eaton Centre placed red bows on the neck of each goose as part of its Christmas promotion and added a bow to the neck of the goose in its trademark logo. Michael Snow sued to have them remove the bows from his sculpture a. Under what provision of what Act could he do so, since he had been paid for his work and had assigned his rights in it to the Eaton Centre? b. What do you think he could argue?
Version 1
11
44) Entertainment Promotions International owns the Canadian merchandising rights to the registered identifying logos of numerous prominent rock groups, for use on such things as buttons, T shirts and posters. These rights are worth many millions of dollars. Illegal reproduction of merchandise with the logos and unauthorized sales of the merchandise have cost Entertainment Promotions International millions of dollars in lost sales and the devaluation of legitimate products because of the poor quality of the bootlegged products a. What legislation would protect Entertainment Promotions International in this case? b. What rights does Entertainment Promotions International have and what can it do to prevent this happening again? c. Suppose an unauthorized seller made it clear that they were selling "Genuine Imitation Rock Group T shirts." Could Entertainment Promotions International do anything about that, and why or why not? d. What other penalties do the illegal merchandisers face?
45) A person walks into a restaurant and asks for a Coke. If the restaurant serves other colas, but not Coke, what should be said by the staff? Explain why this would be the case, with specific reference to intellectual property legislation.
46) Identify and discuss the advantages and challenges relating to intellectual property protection as the commercial world becomes more globally integrated.
Version 1
12
47) In 2005, Nautical Enterprises Ltd. applied for and received a patent for its new invention of a specialized scuba-diving suit. The claims statement accompanying the patent application stated that the new diving suit was capable of performing five specialized functions not formerly available to purchasers of such suits. In the same year, Nautical also patented the suit in the United States and granted a license to ABC Co. to manufacture the suit at its facilities in Florida. ABC commenced manufacturing immediately to meet the demand for the suits in the U.S. and exported them to diving suppliers in Canada At the time of ABC's export, there were six Canadian companies engaged in the manufacture of diving suits. One of them, having learned of the new specialized suit, began producing suits with highly similar characteristics and functions and sold the suits through Canadian distributors. In early 2007, Nautical and ABC learned of the manufacturing activity in Canada and immediately sent a letter to the manufacturer informing it that they were the patentee and licensee respectively of the diving suit. Nautical invited the manufacturer to negotiate a licence to produce the suits as Canadian Nautical itself, did not wish to manufacture in Canada. Several years of negotiation, however, failed to achieve an acceptable agreement during which time the similar suits continued to be manufactured in Canada by this manufacturer. In 2009, another Canadian diving suit manufacturer, Deep Diving Suits Inc., recognized the demand for Nautical suits in Canada. Deep Diving had the facilities to manufacture the patented suit and wished to do so on a commercial scale. The company applied to the court for assistance Discuss the nature of this application and its probable outcome. Include in your discussion all factors which may affect the court's decision.
Version 1
13
48) Telemarket Ltd. was engaged in the business of compiling and publishing telephone directories of industrial and commercial enterprises. Telemarket solicited these enterprises to include their telephone number and, if they wished, an advertisement in the directory for a fee and offered a range of graphic services to create the advertisements for the directory. Telemarket's directory was called INFOPAGES and a trademark had been registered in that name with the associated book design and logo Each year, new directories were prepared and sold to Telemarket's major customer, the telephone company, to include with its annual residential directory Just before publication of the most recent directory, one of Telemarket's sales managers received a telephone call from a long-standing customer who inquired why Telemarket had approached him for a second time that year to insert an advertisement in the directory. The manager was surprised to learn this had occurred and suggested it must simply be a computer error, which would be immediately corrected. The customer persisted, however, and described a solicitation letter that he had received from a company called Telemart Ltd. The letter enclosed a clipping of the customer's own previous advertisement, which had been placed in the INFOPAGES directory. The clipping was stapled to an invoice for advertising similar to the invoice form used by Telemarket and bearing an almost identical logo. The customer assumed that Telemart was a division of Telemarket and had mistakenly solicited twice for the upcoming annual directory. The manager assured the customer that Telemart was in no way related to Telemarket and that the recent letter was not a Telemarket solicitation in any way. When the sales manager contacted several of its other large customers he learned that they, too, had received such letters, clippings of their own advertisements and invoices. Discuss the rights, if any, of Telemarket in this situation and describe what steps it may take to alleviate this problem including any remedies which may be available.
Version 1
14
49) Tableware Distributing Co. had been the exclusive Canadian distributor for thirty years of all fine china produced by the Regal China Company of England. At the beginning of the commercial relationship, Tableware advised Regal that it believed from information obtained by its sales staff that there was a large potential market in Canada for a new china pattern with a delicate floral design. A number of estimates and projections were sent to Regal to support this suggestion Regal decided, on the basis of this information, to request one of their designers, Reynolds, to attempt such a floral pattern. Reynolds, an artist employed by Regal, designed a pattern consisting of groupings of spring wildflowers. Regal then sent the pattern to Tableware for its impressions. Tableware made several suggestions to modify the design, which Reynolds accordingly did. Satisfied with the design, Tableware then placed a first order to a value of $50,000 for the new china which Regal had named "April Showers." Regal then geared up for production of several hundred place settings and ordered the preparation of the necessary lithograph sheets required to transfer Reynolds' design to the china pieces. Each piece was backstamped with the name of the pattern and the manufacturer. Sales of April Showers took off in Canada and represented a major portion of Tableware's sales. After two years, Regal's sales volume in Canada grew to the extent that it became necessary for Regal to open its own subsidiary office in Canada. Shortly after the new office was established the Regal China Company of Canada gave notice to Tableware that it intended to take over the distributorship of April Showers in Canada. Tableware attempted to persuade Regal to reverse its position on this matter. When Regal refused to do so, Tableware informed Regal that it had registered "April Showers" as a trademark and the pattern as an industrial design. Tableware then sent a letter offering to license Regal Canada to use the mark and design, setting out the fees it would expect to be paid in return. Discuss the legal position of the parties involved in this situation and the arguments which may be used to support those positions. What remedies are available?
Version 1
15
Answer Key Test name: Chapter 26 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) TRUE Version 1
16
27) TRUE 28) TRUE 29) TRUE 30) C 31) C 32) A 33) C 34) D 35) A 36) A 37) A 38) B 39) A 40) E 41) D 42) E 43) a. S. 14.1(1) of the Copyright Act, the moral rights section, protects the right of a creator to preserve the integrity of his work. This right cannot be assigned, though it can be waived. S. 28.2(2) says that, in the case of a sculpture, the necessary prejudice to the honour or reputation of the author, under s. 28.2(1), by the modification or distortion of his work, shall be deemed to have occurred. b. Snow could argue successfully that, because he had not waived his moral rights, they still remained with him since they could not, by statute, be part of what he had assigned to the Eaton Centre. The hanging of bows round the necks of the geese, however attractive it looked at Christmastime, was as much an affront to the integrity of the artwork as it would be if the French stuck a tri-colour rosette on the Mona Lisa on Bastille Day.
Version 1
17
44) a. Under the Trademarks Act, Entertainment Promotions International has the right, as licensee, to prevent anyone else from presenting their unauthorized goods as the real thing. Only the rock groups themselves, and whomever they licence the right to, have the right to use that name and their distinctive logo, because they are, respectively, their trade name and their trademark. b. Entertainment Promotions International can seek an injunction against the unauthorized manufacturer and the unauthorized seller. It can demand an accounting of the profits made from the illegal sales and can demand that all illegal merchandise be handed over to it. If it can show that its reputation has been harmed by the deceitful acts of the illegal merchandisers, it could also sue for damages under the tort of deceit c. It does not matter in relation to Entertainment Promotions International whether or not the sellers make it clear that their goods are only imitations of the real thing, although a purchaser could not sue them for deceit and the police could not charge them with a fraud against the purchaser. They have no right to use the trademarks or trade names of the groups, whether or not they admit that they are doing so illegally. d. The forgery of a trademark or the passing off of your goods as those of someone else is an offence under the Canadian Criminal Code, and the person convicted is liable to up to two years imprisonment as well as the forfeiture of anything used in or resulting from the criminal act. 45) Giving the customer a substitute product in response to a direct request for a product by its registered trademark would constitute the offence of "passing off" under the Criminal Code. In the same measure, it would be a violation of the rights of the trademark registrant under the Trademarks Act and would give rise to an action in damages by the registrant. The restaurant operator should advise staff to clarify for customers that the choice is not available but that other colas are available. Version 1
18
46) For many years there have been international conventions regulating the protection and exploitation of intellectual property rights. However, these conventions have been agreed among nations of similar development and industrialization. As governments become more involved in both encouraging and regulating trade and foreign investment in the information age, there have been increased efforts to establish multilateral agreements to ensure protection and enforcement of intellectual property rights of owners doing business across borders. This has come to the fore with the increase of sophisticated exports and technology transfer investments made into lesser developed countries by companies from more industrialized nations. In many of these jurisdictions, intellectual property laws are either non-existent or poorly enforced. In these situations, businesspeople must make careful judgments as to whether they wish to risk losing control of their intellectual property in jurisdictions where unpredictable laws and enforcement measures are prevalent.
Version 1
19
47) Based on Harvey's Skindiving Suits of Canada v. Poseidon Industri AB et al. (1984), 5 C.P.R. (3d) 154, this case examines the obligations upon patentees to supply the Canadian market as well as the ability of an interested manufacturer to obtain a compulsory license if the patentee fails to meet its obligations. The issue of patent infringement is also dealt with. In order for an interested Canadian manufacturer to obtain a compulsory licence, its application must be brought no earlier than three years after the patent has been in effect. In this case, the time period expired in 1988 so the applicant has properly brought the application. It must further show that the patentee is not working the patent on a commercial scale to meet public demand assuming that the invention is capable of being worked in Canada. Here, the patent is being worked in Canada, however, by an infringing manufacturer without the express authorization of the patentee. Since the infringing activity is subject to legal action by the patentee, courts generally do not consider it to be legitimate commercial working to satisfy the patentee's obligation, as it may be properly suspended at any time. Similarly, the importation activity carried on by Canadian suppliers may also constitute infringement if it lacks the consent of or payment of royalties to the patentee. Therefore, there is no effective manufacture of the diving suit in Canada and the patentee does not appear willing to establish such manufacture itself. It seems apparent that the patentee, then, cannot supply Canadian demand and has little reason other than unwillingness for that situation. The court would, in such circumstances, issue a compulsory licence to the applicant to manufacture the diving suits in Canada on a royalty basis to the patentee. The Commissioner of Patents in this case, in fact, issued a non-exclusive licence to the applicant.
Version 1
20
48) This situation examines the issues of trademark and copyright infringement and passing off. Telemarket is entitled to bring an action against the offending company, Telemart, for the infringement of its rights in its registered trademarks associated with INFOPAGES. The action would seek to obtain an injunction to prevent the other company from making any further use of the marks in any way and from associating itself with Telemarket's registered marks. Furthermore, Telemarket may seek an injunction and damages for the infringement of its copyright in the symbols, artwork and expression in the advertising copy and associated with its trademarks. Furthermore, Telemarket would be entitled to an accounting and damages for lost profits due to the improper use and appropriation of the trademarks and copyright which were employed by Telemart in the sale of its own services Finally, the actions of Telemart amounted to passing-off and exploiting the goodwill and reputation of Telemarket. A restraining injunction is attainable to prohibit such further activity and the offender is exposed to damages and to criminal liability for such actions as well. Once the infringements and passing-off have been shown to a court's satisfaction, Telemarket would be entitled to damages and an injunction restraining Telemart from using clippings taken from the directory for the purpose of soliciting clients leading to confusion, making any reference to INFOPAGES in its solicitation, using a presentation for solicitation of clients that would likely give the impression that there is an association between the two companies and using Telemarket's work, goodwill and reputation to promote its own business The Quebec Superior Court, in fact, ordered an injunction restraining these activities as well as monetary damages apparent from an accounting. Based on: Tele-Direct (Publications) Inc. v. Intra Canada Telecommunications Ltd. (1986), 13 C.P.R. (3d) 529. Version 1
21
49) This case looks at the prerequisites for the registration of trademarks and industrial designs and the nature of copyright ownership and protection Students should point out that the distributor was not the party entitled to register the trademark. Regal, as the manufacturer, was the user of the mark. It placed the mark on the china for its own purposes to distinguish this pattern from others it produced. At no time did the activity of mere distribution of the china by Tableware constitute "use" of the mark as contemplated by the Trademarks Act. Furthermore, the public could not assume differently than that the mark was placed on the china by the manufacturer at the time of production, thus associating the pattern name and use with Regal. Sales by the distributor of china bearing this mark were to inform retailers that Tableware was simply the exclusive agent for the china in Canada. These arguments are sufficient to meet any position taken by the distributor that it is the proper owner of the mark. Tableware may argue that the trademark did not exist until it was created for the purpose of supplying Tableware and that no use was made of it except through its distributorship. It was, therefore, the owner of the mark at the time sales first commenced in Canada and Regal never established any use in Canada. Regardless of these arguments it seems apparent that, as manufacturer, Regal placed the mark on the china for its own purposes and not as an agent for Tableware With respect to the registration of the pattern as an industrial design the distributor will assert that it constitutes a design to be used as a pattern to be multiplied by an industrial process. To meet the requirements for registration of such a design it must be reproduced in more than 50 copies but must not be an exempted "artistic" product. If it is such an artistic product, the Copyright Act, rather than the Industrial Design Act will apply to the protection of the pattern. There is little problem meeting the requirement of 50 copies, however, the substance of the Version 1
22
pattern as a registerable design is questionable There is a strong argument that the pattern is properly the subject of the Copyright Act. In this case, Regal would be the first owner of the work and entitled to the copyright in it. Even though Reynolds designed and created the floral pattern, he did so as an employee of Regal in the course of his employment. Regardless of any suggestions or modifications requested by Tableware, Reynolds made the design for Regal as an employee and no conclusion can be drawn that it was made for the distributor. On these facts, however, there is no evidence that the distributor has attempted to infringe the copyright by reproducing the pattern or causing it to be reproduced or selling reproductions other than those supplied by Regal. Regal may be entitled to an order extinguishing both the trademark and the industrial design registration of the distributor. The former was improperly obtained as the distributor was not the party entitled to register. The latter is also improper as the pattern is properly the subject of copyright, which is rightfully owned by the manufacturer. Furthermore, Regal may be entitled to an injunction preventing Tableware from representing in any way that it is the owner of a valid registered trademark for "April Showers." Based on Royal Doulton Tableware Ltd. et al. v. Cassidy's Ltd. (1984), 1 C.P.R. (3d) 214.
Version 1
23
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. If the information in the credit report is accurate, Marina Boats may deny credit to Phil on the strength of the report. ⊚ ⊚
true false
2) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. If credit is denied because of an unfavourable credit report, in most jurisdictions, the seller must inform the buyer of the reason for the refusal of credit. ⊚ ⊚
true false
3) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. In most jurisdictions, credit reporting legislation requires either the permission of the debtoror notice to the debtor of an intention to obtain a consumer credit report on the debtor. ⊚ ⊚
Version 1
true false
1
4) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. Persons using credit who have reason to believe that the files of a credit reporting agency contain inaccurate information, may have their files corrected, or include their own explanatory notes concerning the information. ⊚ ⊚
true false
5) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. The credit arrangement for the purchase of the boat by Phil must disclose only the amount borrowed, the terms of loan, the monthly payments, and the true interest rate. ⊚ ⊚
true false
6) Phil entered into an agreement with Marina Boats for the purchase of a new sail-boat for $21,000. The purchase was to be on credit, subject to a favourable credit report on Phil. Marina Boats checked with Credit Reporting Companyand was informed that Phil had defaulted on a number of debts, and presently had judgments in the amount of $30,000 against him. Marina Boats would be classed as an itinerant seller under the legislation of most provinces, even though it sells only from a fixed place of business. It must, therefore, be registered as such. ⊚ ⊚
true false
7) The Strong Arm Collection Agency had a number of debts to collect from Sam,a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. A collection agency may use any form it wishes as a demand for payment, provided that it does not use an official court form.
Version 1
2
⊚ ⊚
true false
8) The Strong Arm Collection Agency had a number of debts to collect from Sam, a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. Harry is entitled to use reasonable force to collect the money, provided that the force is used only against the debtor, Sam. ⊚ ⊚
true false
9) The Strong Arm Collection Agency had a number of debts to collect from Sam, a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. If Sam does not pay, Harry is free to inform Sam's employer that Sam is a delinquent debtor. ⊚ ⊚
true false
10) The Strong Arm Collection Agency had a number of debts to collect from Sam, a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. Harry is not entitled to use any physical threats, force, or pressure against Sam. ⊚ ⊚
Version 1
true false
3
11) The Strong Arm Collection Agency had a number of debts to collect from Sam, a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. If Sam does not pay the debt, Harry is entitled to demand payment of the debt from other members of Sam's immediate family. ⊚ ⊚
true false
12) The Strong Arm Collection Agency had a number of debts to collect from Sam, a delinquent debtor. The agency sent Harry to see Samand present him with a demand for payment that was drawn to resemble a court summons. Harry delivered the demand, but before he departed, threatened to "beat up" Sam, and inform Sam's employer that he was a "deadbeat," if he did not pay the debt promptly. The Strong Arm Collection Agency must be licensed in the province in which it operates, and if it repeatedly uses methods of collection prohibited by the statute, its licence to operate may be revoked. ⊚ ⊚
true false
13) A manufacturer may be found liable for damages under the Food and Drugs Act only when a consumer has been injured by an improperly labelled product. ⊚ ⊚
true false
14) Common Law remedies are available to consumers injured by defective goods, in addition to legislative provisions that hold manufacturers strictly liable. ⊚ ⊚
true false
15) Info Services Ltd. in Regina is a retailer of new and used computer products. Most of its customers are businesses, although it offers discounts to students on most models. Info Services will be liable to the purchaser of a used printer if it fails to provide repair facilities one week after the sale unless it explicitly excludes the statutory warranties at the time of sale.
Version 1
4
⊚ ⊚
true false
16) Info Services Ltd. in Regina is a retailer of new and used computer products. Most of its customers are businesses, although it offers discounts to students on most models. Jennifer, who receives a computer purchased at Info Services as a gift from her father for university, may only enforce the performance warranties against the seller by including her father in the action. ⊚ ⊚
true false
17) Info Services Ltd. in Regina is a retailer of new and used computer products. Most of its customers are businesses, although it offers discounts to students on most models. Info Services' liability to customers will be either in statute or Common Law. ⊚ ⊚
18)
true false
Contracts with itinerant sellers may be repudiated after the offer has been accepted. ⊚ ⊚
true false
19) A seller of goods may be found to be in breach of the Business Practices Actif it charges too much for its goods. ⊚ ⊚
true false
20) John purchased a compact car from Riser Used Cars in Toronto. When John test drove the car, he noticed it had brand new tires, but the interior upholstery was quite worn. John was informed by Riser's salesman that the car had been exclusively owned by an elderly lady who drove only in the summer months. The car was sold with a 40-day warranty on safety items only. Within a week after picking up the car John experienced two flat tires, which he discovered were completely bald, and the windshield wipers and heater stopped working. John may invoke the warranty for repair of the defects in the car. Version 1
5
⊚ ⊚
true false
21) John purchased a compact car from Riser Used Cars in Toronto. When John test drove the car, he noticed it had brand new tires, but the interior upholstery was quite worn. John was informed by Riser's salesman that the car had been exclusively owned by an elderly lady who drove only in the summer months. The car was sold with a 40-day warranty on safety items only. Within a week after picking up the car John experienced two flat tires, which he discovered were completely bald, and the windshield wipers and heater stopped working. The car dealership is subject to a statutory warranty that the car will be durable for a reasonable period of time. ⊚ ⊚
true false
22) John purchased a compact car from Riser Used Cars in Toronto. When John test drove the car, he noticed it had brand new tires, but the interior upholstery was quite worn. John was informed by Riser's salesman that the car had been exclusively owned by an elderly lady who drove only in the summer months. The car was sold with a 40-day warranty on safety items only. Within a week after picking up the car John experienced two flat tires, which he discovered were completely bald, and the windshield wipers and heater stopped working. Remedies may be available to John under the Sale of Goods Act or common law principles. ⊚ ⊚
true false
23) All commissions of unfair business practices entitle consumers to receive exemplary damages or to rescind the agreement entered into. ⊚ ⊚
true false
24) Intending to purchase laundry detergent, Wendy went to her neighbourhood supermarket where her favourite brand was advertised on sale for $4.99 for a 5-kilogram box. When she arrived, there were no boxes of her brand left but the store's house brand was prominently displayed for sale also at $4.99 for the same size box. At the checkout the price appears as $4.59 when the clerk scans the UPC bar code. A violation of the Competition Act has occurred.
Version 1
6
⊚ ⊚
true false
25) Intending to purchase laundry detergent, Wendy went to her neighbourhood supermarket where her favourite brand was advertised on sale for $4.99 for a 5-kilogram box. When she arrived, there were no boxes of her brand left but the store's house brand was prominently displayed for sale also at $4.99 for the same size box. At the checkout the price appears as $4.59 when the clerk scans the UPC bar code. Wendy has substituted the house brand for her favourite brand, but is entitled to pay $4.59. ⊚ ⊚
true false
26) Intending to purchase laundry detergent, Wendy went to her neighbourhood supermarket where her favourite brand was advertised on sale for $4.99 for a 5-kilogram box. When she arrived, there were no boxes of her brand left but the store's house brand was prominently displayed for sale also at $4.99 for the same size box. At the checkout the price appears as $4.59 when the clerk scans the UPC bar code. Wendy is no longer entitled to a box of her favourite brand at the advertised price since she substituted the house brand. ⊚ ⊚
true false
27) Sale of Goods Act warranties and conditions are made unavailable to manufacturers by consumer protection legislation. ⊚ ⊚
true false
28) Consumer credit-reporting agencies need only inform debtors of the names of creditors using the servicebut need not reveal the information it has collected. ⊚ ⊚
Version 1
true false
7
29) Debt is a situation that arises with many consumer-retailer transactions. However, in some cases unpaid debt becomes a serious problem forcing some retailers to use collection agencies to gather monies owed to them by consumers. As a result, the Consumer Protection Act includes specific provisions to govern these agencies. Although it requires them to be licensed, it imposes very few restrictions on the manner in which the agencies collect the money. ⊚ ⊚
true false
30) Eli is a door to door salespersonwith Cleanco, a household cleaning manufacturer. James was approached by Eli and agreed to buy many items. James discussed his purchase with a friend. During the discussion James learned of the poor quality inherent in Cleanco's goods. James' friend also informed him that the provincial Consumer Protection legislation did contain a "cooling-off" period clause under which he can repudiate the contract without liability. James contacted Eli at his office and informed him of his decision to return the goods. Eli informed him that he is only entitled to do so when a product is bought in a store and not from a travelling salesperson. Eli is mistaken. ⊚ ⊚
true false
31) Mikal visits an electronics store having seen an advertisement for a computer at a very attractive price. The salesperson shows him the computer willingly and describes the attributes. With a whisper, the salesperson says, "I'm not supposed to point this out, because the manager would kill me, but even though this computer is cheaper, it's a real dog. No quality. This computer over here, while it costs more, you are looking at much more value for your money." Mikal is impressed at the forthrightness and the fact that the employee is taking a risk to help him make a good choice He buys the computer. The following week he notices advertisements for the model of computer he has just purchased, at prices between 20% and 30% below the price he paid. The store, by virtue of the actions of its employee, is in violation of the Federal Competition Act. ⊚ ⊚
Version 1
true false
8
32) Mikalvisits an electronics store having seen an advertisement for a computer at a very attractive price. The salesperson shows him the computer willingly and describes the attributes. With a whisper, the salesperson says, "I'm not supposed to point this out, because the manager would kill me, but even though this computer is cheaper, it's a real dog. No quality. This computer over here, while it costs more, you are looking at much more value for your money." Mikal is impressed at the forthrightness and the fact that the employee is taking a risk to help him make a good choice He buys the computer. The following week he notices advertisements for the model of computer he has just purchased, at prices between 20% and 30% below the price he paid. The store is in violation of the Business Practices Act of the province where the act took place. ⊚ ⊚
true false
33) Mikal visits an electronics store having seen an advertisement for a computer at a very attractive price. The salesperson shows him the computer willingly and describes the attributes. With a whisper, the salesperson says, "I'm not supposed to point this out, because the manager would kill me, but even though this computer is cheaper, it's a real dog. No quality. This computer over here, while it costs more, you are looking at much more value for your money." Mikal is impressed at the forthrightness and the fact that the employee is taking a risk to help him make a good choice He buys the computer. The following week he notices advertisements for the model of computer he has just purchased, at prices between 20% and 30% below the price he paid. Not only may the store face a fine, but Mikal may rescind the transaction. ⊚ ⊚
true false
34) Six months ago, Henri's consumer debt of $3,000 was referred to a collection agency. The first thing the agency did was to phone Henri's employer and confirm his employment. Like clockwork thereafter, every Monday afternoon Henri could expect to return home to a message on his answering machine asking for payment on account. Equally, he could expect a letter from the agency to arrive each Friday, complete with a printed return envelope for his "payment." Finally, on a monthly basis, he would receive a statement of his account, together with accruing interest, and the advice that "prompt payment will avoid our placing this matter in the hands of our lawyers for collection." Provincial legislation governs the behaviour of this type of financial agency. ⊚ ⊚
Version 1
true false
9
35) Six months ago, Henri's consumer debt of $3,000 was referred to a collection agency. The first thing the agency did was to phone Henri's employer and confirm his employment. Like clockwork thereafter, every Monday afternoon Henri could expect to return home to a message on his answering machine asking for payment on account. Equally, he could expect a letter from the agency to arrive each Friday, complete with a printed return envelope for his "payment." Finally, on a monthly basis, he would receive a statement of his account, together with accruing interest, and the advice that "prompt payment will avoid our placing this matter in the hands of our lawyers for collection." At least two of the actions undertaken by the agency were in violation of the provincial legislation. ⊚ ⊚
true false
36) Six months ago, Henri's consumer debt of $3,000 was referred to a collection agency. The first thing the agency did was to phone Henri's employer and confirm his employment. Like clockwork thereafter, every Monday afternoon Henri could expect to return home to a message on his answering machine asking for payment on account. Equally, he could expect a letter from the agency to arrive each Friday, complete with a printed return envelope for his "payment." Finally, on a monthly basis, he would receive a statement of his account, together with accruing interest, and the advice that "prompt payment will avoid our placing this matter in the hands of our lawyers for collection." A collection agency may not telephone a debtor's employer on any pretext. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 37) Deceptive labelling is prohibited under
A) B) C) D)
Version 1
the Food and Drugs Act. the Sale of Goods Act. various penal statutes in the provinces. All of the responses are correct.
10
38)
The Hazardous Products Act
A) prohibits the manufacture of any product that has the potential to cause injury. B) controls the possession and application of drug and food products. C) requires certain products to carry a written warning including a depiction of the type of inherent danger. D) All of the responses are correct.
39)
Consumer protection laws have taken the following approaches:
A) B) C) D) E)
40)
Common law remedies available to consumers
A) B) C) D) to injure.
41)
disclosure of information. expanded consumer rights. minimum standards for safety, quality and performance. registration, and prohibition of certain unethical practices. All of the responses are correct.
arise only after injury occurs. arise from the obligations of sellers and manufacturers under the Sale of Goods Act. arise where the seller and manufacturer had a duty not to injure. arise only after injury occurs and where the seller and manufacturer had a duty not
Consumer information legislation protects consumers by
Version 1
11
A) prohibiting false or misleading statements and advertising. B) providing for standards. C) requiring elaborate testing procedures for certain consumer goods. D) prohibiting false or misleading statements and advertising and requiring elaborate testing procedures for certain consumer goods. E) prohibiting false or misleading statements and advertising and providing for standards.
42)
Consumers are protected against deficient product performance by legislation that
A) qualifies or limits Sale of Goods Act implied conditions and warranties in respect of consumer purchases. B) imposes heavy burdens on manufacturers, sellers and consumers who fail to provide products capable of meeting advertised performance claims. C) defines consumer warranties to ensure protections are afforded to the appropriate class of persons. D) expands sellers' obligations with respect to deficient consumer goods. E) All of the responses are correct.
43)
Itinerant sellers
A) B) C) D)
44)
sell door to door. pose problems in maintaining fair competition among merchants. pose problems because of their short-term employment. All of the responses are correct.
Consumer protection in respect of credit aims to
Version 1
12
A) assist consumers who undertake substantial liability for large purchases such as homes. B) C) D) E)
assist lenders offering innovative financing to facilitate consumer credit purchases. ensure credit rates remain stable. ensure clear disclosure of credit charges. All of the responses are correct.
45) Bedford operates a collection agency, which has as its primary clients discount furniture and stereo equipment retailers. His customers are typically owed amounts under $2,000. Bedford often finds himself under considerable pressure from his clients to recover outstanding monies quickly.
A) Bedford may seek payment from a debtor's spouse if the debtor cannot or will not pay. B) Bedford may inform debtors that they will face legal action if they fail to pay. C) One of Bedford's most successful methods is to send a document to the debtor's employer which resembles a Garnishment of Wages order issued from the court. This often results in the employer deducting the amount owed from the employee's wages and sending it to Bedford. This approach does not offend consumer protection legislation as long as it states at the bottom of the form that it is not an official court document. D) Bedford will not be required to obtain a licence to operate the collection agency unless he repeatedly violates the legislation governing collection agency business practices. E) All of the responses are correct.
46)
Consumer protection legislation
A) is a response to modern changes in technology and marketing practices. B) attempts to inject an element of fairness into contracts between buyers and sellers where bargaining power is unequal. C) does not attempt to protect careless buyers. D) can be reconciled with the Common Law principle of caveat emptor. E) All of the responses are correct.
Version 1
13
47) The Province of Ontario, in 2005, brought into effect new consumer protection legislation that incorporated the Consumer Protection Act, the Consumer Protection Bureau Act, the Law Brokers Act, as well as which other Act(s)?
A) B) C) D) E)
The Motor Vehicle Repair Act. The Prepaid Services Act. The Business Practices Act. The Consumer Reporting Act. The Motor Vehicle Repair Act, the Prepaid Services Act and the Business Practices
Act.
48) Jelly candies are shaped like rounded-off coffee creamers and filled with flavoured gelatin and a chunk of fruit. How is this product regulated?
A) B) C) D) E)
Food and Drugs Act. Hazardous Products Act. Health Canada Act. Food Inspection Act. The product is unregulated.
49) Arbitration is available to resolve disputes over manufacturing defects in what kind of product?
A) B) C) D) E)
50) was
Electronics. Computers. Internet purchases. Automobiles. Investments.
One of the first types of sellers to be regulated by consumer protection legislation in 1260
Version 1
14
A) B) C) D) E)
butchers. bakers. candlestick makers. dairies. fishmongers.
51) Consumer protection legislation may be instituted as a result of which of the following business activities:
A) B) C) D) E)
52)
increased technological complexity of goods. merchants and manufacturers increasing dishonesty. more consumer credit was being granted. technological complexity of goods and increase in the granting of consumer credit. All of the responses are correct.
The labelling of disposable propane cylinders is regulated under which legislation?
A) B) C) D) E)
Sale of Goods Act. Consumer Product Safety Act. Flammable Gas and Liquids Act. Food and Drugs Act. Hazardous Products Act.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 53) The case of Donaghue v. Stevenson represented a dramatic change in the law regarding defective products. Discuss the similarities and differences between the legal principles established by this case and the operation of modern legislation in this area.
Version 1
15
54) Some Canadian provinces have enacted comprehensive legislation for the protection of consumers. Explain how such legislation arose in our legal system, emphasizing in your answer notions of freedom of contract and caveat emptor Do you agree with such legislation?
55)
Explain the scope of and the penalties for commissions of unfair business practices.
56) Elliot purchased a bicycle helmet for his son, Michael. Elliot had seen a sticker on the box with large CSSA letters on it. Elliot mistook this for the Canadian Standards Association mark of approval. In reality, the sticker represented that the product had passed the Company Safety Standard Application. Using the mistaken labelling as the basis for his purchase, Elliot bought the helmet. After an accident on his bike, Elliot's son Michael, who was wearing the helmet, suffered many cuts and injuries to his head. Upset with the helmet's safety performance, Elliot brought legal action against the manufacturer and the Canadian Standards Association. Discuss all the issues that this scenario raises under Consumer Protection Legislation.
57) Explain why one type of purchase transaction allows a buyer a "cooling-off" period, yet it is a privilege not accorded to buyers in other types of purchase transactions.
Version 1
16
58) Ingrid and her husband, Dan, ran a dry-cleaning company, which also provided a conventional "wash, fluff, and fold" laundry service to its customers. The laundry facilities were located at the rear of the building and consisted of several ‘large-size’ washing machines and dryers. Also located in this part of the building was a standard floor drain into which spills would flow. The drain had been working poorly and a succession of plumbers and their various methods had not succeeded in making it work properly. Ingrid had become frustrated with the drain and purchased a liquid drain opener, "Drainthru." She poured two cups of the liquid into the drain and waited. On the bottle of the product appeared the following small print: DIRECTIONS: Floor Drains - Use 8 oz. of contents and let stand for 5 minutes. Flush. Repeat if necessary. FOR YOUR OWN SAFETY: Contains sulphuric acid. Do not use where other drain chemicals are present. Avoid contact with eyes, skin and clothing. Do not breathe fumes. The following morning, Ingrid saw no appreciable difference in the state of the drain. She purchased another drain opener, this time a tin of lye. After putting on rubber gloves, she poured two spoonfuls of the lye flakes into the drain and stirred it about. The lye container bore the following label: GENERAL USES: For Clogged drains - insert 3 tablespoons of lye past the grid of the drain and add two cups of warm water. Let solution stand for 1/2 hour and then flush with boiling water. CAUTION: Contains Sodium Hydroxide. Avoid contact with eyes, skin and clothing. There were no hazardous products symbols on either container of drain opener. Just as Ingrid had finished adding the lye into the drain, she noticed a strong burning odour. Suddenly a violent eruption occurred in the drain, spewing liquid out of the drain directly into Ingrid's face. The explosion was a result of combining the chemicals of the different drain openers in the trap of the drain. As a result, Ingrid was permanently blinded. What action may Ingrid take in these circumstances? What is the nature of liability faced by the manufacturers of the two products?
Version 1
17
59) Taylor, a young salesman with a pharmaceutical company, wished to purchase some furnishings for the new home he and his wife had recently acquired. To do so he visited a local branch of the Consumer Finance Co. Ltd. to arrange a suitable loan. Taylor made regular payments on the loan for a number of months. In September he received a promotional pamphlet from the finance company offering, as a Christmas bonus, three months relief of payments for October, November and December without interest or penalty charges. To obtain the benefit Taylor telephoned his loans officer and made the arrangements In mid-December he received a call from the branch manager. He went to see the manager who told him he was in arrears for three months and, as far as the finance company was concerned, his loan contract was voided. The manager then gave him three choices: to pay the balance in full, with interest and penalty charges, to sign a new loan contract with different terms, or do neither and be sued immediately. The manager also told Taylor that if he were sued, his credit rating would be destroyed and insisted that Taylor decide which choice he wanted before he left the office. Taylor did not have sufficient resources to pay the balance in full nor did he wish to be sued. He signed a new loan agreement with a substantially higher interest rate. Discuss the issues raised by this case. What are the rights and liabilities of the parties?
Version 1
18
Answer Key Test name: Chapter 27 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) FALSE 17) FALSE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) FALSE Version 1
19
27) FALSE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) TRUE 33) TRUE 34) TRUE 35) FALSE 36) FALSE 37) D 38) C 39) E 40) D 41) E 42) D 43) A 44) D 45) B 46) E 47) E 48) A 49) D 50) B 51) D 52) E
Version 1
20
53) Donaghue v. Stevenson and Consumer Safety Legislation: - Donaghue v. Stevenson ("D. v. S.") established a manufacturer's liability in tort (negligence) for injury caused to the ultimate user of its goods - Donaghue v. Stevenson discarded the notions of privity and breach of contract in such cases as they would deny compensation to victims on the basis that contractual relations seldom exist between the manufacturer and the end user - Under the principles of D. v. S., an injured consumer may sue a manufacturer for damages suffered - Under federal legislation (Food and Drugs Act and Hazardous Products Act), strict liability and penalties are imposed on manufacturers in breach of the Acts' provisions - The purpose of the legislation is to protect the public from harm but not to compensate injured consumers, its role being regulatory as well as criminal - Manufacturers may be required to pay penalties for breaches of the legislation whether any injury occurred or not
Version 1
21
54) Consumer Protection Legislation: - Throughout history, governments have been quick to legislate in the areas of consumer safety but have varied in their approaches to protecting the quality of the bargain - caveat emptor ("buyer beware") became the principle applied by courts in assessing damages in consumer transactions, based on the prevailing philosophy that a contract was a bargain struck between individuals - Only where obviously unequal bargaining power existed between parties did courts inject their own sense of fairness - as technology advanced and the number and complexity of consumer goods increased, it became more difficult for consumers to adequately inspect, understand and service their purchases - at this time many manufacturers also began to use limited warranties and exclusion clauses - as large-scale manufacturers discovered less need to provide service to customers to maintain sales and retailers could no longer profitably do so, consumers demanded legislation which has resulted in various degrees of protection across the country
Version 1
22
55) Unfair Business Practices: - legislation generally prohibits making false or misleading representations to consumers which would induce them to enter into the contract - also prohibits unconscionable transactions, excessively one-sided or adverse transactions, the use of undue pressure by sellers and misleading statements made by sellers upon which consumers will rely - the list of activities defining unfair practices may be expanded at any time by regulation - penalties for breach of any enumerated practice include fines, rescission of the contract by the consumer or damages where rescission is not possible, including exemplary or punitive damages - also, the administrator of the legislation has powers of investigation, may issue cease and-desist orders to violators and may cancel the registration of a violating seller (if it is registered) - in order to balance the powers under such legislation, however, the onus is on consumers to act within a short period of time to obtain the benefits provided 56) An issue raised in this case is whether the marking of the box with CSSA was an attempt to deceive or mislead the consumer. A second issue is whether the helmet was obliged to meet CSA standards in order to be sold. If CSA approval was required, and not obtained, the manufacturer may have violated the consumer protection legislation. If no approval was required, the case may be one of "buyer beware," or the manufacturer might be liable under contract if the goods were not reasonably fit for the use intended. In addition, the manufacturer may have committed an unfair business practice by applying a sticker with letters on it that may mislead the consumer to believe the product actually had CSA approval.
Version 1
23
57) The cooling-off period, provided for in legislation governing itinerant sales, exists particularly due to the fact that it has been the seller that has sought out the buyer, rather than the more common reverse. As the occupier of the home, the buyer cannot leave the place of sale should the pace, pressure or tactics of the seller prove to be too much. With the resultant fact that items are often purchased, not because they are desired, but in order to get the salesperson to leave, the coolingoff period is appropriate to this type of transaction.
Version 1
24
58) Ingrid has a common law remedy in damages for negligence of the drain cleaner manufacturer. She would base her claim on the failure of the manufacturers to adequately warn her of the risks of combining the chemicals in the two drain products. Neither of the product labels in question provided an adequate warning to the user. Although the product contents were displayed and a caution given, it appeared in small, inconspicuous print. The manufacturers had a common law duty to warn consumers of the danger inherent in mixing different chemical-based cleaners. This duty would not be discharged with the inadequate information provided on the labels. Both containers failed to clearly warn that the product, in combination with other chemicals, may be a hazard and what those hazards might be. The average consumer has little knowledge of chemistry and could not be expected to know the dangers of mixing chemicals simply on the basis of being informed of which chemicals a product contains. Furthermore, if the manufacturers were unaware of the risks, that in itself is negligent. The manufacturers of these cleaning products may also incur liability under the Hazardous Products Act for failure to label adequate hazard warnings given the nature of the products. Furthermore, neither container bore the required corrosive warning symbols, also a violation of the Act. The manufacturers would, thus, be subject to prosecution under the Act and to subsequent fines if convicted. Based on Smithson et al. v. Saskern Chemicals Ltd. et al. (1985), 34 C.C.L.T. 195.
Version 1
25
59) This case deals with the issues of unconscionable transactions in the area of consumer credit. Where a financial lender advances funds to a consumer for the purpose of purchasing family or household goods, the transaction is a supply of credit that falls within the scope of relevant consumer protection legislation. Here the lender led the customer into a reasonable belief that it could obtain an extension of payment time without penalty. Having done so, it then induced Taylor to refinance his loan at unfavourable terms by a false assertion that he was in default and by threats to bring immediate legal action that will ruin Taylor's credit rating. The transaction has taken advantage of Taylor's vulnerability and resulted in an agreement heavily favouring the finance company. The consumer acted upon misleading statements made by the lender and was subjected to undue pressure to make a new agreement on prejudicial terms. The finance company may be liable for a breach of consumer protection legislation and subject to fines and penalties, which vary from preventing the lender from collecting the full amount of interest set out in the loan agreement to denying the lender any interest on the loan at all. Similarly, under other unfair business practice legislation, the finance company may be subject to punitive damages for its unconscionable actions and may even face the cancellation of its business registration. Taylor also receives some rights personally under the legislation. He may rescind the agreement entered into under pressure, or if this is not possible in the circumstances, he may obtain damages for the harm suffered as a result of the finance company's actions. Based on: Pacific Finance Acceptance Co. Ltd. v. Turgeon et al., [1978] 93 D.L.R. (3d) 301.
Version 1
26
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Magda purchased some new clothes at a clothing store and gave the salesclerk a cheque for the price of the goods as payment. The acceptance of the cheque by the salesclerk constitutes payment of the debt in full. ⊚ ⊚
true false
2) Magda purchased some new clothes at a clothing store and gave the salesclerk a cheque for the price of the goods as payment. The cheque is only conditional payment and remains so until the cheque is honoured by Magda's bank. ⊚ ⊚
true false
3) Magda purchased some new clothes at a clothing store and gave the salesclerk a cheque for the price of the goods as payment. If Magda had presented a certified cheque as payment, the acceptance of the cheque would extinguish the debt. ⊚ ⊚
true false
4) Magda purchased some new clothes at a clothing store and gave the salesclerk a cheque for the price of the goods as payment. If the clothing shop owner took Magda's cheque to the bank, and had it certified, Magda's debt to the seller would be extinguished. ⊚ ⊚
true false
5) Brendan prepared a cheque payable to Joey and placed it in the pocket of his coat. Later in the day, while shopping, his coat was stolen. Brendan may contact the bank upon which the cheque was drawn, and countermand payment of the cheque. The bank must thereafter refuse payment of the cheque if it should be presented for payment. ⊚ ⊚
Version 1
true false
1
6) Brendan prepared a cheque payable to Joey and placed it in the pocket of his coat. Later in the day, while shopping, his coat was stolen. If Joey found Brendan's cheque by accident, and presented it for payment, Brendan might resist payment on the basis of lack of delivery. ⊚ ⊚
true false
7) Brendan prepared a cheque payable to Joey and placed it in the pocket of his coat. Later in the day, while shopping, his coat was stolen. If the cheque was not found for over six months, the bank should refuse payment, even if it was presented by the payee, Joey. ⊚ ⊚
true false
8) Brendan prepared a cheque payable to Joey and placed it in the pocket of his coat. Later in the day, while shopping, his coat was stolen. If the cheque had been made payable to "Humpty Dumpty" instead of Joey, any finder of the cheque would be entitled to demand payment. ⊚ ⊚
true false
9) Henry purchased an automobile from Iso Motors, and as a part of the payment, gave Iso Motors a promissory note in the amount of $4,000. If Henry should default on the note, Iso Motors may take legal action against Henry either on the contract of sale, or on the promissory note. ⊚ ⊚
true false
10) Henry purchased an automobile from Iso Motors, and as a part of the payment, gave Iso Motors a promissory note in the amount of $4,000. If the promissory note is properly drawn and signed by Henry, Iso Motors may negotiate it to Friendly Finance Company. ⊚ ⊚
Version 1
true false
2
11) Henry purchased an automobile from Iso Motors, and as a part of the payment, gave Iso Motors a promissory note in the amount of $4,000. If the promissory note is negotiated to Friendly Finance Company, the company (as a holder), may enforce payment. ⊚ ⊚
true false
12) Henry purchased an automobile from Iso Motors, and as a part of the payment, gave Iso Motors a promissory note in the amount of $4,000. If the automobile is a consumer purchase, the note must be marked "consumer note." ⊚ ⊚
13)
true false
A bill payable "three days after sight," presented on March 20th is payable on March 23rd. ⊚ ⊚
true false
14) The maker of a bill of exchange may raise a defect of title defence successfully against a holder in due course. ⊚ ⊚
true false
15) Where neither Smith nor Jones are mere holders, Smith may successfully raise a defect of title defence, Jones must be an endorser. ⊚ ⊚
true false
16) Where neither Smith nor Jones are mere holders, Smith may successfully raise a defect of title defence, Jones must be an endorser. Smith must be a holder in due course.
Version 1
3
⊚ ⊚
true false
17) In the absence of defects, once certified, liability for payment of a cheque shifts from the drawer to the financial institution. ⊚ ⊚
true false
18) Situations exist where the holder of a bill may validly negotiate it to another without endorsement or incurring liability under it. ⊚ ⊚
true false
19) Kara in Toronto has received a cheque from Pam in Vancouver, which Kara endorses with her signature and the words "Pay to John Black only," and mails it to John Black in Halifax. Black takes it to his bank to cash. The bank will refuse to do so. ⊚ ⊚
true false
20) Where a financial transaction involves bills of exchange moving between New York, London, and Montreal, it must be very carefully structured to avoid being crippled by differing legislation in each jurisdiction. ⊚ ⊚
true false
21) Generally speaking, all cheques are bills of exchange, the reverse is untrue, and promissory notes differ in form and use from either one. ⊚ ⊚
Version 1
true false
4
22) An instrument that conforms in all other respects to the Bills of Exchange Act except that it reads "Pay to the bearer on demand $500 in gold bullion based on the London noon gold spot price on date of demand," would still not be either a bill of exchange or promissory note. ⊚ ⊚
23)
true false
The law governing negotiable instruments is the Bills of Exchange Act. ⊚ ⊚
true false
24) The Constitution assigns jurisdiction relating to the governance of negotiable instruments to the federal Parliament. ⊚ ⊚
true false
25) Under the Bills of Exchange Act, a negotiable instrument is void ab initio where it attempts to create a debtor-creditor relationship between the parties to it. ⊚ ⊚
true false
26) A single person cannot simultaneously be an endorsee, holder, and bearer of a negotiable instrument. ⊚ ⊚
true false
27) A holder in due course has much greater certainty of payment under a negotiable instrument than an ordinary holder. ⊚ ⊚
Version 1
true false
5
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 28) Which of the following are not negotiable instruments?
A) B) C) D) E)
Cheques. Certified cheques. A cheque made payable to "Mickey Mouse." A promissory note. A bill of sale.
29) The most superior position in which parties to a negotiable instrument can find themselves is a(n)
A) B) C) D) E)
30)
endorser. holder. holder for value. holder in due course. holder in any event.
A consumer note arises when
A) any consumer purchase is made on the basis of a promissory note. B) the lender of funds to the consumer is not at arm's length with the seller. C) the purchaser acts as an end-user and not as a purchaser for resale, and the goods are obtained by credit. D) a debt under a negotiable instrument representing a consumer purchase is assigned to a finance company. E) None of the responses are correct.
31)
Which is a true statement?
Version 1
6
A) Real defences are effective against holders, holders in due course, and endorsers. B) Defect of title defences are effective against holders and endorsers. C) Personal defences are effective against holders, and against endorsers if they are an immediate party. D) All of the responses are true. E) None of the responses are true.
32) Once a bill is drawn it is sent to the ___________ for ___________. Before the date for payment it may be negotiated to others, called _______________ by way of ___________.
A) B) C) D) E)
maker; endorsement; holders; exchange drawee; endorsement; endorsers; acceptance drawee; payment; endorsers; endorsement drawee; acceptance; holders; endorsement maker; acceptance; endorsers; endorsement
33) A paper reads: To: Empire Bank. Five days after the next full moon, pay to Nathan Montrose or anyone named by him the sum of $500. Signed: "Monica Traymoor," August 15, 2020. Most correctly, this is
A) B) C) D) E)
34)
a bill of exchange. a negotiable instrument. a promissory note. a banker's acceptance. a bill of exchange and a negotiable instrument.
A certified cheque is
Version 1
7
A) B) C) D) E)
a promissory note. legal tender. a liability of the bank and not the drawer. provided for under the Bills of Exchange Act. All of these elements.
35) Where a bill of exchange is used in a purchase and sale transaction for goods sold on credit terms, the bill is "accepted" by the
A) B) C) D) E)
seller. buyer. seller's bank. buyer's bank. None of these are the acceptor.
36) Where a cheque is made payable to Lucien Colbert, and on its reverse are written the words "For deposit only to the credit of L. Colbert,"
A) B) C) D) E)
37)
the endorsement is a restrictive endorsement. the endorsement is a special endorsement. the endorsement is a failure. the bill can only be cashed. None of the responses are correct.
Law relating to certified cheques in Canada are found in
A) B) C) D) E)
Version 1
the Bank Act. the Bills of Exchange Act. provincial statutes. common law. None of the responses are correct.
8
38) Bill writes Nick a cheque for $500 on his account at the Friendly Bank. Bill is the __________ and Nick is the __________ and the Friendly Bank is the __________.
A) B) C) D) E)
Drawer; Payee; Drawee Drawer; Drawee; Payee Drawee; Drawer; Payee Drawee; Payee; Drawer Payee; Drawer; Drawee
39) Erin writes Lorie a promissory note for $500. Erin is the __________ and Lorie is the __________.
A) B) C) D) E)
40)
The legislation creating promissory notes is found in which statute?
A) B) C) D) E)
41)
Promisor; Promisee Promisee; Promisor Maker; Bearer Bearer; Maker Bearer; Drawee
Promissory Notes Act. Bills of Exchange Act. Securities Act. Financial Instruments Act. Personal Property Security Act.
Does a bill of exchange have to be written?
Version 1
9
A) B) C) D) E)
42)
No, in accordance with the Statute of Frauds. No, in accordance with the common law. No, in accordance with the Personal Property Security Act. No, in accordance with the Bills of Exchange Act. Yes, in accordance with the Bills of Exchange Act.
Who can the holder of a bill of exchange sue if it is dishonoured?
A) B) C) D) E)
Drawer. Acceptor. Endorser. Drawer and Acceptor. Drawer, Acceptor and Endorser.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 43) List and describe the real defences to payment of a negotiable instrument.
44) Explain the different types of endorsement that may appear on a negotiable instrument and give examples of their proper use.
45) Discuss the ways in which the principles of consumer protection have been incorporated into the Bills of Exchange Act, and obligations imposed by the Act on consumer transactions.
Version 1
10
46) Discuss why presentment of a cheque for certification by the payee discharges liability of the drawer, but presentment of a cheque for certification by its drawer may not.
47) David operated a small delivery business. He approached the Empire Bank for money to buy a truck to be used in the business. The bank was willing to loan David the money and took a chattel mortgage over the truck. As further security in the event that David defaulted on the mortgage, the bank required his wife to sign a promissory note for the full amount of the mortgage. After experiencing some financial difficulty, David defaulted on the mortgage and the Empire Bank took possession of the truck and sold it pursuant to the chattel mortgage. The passage of sale was insufficient to cover the full amount of the loan and the bank sued David's wife for the remainder owing on the basis of the promissory note. Discuss the rights and duties of the bank and David's wife, and render a decision.
Version 1
11
48) Joan made a promissory note payable in the amount of $1,000 to Thomas. Since Thomas owed approximately $1,000 to an acquaintance, William, Thomas gave the note to William having inscribed on the back of it "I transfer all my rights in this note." William was not aware of the provisions in the Bills of Exchange Act. When William attempted to collect upon the promissory note from Joan, it was dishonoured, and the bank told William it did not know of Joan's whereabouts. William sought recourse against Thomas on the basis of his endorsement. Thomas pleaded he had transferred his rights in the note to William without any warranty or recourse, and the endorsement constituted only an assignment of his interest in the note and not an endorsement under the terms of the Bills of Exchange Act. Discuss the issues raised in this case and render a decision.
49) Hector had planned a new business venture, and Thomson was interested in participating in it. Thomson felt that it would take her four weeks to determine whether she could fully devote her time to the business. As the success of the venture depended on an immediate start, Hector was reluctant to include Thomson. To convince Hector of her sincerity, Thomson offered to provide him with a cheque for $5,000, which he could cash if she decided to back out of the project within four weeks. Hector agreed, and Thomson gave him the cheque fully completed and with the current date marked: "to be cashed only if deal cancelled." As matters turned out, Thomson decided only a day later that she could not devote the time to participate in the venture. She told Hector that she was backing out and attended at the bank and placed a stop payment on the cheque. The cheque was duly dishonoured when Hector tried to cash it, and he sued Thomson pursuant to the Bills of Exchange Act for the $5,000. His claim was also for a further $1,000 that he was forced to pay as a fee to a broker for finding him another investor on short notice. Discuss.
Version 1
12
Answer Key Test name: Chapter 28 Test Bank 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) FALSE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) FALSE Version 1
13
27) TRUE 28) E 29) D 30) B 31) D 32) D 33) E 34) C 35) B 36) A 37) D 38) A 39) C 40) B 41) E 42) E
Version 1
14
43) Real Defences are those that go to the root of the instrument, and are effective against all holders, including holders in due course. They are: a. Forgery—if the signature of a maker, drawer, or endorser is forged, the holder may not enforce payment through the forged signature. b. Minority—a minor cannot incur liability under a negotiable instrument. c. Lack of Delivery of an Incomplete Instrument—both elements must be present; the maker or drawer must not have fully completed the instrument, and must not have delivered it. If a subsequent person obtains the instrument and completes it, the defence is effective against a claim for payment under it. d. Material alteration—a complete defence against the extent of the alteration, but not against the original terms. e. Fraud as to the Nature—the equivalent of non est factum, open to a person honestly believing upon signing the instrument that it was of a nature other than a negotiable instrument. f. Cancellation—must be apparent on the face of the instrument, and is only a sure defence where no early accidental payment has been made.
Version 1
15
44) The following are the types of endorsement to a negotiable instrument: a. In Blank—endorser merely signs their name on the reverse, and the instrument becomes a bearer instrument. Most commonly used in the endorsement of cheques in the course of bank deposit. b. Restrictive Endorsement—prevents any further endorsement of the instrument. Commonly takes the form of "Deposit to the Credit of Payee Only." Most commonly used in the bank deposits of businesses, as security from theft by employees. c. Special Endorsement—halts further endorsement of an instrument until the endorsement of a particular individual appears on the instrument. Takes the form of "Pay to the order of J. Brown," on the reverse. Commonly used for security by holders at a distance, when one must send the instrument endorsed over to the other, but does not want to create a bearer instrument in the process. d. Endorsement without Recourse—an endorsement preventing subsequent endorsers from looking to that endorser for payment of the instrument on dishonour by the drawer. Very rarely would a cheque endorsed in this manner be accepted as a bank deposit. Takes the form of "J. Brown without recourse." e. Endorsement for identification—rarely used, this endorsement creates no liability, but is used to allay the fears of a subsequent recipient as to the identity of the holder, by an endorsement of a person known to the subsequent recipient who knows the holder. Takes the form of "J. Brown is hereby identified, J. Smith." Smith is known to the subsequent recipient, but incurs no liability, as he is only identifying Brown.
Version 1
16
45) In the 1970s, amendments to the Act resulted in explicit consumer protection provisions. These took the form of two new negotiable instruments, consumer bills and consumer notes, which were like their ordinary counterparts, but arose out of consumer purchases. The consumer purchase was defined as a non-cash sale from a person selling consumer goods and services to a person for personal use. The intent of the amendments was to circumvent the use of the privity rules of contract, where a person could not raise the defence of defective goods against a finance company that had purchased a note from a now "disappeared" seller. Often the assignment of notes had taken place at less than arm's length, but the purchaser was estopped from raising a defence. Now if the seller and the lender are not at arm's length, the consumer note or bill is caught by the Act, and the holder of such an instrument is subject to any defences that the purchaser could have raised against the seller if the goods are defective or unsatisfactory. Under the Act, any such note or bill must be marked as arising under a consumer purchase, to warn any other holders of this potential liability, and any note or bill not so marked is void as against the purchaser. 46) The answer is found in the passage quoted in the text. On presentment by the payee, who can take legal tender at that time, certification represents the payee's election to take the bank's undertaking to pay in place of that of the drawer. The drawer is therefore discharged. In the case of a cheque being presented for certification by the drawer, there is no delivery of payment to the payee, and the certification only represents the addition of a guarantor which the payee may choose to accept or reject on delivery, in favour of demanding legal tender.
Version 1
17
47) The promissory note is void and unenforceable against David's wife. Her liability on the note is only conditional upon the default in the chattel mortgage. As the bill of exchange requires a promissory note to be an unconditional promise to pay, among other things, it does not fall within the meaning of the Act requiring a promissory note to be unconditional. Based on: Bank of Montreal v. Faulkner (1983), 43 Nfld. & P.E.I.R. 256 (Nfld. Dist. Ct.). 48) If a person attempts to endorse or negotiate a note, and it intends to avoid future liability under that note, there must be a clear indication of restrictive endorsement. When Thomas endorsed this note, the fact that he wrote that he transferred all his rights is implicitly understood in the Act, the question remaining whether he restricts, in so doing, any of his liability under the note. As there is no restrictive element in this endorsement, the words do not expressly or impliedly negate some right that would accrue to the endorsee by the signature itself. In this case, the endorsement is simply an ordinary endorsement that happens to be in a much more elaborate form. Based on: Petsanis v. Durocher (1929), 35 R.L.N.S. 321 (Que.).
Version 1
18
49) The cheque does not come within the meaning of the Bills of Exchange Act, for while it was a cheque, it was not an unconditional promise to pay. The cheque was only an order to pay on the basis of the occurrence of a specific contingency. As such, Hector cannot sue on the face of the cheque with the support of the Act. It is however strong evidence of a particular contractual term that has been breached by Thomson through dishonour of the cheque. In this case however, Hector will be limited in his recovery to the actual damages suffered, as he would be in any breach of contract situation. In this case, Hector's actual damages would appear to be $1,000. The argument might be made that the amount of the cheque constitutes the parties' settlement for liquidated damages, but students who believe that Hector is entitled to $5,000 must not rely on the Bills of Exchange Act to support the argument.
Version 1
19
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Wen purchased an automobile from Nick for $10,000. Unknown to Wen, Nick had used the automobile as security for a loan from his bank, and the bank had registered its security interest in the automobile under the provincial personal property security registration legislation. A few months after the sale, Nick defaulted on the loan, and the bank discovered that Wen was in possession of the automobile. The bank is not entitled to seize the automobile, because it had not given Wen notice of its claim against the vehicle before Wen purchased it. ⊚ ⊚
true false
2) Wen purchased an automobile from Nick for $10,000. Unknown to Wen, Nick had used the automobile as security for a loan from his bank, and the bank had registered its security interest in the automobile under the provincial personal property security registration legislation. A few months after the sale, Nick defaulted on the loan, and the bank discovered that Wen was in possession of the automobile. Wen has a good and clear title to the automobile, because he purchased it without knowledge of the bank's claim. ⊚ ⊚
true false
3) Wen purchased an automobile from Nick for $10,000. Unknown to Wen, Nick had used the automobile as security for a loan from his bank, and the bank had registered its security interest in the automobile under the provincial personal property security registration legislation. A few months after the sale, Nick defaulted on the loan, and the bank discovered that Wen was in possession of the automobile. The bank only has recourse against Nick for the amount owing. ⊚ ⊚
true false
4) Wen purchased an automobile from Nick for $10,000. Unknown to Wen, Nick had used the automobile as security for a loan from his bank, and the bank had registered its security interest in the automobile under the provincial personal property security registration legislation. A few months after the sale, Nick defaulted on the loan, and the bank discovered that Wen was in possession of the automobile. Nick is liable to Wen for breach of warranty of title, if the bank should seize the automobile.
Version 1
1
⊚ ⊚
true false
5) Jeff entered into a building contract with Mike under which Jeff agreed to construct a garage on Mike's lot for $60,000. Lumber Supply Company supplied the lumber at Jeff's request, but when Jeff failed to pay for the material within a few weeks after it was supplied, the company filed a construction lien for $30,000 against Mike's property. Lumber Supply Company cannot file a lien against Mike's property because the company is not a subcontractor or workman. ⊚ ⊚
true false
6) Jeff entered into a building contract with Mike under which Jeff agreed to construct a garage on Mike's lot for $60,000. Lumber Supply Company supplied the lumber at Jeff's request, but when Jeff failed to pay for the material within a few weeks after it was supplied, the company filed a construction lien for $30,000 against Mike's property. The lumber company has no right of lien because it has a contractual relationship with Jeff only, and must look to Jeff for payment. ⊚ ⊚
true false
7) Jeff entered into a building contract with Mike under which Jeff agreed to construct a garage on Mike's lot for $60,000. Lumber Supply Company supplied the lumber at Jeff's request, but when Jeff failed to pay for the material within a few weeks after it was supplied, the company filed a construction lien for $30,000 against Mike's property. When Mike is notified of the registration of the lien, he must hold back the amount of the lien, or whatever funds he has in his hands at the time, if they should be less than the amount of the claim. ⊚ ⊚
Version 1
true false
2
8) Jeff entered into a building contract with Mike under which Jeff agreed to construct a garage on Mike's lot for $60,000. Lumber Supply Company supplied the lumber at Jeff's request, but when Jeff failed to pay for the material within a few weeks after it was supplied, the company filed a construction lien for $30,000 against Mike's property. If Mike ignores the lien claim, and pays the entire $60,000 to Jeff, Mike may be obliged to pay an amount equivalent to the sum he was required to hold back over again. ⊚ ⊚
true false
9) Janicka purchased a snowmobile from Andrew under a conditional sale agreement. Andrew registered the conditional sale agreement pursuant to the requirements for registration set down in the provincial legislation. Janicka later sold the snowmobile to Gary, who purchased the machine without making a search for conditional sale agreements. Gary purchased the snowmobile free of any claims by Andrew, because he had no notice of the conditional sale agreement. ⊚ ⊚
true false
10) Janicka purchased a snowmobile from Andrew under a conditional sale agreement. Andrew registered the conditional sale agreement pursuant to the requirements for registration set down in the provincial legislation. Janicka later sold the snowmobile to Gary, who purchased the machine without making a search for conditional sale agreements. If Janicka defaults in payment to Andrew, Andrew may seize the snowmobile from Gary. ⊚ ⊚
true false
11) Janicka purchased a snowmobile from Andrew under a conditional sale agreement. Andrew registered the conditional sale agreement pursuant to the requirements for registration set down in the provincial legislation. Janicka later sold the snowmobile to Gary, who purchased the machine without making a search for conditional sale agreements. If Janicka defaults in payment, and Andrew seizes the snowmobile, Gary would have a right of action against Janicka. ⊚ ⊚
Version 1
true false
3
12) Janicka purchased a snowmobile from Andrew under a conditional sale agreement. Andrew registered the conditional sale agreement pursuant to the requirements for registration set down in the provincial legislation. Janicka later sold the snowmobile to Gary, who purchased the machine without making a search for conditional sale agreements. If Gary pays Andrew the balance owing in order to retain the snowmobile, Janicka is free of the conditional sale agreement. ⊚ ⊚
true false
13) Under a chattel mortgage, the debtor starts out with title to the goods, gives it to the creditor, and earns it back upon the final payment. ⊚ ⊚
true false
14) Under a conditional sale agreement, the purchaser never gets title until the final payment is made. ⊚ ⊚
true false
15) A purchaser under a conditional sales agreement endangers his equity of redemption by falling in arrears on his payments. ⊚ ⊚
true false
16) A security interest is perfected on creation of the security instrument and attaches upon either registration or possession by the creditor. ⊚ ⊚
17)
true false
A security interest must not be attached before it is perfected.
Version 1
4
⊚ ⊚
true false
18) A security interest is attached on creation of the security instrument and perfected upon either registration or possession by the creditor. ⊚ ⊚
true false
19) Where a creditor is financing the inventories of a manufacturer of life preservers, the most sensible security for all involved is a floating charge. ⊚ ⊚
true false
20) A bricklayer unpaid for his last week's work may look to the landowner to pay his wages rather than pursue his employer. ⊚ ⊚
true false
21) The maintenance of a prescribed hold-back defeats all claims for liens even if they exceed the amount held back, and an order vacating the liens shall issue. ⊚ ⊚
true false
22) A merchant who in the ordinary course of business deals in quantities of grain exceeding 50 metric tonnes would not find these transactions falling within the jurisdiction of the Bulk Sales Act. ⊚ ⊚
true false
23) It tends to be conventional debt transactions which give rise to the use of chattel mortgages.
Version 1
5
⊚ ⊚
true false
24) Where a manufacturer has registered a conditional sale agreement on the sale of the goods to a retailer, a member of the general public who is a customer of the retailer will, on purchase, receive good title to the goods despite the registration of the prior agreement. In addition, that customer need not perform any searches. ⊚ ⊚
true false
25) Where there is a security interest in goods, a bona fide purchaser for value with notice can obtain good title to the goods. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Aproperty owner is required to maintain a __________ on a project for the benefit of __________.
A) B) C) D) E)
trust fund; suppliers of goods and services hold-back; subcontractors surplus; subcontractors hold-back; suppliers of goods and services right of action; subcontractors
27) Appliance Paradise sold Carson a refrigerator by Conditional Sale Agreement, duly registered. Carson some months later, in the course of moving to another province offered it to a neighbour, Jones, who was helping Carson load his van. Jones recognized it as a bargain and in good faith paid Carson. On demand from Appliance Paradise, Carson refused to make further payments. Jones refuses to pay, citing that he is a bona fide purchaser for value. Appliance Paradise
Version 1
6
A) has no action against Jones. B) may seize and sell the refrigerator, and sue either Carson or Jones for any deficiency. C) may seize and sell the refrigerator, and sue Carson for any deficiency. D) may seize and sell the refrigerator, and sue Jones for any deficiency. E) has no further action against Carson.
28)
Security under Section 427 of the Bank Act gives a Chartered Bank security
A) B) C) D) E)
29)
The purpose of __________ is to provide __________ with __________.
A) B) C) D) E)
30)
against bona fide purchasers for value. in goods not yet in existence. against any bulk sale of a corporation's assets. equivalent to that which would otherwise be a mortgage bond. in a wider range of consumer borrowing than Trust Companies.
a Chattel Mortgage; the mortgagee; possession of the goods; but not title Personal Property Legislation; third parties; notice of prior interests in goods a debenture; debtors' flexibility to sell assets; a fixed charge crystallizing on default a lien; any subcontractor, rights directly against an owner of goods or land All responses are correct except a chattel mortgage.
A secured creditor under a chattel mortgage has
A) B) C) D) E)
a right to bring either sale or foreclosure proceedings on default, at its option. a right to sue for deficiency after foreclosure. a right to assign the mortgage, but only on the consent of the debtor. the title and the obligation to insure the goods. All of the responses are correct.
Version 1
7
31) Doe purchased an automobile from Jones for $1,000. Unknown to Doe, Jones had used the automobile as security for a loan from his bank, and the bank had registered its security in the automobile under the provincial personal property security registration legislation. A few months after the sale, Jones defaulted on his loan, and the bank discovered that Doe was in possession of the automobile. Which of the following are true?
A) The bank is not entitled to seize the automobile because it had not given Doe notice of its claim against the vehicle before Doe purchased it. B) The bank is not entitled to seize the automobile because Jones had not given notice to Doe of the bank's claim against the vehicle before Doe purchased it. C) Doe has a good title to the automobile because he purchased it as a bona fide purchaser, for value, without notice. D) Jones is liable to Doe for breach of implied condition of title should the bank seize the automobile. E) Jones is liable to Doe for breach of implied warranty of title should the bank seize the automobile.
32) On graduation, you start a small business consulting service operating from leased premises, and one year into business you borrow $25,000 from a bank. The best (being the most useful) security the bank can likely get from you is probably
A) B) C) D) E)
a chattel mortgage. a bill of sale. an assignment of book debts. a conditional sale agreement. a right of lien.
33) Under a __________ agreement title in the goods passes to the buyer when the __________ but under a __________ agreement title passes to the buyer when the __________.
Version 1
8
A) conditional sale; buyer opts to exercise the purchase; hire-purchase; final payment is made B)
hire-purchase; seller opts to exercise the purchase; conditional sale; final payment is
made C) hire-purchase; seller opts to exercise the purchase; chattel mortgage; final payment is made D) hire-purchase; buyer opts to exercise the purchase; chattel mortgage; final payment is made E) hire-purchase; buyer opts to exercise the purchase; conditional sale; final payment is made
34)
Which debt instruments do public corporations utilize to raise money from the market?
A) B) C) D) E)
35)
In what transaction does title not transfer?
A) B) C) D) E)
36)
Liens, bonds. Liens, debentures. Bonds, debentures. Promissory notes, debentures. Promissory notes, liens.
Hire-purchase agreement. Chattel mortgage. Mortgage. Conditional sales contract. Title transfers in all of these transactions.
Which transaction is not registered under the Personal Property Securities Act?
Version 1
9
A) B) C) D)
37)
Chattel mortgage. Conditional sales contract. Purchase money securities interest. Section 427 Bank Act security.
Which transaction is the most suitable way for a bank to take inventory as security?
A) B) C) D) E)
Chattel mortgage. Conditional sales contract. Purchase money securities interest. Section 427 Bank Act security. None of these.
38) A is an unsecured creditor in a car loan agreement dated January 1, 2020. B is a secured creditor in an unregistered chattel mortgage dated January 2, 2020. C is a secured creditor in a registered chattel mortgage dated January 3, 2020 and registered on January 13, 2020. D is a secured creditor in a registered chattel mortgage dated January 4, 2020 and registered on January 12, 2020. E is a secured creditor in a registered chattel mortgage dated and registered on January 5, 2020. Which of the following creditors has the highest priority?
A) B) C) D) E)
A B C D E
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 39) Discuss the characteristics of the two major corporate debt instruments, highlighting their similarities and differences, and give concrete examples of appropriate use of each.
Version 1
10
40) Outline the reasons for lien legislation, its benefits to industry, obligations upon "owners," and as an example, trace the events of a lien involving an "owner" who clearly did not realize his obligations.
41) An assignment of book debts is a common corporate financing method. Describe such an assignment, the two ways debts may be collected and why each may be preferred by the assignor. Further, describe the notion of crystallization as it would apply in this context.
42) Compare and contrast the conditional sales agreement and the chattel mortgage, with respect to their principal differences, similarities and uses.
43) Discuss how the internationalization of business affects the practical legal aspects of security for debt. Give some examples to illustrate your discussion.
Version 1
11
44) Acme Widget Company grants to the Empire Bank on January 15, 2018, a debenture over all fixed assets and chattels of the company. The terms of the debenture are such that it represents a security interest in all present and future assets and chattels of the company. On April 12, 2019, Acme purchases an advanced Widget press and executes a chattel mortgage in favour of Downtown Finance Company in the amount of the purchase price of the press. In December 2019, Acme falls on hard financial times and a receiver is appointed under the terms of the debenture. The receiver realizes on all fixed assets of the company, converting them to cash, including the advanced Widget press. The chattel mortgagee brings suit against the receiver for conversion of the press. Discuss the priorities, and the nature of the claims of both the Empire Bank and Downtown Finance Company with respect to the advanced Widget press or the funds realized from its sale.
45) Seabreeze Outboard and Outdoor Shop Limited was offering for sale used reconditioned snowmobiles. Tim was interested in one of the snowmobiles and purchased it. Sometime after his purchase he found that Empire Financial, which held a conditional sale agreement over the snowmobile with Seabreeze, had petitioned the bankruptcy of Seabreeze. On seizing the company's files and learning the whereabouts of the goods sold that were covered by the conditional sale agreement, Empire had tracked down Tim and had ultimately removed the snowmobile from Tim's yard. Tim was outraged but admitted that he had not searched the province's personal property security registry to determine whether or not the snowmobile was subject to a conditional sale agreement before he purchased it. Discuss the likely outcome of this situation.
Version 1
12
46) McBryde owned a commercial property which required considerable renovation. On September 7th, she engaged Anderson Construction to perform the general contracting and project management, who quoted a price of $180,000 for all of the work. Anderson subcontracted work to a number of suppliers in the carpentry, plumbing, and electrical trades. On November 14th, Anderson presented a bill for $60,000 for work done to that point. Had the truth been known, Anderson was an incompetent manager, and had the following accounts outstanding relating to the project: Albert Electric, $9 000; Rainbow Interiors, $12,000; Carson's Carpentry, $22,000; Hot-Heat Furnace and Duct, $7,700; and Hytown Construction Supply, $21,500. In the first week of December, Anderson moved to another province leaving behind his business debts. On December 12th, each supplier registered valid liens, in the amount owed to them, against McBryde's property. What should McBryde have done on November 14th? What should she do on December 13th? If she does the "right thing" throughout, what will be the disposition of this matter? What is the alternative ending(s) if she does not do the "right thing" throughout?
Version 1
13
Answer Key Test name: Chapter 29 Test Bank 1) FALSE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) FALSE 16) FALSE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) D Version 1
14
27) C 28) B 29) E 30) A 31) E 32) C 33) E 34) C 35) A 36) D 37) D 38) E 39) Debentures (floating charges) and bonds are the securities it is intended that students will discuss. The nature of bonds is like that of a mortgage, being a first charge on assets, usually specific assets, as opposed to debentures which are subordinate to the interests of bond holders and are often over an ever-changing class of goods such as inventory. While both are present securities in terms of the fact that both exist, once created, debentures do not become specific until default, "crystallizing" over the assets of the class secured by it. The debtor may not normally deal with or dispose of assets secured by a bond without the consent of the bondholder, where this type of dealing is usually contemplated by and consented to in a debenture. As an example, a machine shop with a major corporate chattel asset such as a stamping press would usually finance it with a bond in favour of its manufacturer, or the institution which financed its purchase. The same company may give a debenture over its inventories of steel or finished goods, which are ever-changing and not specifically identifiable from day to day.
Version 1
15
40) Lien legislation is an effort to get around the hardships faced by suppliers of goods and services who often do not have privity of contract with the end user or beneficiary of their goods and services, and thus are otherwise barred from bringing an action for payment against the end user. The major benefit to industry is exactly that, and more particularly, to inspire confidence in suppliers to deliver goods and services that are "unrepossessible" (e.g.: labour, cement once hardened, lumber once cut). If suppliers of these items know that they may quickly take action against the "owner," they are much more likely to honour credit and delivery requests from lead contractors who are as likely as not yet to be paid as well. The obligation upon owners is thus to maintain a trust fund for suppliers, known as a hold-back, from the contract price out of which anyone with a valid claim may be paid, until the period for claims to be lodged has passed. An example of an unwary owner exists where the owner pays the contract price in full to a contractor who absconds without paying his suppliers or employees. Where these latter parties bring a lien action, the owner must pay their claim, or see the property sold to satisfy it, and then having paid twice for the work, attempt to find the absconding contractor to recover. Since liens attach to the land itself, and trump even mortgage holders, a lien on title will normally also have disastrous consequences on any project being financed by a series of cash draws as lenders will refuse to advance further funds until the title to the property is restored in their favour.
Version 1
16
41) An assignment of book debts is very similar to any other assignment of a contractual right, in this case being a right to collect a debt. Title to the accounts passes immediately in return for the financing advanced on the basis of that security. The two options for collection are either collection by assignor or collection by assignee. The former may be preferred by the assignor as informing clients to make their payments to ostensibly a third party may have overtones of the assignor being in financial trouble. The latter may however be preferable where this appearance is irrelevant, and having the assignee collect the accounts means that the assignor need not worry about bad debts, nor incur the expense of maintaining a large Accounts Receivable department. The notion of crystallization would only occur in the instance of the assignor collecting the accounts. Here, if the assignor defaulted on its payments to the assignee, the assignee would step in, notify those with accounts payable of the assignment, and begin collecting the accounts itself. In the first situation there is no crystallization as the assignee is collecting the accounts from the beginning.
Version 1
17
42) Under a chattel mortgage, the title to the property is transferred to the chattel mortgagee, and the mortgagor remains in possession. In respect of the obligations and remedies of the parties, the chattel mortgage bears similarity to a real property mortgage, with power of sale and foreclosure as options of the mortgagee when the mortgage is in default. As this is a situation where the mortgagor has possession without title, there needs to be a means of giving notice to third parties, that being accomplished through registration. Throughout the transaction, the mortgagor is earning back the title that he or she gave over in return for the advance. Under a conditional sale agreement, the underlying transaction is not debt, but rather a commercial sale. Here the eventual debtor-purchaser is a buyer of the goods, and never has title (not even momentarily through transfer by sale and transfer back by mortgage) until the final installment payment has been made. The installments are earning the purchaser's way to title, not to the recovery of title. In the same manner as chattel mortgages, the purchaser has possession without title, and therefore registration gives notice of the interest to third parties. 43) Students may raise a number of issues here. One of the large issues is that of access to the goods which form the collateral under a secured transaction of some kind. Traditionally, Canadian business has been much more focused on domestic markets for sourcing inventory and business assets. Now however as North American free trade has opened markets and lowered tariffs and as competition from Asian countries increases, many of the goods which form the security for business debt are not necessarily resident in the jurisdiction where the security has been perfected. It should be of concern to a creditor that the collateral is available for seizure and sale should the debtor default. Where the assets are in another legal jurisdiction, he or she may face considerable difficulty accessing them under the terms of a security agreement. Version 1
18
44) A chattel mortgage is a security interest which is created at the time of its registration and perfection and exists thereafter. At best, a floating charge debenture is only an equitable interest until it crystallizes, this crystallization occurring under its terms when a receiver-manager was appointed. At the time of crystallization, the debenture becomes a security interest in all of its described property that is not previously pledged under a chattel mortgage. In other words, the debenture is subordinate in priority to the chattel mortgage. The fact that the debenture was created and registered previous to the chattel mortgage does not alter this system of priorities, and therefore, it is an interest subordinate to that of the chattel mortgage. The debenture holder would only have rights in the advanced Widget press to the extent that the proceeds of sale of the advanced Widget press exceeded the amount owing to the chattel mortgagee. An action by the chattel mortgagee would succeed in damages to the extent that the receiver would be obligated to make restitution to the chattel mortgagee in the amount of the debt owing. A surplus over the debt owing would be available to the receiver for application to other debts owing. Based on: CIBC v. Westwards Tarts Services Limited, [1985] 1 W.W.R. 160.
Version 1
19
45) Tim has a cause of action for recovery of his snowmobile. While he, under other circumstances, should have investigated the status of the snowmobile in the registry system, he was entitled to rely on the fact that Seabreeze offered these snowmobiles for sale free and clear of any encumbrance. This is due to the fact that Seabreeze engaged themselves in the trade of outdoor goods of the nature of snowmobiles, and Tim was entitled therefore to rely on their engagement in this trade as his assurance that he was purchasing a snowmobile clear of encumbrances. In this case, even though registration is notice to the public, Tim is a bona fide purchaser for value without notice, and is entitled to recover the snowmobile. Tim perhaps should have been on his guard in the sense that the snowmobiles which were being offered for sale were described as used and perhaps should have investigated as to the existence of encumbrances, and certainly had this sale been made by someone other than a party engaged in the retail trade of such items, the responsibility to search for encumbrances would have been entirely Tim's. In this case, Empire will have to rank among the creditors of Seabreeze and hope that there are sufficient assets to cover the debts that are owed to it. It may not recover as against Tim and must return the snowmobile.
Version 1
20
46) The payment made on November 14 was for $60,000 and therefore (depending on the province) should have been subject to a 10% holdback. Therefore, Anderson should have been paid $54,000 on November 14th, and the hold-back fund in the hands of McBryde would total $6,000. The claims by suppliers total $72,200, far in excess of the holdback fund. As a result, on December 13th McBryde should pay the holdback monies over to the Court and seek an order vacating the liens from the title to the property. The suppliers would then have to bring suit against Anderson alone. If McBryde did not do the "right thing" and hold back on the project payment, she will be liable in the full amount to the lien claimants. She will have to pay them out, or see her property placed for sale to satisfy the amounts claimed. Of course, she will have rights over against Anderson, but she will not likely collect on any judgment she obtains.
Version 1
21
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Ratner's Service Centre must have committed an act of bankruptcy within the preceding six months and owe its creditors at least $1,000 before the creditors may take bankruptcy proceedings against it. ⊚ ⊚
true false
2) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Ratner's Service Centre may make a voluntary assignment in bankruptcy, if it is insolvent. ⊚ ⊚
true false
3) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. On default, the first and second mortgagees may realize on the security of the land and building, rather than claim as creditors in the bankruptcy proceedings. ⊚ ⊚
Version 1
true false
1
4) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. If the first and second mortgagees so desire, they may surrender their security to the trustee, and claim as unsecured creditors in the bankruptcy. ⊚ ⊚
true false
5) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. If the mortgagees dispose of the land and building, and the proceeds are sufficient to pay the first mortgage in full, and one half of the second, the second mortgagee may claim for the balance in the bankruptcy as an unsecured creditor. ⊚ ⊚
true false
6) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. The employees of the company are treated in the same manner as the trade creditors for the payment of the entire amount of their wage claims. ⊚ ⊚
true false
7) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Under the Bankruptcy and Insolvency Act, employees have first priority claims against the assets of the bankrupt firm.
Version 1
2
⊚ ⊚
true false
8) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Municipal taxes take priority over trade creditors in the distribution of the assets of the bankrupt firm. ⊚ ⊚
true false
9) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Expenses of the trustee take priority over municipal taxes in the distribution of assets of the bankrupt firm. ⊚ ⊚
true false
10) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Any funds remaining after the claims of the employees, the trustee, and the municipality, would be distributed to the trade creditors. ⊚ ⊚
Version 1
true false
3
11) Ratner's Service Centre encountered financial setbacks over a period of time, and eventually found itself insolvent. Among its creditors were the first and second mortgagees of the land and building which Ratner's owned, trade creditors, employees who had not been paid wages, and the municipality, for arrears of property taxes. Ratner's decides not to make a proposal to its creditors. Trade Creditors share pro rata on the basis of "cents on the dollar" of their claims. ⊚ ⊚
12)
true false
A corporation becomes a legal bankrupt when its total liabilities exceed total assets. ⊚ ⊚
true false
13) Where debts exceed $1,000 an insolvent person is, upon petition of creditors, a bankrupt person. ⊚ ⊚
true false
14) George's sole proprietorship is nearing insolvency rapidly. He goes to New York for six months to solicit funds for a bailout. His worried creditors petition his bankruptcy. They will fail. ⊚ ⊚
true false
15) A proposal to creditors, if rejected by them, creates automatically a bankrupt in the proposer-debtor. ⊚ ⊚
true false
16) Once a person is petitioned into bankruptcy, a personal balance sheet at that moment would show zero assets.
Version 1
4
⊚ ⊚
17)
true false
An inspector is agent for the bankrupt, overseeing the dealings of the trustee. ⊚ ⊚
true false
18) If on bankruptcy the bankrupt's cash account rests at zero, even secured creditors will receive nothing. ⊚ ⊚
true false
19) When an asset subject to a security interest fails to satisfy the debt owing to that creditor that creditor ranks as a preferred creditor to the balance of the estate. ⊚ ⊚
true false
20) In the absence of fraud, a bankrupt with an estate of $62,000 and general debts of $107,000 is as liable to receive a discharge as a bankrupt with an estate of $27,000 and general debts of $7,000. ⊚ ⊚
true false
21) Consider this estate: Assets of $135,000, which includes a boat valued at $38,000 subject to a security interest of $60,000. The government is owed tax arrears of $7,000, and Smith an unsecured creditor is owed $120,000. Smith will receive $90,000. ⊚ ⊚
true false
22) No claim against the remaining assets of a bankrupt person is stronger than that of the Crown.
Version 1
5
⊚ ⊚
true false
23) Under the Bankruptcy and Insolvency Act, a person in financial difficulty has three distinct routes upon which a start toward a resolution of their problems can commence; two of them are voluntary, and one is involuntary. ⊚ ⊚
true false
24) Any Canadian corporation with outstanding issues of bonds may avail itself of the Companies' Creditors Arrangement Act, rather than make an assignment in bankruptcy under the Bankruptcy and Insolvency Act. ⊚ ⊚
true false
25) Where a formal proposal made by a debtor is rejected by his or her unsecured creditors, the debtor is deemed to be insolvent. ⊚ ⊚
true false
26) Where a formal proposal made by a debtor is rejected by his or her unsecured creditors, the debtor is deemed to have made an assignment in bankruptcy. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 27) The assets of a bankrupt are administered by the __________, whose actions are reviewed by the __________.
Version 1
6
A) B) C) D) E)
28)
superintendent in bankruptcy; inspectors trustee; creditors liquidator; trustee trustee; inspectors superintendent in bankruptcy; creditors
The following is a/are bankruptcy offences under the Bankruptcy and Insolvency Act:
A) B) C) D) E)
failure to attend an examination pursuant to the Personal Property Security Act. fraudulent concealment of any property. knowingly making a material omission in a statement. permitting an execution to remain in place 14 days after demand for payment. all of these are offences.
29) A bankrupt tour operator has assets of $485,000, made up of a boat worth $400,000, and prepaid docking rights worth $85,000. Claims include a security interest by a bank for $425,000 in the boat, $25,000 in unpaid taxes, and $25,000 owed to each of two general creditors. Each general creditor will receive
A) B) C) D) E)
$17,500. $20,000. $20,000, with $20,000 to taxes. $21,250. $21,250, with $21,250 to taxes.
30) A married couple, with $25,000 in debts owed to each of five general creditors, plus $15,000 owed to a conditional sale vendor for home furnishings, sold their $100,000 home to the wife's parents for $50,000 and moved to an apartment. Thereafter they made a voluntary assignment, indicating remaining assets of the $50,000 cash and $15,000 in furnishings. Each general creditor will receive
Version 1
7
A) B) C) D) E)
31)
$10,000. $11,608. $20,000. $20,535. None of the amounts are correct.
Which of the following are true?
A) A receiving order, or a voluntary assignment will create a bankruptcy. B) A bankrupt can be fined for his actions leading to bankruptcy, and a "proposal" can stave off bankruptcy. C) Bankruptcy is a federal matter, and inspectors are appointed by creditors. D) Bankruptcy is a federal matter, and inspectors are appointed by creditors and a receiving order or a voluntary assignment will create a bankruptcy. E) All of the responses are true.
32)
In the case of a deceased bankrupt who has the following creditors:
1. amunicipality for municipal taxes for the past year; 2. trustee's fees; 3. Income Tax owing; 4. wages of $2,000 owed to an employee; 5. a month's rent; The priority of payment would be in the following order, from highest to lowest, left to right:
A) B) C) D) E)
Version 1
3, 2, 1, 4, 5. 3, 1, 2, 4, 5. 3, 1, 2, 5, 4. 3, 4, 2, 1, 5. 2, 3, 1, 4, 5.
8
33) An unpaid supplier of goods who is an unsecured creditor, but can identify the goods supplied out of the inventory of a commercial bankrupt is entitled to reclaim the goods if the supply was made
A) B) C) D) E)
34)
within the 15 days preceding the bankruptcy. within the 30 days preceding the bankruptcy. within the 45 days preceding the bankruptcy. within the 60 days preceding the bankruptcy. within the 90 days preceding the bankruptcy.
Where a bank becomes bankrupt, its dissolution will be governed by
A) B) C) D) E)
the Bankruptcy and Insolvency Act. the Companies' Creditors Arrangement Act. the Winding Up Act. provincial legislation. None of the responses are correct.
35) Where a consumer debtor has debts less than __________, excluding those secured by the person's principal residence, he or she may use the summary administration procedures of the Bankruptcy and Insolvency Act.
A) B) C) D) E)
$100,000 $50,000 $200,000 $150,000 $250,000
36) Where an act of bankruptcy has occurred under the Bankruptcy and Insolvency Act, __________ may file a petition for a receiving order.
Version 1
9
A) B) C) D) E)
37)
any creditor any secured creditor any creditor owed in excess of $100 the debtor any creditor or the debtor
The word "bankrupt" has an interesting derivation.
A) It is derived from the Latin words meaning "no money." B) It is derived from the Roman tradition of jousting between debtors and creditors. C) It is derived from the Norwegian words meaning "no money." D) It is derived from the Italian words meaning "broken bench." E) None of the answers are correct.
38)
When does insolvency occur at law?
A) B) C) D) E)
39)
What is the primary focus of modern bankruptcy legislation?
A) B) C) D) E)
40)
When cash flow is insufficient to pay one's current liabilities. When total liabilities exceed total assets. When a debtor is unable to pay debts as they become due. When expenses exceed revenues. When liabilities exceed revenues.
Orderly repayment of debts. Repayment of debts to unsecured creditors. Allowing the debtor to avoid full liability for debts incurred. Repayment of debts to statutory and secured creditors. None of the responses are correct.
The Companies Creditors Arrangement Act applies to the following entities:
Version 1
10
A) B) C) D) E)
insolvent corporations. insolvent corporations with equity investors. insolvent corporations with bondholders. insolvent public corporations with equity investors. insolvent public corporations with bondholders.
41) The U.S. Bankruptcy Code Chapter __________ is similar to the Canadian __________ and the U.S. Bankruptcy Code Chapter __________ is similar to the Canadian __________.
A) B) C) D) E)
7; Bankruptcy Act; 11; Insolvency Act 11; Bankruptcy Act; 7; Insolvency Act 7; Companies' Creditors Arrangement Act; 11; Bankruptcy and Insolvency Act 11; Companies' Creditors Arrangement Act; 7; Bankruptcy and Insolvency Act None of the responses are correct.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 42) "The existence and degree of development of bankruptcy proceedings can be taken as a reasonably accurate measure of the development of a market economy." Discuss this statement, treating the significance to an economic system of having bankruptcy proceedings, the question of priorities, and presence of criminal sanctions.
43) You move to a large, expensive city to take up new employment following graduation. After two years, in reconciling your debts, you find that this new lifestyle with its expenses, and perhaps some inattention on your part, has left you in debt well beyond your means. All new sources of cash have been exhausted (family, friends, etc.). Describe your next series of moves.
Version 1
11
44) The Bankruptcy and Insolvency Act provides for the stay of all proceedings and executions against an individual upon bankruptcy, or the acceptance of a proposal. Discuss the rationale and effect of this provision.
45) Consider the following quotation: "The Bankruptcy and Insolvency Act just gives people a free ride. People can run up debts and then walk away from them, letting their creditors take the fall. That's not right. In the "good old days," "Debtor's Prison" took care of people with that kind of irresponsible attitude." What aspects of the philosophy are behind the Bankruptcy and Insolvency Act, and what provisions of the Act would you bring to this person's attention?
Version 1
12
46) A courier operation, Sampson Couriers Ltd., made an arrangement with Allplaces Airlines. Allplaces Airlines would look after transporting all of Sampson Courier packages from Toronto and other major Canadian cities. For this service, Allplaces Airlines would bill them the sum of $15,000 a month. This arrangement continued on for approximately two years, with Sampson Couriers making their payments within the stipulated time period, or within a few days after it fell due. Allplaces Airlines took this in stride. However, when two successive months went by without receiving a payment, the president of Allplaces telephoned his counterpart at Sampson, and demanded payment within a week. The president of Sampson told him he didn't think it would be possible to pay within a week. After the week had expired, Allplaces filed a claim against Sampson which went undefended. Allplaces attempted to realize on its judgment and sent the sheriff to Sampson's premises. However, as Sampson's is primarily a service firm there was nothing to seize of sufficient value to satisfy the debt. Allplaces petitioned the bankruptcy of Sampson. Discuss the implication of these actions, and the likely disposition of the petition.
47) Acme Co. purchased a new building for $85,000. To do so, it borrowed $45,000 from Shapiro Ltd. and gave Shapiro Ltd. a first mortgage on the building. Acme also borrowed $40,000 from Basco Ltd. and gave Basco Ltd. a second mortgage. Both mortgages were duly registered. Acme later goes into bankruptcy. Below is Acme's most recent Balance Sheet. Assets
Liabilities
Building
$60,000 Shapiro Ltd.
$40,000
Machinery
10,000 Basco Ltd.
28,000
Office Equipment
6,000 Johnson Ltd.
22,000
Office Supplies
4,000 Smith Ltd.
10,000
Total Assets
$80,000 Total Liabilities
$100,000
Assuming these figures represent fair market value, indicate the extent to which, according to the Bankruptcy and Insolvency Act, that each of the parties will receive with respect to the outstanding debts owed to them by Acme Co. Version 1
13
Version 1
14
Answer Key Test name: Chapter 30 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) FALSE 26) TRUE Version 1
15
27) D 28) B 29) B 30) C 31) E 32) D 33) B 34) E 35) E 36) A 37) D 38) C 39) E 40) C 41) D
Version 1
16
42) Students should recognize in the first place that a system of bankruptcy is a hallmark of a market economy. In a tribal economy based on barter, credit is not likely; therefore, the driving force of bankruptcy, liabilities exceeding assets, is also not likely. In a pure Marxist economy, assumed to be one of state ownership of property, there are no private ownership rights to be enforced, and any deficit incurred by an enterprise is financed by the surpluses of others, or the state generally in terms of national debt. The need for bankruptcy proceedings arises with credit and the significant granting of private property rights, which are most quickly associated with market economies. The sophistication of the system for prioritizing of debt tends to mirror the sophistication of the economic system with respect to financing instruments. The more varied and developed the debt and equity instruments available to individuals and corporations, the more developed any proceedings will have to be in order to accommodate the original bargains and the pricing of these instruments on default of the obligations they represent. Finally the presence of criminal sanctions is one of the most significant indications of development. It is the recognition of the possible devices and abuses of the system, and that the system itself is so integral to the proper operation of the economy that society as a whole must take steps to ensure confidence in its operation.
Version 1
17
43) Students should recognize that attempts to avoid debts can result in criminal sanction, and very few attempts to shelter assets from administration by a trustee will be successful. The Act has significant provisions for one's state of mind in doing an act, and where that is insufficient to place assets back in the hands of the trustee, there are substantial deeming provisions. This being the case, the more preferred action is one of a proposal to one's creditors. If matters are left too long, a creditor will petition bankruptcy, with its social stigma, and long-term damage to one's future access to credit facilities. The major advantage to a proposal is that bankruptcy never occurs unless the proposal is either rejected by the creditors, or its terms go unfulfilled. For that reason, care should be taken in its preparation. It must be reasonable to the creditors, for the debtor usually only gets one chance, and it must be within the debtor's budget so that it will not go into default. There usually must be alterations to the debtor's budget and expectations, and refinancing might be possible if a willing lender can be found. A usual further recommendation would be for the debtor to obtain advice on personal financial management, so that the problem will not be exacerbated or repeated in the future.
Version 1
18
44) The stay of executions and proceedings is an important component in the operation of the system as it allows the debtor some breathing room to sort out his affairs, particularly allowing him to do so without harassment by his creditors. By freezing actions, a chance of one creditor gaining a preference over other members of the same class, or other classes, by continuing an action or harassment is greatly reduced. Likewise, if a creditor holds a particular threat over the bankrupt, such as threatening his employment or damaging his future credit, the fact that in tandem, proceedings are stayed and both bankrupt and creditor are equally liable should they be party to a preference, results in the underpinnings of these threats being removed. 45) The intention of the Act is to relieve honest but unfortunate debtors from the burden of their debts, so that they may start anew. It does not allow the bold but unscrupulous debtor to walk away from the weight of debt without also losing all the assets he or she may have. If the debtor has secreted away assets for later enjoyment, there are enforcement and investigative powers to find and return the assets to the creditors. Such acts are punishable, as is other conduct prejudicial to creditors past or present. While unlike its Victorian counterpart, there is still "debtor's prison," in that persons who commit fraud or other offences under the Act can find themselves with a jail sentence and/or a fine.
Version 1
19
46) This case examines the circumstances which could give rise to a valid petition in bankruptcy. In this case there is no written admission of inability to pay debts, nor is there a notice to creditors that Sampson is suspending or is about to suspend payment of its debts. The fact that the Sheriff returned a writ without seizure should not be taken as an indication that there are not assets existing elsewhere. On this basis the only chance for success of the petition is for Allplaces to assert that Sampson is not paying its debts or liabilities as they become due. There is, however, neither direct evidence concerning the present state of the debts owing to Sampson's creditors nor any other evidence called by Allplaces with respect to other debts. In this case, the creditors are attempting to use the bankruptcy process as a collection agency, which is an abuse of process.Based on: Re Arrive Car and Truck Rentals Limited (1989), 76 C.B.R. (N.S.) 68 (Ont.S.C.). 47) The first $40,000 of the building, (balance sheet valuation: $60,000) will go to Shapiro Ltd. as first mortgagee. The residual value of the building ($20,000) will go to Basco Ltd., a second mortgagee, leaving $8,000 owed to Basco Ltd. for which it must rank amongst the unsecured creditors. In all, unsecured creditors are therefore owed $40,000, and the remaining assets are $20,000. The parties will therefore receive 50 cents on the dollar for those remaining unsecured debts. To reconcile, Shapiro Ltd. will be paid $40,000, Basco Ltd. will receive $20,000 plus $4,000, Johnson Ltd. will receive $11,000, and Smith Ltd. will receive $5,000.
Version 1
20
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. Assuming that the fire completely destroyed the building, Henderson would only be entitled to claim for $10,000 under his insurance policy. ⊚ ⊚
true false
2) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. Under the co-insurance clause, the insurer would only be required to pay 80% of the face amount of the policy (i.e.: $8,000) if the building was totally destroyed by fire. ⊚ ⊚
true false
3) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. If the fire damage was $8,000, the insurer would only be obliged to pay $5,000 of the claim. ⊚ ⊚
true false
4) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. If the fire damage was $8,000, the insurer would only be obliged to pay one half of the loss, because Henderson had insured the building for half of its value. ⊚ ⊚
Version 1
true false
1
5) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. Under a co-insurance clause, the insured becomes a partial insurer if he fails to maintain the required amount of insurance on the insured property. ⊚ ⊚
true false
6) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. Henderson's failure to disclose the true value of the property to the insurer is misrepresentation and would allow the insurer to avoid paying anything to Henderson when the loss occurred. ⊚ ⊚
true false
7) Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. A fire insurance policy is a contract of utmost good faith. ⊚ ⊚
true false
8) Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500 and dismantled it. Andre's actions in this case would constitute a fraud on the insurer if he claimed that the automobile had been stolen. ⊚ ⊚
Version 1
true false
2
9) Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500 and dismantled it. If the insurer, unaware of the fraud, paid Andre for the claimed loss of his automobile, the insurer is entitled to a transfer of the title to the vehicle. ⊚ ⊚
true false
10) Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500 and dismantled it. If the loss is paid by the insurer, and the insurer later becomes aware of the fraud, the insurer may recover the money paid to Andre. ⊚ ⊚
true false
11) Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500 and dismantled it. The insurer may claim the parts of Andre's automobile if it later discovers that the parts are in the possession of Andre's friend. ⊚ ⊚
true false
12) Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Tom cannot collect the proceeds of the insurance policy on Leanne's life because Tom was responsible for Leanne's death. ⊚ ⊚
Version 1
true false
3
13) Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Rahini may collect the proceeds of the insurance policy she held on Leanne's life because she was the named beneficiary. ⊚ ⊚
true false
14) Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Neither Tom nor Rahini may recover the proceeds of the insurance policies they carried on Leanne because, as partners, Rahini would also be liable for the act of Tom. ⊚ ⊚
true false
15) Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Neither Tom nor Rahini had an insurable interest in Leanne's life. ⊚ ⊚
true false
16) A building worth $200,000 sustains $10,000 in damage. It was covered by a $120,000 policy with an 80% co-insurance clause. The indemnity paid by the insurer will be $7,500. ⊚ ⊚
true false
17) A pecuniary interest in property of another is insufficient to create an insurable interest in that property.
Version 1
4
⊚ ⊚
true false
18) George, a former intravenous drug user, was worried about his future health. To him it was easier to live in doubt as to whether he had contracted the AIDS virus than face the fact if the test was positive, so he never obtained a blood test. He applied for life insurance and answered the general questions truthfully, adding the phrase "as far as I know." Should his past later come to light, the insurance company could refuse to honour the policy. ⊚ ⊚
true false
19) The chief difference in law between insurance contracts and wagering is that one cannot make a profit from having insurance. ⊚ ⊚
true false
20) Where an insurer pays indemnity to an insured, the insurer could have a right of salvage and will have a right of subrogation if a third party caused the damage. ⊚ ⊚
true false
21) Where an insured places coverage with three different brokers, each broker will have to contribute to a loss, but the total paid to the insured may not exceed the loss itself. ⊚ ⊚
true false
22) Where a building, insured against fire, burns due to a source of fire totally unforeseen by the insured and the insurer, no obligation to indemnify rests upon the insurer. ⊚ ⊚
Version 1
true false
5
23) Liability insurance is designed to compensate for losses experienced by an individual through the negligence of another. ⊚ ⊚
true false
24) The main principle of law in the case Fine's Flowers Ltd. et al. v. General Accident Assurance of Canada et al. (1974), 81 D.L.R. (3d) 139 is that an insured may sue an insurance agent if the agent fails to include requested coverage in a policy and subsequent loss occurs. ⊚ ⊚
true false
25) Through the principle of co-insurance, the insured may in fact become his or her own insurer. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) The contract of insurance is
A) B) C) D) E)
27)
not subject to the general laws of contract and the common law. substantially the same as a wagering agreement. treated as a contract of utmost good faith. None of the responses are correct. All of the responses are correct.
In every insurance contract
Version 1
6
A) B) C) D) E)
28)
The doctrine of subrogation
A) B) C) D)
29)
protects the insured against double recovery. entitles the insured to sue third parties. arises where loss is caused to the insured by a third person. All of the responses are correct.
An insurer's liability is limited by
A) B) C) D) E)
30)
there is an endorsement. an insurable interest must be present. the insured pays the premiums. there is an endorsement and an insurable interest must be present. All of the responses are correct.
the doctrine of subrogation. contribution. the doctrine of utmost good faith. B and C. All of the responses are correct.
The insurance agent
A) B) contract. C) D)
Version 1
acts for the insured. is responsible to ensure that the insurer meets its obligations under the insurance may be liable where an insured suffers a loss due to insurance coverage. All of the responses are correct.
7
31) Monique, a sculptor, insured one of her pieces she was displaying at an art show. On the first day of the show she sold the piece for $1,000 cash to Brown, who agreed to leave it on display until the show's completion in five days. That night the piece was stolen.
A) B) C) D) E)
Monique may claim her loss from the insurance company. Brown may claim the loss under the insurance policy. Monique may claim the loss under the insurance policy on Brown's behalf. Neither Monique nor Brown may recover under the insurance policy. None of the responses are correct.
32) Martin was injured in a fall while visiting Adam's home when Adam negligently failed to clear snow and ice from his walkway. Both Martin and Adam carry liability coverage.
A) Adam may claim under his policy for amounts he will have to pay to Martin to compensate for his injuries. B) Martin may claim indemnity for loss due to his injuries under his own policy of insurance. C) Martin's insurer may take legal action against Adam for damages on Martin's behalf. D) Martin's insurance premiums are likely to rise. E) None of the responses are correct.
33)
An insurable interest
A) generally must exist both at the time the contract of insurance is made and when the event, resulting in a loss, occurs. B) may be shown by a creditor. C) is anything that benefits the insured by its continued existence which, if changed, would represent a loss. D) may arise from a security interest in property. E) All of the responses are correct.
Version 1
8
34) Giant Motor Car Co. is in the business of automobile manufacturing and parts assembly. It uses a Just-In-Time inventory system, which greatly reduces inventory costs. The only difficulty, however, is that it leaves Giant somewhat vulnerable to supply stoppages. Giant has only 48 hours of raw materials inventory at any given time.
A) B) C) D)
Giant has an insurable interest in maintaining inventory supply. Giant could obtain insurance against a strike at the plant of a parts supplier. Giant could obtain life insurance for its inventory scheduler. All of the responses are correct.
35) Where two or more insurers properly pay out funds against a loss to an insured, it is as a result of
A) B) C) D) E)
36)
subrogation. contribution. co-insurance. endorsements. None of the responses are correct.
Is a disability insurance policy a contract?
A) B) C) D) E)
Yes. No, there is no mutual consideration No, there is no capacity by the insured once the disability results. No, it is a contract of wager, which is illegal. Yes, unless the beneficiaries are minors.
37) Franco loaned $1 million to Rocco. At the time the loan was made Franco purchased $1 million life insurance on Rocco's life. Rocco repaid the debt then died. Can Franco collect on the life insurance policy?
Version 1
9
A) B) C) D) E)
Yes, Franco had an insurable interest at the time the policy was purchased. No, Franco did not ever have an insurable interest in Rocco's life. No, Franco did not have an insurable interest in Rocco's life at the time of his death. Yes, an insurable interest will exist if Rocco is Franco's father. Yes, unless Rocco committed suicide.
38) What is the legal test for determining whether an insured had an obligation to disclose a particular fact to the insurer?
A) Whether withholding the information breached the doctrine of utmost good faith. B) Whether withholding the information breached the insurable interest. C) Whether withholding the information constituted a breach of the insurance policy. D) Whether withholding the information would have influenced the insurer's decision to decline the risk or stipulate a higher premium. E) None of the responses are correct.
39) Eugene's car is rear-ended by Larissa's car. Eugene's car is totalled. Eugene's insurance company compensates him for all damages arising from the accident. What right does Eugene's insurance company have to sue Larissa for negligence?
A) B) C) D) E)
Salvage Subrogation Contribution Co-insurance Indemnity
40) Eugene's car is rear-ended by Larissa's car. Eugene's car is totalled. Eugene's insurance company compensates him for all damages arising from the accident. What right does Eugene's insurance company have to his car?
Version 1
10
A) B) C) D) E)
Salvage Subrogation Contribution Co-insurance Indemnity
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 41) Discuss the role of the insurance agent in light of the unique contractual aspects of the insurance relationship and the principles of agency in general.
42) The nature of insurance is to provide indemnity for loss rather than to profit from loss. Explain how the structure of the insurance relationship prevents profiting from insurance claims.
43) The particulars of the insurable interest in a contract of insurance are very important to the insurer in determining how to evaluate the risk of an application. How does an insurer assess the risk it is undertaking and what are the consequences of an incorrect assessment however caused?
Version 1
11
44) Enumerate the various types of insurance available and describe how the general principles of insurance law apply in each case.
45) Alphonse owns property worth $250,000 and carries $150,000 of insurance subject to an 80% co-insurance clause. Given a $20,000 loss to the property, calculate the indemnity to be paid by the insurer, and explain the significance of the co-insurance clause as it affects Alphonse.
46) C. Hook purchased a six-metre houseboat. He insured the boat against all risks in the amount of $50,000 under his home ownership policy. A special condition was attached to the policy respecting the boat: SPECIAL CONDITION: Navigation limits: warranted that the named houseboat will be used only in the navigable waters of the provinces of Ontario and Quebec including the Great Lakes. During summer holidays, Hook takes his family on a boat excursion through the river and lock system to the St. Lawrence River and the Thousand Islands. Their trip took them to a few ports of call in upstate New York. When the summer is over Hook prepares the boat for winter storage. In the process of removing the boat from the water a cable breaks and the boat is dropped six metres to the ground. The boat is severely damaged. The adjuster's report notes the earlier summer excursion into U.S. waters. a. What arguments would be made by the insurance company regarding this claim and how may they be substantiated? b. The insurance company derives liability on the policy citing the above condition. You are retained by Mr. Hook to outline his arguments to the court. c. What right(s) does the insurance company have should it pay the claim?
Version 1
12
47) The enterprising editor of a daily newspaper has decided to run a legal column in which local lawyers respond to questions mailed in by readers. One reader submitted the following question: "I'm thinking of buying a resort on Dog Island. There is no bridge to the island, but regular ferry service is provided. Ninety percent of the resort customers get to the island by ferry. If that ferry ever sank, I would be sunk! Can I insure the ferry? If I can, how much would I be able to insure it for? Would I be able to collect enough to set up my own ferry? If not, what should I do?" If you were the lawyer responding to this question what issues would you raise?
48) Malcolm obtained a mortgage from the Big Bank on a building that he owned. The loan agreement with the Bank required him to obtain insurance to protect the Bank's interest in the event of fire. Malcolm then obtained a policy of insurance, which named him as the owner and the Bank as mortgagee. Loss was payable to the Bank first to the extent of its loan and the remainder of the insured value to Malcolm. A standard clause in the policy stated that the policy would remain in force even in the event of misrepresentation of the insured. After the building was destroyed by fire the insurance company refused to pay the Bank or Malcolm. The refusal was based on what the insurance company believed was a false appraisal of the building's worth at the time the policy was taken out. It felt that the overstated value of the property resulted in the insured value having been set too high, which would result in a financial gain for Malcolm from the fire. Because it held that the amount of the insurance coverage was obtained by false statements, the insurance company maintained that the contract of insurance was void ab initio and it was not required to indemnify any of the loss payees. The Bank decided to take legal action against the insurance company. Discuss the legal issues that will be raised by the parties and indicate how the situation is likely to be resolved.
Version 1
13
Version 1
14
Answer Key Test name: Chapter 31 Test Bank 1) TRUE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) TRUE 22) FALSE 23) FALSE 24) TRUE 25) TRUE 26) C Version 1
15
27) B 28) C 29) E 30) C 31) D 32) A 33) E 34) D 35) B 36) A 37) A 38) D 39) B 40) A
Version 1
16
41) Role of Insurance Agent: - agents of insurer, not insured - most rules of agency apply, including the duty of agent to maintain communication with and inform its principal, the insurer, of any significant developments, information or requirements in negotiations with an insured - notice to an agent is notice to the insurer of specific needs of the insured and in the making of claims - agents are expected to perform their duties for the insurer by using the special skill or competence they possess, in particular to know or find out the risks when he insures them, know what his insurer is providing, discover areas that may give rise to disputes and then make appropriate arrangements - the insurer is entitled to rely on the special skills of the agent in this regard and the agent may be liable to the insurer if its failure results in loss to the insurer - agent is authorized to receive funds for the insurer in the form of premiums and has a duty to account for and remit the money
Version 1
17
42) Indemnity for Loss: - main concept is to place the insured in the same position he or she was in before the event which caused the loss - three rights unique to insurance protect the insurer from overpaying an insured's loss: (i) Salvage - payment by the insurer of a claim for stolen or damaged goods gives the insurer the right to title of the goods - the goods become the goods of the insurer on payment of the claim and it may then dispose of the remains of the goods to reduce its loss in the case of damaged goods or sell stolen goods which have been recovered (ii) Subrogation - where an insured suffers loss due to the actionable negligence or deliberate act of another, the insurer upon payment of claim to the insured obtains the right to benefit from the insured's right of action against that party for compensation for the loss - insurers may also protect against an insured inadequately insuring its risks by including a term in the policy requiring the insured to be a coinsurer in the event of a partial loss - the insurer specifies a minimum amount of coverage the insured must maintain based on the value of the property - if the insured fails to maintain that amount and a partial loss is suffered, the insured will have to bear some of that loss (iii) Contribution - even if the insured has insured the same risk with several insurers, he may only collect sums from all insurers which together total the amount of his loss
Version 1
18
43) Insurer's Assessment of Risk: - contract is one of utmost good faith - requires full disclosure by the applicant of all material facts which might affect the assessment of the risk by the insurer - since the applicant is in possession of all the facts and information relevant to the risk there is a strong onus on him or her to disclose all such material information - the receipt of such information is crucial to the insurer's decision whether to accept the risk and, if so, how much to charge for accepting it - at common law, non-disclosure or misrepresentation would entitle the insurer to avoid liability under the claim - some provinces have modified the common law by statute such that non-disclosure or misrepresentation which is innocent may not relieve the insurer of liability if the policy has been in effect for a specified period of time before the loss occurs - rationale is that it is unfair for the insurer to refuse payment on the basis of information which the insured honestly believed to be true after receiving premiums for a period of time
Version 1
19
44) Types of Insurance: Fire Insurance - indemnifies for loss of any interest in property resulting from fire - any person with an interest in property may insure against fire with the result that there may be several insured parties and interests in one property - loss protection extends to consequential damages from fire (e.g., smoke, water, etc.) - only "hostile" and not "friendly" fires insured unless friendly turns hostile - no indemnity for willful attempts to set fire to insured property Life Insurance - insurable interest may be own life or that of another - payable on death of named person - differs from other insurance since based on a certain event occurring at uncertain time - person whose life is insured does not receive proceeds - highly regulated by legislation Sickness/Accident Insurance - protects against loss occurring to insured through sickness/accident - upper limit on sickness benefits below normal income level - accident benefits fixed as specific dollar amounts Liability/Negligence Insurance - indemnifies for loss due to negligence in work, profession, from
Version 1
20
operation of vehicle or at insured's premises - indemnifies for torts committed by insured rather than to insured - auto insurance has grown so large that it is treated separately by extensive legislation Business Insurance - insurance indemnification available for employee dishonesty, theft/loss of goods, business interruptions and shipping perils 45) In a situation of a co-insurance clause, the insured is obligated to maintain coverage to a minimum of a fixed percentage of the value of the property. In this case, Alphonse is required to maintain 80% coverage of the $250,000 value, or $200,000. He has failed to do so, perhaps as a result of an appreciation of the value of the property over time, maintaining a coverage of only $150,000. Consequently, he is not entitled to full coverage of his loss. He is entitled to a fraction based on the coverage he did maintain divided by the coverage he should have maintained, $150,000/$200,000, or 75%. Seventy-five percent of the $20,000 loss represents payment by the insurer in the amount of $15,000.
Version 1
21
46) a. The insurance company's arguments will be based on the special condition and on breach of contract. - the condition was an explicit term of the contract and was brought to Hook's attention - the condition must be upheld in order to obtain indemnification from (or performance by) the insurer as it is material to the risk - if the condition is breached the insurer may deny liability b. Hook's arguments will be based on the relevance of the condition to the loss - although the condition was breached the breach resulted in no loss - the loss which eventually occurred was independent of the condition and would have occurred whether the condition were breached or not - thus, the condition is immaterial to the loss and similarly a breach of the condition is immaterial to the loss in this instance and should not defeat the insurer's liability c. The insurance company may rely on its rights of salvage and subrogation if it pays the claim. - it may sell the damaged boat to reduce the loss it suffered by paying Hook's claim - the insurer would be entitled under the doctrine of subrogation to bring legal action against any party who would be liable to Hook for the damage i.e. the cable manufacturer or the marina and its employees if they were assisting at the time
Version 1
22
47) The main issue in this case is insurable interest. - to be able to insure the ferry he must be able to show this interest is present - the interest may be anything in which the insured has a financial interest, that on the occurrence of some event might result in a loss - the interest may arise out of a profession or activity, to protect income or assets - in this case, the letter writer has a financial interest in the ferry, albeit indirect, as it is the only method to transport guests to the resort - if some event caused the ferry to be destroyed or stop running, guests could no longer access the resort, resulting in financial loss to the owner - provided that the insured makes the nature of the risk known to the insurer and discloses all material facts known to him, the ferry can probably be insured in much the same way as key personnel can be insured by persons who have a pecuniary interest in them. - the amount of insurance payable if the ferry sinks would be the amount required to put the insured in the same position he was in before the sinking - since he cannot profit from his loss it would be only the actual amount of lost revenue resulting from reduced room rentals and sales of other items - if the resort owner were in any way connected with or responsible for the ferry's demise he would not be entitled to any claim 48) Answers will vary.
Version 1
23
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money-back guarantee. Because Cisco offered the goods on a 30-day money back trial, the goods need not perform as described in the advertisement. ⊚ ⊚
true false
2) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. Unless proper testing was done to substantiate the claim of 80 kilometres to a litre, a failure of the goods to perform as stated would constitute false or misleading advertising. ⊚ ⊚
true false
3) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. False or misleading advertising of goods is an offence under the Competition Act. ⊚ ⊚
Version 1
true false
1
4) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. If the advertisement was intended to read "8 kilometres to a litre" instead of the "80 kilometres to a litre," and Cisco immediately placed a correcting advertisement in the next issue of the magazine, he would not be in violation of the Competition Act. ⊚ ⊚
true false
5) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb". He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—2.5 gallons /60 miles of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. Cisco would not have violated the Competition Act, because his performance claim was made in a unit of measurement other than metric. ⊚ ⊚
true false
6) Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance—80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. For the Crown to successfully obtain a conviction against Cisco under the Competition Act, it must prove that the goods do not perform as claimed, and that Cisco was responsible for the misleading advertisement. ⊚ ⊚
true false
7) Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. The agreement between Buns Bakery and Peggy is an agreement in restraint of trade.
Version 1
2
⊚ ⊚
true false
8) Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. The agreement is lawful because any sale of goods for a price less than the price printed on the package would mean that Buns Bakery was falsely advertising the price of the product. ⊚ ⊚
true false
9) Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month.The agreement is an enforceable agreement between Buns Bakery and Peggy because Buns Bakery can show consideration in the form of the 5% discount for Peggy's promise to sell at a fixed price. ⊚ ⊚
true false
10) Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. Both Buns Bakery and Peggy's Grocery would appear to have acted in violation of the Competition Act by entering into their agreement. ⊚ ⊚
Version 1
true false
3
11) Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Stony Hardware was selling the wrenches as a "loss leader." ⊚ ⊚
true false
12) Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Budget Wrench Co. need not sell additional supplies of wrenches to Stony Hardware, because it was selling the wrenches as a loss leader. ⊚ ⊚
true false
13) Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Loss leader selling is an offence under the Competition Act. ⊚ ⊚
true false
14) Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Loss leader advertising constitutes misleading advertising under the Competition Act. ⊚ ⊚
Version 1
true false
4
15) A manufacturer says the following to a retailer: "Sell these goods at whatever price you desire, but should you sell for less than $50 we shall supply you no more." Such a statement is legal. ⊚ ⊚
16)
true false
Regulation of trade practices is a matter of provincial jurisdiction. ⊚ ⊚
true false
17) A Canadian firm with a highly desirable line of pharmaceutical products offers "all or nothing" to a distributor in Africa. The distributor covets one particular vaccine only but reluctantly takes the line of products in order to get the vaccine. The Canadian company has broken the law. ⊚ ⊚
true false
18) If a corporation attempts to fix base prices for its goods by setting up separate wholly owned corporations in each region to do the selling of those goods at a fixed price, the conspiracy of these corporations to do so with the parent may not be attacked under the Competition Act. ⊚ ⊚
true false
19) A breach of the Competition Act confined to one province is a matter to be heard before a District or County Court of that province. ⊚ ⊚
20)
true false
As a federal law, the Competition Act applies uniformly across Canada.
Version 1
5
⊚ ⊚
true false
21) The investigation of reviewable practices and rectification orders made pursuant to those investigations under the Competition Act are procedures in the area of criminal law. ⊚ ⊚
true false
22) Under the Competition Act, restrictive trade practices are prohibited in dealings between a firm and its competitors, as well as in dealings between a firm and its customers. ⊚ ⊚
true false
23) Chief among the aims of the Competition Act is to prohibit conspiracies in restraint of trade, and in their place, to promote combinations within trade. ⊚ ⊚
true false
24) An appeal from an order of the Competition Tribunal lies with the Federal Court of Appeal. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 25) The enforcement of the Competition Act
Version 1
6
A) is subject to proof on the balance of probabilities. B) requires investigation of any allegation of violation made by any private individual. C) permits entry by the Commissioner of Competition on the premises of any person who may have evidence related to an enquiry. D) empowers the Competition Tribunal to make rectification orders in investigations of restrictive trade practices. E) All of the responses are correct.
26)
Restrictive trade practices subject to the Competition Act
A) B) C) D) E)
relate to dealings between a firm and its competitors. may apply to services as well as goods. may include both private and public takeovers. are reviewable by the Competition Tribunal on a non-criminal basis. All of the responses are correct.
27) When Bubbles Brewery Inc. agreed with Suds Brewers Ltd. to produce and bottle their beer in identical long-necked, clear glass bottles, distinct from the brown bottles used by the rest of the brewing industry
A) both brewing companies may be subject to conviction under the Competition Act for lessening competition. B) both companies may be convicted only if it can be proven that their agreement would likely completely eliminate competition in their market. C) neither company could ever be convicted if it exports all its product. D) the Competition Act does not apply because this is an exempt activity. E) All of the responses are correct.
28)
Activities of sellers relating to the distribution and sale of products
Version 1
7
A) constitute offences if they include selling products at a lower price in one part of the country than in others. B) may include the provision by sellers of a non-obligatory suggested retail price for its products. C) may not include the refusal to supply goods to buyers who repeatedly sell them at cost. D) may discriminate among non-competing buyers. E) may discriminate among non-competing buyers and may include the provision by sellers of a non-obligatory suggested retail price for its products.
29) The Insecto Co. advertised on television its product, the "Fly-Bye," a sheet of sticky paper that attracted and then glued flies to its surface. The advertising claimed that the product would catch up to 100 flies per hour for six hours or the purchase price of $9.99 would be refunded.
A) The Insecto Co. must test at least 95% of its products for its claim to be valid. B) Insecto Co. may be prosecuted under the Competition Act if one local distributor were selling Fly-Byes for $10.99. C) If Insecto Co. were to sell Fly-Byes to hardware stores for resale it may continue to advertise and price the product at $9.99. D) A hardware store that advertises a two-day promotion on Fly-Byes for $5.99 must provide shoppers with a "rain cheque" if it mistakenly did not order enough goods. E) Insecto Co. may be prosecuted under the Competition Act if one local distributor were selling Fly-Byes for $10.99 and if a hardware store advertised a two-day promotion on FlyByes for $5.99.
30) Violations of provisions of the Competition Act may be addressed in which of the following ways?
Version 1
8
A) Injured parties may sue for damages suffered and, under the penalty provisions, may recover up to three times the amount of damages in some circumstances. B) When a reviewable activity has been confirmed, the Competition Tribunal may order its cessation or apply another legislated remedy. C) An activity will only be held to be a violation if it is shown that the particular activity has the effect or the established purpose of substantially lessening or eliminating competition in an area. D) Violations would not be subject to prosecution if they relate to goods sold by a monopoly at prices under the control of a government commission. E) All of the responses are correct.
31)
The Commissioner of Competition and Research
A) is appointed by the National Research Council to investigate appropriate research activities to receive government funding. B) must investigate any alleged violations of the Competition Act. C) is not required to obtain a search warrant prior to entering onto private property to search and seize evidence. D) presides over the Competition Tribunal and assigns work to its members. E) None of the responses are correct.
32) The Chartered Accountants Society, the governing body of chartered accountants, has set regulations to govern the activities of its members. Which of the following regulations do not violate the Competition Act?
A) Members may advertise only in the telephone yellow pages and in approved trade journals. B) A tariff of fees establishes minimum amounts to be charged to clients for specified services. C) Advertising may not discuss prices or offer any price discounts to the public. D) The Society may allow C.A.'s to agree as to the provision of certain specified services within a particular geographic area.
Version 1
9
33) Where a review indicates a business activity has been in restraint of competition, the Competition Tribunal will
A) B) C) D) E)
34)
issue a rectification order. issue a criminal indictment. issue a summary conviction. issue a pro tempore injunction. issue a forfeiture order.
Which of the following are NOT reviewable activities under the Competition Act?
A) B) C) D) E)
Promotional prize contests Double-ticketing Tied selling Price stabilization None of the examples are correct.
35) A municipality wishes to reconstruct eight kilometres of its roads. The four road contractors in the area secretly agree that only one contractor would bid (and would bid high) on the project, and later the successful bidder would divide up the work amongst them by subcontract, two kilometres each. This bid would constitute
A) B) C) D) E)
36)
double ticketing. conspiracy. a restrictive trade practice. bid-rigging. collusion.
Which type of law is the Competition Act?
Version 1
10
A) B) C) D) E)
Criminal law. Regulatory law. Civil law. Criminal and regulatory law. Criminal, regulatory and civil law.
37) What might be the ground for an action brought by United Parcel Service against Canada Post?
A) B) C) D) E)
Bid-rigging. Exclusive dealing. Misleading or false advertising. Abuse of dominant position. Specialization agreements.
38) What was the ground for the action against Sears Canada and its advertisements that stated "Save 45%. Our lowest price of the year on Touring ‘2000' tires"?
A) B) C) D) E)
Bid-rigging. Exclusive dealing. Misleading or false advertising. Abuse of dominant position. Specialization agreements.
39) Thane Direct Canada Inc. sold Abtronic muscle stimulation devices that claimed to result in weight loss and muscle toning. Thane had not done any research to validate these claims. Consumers reported the device was ineffective. What action could be brought under the Competition Act?
Version 1
11
A) B) C) D) E)
Bid-rigging. Exclusive dealing. Misleading or false advertising. Abuse of dominant position. Specialization agreements.
40) A provincial government wants to widen Highway 2. There are three road construction companies in the region qualified to bid on the project. The companies agree that only one company will bid and then the work will be divided amongst the three contractors. What is this an example of?
A) B) C) D) E)
Bid-rigging. Exclusive dealing. Misleading or false advertising. Abuse of dominant position. Specialization agreements.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 41) The trade practices restricted under the Competition Act have arisen as a reflection of values of our political and economic society. Discuss the reasons for the existence of regulation of various practices and raise any concerns you may have with regard to competition regulation.
42) Subsection 45(2) of the Competition Act enumerates certain activities which are exempt from the Act in certain circumstances. Describe these activities and indicate in which circumstances they do not violate the Act.
Version 1
12
43) Describe the scope and powers of the Competition Tribunal to enforce the provisions of the Competition Act.
44) The Competition Act provides the right to maintain a common law civil action in certain circumstances. Discuss how this may arise and the course such an action may take.
45)
Describe the operation of the reviewable activity "bait and switch."
Version 1
13
46) Country Haven Stables Ltd. was engaged in the business of boarding horses and providing horseback riding facilities and instruction. Lucy, the owner and operator of the stables, had built up her business over a number of years by acquiring horses and building facilities as she was able. The business had become quite successful and had grown to a considerable size. Lucy found her need for equestrian products growing as rapidly as her business. As a result, she contacted Fairbanks Saddlery Co., a manufacturer of saddles, harnesses and other related equipment as well as equestrian health care and grooming products. She inquired about supplying her stable needs and shortly thereafter a business arrangement with Fairbanks was entered into. Many of Lucy's customers expressed an interest in purchasing equestrian products and equipment at her stable for their own needs. As Lucy saw a potential business opportunity developing in the establishment of a retail outlet, she set up and promoted a retail shop on her premises, which she stocked with Fairbanks products. The products were then marked-up and sold to the public. Approximately thirty kilometres away from Lucy's stable was "Horse Habits," a large, well-established equestrian supply store that had been in operation for over 15 years. Horse Habits was also a customer of Fairbanks and, upon discovering Lucy's store, contacted Fairbanks to object to the establishment of another retail outlet selling Fairbanks products at lower prices. Shortly thereafter two representatives of Fairbanks made a visit to Lucy's shop. During the visit the parties had a friendly social conversation about the equestrian business and products in general. No mention was made of the complaint or of prices or Country Haven's pricing policy, nor did the Fairbanks representatives check any of the prices at which Lucy was selling items in her shop. However, immediately following their visit, the representatives wrote a letter to Country Haven advising that sales would be discontinued because of a Fairbanks company policy which stated that: "Fairbanks Saddlery does not sell direct to the consumer nor to riding schools, stables or blacksmiths, but only to legitimate retail outlets that carry sufficient inventory to service customers in their area." Lucy was not aware of this policy and maintained that it had never been brought to her attention previously, nor was it mentioned when the Fairbanks representatives visited Lucy's store. a. What issues does this fact situation present? b. What course of action may Lucy take, if any?
Version 1
14
47) Sunseeker Airlines Inc. offered weekly charter flights to several destinations in Florida. Its aircraft on the Miami route had a 250-seat capacity. From past experience Sunseeker knew that approximately 10% of passengers who booked seats would not show up, which meant it could reserve 275 passengers for the Miami flight. In late December it appeared that sales were not progressing well for the late January flights. The sales managers decided to have a seat sale in order to fill up the flights. Accordingly, advertisements were prepared and appeared in three major national newspapers on the first weekend in January offering the seat sale for the January 20th departure. The sale price offered was $149 rather than the regular fare of $219. Beatrice saw the seat-sale advertisement in the Sunday newspaper. Not realizing that the airline was open for booking on Sunday, she did not call until Monday morning. At that time, she was told by the booking agent that the January 20th flight was fully booked. Beatrice was offered a flight on the following Saturday departure, January 27, at $219. At the time of running the seat-sale advertisement Sunseeker had 3 actual seats available or 27 open reservations available considering the over sale factor. The newspaper advertisement cost over $12,000. Discuss the issues raised by these facts. What are the rights and obligations of the airline in undertaking marketing activities?
48) Meat Packers Inc. was a producer of beef and beef by-products that operated a facility outside a large city. The site of the production facility was scheduled to become part of a new six-lane highway. The facility had been expropriated for the highway and Meat Packers had to vacate the premises. It was unable to locate suitable alternative premises on short notice. Meat Packers, therefore, decided to acquire the business of a competitor and shipped all of its equipment to the newly acquired facility. The two companies merged their operations and carried on under the name of Meat Packers Inc. The meat packing industry was currently in a slump, the result of a decline in consumption of red meat. As a result, there was excess capacity throughout the market area. All of the major competitors were located within the same geographic area. All of these factors were keeping meat prices low. When the Commissioner of Competition received notice of the acquisition, he ordered that Meat Packers Inc. divest itself of the competitor's business pursuant to s. 45 of the Competition Act. Meat Packers wishes to oppose the order. Discuss the arguments it will raise in opposition and indicate how you think the situation would be resolved.
Version 1
15
Version 1
16
Answer Key Test name: Chapter 32 Test Bank 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) FALSE 16) FALSE 17) FALSE 18) FALSE 19) FALSE 20) TRUE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) C 26) E Version 1
17
27) D 28) E 29) E 30) E 31) E 32) A 33) A 34) D 35) D 36) E 37) D 38) C 39) C 40) A
Version 1
18
41) Reasons for Competition Regulation: - to prevent large monopolies from dominating markets to the detriment of consumers - in particular, active competition has a price-reducing effect that is lost if competition is eliminated, resulting in inflationary pressures on goods and services priced well above their intrinsic value - to prevent concentration of wealth in a few hands - to ensure that competing buyers, especially manufacturers, have relatively equal access to goods and services with respect to pricing - to protect buyers and prevent inducement to purchase goods and services which have been falsely represented with respect to quality or price Concerns Regarding Competition Regulation: Students are free to suggest any reasonable concerns based on their background and understanding of the issues, for example: - prevention of mergers may diminish potential economies of scale that could be beneficial to the public - difficulties associated with determining when trade practices actually become contrary to the public interest or have the effect of lessening competition to the detriment of the public - concerns that government scrutiny and review of certain trade practices may have a hidden political agenda rather than a truly legitimate concern of preserving competition - infringements upon freedom of speech and association
Version 1
19
42) Enumerated Activities Exempt from Competition Act under ss.45(2): - those trade practices listed under the heading "Conspiracies and Combinations in Restraint of Trade" in the text which deal with combinations, conspiracies or agreements between companies - those activities only remain exempt if their purpose is to enhance the products or processes of the parties involved and result in a net benefit to the public or at least maintain the status quo - if any such enumerated activities restricts or is likely to restrict persons from entering into the associated business or would lessen competition, the parties may then be subject to application of and possible conviction under the Act - also exempt under certain conditions are agreements in restraint of trade relating wholly to the export of products from Canada as long as the process of exportation is not being restricted, the setting of reasonably necessary standards by professional bodies and arrangements among affiliated companies in many cases unless some are foreign firms and the agreement is made in Canada
Version 1
20
43) Scope and Powers of Competition Tribunal: - proceedings are brought by Commissioner of Competition concerning "reviewable trade practices" - has power to deal with domestic and certain foreign and specialized matters - authority to issue rectification orders or establish procedures to restore competition in cases of reviewable trade practices and marketing activities - requirement after an inquiry has been made to hold a hearing to allow all affected parties to be heard - failure to comply with an order of the tribunal constitutes a criminal offence punishable as such - appeals from tribunal orders may be made to the Federal Court of Appeal 44) Parties have a right to maintain a civil action not only for restraint of trade activities not covered by the Act, but also for damage or injury arising out of a breach of the Act or the violation of an order of the Competition Tribunal by another party. The injured party, however, may claim damages only up to the amount of actual loss. The burden of proof changes to the civil standard based on the balance of probabilities. However, the plaintiff would be permitted to use as evidence the record of any criminal proceedings against the defendant provided that the civil case commences no more than two years after the conclusion of the criminal case. Some students may also discuss the issue of constitutionality regarding the Competition Act's ability as a federal statute to create a civil cause of action.
Version 1
21
45) "Bait and switch" operations usually involve a retailer who promotes a special sale wherein goods are advertised at a markedly low price, but where the retailer has taken no steps to have an adequate supply of the goods to meet the demand that the advertisement is likely to generate. Most often the retailer intends to advise that the item is sold out, and as the customer is now on the premises, promote a much higher priced substitute for which plenty of stock is on hand. The actions are illegal under the Competition Act, with the only defence being demonstrable good faith in expectations of demand, and actions to secure adequate supplies of the advertised product.
Version 1
22
46) Based on R. v. Griffith Saddlery & Leather Ltd. (1986), 14 C.P.R. (3d) 389. a. The case is meant to explore the issues of resale price maintenance and refusal to supply goods. If the seller can be shown to be in any way directly or indirectly attempting to influence the price at which its goods are resold it will be in violation of the Act. Here, the supplier is refusing to supply goods to the stable on the stated grounds that it sells only to legitimate retail outlets and not to end users. A close look at the facts, however, suggests that there may be other motives for the refusal to supply. The fact that the stated policy does not appear to have been brought to the attention of the buyer or previously enforced indicates that it may be meant to deflect the true motives. The supplier, not wishing to jeopardize its long-standing relationship with a large buyer, is responding to the complaint in order to protect its own business interests. Whether Country Haven Stables maintains a policy of selling the goods at lower prices is unclear on the facts. The Country Haven store is a legitimate retail outlet, however, and may set prices as it sees fit. The supplier may not refuse to sell to it to prevent the buyer from reselling at lower prices unless the buyer makes a practice of loss leadering. In this case, the supplier is relying on the unfounded objections of its major customer to cease supplying the stable and, thereby, protect its own interests. If the manufacturer is acting on the information that a low-price policy is maintained at the stable, it may not refuse to sell on that basis. The court in this case decided, however, that if the supplier was refusing to sell on another basis; namely, to protect its relationship with a major customer, there is no prohibition in law of such an action. There was insufficient evidence to prove beyond a reasonable doubt that a low-price policy was the grounds for the refusal. The actions of the supplier, therefore, were not in violation of the Act. b. The buyer may make a complaint to the Commissioner of Version 1
23
Competition under the Competition Act. The Commissioner may then investigate the complaint and gather evidence. If the Commissioner finds satisfactory evidence of a violation, he or she may deliver the evidence to the Attorney-General of Canada to bring criminal charges or may bring the matter to the Competition Tribunal. 47) Based on Regina v. Air Canada (1987), 17 C.P.R. (3d), 392, this case looks at the practice of "bait-and-switch" selling. On these facts, the airline did not have sufficient seats remaining on the flight in order to meet demand at the reduced price. When customers called shortly after reading the advertisement, they were informed that the sale was "full" and offered a seat at a higher price. This practice is an offence under the Competition Act unless certain defences can be met. There is no evidence that the airline undertook to ensure that adequate seats would be available to meet reasonably anticipated demand for the seat-sale price. To the contrary, it is apparent that the airline knew it had insufficient seats since the revenue which could be generated by filling the empty seats at sale prices was only $4,023 and the advertising costs were over $12,000. A reasonable explanation for such action is that Sunseeker hoped to make a large number of sales at the higher, regular fare once it induced potential customers to call. The airline may be prosecuted for violations of the Competition Act for its bait-and-switch selling practices and will be subject to fines and/or an order to cease such activity if convicted. The investigation process may be triggered by consumer complaints that the practice is occurring. The facts lend little support for any defences to the alleged violation. Sunseeker took no steps to ensure adequate supply, no events beyond its control prevented it from doing so and it could not help but anticipate demand when advertising in three national newspapers. Moreover, Sunseeker did not attempt to provide customers with seats on later flights at the sale price but tried to sell seats at the higher fare. Version 1
24
48) The Commissioner of Competition would base his order on the provisions contained in s. 45 of the Competition Act, which prohibit the limitation of production facilities, the limitation of the production of a product and the lessening of competition in the production of a product. The Crown does not need to prove that the agreement or combination would completely eliminate competition or that the parties intended to eliminate competition. Meat Packers would argue against the order by pointing to the prevailing market conditions in order to refute the claims of the Commissioner that production and facilities and, thereby, competition are being unduly limited by this merger. The company may also argue that the divestment would impose a hardship on it by forcing it to construct more facilities on short notice in a poor market. The meat packing company would probably succeed in defeating the order as did the actual defendant in this case at the Competition Tribunal hearing. Although the merger would initially lessen competition to some degree, the prevailing poor market conditions of low demand and excess capacity would be sufficient to control the price of the product irrespective of the merger. The order would be no more effective in maintaining competition than existing market forces. Moreover, it would create a burden not only for the defendant but also for the industry by forcing the construction of more production facilities in an industry with existing excess capacity.Based on: Canada (Director of Investigation and Research) v. Hillsdown Holding (Can.) Ltd. (1992), 41 C.P.R. (3d) 289.
Version 1
25
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Gift Importers Ltd. has a contract with a Philippine government exporting agency for the purchase of numerous handmade artifacts. Since neither party was comfortable having the courts of the other party's country adjudicate any disputes between them, the contract contains a clause that identifies the procedure by which a third party acceptable to both would settle any disputes. This procedure is known as commercial arbitration. ⊚ ⊚
true false
2) Gift Importers Ltd. has a contract with a Philippine government exporting agency for the purchase of numerous handmade artifacts. Since neither party was comfortable having the courts of the other party's country adjudicate any disputes between them, the contract contains a clause which identifies the procedure by which a third party acceptable to both would settle any disputes. In order to protect itself from an after-the-fact application of Philippine law, which, for example, would remove or alter some of the protections for Gift Importers in the contract, Gift Importers should insist on a clause by which the third party who is to resolve disputes would operate in a country other than Canada or the Philippines and under internationally recognized rules. ⊚ ⊚
true false
3) Gift Importers Ltd. has a contract with a Philippine government exporting agency for the purchase of numerous handmade artifacts. Since neither party was comfortable having the courts of the other party's country adjudicate any disputes between them, the contract contains a clause which identifies the procedure by which a third party acceptable to both would settle any disputes. If a dispute resolution procedure is not part of the original contract, neither the Philippine government nor Gift Importers can impose it on the other at a later date. ⊚ ⊚
Version 1
true false
1
4) Gift Importers Ltd. has a contract with a Philippine government exporting agency for the purchase of numerous handmade artifacts. Since neither party was comfortable having the courts of the other party's country adjudicate any disputes between them, the contract contains a clause which identifies the procedure by which a third party acceptable to both would settle any disputes. The two parties in this case chose a German, Holtz, as their arbitrator. The contract is silent as to the language of an arbitration. Though neither party to the dispute has German as their native tongue, it would by custom probably be the language of this arbitration. ⊚ ⊚
true false
5) Gift Importers Ltd. has a contract with a Philippine government exporting agency for the purchase of numerous handmade artifacts. Since neither party was comfortable having the courts of the other party's country adjudicate any disputes between them, the contract contains a clause which identifies the procedure by which a third party acceptable to both would settle any disputes. The contract identifies the UNCITRAL rules as being the procedure to be used in the arbitration. Holtz may choose to follow that or to follow the relevant law of the country in which the contract was formed, that is, the country of the party accepting the contract. ⊚ ⊚
true false
6) Canadian Farm Machinery Ltd. entered into a contract with High Seas Transportation, which set out the responsibilities of High Seas in delivering 100 tractors to Argentine Produce Inc. Argentine has not yet paid for the tractors. This document is called a bill of lading. ⊚ ⊚
true false
7) Canadian Farm Machinery Ltd. entered into a contract with High Seas Transportation, which set out the responsibilities of High Seas in delivering 100 tractors to Argentine Produce Inc. Argentine has not yet paid for the tractors. This document will set out information by which customs officials will be able to set the tariff classification and the applicable rate. ⊚ ⊚
Version 1
true false
2
8) Canadian Farm Machinery Ltd. entered into a contract with High Seas Transportation, which set out the responsibilities of High Seas in delivering 100 tractors to Argentine Produce Inc. Argentine has not yet paid for the tractors. High Seas must deliver the tractors only to whomever Canadian Farm Machinery has identified as the consignee in the contract. ⊚ ⊚
true false
9) Canadian Farm Machinery Ltd. entered into a contract with High Seas Transportation, which set out the responsibilities of High Seas in delivering 100 tractors to Argentine Produce Inc. Argentine has not yet paid for the tractors. If this contract, along with any other required documents, and a sight draft are sent to Argentine Produce's bank, the bill of lading will not be released to Argentine Produce until it pays Canadian Farm Machinery, thus protecting Canadian Farm Machinery's ownership rights if Argentine does not pay. ⊚ ⊚
true false
10) Canadian Farm Machinery Ltd. entered into a contract with High Seas Transportation, which set out the responsibilities of High Seas in delivering 100 tractors to Argentine Produce Inc. Argentine has not yet paid for the tractors. Canadian Farm Machinery's sale of the tractors to Argentine Produce is covered by the Sale of Goods Act. ⊚ ⊚
true false
11) The Export and Import Permits Act, in part, protects Canadian business from the "dumping" of foreign goods into Canada. ⊚ ⊚
true false
12) A Canadian company has a patented product and seeks to have it produced overseas. It desires to minimize its investment abroad and its degree of exposure to foreign legislation. In this case, the far-and-away best choice would be to opt for a licensing arrangement. ⊚ ⊚
Version 1
true false
3
13)
The North American Free Trade Agreement is not a common market. ⊚ ⊚
true false
14) The system that assigns internationally recognized identification numbers to essentially all traded commodities so that nations can have a common basis for the identification of goods is called Canada's Customs Tariff. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 15) As the result of a complaint by the Society of Canadian Slide Fastener Manufacturers, it was determined by the Deputy Minister of National Revenue for Customs and Excise that Toshima Kogyo K.K., Tokyo had exported zippers to Canada that had been produced with subsidies from the Japanese government, and which permitted Toshima to sell them at a much cheaper price than Canadian manufacturers could sell their zippers. A duty designed to offset that advantage was imposed against such goods of Toshima's, under the
A) B) C) D) E)
Export and Import Permits Act. Special Import Measures Act. Customs Tariff Act. Competition Act. United Nations Commission on International Trade Law.
16) The Republic of Garbino is a signatory to the General Agreement on Tariffs and Trade and a member of the WTO. Article III:2 of GATT states that a government must accord the same or better tax treatment to imported goods as it does to domestic products. Garbino imposed a tax on imported lumber of 13 cents per board foot while its own lumber is taxed at 5 cents per board foot. Its own lumber industry is small and very inefficient. It exports a variety of manufactured goods to Canada.
Version 1
4
A) Since the GATT is only a body of principles, Canada cannot use it to impose countervailing duties on Garbino's exports to Canada. B) Garbino is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Garbino's exports to Canada. C) Since the purpose of the GATT is to help reduce barriers to international free trade, it is likely that Garbino's actions would breach the spirit of GATT. D) Garbino is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Garbino's exports to Canada and since the GATT is only a body of principles, Canada cannot use it to impose countervailing duties on Garbino's exports to Canada. E) Since the purpose of the GATT is to help reduce barriers to international free trade, it is likely that Garbino's actions would breach the spirit of GATT and Garbino is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Garbino's exports to Canada.
17) Memorial Stone Carvers Ltd. makes special imports of marble from Italy. It has just found out that it may have been overpaying customs duties because the wrong rate may have been applied. Under which of the following statutes would it be able to appeal the Customs duty rate decision?
A) B) C) D) E)
Version 1
The Customs Act. The Customs Tariff Act. The General Agreement on Tariffs and Trade. The Special Import Measures Act. The Arbitration Act.
5
18) You are the world's leading manufacturer of computerized range-finding equipment, and you want to export your products to Libya and North Korea. With which of the following might you need to concern yourself? i. The Customs Act. ii. The Export and Import Permits Act. iii. A foreign distribution agreement with your foreign contact. iv. A force majeure clause in a distribution contract. v. Bills of lading. vi. Political risk insurance.
A) B) C) D) E)
i and ii. i, ii, iii and v. ii, iii, iv and v ii, iii, iv, v and vi. i, iii, iv, v and vi.
19) Canada would like to increase its exports to the Eastern European country of Estavia, but there is still a great deal of political uncertainty there. Your firm makes small consumer appliances. You would like to find out if there is a market in Estavia for your goods and, if there is, how you can market your goods there most effectively. You are also worried about whether or not, in a country as politically unstable as Estavia, you can protect your own interests if you do trade there. Which of the following institutions would be of help to you? i. A customs brokerage firm. ii. The Export Development Corporation. iii. The Auto-pact. iv. The Department of External Affairs. v. The Canadian International Development Agency. vi. The merchants' guilds.
Version 1
6
A) All of the institutions will be of help. B) All of the institutions except the Department of External Affairs will be of help. C) All of the institutions except the Auto-pact will be of help. D) The Export Development Corporation, the Auto-pact and the Canadian International Development Agency will be of help. E) The Export Development Corporation and the Department of External Affairs will be of help.
20) Which of the following is not part of the mandate of the Export Development Corporation?
A) The provision of security for the payment for goods sold under certain export transactions. B) The organization of trade missions and support of Canadian exporters who wish to travel and attend international trade shows abroad. C) Providing loan guarantees to enable Canadian exporters to fund the production of export-destined goods. D) Providing insurance against the many risks associated with international business transactions.
21) Of the following, the most important document(s) in an international contract for the sale of goods between a raw material supplier in Nova Scotia and a factory in Spain would be
A) B) C) D) E)
the commercial invoice. the UNCITRAL documents. the contract of affreightment. the bill of lading. customary documents under the Vienna Convention.
22) The bill of lading in an international commercial transaction is a contract between the __________ and the __________. It serves as a __________ and a __________.
Version 1
7
A) B) C) D) E)
importer; carrier; sight draft; title document shipper; carrier; contract of carriage; negotiable instrument shipper; carrier; title document; contract of carriage exporter, carrier; title document; contract of carriage shipper, carrier; contract of carriage; title document
23) The risk attached to international operations lies on a spectrum from fairly low through extremely high. Where would "export operations" sit on this spectrum?
A) B) C) D)
Fairly low risk. Medium risk. High risk. Extremely high risk.
24) Merchandise of all kinds is a profitable spin-off of its movies, but Disney has no interest or ability in operating a thousand factories to turn out these products. What is the perfect solution for Disney?
A) B) C) D)
Manufacturing merchandise. Foreign distribution agreements. Licensing. Contracts of sale.
25) International business transactions significantly increase risk. What new elements are introduced in this type of transaction that result in increased risk?
A) B) C) D)
Version 1
Contractual relations with a foreign party. Another legal jurisdiction. International rules. All responses are applicable
8
26) What Canadian legislation has the direct effect of protecting Canadian businesses and industries from the dumping of foreign good into Canada?
A) B) C) D) E)
27)
The Customs Tariff Act. The Customs Act. The Special Import Measures Act. The Export and Import Permits Act. The Hazardous Products Act.
What is the test to determine if goods qualify for preferential NAFTA treatment?
A) B) C) D)
Mine and Manufacture. Labelling requirements. Rules-of-origin. Jurisdiction of origin.
28) Which country asserts the right to apply its laws outside of that country (extraterritoriality)?
A) B) C) D) E)
29)
Canada. United Kingdom. Russia. China. None of these countries routinely assert this right.
How may an ongoing relationship for the foreign distribution of goods be structured?
A) B) C) D) E)
Version 1
Foreign distribution agreement. Creation of a foreign branch plant or sales office. Joint Venture Agreement. Licensing of patents. All of these ways.
9
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 30) Hip Hip Hooray is a Vancouver-based children's clothing manufacturer whose unique designs, excellent quality and interesting materials have allowed them to sell across Canada with great success. They wish now to expand into foreign markets. The company was founded and is run by two mothers who could not find what they wanted for their own kids and so made it themselves, and they do not have a huge organization behind them. They want to make sure they can protect their reputation, but they are not sure whether their production arm can expand fast enough if their sales take off. Discuss with them the advantages and disadvantages of the various forms of international trading arrangements that they might use.
31) You are exporting your Canadian-made microchips to Romania for the first time. Describe the kinds of steps you can take to protect yourself from financial loss in case something happens to the shipments. The chips will be only partially paid for at the time they are shipped.
32) A Canadian company is considering negotiations to create a licensing agreement with a German company for the manufacture of patented Canadian products in Germany. What items do you feel are vital for the final agreement to contain in order that it can be functional at law and in practice?
Version 1
10
33) Discuss your own interpretation of, response to and opinion about the extraterritorial application of a nation's laws.
34) General Mfg. & Tool Corp is a small company producing industrial machinery, including a special computer-controlled milling machine capable of producing ball-bearings that can meet the tiniest known industrial specifications. Many firms using this machine sell their output to defence contractors in the USA and Canada, but the output finds its way into a great many consumer goods as well, such as VCRs and automobiles. You are approached as a trade consultant by the president of GMT Corp., and asked to make recommendations about licensing the production of the machines in South-East Asia. Describe what steps GMT Corp. should take to determine the exportability of their licence, and describe the major advantages of licensing. Further describe for GMT Corp. what should go into any good licensing agreement.
35) Seacoast Fisheries & Canning, of Signal Bay, Nova Scotia entered into a contract with SEAINTORG, a Russian government-owned foreign trade organization for marine products, to process and can Russian off-shore catch. Due to the movement of fish up the Canadian coast, SEAINTORG suspends the agreement, and has its catch canned by operations in Newfoundland. What alternatives are open to SFC other than Canadian courts, and how does the process operate?
Version 1
11
36) Haglund Manufacturing Co. of Dartmouth, Nova Scotia is a maker of nautical navigation devices, and has developed some interesting new technology in the field. It is considering a business relationship with Schiffgebau Werk, in Hamburg, Germany, which has some vacant land and trained but surplus employees. When the president of Haglund last visited Hamburg, he noted that other vacant commercial properties existed as well. Identify the range of options available to Haglund for entry into the German market with its products. Compare and contrast the advantages and disadvantages of each. What would you suggest to Haglund if the company is cash-poor and risk-adverse? What if Haglund has reasonable resources and has considerable experience in international trade?
Version 1
12
Answer Key Test name: Chapter 33 Test Bank 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) A 16) E 17) A 18) D 19) E 20) B 21) D 22) E 23) A 24) C 25) D 26) C Version 1
13
27) C 28) E 29) E
Version 1
14
30) Hip Hip Hooray can either become involved in both manufacturing and marketing their clothes in a foreign country or they can manufacture here to sell there, or license manufacturers there to make and sell their designs. If they want to manufacture here but have a foreign company distribute there, they can set up a distribution agreement with a distributor in that country. This would allow continued control over quality while the established distribution network in the foreign country would avoid any necessity for Hip Hip Hooray to establish a sales force or involve itself as an employer in that country. Since the agreement will govern all aspects of the relationship, it has to be very carefully drawn up and must address all matters relevant to the distribution of Hip Hip Hooray's goods and the protection of its interests. For example, it should cover such matters as what will be distributed where; a detailed set of obligations to be met by the distributor (size of sales force, what the distributor will do, size of inventory, limitations on cutting third party deals, sales volume to be met, etc.) and by Hip Hip Hooray (quality standards, advertising materials, catalogues, samples, delivery times, etc.), as well as how any disputes will be dealt with, and insurance and transportation matters. If the right distributor is picked, this is a very effective means for Hip Hip Hooray to achieve its expansion goals. The alternative of setting up their own sales force or even their own manufacturing plant is probably too onerous for Hip Hip Hooray since it involves a huge financial investment and knowledge of a whole new set of national and local laws. However, it would give them total control and easy access to that market. Alternatively, they could enter into a joint venture with a firm within that country, which would reduce the amount of involvement, financial and otherwise, that they would have to have, while giving them access to the foreign market as a corporation producing within the market. Foreign Version 1
15
share ownership may, however, be an issue in that country, and they will have less control than if they were operating on their own. They might want to consider a licensing agreement with an established manufacturer in the foreign location, which would bring them royalties and control over quality without the manufacturing responsibility here or there. They would have to make sure their trade name/mark would be protected there, as well as their fabric and clothes designs, so they will need expert advice about copyright, trade marks, possibly industrial design, and licensing agreements. This might work well for them since it would avoid all the manufacturing and distribution problems associated with the other possibilities. However, as a newcomer to the market, the royalties they could command would probably bring much less profit and they would have more difficulty controlling quality or distribution problems, which could have a disproportionate effect on their reputation, as they are not an established name in the foreign market. 31) You should make sure you have a clause in the contract requiring the Romanian importer to insure the goods, naming you as the beneficiary to the extent of your interest. Since you cannot be sure that they will in fact do so, you should also make sure you have contingency insurance in case the Romanians do not honour that clause of the contract. Since Romania is not stable, economically or politically, you may wish also to purchase political risk insurance. You can eliminate or balance off the cost of some of these protective steps if one of the federal government agencies or Crown Corporations, such as CIDA, External Affairs under PEMD, or the Export Development Corporation will assist you. They can provide you with trade assistance and/or cost-sharing activities, protect you against Romanian government seizure of your goods or Romanian currency control or civil war.
Version 1
16
32) The full list can be found in the text, but the most vital terms are acknowledgements of the ownership of the subject matter, the royalty rate and its calculation, duration of agreement, a method of dispute resolution, territorial boundaries of the licence, issues of confidentiality, and rights regarding improvements in the product. 33) This question does not have a definitive answer. Students' responses should be judged on the level of understanding they show of the issues, the sophistication demonstrated in comprehending the complex implications of extraterritorial application of laws and the strength of their analysis in forming an opinion, whatever that opinion is. They should also demonstrate a good understanding of how Canada deals with extraterritoriality imposed by other nations (see text). For a good example of U.S. extraterritorial measures involving a Canadian company, refer to "The United States District Court for the Southern District of Florida; Selected Documents Pertaining to: The United States of America v. The Bank of Nova Scotia (Brady)" prepared by the Economic Law and Treaty Division, Department of External Affairs, Volume 1.
Version 1
17
34) Export of technology under a licensing agreement is treated like exporting goods. If the goods produced by certain technology are on the control list, or if the recipient country is on the control list, then the export of technology that produces those goods is also controlled. The President should be advised to determine if the military uses of this technology have rendered it unexportable, or if the target country is prohibited from receiving this kind of technology. Once this is determined to be permissible, licensing agreements have a major advantage over other expansion possibilities for small firms. It means that GMT Corp. can expand into another part of the world with minimal time and virtually no capital investment. A complete list of major licensing terms can be found in the text, but the most central are ownership rights to the process and future improvements, royalty calculation method, territory and duration of the agreement, confidentiality provisions, and early termination procedure.
Version 1
18
35) The alternative to court action is redress through commercial arbitration. For this to be possible, the original contract must have made reference to the option for commercial arbitration. In practical terms the original contract would also have had to include the mechanism for the commercial arbitration to operate under. The mechanism must be at least defined to the extent of how an arbitration board is to be selected, and if there are not special rules unique to the parties that they want arbitrators to use in resolving disputes, then one of the general sets of rules (often the United Nations UNCITRAL rules) must be specified. The parties could in the alternative specify that the arbitrators are to use the rules of law of a particular legal jurisdiction (such as Nova Scotia or the Russia) just as though the matter was being handled by the courts, but without the attendant time and expense. The board will be selected in accordance with the original contract, usually a panel of three, one each appointed by the parties alone and the third by agreement. Once the board has made its decision under the specified set of rules, the party which has succeeded can set out to have the award enforced, if there is not voluntary compliance. In this case the likely succeeding party would be SFC, and they could seek to enforce their award in the Federal Court, or the appropriate Nova Scotia court with jurisdiction in the amount of damages awarded by the arbitration board. Once the award is filed, it would be enforced upon by the seizure and sale of a Russian vessel by a local sheriff if one ventures into a Canadian port, or the seizure of the canned product in Newfoundland.
Version 1
19
36) The range of options, ranked by increasing risk is: contract of sale, foreign distribution agreement, licence agreement, international joint venture, foreign branch plant. Across this spectrum, a number of advantages and disadvantages increase or decrease in the same sequence: Haglund could sell direct to the German market, or supply Schiffgebau Werk with products under a contract of sale. Schiffgebau Werk could on a grander scale be a foreign distributor for Haglund products. Haglund could licence the new developments to Schiffgebau Werk, and let them do the manufacturing and selling for the German market. Schiffgebau could do this with its surplus resources. On the other hand, Schiffgebau Werk could contribute these surplus resources to a joint venture with Haglund, who would contribute the new developments and expertise, and perhaps some cash. This would represent entitlement to a larger share of the profits (and losses) for Haglund than likely would be the case out of a royalty under a licensing agreement. Finally, Haglund could go it alone and build a foreign branch plant on a vacant site in Hamburg, which is the riskiest proposition. For a risk-adverse and cashpoor Haglund operation, the range of options probably ends with a licence agreement. With resources and considerable experience in international trade, all options on the list are viable for Haglund, but it would quickly begin consideration of the fancier options, starting with a licensing agreement.
Version 1
20
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The common law relating to environmental matters cannot redress cumulative damage to the environment. ⊚ ⊚
true false
2) Most environmental matters governing business activities fall under provincial jurisdiction for regulation. ⊚ ⊚
true false
3) The standard of care under environmental legislation is very high, holding officers and directors of corporations personally liable for allowing any pollution to occur regardless of the steps they may have taken to prevent it. ⊚ ⊚
true false
4) A clear environmental audit assures purchasers of land that they will never have to clean up any contaminants in land that they intend to purchase. ⊚ ⊚
true false
5) A lender that took a security interest in land from the borrower and later takes possession may be required to clean up the land if it is contaminated. ⊚ ⊚
true false
6) Where a new neighbour arrives beside a long-existing visible nuisance (noise or smoke for example), the new neighbour has no right in tort to demand termination of the nuisance.
Version 1
1
⊚ ⊚
true false
7) Where a new neighbour arrives beside a long-existing visible nuisance (noise or smoke for example), if the defendant can show that all possible care and skill had previously been taken in the attempt to lessen or eliminate the nuisance, the action in nuisance will fail. ⊚ ⊚
true false
8) A lender would be more likely to request an environmental assessment than an environmental audit before lending funds to a borrower intent on acquiring derelict lands that were once a large railway yard. ⊚ ⊚
true false
9) The Oldman River case stands as an example of the complexity, and possibility of overlap, of federal and provincial regulation of the environment. ⊚ ⊚
true false
10) Even if societal attitudes had been more supportive in the past, the common law would not have been of much use to attack the sources of pollution, and stop them at source. This corner was not turned until Parliament filled the breach. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 11) Under environmental legislation, enforcement officers
Version 1
2
A) are not authorized to examine and seize business records. B) are not authorized to order a suspected offender to cease operations. C) are responsible for monitoring compliance with the legislation. D) are authorized to carry weapons. E) are responsible for monitoring compliance with the legislation and are authorized to carry weapons.
12)
"Due diligence" in the environmental law context
A) is one of the defences which a party charged with an environmental offence may use. B) would be satisfactorily proven where company officials have issued directives to management to establish careful storage procedures for potential contaminants. C) requires ongoing monitoring by the company's directors to ensure that management is complying with the directives set out. D) is part of the environmental assessment process to determine whether a certain activity has the potential for causing environmental damage. E) All of the responses are correct.
13)
Under the Common Law of environmental nuisance
A) a defendant may successfully claim that the nuisance is a benefit to the public thereby eliminating liability. B) a defendant may use the defence that it used all necessary care and skill to prevent the nuisance from occurring. C) a defendant may successfully use the defence that it existed with its offending activity before the plaintiff came to the nuisance. D) a defendant may not argue that its actions do not constitute nuisance because other entities independent of it are also engaged in the same activity. E) All of the responses are correct.
Version 1
3
14) The Massive Mining Company operated several mines in close proximity and wished to link three of its mines with a pipeline conveyor to transport ore from one site to another. The proposed conveyor would have to cross a creek which, in the spring, is used by local residents for canoeing. Before Massive Mining Company can construct its conveyor,
A) it must determine whether the Navigable Waters Protection Act applies to the proposed project. B) it must show it has used due diligence in order to obtain a licence for the conveyor. C) it may have to perform an environmental audit to evaluate any harmful effects the conveyor may have on the environment. D) it may be required to undergo an environmental assessment. E) it must determine whether the Navigable Waters Protection Act applies to the proposed project and it may be required to undergo an environmental assessment.
15) A private organization, Recyclemates!, planned to establish a recycling and waste recovery facility on a two-hectare piece of property at the outskirts of Smallville. The facility would sort and resell recyclable materials as well as produce compost for sale to farmers and gardeners. Before the facility may begin operation
A) B) C) D) purpose. E)
it may be required to obtain a licence to operate the site. it will fall primarily under provincial legislation for environmental regulation. it will require an environmental assessment and approval. it will have to acquire municipal zoning for the site consistent with its proposed All of the above must be considered.
16) The Kyoto Protocol, which entered into force in 2005, is a significant component of the United Nations Framework Convention on Climate Change which was concluded in 1992. What were the goals of that Convention?
Version 1
4
A) To set a framework for governments to tackle climate change. B) To gather and share information on greenhouse gas emissions, national policies, and best practices. C) To draft legislation to address greenhouse emissions. D) To launch national strategies to address greenhouse emissions. E) All of these were the goals with the exception of the draft legislation.
17)
What two common law actions may be taken when environmental damage results?
A) B) C) D) E)
Trespass and nuisance. Trespass and riparian rights. Nuisance and riparian rights. Occupier's liability and nuisance. Occupier's liability and riparian rights.
18) In R. v. Kingston, the City of Kingston was found liable for the contamination of a river due to leachate from an abandoned dump. What was the penalty/damages?
A) B) C) D) E)
Damages and remediation. Damages. Penalty and remediation. Penalty and damages. Penalty.
19) In terms of activities that might potentially harm the environment, the Canadian Environmental Assessment Act requires which entities to engage in environmental assessments?
A) B) C) D) E)
Version 1
Governments. Organizations. Businesses. All of the above. None of these.
5
20) Do directors and officers have liability for the storing and handling of hazardous products?
A) Yes, under the Transportation of Dangerous Goods Act and the Hazardous Products Act. B) Yes, under the Narcotics Control Act and the Hazardous Waste Act. C) Yes, under the Hazardous Products Act and the Hazardous Waste Act. D) Yes, under the Transportation of Dangerous Goods Act and the Hazardous Products Act and the Narcotics Control Act. E) No, there is no personal liability.
21)
Environmental protection legislation attempts to
A) B) C) D) E)
minimize pollution through control procedures. minimize pollution through monitoring procedures. prohibit certain production practices. prohibit certain waste disposal practices. All of these are objectives of legislation.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 22) The post-war rise in environmental legislation at all levels of government was, in part, a response to the limitation of the common law to adequately address the control, abatement and remedy of environmental damage. Discuss those limitations and how legislation has met the many environmental challenges.
Version 1
6
23) The Canadian Environmental Protection Act, R.S.C., 1985 (4th supp) s. 122 states as follows: Where a corporation commits an offence under this Act, any officer or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence, and is liable to the punishment provided for the offence, whether or not the corporation has been prosecuted or convicted. Discuss this provision in light of your understanding of legal principles including the principle of fundamental justice.
24) Describe how an interest in property can result in liability for environmental contamination.
Version 1
7
25) George purchased a derelict manufacturing facility near the old rail yards, which had been out of use for ten or fifteen years. It had been used originally as a repair shop for locomotives and electrical equipment storage. On site in one of the decaying outbuildings, George discovered a 500-litre tank, partially full of liquid. The look, feel, and smell confirmed it to be used motor oil. As he was unsure what to do with the oil and wanted to make sure that it was properly disposed of, George contacted the Ministry of the Environment. The Ministry said that he may burn the oil, if it were mixed with a particular kind of peat to dampen the extent of the smoke. George did so. From some distance along the road, one of the nearby landowners saw the smoke that was produced, and thought George's building was on fire. The neighbour called the fire department. On arrival, the fire department demanded to know who had authorized the burning of the oil. As George had no written permit, the fire department as a matter of standard procedure, took a sample of the burned residue and sent it to the Ministry of the Environment Evaluation Laboratory. The laboratory analysis revealed that the material was indeed motor oil, but also contained dangerous levels of PCB, an oil additive formerly used with oil in the cooling of electrical apparatus. George had in the meantime obtained his burning permit from the city, which stated that it permitted him to burn 500 litres of motor oil. The permit was issued with the consent of the Ministry of the Environment. On receiving the laboratory report, the Ministry charged George with a violation of the Environmental Protection Act. Advise George.
Version 1
8
26) In the mountain town of Mountain Grove, a paper mill had been in operation as the main employer for many years. The mill constantly emitted a foul odour and occasionally particles into the air which covered objects with a grimy film. Mountain Grove was located in a valley in the mountains. The mountain breezes blew consistently from north to south through the town. Mountain Grove has expanded in all direction around the mill, which is now located in approximately the middle of town. As a result, the residents to the north of the mill rarely receive any of the offensive fumes or particles that are carried with the prevailing winds to the southern residents. Rick, who was planning to move to Mountain Grove to retire early from his hectic city job, was sitting in the local coffee shop one morning. He asked several of the residents where he should look to buy a house in the town. One long-time resident replied, "Well you'd be best off finding something in that new subdivision north of town. They're real nice homes going up in there and you'd be well out of the line of fire of the mill." Rick enquired what he meant by that and the resident replied, "Well, you know that the wind blows all the stench and stuff from the mill to the south end of town. Most of that part of town is covered in grime. You could probably find yourself a good deal on a house in that end of town. Prices aren't too high there. They call it Toxic Town! But you don't want to live there, believe me. I used to." Rick and his family purchased a home in the new subdivision north of town. Rick was, however, able to purchase property and a building in the south end of Mountain Grove at a very good price, which he used to start up a car dealership as a retirement project. Not long after the business was established, Rick noticed pits and some peeling on the vehicles' paint. He also noticed that the cars on his lot were covered with a film that was somewhat oily and could only be removed by hand washing the cars with soap. a. Discuss the environmental issues that are raised by this case under the common law and indicate how any action by Rick against the mill would be resolved. b. What environmental legislation, if any, would be applicable in this situation? Explain how the resolution under the legislation would be different from the remedies in a. above.
Version 1
9
Answer Key Test name: Chapter 34 Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) E 12) C 13) D 14) E 15) E 16) E 17) C 18) C 19) D 20) A 21) E
Version 1
10
22) The common law is capable only of providing compensation to individuals who themselves have been adversely affected by actions that are attributable to another individual or entity which has caused harm. Moreover, only those individuals who had experienced injury could seek relief from the courts. Other individuals or groups of concerned citizens, who had not directly suffered harm or loss of enjoyment of their property, have no standing to bring an action at common law. Often it is difficult to provide relief to injured parties because the source of the harm cannot be precisely located. Furthermore, the common law can provide monetary relief to injured parties, but cannot prescribe the cleanup of the damaged property of the polluter's own property. Generally, it is not possible to provide for the protection of the environment in a proactive sense under the common law as it remains a reactive approach to compensate for loss or injury. Legislation has been able to address most of these deficiencies in the common law. The thrust of environmental legislation has been primarily proactive with a goal of controlling and reducing environmental damage. An extensive set of laws place responsibility for pollution reduction and clean-up on the shoulders of the polluters and landowners who have been determined as sources of contamination. The legislation does, however, attempt to balance the needs of business, which often must produce harmful waste. To this end, the legislation attempts to control and monitor waste production and disposal activities so that any environmental damage is avoided or minimized.
Version 1
11
23) The sole purpose of this question is to encourage students to question the fairness of legislation and to evaluate its costs against its intended goals. While the notion of individual responsibility within corporations for irresponsible environmental behaviour is laudable, the manner in which it is imposed in this piece of legislation seems somewhat draconian. In our zeal to regulate and prohibit pollution, it may be counterproductive to disenfranchise those people responsible for compliance in such a severe manner. Should imposing a conviction on these individuals even in the absence of a conviction of the corporation offend our basic principles of justice? The activities which may result in individual conviction are rather vague. What exactly constitutes acquiescence or participation in the offence? The students may be either supportive or critical of the provision. The exercise is to encourage reasoned thought about issues which are real to businesses and their employees in Canada.
Version 1
12
24) Much of the environmental legislation places responsibility for the clean-up of contaminated land on the current landowner. This often occurs where an owner becomes aware of contamination which occurred in the past during a time when the land was owned by others. Some recent case law has resulted in parties becoming responsible for clean-up upon acquiring interests which are less than full ownership in the property. Acquiring possession of land may be enough to trigger these responsibilities. Mortgagees entering into possession to realize on their security have been deemed owners and required to clean-up contaminated property. Municipalities seeking to dispose of properties for tax arrears may also fall into the category of owner for clean-up purposes. Arguably, any action which creates an interest in property may be deemed sufficient to assume some degree of responsibility for environmental matters. Most parties contemplating the acquisition of an interest in property require an environmental audit which reduces the risk of having to assume clean-up responsibilities by pre-testing the land for contaminants. This situation creates a dilemma concerning properties which are known to be contaminated. No one will accept any interest in them for fear of being deemed responsible for expensive clean-up activities and there is no current provision for government clean-up.
Version 1
13
25) This case examines the issues surrounding environmental offences. There is no question that George committed the offence, the question is whether he has been sufficiently diligent in his actions to avoid liability under the Act. Environmental protection offences are almost invariably strict liability offences and therefore the only available defence is the defence of due diligence. If George has failed to exercise due diligence in identifying what he was burning, his company and he personally as a director will be liable. Students must consider whether a "look-snifffeel" test together with the context of the surroundings constituted due diligence on George's part. It should be noted that this was not sufficient evidence for the fire department (presumably since even some unburned oil would have remained), but can this standard be imposed upon a mere corporate director or business person. In short, at what point do we allow such people to be fooled by false belief without any training in these matters? The issuance of a permit by the Ministry or the city is irrelevant as it permitted the burning of oil, whereas the Act was contravened by burning PCB. 26) Answers will vary.
Version 1
14
Student name:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The standard against which the actions of a business will be held accountable for disclosing personal information without consent is one of reasonableness. ⊚ ⊚
true false
2) The objective of the PIPEDA is to establish and encourage best practices, rather than to entrench an enforcement regime. ⊚ ⊚
true false
3) The Office of the Privacy Commissioner of the Canada has the capacity to investigate complaints. ⊚ ⊚
true false
4) Under the PIPEDA, suppliers and contractors of the company are not required to safeguard the personal information of the clients of the company. ⊚ ⊚
true false
5) The PIPEDA also applies to relationships of employment for federally regulated employees. ⊚ ⊚
true false
6) When a breach of employees’ privacy does occur, the onus will be on the organization experiencing the breach to show that the breach was reasonable under the circumstances.
Version 1
1
⊚ ⊚
7)
true false
A breach of privacy was not recognized by recent case law in Ontario as a tort. ⊚ ⊚
true false
8) Anti-spam legislation focuses on messages sent to encourage participation in commercial activity that has an expectation of profit. ⊚ ⊚
true false
9) The unsubscribe function for commercial electronic messages must be easy for the recipient to use and have no cost. ⊚ ⊚
true false
10) Implied consent may arise when a business has a pre-existing relationship with a recipient. ⊚ ⊚
11)
true false
Harvesting email addresses or using harvested addresses is now a violation of the law. ⊚ ⊚
true false
12) The fine for violating Canada’s Anti-Spam Legislation is $1 million for individuals per infraction. ⊚ ⊚
Version 1
true false
2
13) A commercial electronic message does not need to contain the sender’s contact information. ⊚ ⊚
true false
14) The PIPEDA requires businesses to identify an individual within the organization who is responsible for developing and implementing the company’s policies regarding personal information. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 15) You are a customer and believe your personal information has been misused by a company. Who should you first contact to file a complaint?
A) B) C) D) E)
The Ontario Court of Justice. The Office of the Privacy Commissioner of Canada. The Federal Court. The Supreme Court of Canada. The Better Business Bureau.
16) Joan is being bombarded by charitable appeals from across the country. She discovers that a company has sent out her name to other charities. Upon what basis would her complaint to the Privacy Commissioner be based?
Version 1
3
A) The obligation not to disclose personal information to other charities without consent. B) The obligation to maintain accurate information. C) The obligation to identify an individual to be responsible to protect personal information. D) The obligation to develop policies regarding the protection of personal information. E) The obligation to destroy personal information.
17) Your company receives a complaint from a customer regarding the use of personal information. What should take place?
A) B) C) D) E)
The chief privacy officer should investigate the complaint. The policies related to the firm’s privacy protection should be amended. A trial should be initiated by the firm. The customer should be compensated. A demand should be made for particulars.
18) If a breach of an employee’s privacy has taken place, the onus is on whom to show that the breach was reasonable under the circumstances?
A) B) C) D) E)
The organization. The employee. The Privacy Commissioner. The judge of the court. The union.
19) Your company would like to send commercial electronic information to a customer. They may send the information on a non-temporary basis when
Version 1
4
A) B) C) D) E)
the recipient has agreed to your request. a pre-existing relationship with the recipient exists. when recipients have disclosed their email addresses to the sender. recipients have publicly made their email addresses available. the information is not factual.
20) If your company does not receives explicit consent from the recipient to receive commercial electronic information, then the consent
A) B) C) D) E)
is temporary in nature. needs to be replaced by express consent. requires an easy-to-use unsubscribe function. requires a no-cost unsubscribe function. None of the responses are correct.
21) If a customer complains about the use of their personal information, which of the following is not true?
A) B) C) D) E)
Your firm may end up paying a fine. The Privacy Commissioner may get involved. Your firm’s chief privacy officer may get involved. The Federal Court of Canada may ultimately get involved. You will not face any potential legal liability.
22) In terms of sending commercial electronic information under Canada’s Anti-Spamming Legislation, which of the following is not an exemption?
Version 1
5
A) A business can request personal information from new potential customers. B) A business can respond to an inquiry or request for a cost estimate. C) The business can respond to a complaint. D) A business can communicate to satisfy a legal obligation such as dispensing a warranty or product recall information. E) A charity can send messages for fundraising purposes.
23)
Which of the following is not a part of the responsibilities of the Chief Privacy Officer?
A) Ensure that customers know what their privacy rights are when they interact with the company. B) Destroy personal information that is no longer required even when there are no policies or procedures for the destruction of personal information in place. C) Ensure there are physical safeguards to personal information. D) Ensure there are technological safeguards to protecting personal information. E) Develop and implement the company’s policies surrounding the handling of personal information.
24) If an investigation by the Chief Privacy Officer (CPO) reveals a breach in the firm’s privacy protection procedures, the CPO must
A) amend the company’s policies and procedures that prove to be contrary to the legislation. B) resign immediately. C) pursue court action. D) engage in research into privacy issues. E) promote public awareness of privacy issues.
25) You are an employee who believes that your privacy rights have been violated. Which of the following is not true?
Version 1
6
A) B) C) D) E)
You may be entitled to privacy protection under provincial privacy legislation. Your employer may have business requirements that permit the breach of privacy. The violation may be justified if considered reasonable. You are entitled to compensation for any harm you believe has been caused. The firm will need to demonstrate that the breach was reasonable.
26) There is a four-part test to determine the reasonableness of the action of an organization that has allowed a breach of privacy to occur. Which of the following is not one of the considerations?
A) Is the measure causing the breach demonstrably necessary to meet a specific need? B) Is the breach likely to be effective in meeting a specific need? C) Is the loss of privacy proportional to the benefit gained? D) Is there a less privacy-invasive way of achieving the same end? E) Did the firm monetarily benefit from the breach of privacy?
27) In a recent case in Ontario, the court determined that breach of privacy can be considered a tort. Which of the following was not a factor assessed by the judge?
A) B) C) D) E)
Whether the firm acted in a discriminatory manner. The intentional conduct of the defendant. The unlawful invasion of the plaintiff’s private affairs. The harm caused as a reasonable consequence of the conduct. The reckless conduct of the defendant.
28) You receive an electronic spam message. Which of the following would not be of concern?
Version 1
7
A) B) C) D) E)
Introduction of a dangerous virus to your computer system. Introduction of dangerous malware to your computer system. The theft of your identity. Access to your bank account through your computer system. All of the above would be of concern.
29) Greentree Financing Ltd. enters into an agreement to lend $20,000 to Mark for the purchase of a boat. On the loan application Mark provided the following information: address, telephone, social insurance number, employer, annual earnings and banking information. Mark agreed to the collection of the information for the purpose of assessing his suitability for the loan. How else can Greentree use this information?
A) Soliciting Mark with other offers for other financial products offered by Greentree. B) Providing the information to Greentree affiliate companies. C) Selling the information to other unaffiliated companies to solicit Mark with other offers for financial products. D) Contacting his employer to determine if he is in a permanent job. E) Greentree cannot use the information for any of these purposes.
30) Greentree Financing Ltd. enters into an agreement to lend $20,000 to Mark for the purchase of a boat. On the loan application Mark provided the following information: address, telephone, social insurance number, employer, annual earnings and banking information. Mark agreed to the collection of the information for the purpose of assessing his suitability for the loan. What steps must Greentree take to protect Mark's information?
A) Greentree must designate an individual accountable for compliance with the Act. B) Greentree must make information about its policies and practices regarding personal information available to Mark. C) Mark may have access to his information, upon request. D) Greentree must have appropriate safeguards to protect the information. E) All of the steps are required.
Version 1
8
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 31) You have been assigned the responsibility for establishing the protection of personal information in your firm according to the PIPEDA. What are the key principles and obligations that your firm must comply with?
32) You have discovered that your firm may have misused personal information from a client. You know that you are obligated to notify the Privacy Commissioner for situations that involve a material breach of security around personal information, and to notify the individuals concerned when the breach of security around their information creates a real risk of significant harm. What types of harm might trigger the obligation to report the breach?
33) Explain the steps you would need to take to ensure that you can send lawful commercial electronic messages according to Canada’s Anti-Spam Legislation.
Version 1
9
Answer Key Test name: Chapter 35 Test Bank 1) TRUE 2) TRUE 3) TRUE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) B 16) A 17) A 18) A 19) A 20) A 21) E 22) A 23) B 24) A 25) D 26) E Version 1
10
27) A 28) E 29) D 30) E 31) Students should list the principles identified in Schedule 1 to the PIPEDA, which was derived from the Model Code for the Protection of Personal Information. The key principles are set out on page 785 and include: accountability; identifying purposes; consent; limiting collection; limiting use, disclosure, and retention; accuracy; safeguards; openness; individual access; and challenging compliance. 32) As discussed on pages 788-789, the harm to the customer can be physical, reputational, or financial. It is not limited to bodily harm, but also includes humiliation, damage to credit records, reputation and relationships, business opportunities, financial loss, and identity theft. In determining whether the risk of harm is real requires consideration of the sensitivity of the information along with the likelihood of its misuse. 33) According to the Anti-Spam Legislation, firms must obtain express or implied consent from the recipient. The message sent to the recipient must provide contact information of the sender, including the sender’s address and telephone contacts and website. Implied consent may arise when the business has a pre-existing relationship with the recipient, or when the recipients have disclosed their email addresses to the sender, or if the recipients have publicly made their email addresses available. Implied consent is only temporary, however. See page 792 for a full description.
Version 1
11