The Law and Business Administration in Canada, 14th Edition Test Bank by Ace Test Banks

The Law and Business Administration in Canada, 14th Edition By J.E. Smyth, Dan Soberman, Alex Easson Shelley McGill

TEST ITEM FILE Craig Allen

THE LAW AND BUSINESS ADMINISTRATION IN CANADA Fourteenth Edition J.E. Smyth University of Toronto D.A. Soberman Queen’s University A.J. Easson Queen’s University S.A. McGill Wilfrid Laurier University

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1) A simple definition of law would be misleading because law is so a. bound up with the rule of law. b. diverse and complex. c. difficult to define. d. none of the above e. all of the above Answer: b Diff: 2 Type: MC Topic: The Role of Law Skill: Recall 2) We need to have law because it a. regulates individuals’ interactions with one another. b. gives the government the power to act for the benefit of society in general. c. provides an element of certainty in determining contractual and property rights. d. protects persons, property, and society, and prohibits conduct that society believes is harmful. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Role of Law Skill: Recall 3) The fact that laws that appear to be unjust must still be obeyed suggests that a. justice is merely the result of the influence of ethics. b. justice is merely a product of social morals. c. there is a difference between good laws and bad ones. d. in reality, we must think of justice as nothing more than the result of our legal system. e. those who make the laws just do not care. Answer: d Diff: 3

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Type: MC Topic: The Role of Law Skill: Applied 4) The Canadian legal profession is organized on a provincial basis with each province having its own “bar” society. However, a member of any provincial bar may appear before a. the House of Lords in England. b. the International War Crimes Tribunal. c. the Supreme Court of Canada. d. any Human Rights Tribunal in any province. e. any Landlord and Tenant Board Tribunal in any province. Answer: c Diff: 3 Type: MC Topic: Legal Risk Management Skill: Recall 5) Joe hired Julie, a lawyer, to defend him on assault charges. At their first meeting he told her the details concerning his involvement in the assault. After a dispute between Joe and Julie in relation to legal fees, Joe decided to retain a new lawyer. The police attended at Julie’s office to ask her questions concerning what Joe told her about the assault. In these circumstances a. the solicitor/client privilege does not allow Julie to reveal any communications she had with Joe without his approval. b. given that the solicitor/client relationship has ended, Julie is at liberty to disclose the information. c. the solicitor/client privilege does not extend to admissions by clients of wrongdoing so communications must be disclosed. d. Julie is at liberty to disclose any information in relation to the dispute with Joe over fees but not in relation to communications about the assault. e. the Canada Evidence Act permits Julie to disclose any information once the retainer has ended. Answer: a Copyright © 2016 Pearson Canada Inc. 1-2

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Diff: 3 Type: MC Topic: Legal Risk Management Skill: Applied 6) A compliance officer employed by a business for purposes of monitoring legislative requirements applicable to the business ensures a. that outside counsel are hired by the business on a general retainer basis to respond to urgent matters. b. that the business complies with all regulatory and legislative requirements to avoid claims, fines and other possible penalties or sanctions. c. that probationary employees are screened and monitored appropriately by the business in the 90 day period. d. that the business pays outstanding fines. e. that someone attends on all Small Claims Court matters where outside counsel are not required. Answer: b Diff: 3 Type: MC Topic: Legal Risk Management Skill: Applied 7) When we say that the law is part of every facet of business, we mean that a. it is central to business interaction with customers, suppliers, competitors, and government. b. business cannot succeed without understanding the law. c. it outlines what we do, how to do it, and what not to do. d. the failure of businesses to comply with the law may result in criminal, regulatory, and/or civil liability. e. all of the above Answer: e Diff: 2 Type: MC Topic: Law and Business Copyright © 2016 Pearson Canada Inc. 1-3

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Skill: Recall 8) Effective operation of a business requires that business managers a. rely on lawyers to form the right questions and answers for legal issues. b. do not have to become experts in the activities of their businesses. c. simply rely on the decisions made by those in authority above them. d. do not have to familiarize themselves with the law. e. must know the law and must understand the legal risks associated with the everyday choices that they make. Answer: e Diff: 2 Type: MC Topic: Law and Business Skill: Recall 9) A risk management plan a. does not require regular revision. b. does nothing to promote the better conduct of a business. c. is only necessary in sophisticated businesses. d. does not necessarily involve a lawyer in every part of the overall plan. e. helps a business to identify and anticipate potential legal liability. Answer: e Diff: 2 Type: MC Topic: Law and Business Skill: Applied 10) Which of the following will a business use to reduce its liability? a. risk reduction b. risk absorption c. risk avoidance d. risk transfer e. all of the above

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Answer: e Diff: 1 Type: MC Topic: Law and Business Skill: Recall 11) To implement a risk management plan, a business must first a. prioritize the risks. b. develop effective strategies to deal with the risks. c. revise the plan on a regular basis. d. implement the plan. e. conduct a legal audit of the business operation. Answer: e Diff: 3 Type: MC Topic: Law and Business Skill: Applied

12) In deciding whether a statute is valid or invalid, the court must consider a. the effect that the statute has. b. the purpose of the statute. c. whether it should interpret the statute broadly. d. whether it should interpret the statute narrowly. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Courts and Legislation Skill: Recall 13) A binding code of conduct is a a. general code of conduct that is available to anyone.

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b. code of conduct established voluntarily by industry. c. code of conduct that governments impose on business and industry. d. code of conduct that regulates specified activities, such as those of professionals. e. code of conduct that a firm or business imposes on itself. Answer: d Diff: 2 Type: MC Topic: Law and Business Ethics Skill: Recall 14) When a court interprets a statute narrowly, the result will most likely be that a. the statute will be found to fall inside the power of the government that made it. b. the court will change the wording in the statute so that it makes sense. c. the statute will be found to be outside, or ultra vires, the government that made it. d. the statute will be struck down. e. the court will send the statute back to the government that made it for revision. Answer: a Diff: 3 Type: MC Topic: The Courts and Legislation Skill: Applied 15) When we say that the law is linked to moral and ethical standards, we mean that a. the law is based on ethics. b. ethical behaviour is generally considered to be a higher standard. c. ethics and morality are one and the same. d. the fundamental truths that give rise to the law include ethics and morality. e. the moral and ethical values of a society as a whole shape the development of the law. Answer: e Diff: 3 Type: MC Topic: The Role of Law Skill: Applied Copyright © 2016 Pearson Canada Inc. 1-6

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16) Under our legal system, which is derived from English common law, a. our courts simply resolve the dispute based on common sense. b. our courts look to and apply principles of law that have evolved out of cases dealing with the same subject matter as does the dispute between the private parties. c. our courts look to the way other countries have resolved disputes between private parties. d. our courts look to legislation passed by the federal and provincial governments to resolve disputes between private parties. e. our courts look to the constitution to resolve disputes between private parties. Answer: b Diff: 2 Type: MC Topic: Who Makes Law? Skill: Recall

17) In a federal system such as our own, the role of the courts is to a. draft legislation. b. dispense the law, which includes interpreting it as well. c. advise Parliament as to whether its laws are just and fair. d. ensure that the law is handed out equally to every Canadian. e. make it seem that we have a just legal system, when in fact we do not. Answer: b Diff: 3 Type: MC Topic: The Courts and Legislation Skill: Applied 18) The most common complaint about judges when they are interpreting statutes or legislation is that they a. are much too powerful and have no regard for anyone other than themselves. b. are usurping the powers of Parliament and the provincial legislatures. c. are too political and are usurping the powers of Parliament and the provincial legislatures. Copyright © 2016 Pearson Canada Inc. 1-7

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d. have no regard for the average citizen. e. are too political. Answer: c Diff: 3 Type: MC Topic: Challenging the Validity of a Statute Skill: Applied 19) Legislation is the name given to a. laws that are made by judges. b. laws that are made by members of the government. c. the general system of laws of a country. d. laws that are made by Parliament and provincial legislatures. e. none of the above Answer: d Diff: 3 Type: MC Topic: Who Makes Law? Skill: Recall 20) In a federal country such as Canada, the Supreme Court of Canada, and not Parliament, usually has the last word on the law because a. the judges of the Supreme Court of Canada are appointed by the federal government. b. there are two distinct levels of government. c. the Supreme Court of Canada is the highest court in the land. d. the Supreme Court of Canada is made up of judges who make law. e. Parliament only makes laws. Answer: b Diff: 3 Type: MC Topic: Who Makes Law? Skill: Applied

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21) The Supreme Court of Canada performs several roles. One role it does NOT perform is a. protector of civil liberties. b. an umpire between the various levels of government. c. determining the validity of legislation. d. interpreter of legislation. e. resolving disputes between private parties. Answer: b Diff: 3 Type: MC Topic: The Courts and Legislation Skill: Applied 22) Law is derived from a variety of sources. These include the constitution, legislation, and a. the Supreme Court of Canada and subordinate legislation. b. court decisions handed down by judges. c. statements made by ministers and administrative rulings. d. media reports and other news. e. the cabinet. Answer: b Diff: 3 Type: MC Topic: Who Makes Law? Skill: Applied 23) Whenever a law is determined by a court to be outside the jurisdiction of the legislature, and beyond its powers, the law or provision is said to be a. a federal law. b. ultra vires and therefore void. c. the result of residual power. d. excess of jurisdiction and therefore invalid. e. the result of concurrent powers.

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Answer: b Diff: 3 Type: MC Topic: The Courts and Legislation Skill: Recall 24) Federalism is a. the system of government that applies in the Province of Quebec. b. the system of government in which the central government makes laws for all the people. c. the system of government in which power is divided between two levels of government. d. a system of government in which the various governments, such as federal and provincial, all come together to make laws for all the people. e. the system of government that believes in health care for all. Answer: c Diff: 3 Type: MC Topic: Who Makes Law? Skill: Recall 25) The Canadian Charter of Rights and Freedoms is said to be entrenched in the Canadian constitution. This means that a. it is not part of the Human Rights Act. b. it is a rule of the Canadian constitution that must be considered by judges only. c. the rights set out in the Charter are absolute. d. it cannot be repealed by an ordinary act of Parliament or of the provincial legislatures. e. judges are given the authority to resolve Charter problems. Answer: d Diff: 2 Type: MC Topic: The Charter of Rights and Freedoms Skill: Recall 26) Section 15 of the Canadian Charter of Rights and Freedoms deals with Copyright © 2016 Pearson Canada Inc. 1-10

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a. its application to citizens of the United States. b. equality rights. c. national politics. d. the applicability of the Human Rights Act. e. legal rights. Answer: b Diff: 2 Type: MC Topic: The Charter of Rights and Freedoms Skill: Applied 27) Section 33 of the Charter allows the legislature to pass legislation that overrides the fundamental freedoms specified in the Charter only if a. the legislation expressly declares that it "shall operate notwithstanding" a provision included in the Charter. b. a court determines that the freedoms can be overridden. c. two-thirds of the provinces having at least 50 percent of the total population of Canada approve. d. the legislation in question does not violate the Human Rights Act. e. five years have passed since the legislation was first proposed. Answer: a Diff: 3 Type: MC Topic: The Charter of Rights and Freedoms Skill: Applied 28) The "notwithstanding" provision in the Charter of Rights and Freedoms is one that a. allows a court to decide that notwithstanding the fundamental freedoms specified in the Charter, the judgment of the court is supreme. b. allows a legislature to pass laws that override the fundamental freedoms specified in the Charter. c. allows a legislature to pass a law that provides that notwithstanding the law that has been passed the Charter of Rights and Freedoms will still apply. d. allows a legislature to pass a law notwithstanding a court order that prohibits it from doing so. Copyright © 2016 Pearson Canada Inc. 1-11

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e. allows a legislature to pass laws that override the fundamental freedoms specified in the Charter if the provision specifically states that it shall operate notwithstanding the freedoms specified in the Charter. Answer: e Diff: 3 Type: MC Topic: The Charter of Rights and Freedoms Skill: Applied 29) Which of the following is NOT part of the role or function of the courts? a. to interpret legislation b. to resolve disputes between parties c. to protect civil liberties d. to arrest offenders e. to determine the validity of legislation Answer: d Diff: 2 Type: MC Topic: The Courts and Legislation Skill: Recall 30) Section 1 of the Charter of Rights and Freedoms says that the rights in the Charter are not absolute. Section 1 a. enables Parliament to override decisions of the courts regarding the Charter. b. allows the courts to decide whether it is necessary to infringe on rights in order to maintain the values of a free and democratic society. c. permits the Supreme Court of Canada to amend the Charter to conform to the values of a free and democratic society. d. enables provincial legislatures to override decisions of the courts regarding the Charter. e. none of the above Answer: b Diff: 3 Type: MC Topic: The Charter of Rights and Freedoms

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Skill: Recall 31) Any provision found by a court to be outside of the legislature’s jurisdiction and therefore beyond its powers is referred to as a. residual powers. b. concurrent powers. c. rule of law. d. ultra vires. Answer: d Diff: 3 Type: MC Topic: Federalism in the Constitution Skill: Recall 32) If a statute states that it "shall operate notwithstanding" certain rights, this means that permission of parliament is needed to infringe on Charter rights. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Charter of Rights and Freedoms Skill: Recall 33) A simple definition of law would be misleading because law is so diverse and complex. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Copyright © 2016 Pearson Canada Inc. 1-13

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Topic: The Role of Law Skill: Recall 34) Certain fundamental truths, such as "all men are created equal," have been incorporated into our laws. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Role of Law Skill: Recall 35) The law reflects the highest level of moral and ethical standards that are universally accepted by all people. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Role of Law Skill: Applied 36) Law and justice must, of necessity, coincide regardless of whether the result is morally right or Correct. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Copyright © 2016 Pearson Canada Inc. 1-14

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Topic: The Role of Law Skill: Applied 37) Legal liability is the term used when a person breaks the law. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Law and Business Skill: Applied 38) To run a successful business, the owners and managers of that business are not required to know the law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Legal Risk Management Skill: Recall 39) Developing a legal risk management plan is the best way to ensure that a business is managed and run properly. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Legal Risk Management Copyright © 2016 Pearson Canada Inc. 1-15

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Skill: Recall 40) In commerce today, businesses have no need to live up to higher ethical standards. In other words, businesses need not consider the concept of corporate responsibility. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Law and Business Ethics Skill: Applied 41) In Canada, only the federal and provincial governments make the laws. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Who Makes Law? Skill: Recall 42) In any legal system, justice is merely the end result of that legal system and should not be equated with moral right and wrong. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: The Role of Law Skill: Applied Copyright © 2016 Pearson Canada Inc. 1-16

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43) The law is central to a business's interactions with its customers, suppliers, competitors, and government. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Law and Business Skill: Recall/Applied 44) The rights prescribed in the Charter of Rights and Freedoms are absolute. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Charter of Rights and Freedoms Skill: Recall 45) The literal approach to the interpretation of statutes requires a consideration of the plain meaning of the provision of a statute. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Challenging the Validity of a Statute Skill: Recall

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46) Unlike United States Supreme Court judges, Canadian Supreme Court judges are not subjected to a public and politicized confirmation process. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Role of Judges Skill: Recall 47) What is subordinate legislation? Answer: Subordinate legislation is the rules that are passed by a body designated in a statute, pursuant to the provisions of that statute. Diff: 2 Type: ES Topic: Who Makes Law? Skill: Recall 48) There are five distinct steps in developing a legal risk management plan. List these steps. Answer: Conduct a legal audit of the business; prioritize the risks; develop a strategy to address each risk; implement the plan; and regularly review and update the plan. Diff: 2 Type: ES Topic: Legal Risk Management Skill: Recall 49) Canada is a federal system. Briefly explain what this means. Answer: Copyright © 2016 Pearson Canada Inc. 1-18

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In the Canadian federal system there are two levels of government: the Federal government, or Parliament, and the Provincial governments. The power is shared between each under sections 91 and 92 of the Constitution Act. Diff: 2 Type: ES Topic: The Courts and Legislation Skill: Applied 50) What do we mean when we say that the two levels of government have concurrent powers? Answer: Concurrent powers describes the situation when, under the constitution, both the federal and provincial governments appear to have the same authority to regulate a given activity. Diff: 2 Type: ES Topic: The Courts and Legislation Skill: Recall 51) Generally speaking, there are three types of codes of conduct that may be imposed on a business. List or state these codes of conduct. Answer: The three types of codes of conduct are binding codes, voluntary codes and self-imposed codes. Diff: 1 Type: ES Topic: Law and Business Ethics Skill: Recall 52) Generally speaking, there are two reasons why a court will declare a statute invalid. State these two reasons. Answer: 1) The subject matter of the statute is outside the jurisdiction of the government that passed it; and 2) the statute violates the Charter of Rights and Freedoms. Copyright © 2016 Pearson Canada Inc. 1-19

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Diff: 1 Type: ES Topic: Challenging the Validity of a Statute Skill: Recall 53) In a federal country such as Canada, the Supreme Court often has the last word. Explain. Answer: In a federal country such as Canada, there are two levels of government, the national government and the provincial governments. Pursuant to the Constitution Act, 1867, each level of government has an independent existence and its own sphere of activity. There are also areas where the two levels of government have concurrent jurisdiction. When problems arise with respect to jurisdiction, it is the Supreme Court of Canada that makes a final determination as to the interpretation of the law and the exercise of jurisdiction. Diff: 3 Type: ES Page Reference: 10 Topic: The Courts and Legislation Skill: Recall 54) List four kinds of rights that are covered by the Canadian Charter of Rights and Freedoms. Answer: These are equality, mobility, legal, and democratic rights. Diff: 2 Type: ES Topic: The Charter of Rights and Freedoms Skill: Recall 55) Explain the notion of concurrent powers as it pertains to the federal system of government in Canada. Answer: A federal system of government is different from a unitary system of government. In a unitary system of government, such as the system of government that exists in England, Copyright © 2016 Pearson Canada Inc. 1-20

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there is only one level of government that makes laws. In a federal system of government such as the systems of government of the United States and Canada, there are two levels of government, the federal government and the provincial or state governments, and lawmaking power is divided between these two levels of government. Each level of government has jurisdiction to make laws with respect to certain areas. Sometimes the power of the federal and provincial governments may overlap in certain areas. When this happens, it is said that the federal and provincial governments have concurrent jurisdiction. Diff: 3 Type: ES Topic: Who Makes Law? Skill: Applied 56) A business can be managed and run in either a prudent and responsible manner or a stupid manner. Explain how a prudent and responsible businessperson would manage and run a new business that he or she has just began as compared to a person who was not prudent or responsible. Answer: A prudent and responsible businessperson would first familiarize him- or herself with the law. Then he or she would develop a risk management plan that deals with the risks, prioritize them in relation to the business, and implement the plan. Further, he or she would regularly review and update the plan to take into consideration any change of laws or any new laws. Finally, in order to better manage the business, he or she would voluntarily implement a code of conduct by creating one or looking to see whether the business was already governed by one, as in the case of many professions. A businessperson who was neither prudent nor responsible would not do any of these things but would simply run the business as he or she chose, maximizing the legal risks affecting the business and exposing it to all sorts of liability. Diff: 3 Type: ES Topic: Legal Risk Management Skill: Applied 57) You are a judge sitting on the Supreme Court of Canada, which has been asked to rule on the interpretation of a provision in a new statute and to decide whether it is constitutional. What are the two approaches that you can take and what would be the outcome of each? Answer: Copyright © 2016 Pearson Canada Inc. 1-21

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The first approach is to determine whether the words should be interpreted in a broad or restrictive manner. A broad interpretation might result in the provision being found unconstitutional, while a restrictive meaning would leave it valid. The second approach is to try to avoid interpreting the provision so narrowly that the result does not interfere with existing private rights, which may have the effect of frustrating any intended reform. Diff: 3 Type: ES Topic: Challenging the Validity of a Statute Skill: Applied 58) In Canada, law comes from a variety of sources. State each source and explain what type of law comes from it. Answer: In Canada, our law comes from the Constitution, which is the basic law from which all other laws draw their power. After the Constitution, the law comes from legislation passed by both the federal and provincial governments, as well as subordinate legislation called regulations, which are passed by a specific body referred to in that legislation, and decisions made by administrative tribunals set up by the legislation. Finally, law comes from decisions of the courts, based on principles of law that have been developed in earlier court decisions and to which we refer as case law. Diff: 2 Type: ES Topic: Who Makes Law? Skill: Applied 59) The Charter of Rights and Freedoms provides that all are entitled to certain fundamental freedoms. What are these fundamental freedoms? Are there any limits on these freedoms? Answer: Section 2 of the Charter of Rights and Freedoms provides that everyone has the following freedoms: (a) freedom of conscience and religion; (b) freedom of thought belief, expression, opinion, including freedom of the press and communication;(c) freedom of peaceful assembly; and (d) freedom of association. These freedoms are not absolute. Section 1 of the Charter provides that the above freedoms are all subject to reasonable limits as can be demonstrably justified in a free and democratic society. Diff: 2

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Type: ES Page Reference: 12 Topic: The Charter of Rights and Freedoms Skill: Applied 60) Explain how the introduction of the Charter of Rights and Freedoms increased the protection of human rights in Canada. Answer: Before the introduction of the Charter, human rights were not entrenched in the Constitution. After the introduction of the Charter, the court could strike down government action that did not conform to the Charter. Government could override court decisions regarding human rights only by passing legislation notwithstanding the rights contained in it. The Charter can be amended not by ordinary legislation but only by using the difficult amendment process contained in it. Diff: 2 Type: ES Topic: The Charter of Rights and Freedoms Skill: Recall 61) A bartender employed in a licensed establishment over-serves a patron. As a result of the over-service, the patron physically assaults another patron by striking him with a beer bottle. Identify and describe the three forms of liability that may arise as a result of this single incident. Answer: There may very well be criminal charges laid against the patron who committed the assault. This is a matter of public law and would impose the most serious consequences as a result of this criminal act. Additionally, the injured patron may very well sue for compensation as a result of the injuries sustained. The court would be required to determine whether the patron who committed the assault and/or the bartender who overserved him are civilly liable. Finally, liquor licence authorities may request a tribunal hearing to determine whether the tavern is responsible for violating regulatory laws that govern the service of alcohol in a licensed establishment. Diff: 3 Type: ES Topic: Forms of Legal Liability Skill: Applied

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1) In addition to the two basic categories of public and private law, law is divided further into two more categories, which are a. criminal and contract law. b. domestic and international law. c. criminal and tort law. d. public and private law. e. substantive and procedural law. Answer: e Diff: 1 Type: MC Topic: Classifying Law Skill: Recall 2) The form of law that was adopted by the whole of continental Europe was one in which a. the law was not codified. b. the law was both codified and based on previous cases. c. the law was based on decisions of previous cases. d. the law was codified. e. the law was partly, but not fully, codified. Answer: d Diff: 1 Type: MC Topic: Legal Systems: Civil Law and Common Law Skill: Recall 3) The fact that similar cases are treated alike a. increases the number of disputes that go to court. b. reduces the number of disputes that go to court by allowing parties to anticipate the results based on prior outcomes. c. does not help parties in a dispute to anticipate how a case will turn out based on prior outcomes. d. does nothing to reduce the number of disputes that end up in the courts. e. none of the above Copyright © 2016 Pearson Canada Inc. 2-1

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Answer: b Diff: 2 Type: MC Topic: Legal Systems: Civil Law and Common Law Skill: Recall/Applied 4) When we talk about predictability being a major element of law, we mean that a. although the law is predictable, the outcome of a given dispute between people is not. b. people should be more likely to be able to predict when they can circumvent a law. c. the law itself is not predictable, only the cases that are decided. d. by using common sense, the decision of any court can be determined in advance. e. people should be able to find out where they stand and how to act with reasonable certainty. Answer: e Diff: 3 Type: MC Topic: Legal Systems: Civil Law and Common Law Skill: Recall/Applied 5) The rule stare decisis a. is a hard and fast rule that has qualifications attached to it that allow judges to depart from it. b. is merely a principle that applies in those countries where the law is codified. c. is not a hard and fast rule and is not always followed. d. is a hard and fast rule that is always followed. e. has no place in a system based on common law. Answer: c Diff: 2 Type: MC Topic: Common Law: The Theory of Precedent Skill: Recall 6) A valid argument as to why the rule stare decisis should not be an absolute rule is that a. no two sets of facts are identical in every respect. Copyright © 2016 Pearson Canada Inc. 2-2

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b. fairness in law often requires that judges exercise some flexibility in their approaches to some cases. c. precedents only bind the same set of circumstances. d. judges are only bound to follow decisions of higher courts. e. all of the above Answer: e Diff: 2 Type: MC Topic: Common Law: The Theory of Precedent Skill: Recall/Applied 7) In our legal system, the decision of a court of first instance a. can only be overruled by the Supreme Court of Canada. b. can only be overruled by a similar court of first instance. c. can only be overruled by a similar court of first instance and an appeal court. d. can only be overruled by either an appeal court or the Supreme Court of Canada. e. can only be overruled by an appeal court. Answer: d Diff: 2 Type: MC Topic: Common Law: The Theory of Precedent Skill: Applied 8) When it comes to interpreting statutes, a precedent is formed when courts a. decide on the meaning of the language of the statute. b. decide what the language of the statute means; whether it applies to the facts of a case; and, if it does, its consequences. c. determine whether the statute applies to the facts of a case. d. decide on the consequences of the statute when applied to a particular case. e. use and apply an existing case to the case being dealt with. Answer: b Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc. 2-3

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Topic: The Sources of Law Skill: Recall 9) Of the two main classes of legislation, a. active legislation gives the government itself the power to carry on a program and to change the law. b. active legislation gives the government itself the power to change the law. c. passive legislation gives the government itself the power to carry on a program. d. active legislation gives the government itself the power to carry on a program and passive legislation allows it to change the law. e. passive legislation gives the government itself the power to carry on a program and to change the law. Answer: d Diff: 2 Type: MC Topic: The Sources of Law Skill: Recall 10) The provincial court system has been established to deal with most matters of private and public law. Trial courts often deal with matters at first instance. The busiest of these civil courts as far as number of cases is a. Superior Court. b. Provincial Court (Civil Division). c. Supreme Court. d. Small Claims Court. e. Surrogate Court (Probate Court). Answer: d Diff: 3 Type: MC Topic: The System of Courts in Canada Skill: Applied

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11) When we say that in order to institute a lawsuit, a person must first have standing, we mean that a. the person bringing the lawsuit must establish that he or she has the right to bring the lawsuit. b. the person bringing the lawsuit might be someone who has been wronged. c. the person defending the lawsuit must establish that he or she has a good defence to it. d. must be able to stand her or his ground during it. e. the person bringing the lawsuit must explain to the court what his or her lawsuit is about. Answer: a Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall/Applied 12) When two or more parties have a legal dispute, often the cheapest form of resolving the dispute is by a. litigation in the court. b. mediation. c. arbitration. d. an out of court settlement. e. none of the above Answer: d Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Applied 13) The normal steps in a civil lawsuit in Canadian courts are a. statement of claim, statement of defence, discovery of documents, pre-trial conference, and trial. b. statement of claim, statement of defence with or without counterclaim, oral and documentary examinations for discovery, pre-trial conference, and trial. c. statement of claim, statement of defence, oral and documentary examinations for discovery, and trial. Copyright © 2016 Pearson Canada Inc. 2-5

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d. statement of claim, statement of defence, pre-trial conference, and trial. e. statement of claim, statement of defence with or without counterclaim, oral examinations for discovery, pre-trial conference, and trial. Answer: c Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall 14) When considering whether or not it is worthwhile to commence an action or lawsuit , a prudent business manager must consider a. the staggering costs of the litigation, even if winning appears to be a certainty. b. that even if winning appears to be a certainty, it may be impossible to collect any money from the defendant. c. that there is always a risk of losing and having to pay the legal costs of the other party. d. that even if winning appears to be a certainty, the litigation may take up a huge amount of the business manager's time, which would be better spent concentrating on the business. e. all of the above Answer: e Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Applied 15) Which of the following is generally used to resolve an international dispute? a. mediation b. litigation c. settlement d. arbitration e. alternative dispute resolution Answer: d Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc. 2-6

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Topic: Alternative Dispute Resolution Skill: Recall 16) Janet recently learned that her credit card company charged her an unauthorized amount of 94 cents on her credit card bill. She reviewed the matter and determined that this charge had been made on a monthly basis for several months. She consulted with a lawyer who told her that in the circumstances the best procedural approach to addressing the problem was for her to a. issue a claim in Small Claims Court for the few dollars that she had been improperly charged. b. commence court proceedings in Superior Court seeking a greater amount for legal costs. c. do nothing given the small amount at stake and the costs of litigation. d. seek to have the action against the credit card company certified as a class action thereby allowing her to represent the entire group of possible class members, i.e. those who likewise were billed an unauthorized amount by the credit card company. e. forget any court proceedings but try to attract media attention. Answer: d Diff: 3 Type: MC Topic: Procedural Law: Using the Courts Skill: Applied

17) When a party wins a legal action, the judge will usually award the successful party a. legal aid. b. total costs of the litigation. c. solicitor–client costs. d. party and party costs. e. out-of-pocket expenses only. Answer: d Diff: 1 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall Copyright © 2016 Pearson Canada Inc. 2-7

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18) Substantive law a. means the civil law. b. comprises law that applies to rulings of judges. c. means the common law. d. comprises the rights and duties that each person has in society. e. comprises laws that are applied to issues or substantive matters that are identified by lawyers in court. Answer: d Diff: 1 Type: MC Topic: Classifying Law Skill: Recall 19) The primary goals of the common law when it was developed were a. efficiency and regularity. b. consistency and predictability. c. efficiency and speed. d. justice and speed. e. justice and regularity. Answer: b Diff: 1 Type: MC Topic: Legal Systems: Civil Law and Common Law Skill: Recall 20) The two main sources of law are a. common law and canon law. b. subordinate legislation and judge-made law. c. judge-made law and statute law. d. judge-made law and canon law. e. judge-made law and equity. Answer: c Copyright © 2016 Pearson Canada Inc. 2-8

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Diff: 1 Type: MC Topic: The Sources of Law Skill: Recall 21) Law created by administrative agencies that are authorized by statute to make laws for certain purposes is called a. subordinate legislation. b. common law. c. law merchant. d. administrative law. e. domestic law. Answer: a Diff: 2 Type: MC Topic: The Sources of Law Skill: Recall 22) Specific performance and contempt of court are examples of a. common law rules. b. rules of the law merchant. c. rules of canon law. d. equitable remedies. e. subordinate legislation. Answer: d Diff: 2 Type: MC Topic: The Sources of Law Skill: Recall 23) Which of the following is NOT/are NOT a Federal Court of Canada? a. Federal Court of Canada b. Federal Family Court c. Supreme Court of Canada Copyright © 2016 Pearson Canada Inc. 2-9

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d. Tax Court e. all of the above Answer: b Diff: 2 Type: MC Topic: The System of Courts in Canada Skill: Recall 24) Which of the following is NOT one of the tiers of courts in Canada? a. intermediate provincial appeal courts b. Supreme Court of Canada c. circuit courts d. court of first instance e. none of the above Answer: c Diff: 2 Type: MC Topic: The System of Courts in Canada Skill: Recall 25) In class action proceedings, a. legal aid is available to injured plaintiffs. b. the court appoints a lawyer to help injured parties. c. a court usually awards punitive damages against negligent manufacturers. d. separate claims are consolidated for trial. e. a plaintiff applies to court to represent a class of plaintiffs with similar claims. Answer: e Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 2: The Machinery of Justice

26) Mary owes Jack $15 000 in unpaid bills. Mary and Jack enter into an agreement. Jack is required to pay Mary $20 000 for the delivery of certain products. Jack is unable to pay and Mary sues Jack. Under the circumstances, Jack may also a. file a statement of questions. b. counterclaim for $15 000. c. reserve judgment. d. provide admissible evidence. e. request an examination for discovery. Answer: b Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Applied 27) Jack decides to sue Mary and consults a lawyer. Because Jack had very little money, the lawyer agrees that his fees will take the form of a percentage of the damages Jake collects if he wins. The lawyer's fee arrangement is a a. contingent fee arrangement. b. flat fee arrangement. c. solicitor–client fee arrangement. d. sliding scale fee arrangement. e. party and party costs. Answer: a Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall 28) The two models of legal aid that are used in Canada are the a. Ontario legal aid and legal clinics. b. community legal clinic and judicare. c. judicare and payment plans. d. payment plans and community clinic. e. free services and community legal services. Copyright © 2016 Pearson Canada Inc. 2-11

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Answer: b Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall/Applied 29) Mary works at a bread-making factory. All the women workers at the plant are paid lower wages than their male counterparts for the same work. The women workers decide to sue. They decide that Mary should represent all of them in a lawsuit. This kind of lawsuit is known as a. a class action. b. a labour dispute. c. res judicata action. d. a plaintiff claim. e. a representative action. Answer: a Diff: 2 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall/Applied 30) Standing to sue is recognized by a court when a litigant a. pays money into court to the credit of the action he or she has brought. b. enters an appearance by filing a notice of intention to contest an action. c. files an affidavit containing hearsay evidence. d. fails to defend an action. e. has a direct interest in a matter and/or whose rights are specifically affected by another. Answer: e Diff: 3 Type: MC Topic: Procedural Law: Using the Courts Skill: Recall/Applied

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31) Substantive law deals with the rights and duties of each person in society, and procedural law deals with the machinery to enforce those rights. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Who Makes Law? Skill: Recall 32) English common law is based on laws that are codified. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Legal Systems: Civil Law and Common Law Skill: Recall 33) In any jurisdiction of Canada, such as Ontario, the rule is that the decision of a higher court is binding on a lower court. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The System of Courts in Canada Skill: Recall 34) Administrative agencies derive their authority from regulations passed under statutes. Copyright © 2016 Pearson Canada Inc. 2-13

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Sources of Law Skill: Recall/Applied 35) The merger of the courts of chancery with the courts of common law has resulted in judges abandoning the philosophy of equity when deciding cases. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Sources of Law Skill: Recall/Applied 36) The privilege between a doctor and his or her patient is recognized by law in the same way as solicitor–client privilege. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Legal Profession Skill: Recall/Applied 37) An arbitration is presided over by a mediator whose decision is binding on the parties to the arbitration. Copyright © 2016 Pearson Canada Inc. 2-14

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a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Alternative Dispute Resolution Skill: Recall 38) After negotiation, alternative dispute resolution is the cheapest form of resolving disputes. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Alternative Dispute Resolution Skill: Applied 39) The only court in Canada that is not bound by its own decisions is the Supreme Court of Canada. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Common Law: The Theory of Precedent Skill: Applied 40) Equitable remedies such as specific performance originated in the early common law courts. Copyright © 2016 Pearson Canada Inc. 2-15

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a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Common Law: The Theory of Precedent Skill: Recall 41) Equity is currently separate from the common law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Sources of Law Skill: Recall 42) A statement of defence cannot be combined with a counterclaim. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall 43) There are two models of legal aid that are used in Canada. a. True Correct: Correct

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b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall 44) Most provinces in Canada permit contingency fee arrangements. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall 45) Before a person can commence a suit, he or she must have standing to sue. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall/Applied 46) Most legal cases do not go to trial because the plaintiffs simply abandon their rights. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 2 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall 47) The great majority of civil lawsuits do not proceed to trial because the parties ultimately settle. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Procedural Law: Using the Courts Skill: Recall 48) Explain whether judges are required to follow the principle of stare decisis. Answer: Although traditionally judges strictly followed this rule, today they are only bound by decisions of higher courts, and even then, since no two sets of facts are identical in every respect, judges can and do distinguish the facts of the case in issue before them with the facts of earlier similar cases in order to avoid this rule. Diff: 3 Type: ES Topic: Common Law: The Theory of Precedent Skill: Applied 49) Explain what is meant by the liberal approach taken by judges in interpreting statutes. Answer: A liberal approach involves consideration of the context, the custom, and trade usage of the language, as well as the intent or purpose of the government when it passed the law. This will involve looking at the state of the law at the time of the passage of the statute and the language used when the bill was introduced and debated. Copyright © 2016 Pearson Canada Inc. 2-18

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Diff: 2 Type: ES Topic: Legislation: Government Made Law Skill: Recall 50) Explain the legal system commonly referred to as civil law. Answer: This system of law is one that was derived from Roman law, and more particularly Justinian's Code; it involves a comprehensive legislated code in which the actual laws are codified or written down in a statute. Diff: 2 Type: ES Topic: Legal Systems: Civil Law and Common Law Skill: Recall/Applied 51) Explain what a court of first instance is. Answer: A court of first instance is a trial court where witnesses give evidence and an initial judgment is made. The topic of dispute will determine in which trial court the dispute belongs. Diff: 1 Type: ES Topic: The System of Courts in Canada Skill: Recall 52) How is an appeal different from a trial? Answer: A trial is the culmination of an action. The parties to the dispute bring all their evidence and version of the facts before the court. The difference between the version of the facts of both parties is usually very wide. The court's task is to sift through all the evidence presented to determine which evidence is admissible, which facts are credible, and which witnesses are credible. Ultimately, when the judge makes a finding, it is a finding that a person's story is more likely than that of the other party. An appeal is very different from a trial. An appeal is essentially a review of the trial. The appeal judges review the trial Copyright © 2016 Pearson Canada Inc. 2-19

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and evidence to determine whether certain errors were made. Errors could include errors of law, drawing wrong conclusions from the evidence, and misconstruing the evidence. The appeal judges do not re-try the whole matter. Diff: 1 Type: ES Topic: The System of Courts Skill: Recall/Applied 53) What is res judicata? Answer: The term res judicata means that a matter has already been decided by the courts and cannot be re-argued by the same parties. For instance, if Jack sues a corporation for negligence and the court hands down a judgment, then the matter becomes res judicata and Jack cannot re-argue the case. Diff: 1 Type: ES Topic: Procedural Law: Using the Courts Skill: Recall/Applied 54) What is an examination for discovery? Answer: When an action is commenced, each party to the dispute has a right to question the other party, before trial, to determine the case that he or she has to answer and to determine the nature of the evidence that the other side possesses. These pre-trial question-and-answer sessions are known as examinations for discovery. Not all provinces provide for examinations for discovery in their court procedures. Diff: 1 Type: ES Topic: Procedural Law: Using the Courts Skill: Recall 55) Why is hearsay evidence generally not admissible in a trial? Answer: Witnesses who testify in court should be subject to cross-examination so the court can assess their credibility. Hearsay evidence is evidence of words attributed by a witness to a Copyright © 2016 Pearson Canada Inc. 2-20

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person who is not before the court. That evidence should not be allowed because the person who is alleged to have said the words cannot be cross-examined by the opposing lawyer. Diff: 3 Type: ES Topic: Procedural Law: Using the Courts Skill: Applied 56) Explain how a trial judge might avoid the rule of stare decisis, or precedent, to ensure that justice was done in a particular case that came before her or him so as to change the law. Answer: Although the trial judge in such a case would understand that she or he was technically bound to follow earlier decisions dealing with the same subject as the case before her or him and also that normally decisions of higher courts would be binding on her or him, it would be open to her or him to distinguish the facts of the case before her or him from the facts of earlier decisions by dwelling on minor differences between them. This would permit the trial judge to depart from the normal rules and adjust the law to the case before her or him by applying it differently than it was applied in previous or higher decisions. However, the real test of the correctness of the trial judge's decision would come on appeal to either a court of appeal or the Supreme Court of Canada. If these courts, more particularly the Supreme Court of Canada, upheld the trial judge's decision, then her or his departure from the normal rules would be confirmed and she or he would have effectively changed the common law. Diff: 3 Type: ES Topic: Common Law: The Theory of Precedent Skill: Applied 57) Explain why it is important that the Supreme Court of Canada not be bound by its own decisions. Answer: The Supreme Court of Canada is the highest court in the country and the court of last resort for all matters. If it were to bind itself to it own decisions, it would make it virtually impossible for the law to change. As the highest court in Canada, the Supreme Court of Canada must have the flexibility to change the law when contemporary standards change. For this reason it must be able to review and reverse its own earlier decisions, thereby keeping the law current and up to date. Copyright © 2016 Pearson Canada Inc. 2-21

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Diff: 3 Type: ES Topic: Common Law: The Theory of Precedent Skill: Applied 58) Distinguish between mediation and arbitration. Answer: A mediation is presided over by a mediator, whose job it is to try to resolve the dispute between parties by facilitating a settlement between them. Usually, the mediator is an expert in the area of law that applies to the dispute and he or she will use a number of established techniques to help the parties resolve their dispute. However, a mediator cannot make a decision that is binding on the parties. An arbitration is a form of proceeding that is presided over by an official called an arbitrator, who is also usually an expert in the area of law that applies to the dispute. But in an arbitration the parties have agreed in advance to be bound by the arbitrator's decision. During the arbitration, the arbitrator hears evidence from each of the parties and then renders a decision that is final and binding on the parties. None of the parties has a right of appeal unless it can be shown that the arbitrator made an error by exceeding or going beyond his or her authority. Diff: 2 Type: ES Topic: Alternative Dispute Resolution Skill: Recall/Applied 59) Explain the relationship between the courts of common law and equity. Answer: The common law system developed in feudal England at the time of the Norman conquest. The common law is said to be judge-made law because it is based on the recorded reasons of judges. At the core of the common law system is the theory of precedent, which means that judges should stand by the decided cases. The previous decisions of judges are thus important. Because of the importance of the theory of precedent and following previous decisions, the common law grew to be strict and inflexible and in most cases unjust. For instance, before a party could be heard, he or she had to ensure that his or her claim fell within a particular procedure, otherwise it would not be heard. Soon, it became necessary to modify the rigours of the common law. The king thus established another set of courts, referred to as courts of equity, which were intended to remedy the unfairness of the common law decisions. The courts of equity developed side by side with the common law courts and soon were administered by the Lord Chancellor. The Lord Chancellor was said to be the custodian of the conscience of Copyright © 2016 Pearson Canada Inc. 2-22

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the King. In 1865, the British Parliament passed an act that merged the two courts. From this time onwards, the same courts that administered the common law also administered the principles of equity. Hence the saying that equity and the common law go hand-inhand. In Canada, various provinces have also passed acts that have merged the two systems of courts into one court. Diff: 2 Type: ES Topic: Legal Systems: Civil Law and Common Law Skill: Recall 60) Trial judges hear evidence and appeal judges review evidence. Explain. Answer: A trial is the culmination of an action. The parties to the dispute bring all their evidence and version of the facts before the court. The difference between the version of the facts of both parties is usually very wide. The court's task is to sift through all the evidence presented to determine which evidence is admissible, which facts are credible, and which witnesses are credible. Ultimately, when the judge makes a finding, it is a finding that a person's story is more likely than that of the other party. An appeal is very different from a trial. An appeal is essentially a review of the trial. The appeal judges review the trial and evidence to determine whether certain errors were made. Errors could include errors of law, drawing wrong conclusions from the evidence, and misconstruing the evidence. The appeal judges do not re-try the whole matter. Diff: 1 Type: ES Topic: The System of Courts in Canada Skill: Recall/Applied 61) Critics of class actions say that the legislation encourages frivolous lawsuits that are expensive to defend. Explain the benefits of class actions. Answer: A class action allows one individual to represent a group or class of others in one proceeding. Multiple actions and inconsistent results are thereby eliminated. Furthermore, any settlement or judgment binds all members of the class as well as all defendants. This ensures that a subsequent action cannot be brought before the court to contest liability. Finally, class actions can increase access to the courts by allowing claimants to come forward with claims of a small value that might previously have been too costly to litigate.

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Diff: 3 Type: ES Topic: Procedural Law: Using the Courts Skill: Applied

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1) Regarding government regulations, a distinction is sometimes made between direct regulation and social regulation. Which of the following would be a social regulation? a. rate of return on deposits b. standards of safety at amusement parks. c. production levels of utilities d. pricing of brokerage services e. import quotas on textiles Answer: b Diff: 1 Type: MC Topic: The Legal Framework for Doing Business in Canada Skill: Recall 2) In Canada, agriculture and immigration are: a. under the exclusive jurisdiction of the federal government. b. not provided for in the constitution. c. within the jurisdictions of both federal and provincial governments. d. under the exclusive jurisdiction of the provincial government. e. none of the above Answer: c Diff: 1 Type: MC Topic: Challenging Government Regulation of Business Skill: Recall 3) The term or phrase used to describe an area in which both the federal and provincial governments have jurisdiction is a. concurrent jurisdiction. b. separation of powers. c. supremacy. d. diplomacy. e. paramountcy. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Challenging Government Regulation of Business Skill: Recall 4) A law that prohibits any form of association between two or more businesses is probably a. not valid under the Charter of Rights and Freedoms. b. valid under the Charter of Rights and Freedoms. c. void under federal legislation. d. void under provincial legislation. e. none of the above Answer: a Diff: 2 Type: MC Topic: Challenging Government Regulation of Business Skill: Applied 5) A law that applies restrictions on advertising, but does not prohibit it, is probably a. void under provincial legislation. b. not valid under the Charter of Rights and Freedoms. c. valid under the Charter of Rights and Freedoms. d. void under federal legislation. e. none of the above Answer: c Diff: 2 Type: MC Topic: Challenging Government Regulation of Business Skill: Applied 6) A is a student at a local university found guilty of plagiarism under the rules of the university senate. A's case was heard by a panel of professors created under the rules, who did not allow A to defend himself or to be represented by counsel. In this case, on a judicial review hearing of the matter, a. A will succeed on the grounds of procedural irregularity. Copyright © 2016 Pearson Canada Inc.

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b. A will succeed on the grounds of unfairness. c. A will not succeed at all. d. A has no standing to ask for judicial review. e. A will succeed on the grounds that the panel exceeded its authority. Answer: b Diff: 2 Type: MC Topic: Judicial Review of Government Regulation Skill: Applied 7) Edward is an arbitrator appointed under the Arbitration Act. Procedure under the Act is set out in another statute, which makes it mandatory that arbitration briefs be filed by each party to the arbitration. In an arbitration hearing held yesterday, only one party was permitted to file an arbitration brief, but Edward decided that the other brief was unnecessary and rendered his decision. On a judicial review hearing of Edward's decision, a. Edward's decision will be set aside for failure to comply with fairness. b. Edward's decision will be set aside for an error in law. c. Edward's decision will not be set aside. d. Edward's decision will be set aside for procedural irregularity. e. Edward's decision will be set aside for exceeding his authority. Answer: d Diff: 2 Type: MC Topic: Judicial Review of Government Regulation Skill: Applied 8) Use this fact situation to answer the related questions that follow. A local furniture store advertised a specific lamp at a discount, knowing it only had a couple of lamps. When customers came into the store to buy the lamp, they were told that the lamps had sold out, but they could buy another similar lamp at the regular price. In this case, the actions of the furniture store can be described as a. mere puff advertising. b. bait-and-switch advertising. Copyright © 2016 Pearson Canada Inc.

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c. false advertising. d. fraudulent misrepresentation. e. proper advertising. Answer: b Diff: 2 Type: MC Topic: Consumer Protection Skill: Applied 9) Use the fact situation in Q8 to answer the related question that follows. In the fact situation above, the offence that the furniture store has committed is a. a regulatory offence only. b. both a criminal and a regulatory offence. c. no offence at all. d. a criminal offence only. e. neither a criminal nor a regulatory offence. Answer: a Diff: 2 Type: MC Topic: Consumer Protection Skill: Applied 10) Jack manufactures woollen winter sweaters, which are not selling very well in areas of Canada that have been warmer than usual. In order to improve his sales, George removes the tags from all of the sweaters identifying them as wool, and then sells them as summer sweaters. In this case, George has committed an offence under a. the Hazardous Products Act. b. the Criminal Code. c. the Food and Drug Act. d. the Textile Labelling Act. e. the Competition Act. Answer: d Diff: 2

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Type: MC Topic: Consumer Protection Skill: Applied 11) John and Tony are brothers. They each own their own construction companies. They fiercely compete with one another for business. As a result of a call for tender by the local municipality to quote on certain road and sewer work, John and Tony decided to briefly discuss in advance of submitting their individual bids, a “reasonable range” of bids each should submit in response to the tender. Although neither one of the brothers believes they have committed any wrongdoing, they have in fact a. committed anti-competitive behavior known as abuse of dominant position. b. violated section 47 of the Competition Act dealing with bid-rigging. c. engaged in parallel pricing. d. engaged in discriminatory pricing. e. by their conduct engaged in merger. Answer: b Diff: 3 Type: MC Topic: Competition Skill: Applied

12) At a convention of builders in Toronto, a proposal was adopted whereby whenever there was a call for tenders from the provincial government, members would check with each other before submitting their tenders to ensure that only the tenders of companies that needed the work would be accepted. This case is an example of a. discriminatory practice. b. price parallelling. c. abuse of dominant position. d. bid-rigging. e. exclusive dealing. Answer: d Diff: 2

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Type: MC Topic: Competition Skill: Applied 13) Competitors can in fact enter into an agreement whereby each will discontinue producing a current product. If the efficiencies created for the market by this “specializing agreement” make up for any lessening of competition, the competitors may a. freely proceed with the plan to discontinue the product. b. apply to the Competition Tribunal and obtain approval of the agreement. c. do nothing to legalize the effect of the specializing agreement. d. apply for approval of what would otherwise be considered parallel pricing. e. be liable for engaging in bid-rigging. Answer: b Diff: 3 Type: MC Topic: Competition Skill: Applied 14) A large private nuclear facility began discharging radioactive water into the local lake whose waters were used to cool down the reactors. In this case, a. the company has committed an offence under environmental legislation and it may be fined. b. the company's directors may defend on the basis of due diligence. c. the company's officers may defend on the basis of due diligence. d. the company's directors and officers may have committed an offence under environmental legislation and may be fined. e. all of the above Answer: e Diff: 2 Type: MC Topic: Environmental Protection Skill: Applied 15) A provincial government is attempting to determine which of three sites in the province might be used to dispose of hazardous waste. In furtherance of this determination, representatives of local municipal governments where the sites are located Copyright © 2016 Pearson Canada Inc.

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meet with the provincial environment minister. During the meeting, the largest local municipal government advises the minister that if the site in their area is not chosen, it will ensure that its entire population will vote for the minister in the next provincial election and will contribute heavily to his campaign. A few weeks later, a different site is chosen. In this case, the largest local municipal government a. has bribed the minister under the Canadian Environmental Protection Act. b. has bribed the minister under the Corruption of Foreign Public Officials Act. c. has bribed the minister under the environment legislation of the province where the sites are situated. d. has bribed the minister under the Criminal Code of Canada. e. has not bribed the minister at all. Answer: e Diff: 3 Type: MC Topic: Environmental Protection Skill: Applied 16) Bill and Ted are engaged in the business of selling bottled water. Bill’s company operates in northern Ontario. Ted’s company operates in southwestern Ontario. They are the main suppliers of bottled water in their respective areas. Ted decides to open a new office in northern Ontario in order to compete directly with Bill. Prior to the office opening, Bill and Ted bump into each other at a convention. They have a short discussion about business over dinner and agree orally that neither one of them will ever try and move into the other’s existing territory. They shake hands and leave. The nature of the agreement entered into by Bill and Ted a. constitutes abuse of dominant position. b. constitutes the offence of bid-rigging. c. constitutes the anti-competitive behavior of predatory pricing. d. constitutes a breach of section 45 of the Competition Act. e. is an offence under section 46 of the Competition Act implementing in Canada a directive or instruction from a person outside Canada. Answer: d Diff: 3 Type: MC Topic: Competition Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

17) Carla owns Nifftee Dry Cleaners. If she is guilty of misleading advertising, who is the most likely to report her? a. a disgruntled consumer using provincial legislation b. a government agency with the power to prohibit such advertising c. the Services Act of the province of jurisdiction d. provisions of the Competition Act e. a class action lawsuit Answer: a Diff: 2 Type: MC Topic: Consumer Protection Skill: Applied 18) Administrative bodies created by statute must provide a basic level of procedural fairness to those persons likely to be affected by any decision. At a minimum, procedural fairness includes all of the following except a. the right to be heard. b. access to relevant documents. c. adequate notice of any public hearing. d. an impartial decision maker. e. legal aid to those who cannot afford a lawyer. Answer: e Diff: 3 Type: MC Topic: Judicial Review of Government Regulation Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

19) The Competition Act creates a number of criminal offences punishable by fines and imprisonment. The Act prohibits competitors from entering into agreements that hurt competition in their industry which are generally described as conspiracies. Criminal conspiracies include all of the following except a. price fixing. b. market allocation. c. restriction of supply. d. telemarketing. e. sport professional restraint of play. Answer: d Diff: 3 Type: MC Topic: Competition Skill: Applied

20) Under contract law, a provision in the contract for restricting trade will be struck down by the court if it a. prevents a former employee from going into business for him- or herself in competition with his or her previous employer. b. unreasonably restricts competition. c. is a business partner competing with a former associate. d. reasonably protects the new owner of a business against the former owner. e. has no consequence. Answer: b Diff: 2 Type: MC Topic: Competition Skill: Recall/Applied 21) The four companies that sell bulk-rate diesel to farmers in the Saskatoon area have consistently moved together (up or down) with the same prices. It has been suggested that

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

they have conspired together to keep prices the same. Might they be prosecuted under the Competitions Act? a. Yes, they might be, since there is prima facie evidence of a conspiracy. b. Yes, they might be, since this is a good example of the practice of parallel pricing. c. No, they would not be, because the conspiracy cannot be implied. d. No, they would not be, because their intent must be proved. e. Yes, they might be, because an agreement can be inferred from the actual behaviour. Answer: e Diff: 2 Type: MC Topic: Competition Skill: Applied 22) With respect to environmental law, the most important federal legislation is contained in the Canadian Environmental Protection Act (CEPA). Any contravention of the CEPA or its regulations a. may be a criminal offence. b. carries a maximum fine of one million dollars. c. may include three years’ imprisonment as well. d. may include clean-up costs. e. all of the above Answer: e Diff: 3 Type: MC Topic: Environmental Protection Skill: Recall/Applied 23) For the merger of two large competing companies to be approved, there must a. have been a pre-notification to Parliament. b. be barriers to prevent new competitors from entering the market. c. still be effective competition after the merger. d. be no evidence of foreign competition in the market. e. be good economic health in the target firm.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

Answer: c Diff: 1 Type: MC Topic: Competition Skill: Recall 24) Which of the following statements is true concerning environmental protection? a. Although both federal and provincial governments regulate the environment, municipalities also have authority to pass by-laws to provide local environmental protection. b. The most important legislation is the Unified Canadian Environmental Protection Act, which has been adopted by each province. c. Common law has many applications to pollution problems. d. Major environmental disasters have failed to make the public aware of the dangers associated with humans' interaction with the environment. e. So far, only a few of the provinces have general environment protection laws. Answer: a Diff: 1 Type: MC Topic: Environmental Protection Skill: Recall/Applied 25) To enforce environmental protection laws is no small or easy matter. The enforcement usually involves a. primarily a private matter, but one where government agencies are empowered to enforce. b. requiring polluters to refrain from harmful activities, to remedy existing situations, and to pay for the costs of clean-up. c. situations where public authorities are over-zealous with a wide variety of enforcement mechanisms, which they apply abusively. d. the responsibility of corporations, since they are the major polluters. e. the common law tort of nuisance. Answer: b Diff: 2 Type: MC Topic: Environmental Protection Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

Skill: Recall/Applied 26) Any agreement that lessens or has the potential to lessen competition may be reviewed by the Competition Bureau, and the Commissioner of Competition may seek enforcement proceedings before the Competition Tribunal seeking such orders including all of the following EXCEPT a. a cease and desist order. b. any order requiring some form of corrective or modifying action. c. fines or imprisonment imposed on parties unless they fail to comply with tribunal orders. d. a private cause of action for damages based on the legislation. Answer: d Diff: 3 Type: MC Topic: Competition Skill: Recall 27) As a response to high pressure door-to-door sales methods, most provinces have enacted legislation making direct sales contracts non-binding on consumers. A direct sales contract is one in which the contract is formed a. at a consumer’s residence. b. at a consumer’s place of employment. c. at a place other than the business’s place of business. d. at the business’s place of business. e. at a salesperson’s residence. Answer: c Diff: 3 Type: MC Topic: Consumer Protection Skill: Recall 28) The Canada Consumer Product Safety Act (CCPSA) applies to manufacturing, importing, selling, and distributing, and applies to a broad range of products. The CCPSA also provides for all of the following EXCEPT a. mandatory disclosure of defect incidences. b. increasing penalties for non-compliance. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

c. expanding criminal liability to include directors and officers. d. banning unsafe products and setting standards of quality for others. e. expressly providing to the consumer a civil cause of action for damages. Answer: e Diff: 3 Type: MC Topic: Consumer Protection Skill: Recall 29) The provisions of the Competition Act relating to anti-competitive practice can be grouped under three main headings. These do not include a. conspiracies. b. monopolizing. c. mergers. d. regulation of professions. Answer: d Diff: 3 Type: MC Topic: Competition Skill: Recall 30) Consumer protection statutes create regulatory offences that require mens rea and usually allow the due diligence defence. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Consumer Protection Skill: Applied 31) Bait-and-switch advertising is both a criminal and a regulatory offence.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Consumer Protection Skill: Recall/Applied

32) Generally speaking, the conspiracy provisions of the Competition Act do not apply to professionals. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Competition Skill: Recall 33) The fact that prices among competitors in a particular industry tend to go up or down at the same time and by approximately the same amount does not necessarily mean that there is a conspiracy. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Competition Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

34) In appropriate circumstances, a company that has a monopoly can be found guilty of conspiracy under the Competition Act. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Competition Skill: Recall/Applied 35) A voluntary code of conduct created to supplement legislation is as binding as the legislation itself. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Consumer Protection Skill: Recall/Applied 36) Today, environmental impact assessment review is a mandatory step in developing land. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Environmental Protection Skill: Recall Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

37) Parallel pricing is an example of monopolizing. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Competition Skill: Recall 38) Tied-selling is an example of monopolizing. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Competition Skill: Recall

39) Why is there a need to make many consumer-protection offences dual offences? Answer: This need arises to distinguish between non-compliances that are extremely serious and those that are not. Criminal offences, with penalties of fine, imprisonment, or both, are likely to be reserved for serious misconduct or repeat offenders, while less serious offences are more regulatory in nature and permit the due diligence defence. Diff: 2 Type: ES Topic: Consumer Protection Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

40) In addition to remedies provided by consumer protection legislation, what civil remedies can be employed? Answer: Civil remedies are the torts of negligence, fraud, nuisance, conspiracy, wrongful interference with trade, in-contract restraint of trade, and fraudulent misrepresentation. Diff: 2 Type: ES Topic: Consumer Protection Skill: Applied 41) Explain horizontal and vertical mergers. Answer: Horizontal mergers are those between competing firms where one competitor obtains control over another, thereby lessening competition. Vertical mergers occur where one company takes control of its suppliers or distributors, reducing competition by increasing the market control of large firms. Diff: 2 Type: ES Topic: Competition Skill: Recall/Applied 42) What is one major problem that is faced by federal, provincial, and municipal governments when it comes to regulating business? Answer: The problem is that each while level of government may have power to legislate in the same area, often the courts limit these powers, and since agreement on constitutional change is elusive and perhaps impossible, there appears to be no magic formula to allocate powers between the three of them. Diff: 2 Type: ES Topic: Challenging Government Regulation of Business Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

43) On what basis can the courts challenge the legality of administrative acts and decisions? Answer: The courts could challenge on the basis of (1) constitutionality, (2) lack of authority, (3) procedural irregularity, or (4) procedural unfairness. Diff: 2 Type: ES Topic: Judicial Review of Government Regulation Skill: Recall 44) Paul is a licensed plumber who provides residential plumbing service. He advertises in the yellow pages and in the classified section of the local newspaper. It is claimed that his advertising is deceptive. Is he subject to the provisions of the federal Competition Act? Explain. Answer: Yes, he is subject to the federal Competition Act, as well as any provincial or local laws that might apply. Paul provides a service that is included in the term "product" as stated in the Act. Section 52 of the Act states that no person shall represent to the public that which is false or misleading. Diff: 2 Type: ES Topic: Competition Skill: Applied

45) What does it mean when distribution practices such as exclusive dealing, tied selling, and market restriction are said to be "reviewable"? Answer: This means that the practices are not forbidden, but rather that they might be reviewed as to their effect on competition. Section 77 of the Competition Act provides that the tribunal may, on application by the director, make an order prohibiting the practice or requiring it to be modified. Diff: 2

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

Type: ES Topic: Competition Skill: Applied 46) On what basis can a merger be approved even though it has been shown that it will substantially lessen competition? Answer: It may be justified on grounds of economic efficiency. The creation of a larger firm— pooling the assets and skills of the parties—may produce gains such as improved products, increased exports, or reduced reliance on imports. These gains often offset any detrimental effects resulting from a reduction in competition. Diff: 2 Type: ES Topic: Competition Skill: Recall/Applied 47) Explain the dilemma created by the constitution when it comes to the enactment of federal and provincial legislation designed to regulate commercial transactions and thus protect consumers, as well as its effect. Answer: Under the constitution, the powers of the federal and provincial governments are set out in sections 91 and 92. However, sometimes the dividing line between these powers becomes blurred and there is overlap. For example, while the federal government has jurisdiction over the regulation of commerce and trade, the provinces have control over property and civil rights, which has been interpreted to mean the whole body of private law, including contracts and most business transactions. As a result, problems arise when one level of government passes legislation that the other level of government also has the right to pass. While such legislation can be struck down by court interpretation or alternatively be overcome using the paramountcy rule, the fact is that this overlapping effect can and does lead to the enactment of a multiplicity of federal and provincial legislation in a given area, to ensure adequate protection. Diff: 2 Type: ES Topic: Challenging Government Regulation of Business Skill: Recall/Applied 48) In administrative proceedings, what are the overriding principles to be employed? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

Answer: Generally speaking, all such proceedings should be characterized by giving a person the right to be heard as well as access to relevant documents, ensuring that adequate notice is given of any public hearings, and ensuring that the decision maker act impartially and fairly and not have any personal interest in the subject matter of the hearing. Diff: 2 Type: ES Topic: Judicial Review of Government Regulation Skill: Recall 49) The Canadian federal government organized its consumer protection legislation, culminating in 2011 with the implementation of the Canada Consumer Products Safety Act (CCPSA). What is the CCPSA, and what activities does it focus on? Answer: The CCPSA focuses on all activities surrounding dangerous products. Two of its most important initiatives are mandatory recall power for Health Canada and regulatory and criminal liability for corporate directors and officers. It is an offence for a manufacturer to advertise a product that is a danger to human health or safety or is the subject of a recall. Furthermore, retailers and advertisers may be convicted of an offence if they know the product is dangerous or has been recalled. CCPSA offences are dual offences that will be treated as criminal in the more serious circumstances. Diff: 3 Type: ES Topic: Consumer Protection Skill: Recall/Applied 50) Regarding deceptive advertising, which is better, to give government agencies the power to prohibit, such as advertising and impose fines against sellers, or to give consumers an arsenal of remedies for stopping, such advertising? Answer: As more forms of deceptive advertising surface, both approaches are needed and have their place. The newer approach is to give consumers more weapons to use against deceptive advertisers. This approach has several benefits, including minimizing the need of government agencies and identifying damages right where they take place. On the other hand, to have the government monitor and regulate has the advantage of being more preventive rather than reactionary. Probably the threat of both types of sanctions is the most effective deterrent. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 3: Government Regulation of Business

Diff: 1 Type: ES Topic: Consumer Protection Skill: Applied 51) In relation to price fixing, what is parallel pricing? Answer: Within some industries, prices between competitors will tend to remain similar even without an agreement between those in the industry. Most likely their products are so similar that if one firm had higher prices, it would lose substantial business. Many times in an industry of this nature, there is one firm that tends to be the "price leader," so that if it raises or reduces its prices, the others must quickly follow in order to maintain market position. Thus parallel pricing by itself is not evidence of a conspiracy, since it can be explained in the above fashion. Diff: 2 Type: ES Topic: Competition Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

1) A doctor makes a serious error during the course of diagnosing a patient. The patient subsequently dies. The deceased patient’s family members bring a lawsuit against the doctor. All the experts who testify agree that the doctor failed to meet the standard of care but that if appropriate care had been provided, the patient would have died in any event. The family members’ case against the doctor will a. succeed because all the experts agree the doctor provided substandard care. b. fail because the doctor likely provided the patient with informed consent. c. succeed because the law imposes strict liability upon doctors in similar circumstances. d. fail because the plaintiff cannot prove causation which is an essential element of the tort of negligence. Answer: d Diff: 3 Type: MC Topic: Unintentional Torts Skill: Applied 2) Tort damages are often classified into a. special and exemplary damages. b. punitive and exemplary damages. c. special and aggravated damages. d. punitive and special damages. e. general and special damages. Answer: e Diff: 1 Type: MC Topic: Remedies Skill: Recall 3) Albert and Jane and her husband own homes beside each other. Jane has a swimming pool in her back yard. Between the houses, on Albert's property, there is a line of very old trees that have grown so tall that they are blocking the sunlight from the swimming pool area of Jane's property. Yesterday, Jane's husband, George, after hearing Jane complain about the blocked sunlight, without going onto Albert's property, cut 3 metres off the top of each of Albert's trees to let the sunlight into his and Jane's back yard. George's action in cutting down the trees constitutes Copyright © 2016 Pearson Canada Inc. 4-1

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

a. the tort of defamation. b. the tort of assault. c. the tort of nuisance. d. the tort of trespass. e. the tort of negligence. Answer: c Diff: 3 Type: MC Topic: Intentional Torts Skill: Applied 4) Use this fact situation to answer the related questions that follow. Mary is employed in administration at York University, where she is paid $3500.00 a month. The administrative staff have gone on strike and, to that end, have set up a picket line to prevent employees from going into the university's administration building. Mary wants no part of the strike, so she decides that she will cross the picket line. As she does this, an employee named Ralph says, "Unless you want a black eye, lady, you better not cross the picket line." John, another employee, pushes Mary back. Unknown to Mary, there is a hole in the pavement that the university has been aware of for quite some time, but has done nothing about, and as Mary falls back, her shoe catches in the hole and she falls down, breaking her leg and spraining her right arm. Ralph's statement to Mary is a. the tort of negligence. b. the tort of assault. c. the tort of injurious falsehood. d. the tort of battery. e. the tort of trespass. Answer: b Diff: 2 Type: MC Topic: Intentional Torts Skill: Recall/Applied 5) Use the fact situation in Q3 to answer the related question that follows.

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

John's action in pushing Mary constitutes a. the tort of assault. b. the tort of battery. c. the tort of negligence. d. the tort of injurious falsehood. e. the tort of trespass. Answer: b Diff: 2 Type: MC Topic: Intentional Torts Skill: Recall/Applied 6) Use the fact situation in Q3 to answer the related question that follows. The failure of the university to repair the hole in the pavement constitutes a. the tort of nuisance. b. the tort of trespass. c. the tort of negligence. d. the tort of injurious falsehood. e. the tort of battery. Answer: c Diff: 2 Type: MC Topic: Unintentional Torts Skill: Recall/Applied 7) Use the fact situation in Q3 to answer the related question that follows. If Mary sues the university, among the damages that she will receive if she is able to prove her case are a. general and special damages for pain and suffering and for her broken leg and sprained arm. b. general damages for loss of income and medical expenses, etc. c. special damages for pain and suffering and for her broken leg and sprained arm. d. general and special damages for loss of income and medical expenses, etc.

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

e. general damages for pain and suffering and for her broken leg and sprained arm and special damages for loss of income and medical expenses, etc. Answer: e Diff: 3 Type: MC Topic: Remedies Skill: Recall/Applied 8) Use the fact situation in Q3 to answer the related question that follows. If Mary wants to show that the university was negligent, Mary must prove a. that the injuries were a foreseeable result of the failure to repair the hole in the pavement. b. that the university breached its duty to repair the hole in the pavement. c. that Mary suffered injuries as a result of the failure to repair the hole in the pavement. d. that the university owed her a duty to repair the hole in the pavement. e. all of the above Answer: e Diff: 3 Type: MC Topic: Unintentional Torts Skill: Recall/Applied 9) Use this fact situation to answer the related questions that follow. Harry, who owns a home in Toronto, needs a plumber to repair a leaky water pipe, so he calls Marty the plumber. Yesterday it snowed, but Harry did not shovel the snow from his walk and it has now turned to ice. Harry has some salt that he could put on the ice to make it safe, but decides that watching the football game is more important. As Marty arrives at Harry's house, he sees Jonny Star, the local newspaper boy, walk up Harry's walk. Harry told Jonny that he could come over to watch the football game on Harry's brand new HD television. Marty gets out of his truck and begins to go up Harry's walk. Of course, because the walk is covered in ice, both Marty and Jonny slip and fall. Marty breaks his right arm, and Jonny breaks his left ankle. When Harry looks out his window, he sees Marty and Jonny on the ground and notices that although Jonny has rubber winter boots on, Marty is wearing his dress shoes, which have leather soles. In the fact situation above, Marty is a. an occupier. Copyright © 2016 Pearson Canada Inc. 4-4

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

b. a trespasser. c. a contractual entrant. d. an invitee. e. a licensee. Answer: d Diff: 2 Type: MC Topic: Occupier's Liability Skill: Applied 10) Use the fact situation in Q8 to answer the related question that follows. In the fact situation above, Jonny is a. a trespasser. b. an occupier. c. a licensee. d. a contractual entrant. e. an invitee. Answer: c Diff: 2 Type: MC Topic: Occupier's Liability Skill: Applied 11) Use the fact situation in Q8 to answer the related question that follows. In the fact situation above, Harry is a. an occupier. b. a licensee. c. a trespasser. d. an invitee. e. a contractual entrant. Answer: a Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc. 4-5

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

Topic: Occupier's Liability Skill: Applied 12) Use the fact situation in Q8 to answer the related question that follows. In a lawsuit by Marty and Jonny against Harry for negligence, a. the fact that Marty was wearing shoes with leather soles may be found to be contributory negligence. b. the fact that Harry did not shovel his walk or put salt on it will likely not constitute negligence. c. the fact that Marty and Jonny should have known that Harry's walk was covered in ice is contributory negligence. d. the fact that Jonny was wearing rubber boots will likely be contributory negligence. e. the fact that Marty and Jonny should have known that Harry's walk was covered in ice is a voluntary assumption of risk. Answer: a Diff: 3 Type: MC Topic: Unintentional Torts Skill: Applied 13) Which of the following is NOT a defence to the tort of defamation? a. that the defendant did not mean to harm the plaintiff's reputation b. that what the defendant said was true c. that the plaintiff's reputation was not damaged d. qualified privilege e. absolute privilege Answer: a Diff: 2 Type: MC Topic: Intentional Torts Skill: Recall 14) Michael is employed by James' Groceries. Jim, the owner of Jim's Groceries approaches Michael and convinces Michael to leave James' Groceries and work for Jim's Groceries. James' Groceries may sue Jim's Groceries for Copyright © 2016 Pearson Canada Inc. 4-6

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

a. breach of employer–employee contract. b. breach of employee contract. c. interference with employee affairs. d. breach of contract. e. inducing breach of contract. Answer: e Diff: 2 Type: MC Topic: Intentional Torts Skill: Applied 15) Ted is employed as a computer analyst at Macrotech. His written contract of employment requires him to give his employer 30 days’ notice of his intention to terminate the agreement. Macrotech’s main competitor, Data Inc., attempts to hire Ted away. Data Inc.’s president convinces Ted to accept their employment offer and to leave Macrotech immediately, without providing any notice pursuant to the agreement. Data Inc. has committed the tort of a. passing off. b. negligence. c. malicious prosecution. d. inducing breach of contract. Answer: d Diff: 2 Type: MC Topic: Intentional Torts Skill: Recall 16) During the early development of the common law, whether an occupier or owner of premises owed a duty of care to persons who came on the premises and the standard of care owed depended on whether the persons were invitees, trespassers, or a. children. b. public officials. c. licensees. d. law enforcement officials. e. thieves or burglars. Copyright © 2016 Pearson Canada Inc. 4-7

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

Answer: c Diff: 1 Type: MC Topic: Occupier's Liability Skill: Recall 17) James has been burgled several times. He is fed up and decides to do something about it. He places two traps at vantage locations in his home. One night he hears a scream and he runs down to find Bob, a local troublemaker, writhing in pain and holding his bleeding leg. Which of the following is NOT true? a. Bob is not an invitee. b. James owes a duty to Bob. c. James owes no duty to Bob because Bob is a trespasser and was unlawfully on the premises. d. Bob can sue James for deliberately setting the trap to harm him. e. Bob is a trespasser. Answer: c Diff: 2 Type: MC Topic: Occupier's Liability Skill: Applied 18) Which of the following statements is NOT true? a. A manufacturer's duty towards consumers continues after it places a product on the market. b. A retailer may be liable to the consumer for a defective product. c. After a manufacturer places a product on the market, its duty towards consumers ends. d. A manufacturer's duty to warn its customers may be discharged if the warning is issued to a learned intermediary. e. A manufacturer who places a defective product on the market may be liable for negligence. Answer: c Diff: 2 Type: MC Topic: Product Liability Copyright © 2016 Pearson Canada Inc. 4-8

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

Skill: Applied 19) The role of tort law is to a. compensate victims for harm suffered from the activities of others. b. assist judges by providing rules to determine how much money to pay victims of crime. c. punish wrongdoers in the same way that criminal law punishes criminals. d. determine who caused a motor vehicle accident. e. impose strict rules to prevent the commission of crimes. Answer: a Diff: 1 Type: MC Topic: The Scope of Tort Law Skill: Recall 20) A tort is a. a criminal act. b. a misrepresentation. c. a breach of contract. d. the punishment imposed on a person for a wrongful act done to the person or property of another. e. a wrongful act done to the person or property of another. Answer: e Diff: 1 Type: MC Topic: The Scope of Tort Law Skill: Recall 21) Both a crime and a tort are being committed when a. a homeowner decides not to put salt on his walkway after an ice storm and a guest slips and falls the following morning. b. a bar patron becomes ill as a result of being over-served in a tavern. c. an NHL hockey player suffers a broken nose during a consensual on-ice fight.

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

d. a last-minute holiday shopper strikes a fellow shopper with his fist resulting in a broken jaw. Answer: d Diff: 3 Type: MC Topic: The Scope of Tort Law Skill: Applied 22) During the early stages of the development of tort law, liability was a. dependent on a finding of guilt. b. punishable by incarceration. c. dependent on whether the wrongdoing was justifiable. d. strict. e. based on a finding of criminal liability. Answer: d Diff: 1 Type: MC Topic: Development of the Tort Concept Skill: Recall 23) In modern times, the basis for liability in tort is a. whether the wrongdoer is able to compensate the victim. b. actionable recklessness. c. legal carelessness. d. criminal wrongdoing. e. fault. Answer: e Diff: 2 Type: MC Topic: The Basis for Liability Skill: Recall 24) Strict liability Copyright © 2016 Pearson Canada Inc. 4-10

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

a. absolves the defendant from all liability. b. establishes the amount of damages that is payable to an injured party. c. requires that the plaintiff strictly prove that the defendant was at fault. d. means that liabilities are strictly enforced. e. removes the onus on the plaintiff to show that the defendant is at fault. Answer: e Diff: 3 Type: MC Topic: The Basis for Liability Skill: Applied 25) Which of the following best demonstrates the concept of vicarious liability? a. Jack is employed by Jim as a trainee mechanic. Jack goes to a party and is asked by a friend, Mary, to check her car that won't start. Jack checks the car. A few minutes after Mary drives away, the car's ignition explodes, injuring Maggie. b. A man's dog runs out of the house and mauls a letter carrier. c. A cow leaves its pasture, walks into the garden of another farmer and destroys all the farmer’s crops. d. Jack is employed by Jim as a trainee mechanic. Jim's sister, Maggie brings her car to the shop. It has an engine problem. Jack has never worked on a car's engine before. Jim asks Jack to work on the engine. Jack works on the engine. Later when Maggie drives off in the car, the engine explodes, injuring Maggie. e. none of the above. Answer: d Diff: 3 Type: MC Topic: The Basis for Liability Skill: Applied 26) Which of the following statements best explains the standard of care in the law of tort? a. The standard is one that the judge expects. b. The standard is one that differs from person to person and activity to activity. c. The standard is one that society expects. d. The standard is one that the lawyer expects. Copyright © 2016 Pearson Canada Inc. 4-11

TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 4: The Law of Torts

e. The standard is the same for all persons and activities. Answer: b Diff: 2 Type: MC Topic: Unintentional Torts Skill: Recall 27) At what stage in a negligence action will the court apply the remoteness test? a. the duty of care stage b. the breach of duty stage c. the causation stage d. the injury/damages stage e. the standard of care stage Answer: d Diff: 2 Type: MC Topic: Unintentional Torts Skill: Recall

28) Joe recently purchased a can of shaving cream from his pharmacy. After shaking the can as directed, Joe pushed the button on top. Suddenly and without warning, the can exploded causing serious injury to Joe. As a result of the explosion, the can of shaving cream was destroyed. In an action by Joe against the manufacturer, the following principle of law will apply: a. The shaving cream manufacturer will be held strictly liable for damages caused by the explosion. b. The court can infer negligence on the part of the manufacturer on the basis of the circumstantial evidence resulting in a shift of the burden onto the manufacturer to prove that it was not at fault. c. Joe will be unable to meet the burden of proof in establishing that the manufacturer was negligent given the destruction of the evidence. d. Joe will be found to be contributorily negligent.

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Answer: b Diff: 3 Type: MC Topic: Product Liability Skill: Applied

29) Stoney Canyon penitentiary is located near the town of Elmwood. One evening a guard employed at the jail failed to properly secure one of the gates near an exercise field. As a result, an inmate escaped and went on a crime spree. Having regard to issues of proximity, foreseeability, and policy reasons, which of the following claimants would be least likely to succeed in a court action against the guard and/or the jail? a. A claim by a citizen of Elmwood whose vehicle was carjacked within hours of the escape. b. A claim by a gas station owner for personal injury and economic losses occasioned by the escaped inmate’s assault and robbery which took place two months later and 250 kilometres away from the jail. c. The claim of a local bingo parlour whose premises were torched by the inmate after a standoff with the police the day after his escape. d. The claims of an elderly couple injured in an automobile accident two days after the escape during which the inmate crashed into their car following a high speed pursuit. Answer: b Diff: 3 Type: MC Topic: Unintentional Torts Skill: Applied 30) Phil was riding his motorcycle home from work when he was involved in a motor vehicle accident. As he lay on the road injured, he was attended to by two different motorists who stopped after seeing the accident. Additionally, an overhead helicopter from the local TV news station was broadcasting live on air. Suddenly, a second vehicle careened out of control and ran over Phil killing him instantly. Given concerns about proximity, foreseeability, and policy reasons, of all the people who suffered nervous shock, who would be most likely to recover compensation in a court action against the reckless driver of the second vehicle that caused Phil’s death? Copyright © 2016 Pearson Canada Inc. 4-13

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a. Claims by the two motorists who were assisting Phil at the scene. b. Claims by the people who witnessed the incident on TV. c. Claims by the ambulance attendants who arrived 10 minutes after Phil died. d. Claims by those who read the story and saw pictures in the paper the following day. Answer: a Diff: 3 Type: MC Topic: Unintentional Torts Skill: Applied 31) During a parliamentary debate, Jack accuses Jim of lying to his constituents Jim decides to sue. Which of the following is true? a. Jack has a defence of absolute immunity. b. Jack has a defence of qualified privilege. c. Jack has a defence of absolute privilege. d. Jim may bring an action for negligent misstatement. e. Jack's conduct is called libel. Answer: c Diff: 2 Type: MC Topic: Intentional Torts Skill: Applied 32) Exemplary damages are awarded by the court when it intends to a. grant an injunction. b. punish the wrongdoer. c. compensate the victim for out-of-pocket expenses that can be quantified. d. provide compensation for intangible injuries, such as pain and suffering. e. compensate the victim's family for the loss of their loved one. Answer: b Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc. 4-14

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Topic: Remedies Skill: Recall 33) The purchaser of a bottled beverage is more likely to be successful in a suit for damages against the manufacturer as a result of becoming ill if a. she saw a long black hair in the bottle and decided not to drink it. b. she saw a long black hair in the bottle and dropped it on the ground before she opened it. c. she saw a long black hair in the bottle after taking “a sip.” d. she gave the bottle to a friend and saw a long black hair in the bottom after her friend drank it. Answer: c Diff: 3 Type: MC Topic: Product Liability Skill: Applied 34) Prior to the legislative changes in Canada with respect to contributory negligence, if a plaintiff contributed in any way to her or his own loss the action would fail. Statutes now require courts to a. determine if the plaintiff’s degree of fault exceeds the defendant’s degree of fault as a pre-condition to dismissing the action. b. apportion damages according to the respective degree of responsibility of the parties. c. find against the most liable defendant. d. follow strictly the responsibility chart set out in the statute. Answer: b Diff: 3 Type: MC Topic: Unintentional Torts Skill: Recall 35) Which of the following is NOT a defence to a defamation action? a. responsible communication on matters of pubic interest b. the written or spoken words were true c. qualified privilege Copyright © 2016 Pearson Canada Inc. 4-15

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d. the written or spoken words came from someone else first e. absolute privilege Answer: d Diff: 3 Type: MC Topic: Intentional Torts Skill: Recall 36) A duty of care may be owed to someone other than the person who is directly injured. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Unintentional Torts Skill: Applied 37) An occupier has no liability whatsoever to a trespasser. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Occupier's Liability Skill: Recall/Applied 38) Compensation in tort law is not always in the form of damages. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc. 4-16

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Answer: b Diff: 2 Type: TF Topic: Remedies Skill: Recall/Applied 39) An act of omission that is not found to be negligence today may later be found to be negligence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Unintentional Torts Skill: Recall/Applied 40) An innocent employer is vicariously liable for the negligent acts of an employee. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Strategies to Manage the Legal Risks Skill: Recall 41) In some cases an otherwise blameless employer may be required at law to compensate victims of criminal acts committed by its employees. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 2 Type: TF Topic: The Basis for Liability Skill: Recall 42) An employer who has expressly prohibited certain actions can never be vicariously liable if an employee ignores this prohibition. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Basis for Liability Skill: Recall 43) A high intensity sound coming from one property and affecting other properties does not constitute the tort of nuisance. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Intentional Torts Skill: Applied 44) The roots of a tree that is growing on one property and that continue to grow onto another property may constitute a nuisance. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 2 Type: TF Topic: Intentional Torts Skill: Applied 45) An attack by one person on the reputation of another person constitutes the tort of injurious falsehood. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Intentional Torts Skill: Recall/Applied

46)In some circumstances, there is immunity from defamation lawsuits. Words spoken in parliamentary debate, in proceedings in law courts and inquests, and before royal commissions, are subject to absolute privilege. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Intentional Torts Skill: Applied 47) Under strict liability, a wrongdoer is punished strictly if the wrongdoer was at fault. Copyright © 2016 Pearson Canada Inc. 4-19

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a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Basis for Liability Skill: Recall 48) After a manufacturer places a product on the market, it has a continuing obligation to warn consumers of potential dangers. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Unintentional Torts Skill: Recall 49) An invitee is a person permitted by the occupier to enter the premises for business purposes, for example a shopper. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Occupier's Liability Skill: Recall 50) Most Canadian jurisdictions have now abolished the distinction between invitees and licensees. Copyright © 2016 Pearson Canada Inc. 4-20

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Occupier's Liability Skill: Recall 51) An inmate is able to escape from a local prison because a security guard left a gate open. The jail owes the same duty of care to a local farmer who is assaulted by the inmate minutes later as it does to a gas station owner who operates 750 kilometres away and is robbed three months later. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Duty – Unintentional Torts Skill: Applied 52) Malicious prosecution concerns the prosecution of crimes and is not a tort. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Intentional Torts Skill: Recall

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53) During parliamentary debate one day, James describes Peter as " a thief and a liar." Peter decides to sue for defamation. James has a defence of absolute privilege. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Intentional Torts Skill: Applied 54) Restitution is a remedy available to a plaintiff who seeks an order restraining a person from doing, or continuing to do, a particular act. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Remedies Skill: Recall 55) Even a trespasser is owed a duty of common humanity. Explain. Answer: An occupier or owner of premises owes a minimal duty to a trespasser. He or she must not deliberately set out to harm the trespasser or recklessly disregard the possibility that his or her acts might harm the trespasser. Diff: 2 Type: ES Topic: Occupier's Liability Skill: Applied

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56) Explain the principle of vicarious liability. Answer: Although an employee may be primarily liable for a tort, if the tort is committed in the course of employment, the employer is also liable in a secondary sense. Diff: 2 Type: ES Topic: The Basis for Liability Skill: Recall 57) In law, the concept of negligence continues to evolve, so that what was not negligence in the past may well become negligence in the future. Explain. Answer: Being founded on a duty or standard of care, circumstances that may constitute negligence change with society and what at one time may not have given rise to a duty of care or set a standard of care may well change at another time. Diff: 3 Type: ES Topic: The Basis for Liability Skill: Applied 58) Explain the concept of absolute privilege and its application. Answer: Absolute privilege provides complete immunity from liability for defamation, but is restricted to defamatory statements made during parliamentary debate, in proceedings in law courts and inquests, and before royal commissions. Diff: 2 Type: ES Topic: Intentional Torts Skill: Recall 59) Where there is negligence, the injured party may be required to mitigate his or her damages. Explain. Answer: Copyright © 2016 Pearson Canada Inc. 4-23

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A person who suffers an injury due to the negligence of someone else has a duty to minimize his or her injuries where this is possible. Minimizing these injuries is a form of reducing or mitigating the injury and, thus, the damages caused by the negligence. Diff: 2 Type: ES Topic: Unintentional Torts Skill: Applied 60) The duty of a manufacturer to warn may be discharged by issuing a warning to learned intermediaries. Explain. Answer: A manufacturer has a duty to warn consumers after its products are placed on the market. This duty extends to warnings regarding the improper use of the product. However, if the manufacturer issues warnings to learned intermediaries, such as doctors, on how to use the product properly, the manufacturer's duty towards the consumer is discharged. Diff: 2 Type: ES Topic: Product Liability Skill: Applied 61) Explain the development of fault as an appropriate basis for liability in tort. Answer: In the early development of tort law, liability was strict. There was no inquiry into the reasons for the injury and whether the wrongdoer's conduct was justified. However, the idea developed that a person ought not to be liable for injury that he or she did not cause. Thus, tort law soon began to take into account the fault of the alleged wrongdoer in causing injury. Diff: 3 Type: ES Topic: The Basis for Liability Skill: Applied 62) Distinguish between general and special damages. Answer: Copyright © 2016 Pearson Canada Inc. 4-24

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General damages are intended to compensate an injured party for intangible injuries, such as pain and suffering. Special damages are intended to reimburse the injured for out-ofpocket expenses, such as hospital bills. Diff: 1 Type: ES Topic: Remedies Skill: Recall 63) Distinguish between general and punitive damages. Answer: General damages are intended to compensate the injured party for intangible injuries, such as pain and suffering. Punitive damages are imposed by the court to punish the wrongdoer. Diff: 1 Type: ES Topic: Remedies Skill: Recall 64) There are cases in which a remedy other than damages may be available. What is the difference between a restitutionary order and an injunction? Answer: A plaintiff attempting to recover property wrongfully converted by a defendant can obtain a restitutionary order requiring its return. Courts may also grant injunctive relief preventing a defendant from committing wrongful acts under threat of contempt of court. Diff: 3 Type: ES Topic: Remedies Skill: Applied 65) What is meant by owing a "duty of care" in the tort of negligence? Answer: A duty of care is said to be owed by one person, for example, Jack, to another, for example, Jim, where the closeness of Jack and Jim is such that Jack ought reasonably to have Jim in contemplation as being affected by his acts or omissions. Copyright © 2016 Pearson Canada Inc. 4-25

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Diff: 2 Type: ES Topic: Unintentional Torts Skill: Applied 66) What do we mean when we say that damage is remote? Answer: Damage or injury suffered by a person is said to be remote when it could not have been foreseen by the wrongdoer as likely to result from her or his acts or omissions. Diff: 2 Type: ES Topic: Unintentional Torts Skill: Applied 67) What is contributory negligence? Answer: Contributory negligence is the negligence of an injured party that contributes to the injured party's own injury. Diff: 2 Type: ES Topic: Unintentional Torts Skill: Recall 68) Explain how a warning issued by a manufacturer to a "learned intermediary" discharges the duty of the manufacturer to warn consumers of defects in a product. Answer: A manufacturer has a continuing duty to warn consumers of dangers and defects associated with products it places on the market. The manufacturer may issue the warning to a learned intermediary, namely, a person whom the consumer consults about the use of the product—for example, a doctor. The duty to warn is discharged if the warning is issued to a learned intermediary. Diff: 3 Copyright © 2016 Pearson Canada Inc. 4-26

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Type: ES Topic: Unintentional Torts Skill: Recall/Applied 69) Explain how the defence of qualified privilege may be used in a defamation action. Answer: The defence of qualified privilege to a defamation action is one that is available to persons in positions of authority whose responsibility it is to provide information about other persons. Provided such persons give the information sought in good faith and with an honest belief in its accuracy, they can successfully defend against a defamation action even if the information proves to be false. Diff: 3 Type: ES Topic: Intentional Torts Skill: Recall 70) Criminal law and tort law focus on different persons when a tort or crime is committed. Explain. Answer: Tort law focuses on the victim of a tortious act and seeks to compensate the victim for the harm suffered. Criminal law focuses on the perpetrator of the criminal act and seeks to punish the perpetrator. Diff: 3 Type: ES Topic: The Basis for Liability Skill: Applied 71) What is the difference between intentional torts and negligence? Answer: Intentional torts involve behaviour done deliberately that causes injury or loss to another person. Negligence is an unintentional tort, usually the result of careless activity on the part of a defendant. Negligence traditionally requires the court to consider whether the defendant’s conduct fell below a reasonable standard of care in all the circumstances.

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Diff: 3 Type: ES Topic: Torts Skill: Applied 72) Social policy influences judicial decision-making and legislative intervention in the area of tort law. Explain. Answer: Society has certain standards by which it expects persons to live. Societal standards necessarily give rise to expectations regarding the consequences of a breach of those standards. In the area of tort law, societal standards give rise to expectations of how persons should act towards each other, and, in the event that one person injures another, the amount of compensation that should be paid to the injured party should the other party be deemed to be at fault. The expectations of society ultimately influence policymaking in the form of legislative intervention of judicial decision-making. Judges look at societal standards and expectations, for example, to determine how much a person who has lost a limb should be given in compensation. As well, lawmakers in the legislature make laws that reflect standards. For instance, in Canada, workplace safety laws require that employers contribute to workplace safety and insurance. An injured worker is paid from this pool of contributions. This law reflects the social policy that employers who do business should contribute to the rehabilitation of injured workers. Diff: 3 Type: ES Topic: The Basis for Liability Skill: Applied 73) Jack owns a pub. One evening, Jim, a friend, comes into the pub and orders a drink. Over a period of approximately two hours, Jim orders and drinks a variety of alcoholic beverages. Shortly before the pub closes, Jim pays for his drinks and leaves the pub. Jim gets into his car and drives away. On his way home, Jim is involved in a motor vehicle accident. Explain the nature of the tort that Jack would be found to have committed. Are there any defences available to Jack? Explain what these defences are. Answer: Jack would most likely be found to have been negligent. The tort of negligence is committed when a party who is said to owe a duty of care to another breaches that duty. Jack may be said to owe a duty because he meets the test. Jack and Jim are in such proximity that Jack ought reasonably to consider Jim as being affected by his acts or omissions. In this instance, Jack owed a duty to Jim to stop Jim from drinking immediately once he determined that Jim was drunk. He also owed a duty to prevent Jim from driving home. Jack did not stop Jim, either from continuing to drink or from driving Copyright © 2016 Pearson Canada Inc. 4-28

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home, and this is in breach of his duty. As a result of Jack's omissions, Jim sustained an injury, which could be said to be directly related to Jack's omission. Jack is able to advance the defence of contributory negligence, and of voluntary assumption of risk, to reduce the amount of compensation to which Jim may be entitled. Jim was not only contributorily negligent, he also voluntarily assumed the risk that if he consumed too much alcohol and he drove home, he could be involved in an accident. Diff: 3 Type: ES Topic: Unintentional Torts Skill: Applied 74) The standard of care in the law of negligence is not a uniform standard. Explain. Answer: The law places a duty on each person to take such reasonable care that his or her acts and omissions do not cause foreseeable harm to another. The standard of care, that is the nature and degree of care that the law considers to be reasonable and expects a person to live up to, is not uniform and varies from person to person and from activity to activity. In addition, the court also takes into consideration various factors, such as the likelihood of harm and the potential severity of the injury. Thus, in the case of a medical procedure with potentially serious consequences, the standard of care that the court will expect of a doctor who is a specialist will be higher than the standard it expects of someone who is not a specialist. Diff: 3 Type: ES Topic: Unintentional Torts Skill: Applied 75) Foreseeability is a major element in the determination of the extent of liability. Explain. Answer: Foreseeability is the legal term that means the extent to which an injury could have been anticipated. That is to say, was the injury foreseeable. The law places a duty on all persons to not engage in acts, and to avoid omissions, that will result in foreseeable injury to another. Until the 1960s, the general principle was that a wrongdoer was liable for any injury that resulted directly from his or her actions, however unlikely it was that the injury could have flowed from the act or omission. In one of the landmark cases in the common law, The Wagon Mound, decided in the United Kingdom, the Court restricted liability to injury or damage that was reasonably foreseeable. In Canada, the current Copyright © 2016 Pearson Canada Inc. 4-29

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position takes a broad view of what is foreseeable. The position is that a wrongdoer takes a victim as he or she finds him or her. Thus if a victim has a pre-existing condition or disability such that the injury that flows from the act of the wrongdoer is far more serious than might have been expected, the wrongdoer will nevertheless be liable for the injury. Diff: 2 Type: ES Topic: Unintentional Torts Skill: Applied 76) The concept of foreseeability in tort law is considered by a court in determining the existence of a duty of care and as a threshold for the recovery of any damage suffered by an injured plaintiff. Explain the significance of “reasonably foreseeable” as it relates to both duty and damages, as well as the policy reasons why courts sometimes fail to recognize a duty, or fail to recognize that the plaintiff has met the threshold for recovery of damages. Answer: As far as duty of care goes, the courts will not impose liability unless it was “reasonably foreseeable” that a negligent act or omission would cause potential injury or loss to the plaintiff. Judges often refer to this aspect of the establishment of a duty of care as “proximity.” With respect to the recovery of damages, the court employs a “reasonable foreseeability test” to establish a threshold that a plaintiff must meet or exceed to recover damages. The court undertakes an objective assessment of what a reasonable defendant would foresee as likely injury to the average plaintiff. The plaintiff must satisfy the court that a person of “ordinary fortitude” would likely have suffered injury, failing which, causation at law is not established. Policy concerns considered by the court in either recognizing a duty of care or recognizing an entitlement to claim damages include the proliferation of lawsuits and the ability to insure against a potential new risk. Diff: 3 Type: ES Topic: Unintentional Torts Skill: Applied 77) How can the plaintiff's own conduct affect the outcome of a claim for negligence? Answer: Jurisdictions have contributory negligence legislation that requires the courts to apportion damages according to the degree of responsibility of the parties. If a plaintiff is injured but contributed to the injury through the plaintiff's own fault, the compensation that the Copyright © 2016 Pearson Canada Inc. 4-30

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defendant is required to pay will be reduced. The courts apply a "comparative blameworthiness" approach in apportioning responsibility. Diff: 2 Type: ES Topic: Unintentional Torts Skill: Recall 78) For the most part, Canadian courts apply modified principles of negligence to determine liability. Some critics of fault-based systems propose that victims be compensated through “no-fault” government schemes—similar to those already in place relating to motor vehicle accidents and workers compensation. Others argue that the law should impose “strict liability” in all areas in which plaintiffs have traditionally struggled to establish fault, namely, against manufacturers of goods or products. Explain the three bases for awarding compensation to injured parties and the advantages and disadvantages of each. Answer: The traditional fault-based system provides an injured plaintiff with access to the courts to obtain compensation. However, a plaintiff must prove all three elements of a traditional negligence claim—that being, fault causing loss. Fault-based systems are often thought to be fair because damages are only awarded against negligent defendants. There is also a significant deterrent effect. However, requiring a plaintiff to establish fault can be costly and can often result in a financially needy plaintiff receiving no compensation at all. A comprehensive no-fault scheme with respect to personal injury would in effect take away the right to sue for compensation. Instead, everyone who suffered unexpected or unanticipated injury could apply pursuant to a government scheme to receive compensation. No-fault schemes are attractive in that all injured parties receive some level of compensation, but a government scheme of no-fault insurance for all personal injury would undoubtedly be costly and claimants would likely receive lower levels of compensation than they would under the current tort regime. Critics of no-fault legislation also argue that persons may be less vigilant in causing injury to themselves or in contributing to any loss. Additionally, there would be no deterrent effect on potential defendants to take care in circumstances where parties may be injured as a result of their acts or omissions. To impose strict liability on all defendants would certainly allow plaintiffs to more easily recover damages for their injuries. There would be a requirement on the part of the plaintiff to muster a case on the issue of liability, which often would require hiring lawyers and experts. It is arguable that defendants would take greater steps to ensure that the products they delivered to market were safe for users. On the other hand, imposing liability on every defendant in every case where a plaintiff suffered harm could potentially result in ballooning insurance costs. A strict liability scheme would likely lead to some legislative measures reducing damage awards to avoid runaway insurance premiums. The plaintiff retains access to the courts but is relieved from any

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obligation to prove fault, rather shifting the obligation to the defendant to show that no breach of the applicable standard of care occurred. Diff: 3 Type: ES Topic: The Basis for Liability Skill: Critical Thinking

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1) The duties of professionals may be categorized as a. fiduciary, duty in tort, and duty to employees. b. contractual, duty to employees, and duty in tort. c. duty in tort, business duty, and contractual duty. d. general duty, contractual duty, and duty in tort. e. contractual, fiduciary and duty in tort. Answer: e Diff: 1 Type: MC Topic: Liability of Professionals Skill: Recall 2) The difference between a negligent misrepresentation and a fraudulent misrepresentation is that a. a fraudulent misrepresentation requires only a breach of duty of care and skill, while a negligent misrepresentation requires at least some guilty knowledge or willful disregard of the falsity of information provided. b. a negligent misrepresentation requires only a breach of duty of care and skill, while a fraudulent misrepresentation requires at least some guilty knowledge or willful disregard of the falsity of information provided. c. there is no practical difference between a fraudulent misrepresentation and a negligent misrepresentation d. a fraudulent misrepresentation does not require guilty knowledge or willful disregard of the falsity of information provided, while a negligent misrepresentation does. e. a negligent misrepresentation does not require a breach of duty of care and skill, while a fraudulent misrepresentation does. Answer: b Diff: 3 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Recall/Applied 3) A conflict of interest can be said to arise a. where a professional represents two or more parties, each of whom has an opposing interest.

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b. when a client's interest conflicts with the interest of another person represented by the same professional. c. where a client's interest conflicts with the interest of the professional representing the client. d. where a professional represents two parties, each of whom has a competing interest. e. all of the above Answer: e Diff: 3 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 4) In a lawsuit against a professional for a breach of duty of care, a prudent plaintiff should a. sue in contract for breach of contract for failure to properly perform services. b. sue in tort for breach of fiduciary duty. c. sue in tort for negligence arising from a breach of duty of care. d. sue in tort for negligence arising from a breach of duty of care and in contract for breach of contract for failure to properly perform services. e. sue in contract for negligence arising from a breach of duty of care and sue for breach of fiduciary duty. Answer: d Diff: 3 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 5) Alice Walters is a patient of Dr. John Good, a heart surgeon. Dr. Good had just begun to tell Alice that her treatment wasn't working and that she would need to have surgery to correct a defect in her heart, but then he was called away on an emergency and forgot to return to his conversation with Alice and explain all of the risks of the surgery to her. In fact, Dr. Good had diagnosed Alice's condition three years ago after returning to work from his office Christmas party. He had had a number of alcoholic beverages, and this caused him to misinterpret a lump on her lung for a lump on her heart. After diagnosing Alice, Dr. Good had told Alice that the problem was with her heart and then prescribed treatment for it. Relying on what Dr. Good had told her, Alice had accepted the treatment, which was very painful. In this situation, it can be said that Copyright © 2016 Pearson Canada Inc.

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a. Dr. Good made a negligent misrepresentation about the nature of Alice's problem and the treatment for it. b. Dr. Good was negligent in his diagnosis. c. Dr. Good failed to obtain from Alice an informed consent. d. Dr. Good committed a breach of contract in misdiagnosing Alice's condition. e. all of the above Answer: e Diff: 3 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Applied 6) Use this fact situation to answer the related questions that follow. Henry Jones is the sole shareholder of Happy Go Lucky Company (HGLC). Henry, needing a loan from his bank, went to his accountant, Bob Wallice, and asked him to prepare a financial statement of the company that Henry could give to the bank to get the loan. Unfortunately, Mr. Wallice included certain property that did not belong to the company, which increased its value. When Henry took the financial statement to the bank, the bank caught the error, but made Henry guarantee the loan. The bank then told Mr. Wallice, who forgot to correct the error in the financial statement. A few days later, Henry decided he needed to invest more money in his company and began negotiations with a business associate, Carol Hill. When Carol asked for the financial statement of the company, Henry told her she could get it from the bank or from his accountant. Carol decided to go to the bank, which gave her the financial statement with the error in it. Based on the financial statement, Carol invested $50 000.00 in the company, only to realize a month later the problem with the financial statement the bank had given to her. In this situation, a. Mr. Wallace owed a fiduciary duty to Carol. b. the bank owed a fiduciary duty to Carol. c. Mr. Wallace owed a fiduciary duty to Harry. d. Mr. Wallace owed a fiduciary duty to the bank. e. all of the above Answer: e Diff: 3 Type: MC Topic: Liability of Professionals Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 7) Use the fact situation in Q6 to answer the related question that follows. In this situation, the preparation of the financial statement by Mr. Wallice, the accountant, constituted a. negligent misrepresentation only. b. breach of contract only. c. negligence only. d. negligence, breach of contract and negligent misrepresentation. e. only negligence and breach of contract. Answer: d Diff: 3 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Applied 8) Use the fact situation in Q6 to answer the related question that follows. In this situation, the bank's conduct in giving the erroneous financial statement to Carol constituted a. a breach of contract only. b. a negligent misrepresentation. c. a fraudulent misrepresentation. d. negligence only. e. neither negligence, no breach of contract or negligent misrepresentation. Answer: b Diff: 3 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Applied 9) Use the fact situation in Q6 to answer the related question that follows. In this situation Henry's telling Carol to get the financial statement from the bank constitutes a. a negligent misrepresentation. Copyright © 2016 Pearson Canada Inc.

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b. an innocent misrepresentation. c. negligence. d. a breach of the duty to act in good faith. e. none of the above Answer: e Diff: 3 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Applied 10) Use the fact situation in Q6 to answer the related question that follows. In this situation, if the value of the company increases substantially so that Carol makes money on her investment, a. Carol will still suffer damages, but will only have an action against the accountant. b. Carol will still suffer damages, but will only have an action against Henry. c. Carol will still suffer damages, but will only have an action against the bank. d. Carol will still suffer damages and have an action against the accountant and the bank. e. Carol has suffered no damages and has no action at all. Answer: e Diff: 1 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Applied 11) Where a professional undertakes a task that is beyond the usual skills of his or her profession, a. the professional must still follow the recommended standard. b. the professional must use the degree of skill and knowledge commensurate with the task undertaken. c. the professional must follow a well-known practice. d. the professional must follow all standards suggested as the proper standard. e. the professional need not follow any standard. Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 12) A fiduciary duty exists between a professional and his or her client when a. the professional lends money to the client. b. the principle of equity imposes such a duty. c. the client owes money to the fiduciary. d. a special relationship of trust exists. e. a contract exists between the professional and the client. Answer: d Diff: 1 Type: MC Topic: Liability of Professionals Skill: Recall 13) The contractual duty of a professional contains a promise a. to perform the services with due care. b. to accept payment rendered for services. c. to work for the client. d. to engage other agents in pursuance of the contract. e. to submit invoices denominated in Canadian dollars only. Answer: a Diff: 1 Type: MC Topic: Liability of Professionals Skill: Recall 14) Negligent misrepresentation is a. a defamatory statement. b. a statement that is fraudulent. c. a statement that is made by one party to another and induces the other person to engage in negligent acts. Copyright © 2016 Pearson Canada Inc.

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d. a statement that insults another. e. an incorrect statement that is made without due care for its accuracy. Answer: e Diff: 2 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Recall 15) A misrepresentation is a. a false assertion of fact made without knowledge of its falsity, and with honest belief in its truth. b. a false assertion of fact made with knowledge of its falsity, or without honest belief in its truth. c. a false assertion of fact about another person that defames that person. d. a statement of fact that was true when it was made, but later became false due to changes in circumstances. e. a missed representation. Answer: b Diff: 1 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Recall 16) A lawyer who enters into a business transaction with a client and neglects to inform the client that his credit rating is poor may be found to be a. in breach of the law that governs lawyers. b. in breach of his or her duty to inform the client. c. in breach of contract. d. in breach of the common law. e. in breach of his or her fiduciary duty. Answer: e Diff: 2 Type: MC Topic: Liability of Professionals Copyright © 2016 Pearson Canada Inc.

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Skill: Recall 17) James, one of the partners of James & Fiduciary Duty Co., the auditors of a major Canadian corporation (Canco), is one of the major shareholders of Canco. This situation could result in a a. violation of the statute. b. breach of duty. c. conflict of interest. d. fiduciary duty. e. breach of contract. Answer: c Diff: 1 Type: MC Topic: Liability of Professionals Skill: Recall 18) Which of the following is true? a. The ordinary standard of care for ordinary negligence, is appropriate when judging the work of a professional. b. Complying with normal professional standards is always an adequate defence. c. Causation in professional–client relationships is not based on reliance. d. A professional who exhibits the degree of skill and knowledge that is commensurate with a particular task will be held to have met the required standard even if the advice given is wrong. e. The duty to take reasonable care does not include omissions. Answer: d Diff: 2 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 19) The Hedley Byrne case establishes the principle of liability to ________ for ________. a. third parties; negligence misrepresentation b. clients; breach of fiduciary duty Copyright © 2016 Pearson Canada Inc.

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c. third parties; tort d. friends and relatives; negligence e. clients; breach of contract Answer: a Diff: 2 Type: MC Topic: Tort Liability for Inaccurate Statements Skill: Recall 20) A lawyer who enters into a contact to purchase his or her client's summer cottage has a. lots of money. b. committed a breach of contract. c. a conflict of interest. d. a duty not to bargain with the client for the best price. e. lots of time on her or his hands. Answer: c Diff: 2 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 21) A multi-disciplinary partnership is a. a partnership between two or more persons who belong to different professions. b. a partnership between two or more persons who belong to the same profession. c. a partnership of persons in the same profession who have different specializations. d. a limited partnership. e. a partnership whose members have been disciplined for misconduct. Answer: a Diff: 1 Type: MC Topic: The Role of Professional Organizations Skill: Recall

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22) Damages for breach of fiduciary duty is restitutionary in that a. the breach is not a tort. b. the breach is not a breach of contract. c. the client may be contributorily negligent. d. the client is entitled to be placed in the position he or she would have been had the breach not occurred. e. the professional is required to give back what she or he has taken from the client. Answer: d Diff: 2 Type: MC Topic: Liability of Professionals Skill: Applied 23) A professional is a. a person who is licensed by various levels of government. b. a person who has a special accreditation or degree from a professional organization. c. a person who belongs to a special club. d. someone who sets him- or herself out to help the public. e. someone who has specialized knowledge and skill on which a client relies and for which a client is prepared to pay. Answer: e Diff: 2 Type: MC Topic: Professional Liability: The Legal Challenges Skill: Applied 24) A disclaimer is a. a statement made by one person to the effect that the person making the statement will assume liability for loss up a certain specified limit. b. a statement to the effect that the person making it does not assume any responsibility for an action. c. an exclamation. d. a statement made in a soft voice or tone.

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e. a statement in a claim of a client against a professional to the effect that the client seeks to claim damages for specified breaches. Answer: b Diff: 1 Type: MC Topic: Liability of Professionals Skill: Applied 25) The greater exposure of professionals to liability for professional negligence has led to the extensive use of a. private investigators. b. acceleration clauses. c. liability insurance. d. disclaimer clauses. e. professional fees. Answer: c Diff: 1 Type: MC Topic: Professional Liability: The Legal Challenges Skill: Recall 26) Which of the following is NOT true? a. A fiduciary duty exists when there is an existing contract between the professional and the client. b. The principles for determining damages for breach of contract and breach of fiduciary duty are not necessarily the same. c. A fiduciary duty requires that a professional avoid situations that give rise to a conflict of interest. d. The existence of a fiduciary duty means that a lawyer cannot, as a general rule, act for a purchaser and vendor at the same time. e. A fiduciary duty requires complete fidelity and loyalty to the other party. Answer: a Diff: 2 Type: MC Topic: Liability of Professionals Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 27) A duty to account is a. the duty of the court to examine the accounts of a professional who is accused of having misappropriated funds. b. the duty of a professional to submit timely and accurate bills to the client for payment. c. the duty owed by a person who commits a breach of trust to hand over profits made as a result of the breach. d. the duty of a client to pay bills that are rendered by the professional. e. the duty of the professional to maintain accurate accounts of the invoices submitted to his or her client. Answer: c Diff: 1 Type: MC Topic: Liability of Professionals Skill: Recall/Applied 28) Brayden had a long history of intestinal disorder. After several failed non-invasive treatments, it was suggested to him that he undergo a colonoscopy as a means of better diagnosing his problem. He spent five minutes prior to the procedure consulting with the doctor who performed the colonoscopy. He was told by the doctor that these procedures usually are simple and for the most part problem-free. Brayden agreed to undergo the procedure. During the course of the colonoscopy his bowel was perforated and he was required to undergo a significant open surgical procedure to save his life. Brayden sued the doctor for lack of informed consent. At trial, the expert evidence established that the risks of bowel perforation were material risks and as such ought to have been disclosed. Brayden in fact testified that had he been told of the risk of bowel perforation he would have not undergone the colonoscopy. However, the judge hearing the case made a finding that a reasonable person with Brayden’s condition having been properly informed of all the risks would have undergone the colonoscopy. In these circumstances, the judge will likely then proceed to a. allow the action because of lack of informed consent. b. allow the action because of the fact that Brayden himself testified he would not have undergone the procedure had he been told of the risks of bowel perforation. c. dismiss the action because a reasonable person in the position of the plaintiff would have proceeded with the colonoscopy had they been informed of the materials risks. d. dismiss the action because there is no causation. e. allow the action because Brayden had to undergo an unexpected and unanticipated lifesaving surgery. Copyright © 2016 Pearson Canada Inc.

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Answer: c Diff: 3 Type: MC Topic: Proving Negligent Misrepresentation Skill: Applied 29) A fiduciary duty may exist in the absence of a contractual duty. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Professional Liability: The Legal Challenges Skill: Recall 30) Normal standards of care always apply to professionals who undertake a task beyond the usual skills of the profession. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Standard of Care for Professionals Skill: Recall/Applied 31) The essence of causation in professional–client relationships is the suffering of harm or damage. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 2 Type: TF Topic: Causation Skill: Recall/Applied 32) Generally speaking, all professional organizations have a number of the same responsibilities. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Role of Professional Organizations Skill: Recall 33) Like any other standard of care, the standard of care for professionals evolves and changes as the law evolves and changes. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Standard of Care for Professionals Skill: Recall/Applied 34) Where two professionals have specialized knowledge and skill in the same profession, representation of one by the other negates the usual standard of care for the professional who is representing the other. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Liability of Professionals Skill: Applied 35) Liability for breach of a fiduciary duty may arise even where there has been no negligence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Liability of Professionals Skill: Recall 36) A professional may owe a duty of care in tort to someone other than the client. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Tort Liability for Inaccurate Statements Skill: Recall 37) If the plaintiff has suffered no damages, a defendant who has breached a fiduciary duty will not be held liable. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 2 Type: TF Topic: Liability of Professionals Skill: Recall 38) The duty of a professional to take reasonable care does not include a duty not to omit essential matters. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Liability of Professionals Skill: Recall 39) If a client sues a professional for failing to exercise reasonable care in giving advice, but the client has suffered no damage as a result, the professional will not be liable. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Liability of Professionals Skill: Recall 40) Damages for breach of contract and breach of fiduciary duty are based on the same principle. a. True Correct: Correct b. False Copyright © 2016 Pearson Canada Inc.

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Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Liability of Professionals Skill: Recall/Applied 41) What is deceit? Answer: Deceit is the intentional making of a false statement with the intention of misleading another person. Diff: 1 Type: ES Topic: Other Torts Skill: Recall 42) Deciding on the type of action to bring for acts or omissions of a professional who breached a duty of care was not always easy, but this has changed. Explain. Answer: At one time considerations such as the date the cause of action arose and the nature of damages that might be awarded were factors in deciding whether to sue in contract or in tort. However, today this is overcome by suing in both contract and tort. Diff: 1 Type: ES Topic: Liability of Professionals Skill: Applied 43) Which is easier to prove, fraudulent or negligent misrepresentation? Why? Answer: Fraudulent misrepresentation requires proving at least some guilty knowledge or willful disregard for the falsity of the information provided, and this may therefore be somewhat difficult to prove, while negligent misrepresentation requires only a breach of duty of care and skill, making it easier to prove.

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Diff: 3 Type: ES Topic: Tort Liability for Inaccurate Statements Skill: Applied 44) Causation is the third condition that must be proven to sustain an action for tort liability. Explain. Answer: There are three conditions that must be proven to sustain a finding of tort liability: that the defendant owed a duty to the injured party, that the defendant breached this duty, and that the breach of that duty caused the injury. It is the last of these conditions that causation deals with. In this context, the question to be asked is whether the injured party relied and acted on the advice of the professional to his or her detriment. If the answer is yes, then the three conditions have been met and liability will follow. Diff: 2 Type: ES Topic: Causation Skill: Recall/Applied 45) What is a multi-disciplinary partnership? Answer: A multi-disciplinary partnership is one in which partners of one profession practice together with members of other professions, for example, lawyers practicing together with chartered accountants. Diff: 1 Type: ES Topic: Multi-disciplinary Partnerships Skill: Recall 46) What is a fiduciary duty? Answer: A fiduciary duty is a duty that is imposed on a person who stands in a special relationship of trust to another. Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Liability of Professionals Skill: Recall 47) What is a conflict of interest? Answer: A conflict of interest is a situation where a person's duty conflicts with his or her interests, for example, where a person owes a duty to two or more persons with competing interests. His or her interest in making money by representing both persons will conflict with his or her separate duty of loyalty to each of them. Diff: 1 Type: ES Topic: Liability of Professionals Skill: Recall 48) Explain what is meant by the "duty to account" of a professional who has committed a breach of trust. Answer: Professionals or other persons in fiduciary relationships are prohibited from making secret profits as a result of breaching their fiduciary duty. Where such a professional or person makes a secret profit or profits from her or his position as a fiduciary, she or he will owe a duty to account or hand over all the profits she or he made as a result of the breach. Diff: 2 Type: ES Topic: Liability of Professionals Skill: Recall/Applied 49) What is the difference between negligent misrepresentation and fraudulent misrepresentation? Answer: A negligent misrepresentation is an incorrect statement that is made without due care for its accuracy. A fraudulent misrepresentation is an incorrect statement made knowingly with the intention of causing injury to the other person.

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Diff: 2 Type: ES Topic: Tort Liability for Inaccurate Statements Skill: Recall/Applied 50) What is a fiduciary duty? Answer: A fiduciary duty is a duty that is imposed on a person by virtue of a special relationship between the fiduciary and some other person. Diff: 1 Type: ES Topic: Liability of Professionals Skill: Recall 51) A professional must not place him or herself in a position where his or her interest and duty conflict. Explain. Answer: A professional person is usually said to have a fiduciary obligation towards his or her clients. He or she is a fiduciary. A fiduciary is a person who has a special relationship of trust with another. The fiduciary is usually someone in a more powerful position vis-à-vis the other party. The nature of this power relationship imposes an obligation of utmost trust on the part of the fiduciary. That is, the fiduciary must be completely loyal to the other party. One of the consequences of this obligation is the duty of the fiduciary or professional not to place himself in a position that will give rise to a conflict of interest. That is a position where his or her interest will conflict with his or her duty. Thus, a professional will usually not be expected to act on behalf of two persons who have competing interests because the professional will find it hard to fulfill his or her duty to both parties. Diff: 3 Type: ES Topic: Liability of Professionals Skill: Applied 52) Although the law has long recognized some professional relationships as inherently fiduciary (such as lawyer–client and doctor–patient), not every professional relationship will be fiduciary in nature. Explain.

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Answer: Many types of relationships involving professionals may not necessarily be fiduciary in nature. It will depend on the particular facts of the case. In order to establish a fiduciary relationship, five factors must be considered carefully: the vulnerability of the client; whether the relationship involved trust of the professional; whether the client relied (to the client's detriment) on the advice/expertise of the professional; whether the professional had any discretion to do what was done; and whether there are specific standards for the professional expressed in a code of conduct. Only if the majority of these factors are found to exist will the relationship be fiduciary in nature. Diff: 3 Type: ES Topic: Liability of Professionals Skill: Recall/Applied 53) Damages for breach of fiduciary duty and breach of contract are based on the same principle. Explain. Answer: In both breach of contract and breach of fiduciary duty, damages are intended to be restitutionary. In both situations, damages are intended to place the party in the place he or she would have been in had the breach not occurred. The characterization of a claim as a breach of fiduciary duty will not entitle a plaintiff to a higher award. Diff: 3 Type: ES Topic: Liability of Professionals Skill: Applied 54) Professionals may have liability to their clients in tort and contract, and for breach of fiduciary duty. Briefly explain the basis for liability in these categories. Answer: Professionals may be liable for torts committed against clients and for breach of contract. In general, any agreement to perform services for a client contains an agreement that the professional will perform the service with due care. Where the professional does not perform the service with due care, there is breach of contract and the client may sue for damages. In addition to this, a breach of contract will also occur where the professional fails to perform the service, or performs unsatisfactorily. Clients will also have a claim in tort under a variety of circumstances. These include negligence and negligent misstatements. A professional person also has a fiduciary duty. One of the consequences Copyright © 2016 Pearson Canada Inc.

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of this obligation is the duty of the fiduciary or professional not to place herself or himself in a position that will give rise to a conflict of interest—that is, a position where his or her interest will conflict with his or her duty. Thus, a professional will usually not be expected to act on behalf of two persons who have competing interests because the professional will find it hard to fulfill his or her duty to both parties. Diff: 3 Type: ES Topic: Liability of Professionals Skill: Applied 55) What are professional bodies? Explain the role of professional bodies. Answer: Professional organizations are autonomous organizations established under provincial statutes for the purposes of determining and policing standards of compliance and behaviour among members of the profession. Professional organizations will usually have governing bodies that set rules and regulations for members. Some of the responsibilities assumed by professional bodies include (a) establishing educational and entrance for entry into the profession, (b) setting and adjusting standards of ethical conduct, (c) hearing complaints against members of the profession and (d) defending the profession against attacks that it considers unfair. Diff: 1 Type: ES Topic: Professional Liability: The Legal Challenges Skill: Applied 56) In a lawsuit alleging negligent misrepresentation the plaintiff must establish more than a breach of duty causing loss. Identify the five requirements for proving negligent misrepresentation as set by the Supreme Court of Canada. Answer: The five requirements for proving negligent misrepresentation are: i.

There must be a duty of care based on a “special” relationship between the representor and the representee.

ii.

The representation in question must be untrue, inaccurate, or misleading.

iii.

The representor must have acted negligently in making a representation—that is, he or she must have fallen below the requisite standard of care required of a professional making such a representation.

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iv.

The representee must have relied, in a reasonable manner, on the negligent misrepresentation.

The reliance must have been detrimental to the representee in the sense that damages resulted.

Diff: 3 Type: ES Topic: Proving Negligent Misrepresentation Skill: Recall/Applied

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1) An offer is a. a gift. b. an agreement to give something to another party. c. a donation. d. a tentative promise made by one party, subject to a condition or containing a request to the other party. e. a gesture made by one party to another to make a donation. Answer: d Diff: 1 Type: MC Topic: The Nature of an Offer Skill: Recall 2) Which of the following is true? An invitation to do business a. is a legally binding promise. b. is a commitment to enter into a contract upon acceptance. c. is a kind of offer. d. is not an offer. e. is an offer. Answer: d Diff: 1 Type: MC Topic: The Nature of an Offer Skill: Recall 3) Use this fact situation to answer the related questions that follow: Alexander enters a grocery store to purchase some tea. He walks through the aisles until he finds the aisle he wants with the different kinds of tea displayed on the shelves. He finds the tea that he wants and then goes to the cashier, who scans the tea and tells Alexander the price, which Alexander then pays. The cashier then hands the tea to Alexander, who leaves the store. In this situation, the tea on the store shelves is a. an offer.

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b. a contract. c. a promise to sell. d. an invitation to treat. e. all of the above Answer: e Diff: 1 Type: MC Topic: The Nature of an Offer Skill: Applied 4) Use the fact situation in Q3 to answer the related question that follows: In the above fact situation, an offer occurs a. when Alexander takes the tea home. b. when the cashier tells Alexander the price of the tea. c. when Alexander hands the money to the cashier. d. when Alexander sees the price beside the teas on the shelves. e. when Alexander takes the tea off the shelf. Answer: c Diff: 2 Type: MC Topic: The Nature of an Offer Skill: Recall/Applied 5) Use the fact situation in Q3 to answer the related question that follows: In the above fact situation, acceptance occurs a. when the cashier takes Alexander's money and hands the tea to Alexander. b. when Alexander takes the tea off the shelf. c. when Alexander takes the tea home. d. when Alexander hands the money to the cashier. e. when the cashier says goodbye to Alexander. Answer: a Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: The Nature of an Offer Skill: Recall/Applied 6) Mary goes into a store in which she sees a SALE sign. While she is looking round, she notices that a sign that says 50 percent off has been placed against a pair of knee-high boots. She takes the pair of boots to the cashier. The cashier refuses to sell the boot at the 50 percent discount. Which of the following is true? a. The cashier is in breach of contract. b. Mary is not entitled to a 50 percent discount because the sign was not an offer. c. The conduct of the store amounts to false advertising and Mary will be entitled to the 50 percent discount. d. Mary is entitled to a 50 percent discount because that boots were advertized as being sold at a discount of 50 percent. e. The store is in breach of contract. Answer: b Diff: 2 Type: MC Topic: The Nature of an Offer Skill: Recall/Applied 7) An offer is made by an ________ to an ________. a. inviter; invitee b. offeror; offeree c. initiator; offeree d. initiator; receiver e. offeror; invitee Answer: b Diff: 1 Type: MC Topic: The Nature of an Offer Skill: Recall 8) Joe sees a dog wandering around his yard. He lets the dog in. Later he learns that the dog belongs to Mary, a woman who lives a kilometre away. Joe returns the dog to her the next day. A few days later as Joe is riding his bike, he sees an old advert in which Mary offers to pay $100 to any person who will find and return her dog. Joe realizes that he Copyright © 2016 Pearson Canada Inc.

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should have claimed the reward at the time that he returned the dog to Mary, and he decides to go to Mary's place. Which of the following is true? a. Joe will be entitled to the reward because he found the dog and returned it. b. Joe will not be entitled to the reward because Mary made no offer. c. Joe will not be entitled to the reward because he did not see the offer of the reward until he had returned the dog and so he did not act in response to the offer of Mary. d. Mary's advert is an invitation to do business and cannot give rise to a contract. e. Joe will be entitled to the reward because Mary made an offer and his act of finding and returning the dog is an acceptance. Answer: c Diff: 2 Type: MC Topic: The Elements of Acceptance Skill: Applied 9) Joe finds a dog wandering in his yard and he lets it into the house. A day later he sees an advert on a tree stating that the owner of the dog will pay $100 to anyone who finds and returns the dog to the local SPCA office. Joe takes the dog to the local SPCA office. Which of the following is true? a. Joe did not communicate his acceptance of the offer to the SPCA and so no contract arose. b. The kind of advert that is placed on the tree cannot give rise to a contract. c. When Joe takes the dog to the SPCA, he makes the offer and if the SPCA accepts the offer, they are obliged to pay him. d. The advert on the tree is an invitation to do business and cannot give rise to a contract. e. Joe will be entitled to the reward because his performance of the obligation in response to the offer is all that is needed in a unilateral contract. Answer: e Diff: 2 Type: MC Topic: The Elements of Acceptance Skill: Applied 10) Jack is speaking to Michael and Michael happens to mention that he will be painting his home soon. Jack, who is in some financial difficulty, decides to paint Michael's home in the hope that Michael will pay for the service. One weekend, when Michael is away, Jack paints the whole house. He believes that he is entitled to approximately $1500. Copyright © 2016 Pearson Canada Inc.

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When Michael returns, Jack approaches him and asks for $1500. Which of the following is true? a. Jack, by painting the home, makes an offer that Michael is free to accept or reject. b. When Michael mentions the need to paint his home to Jack, he indirectly makes an offer that Jack accepts by painting the home. c. Michael has benefited from the painted home and so he is obliged to pay for it. d. Michael is not obliged to pay for the work done because he was never made any offer. e. Jack's conduct is an invitation to do business that has not been accepted by Michael and so Michael is not obliged to pay him. Answer: d Diff: 2 Type: MC Topic: The Elements of Acceptance Skill: Applied 11) When an offer is not accepted, it will a. lapse. b. no longer be an offer. c. terminate. d. end. e. be void. Answer: a Diff: 1 Type: MC Topic: The Lapse and Revocation of an Offer Skill: Recall 12) An offer may be revoked before it is accepted. To be valid, a revocation must be a. promised. b. communicated to the offeree before acceptance. c. subject to a condition. d. loud and clear. e. exclusive.

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Answer: b Diff: 1 Type: MC Topic: The Lapse and Revocation of an Offer Skill: Recall 13) On June 10, A delivered to B a written offer to sell his (A's) property to B for $6000.00. The offer stated that it would be open for acceptance until 9 a.m. on June 12. On June 11, B heard that A was agreeing to sell or had sold his property to C. On the evening of June 11, B delivered an acceptance of A's offer to the place where A was staying and on the following morning personally delivered his acceptance to A, who declined the acceptance stating, "You are too late." In this situation a. A's offer must remain open until 9 a.m. on June 12th. b. B's acceptance of A's offer is a valid acceptance. c. because B did not give A the money, there is no acceptance. d. B's failure to accept A's offer immediately constitutes a rejection of A's offer. e. having heard that A had sold or was selling the property to C, B knows A's offer has been revoked. Answer: e Diff: 3 Type: MC Topic: The Lapse and Revocation of an Offer Skill: Applied 14) Jack tells Mike, "I'd like to buy your boat for $100 000." Mike, in response, says, "That's too cheap. I'll sell you my boat for $150 000." Mike's statement is a ________ and a ________. a. refusal; new offer b. rejection; new offer c. refusal; rejection d. rejection; counter-offer e. rejection; valid offer Answer: d Diff: 1 Type: MC Topic: Rejection and Counter-offer by the Offeree Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

Skill: Applied 15) An acceptance of an offer must be a. made slowly. b. loud and clear. c. by conduct only. d. positive. e. in writing only. Answer: d Diff: 3 Type: MC Topic: The Elements of Acceptance Skill: Applied 16) On October 1, Allan mailed an offer to Bob to sell to Bob 1000 boxes of tin plates at a fixed price. The offer was received by Bob on October 11, and Bob immediately accepted the offer by telegram on October 11 and confirmed by letter on October 15. On October 8, Allan mailed a revocation of his offer, which was received by Bob on October 20. In this situation a. Allan's revocation is really a counter–offer. b. Allan has no right to try to revoke his offer. c. Allan's revocation comes too late and there is a contract between Allan and Bob. d. Allan's revocation of his offer is proper and effective to prevent a contract between Allan and Bob. e. none of the above Answer: c Diff: 3 Type: MC Topic: The Elements of Acceptance Skill: Recall/Applied 17) On June 1 George goes to Harry's fruit store, and while he is there, Harry offers to sell George 100 bushels of grapes that have just been delivered to his store for $20.00 per bushel. Harry also tells George that he should not wait too long to accept Harry's offer, because the best time to sell grapes is within three to four days of delivery. George simply says, "Let me think about it and I'll get back to you before the end of the day." Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

However, George does not return that day; instead, he comes back seven days later to tell Harry that he accepts the offer. Harry replies, "You're much too late, I sold the grapes to Mr. Smith on June 5.” In this situation a. George's statement "Let me think about it and I'll get back to you before the end of the day" is a counter-offer. b. Harry's offer has lapsed given the perishable nature of the grapes. c. Harry was wrong in selling the grapes to Mr. Smith. d. Harry must keep his offer open until George accepts it. e. Harry's offer has been withdrawn. Answer: b Diff: 3 Type: MC Topic: The Lapse and Revocation of an Offer Skill: Recall/Applied 18) A offers to sell his car to B for $6000.00. However, B replies, "I will not buy it at that price," and walks away, never to be heard from again. In this situation, B's reply constitutes a. a lapse of A's offer. b. a rejection of A's offer. c. a revocation of A's offer. d. a counter-offer. e. none of the above Answer: b Diff: 1 Type: MC Topic: Rejection and Counter-offer by the Offeree Skill: Recall 19) A standing offer is a. one that may be accepted from time to time as needed. b. one that can be revoked even after acceptance. c. an offer that is made and withdrawn before it is accepted. d. one that is said to stand because it is fixed and cannot be changed.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

e. one that cannot be revoked after acceptance without the consent of the offeree. Answer: a Diff: 1 Type: MC Topic: The Elements of Acceptance Skill: Recall 20) Revocation takes effect a. when an offeror contracts with someone other than the offeree. b. when sent. c. when the offeror becomes bankrupt. d. when received. e. none of the above Answer: d Diff: 1 Type: MC Topic: The Lapse and Revocation of an Offer Skill: Recall 21) When communication between parties is by fax, the place where a contract is formed is a. where the offeror resides. b. where the offeree receives the offer. c. where the subject matter is located. d. where the offeror receives the acceptance. e. where the offeree resides. Answer: d Diff: 1 Type: MC Topic: The Elements of Acceptance Skill: Recall 22) Where is a contract said to be formed?

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

a. at the place where the offer is made b. at the place where the acceptance is dropped into a mailbox c. at the place where the offer is revoked d. at the place where the parties do business e. at the place when the acceptance becomes effective Answer: e Diff: 1 Type: MC Topic: Transactions Between Parties at a Distance from Each Other Skill: Recall 23) Bilateral contracts are usually made up of two stages – promises by both parties to perform and later, performance or fulfillment of the promises. When one of the parties to a bilateral contract does not receive the performance as promised a. a cause of action is recognized at law giving the promisee the right to sue for tort damages. b. a cause of action is recognized at law giving the promisee the right to sue for damages for breach of contract. c. no cause of action is recognized at law until the promisee satisfies the court that the damages have been mitigated. d. no cause of action is recognized at law until all possible criminal proceedings are disposed of. e. no action can be brought against any party for simply failing to fulfill its contractual promises. Answer: b Diff: 3 Type: MC Topic: Unilateral and Bilateral Contracts Skill: Applied

24) A offers in writing to sell his truck to B for $8000.00. The offer goes on to state that acceptance must be hand-delivered in writing to A. However, B decides to send A a fax in which he accepts A's offer. In this case, Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

a. A must sell his truck to B. b. as far as B is concerned, the only important part of A's offer is B's acceptance in any form. c. the failure of B to accept the offer by fax causes A's offer to lapse. d. B's fax is a proper acceptance of A's offer. e. B's fax is not a proper acceptance of A's offer. Answer: e Diff: 1 Type: MC Topic: Transactions Between Parties at a Distance from Each Other Skill: Recall 25) On January 1, A offers to sell his property to B for $175 000.00 and gives B an option to purchase the property until July 1. The option reads: "The said option shall be exercisable by notice in writing to the seller at any time within 6 months from the date of the option." B mails his acceptance to A on February 12, but the letter never reaches A. In this situation, a. B's acceptance by mail is not in accordance with the option and there is no contract between A and B. b. since the option states that it is exercisable by notice in writing to the seller, mailing the acceptance is deemed to be notice to the seller. c. since the option states that it is exercisable by notice in writing to the seller, and since the acceptance never came to the seller, B's acceptance by mail is not acceptance at all. d. B's acceptance of the option by mail is a proper acceptance, creating a contract between A and B. e. none of the above Answer: c Diff: 3 Type: MC Topic: The Elements of Acceptance Skill: Applied 26) John and Edward are negotiating the sale and purchase of one of John's very expensive paintings. In the course of the negotiations, John says, "I'll sell it to you for $20 000.00, to which Edward replies, "That is a little too much for me; I'll give you $14 500.00." John thinks about this for a moment and says, "No, but I'll take $17 500.00. Edward says, "That is still too much; I'll buy it for $15 500.00. John looks at the painting Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

and replies, "You know it is worth more than that. Why don't you give me $16 500.00 and we'll call it a day." Edward responds with, "I only have $16 000.00 so that is all I will pay for it," to which John replies, "Done." In this case, a. the contract is for $16 500.00. b. the contract is for $17 500.00. c. the contract is for $14 500.00. d. there is no contract at all. e. the contract is for $16 000.00. Answer: e Diff: 2 Type: MC Topic: Rejection and Counter-offer by the Offeree Skill: Applied 27) Mary places a notice in a local variety store. The notice reads as follows: "I shall pay $1000 for the return of my dog, Mundo." Jim sees the notice. Jim finds the dog and returns it to her. Which of the following is true? a. Mary can refuse to pay Jim because Jim did not communicate his acceptance of the offer to Mary, and an acceptance must be communicated to the offeree. b. The notice is an invitation to treat and could not give rise to a contract. c. Mary makes a counteroffer. d. Mary is obliged to pay Jim because by finding the dog, he accepted the contract and no notification was needed. e. When Jim finds the dog, he makes the offer and it is up to Mary to determine whether she wishes to accept the offer. Mary is thus entitled to reject the offer. Answer: d Diff: 2 Type: MC Topic: The Elements of Acceptance Skill: Applied 28) Margaret finds a stray cat and takes it in. The following day she is speaking to some friends and learns that Kelly, a woman who lives some distance away, has lost a cat. She goes around to the home of Kelly, leaves the cat in the yard and leaves a note for Kelly. The next day she gets a voice mail message from Kelly thanking her. A few days later Margaret sees a notice in which Kelly offers to pay $500 to anyone who returns her cat. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

Margaret, who needs some cash, returns to Kelly's home and demands the $500 reward. Which of the following is true? a. Kelly's notice is an invitation to treat. b. Because Margaret did not demand the $500 when she returned the cat, she cannot go back and request it. The offer has lapsed. c. By returning the cat, Margaret performed the contract and so has to be paid. Margaret's performance gives rise to a unilateral contract. d. Kelly and Margaret have a bilateral contract. e. Margaret did not know of the offer before she returned the cat. So she could not have been accepting the offer when she returned the cat. No contract arose. There is thus no obligation on Kelly to pay the $500. Answer: e Diff: 2 Type: MC Topic: The Nature of an Offer Skill: Applied 29) Silence can be a sufficient method of acceptance a. when the contract is a bilateral contract. b. if the parties to a contract have habitually used this method to communicate assent. c. when the offeror leaves the jurisdiction after making the offer. d. when the contract is a unilateral contract. e. when the offeree forgot to communicate its acceptance. Answer: b Diff: 1 Type: MC Topic: The Elements of Acceptance Skill: Applied 30) We study business contract law in order to a. know the consequences of breaking one's obligation. b. understand and bargain for contractual obligations. c. resolve commercial disputes. d. understand legislation that pertains to business.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

e. know when a binding contract is entered into. Answer: b Diff: 2 Type: MC Topic: The Role of Contract Law Skill: Recall/Applied 31) Within a standard form contract there always exists the ability to bargain the terms of the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: An Offer Made by Tendering a Written Document to the Offeree Skill: Applied 32) When the offeror specifically states in the contract that acceptance can be given by performing an act, direct verbal communication of acceptance is not needed to make the contract binding. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Elements of Acceptance Skill: Recall 33) When an offer is proposed to an interested party, the form of acceptance does not matter even if a preferred method of communication is stipulated within the offer. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Transactions Between Parties at a Distance from Each Other Skill: Recall/Applied 34) When an offeror invites acceptance by mail, it is possible for the offeror to state in the offer that the offer will only become a contract once acceptance is actually received by the offeror. That is, the postal rule does not apply even though an invitation to acceptance by mail was given. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Transactions Between Parties at a Distance from Each Other Skill: Recall/Applied 35) Like acceptance, revocation of an offer by mail is valid and binding once the letter of revocation is placed in the mailbox. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Elements of Acceptance Skill: Recall/Applied 36) An invitation to do business is a commitment to enter into a contract upon acceptance. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Nature of an Offer Skill: Recall 37) An offer must be communicated to the offeree. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Rejection and Counter-offer by the Offeree Skill: Applied 38) An acceptance must always be communicated to the offeror for a valid contract to arise. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Communication of an Offer Skill: Recall/Applied 39) Goods displayed on shelves in a store constitute an offer. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Nature of an Offer Skill: Recall 40) An offer will lapse only if the offeree has had a reasonable time to accept. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Lapse and Revocation of an Offer Skill: Recall 41) A counter-offer by its very nature contains a rejection of the offer. Explain. Answer: When a counter-offer is made, it is the same as saying no to the original offer and making a new offer in its place. In other words, by its very nature a counter-offer contains both a rejection and new offer. Diff: 2 Type: ES Topic: The Nature of an Offer Skill: Recall 42) Explain why a newspaper advertisement by a merchandising company is not a binding and enforceable contract. Answer: Newspaper advertisements are invitations to do business. They are a device used to attract new customers and to start negotiations toward a contract. A customer may make Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

an offer which the merchant can either refuse or accept, or the merchant may make an offer as soon as the customer shows interest. Newspaper advertisements are also invitations to the public to visit the merchant's place of business with a view to buying. This is because a business is not expected to sell the goods to everyone who reads its advertisements, only those who, having read an advertisement, either contact the merchant so as to begin negotiations towards a contract or actually go to the merchant for the same purpose. Diff: 2 Type: ES Topic: The Nature of an Offer Skill: Recall/Applied 43) Explain the theory behind lapse as a way of preventing the formation of a contract. Answer: The common law requires that the making of a contract should take place in a timely fashion. For this reason it was considered unrealistic that offers should remain open for acceptance forever or for inordinate amounts of time. This view was also applied in situations where the very nature of the subject matter of the offer (such as fruit or some other perishable) required acceptance within a reasonable amount of time. Diff: 3 Type: ES Topic: The Lapse and Revocation of an Offer Skill: Recall/Applied 44) What is a negative option? Answer: A negative option is a provision in a contract that provides that if a party does not provide notice before its current term runs out, the contract is automatically renewed for another term. Diff: 1 Type: ES Topic: The Lapse and Revocation of an Offer Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

45) Explain how the rule concerning withdrawal of an offer by post differs from that concerning the time of acceptance by post. Answer: When the post is used to accept an offer, the general rule is that acceptance is complete when a properly addressed and stamped letter of acceptance is dropped in the mail. Regarding the withdrawal of an offer by post, the general rule is that the offer is revoked by post when the offeree actually receives notification of the revocation and not when it is dropped in the mail. Diff: 1 Type: ES Topic: Transactions Between Parties at a Distance from Each Other Skill: Applied 46) What is a unilateral contract? Answer: A unilateral contract is one in which one party makes an offer to the whole world, and the contract is accepted by a person stepping forward to perform an act or acts required by the terms of the offer. Diff: 1 Type: ES Topic: Unilateral and Bilateral Contracts Skill: Applied 47) Explain how a bilateral contract differs from a unilateral contract. Answer: In a bilateral contract, both parties trade promises and an offeree accepts and communicates such acceptance to the offeror. In a unilateral contract, only the offeree makes a promise to all. A contract arises when a person, the offeree, steps forward to perform the contract. There is no communication of acceptance by an offeree in a unilateral contract. Diff: 1 Type: ES Topic: Unilateral and Bilateral Contracts Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

48) Explain the difference between an invitation to do business and an offer. Answer: An offer to make a contract can be accepted, and when it is accepted, this gives rise to a contract. However, an invitation to do business is not an offer that is capable of being accepted. It is an invitation to enter into negotiations that could result in a contract. An example of an invitation to do business is an advert in a store that advertises products for a particular price. When a person picks up a product in a store, he or she cannot insist on purchasing it for the price in an advert because the advertised price is not an offer. Diff: 1 Type: ES Topic: The Nature of an Offer Skill: Applied 49) Not all offers must be communicated to the offeror for a valid contract to arise. Explain. Answer: As a general rule, when a person makes an offer, the acceptance of the offer must be communicated to the offeror before a contract can arise. This is the general rule where a bilateral contract is concerned. That is a contract where both parties make promises to each other. In a unilateral contract, however, where one party makes a promise to whomever steps forward to accept the contract, the acceptance of the contract does not have to be communicated before a valid contract arises. For instance, if Jack says, “I'll pay $1000 to anyone who finds and returns my cat,” all that is required is for Jim to find and return the cat and Jack will be obliged to pay the $1000. Jim does not have to notify Jack that he, Jim, intends to look for the cat. Diff: 2 Type: ES Topic: Unilateral and Bilateral Contracts Skill: Applied 50) All contracts begin with a promise, but not all promises become contracts. Explain. Answer: A contract is a legally binding promise. A legally binding promise is a promise that gives rise to a contract. Where a promise is not legally binding, for example, it is gratuitous, it will not give rise to a contract. The law will not enforce a gratuitous promise. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

Diff: 1 Type: ES Topic: The Nature of a Contract Skill: Applied 51) What is a counter-offer? What effect does a counter-offer have on an offer? Answer: A counter-offer is made when an offeree responds to an offer by indicating his or her willingness to enter into a contract with the offeror, but on terms that are different from the offer. A counter-offer, when made by an offeree, amounts to a rejection of the earlier offer and the making of a new offer by the offeree, who now becomes the offeror. Diff: 1 Type: ES Topic: Rejection and Counter-offer by the Offeree Skill: Recall 52) What is the legal effect of a counter-offer? Answer: An offer is a tentative promise made by one party, subject to a condition, or containing a request to the other party. An offer must be communicated to the other party before it can be accepted. In most situations where parties bargain, an offer that is made is not accepted immediately but is followed by another offer by the other party. For instance, if Jack says, “I would like to sell the car to you for $5000” and Mary says, “I will pay only $4000,” Mary does not accept the offer of Jack but makes another offer. Mary's offer is known as a counter-offer. The legal principle is that when a party makes a counter-offer, it amounts to a rejection of the offer and the substitution in its place of a new offer from the other party. Diff: 1 Type: ES Topic: Rejection and Counter-offer by the Offeree Skill: Recall 53) Why should you not make an agreement to sell your car to a purchaser "for a fair price"?

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 6: Formation of a Contract: Offer and Acceptance

Answer: Although the courts have a policy of making contracts effective whenever possible, they will not make a contract for the parties. If an offer is vague, the court may find that there was no offer at all, and neither party will be bound. Price is an essential element, and if there has been no agreement between the parties as to price, there will be no contract to enforce. The expression "fair price" is too vague. Diff: 2 Type: ES Topic: Uncertainty in the Wording of an Offer Skill: Applied 54) Explain how an Internet contract is formed. Answer: Businesses selling online use standard form terms and conditions in their contracts. Ecommerce legislation has modernized contract formation rules so that "clicking an icon" satisfies the acceptance and communication requirements of contract formation. In an Internet contract, the Internet consumer is the offeree, and after seeing the terms required to be disclosed by the retailor (offeror), that consumer will be bound by the terms of the Internet contract at the moment the consumer clicks the "I accept" icon on the computer screen. However, some retailers specifically design their websites to require multiple acceptances before a "submit" icon is finally clicked. This would appear to satisfy the legislative "agreement to terms" requirement before the entire offer to purchase is submitted. In this context, the contract may not be formed until the retailer communicates acceptance with a confirmation number. Diff: 2 Type: ES Topic: Formation of Internet Contracts Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

1) The contractual requirement of consideration provides that a. the contract must be given careful consideration before it is entered into. b. the offeror must pay cash for the offeree's promise to perform an act. c. an offeree must pay cash for the offeror's promise to perform an act. d. each party must give something of value in exchange. e. what is exchanged by the parties must be of equal value. Answer: d Diff: 2 Type: MC Topic: The Meaning of Consideration Skill: Recall 2) Which of the following would a court NOT regard as consideration on the part of a party to a contract? a. a promise to pay for what the other party has already done b. giving up what the party honestly believes is a right to sue c. a promise to pay money to the other party in the future d. a promise to pay money to a third party who is not a party to the contract e. money paid to the other party Answer: a Diff: 2 Type: MC Topic: The Meaning of Consideration Skill: Applied 3) A gratuitous promise differs from a contract in that a. a gratuitous promise cannot lapse. b. it does not require the payment of money to the offeror by the offeree. c. consideration flows only in one direction. d. a gratuitous promise cannot be revoked. e. the terms of a gratuitous promise are not precise enough to be binding. Answer: c Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Type: MC Topic: Gratuitous Promises Skill: Recall 4) Consideration is a. the price that is paid for the promise of another. b. a special kind of gratuitous promise. c. the acceptance of an offer. d. the offer that is made to another. e. a special kind of acceptance. Answer: a Diff: 2 Type: MC Topic: The Meaning of Consideration Skill: Recall 5) Shahid orders a pizza by telephone and says he will pay on delivery. Which of the following would constitute consideration received by Shahid? a. placing the call. b. promising to pay for the pizza. c. handing over the money. d. accepting delivery of the pizza. e. none of the above. Answer: d Diff: 3 Type: MC Topic: The Meaning of Consideration Skill: Applied 6) On March 1, Al agrees to sell Barb his house for $250 000. Barb pays a deposit of $15 000, and they agree that title will transfer and the price will be paid on April 30. The agreement is signed by both parties under seal. What is the consideration on Barb's part? a. the deposit of $15 000 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

b. there is no consideration c. quantum meruit d. the seal e. the promise to pay the $250 000 Answer: e Diff: 2 Type: MC Topic: The Use of a Seal Skill: Applied 7) Which of the following is NOT true about consideration? a. Consideration must be of some value in the eyes of the law. b. A gratuitous promise is not supported by consideration. c. Consideration has to be adequate. d. Consideration must be sufficient. e. Consideration can be in the form of a detriment to a party. Answer: c Diff: 2 Type: MC Topic: Adequacy of Consideration Skill: Applied 8) Jack and Jill are friends. Jack agrees to mow Jill's lawn and Jill agrees to pay Jack $50.00. Jill wants the lawn mowed by April 1. Jill returns on April 3 and finds that the lawn has not been mowed. Jill, who is entertaining the next day, goes to Jack and promises that if he mows the lawn that day, she will give him an additional $20.00. Jack mows the lawn but Jill refuses to pay him the additional $20.00. Which of the following is true? a. Jack can sue Jill for breach of contract. b. Jill has no obligation to pay because the promise to pay the additional $20.00 was not supported by fresh consideration. Jack had a pre-existing legal duty to mow the lawn. c. There was no offer and acceptance. d. Jill has an obligation to pay the additional $20.00 because a legally enforceable promise to pay was made. e. Jill made an offer and Jack accepted it, so a contract was created. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Answer: b Diff: 2 Type: MC Topic: Motive Contrasted with Consideration: Past Consideration Skill: Applied 9) The principle of injurious reliance is a. the loss or harm that is suffered by a promisee who, to his or her detriment, relies on a gratuitous promise. b. the contractual relationship that arises between an injured party and the person or persons on whom this injured party relies. c. the injury that a person in a contractual relationship suffers when there is a breach of contract. d. the amount of compensation that is awarded to a party where there is a breach of contract. e. the personal injury that is suffered by persons who are involved in contractual situations. Answer: a Diff: 2 Type: MC Topic: Equitable Estoppel Skill: Applied 10) The concept of estoppel is where a. the court stops a party from performing a contract. b. the terms of the contract require that one of the parties be stopped from performing a particular act. c. the promisee is stopped from denying the truth of a fact or statement. d. the court suspends the operation of the contract. e. the maker of a statement or promise is prevented by the courts from either denying the truth of the statement or going back on a promise. Answer: e Diff: 2 Type: MC Topic: Equitable Estoppel Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Skill: Applied 11) Use this fact situation to answer the questions that follow it. In January 1941 in Canada, John Landlord and Harry Tenant enter into a lease under which Harry agrees to rent a house from John for five years at a rent of $1000.00 per month. In March 1941, Canada declares war on Germany and John tells Harry that until the war is over, Harry will not have to pay rent. Of course, Harry stops paying rent while the war goes on. The war ends in January 1945, and now John Landlord sues Harry for all of the rent from March 1941 to present. In turn, Harry is thinking of suing John Landlord on the basis that his statement to Harry about not paying the rent during the war was a contract. In the fact situation above, a. John Landlord can argue that he is entitled to the rent, because there was no consideration for his promise to Harry, and the court will accept this. b. Harry will be able to successfully sue John Landlord for breach of his agreement not to make Harry pay rent during the war. c. John Landlord can argue that it would be unjust for Harry not to have to pay the rent, and this argument will succeed. d. at the very least the court will value John Landlord's claim on a quantum meruit basis. e. Harry Tenant will argue that John Landlord's promise in March 1941 stops John Landlord from suing him for rent from March 1941 to the end of the war, and this argument will be a good defence to John Landlord's action. Answer: e Diff: 3 Type: MC Topic: Equitable Estoppel Skill: Applied 12) Use the fact situation in Q10 to answer the related question that follows. The principle of contract law that arises in the fact situation above is a. revocation. b. fraudulent misrepresentation. c. deceit. d. fresh consideration. e. promissory estoppel.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Answer: e Diff: 3 Type: MC Topic: Equitable Estoppel Skill: Applied 13) Use the fact situation in Q10 to answer the related question that follows. The principle of law that arises out of the fact situation above was meant to overcome an earlier principle of law that stated that a. payment of a lesser sum terminates the contract. b. a contract does not need consideration at all. c. a contract is terminated by performance. d. payment of a lesser sum in satisfaction of a greater sum is no payment at all. e. none of the above Answer: d Diff: 3 Type: MC Topic: Gratuitous Reduction of a Debt Skill: Recall/Applied 14) A, at the request of B, enters into a contract to buy a horse from B for a certain price. Just after entering into the contract, B tells A that the horse is sound and healthy. Later A discovers that, in fact, the horse is in ill health. In this situation, B's statement to A that the horse was sound and healthy a. is partly fresh and past consideration so as to not make B's promise binding. b. is partly fresh and partly past consideration so as to make B's promise binding. c. is past consideration so as to not make B's promise binding d. is fresh consideration so as to make B's promise binding e. all of the above Answer: c Diff: 3 Type: MC Topic: Gratuitous Promises Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

15) James does some work for Jim. Jim refuses to pay on the grounds that not all the work was done. Jack takes Jim to court and the judge says Jack is entitled to a quantum meruit. This means that a. the parties will agree on the appropriate price. b. a dispute regarding the price should be resolved by arbitration. c. Jim must pay a reasonable amount for the services rendered. d. a price will be fixed for the work done. e. Jack is entitled to his expenses. Answer: c Diff: 2 Type: MC Topic: The Effect of a Request for Goods or Services Skill: Applied 16) When a contract is authenticated by the affixing of a seal, the contract will be enforceable even when it lacks a. a promissory basis. b. an acceptance. c. consideration. d. contractual intention. e. an offer. Answer: c Diff: 1 Type: MC Topic: The Use of a Seal Skill: Applied 17) Jack walks into a bar. He is a little tipsy. The waitress pours him a pint of beer and he pays with all the money he has on him. He makes this statement to the waitress: "Sorry I can't tip you today, but you know what, I have this lottery ticket, and if I win, I’ll split it with you." The waitress says, “No problem, Jack." Jack later makes a copy of the ticket for the waitress. The next day Jack receives a call from Stephanie, the waitress, who tells him that she checked the numbers and that he has won $1 million. Stephanie asks, "Our deal is on right?" Jack says, "What deal?" She says, "You promised to split the winning ticket with me." He says, "Really?" Which of the following is true? a. Jack will have to split the proceeds with Stephanie on a quantum meruit basis. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

b. Stephanie can sue Jack for breach of contract if she does not get her share of the ticket. c. Jack promised to split the winning ticket with Stephanie and she accepted, so a valid contract was created. d. No contract arose because there was no intention on the part of Jack to enter into legal relations with Stephanie. e. A contract did not arise because Jack's statement was not an offer. Answer: d Diff: 2 Type: MC Topic: Intention to Create Legal Relations Skill: Applied 18) The reasonable bystander test is a. a test that employs witnesses to make candid observations about contract cases. b. the test that is used by the courts to determine whether parties intended to enter into legal relations with each other. c. the test that employs non-specialists as members of a jury in contract cases. d. the test that the parties can use to determine who is in breach of contract. e. the test that the parties can use to determine compensation in contract cases. Answer: b Diff: 1 Type: MC Topic: Intention to Create Legal Relations Skill: Recall 19) Even when offer and acceptance and consideration are present, there may be no enforceable contract if a. the subject of the contract is too trivial. b. there were no witnesses present at the signing of the contract. c. the contract is not in writing. d. there is no intent to create legal relations. e. the consideration is not adequate. Answer: d Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Type: MC Topic: Intention to Create Legal Relations Skill: Recall 20) An intention to create legal relations exists if a. the promisor and the promisee have identified all the consideration involved in the contract. b. there is an offer, acceptance, and consideration. c. a reasonable person would believe that the parties intended to be bound by the contract. d. the court examines the facts and determines that the parties intended to enter into legal relations. e. the parties have capacity to enter into a contract. Answer: c Diff: 2 Type: MC Topic: Intention to Create Legal Relations Skill: Applied 21) A promise by a creditor to accept less than full payment from a debtor is a. unenforceable because the creditor did not provide consideration. b. enforceable because the promisee accepts the offer. c. a bilateral contract. d. unenforceable because it is a gratuitous promise. e. enforceable because it gives rise to a contract. Answer: d Diff: 2 Type: MC Topic: Gratuitous Reduction of a Debt Skill: Recall 22) The reasonable amount that a person deserves to be paid for goods and services provided to the person requesting them is called a. gratuitous promise. b. quantum meruit.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

c. damages. d. covenant. e. promissory amount. Answer: b Diff: 2 Type: MC Topic: The Effect of a Request for Goods or Services Skill: Applied 23) A promise that is made without bargaining for or accepting anything in return is a a. promissory estoppel. b. covenant. c. quantum meruit. d. consideration. e. gratuitous promise. Answer: e Diff: 2 Type: MC Topic: Gratuitous Promises Skill: Applied 24) Use this fact situation to answer the related questions that follow. On January 1, A and B enter into a contract under which B agrees to renovate A's house by September 1 for $60 000.00. By June 2, B has not yet started the renovations and A is getting worried, so A tells B that he will pay him an extra $5000.00 if B completes the renovations on time. B completes the renovations by September 1st and now asks A for $65 000.00. In this situation, a. A's promise to pay B an extra $5000.00 is not supported by fresh consideration. b. A's promise to pay B an extra $5000.00 is made before the contract is over. c. the consideration for the contract on January 1 is $60 000.00. d. there was a contract on January 1 that must be performed by September 1. e. all of the above Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Answer: e Diff: 2 Type: MC Topic: Motive Contrasted With Consideration: Past Consideration Skill: Applied 25) Use the fact situation in Q23 to answer the related question that follows. Review the fact situation above and now assume that instead of simply promising to pay B an extra $5000.00, A says, "I'll pay you an extra $5000.00 if you fix that cracked board in my fence. Also assume that B completes the job by September 1 and fixes the cracked board. In this situation, a. there is still no fresh consideration from B, so A does not owe the extra $5000.00. b. since B completed the contract on September 1st, B is only entitled to the original price of $60 000.00. c. the contract did not change on June 2, so A does not owe the extra $5000.00. d. the promise to fix the cracked board and the fixing of it is fresh consideration and B is entitled to the extra $5000.00. e. the promise to fix the cracked board and the fixing of it was a gratuitous promise so B is not entitled to the extra $5000.00. Answer: d Diff: 2 Type: MC Topic: Adequacy of Consideration Skill: Applied 26) Use this fact situation to answer the related questions that follow. On June 1, A, a debtor, loans $5000.00 from B, a creditor, and agrees to repay it by December 1 of the same year. On November 1, B says to A, "Rather than paying me the full $5000.00, just pay me $3500.00 and your debt will be cancelled." A pays the $3500.00, but B now changes his mind and tells A that he wants A to pay him the balance of $1500.00. In this situation at common law, a. B cannot recover the extra $1500.00, because he agreed to reduce the amount of the debt. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

b. B is estopped by promissory estoppel from recovering the $1500.00. c. B can recover the extra $1500.00 on the basis of quantum meruit. d. B can recover the extra $1500.00 under present-day legislation. e. B can recover the extra $1500.00 since his promise lacks fresh consideration. Answer: e Diff: 2 Type: MC Topic: Gratuitous Reduction of a Debt Skill: Recall/Applied 27) Use the fact situation in Q25 to answer the related question that follows. Review the fact situation above and now assume that on November 1, B said to A, "Rather than paying me the full $5000.00, just pay me $3500.00 and give me your watch, and your debt will be cancelled." A's watch is a cheap one worth $5.00. A gives B the watch and pays him the $3500.00. In this situation, a. B can recover the $1500.00 from A because the contract was to repay a debt of $3500.00. b. B cannot recover the $1500.00 from A because A's watch is fresh consideration. c. B is still estopped by promissory estoppel from collecting the $1500.00 from A. d. there is still no fresh consideration for B's promise to reduce A’s debt to $3500.00. e. the watch is meaningless and A will still owe B $1500.00. Answer: b Diff: 2 Type: MC Topic: Adequacy of Consideration Skill: Recall/Applied 28) Allen is Harry's older brother. Yesterday, Allen asked Harry, an experienced plumber, to fix a leaky pipe below the sink of Allen's main floor washroom. Knowing that Allan had just lost his job and wanting to help him out, Harry did the work, which took him almost half a day to complete. The next day, Harry and Allen had an argument, and in anger Harry told Allen he expected to be paid for his work. In this situation, a. the law will imply a promise by Allen to pay Harry because it deals with supply of services. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

b. the law will imply a promise by Allen to pay Harry because Allen has been unjustly enriched. c. the law will imply a promise by Allen to pay Harry because they are family members. d. the law will not imply a promise by Allen to pay Harry because they are family members. e. the law will imply a promise by Allen to pay Harry because Harry performed services for Allen. Answer: d Diff: 2 Type: MC Topic: The Effect of a Request for Goods or Services Skill: Recall/Applied 29) Mo agrees to provide lawn care services to Judith in preparation for a summer birthday party Judith is holding for family and friends. The agreement requires that Judith pay Mo $250.00 for three hours’ work. After completing approximately half of the job, Mo requests that Judith pay him an extra $50.00 because the cost of gasoline used for the rider mower had gone up significantly that morning. Judith agrees to pay the additional $50.00. Is she legally liable to do so? a. Yes she is, because she told Mo she would pay him and he finished the job on the basis of her promise. b. Yes she is, because the rising price of gas should be borne by Judith. c. No she isn’t, because Mo had an existing contractual obligation to perform the services for $250.00 and there is no consideration for the subsequent agreement to pay $50.00 more. d. No she isn’t, because Judith is promising to reward Mo for something he has previously done and the past consideration is no consideration. Answer: c Diff: 3 Type: MC Topic: Existing Legal Duty and Consideration Skill: Applied 30) All gratuitous promises are unenforceable. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Correct: Correct Answer: b Diff: 3 Type: TF Topic: Gratuitous Promises Skill: Recall/Applied 31) Motive can change a gratuitous promise into a binding contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Motive Contrasted with Consideration: Past Consideration Skill: Recall 32) Generally speaking, it is up to the court to ensure that a fair bargain was made; that is, to ensure that the consideration for a promise is adequate. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Adequacy of Consideration Skill: Recall 33) Where there is an existing contract between two parties and, to ensure performance, one party promises to give more consideration than under the original contract, the new promise is binding and must be performed. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Correct: Correct Answer: b Diff: 3 Type: TF Topic: Adequacy of Consideration Skill: Applied 34) Estoppel or promissory estoppel was developed to overcome the principle that payment of a lesser sum in satisfaction of a greater sum is no payment at all. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Equitable Estoppel Skill: Applied 35) Where there is an existing contract between two parties and one party, to ensure performance by the other, promises something more, so long as the other party also gives something more, there is a binding contract and the first party must perform the new promise. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Adequacy of Consideration Skill: Applied 36) Gratuitous promises are made without consideration. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Gratuitous Promises Skill: Recall 37) Promissory estoppel can be used as the basis for a lawsuit. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Equitable Estoppel Skill: Recall 38) There is no contract unless each party intends to create a legally enforceable contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Intention to Create Legal Relations Skill: Recall 39) Quantum meruit does not refer to the reasonable amount that a person merits for goods and services provided. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Answer: b Diff: 2 Type: TF Page Reference: 125 Topic: The Effect of a Request for Goods or Services Skill: Recall 40) A document made under seal does not require consideration. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Use of a Seal Skill: Recall 41) What is the effect of sealing a contractual document? Answer: A seal is a mark that is placed on a written contract to indicate the party's intention to be bound by the terms of the document. When a document is sealed, a party indicates his or her intention to be bound by the terms of the contract even though the other party may not have given consideration. Diff: 1 Type: ES Topic: The Use of a Seal Skill: Recall 42) When we say that consideration is the price for a promise, what does price mean? Answer: Price is the corresponding obligation of the other party for the promise made to him or her or it and can take the form of money payment, the performance of some act, or the conscious decision not to perform an act. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Diff: 1 Type: ES Topic: The Meaning of Consideration Skill: Recall 43) When one party to a concluded contract promises the other party something more, why is the new promise not binding? Answer: There is no fresh consideration for the new promise. Diff: 2 Type: ES Topic: Gratuitous Promises Skill: Applied 44) Today, the rule in Foakes v. Beer, that payment of a lesser sum in satisfaction of a greater sum is not payment at all, does not apply in Ontario. Explain. Answer: Ontario, together with a number of other provinces, has passed legislation that overcomes the rule in Foakes v. Beer to give effect to agreements called settlements, which settle a debt. Diff: 2 Type: ES Topic: Gratuitous Reduction of a Debt Skill: Recall 45) Motive is irrelevant to consideration. Explain. Answer: Consideration is the price that one person pays for the promise of another, or something that is given in exchange for the promise of another. This is very different from the reason behind the making of the promise. The reason why Jack makes a promise to pay James $40.00 in exchange for James' promise to wash Jack's clothes is irrelevant. Only consideration is relevant in the eyes of the law. Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Type: ES Page Reference: 116 Topic: Motive Contrasted with Consideration: Past Consideration Skill: Recall 46) Nan promises not to sue Reg if he agrees to pay her $1000. Reg agrees to pay Nan $1000, but later discovers that she actually had no right to sue him. Is Reg bound to pay Nan? Answer: As long as a party has an honest belief in a right to sue, giving up that right can be consideration for a promise on the part of the other party. This applies even though the belief in the right to sue was mistaken. Diff: 2 Type: ES Page Reference: 116 Topic: The Meaning of Consideration Skill: Recall 47) What is a gratuitous promise? Can such a promise support a contract? Answer: A gratuitous promise is made without bargaining for, or accepting, anything in return. A gratuitous promise goes against the general rule that a promise must be supported by consideration to be enforceable. Thus, as a general rule, a gratuitous promise cannot support a contract. The exception concerns those situations characterized as situations involving injurious reliance, where a party has relied on a gratuitous promise to his or her detriment. Where a party relies on a gratuitous promise to his or her detriment, the promisor will not be permitted to renege on the promise. Diff: 2 Type: ES Topic: Gratuitous Promises Skill: Applied 48) Should promissory or equitable estoppel only be used as a defence? Answer:

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

The doctrine of promissory or equitable estoppel originated as a bar to an action by one party who made a gratuitous promise that was relied on by and to the detriment of the party to whom the promise was made. Considering that this is much like the principle of negligent misrepresentation, which is actionable by a party, and also considering the decision of the Supreme Court of Canada in Conwest Exploration v. Letain, there is good reason to suggest that this doctrine can be used as the basis for a cause of action in a lawsuit. Diff: 3 Type: ES Topic: Equitable Estoppel Skill: Applied 49) Is it possible for a person to enter into an enforceable contract without receiving any benefit from the agreement? Answer: It is possible for a person to enter into an enforceable contract even if that person does not receive any benefit from the agreement. The only legal requirement regarding consideration is that it must be of some value. Thus consideration may be both a benefit and a detriment. For instance, a party, A, enters into a contract with another, B, on terms that A will supply goods to B in payment for property of B's destroyed by A, if B does not bring proceedings against A. A receives no benefit from the contract, and yet an enforceable contract is created. Diff: 3 Type: ES Topic: Adequacy of Consideration Skill: Recall/Applied 50) Injurious reliance and equitable estoppel are two sides of the same coin. Explain. Answer: The U.S. principle of injurious reliance and the English principle of equitable estoppel are two sides of the same coin. The concept of injurious reliance examines the loss that has been sustained by a promisee who has relied on the gratuitous promise to his or her detriment. Under the English principle of equitable estoppel, the court examines matters from the position of the promisor. It determines whether the promisor made a promise that it would be unfair for it to renege on, and then estops the promisor from doing so. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 7: Formation of a Contract: Consideration and Intention

Type: ES Topic: Equitable Estoppel Skill: Recall/Applied 51) Why is a promise to perform a pre-existing legal duty not consideration? Answer: A person who owes a pre-existing legal duty cannot rely on that duty as consideration for a new contract. The reasoning for this is sometimes said to be that a person cannot be made to pay twice for the same thing. It is also said to be against public policy for a person to be able to threaten to break one contract unless he or she is given another contract at a higher price. In essence however, the promise to perform a pre-existing legal duty is not consideration because the consideration for the pre-existing legal duty has already been provided. Diff: 2 Type: ES Topic: Relation Between Existing Legal Duty and Consideration Skill: Recall/Applied 52) What is meant by "the meeting of minds"? How significant is it to the formation of contracts? Answer: When parties are entering into a contract, it is said that there must be a meeting of minds. That is to say, both parties must desire to enter into legal relations with each other on the same subject. Without the desire of both parties to a contract to enter into legal relations, a valid contract cannot be formed regardless of the fact that the other elements of the contract may be present. Diff: 2 Type: ES Topic: Relation Between Existing Legal Duty and Consideration Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

1) Capacity to contract means a. the ability to make an offer or accept an offer. b. the competence to enter into a legally binding contract. c. the ability to pay damages in the event of a breach of contract. d. the ability to make a promise. e. the ability to comprehend the terms of a contract. Answer: b Diff: 1 Type: MC Topic: The Meaning of Capacity to Contract Skill: Recall 2) Although there has been an offer and acceptance and consideration, and the parties intended to enter into a contract, a court will set aside a contract as void because of a. the social standing of one of the parties. b. the lack of capacity of one of the parties. c. the wealth of one of the parties. d. the signature on the contract being unclear. e. the impecuniosity of one of the parties. Answer: b Diff: 1 Type: MC Topic: The Meaning of Capacity to Contract Skill: Recall 3) A minor is a. a person who is small in stature. b. a person who enters into an agreement to work in a coal mine. c. a person who performs minor tasks pursuant to a contract. d. a person who is small in stature but is able to enter into certain contract. e. a person who has not attained the age of majority. Answer: e Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Type: MC Topic: Minors (or Infants) Skill: Applied 4) Mary is 13 years old, and she enters into an agreement with a modelling agent pursuant to which the agent agrees to represent her. Which of the following is NOT true? a. The agent can only enforce a contract regarding necessaries against the minor. b. A minor may repudiate contracts for non-necessaries because he or she is not bound by them. c. The contract is enforceable against the agent. d. The contract is not enforceable by Mary against the agent. e. The agent cannot enforce the contract against Mary. Answer: d Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 5) A minor may repudiate all contracts entered into by her with the exception of a. contracts for necessaries. b. contracts entered into under duress. c. contracts that are beneficial to the minor. d. contracts pertaining to real estate. e. contracts entered into with relatives. Answer: a Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 6) Jack is 13 years old and a young musical legend. Jack enters into negotiations with a studio pertaining to a starring role in a series of movies. Prior to the negotiations, and as a condition to entering into the negotiations, Jack and the studios enter into an agreement under which the studio agrees to buy Jack a limousine for his personal use. The studio buys the limousine. A few months later Jack repudiates the contract and his chauffeur has an accident with the limousine. Which of the following is true? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

a. Jack may sell the limousine and then pay the proceeds to the studio. b. Jack will have to return the limousine in the state it is in. c. The studio can sue Jack for breach of contract. d. Jack may keep the limousine but has to pay for it. e. Jack will have to repair the limousine and then return it. Answer: b Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 7) On January 1, Jack, a minor, orders some computer software programs from a computer company. Jack needs the programs for school. The software programs cost $4000.00. On January 5, just before the computer company sends the software programs out, Jack has a change of heart. So he calls the computer company and tells them that he no longer wants the programs. In this situation, a. Jack cannot cancel the contract, because there has been offer and acceptance. b. Jack cannot cancel the contract, because the programs are necessaries. c. Jack cannot cancel the contract, because it is a beneficial contract of service. d. Jack can cancel the contract, because the software programs are non-necessaries and he has not taken delivery of them. e. Jack can cancel the contract, because minors do not have to pay large sums of money. Answer: d Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 8) When Mary was 17 years old, she was asked to become a partner in an clothing design shop because she created brilliant clothing designs. Mary liked the idea at the time and signed a partnership agreement/contract. However, after working for a month, she decided that it was not something she wanted to do. After Mary turned 18, she decided to stop being a partner in the clothing shop. In this situation, a. Mary can repudiate the partnership contract because it is not a beneficial contract of service. b. so long as Mary does not affirm or ratify the partnership contract, she can repudiate it. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

c. there is nothing that Mary can do because she is now 18 years of age. d. there is nothing that Mary can do because she is bound by a beneficial contract of service. e. there is nothing Mary can do because she signed the partnership agreement/contract. Answer: b Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall/Applied 9) Upon attaining the age of majority, a minor may be bound by two kinds of voidable contracts, namely, a. contracts that create an interest of a continuous and permanent nature, and contracts that are ratified by the minor. b. contracts pertaining to real estate, and contracts pertaining to intellectual property. c. contracts of service and contracts of employment d. contracts of purchase, and contracts of sale. e. contracts that concern necessaries, and contracts that concern non-necessaries. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 10) Which of the following is NOT true? a. A corporation has no physical existence. b. A corporation is a legal fiction. c. A corporation is a creature of law. d. A corporation does not have the attributes of a natural person. e. A corporation has the same attributes as a natural person. Answer: d Diff: 2 Type: MC Topic: Corporations Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall 11) Minors will be liable for contracts a. if the contracts concern necessaries. b. if the minor completes a declaration stating that he or she has read and understood the terms of the contract. c. if they signed the contract. d. if the parent of the minor was present at the time the minor was signing the contract. e. if the minor is deemed to be of well-above-average intelligence. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 12) A minor's immunity from liability a. is limited to contracts. b. is determined by statute. c. is dependent on the age of the minor. d. extends to contracts and torts. e. extends to purchases and sale of real estate. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 13) A year ago, James sold a motor bike to Jim, his best friend. At the time that the bike was sold, Jim was a minor. Jim is still making payments to James. Jim will be attaining the age of majority in a few months’ time. How should James protect himself? a. Have Jim transfer the bike to a third party. b. Get a witness to witness the next payment that Jim makes. c. Enter into another agreement with Jim. d. Get Jim to ratify the agreement. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

e. Provide Jim with a statement of account. Answer: d Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall/Applied 14) Happy Carrier Company (HCC) is in the business of shipping goods. Yesterday HCC agreed with John Smith to ship Mr. Smith's furniture from Toronto to Ottawa. Mr. Smith's furniture is worth $100 000.00. Just before loading the furniture onto its truck, HCC's driver had Mr. Smith sign a contract that contained a term that limited HCC's liability for destruction or damage to the furniture to $50.00 if it resulted from the negligence of HCC or its employees. On the way to Ottawa, HCC's driver lost control of the truck and Mr. Smith's furniture was destroyed by fire after the truck crashed into a brick wall. In this situation, a. the limitation of liability in the contract is effective only against HCC, but not its employee, so Mr. Smith can sue the employee for the value of his furniture. b. the limitation of liability in the contract is permitted by law and Mr. Smith will receive only $50.00. c. Mr. Smith's contract with HCC is illegal by common law, so Mr. Smith will recover the full value of his furniture from HCC. d. although the contract with HCC is legal, the limitation on liability contained in it is not, so Mr. Smith will recover the full value of his furniture from HCC. e. the limitation of liability in the contract is not effective, because Mr. Smith did not see it before he signed the contract, so Mr. Smith will recover the full value of his furniture from HCC. Answer: b Diff: 2 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Recall/Applied 15) In order for a person under mental incapacity to avoid a contract made while that person was incapacitated, the incapacitated person must show a. that neither party knew what was happening. b. that there was no intention to enter into a contract. c. that the contract was unfair. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

d. that the other party should have recognized the incapacity. e. all of the above Answer: d Diff: 2 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Recall 16) Jack and Jill agree to tell Michael that they will beat him up if he does not give them his valuable coin collection. According to the common law, this agreement between Jack and Jill is a. unenforceable. b. illegal. c. voidable. d. ineffective. e. void. Answer: b Diff: 1 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Recall 17) When a minor reaches the age of majority, a contract that was entered into earlier and was unenforceable remains unenforceable unless a. the parties execute an affidavit. b. it was ratified after the person attains the age of majority. c. it is repudiated after the person attains the age of majority. d. the subject matter is a non-necessary item. e. the subject matter is stolen before the person attains the age of majority. Answer: b Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

18) Michael is an Aboriginal person living on a reserve. Which of the following is true? a. Michael can use reserve land as security for a loan. b. Michael may manufacture and sell goods to outsiders. c. If Michael moves off the reserve, his capacity to contract would not change. d. Michael has the same capacity to contract as other Canadians. e. Michael's legal position to sell produce would not vary by province. Answer: b Diff: 2 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Applied 19) Native Canadians living on reserves are considered to be ________ of the Crown. a. wards b. children c. beneficiaries d. friends e. relatives Answer: a Diff: 1 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Recall 20) Which of the following is true? a. Where a portion of a contract is void, the whole contract is affected and a court will set aside the whole contract as being void. b. A contract that contemplates the commission of a tort is not legal unless the tort is committed and someone is injured. c. Where a portion of a contract is void, the remainder of the contract is not affected provided a court can sever the void parts without doing injustice to the parties. d. The common law supersedes statute law when determining the legality of contracts. e. A statute can only make a contract illegal; it cannot make a contract void. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Answer: c Diff: 2 Type: MC Topic: The Difference Between a Void and an Illegal Contract Skill: Recall 21) Business agreements are most often challenged as contrary to public policy because a. they may be in restraint of trade. b. the agreement may be intended to defraud others. c. one party may be more powerful than the other. d. one party may have been coerced into signing the agreement. e. the agreement may be contrary to statute. Answer: a Diff: 2 Type: MC Topic: Agreements in Restraint of Trade Skill: Recall 22) When a court strikes down an unreasonable agreement between an employer and employee that restricts the future economic freedom of the employee, the court serves two public interests, namely, protecting employees and a. maintaining peaceful workplaces. b. applying the law. c. protecting businesses. d. protecting the mobility of labour. e. protecting the management of businesses. Answer: d Diff: 1 Type: MC Topic: Agreements in Restraint of Trade Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

23) At common law, a clause in an agreement between a purchaser and vendor for the sale and purchase of a business that provides that the vendor will not carry on the same business within a radius of 1500 kilometres of the business being sold a. is void for public policy. b. is not reasonable and amounts to a restraint of trade. c. is perfectly reasonable and will be enforced by the court. d. is an illegal clause and therefore void. e. none of the above Answer: b Diff: 2 Type: MC Topic: Agreements in Restraint of Trade Skill: Applied 24) Which of the following is true regarding the legal capacity of the corporation? a. Agents can negotiate but not sign contracts on behalf of the corporation. b. All contracts need to be placed under the corporate seal. c. The corporation can show it is ultra vires to have contracts enforceable. d. Authorized officers of the corporation can sign most contracts. e. Neither statute nor incorporating documents can limit the capacity. Answer: d Diff: 2 Type: MC Topic: Corporations Skill: Recall 25) John is a member of a social club that does a great deal of charity work. Harry was once a member of the social club, but after an argument at one of the club meetings, Harry had his membership taken away. This made Harry very angry, and to get back at the club, Harry began to distribute flyers that told lies about the club's charity work and which caused people not to want to make any donations to the charities that the club sponsored. The club now wants to sue Harry for defamation. In this situation, a. the club is not a legal person in law and cannot sue Harry. b. the club is just like a labour union and will be able to sue Harry. c. the club is not a legal person in law, but it will still be able to sue Harry. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

d. the club is just like a corporation and will be able to sue Harry. e. none of the above Answer: a Diff: 3 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Applied 26) Harvey is a teacher. He is also a member of a labour union that represents teachers. For the past month, the union has been negotiating a new agreement with the government of Ontario. Yesterday, the union executive authorized Harvey to bring a lawsuit against the government of Ontario for failure to bargain in good faith. In this situation, a. the labour union is just like a corporation and can bring a lawsuit against the government. b. only Harvey himself can bring a lawsuit against the government, not the union. c. just like a social club, the labour union cannot bring a lawsuit against the government. d. the labour union can appoint Harvey to bring a representative action on behalf of the union against the government. e. the law is uncertain as to the status of labour unions to bring a lawsuit against the government. Answer: d Diff: 2 Type: MC Topic: Labour Unions Skill: Recall/Applied 27) Mary, a prostitute, enters into a contract with a man to provide sexual services in return for an agreed-on amount of money. In this situation, a. no remedy is available to Mary if the man does not pay her. b. no remedy is available to the man if he pays the money and Mary refuses to provide her services. c. the contract is illegal and therefore unenforceable. d. there is a contract between Mary and the man. e. all of the above Answer: e Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Diff: 3 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Applied 28) A void contract is one that is deemed in law to have never been created. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Difference Between a Void and an Illegal Contract Skill: Recall 29) Once a contract has been made, legal capacity will be presumed unless the defendant proves otherwise. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Burden of Proving Essential Elements of a Contract Skill: Recall 30) Legal capacity simply refers to the ability of a party to enter into a contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Type: TF Topic: The Meaning of Capacity to Contract Skill: Recall 31) A contract that is void is also unenforceable. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Meaning of Capacity to Contract Skill: Applied 32) Like a corporation, a social club has legal standing to commence and maintain an action at law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Labour Unions Skill: Recall 33) Where a contract is illegal, the contract exists, but will not be enforced by the court. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Contracts Illegal by the Common Law and Public Policy Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall/Applied 34) A contract made by a minor is enforceable against him or her, and unenforceable by him or her. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Minors (or Infants) Skill: Applied 35) A court will refuse to enforce a contract that involves illegality only if it can be shown that both parties knowingly agreed to illegality. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Contracts Illegal by the Common Law and Public Policy Skill: Applied 36) Where a contract contains a restrictive covenant, that is, a covenant in restraint of trade, the totality of the contract is invalid. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Agreements in Restraint of Trade Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall/Applied 37) In order to collect compensation for a loss under a fire insurance policy, the insured must show an insurable interest. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Contracts Affected by Statute Skill: Recall 38) ABC Inc. and XYZ Ltd. enter into an agreement. The agreement includes, among other things, a provision that both parties will monitor their prices to ensure that both parties price their products equally. In this situation, the court will set aside the whole contract as being illegal. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Agreements in Restraint of Trade Skill: Recall/Applied 39) In examining contracts that include a restrictive covenant, the court will not presume that the term is in restraint of trade unless the evidence establishes that it is. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Type: TF Topic: Agreements in Restraint of Trade Skill: Recall 40) What is meant by the term contractual capacity? Answer: Contractual capacity refers to the competence to enter into a contract. Diff: 1 Type: ES Topic: The Meaning of Capacity to Contract Skill: Recall 41) The fact that a labour union does not have capacity to sue and defend on its own is not an absolute bar to the bringing or defence of an action on its behalf. Explain. Answer: While, subject to statute, a labour union may not itself have the capacity to bring a lawsuit, one of its members can bring a representative action on behalf of all members of the labour union because they all have the same interests. Diff: 3 Type: ES Topic: Labour Unions Skill: Recall/Applied 42) Explain the difference between a contract that is void and one that is illegal. Answer: A void contract is one that never comes into existence, while an illegal contract is one that exists but by reason of illegality will not be enforced by the court. Diff: 3 Type: ES Topic: The Difference Between a Void and an Illegal Contract Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

43) Diminished capacity for minors is not treated in the same way as it is for drunken or insane persons. Explain. Answer: Minors can establish diminished capacity simply by proving their age, while drunken or insane persons must establish that not only were they incapacitated by alcohol or mental infirmity at the time of the contract, but also that the other party was aware of their condition. Diff: 2 Type: ES Topic: Other Persons of Diminished Contractual Capacity Skill: Recall 44) Explain the position that a court will take when it is faced with a term in a contract that may be in restraint of trade. Answer: When a court is faced with a term in a contract that is in restraint of trade, the court will presume that the term is in restraint of trade. The onus is then on the party seeking to enforce the covenant to rebut the presumption that the term is in restraint of trade. Diff: 1 Type: ES Topic: Agreements in Restraint of Trade Skill: Recall 45) Explain, with the use of examples, the concept of legal capacity. Answer: Legal capacity means competence to bind oneself. Thus a person is said to have legal capacity if the person is competent to enter into a contract and bind him- or herself. For example, a minor, that is, a person who has not reached the age of majority, is not competent to bind him- or herself because a minor is deemed to have a weak bargaining position. As well, certain persons of unsound mind are also deemed to lack legal capacity. Diff: 2 Type: ES Topic: The Meaning of Capacity to Contract

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall/Applied 46) For the purpose of a contract, who is a minor? Answer: A minor is someone who has not reached the age of majority specified in provincial legislation. Diff: 1 Type: ES Topic: Minors (or Infants) Skill: Recall 47) What must a minor do if he or she wishes to avoid liability under a contract? Answer: The minor must promptly repudiate the contract and return goods not used, whatever their condition. Diff: 1 Type: ES Topic: Minors (or Infants) Skill: Recall 48) When can an adult recover money loaned to a minor? Answer: An adult can recover money loaned to a minor if the money was used to purchase necessaries. Diff: 2 Type: ES Topic: Minors (or Infants) Skill: Recall 49) What are the legal consequences of the ratification of a contract by a minor who attains the age of majority? Answer: Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

When a minor who attains the age of majority ratifies a contract, the minor acknowledges the contract and promises to perform his or her obligation under the contract. Diff: 2 Type: ES Topic: Minors (or Infants) Skill: Recall/Applied 50) Why is a court more likely to accept as reasonable certain restraints on an employer who is in possession of certain trade secrets of his or her employer? Answer: Agreements between employer and employee may restrict the future economic freedom of the employee. For example, an agreement may restrict the employee from working in the same kind of employment or for a competitor after a period of time when he or she leaves the employ of his or her current employer. A court is more likely to see as reasonable restrictions that concern employees who are in possession of trade secrets or who have direct dealings with the employer's clientele. This is because of the perception of the court that there is a more urgent need to protect business and other proprietary secrets of the employer. Diff: 2 Type: ES Topic: Agreements in Restraint of Trade Skill: Recall/Applied 51) Explain how a confidentiality provision in an employment agreement can give rise to an ethical dilemma for an employee and whether the law should permit the breach of such a provision where it is warranted. Answer: A confidentiality provision is one that prohibits the employee from disclosing confidential information gained in the course of employment. Sometimes, however, an employee will come into confidential information that suggests that the practices of the employer create a danger to the public. If the employee were to disclose this information, the employee would be committing a breach of the confidentiality provision, giving rise to sanctions against the employee by the employer, such as termination of employment, a law suit in damages, or both. Yet one can argue that the employee has a higher duty to the public to disclose information that, if disclosed, could prevent injury or harm to the public. In this latter sense, the courts should acknowledge this higher duty and permit the disclosure of such information.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Diff: 3 Type: ES Topic: Contracts Illegal by the Common Law and Public Policy Skill: Recall/Applied 52) A minor's freedom from liability is limited to contract. Explain. Answer: A minor is a person who has not reached the age of majority specified by provincial statute. The general rule is that a contract made by a minor is unenforceable against the minor but enforceable by the minor against the other party. This is without regard to whether the other person is aware that he or she is dealing with a minor. However, the freedom of a minor from liability is limited to contract only. A minor remains liable for torts, such as negligence, assault, defamation, or deceit. Thus if a minor is negligent, he or she will be liable. However, if a minor is doing certain acts that are contemplated by a contract and loss results, the court will decide the matter under contract law and the minor will escape liability for the loss. Diff: 2 Type: ES Topic: Minors (or Infants) Skill: Applied 53) Explain, with the use of examples, the concept of legal capacity. Answer: Legal capacity means competence to bind oneself. Thus a person is said to have legal capacity if the person is competent to enter into a contract and bind him- or herself. Thus a minor, that is, a person who has not reached the age of majority, is not competent to bind him- or herself because a minor is deemed to have a weak bargaining position. As well, certain persons of unsound mind are also deemed to lack legal capacity. Diff: 2 Type: ES Topic: The Meaning of Capacity to Contract Skill: Recall 54) Why is a court more likely to accept as reasonable certain restraints on an employer who is in possession of certain trade secrets of his or her employer?

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Answer: Agreements between employer and employee may restrict the future economic freedom of the employee. For example, an agreement may restrict the employee from working in the same kind of employment or for a competitor after a period of time when he leaves the employ of his or her current employer. A court is more likely to see as reasonable restrictions that concern employees who are in possession of trade secrets or who have direct dealings with the employer's clientele. This is because of the perception of the court that there is a more urgent need to protect business and other proprietary secrets of the employer. Diff: 2 Type: ES Topic: Agreements in Restraint of Trade Skill: Recall 55) Explain the role of legality in the formation of a contract. Answer: A contract must be legal, that is, it must not offend the public good and not violate any law. In the absence of any evidence to the contract, the court presumes that all transactions are legal. A defendant must adduce evidence to establish that this is wrong. Diff: 2 Type: ES Topic: The Role of Legality in the Formation of a Contract Skill: Applied 56) Explain why it can be important in terms of enforcing a contract to ensure that you have all the licences required by government regulation and by your trade. Answer: If you do not have the required licences and you are suing to enforce the contract, the defendant may be able to defend on the basis of illegality. You would then not be able to recover compensation for the services provided. It may be possible in some cases to recover for materials supplied. Diff: 2 Type: ES Topic: Contracts Affected by Statute Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

1) Contracts between parties of unequal bargaining power that are unfairly advantageous to the powerful parties have long been considered a. bilateral contracts and void. b. unilateral contracts and voidable. c. unconscionable contracts and voidable. d. non est factum. e. contrary to the Criminal Code of Canada. Answer: c Diff: 3 Type: MC Topic: Consumer Protection Skill: Applied 2) In executing its discretion to grant relief when a party makes a mistake about terms, a. the court will correct the document. b. the court will determine the burden of proof. c. the court will consider the hardship that will be suffered by each party. d. the court will adopt the position of the plaintiff. e. the court will determine each party's interpretation of the terms. Answer: c Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Recall 3) An innocent party can lose her or his right to repudiate a contract formed as a result of undue influence by a. physical retaliation after the contract’s formation. b. not repudiating promptly after being freed from the domination. c. tearing up the contract before its execution. d. reversing the role of the dominant party. e. declaring that the special relationship between the parties no longer exists. Answer: b Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 3 Type: MC Topic: Undue Influence Skill: Recall/Applied 4) Use this fact situation to answer the related questions that follow it. A and B are negotiating a settlement under which A is to give B money and in return B is to give A his house and his car. The negotiations are by faxes back and forth between A and B, who agree to put the settlement in writing. A prepares the written settlement agreement, which, unfortunately, does not refer to his house, so B quickly signs it. In this situation, if A argues that the house was part of the settlement and was left out by mistake, a. B need not give his house to A, because there really was no error by A at all. b. B need not give his house to A, because the written settlement agreement superseded the negotiations. c. B need not give his house to A, because it was not reasonable for A to have relied on the house as part of B's settlement obligation. d. B must give his house to A, because B knew of A's error and took advantage of it. e. B need not give his house to A, because that term is not in the written contract. Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 5) Use the fact situation in Q4 to answer the related question that follows. Based on the fact situation above, to ensure that A's argument succeeds and he gets the house from B, A will ask the court for a. rectification. b. an injunction. c. rescission. d. specific performance. e. damages. Answer: a Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 6) If a preliminary bargaining statement is expected to influence the decision of the other party, then it is said to be ___________ to the contract. a. subject b. tangible c. consequential d. substance e. material Answer: e Diff: 2 Type: MC Topic: Misrepresentation Skill: Applied 7) A agrees to buy 1000 shares in a telephone company from B for $3.00 a share. A believes that the value of the shares in the company is going to go up to $15.00 in a day or two. However, B believes that the value of the shares is going to go down to $1.50 and wants to get as much money as he can. Unknown to either A or B, at the time of the agreement, the value of the company and thus the shares has dropped below $1.50, to $0.75. A now wishes to get out of the agreement. In this case, a. A will succeed because A was mistaken about the value of the shares in the company and has been adversely affected. b. A will succeed because there was a mistake as to the subject matter of the contract and A has been adversely affected. c. A will not succeed because A was adversely affected and took a risk about the company and the value of its shares. d. A will succeed because a change in circumstances of the company does not affect the agreement. e. A will not succeed because both A and B took a risk about the value of the shares in the company. Answer: c Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Type: MC Topic: Mistakes in Assumptions Skill: Applied 8) A contract that is void a. is one that exists, but by reason of some mistake can be set aside. b. is one that exists, but is merely unenforceable. c. is one that does not exist, but can still be set aside. d. is one that does not exist unless a party wants it to, at which time it becomes enforceable. e. is one that never exists so as to give rise to rights under it. Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 9) A voidable contract is a contract that, a. like a void contract, never exists so as to give rise to rights under it. b. unlike a void contract, cannot be rectified. c. unlike a void contract, exists but does not give rise to legal rights. d. unlike a void contract, exists but can only be set aside by agreement of the parties to it. e. unlike a void contract, exists but can be set aside at the option of one of the parties to it. Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 10) Use this fact situation to answer the questions that follow. A has two Corvette Stingray automobiles, one built in 1965 and the other built in 2009. Generally speaking, both cars are worth approximately the same amount (about $70 000.00). A now wants to sell the 1965 Corvette and to this end begins negotiations with B, who knows that A owns both a 1965 and a 2009 Corvette. In discussions with B, A Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

says "I'm thinking of selling my Corvette for $65 000.00.” B believes A is talking about his 2009 Corvette, so B says "I'll buy it at that price," and pays A the $65 000.00. Later A calls B asking him when he is going to pick up the 1965 Corvette. Having thought that he was buying the 2009 Corvette, B now tells A he wants his money back. In this situation, a. only B has made a mistake, and he can seek rectification of the contract and get the 2009 Corvette from A. b. only B has made a mistake as to the subject matter of the contract, so he cannot get his money back if A delivers the 1965 Corvette. c. both A and B have made a mistake as to the subject matter of the contract, and the contract is voidable. d. both A and B have made a mistake as to the subject matter of the contract, and the contract is void. e. only A has made a mistake as to the subject matter of the contract, so B cannot get out of the contract so long as A delivers the 1965 Corvette. Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 11) Use the fact situation in Q10 to answer the related question that follows. Based on the above fact situation, the court will a. restore A and B to their original positions before the contract. b. make B give back the car. c. rescind the contract. d. make A give back the money. e. all of the above Answer: e Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

12) At common law, a mistake by an innocent party as to the identity of the other party usually involves a. a mistaken assumption. b. fraud. c. the element of surprise. d. an ambiguous term. e. the element of risk. Answer: b Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 13) A has a Tom Thomson painting that he wishes to sell. A has heard that B is an art lover and takes very good care of the paintings of Canadian masters. As a result, A decides that he will only contract with B. So he calls B and they make a deal over the telephone. Unfortunately, B's servant C overhears the conversation and before B can get to A's house, C arrives there pretending to be B. A sells the painting to C believing that C is B. Just after C leaves A's house, B shows up and A realizes his error. This situation is a classic example of a. breach of contract. b. fraud or deceit. c. mistake by both parties as to the subject matter of the contract. d. unilateral mistake as to identity. e. all of the above Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 14) Which of the following is not a condition that must be met by a plaintiff who request rectification of a contract? a. The plaintiff must satisfy the court that there was a complete agreement between the parties, free from ambiguity.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. The plaintiff must establish that the parties did not engage in further negotiations to amend the contract. c. The plaintiff must satisfy the court that the agreement is not subject to, or conditional on, any further adjustments. d. The plaintiff must satisfy the court that all attempts to reach some understanding between the parties have failed. e. The plaintiff must establish that the change in the written document appears to be an error in the recording of the document and is easily explained as such. Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 15) Mistake about terms does NOT include a. the attribution by the parties of different meanings to words used in a contract. b. errors that are made in the recording of an agreement between parties. c. the error of judgment that a party makes when he or she enters into a bad contract. d. misunderstandings about the meanings of words used in a contract. e. words used inadvertently in stating the terms of a contract. Answer: c Diff: 3 Type: MC Topic: Mistakes About the Terms Skill: Applied 16) James says to Jack, “I am selling my Toyoda for $500. Would you like to buy it?” Jack, believing that James was referred to his automobile, replies, "Yes, I'll buy your Toyota for $500." Jack pays $500 and James presents him with a Japanese doll called Toyoda. Jack asks for his money back because he misunderstood James. Should this matter go to court, the court will most likely find that a. no contract arose because a reasonable person would not believe that James would offer to sell his car for $500. b. Jack's refusal to pay is a breach of contract. c. there is a binding contract for the sale of the Toyoda because that is what James meant when he made the offer. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

d. there is a binding contract for the sale of the Toyota car because James should have made it clear what he was selling. e. there is a binding contract for the sale of the Toyota because that is the offer Jack believed he was accepting. Answer: a Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 17) In contract law, a mistake is a. an error about the terms of the contract, or the assumptions regarding important facts related to the contract. b. the threat of physical or economic harm that results in a contract. c. a false statement made by one party that causes someone to enter a contract. d. unfair manipulation that compromises someone's free will. e. an error of judgment about the benefits of a contract. Answer: a Diff: 2 Type: MC Topic: The Narrow Meaning of Mistake Skill: Recall 18) A court will not enforce a contract if a. a party is mistaken as to what the subject matter of the contract was. b. one party was unreasonable in using certain words. c. the meanings of the words are not clear. d. the parties disagree as to the interpretation of important terms. e. there are two reasonable interpretations of words in the contract and no indication which is correct. Answer: e Diff: 2 Type: MC Topic: Mistakes About the Terms Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Skill: Applied 19) In a legal sense, mistake is a. a mistake of fact. b. an error of judgment. c. a misunderstanding. d. narrowly defined and limited in scope. e. a misrepresentation. Answer: d Diff: 2 Type: MC Topic: The Narrow Meaning of Mistake Skill: Applied 20) Rectification will be ordered where a. there is a complete unambiguous agreement that was recorded incorrectly. b. the parties wish to change certain terms in the contract. c. one of the parties to the contract lacks legal capacity. d. the offeror misrepresented certain facts. e. the wrong party performs the contract. Answer: a Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied 21) When a court grants rectification of a contract, it a. declares a contract to be unenforceable. b. changes the part of the document that was incorrect in the written document. c. sets aside the contract. d. declares the contract to be voidable. e. interprets the contract for the parties. Answer: b Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 22) A pleas of non est factum a. is applicable only where both parties have made a mistake. b. means it is not my doing. c. is not a good defence against third parties. d. means the contract is not correct. e. can only be raised if there is a misrepresentation. Answer: b Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 23) McKenzie purchases goods from Dormond. Later McKenzie goes to court and the court declares that the contract between McKenzie and Dormand is void. This means that a. Dormond has to return all money received from McKenzie, but McKenzie does not have to return the goods. b. the court has declared that there was a valid contract between Dormond and McKenzie from the date of the purchase until the date of the Court ruling. c. the court has declared that Dormond breached the contract. d. McKenzie can return all or the remainder of the goods to Dormond in exchange for reimbursement of payment. e. McKenzie can keep the goods and can demand his money back from Dormond. Answer: d Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

24) Jonathan sells crates of tomatoes on board the SS Apapa to Margaret. At the time of the sale, both parties are unaware that the crates were washed overboard. What is the status of the contract between Jonathan and Margaret? a. Jonathan is still the owner of the shipment. Jonathan bears the loss and will have to refund Margaret's money. b. Margaret has to pay the agreed price and recover from her insurance. c. The ownership passed to Margaret, but Jonathan is still in possession, and so he is liable. d. Margaret is the new owner of the tomatoes and has to bear the loss. e. Margaret may sue Jonathan for the tort of deceit. Answer: a Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Applied 25) James purchases an antique chair at a garage sale for $150.00. Later he sells it to Jacqueline for $300 and makes a nice profit. A few months later the Antiques Road Show comes to town and Jacqueline takes the chair to the show to be valued. She is advised that the chair dates as far back as 1866 and is worth approximately $5000. Which of the following is true? a. James made a mistake about the value of the chair and so the contract will be set aside by a court. b. James did not make a legal mistake because he was careless in determining the right price. c. James can plead non est factum. d. James did not make a mistake about the value of the chair because the radically different price is one of the risks expected in the contract. e. If Jacqueline sells the chair, the court will order that Jacqueline pay a portion of the proceeds of sale to James because James made a mistake. Answer: d Diff: 2 Type: MC Topic: Mistakes About the Terms Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

26) If, at the time a contract was made, the subject matter did not exist, without the knowledge of the seller, the contract is a. a mistake in terms of fact and not assumption. b. subject to the tort of deceit. c. void, according to the Sale of Goods Act as well as under the common law. d. valid; the purchaser stands the loss. e. voidable at the option of the court. Answer: c Diff: 2 Type: MC Topic: Mistake and Innocent Third Parties Skill: Recall 27) The domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is a. undue influence. b. domination. c. supervision. d. control. e. being pushy. Answer: a Diff: 1 Type: MC Topic: Undue Influence Skill: Recall 28) Use this fact situation to answer the related questions that follow it. John Jones is an 80-year-old man who lives in Ontario. Two years ago, John made a will in which he left one-third of his entire estate (all of his assets) to each of his three children, Mary, George, and Edward. Harry told the children what he was leaving them just after he made his will. Since that time, Edward has been unhappy about getting only one-third of his father's estate, and for the past two years he has been telling his father that Mary and George really hate their father and cannot wait until he dies. Lately John has become ill, and because Edward is the only son in Ontario, he has been taking care of his father. Each time that Edward sees his father, which is two to three times a week, he reminds him about Mary’s and George's feelings towards him and tells John that he is the Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

only child who really loves his father. John, seeing how much care Edward is giving him, begins to believe Edward and decides to make a new will in which he leaves his entire estate to Edward and nothing to Mary and George. George's changing his will under these circumstances is a classic example of a. duress by Edward. b. fraud by Edward. c. deceit by Edward. d. undue influence by Edward. e. misrepresentation by Edward. Answer: d Diff: 2 Type: MC Topic: Undue Influence Skill: Recall/Applied 29) Use the fact situation in Q28 to answer the related question that follows. Change the fact situation by assuming that Edward's conduct towards his father is designed to make his father enter into a contract with a third party. Also assume that Mary and George convince John that what Edward has been telling him about how they feel about him was a lie. In this situation, the contract is a. valid but unenforceable by the third party. b. void. c. voidable at the option of John only. d. voidable at the option of the third party. e. voidable at the option of John, Mary, and George. Answer: c Diff: 3 Type: MC Topic: Undue Influence Skill: Applied 30) When will the courts presume that there has been undue influence in the signing of a contract that favours the dominant party?

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

a. Where the parties stand in a special relationship to each other; one party possessing a special skill, position or knowledge causing the other to place confidence and trust in him, the one against whom the undue influence is alleged. b. In all contracts made between a husband and wife. c. The courts will never presume undue influence. The party alleging undue influence must always prove it has occurred. d. Only when the contract is oral. e. none of the above Answer: a Diff: 3 Type: MC Topic: Undue Influence Skill: Applied 31) Use this fact situation to answer the related questions that follow it. John lives with his wife, Mary, and regularly beats her, leaving Mary in a constant state of fear when John is around. John needs to borrow some money for his business, and so he goes to his bank and meets with the manager, who agrees to loan him the money, but only if both John and his wife sign a guarantee of the loan. John signs the guarantee in front of the manager and then takes it home to be signed by Mary. At home, John tells Mary to sign the guarantee "or else you know what will happen to you," so Mary signs the guarantee. Mary's signing the guarantee under these circumstances is a classic example of a. assault. b. fraud. c. duress. d. undue influence. e. diminished capacity. Answer: c Diff: 2 Type: MC Topic: Duress Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

32) Use the fact situation in Q30 to answer the related question that follows. Using the fact situation above, assume that shortly after signing the guarantee, Mary leaves John so that he can no longer abuse her and decides that she really should not have to guarantee John's loan. If Mary acts quickly by bringing a lawsuit against the bank, Mary may succeed because a. the guarantee is unenforceable. b. the guarantee is void. c. the guarantee is voidable at both her option and the bank's option. d. the guarantee is voidable if Mary acts immediately to repudiate it. e. all of the above Answer: d Diff: 3 Type: MC Topic: Duress Skill: Applied 33) Use the fact situation in Q30 to answer the related question that follows. Assume that before Mary signs the guarantee, she sees a lawyer for independent legal advice. Assume also that just before she signs the guarantee, the lawyer asks her if she is signing the guarantee freely and without threat of harm, duress, or undue influence and that Mary replies, "Yes, I am signing it freely and without threat of harm, duress, or undue influence." In these circumstances, if Mary changes her mind and does not want to be bound by the guarantee, a. she will succeed because the bank cannot rely on the independent legal advice she received. b. she will succeed because the guarantee is void for duress. c. she will not succeed because of the doctrine of caveat emptor. d. she will succeed because the guarantee is voidable for duress. e. she will not succeed because the bank can rely on the independent legal advice she received. Answer: e Diff: 3 Type: MC Topic: Duress Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

34) Use this fact situation to answer the related questions that follow it. Marvin is an investment counsellor. Alice is one of Marvin's clients. Alice has no investment experience and relies on Marvin's advice in making her investments. Last night, while he was sleeping, Marvin had a dream that the shares of Very Big Company (VBC) would go up a great amount in value. As a result, without even checking to ensure that VBC was a good company to invest in, this morning Marvin called Alice and told her to put all of her money into VBC, which Alice did. Later that day VBC declared bankruptcy and Alice lost all of her money. In these circumstances, Marvin's advice to Alice is a. an example of undue influence. b. an innocent misrepresentation. c. a fraudulent misrepresentation. d. a mistake. e. a negligent misrepresentation. Answer: e Diff: 2 Type: MC Topic: Misrepresentation and Torts Skill: Recall/Applied 35) Use the fact situation in Q33 to answer the related question that follows. Referring to the above fact situation, in a lawsuit by Alice against Marvin, Alice will seek a. damages in tort. b. rescission in contract and damages in tort. c. damages in contract. d. rescission in tort. e. rescission in contract. Answer: b Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied

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36) If an incident of misrepresentation is neither fraudulent nor negligent, yet it resulted in harm, then a. a claim of tort can only be made with evidence the victim relied on the misrepresentation. b. the victim's one hope is to show that a provision in the contract was misrepresented. c. it is innocent misrepresentation, which has no legal significance d. it does not qualify for a tort action. e. the victim is guilty of having unreasonable reliance on the misrepresentation. Answer: d Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 37) The parking enforcement officer gave Jim a parking ticket. But as it turns out, the NO PARKING sign had been placed in error on private property. Can Jim recover damages in a tort action? a. No, he can’t, since damages are not of a pecuniary nature. b. Yes, he can, since he was terribly inconvenienced by this affair. c. Yes, he can, because the ticket was totally misrepresented. d. Yes, he can, because no negligence or fraud is present. e. No, he can’t, since there was no fraud nor carelessness on the part of the parking enforcement officer. Answer: e Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 38) If a party to an existing contract discovers he or she had made an incorrect statement during the contract negotiations, then he or she should a. rescind the contract immediately. b. declare the contract voidable at the option of the other party. c. call his or her lawyer before he or she is sued for negligent misrepresentation. d. inform the other party of the true situation as soon as possible. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

e. offer to make allowances for any misunderstandings. Answer: d Diff: 1 Type: MC Topic: Misrepresentation and Contracts Skill: Recall 39) You innocently have made some misstatements that others are relying on. Legally speaking, you can change your situation from innocent misrepresentation into one of fraudulent or negligent misrepresentation by a. doing nothing when you learn about the truth. b. immediately trying to set things right. c. trying to mitigate the situation. d. filing a writ of claims with the court. e. letting the other party know you were in error. Answer: a Diff: 1 Type: MC Topic: Misrepresentation and Torts Skill: Recall 40) Both rescission and damages are available remedies for misrepresentation only when the misrepresentation is a. fraudulent or negligent. b. innocent or fraudulent. c. innocent only. d. innocent, negligent, and fraudulent. e. innocent or negligent. Answer: a Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

41) Christi was told by the store's produce manager that the oranges were of a variety that had a extremely high level of vitamin C. So she bought a case for her health club's garden party. At the party, the guests enjoyed eating up all the oranges. When Christi was next in the store, the manager corrected his prior statement, saying the oranges were of a different variety than what he had thought. Does Christi have a legal claim for rescission? a. Yes, she does, because it is the only legal avenue to pursue. b. Yes, she does, because this is innocent misrepresentation. c. Yes, she does, since the store admits to the error. d. No, she doesn’t, because rescission is impossible. e. No, she doesn’t, because this is a case for damages. Answer: d Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 42) Jaime has agreed to buy Steve's 4x4 truck. When Steve used the truck last, it ran quite well, so he says "it is in good condition." Unfortunately, the truck sat in the humid weather for some time and the head gasket had rotted away to where the truck won't run. What, legally, should Jaime do? a. nothing, since statements of opinion do not amount to misrepresentation b. sue for breach; the contract was corrupted by undue influence c. promptly demand rescission of the contract d. sue for fraudulent misrepresentation e. nothing, since this is a clear case of caveat emptor Answer: c Diff: 2 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 43) Albert has agreed to sell his car to Larry for $14 000.00. Albert told Larry that the car had never been in an accident, was in good condition, and drove like a dream. Albert knew that this was untrue, but wanted to get as much money as he could for the car. In fact, the car had been in two accidents, had substantial frame damage, and could not be driven safely on the road. Assume that Harry had no way of checking on the condition of Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

the car and that the principle of caveat emptor does not apply. In this situation, Albert's statement about the car is a. a negligent misrepresentation. b. an innocent misrepresentation. c. a fraudulent misrepresentation. d. a mere invitation to treat. e. none of the above Answer: c Diff: 2 Type: MC Topic: Misrepresentation and Torts Skill: Recall/Applied 44) If rescission is unavailable in a case of innocent misrepresentation, and the misstatement was an important inducement, and the aggrieved party has suffered substantial loss, the court may look at the misrepresentation as a. negligent, and award damages. b. a contractual nuisance. c. an obligation in tort. d. a breach of contract. e. a term to the agreement. Answer: e Diff: 2 Type: MC Topic: Misrepresentation and Contracts Skill: Applied 45) Damages are not generally awarded in cases of innocent misrepresentation; however, "out-of-pocket" expenses might be awarded. These are referred to as a. expense benefits. b. compensation or indemnity. c. trivial damages. d. an expense supplement. e. rescission expenses. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Answer: b Diff: 1 Type: MC Page Reference: 176 Topic: Consequences of Misrepresentation in Contracts Skill: Recall 46) Cindy bought a car from Ben, who had bought it from John. When Ben bought the car, John lied to Ben and told him that the car had a new engine. As a result, believing that the engine was new, Ben told this to Cindy. Before she bought the car, Cindy had her mechanic inspect it and when Cindy asked him about the engine, he got her car confused with another customer's car and told her that it did indeed have a new engine. Cindy, who has owned the car for two months, has just discovered that the engine is not new and will need to be replaced soon. What remedy or remedies would Cindy most likely be entitled to and why? a. rescission only from Ben for breach of contract b. damages from the mechanic for negligent misrepresentation c. rescission and damages from Ben for fraudulent misrepresentation d. rescission from the mechanic for negligent misrepresentation e. damages only from Ben for fraudulent misrepresentation Answer: b Diff: 3 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied 47) Misrepresentation can affect the contract only if the misrepresentation is a. known by the defendant. b. negligent or fraudulent. c. in writing, not oral. d. prior to the contract negotiations. e. a statement of fact, not opinion. Answer: e Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Topic: Opinion Versus Fact Skill: Applied 48) Dot sold her land to Seth. Three weeks before making the contract, she told Seth that the well on the property has a flow of 40 litres per minute. Dot had obtained the information from a certified water surveyor. Two months after taking title to the property, Seth discovered that the flow in the well was only 4 litres per minute. What remedy might Seth be entitled to from Dot? a. damages only b. damages and rescission c. damages or rescission d. no remedy e. rescission Answer: d Diff: 3 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Applied 49) Linda took out a new auto insurance policy. She signed without reading each of the papers presented to her by the agent. What she didn't realize was that the insurance only covered accidents on "public roads." This term in no way was brought to her attention nor explained. A few days later she got into a serious accident in a large housing development where the roads had not as yet been turned over to the municipality. The insurance company refused to pay the claim. Can Linda get damages under misrepresentation? a. Yes, she can, since Linda is fully aware of the distinction between public and private. b. Yes, she can, since this is an example of misrepresentation by omission. c. No, she can’t, because Linda is presumed to have read and understood the document. d. Yes, she can, since the terms correspond to commonly understood principles. e. No, she can’t, because this is a standardized document that has been fully approved. Answer: b Diff: 1 Type: MC Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

50) Brandy wants to buy a car. Her credit rating will not allow her to borrow from a bank, so she goes to a private lender. This lender asks her to sign a contract that has lots of restrictive terms, which he rushes by without explaining or allowing her to read them. What is the issue? a. innocent misrepresentation b. undue influence c. misrepresentation by omission d. fraudulent misrepresentation e. duress Answer: c Diff: 1 Type: MC Topic: Signed Documents and Misrepresentation by Omission Skill: Applied 51) In law, "utmost good faith" means a level of trust in a. not using undue influence. b. not making false assertions. c. disclosing all pertinent information concerning the contract. d. only giving factual statements. e. being aboveboard with all affairs. Answer: c Diff: 2 Type: MC Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall 52) Regarding insurance contracts, utmost good faith is important because a. insurance records follow the policy holder for life. b. the insurance company is in a position of superior knowledge. c. the insured must calculate her or his risks. d. third parties may be involved—especially with liability policies. e. without it, there is fraudulent omission. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Answer: d Diff: 2 Type: MC Topic: Signed Documents and Misrepresentation by Omission Skill: Recall 53) Kevin was desperate to save his business records and equipment from the rising flood waters. Just then, a stranger with a large truck drove by, and Kevin, feeling that he had little choice, said, "I'll give you your choice of my equipment if you help me save my business records and equipment." The stranger agreed and chose some equipment and a laptop computer. After the flood, Kevin demanded everything back. The stranger refused to return the new laptop computer. On what legal grounds can Kevin get his computer back? a. undue influence b. duress c. coercion d. dire circumstances e. no basis; this is a valid contract that has fair consideration on both sides Answer: e Diff: 3 Type: MC Topic: Misrepresentation and Contracts Skill: Applied 54) With respect to sale of goods, the doctrine of caveat emptor offers buyers the right to rescind the contracts in situations where a. both a dominant and subservient party exist. b. there is a clear title in the sale of goods. c. one party is in a vastly superior position of knowledge with respect to some matter that is of vital importance to the other party. d. there is an unconscionable transfer of goods. e. there is a failure to disclose a problem with the ownership of goods. Answer: e Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall 55) Regarding misrepresentation in a sale of land, a. the purchaser must take it with all its faults. b. all defects must be revealed. c. rescission is liberally given for misrepresentation. d. caveat emptor. e. the seller is required to disclose all interests in ownership. Answer: a Diff: 1 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall 56) An innocent party can lose her or his right to repudiate a contract made with undue influence by a. declaring that the special relationship between the parties no longer exists. b. not repudiating promptly after coming out from under the undue influence. c. tearing up the contract before its execution. d. physical retaliation after the contract's formation. e. reversing the role of the dominant party. Answer: b Diff: 1 Type: MC Topic: Consequences of Misrepresentation in Contracts Skill: Recall 57) With the issue of undue influence, what must the victim do to shift the burden of proof to the dominant party? a. show the unfairness of the bargain b. show that circumstances likely were to lead to undue influence c. show there was "constructive fraud" d. indicate how the decision would be different without the influence Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

e. give prima facie evidence Answer: b Diff: 2 Type: MC Page Reference: 180 Topic: Undue Influence Skill: Recall 58) Paul, a poor farmer, has just learned he has a serious medical problem. The medication needed is extremely expensive and not covered by medical insurance. Hearing of his plight, the next-door neighbour offers to buy Paul’s prize steer, but at half its value. Paul feels he has no choice but to sell the steer, because he needs the money, so he agrees to sell it for half its value. Legally speaking, what has this neighbour done? a. failed to act in the "utmost good faith" b. committed a morally objectionable, yet perfectly legal, act c. exerted undue influence over Paul d. coerced Paul into selling under duress e. exploited a "special relationship" Answer: c Diff: 2 Type: MC Topic: Undue Influence Skill: Recall/Applied 59) Scott, an independent businessman, is asking his wife to pledge her inherited family homestead towards a business loan he has arranged at the bank. She seems perfectly willing to do this. Yet, to avoid a possible later legal claim of undue influence by Scott's wife, which would be wisest for the bank to do? a. have Scott's wife get independent legal counsel b. explain very carefully what would transpire c. place all transactions under seal d. have the wife sign a paper to the effect that she was not unduly influenced e. have Scott's lawyer thoroughly explain to Scott's wife the legal implications Answer: a Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Undue Influence Skill: Recall 60) Guido is an unsavory money lender who charges 35 percent interest. Upon learning that Sylvia, one of his clients, had become unable to make her weekly payment, Guido tells her that he has "a way of dealing with defaulters where they think twice next time." She then promptly signs a contract agreeing to a 50 percent rate over a longer period of time. Sylvia now wants to get out of this second contract. As a lawyer, what should you advise Sylvia to do? a. nothing, but pay the debt at 50 percent; the contract is enforceable b. claim that she entered because of constructive fraud c. claim that she entered the contract under duress d. claim that she entered into the contract under undue influence e. claim that she entered under dire circumstances Answer: c Diff: 2 Type: MC Topic: Duress Skill: Recall 61) In contract law, the domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision is known as undue domination. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Undue Influence Skill: Applied 62) The cooling-off period is a time during which a consumer may cancel or rescind a contract without any reason whatsoever. a. True Copyright © 2016 Pearson Canada Inc.

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Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Contracts with Consumers Skill: Applied 63) A spouse may set aside a transaction if he or she can prove actual undue influence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Arrangements Involving Spouses Skill: Applied 64) It is a criminal offence for a lender to charge an interest rate in excess of 50 percent. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Consumer Protection Skill: Applied 65) A legal mistake is an error in judgment. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 2 Type: TF Topic: Mistakes in Assumptions Skill: Applied 66) Mistake about terms includes the inadvertent use of wrong words. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Narrow Meaning of Mistake Skill: Applied 67) Where the wrong words are inadvertently used by a party in stating the terms of a contract, resulting in a mistake, the contract will be binding on the party if it was reasonable for the other party to rely on the words used. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Applied 68) Where a party inadvertently uses the wrong words in stating the terms of a contract, and another party enters into the contract, the court may set aside the contract if a reasonable bystander would conclude that the party had made a mistake. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Recall 69) Common mistake is a situation in which both parties believe the same misunderstanding or mistake about the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes About the Subject Matter Skill: Recall 70) The most fundamental mistake that radically changes the nature of the bargain of the parties is a mistake about the existence of the subject matter of the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Mistakes in Assumptions Skill: Applied 71) If the parties disagree over what the words in a contract mean, the court will declare the contract void. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Mistakes About the Terms Skill: Recall 72) Where a contract deals with the sale of goods, such as a car, at common law, the duty of the purchaser is to inspect the goods before she or he purchases them. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Recall/Applied 73) Misrepresentation never gives rise to damages for torts as well as rescission in contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Misrepresentation and Contracts Skill: Recall 74) A statement of opinion such as "it is the best car in the lot" can amount to a misrepresentation. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Opinion Versus Fact Skill: Recall 75) The threat by one party that unless the other party enters into the contract, he will harm the other's child constitutes undue influence. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Duress Skill: Recall/Applied 76) Exerting domination over the mind of another party so as to make him or her enter into a contract constitutes duress. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Undue Influence Skill: Recall/Applied 77) Jack really needs money to pay off his mortgage before the bank forecloses. He goes to "Shark" who agrees to lend Jack the money if Jack will pay 100 percent interest. This is an example of undue influence. a. True Copyright © 2016 Pearson Canada Inc.

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Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Undue Influence Skill: Recall/Applied 78) Explain the meaning of rescission. Answer: Rescission is an order of the court that rescinds a contract or revokes a contract. The effect of a rescission is that the parties are, as near as possible, returned their original positions. Diff: 1 Type: ES Topic: Mistakes in Assumptions Skill: Recall 79) When it comes to deciding whether or not a contract is void, the common law knows no half measures. Explain. Answer: This statement normally applies to the effect of a void contract on third parties and means that a finding by a court that a contract is void renders any subsequent contract entered into with a third party void as well. For example, if A sells goods to a rogue who then purports to sell the goods to a third party, if the contract between A and the rogue is void, then so, too, is the contract between the rogue and the third party, with the result that A can sue the third party for the return of the goods. Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 80) A contract entered into by reason of a mistake as to identity of a third party usually has an element of fraud. Explain. Copyright © 2016 Pearson Canada Inc.

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Answer: This statement deals with contracts that are entered into by one party in the mistaken belief that he or she is contracting with a specific individual, but in reality he or she ends up contracting with someone who purports to be that individual. The fact that the imposter represents to the first party that he or she is the specific party with whom the first party wished to contract means that the imposter is committing a fraud on the first party. In other words, the mistake by the first party results from the fraud of the imposter. Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 81) What must an innocent party to a contract show in order to rely on the defence of non est factum? Answer: The innocent party must prove that he or she signed the contract relying on a material misrepresentation of the other party as to the nature of the contract. Additionally, the innocent party must establish that he or she was not careless in signing the document. Diff: 1 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall 82) What are the two main types of mistake in contract law? Answer: The two main types of mistake in contract law are mistake about terms of a contract and mistake in assumptions about important facts related to the contract. Diff: 1 Type: ES Topic: The Narrow Meaning of Mistake Skill: Recall 83) What is rectification? Explain its use by courts in situations involving mistake in law.

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Answer: Rectification is the correction of a written document so that it accurately reflects the contract made by the parties. When parties to a contract reach an agreement, the written version of the contract may not reflect the original agreement. The party who claims that the written version of the agreement does not properly record the original agreement may ask the court for rectification. Diff: 2 Type: ES Topic: Mistakes About the Terms Skill: Applied 84) Explain the concept of rescission as it relates to mistake in contract law. Answer: Rescission is an order of the court that rescinds a contract, that is, it revokes the contract so that the parties are, as far as possible, returned to their original positions. In contract law, when a party makes a mistake, either a mistake about terms or a mistake in assumptions related to the contract, a court may set aside or rescind the contract. When a contract is rescinded by the court, the parties are placed in their original positions. Diff: 2 Type: ES Topic: Mistakes in Assumptions Skill: Recall 85) What is the difference between a void and a voidable contract? Answer: A void contract is one that is nullity from its inception, it is as if the contract was never formed or never existed. A voidable contract is one that exists until one of the parties takes steps to bring the contract to an end. Diff: 2 Type: ES Topic: Mistake and Innocent Third Parties Skill: Applied 86) What is a material event?

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Answer: A material event is an event that could reasonably be expected to influence the decision of a party to enter a contract. Diff: 2 Type: ES Topic: Misrepresentation and Contracts Skill: Recall 87) What is an entirety clause? Answer: An entirety clause is a term in a contract stating that the whole agreement is contained in the written document and that there are no other terms, conditions, representations, or warranties. It confines the agreement between the parties to the single written document. Diff: 3 Type: ES Topic: Strategies to Manage the Legal Risks Skill: Recall 88) Explain the importance of independent legal advice. Answer: Independent legal advice is important to ensure that a party enters into a contract freely and voluntarily, so as to prevent that party from attempting to set the contract aside at a later time on the grounds of undue influence or duress. Diff: 2 Type: ES Topic: Undue Influence Skill: Applied 89) At times, the concepts of undue influence and duress may overlap. Explain. Answer: Although both undue influence and duress have separate definitions in law, occasionally they overlap, as in the case of economic duress, which focuses on both coercion and an illegitimate or inappropriate application of pressure.

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Diff: 2 Type: ES Topic: Duress Skill: Applied 90) What remedies are available to the innocent parties if they are the victims of an innocent misrepresentation? What is the remedy if they are the victims of a fraudulent misrepresentation? Answer: If a person is a victim of an innocent misrepresentation his or her only remedy is rescission of the contract, providing the right to rescind has not been lost. If the statement is fraudulent, he or she is entitled to rescission and is also entitled to damages. Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Applied 91) Explain why an insurance contract needs the utmost good faith. Answer: In order for an insurance company to assess risks and assign a proper premium, it may need to ask some pertinent questions where only the applicant knows the answers. So the insurance company is relying on the answers to be given in the utmost of good faith. Diff: 2 Type: ES Topic: Silence as Misrepresentation: Contracts Requiring Disclosure Skill: Applied 92) Some current consumer protection legislation offers consumers a cooling-off period. If a consumer elects to cancel or rescind a contract during the cooling-off period, what reasons must she or he provide? Answer: A consumer who exercises the right to cancel or rescind a contract within a cooling-off period does not need to provide any reason whatsoever. The rationale behind the coolingoff period is to provide the consumer with an opportunity to review the terms in a contract that may not have been provided to her or him prior to signing. Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: ES Topic: Contracts With Consumers Skill: Recall/Applied 93) Define undue influence and distinguish undue influence from duress. Answer: Undue influence is the domination of one party over the mind of another, thereby depriving that person of using independent judgment when entering into a contract. Duress is actual or threatened violence against the contracting party or his or her family. Undue influence affects the mind, while duress has a physical implication. Diff: 2 Type: ES Topic: Undue Influence Skill: Recall 94) James has an old car for sale. Betty views the car and in response to a question about the age of the car, James replies, "I think it is a 1929 Ford." Betty purchases the car, but the written contract makes no mention of the year of the car. Actually, the car is a 1932 Ford. What remedy does Betty have? What defenses are available to James? Answer: Betty would have no remedy in this case. There was no misrepresentation because the statement made by James was not a statement of fact but one of opinion. Misrepresentations must be false statements of fact. Diff: 2 Type: ES Topic: Misrepresentation and Contracts Skill: Recall 95) Linda's lawyer took a city lot she owned in payment for services rendered. Now Linda is claiming undue influence and suing to get the land back. What must she prove and what must the lawyer try to prove? Answer:

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

Linda must show that the circumstances were such that undue influence was likely. In this case, with a lawyer, it’s prima facie. The lawyer would try to prove he made every effort to allow Linda her own free will and that the contract was fair, just, and reasonable. Diff: 2 Type: ES Topic: Undue Influence Skill: Recall 96) Mr. Chessman, an elderly man, is asking a prominent businessman, Mr. Ross, to sign a contract for the restoration of a downtown apartment building that Mr. Ross owns and that Mr. Chessman lives in. During the ensuing discussion, Mr. Chessman states, "And if you don't sign, your children may suffer." Mr. Ross reluctantly signs. Will this contract be enforceable against Mr. Ross? Explain. Answer: Mr. Ross might try to declare this contract void because of duress; his children were physically threatened by Mr. Chessman. On the other hand, Mr. Chessman would say there was no serious threat (i.e., no duress), the terms were reasonable, and the businessman would have signed regardless. Diff: 2 Type: ES Topic: Duress Skill: Applied 97) Some consumer protection legislation provides for a cooling-off period. What is a cooling-off period and how does it benefit consumers? Answer: A cooling-off period gives a consumer the right to cancel or rescind certain contracts without any reason whatsoever. Standard form contracts containing onerous terms are often put to consumers. There is a general presumption that once one signs the contract, one is bound by its terms. The cooling-off period provides consumers with an opportunity to review the contract during the cooling-off period, retaining the right to cancel or rescind for no reason whatsoever. Diff: 3 Type: ES Topic: Contracts with Consumers Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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98) Explain the difference in approach of common law and equity to a contract that is entered into by a party under a mistake as to identity caused by the fraud or deceit of the other party. Answer: The approach of common law to this situation is that the contract is void. As a result, any further contract entered into by the rogue with a third party for the same goods, etc. is also void and the original owner/seller of the goods, etc. can recover them from the third party. On the other hand, equity will often declare the contract voidable at the option of the innocent party, rescinding the contract and restoring the property to the innocent party. However, if the rogue has sold them to a third party, equity will employ principles of fairness and not set aside a further contract between the rogue and the third party for the goods, etc., so long as the third party paid full value for the goods and did not know of the rogue's fraud. Diff: 3 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 99) A party who seeks rectification of a document must satisfy the conditions for rectification. Explain. Answer: Rectification is the correction of a written document by a court so that it accurately reflects the contract made by the parties. Where a party claims that the written document does not reflect the original agreement reached by the parties, it may ask the court for rectification. A court will not rectify a contract unless certain conditions are met. A court will rectify a contract if (a) it is satisfied that there was a complete agreement between the parties and that this agreement was free from any ambiguity and was not conditional on any further adjustments, (b) the parties did not engage in any further negotiations to amend the contract, and (c) the change in the written document appears to be an error in the recording of the document and can be easily explained as such. Diff: 2 Type: ES Topic: Mistakes About the Terms Skill: Applied 100) Explain the concept of non est factum and how this concept has evolved over the years. Copyright © 2016 Pearson Canada Inc.

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Answer: Non est factum means "it is not my doing." The concept or plea of non est factum originated in medieval times, when a majority of the population could neither read nor write. A person who could not read or write who had to enter into a contract had to rely on the honesty of the other party. Such a person could be fraudulently induced into signing a contract. Such an innocent party was permitted to raise the plea or defence of non est factum if the other party attempted to enforce the fraudulently obtained contract. Currently, the use of the plea has been extended to cover those situations in which literate persons have been duped into entering a contract. The plea or defence has been further restricted to prevent careless or negligent signers from relying on non est factum. Diff: 2 Type: ES Topic: Mistake and Innocent Third Parties Skill: Recall/Applied 101) What is rescission? Explain how rescission relates to mistake in contract law. Answer: Rescission is an order of the court that rescinds a contract, that is, it revokes the contract so that the parties are, as far as possible, returned to their original positions. In contract law, when a party makes a mistake, either a mistake about terms or a mistake in assumptions related to the contract, a court may set aside or rescind the contract. When a contract is rescinded by the court, the parties are placed in their original positions. Diff: 1 Type: ES Topic: Mistakes in Assumptions Skill: Recall 102) Donna Brown owned a flower shop, which she was anxious to sell. Charles Blue visited her shop and discussed a possible purchase. During those discussions, Donna stated that she was sure 2013 sales would exceed $400 000 and that sales for 2012 were more than $360 000. Charles was impressed with those figures and offered to purchase the flower shop for $110 000 cash. The sale was completed one week later (November 24, 2012) and was documented with a brief written agreement that did not include anything about past sales. In April 2013, Charles had the 2012 financial statement for the flower shop prepared and discovered that actual sales for 1997 were $320 000. In addition, Charles knew that 2013 sales were 5 percent below sales for the same period a year earlier. Charles confronted Donna with those figures and Donna was evasive and refused to accept any responsibility, saying only that the written agreement contained no mention of sales figures. Charles asks you the following questions: Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

a. Do I have a right to sue Donna, and if so, what is the legal basis for my action? What must I prove and what are my chances of success? b. What remedies could I seek, and do I have different remedies from which I can choose? Answer: (a) Because the representation about sales figures was precontractual, Charles would have to rely upon misrepresentation. Charles would have to prove that the statement made was false; that the statement was one of fact, not opinion; and that the misrepresentation was material and was the inducing factor that led him to enter into the contract. In this instance, the main problem faced by Charles would be proving that the statements were statements of fact and not opinion. The representation on 2012 sales figures seems to be a statement of fact, not opinion, but the representation with respect to 2013 may be an estimate and therefore a statement of opinion. Charles would be successful, however, if he could prove that either of the representations were statements of fact. (b) If the misrepresentation was innocent, the remedy is rescission and the issue would be whether or not Charles has lost his right to rescind. If the misrepresentation was either negligent or fraudulent, Charles could choose between rescission and damages. Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Applied 103) What is meant when we say that an innocent party may be entitled to indemnity or compensation as a result of an innocent misrepresentation? Answer: Where a party enters into a contract as a result of an innocent misrepresentation, he or she may have sustained out-of-pocket expenses in performing the contract or may have paid money to the other party before becoming aware of his or her right to rescind. In such a case, the innocent party will be entitled to be reimbursed by a money award known as indemnity or compensation, which is different from damages. Diff: 2 Type: ES Topic: Consequences of Misrepresentation in Contracts Skill: Recall/Applied 104) When describing the car he had for sale, Jack told Jill it had genuine cowhide seat covers. The car in fact had imitation leather seat covers. Jill decided to buy the car, in part Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 9: Grounds Upon Which a Contract May Be Set Aside: Mistake and Misrepresentation

because she liked cowhide seat covers. The written contract made no mention of the type of seat covers. When Jill took possession of the car, she discovered that the seat covers were not cowhide and asked you the following questions: a. What is the name of all potential causes of action that I have has against Jack? b. What remedy or remedies can I seek? c. What elements must I be able to prove in order to be successful? Answer the above questions providing reasons for your answers. Express an opinion about the probable outcome of Jill's action. Answer: a. Jill's potential cause of action against Jack is misrepresentation, either innocent, negligent, or fraudulent. b. If the misrepresentation is innocent, Jill's only remedy is rescission, but if the misrepresentation is negligent or fraudulent, she can claim either rescission or damages. c. Jill must prove that Jack has made a false statement of fact that was material to entering into the contract. If she is claiming either negligent or fraudulent misrepresentation, she must show that the statement was made due to some lack of skill, care, or diligence on Jack's part or that Jack knew the statement was false, did not believe in its truth, or was reckless when he made the statement as to whether or not it was true or false. Diff: 2 Type: ES Topic: Misrepresentation and Torts Skill: Recall/Applied 105) Ryan Thompson, a lawyer, was approached by a client who wished to sell him shares in a business he owned. Ryan accepted the offer by purchasing the shares. The business is a tremendous success. Later the client claims that he sold the shares to Ryan because of Ryan's undue influence over him. What must the client prove in order to be successful in his action? Answer: The relationship between Ryan and his client is classed as a special relationship, which exists where there is a dominant party and the dominant party receives a benefit from the other party. Where this special relationship exists, the onus of proof shifts to the dominant party to prove that there was no undue influence. In this case, the client need only show that Ryan received a benefit from him, and Ryan then has the burden of showing that no undue influence was present. For example, Ryan should have had his client seek independent legal advice or have taken some other measure to indicate that undue influence was not present. Without these measures, Ryan may have a problem.

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Diff: 2 Type: ES Topic: Undue Influence Skill: Recall/Applied 106) You are going to lend money to a corporation owned by Mr. X. You are requiring that Mr. X and his wife, Ms. Y, sign personal guarantees agreeing to be responsible in case of default. Why might you be concerned about your ability to enforce the guarantee against Ms. Y, and how should you protect your position? Answer: You should be concerned that if you have to enforce the guarantee against Ms. Y, she might try to avoid the guarantee by alleging undue influence on the part of her husband. It would be wise in this situation to insist that, before signing the guarantee, Ms. Y obtain independent legal advice. If the guarantor has obtained independent legal advice, it will be very hard to claim domination. Diff: 2 Type: ES Topic: Undue Influence Skill: Recall/Applied 107) Benny, who owns a classic car, lives in an apartment with a disabled roommate. Benny is approached by Dick Albert, who advises Benny that if he does not sell his classic car for $2000 (a fraction of its value), the roommate "will have both his arms broken." Benny then signs the contract and Dick pays him the $2000. Benny was never threatened at any time during the transaction. What remedies can Benny pursue and what must he do in order to pursue those remedies? What is the likelihood of success? Answer: Benny would claim duress; in other words, actual or threatened violence was used to coerce him to enter into the contract. He should rescind as soon as the threat is gone. However, strictly speaking, duress is not present, since Benny's roommate is not a family member, such as a spouse, parent, or child. Dick's attempt to extort a benefit from Benny may not give Benny a remedy using duress, but an the alternative remedy, such as undue influence, would likely be available. Diff: 2 Type: ES Topic: Duress Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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108) Why are loan transactions among the most heavily scrutinized consumer contracts? What protections are provided to consumers? Answer: Most provinces have adopted legislation governing loan transactions that imposes tight regulations on lenders concerning the disclosure of costs of borrowing, maximum interest rate, terms of credit, and more. Additionally, consumers can ask courts to sever the offending interest terms entirely or to lower the rate. Finally, consumers are often provided with cooling-off periods in which they can examine the terms of their contracts. If they are not satisfied, they can cancel without any reason whatsoever. Diff: 3 Type: ES Topic: Consumer Protection Skill: Recall/Applied

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1) The substance of a contract may have a variety of a. statutes. b. forms. c. parties. d. attributes. e. beneficiaries. Answer: b Diff: 1 Type: MC Topic: The Distinction Between Substance and Form Skill: Recall 2) A distinction must always be drawn between the substance of a contract and its a. parties. b. benefits. c. principles. d. form. e. beneficiaries. Answer: d Diff: 2 Type: MC Topic: The Distinction Between Substance and Form Skill: Applied 3) The form of contract includes a. contracts whose terms are entirely in writing in several documents. b. contracts whose terms are entirely oral. c. contracts whose terms are entirely in writing in one document. d. contracts whose terms are both oral and in writing. e. all of the above Answer: e Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: The Distinction Between Substance and Form Skill: Recall 4) It is good business practice of have a written record of a contract because a. provisions of long-term contracts will not have to be committed to memory. b. many disputes can be avoided by keeping an accurate record. c. a written record is more accurate than human memory. d. human memory is fallible. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Distinction Between Substance and Form Skill: Recall 5) It has often been said that by defeating the reasonable expectation of the parties, the Statute of Frauds promotes a. certainty and predictability. b. more frauds than it prevents. c. guarantees and indemnities. d. good faith bargaining. e. binding contractual relations. Answer: b Diff: 3 Type: MC Topic: The Statute of Frauds Skill: Recall 6) The Statute of Frauds a. requires that contracts with minors be in writing. b. prevents contracts with minors. c. renders unenforceable certain types of contracts unless they are in writing. d. is an English law that does not apply in Canada. e. renders unenforceable contracts with minors. Copyright © 2016 Pearson Canada Inc.

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Answer: c Diff: 1 Type: MC Topic: The Distinction Between Substance and Form Skill: Recall 7) When dealing with the prohibition in the Statute of Frauds regarding oral contracts not to be performed in a year, which of the following is true? a. An oral contract that is for an indefinite period, but could be performed within a year, is not prohibited by the Statute. b. An oral contract that is to be performed over a period of one year, commencing the day after the formation of the contract, is not prohibited by the Statute. c. An oral contract that is to be performed over a period of one year, but commences two days after the conclusion of the contract, is prohibited by the Statute. d. An oral contract that provides for a specific period for performance of more than a year, but also confers a power of determination that may be exercised within the year, is prohibited by the Statute. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Applied 8) Happy Go Lucky Company (HGLC) enters into an oral employment agreement with Albert under which Albert becomes the managing director of HGLC for a period of two years. The employment agreement provides that both Albert and HGLC have the right to terminate the contract on six months’ notice to the other. After working for the company for eight months, HGLC gives Albert two months’ notice of termination. In this situation, a. the Statute of Frauds does not apply because the essential terms of the contract are present, so Albert can enforce the term that he be given six months’ notice. b. the Statute of Frauds applies, because there has not been part performance by Albert, so Albert cannot enforce the term that he be given six months’ notice. c. the Statute of Frauds does not apply, because the contract is one for an indefinite period, so Albert can enforce the term that he be given six months’ notice. d. the Statute of Frauds applies, because the contract extends over a period of more than a year, so Albert cannot enforce the term that he be given six months’ notice. Copyright © 2016 Pearson Canada Inc.

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e. none of the above Answer: d Diff: 3 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Applied 9) George owes Michael Moneybags $1000. Susan, George's sister, goes to Michael Moneybags and makes this statement: "If my brother is unable to pay, I shall make payment." Susan's statement is a. a representation. b. a promise of guarantee. c. a promise of indemnity and a promise of guarantee. d. a promise of indemnity. e. a misrepresentation. Answer: b Diff: 2 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Applied 10) George owes Michael Moneybags $1000. Susan, George's sister, goes to Michael Moneybags and makes this statement: "I shall pay the debt of my brother." This statement is a. a promise of indemnity. b. a promise of guarantee. c. a misrepresentation. d. a promise of guarantee and indemnity. e. a representation. Answer: a Diff: 2 Type: MC Page Reference: 190 Topic: The Types of Contract Affected by the Statute of Frauds Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 11) Edward and his wife, Mary, go into a bank. Edward wants to loan $10 000.00 from the bank, but the bank manager wants some kind of security. Because they are in a hurry, Mary says, "Give Edward the money and I will pay Edward's loan." The bank manager looks at her and, being afraid that the bank will not loan Edward the money, Mary says, "Please, if Edward does not pay the loan, I will." The bank manager has Mary sign a document with both of her statements in it. In this situation, a. Mary is an indemnifier. b. Mary has indemnified the loan to the bank. c. Mary is a guarantor of Edward. d. Mary has guaranteed the loan to the bank. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Applied 12) A enters into an oral contract under which A is to sell his land to B, and B gives A a deposit of $100 000.00. B now changes his mind and wants his deposit back from A. In an action by B to recover the deposit, a. A can raise the validity of the agreement as a defence to B's action. b. A cannot use the validity of the agreement as a defence to B's action. c. A cannot use the validity of the agreement as a defence to B's action because the agreement is unenforceable. d. B cannot sue A at all because the contract is unenforceable to B's action. e. none of the above Answer: a Diff: 3 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Applied 13) John orally agrees to sell his land to Mary for $50 000.00, and Mary gives John a deposit of $15 000.00. The agreement is to close (be completed) in 30 days. Two days Copyright © 2016 Pearson Canada Inc.

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later, John gives Mary a note saying, "I know that you are buying the land to develop it." Five days after this, John tells Mary he has changed his mind and refuses to sell her the land, and Mary accepts this. In a lawsuit by Mary to recover her deposit, a. the deposit will be recoverable on the basis of a total failure of consideration. b. the deposit will not be recoverable because the time for completion has not yet occurred. c. the deposit will not be recoverable because the agreement is not in writing. d. the deposit will be recoverable because Mary has done nothing wrong. e. none of the above Answer: a Diff: 3 Type: MC Topic: Requirements for a Written Memorandum Skill: Applied 14) Allan and Nora enter into an oral agreement for the sale of Allan's land to Nora for a price to be decided on later, and Allan sends Nora a written memorandum setting this out. In the memorandum Allan goes on to state that settling on the price of the land is very important. In a lawsuit by Nora to get the land, a. Nora will succeed on a quantum meruit basis. b. Nora will not succeed since the memorandum is not sufficient compliance with the Statute of Frauds. c. Nora will not succeed since the essential terms of the contract are not present. d. Nora will succeed since the essential terms of the contract are present. e. Nora will succeed since the memorandum is sufficient compliance with the Statute of Frauds. Answer: c Diff: 2 Type: MC Topic: Requirements for a Written Memorandum Skill: Applied 15) Use these fact situations to answer the related questions that follow. Fact Situation 1: John is the 20-year-old nephew of Mary, who is 80 years of age and unable to get around or do things herself. Mary owns two properties in Toronto: 121 Thornton Lane and 122 Copyright © 2016 Pearson Canada Inc.

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Thornton Lane. Mary, who lives at 121 Thornton Lane, orally agrees with John that if he is good to her and does whatever services for her that she asks him to do from time to time during the rest of her life, she will leave John 121 Thornton Lane. John does not live with Mary, but does a number of things that Mary asks him to do, including taking her on trips, doing some errands, and also doing some odd jobs for both properties over the course of a year, after which Mary dies without leaving John 121 Thornton Lane. Now John sues her estate to get the house. Fact Situation 2: In 1921 Gus met Dick, and in the spring of 1922 Gus went to work for Dick as a farm labourer. For the first two years after that, Gus was paid $50.00 a month, plus room and board and meals. In 1924, Dick was in an accident and became disabled. Although Dick could not pay Gus wages, he promised to leave Gus his farm after he died if Gus stayed and worked the land. From 1924 on, Gus, who often considered leaving Dick's farm and had ample opportunity to do so, stayed and worked the farm on Dick's continued promise that if he stayed and worked the farm, the farm would be his after Dick's death. During this time Gus planted the fields, decided on what crops to plant, did repairs to Dick's house, and on Dick's behalf purchased livestock and then took care of it. Dick died in 1930 before he had a chance to make a will leaving Gus the land. In Fact Situation 1, if John sues Mary's estate to get the house, a. John's acts of taking Mary on trips and doing the errands and odd jobs on the properties are immaterial because the contract was one of services for an indefinite period, so he will succeed. b. the agreement between John and Mary is one for a period of a year and John cannot succeed. c. John's acts of taking Mary on trips and doing the errands and odd jobs on the properties come within the doctrine of part performance and John will succeed. d. the agreement between John and Mary contains all the essential terms necessary to create a binding agreement that does not come within the Statute of Frauds, so John will succeed. e. John's acts of taking Mary on trips and doing the errands and odd jobs on the properties do not come within the doctrine of part performance and John will not succeed. Answer: e Diff: 2 Type: MC Topic: The Doctrine of Part Performance Skill: Applied

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16) Use the fact situation in Q15 to answer the related question that follows. In Fact Situation 2, in a lawsuit by Gus to get ownership of the land, a. Gus will succeed by virtue of the doctrine of part performance. b. Gus will not succeed because the agreement between Dick and Gus is unenforceable under the Statute of Frauds. c. Gus will not succeed because the agreement between Dick and Gus is void under the Statute of Frauds. d. Gus will not succeed, but will be entitled to a quantum meruit claim for the work and services he did for Dick. e. the agreement between Dick and Gus does not contain all the essential terms necessary to create a binding agreement. Answer: a Diff: 2 Type: MC Topic: The Doctrine of Part Performance Skill: Applied 17) Use the fact situation in Q15 to answer the related question that follows. Review Fact Situations 1 and 2. What is the difference between them? a. In Fact Situation 1, John's performance is strictly referable to 121 Thornton Lane, while in Fact Situation 2, Gus's performance is not strictly referable to Dick's farm. b. In Fact Situation 1, the essential terms of the agreement are not present, but they are present in Fact Situation 2. c. In Fact Situation 1, John's performance is not strictly referable to 121 Thornton Lane, while in Fact Situation 2, Gus's performance is strictly referable to Dick's farm. d. In Fact Situation 1, all of the essential terms of the agreement are present, but they are not present in Fact Situation 2. e. There is no difference between the two fact situations. Answer: a Diff: 3 Type: MC Topic: The Doctrine of Part Performance Skill: Applied 18) The phrase "no action shall be brought" in the Statute of Frauds applies to procedure and not validity. This means that Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

a. a party can bring a legal action, but only if a new contract is proven to supersede the original. b. a party cannot bring a legal action, since the contract is void. c. a party cannot bring a legal action, because the Statute affects the validity of the contract. d. although no action may be brought on the contract itself, the contract may still affect the legal relations between the parties in several ways. e. a party cannot bring a legal action at all because one or more of the essential terms of the contract are missing. Answer: d Diff: 2 Type: MC Topic: The Distinction Between Substance and Form Skill: Recall/Applied 19) A guarantee is a. a promise to be primarily liable for the debt of a debtor. b. a promise to enter into an agreement when a debtor defaults. c. a promise to pay only if the debtor defaults. d. a promise to purchase goods. e. a promise to add one's signature to a legal document. Answer: c Diff: 1 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall 20) Under the Statute of Frauds, a "promise to answer for the miscarriage of another" has been interpreted to mean a. a promise to pay for goods not paid for by a purchaser. b. a promise to pay for the injury caused by the tort of another. c. a promise to perform a contract that has been breached by another. d. a promise to pay for the injury caused by the tort of another and a promise to perform a contract that has been breached by another. e. a promise to settle a debt owed by another. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Answer: b Diff: 1 Type: MC Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall 21) The doctrine of part performance as it relates to the Statute of Frauds means that a. if the plaintiff can show that it has partly performed a contract, then the defendant will have to pay for the portion of the contract performed. b. a defendant who partly performs an oral contract is entitled to enforce the oral contract. c. if a plaintiff can show that he or she has partly performed an oral contract concerning land in reliance on the contract, the court will accept the part performance as evidence of the contract in place of the written contract. d. a plaintiff who partly performs an oral contract is entitled to rely on such performance as evidence of the contract. e. if a plaintiff can show that he or she has performed part of any oral contract, the court will accept such part performance as evidence of the contract in place of the written contract. Answer: c Diff: 1 Type: MC Topic: The Doctrine of Part Performance Skill: Recall 22) Which of the following is NOT one of the kinds of conduct that must be established by a party who seeks to enforce an agreement, under the Sale of Goods Act, that is not in writing? a. the provision of consideration b. acceptance by the buyer c. actual receipt of the goods by the buyer d. part payment tendered by the buyer and accepted by the seller e. something by way of earnest given by the buyer to the seller Answer: a Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Topic: Requirements of the Sale of Goods Act Skill: Recall 23) In respect of a contract to which the Statute of Frauds applies, which of the following is NOT true? a. Both parties must sign the contract. b. The essential elements of the contract must be in writing. c. The defendant must sign the contract. d. The contract must be under seal. e. Both A and D are not true. Answer: e Diff: 2 Type: MC Topic: Requirements for a Written Memorandum Skill: Recall 24) Leigh Miller operates a coffee shop called Coffee Crazed in a trendy area of town. She wants to change coffee suppliers and recently met with Juan Carlos, a sales representative for Columbia Coffee Beans Wholesale Supply Ltd., to discuss the company’s products and prices. She agrees orally to purchase a two-year supply of coffee beans. She wants to reduce the agreement to writing. Which of the following is not an essential term of the contract as required by the Statute of Frauds? a. price of the coffee beans. b. adequate description of the beans being purchased. c. the colour of the boxes the coffee beans will be shipped in. d. identity of the parties. e. they are all essential terms of the contract Answer: C Diff: 3 Type: MC Topic: Requirements for a Written Memorandum Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

25) Acceptance under the Sale of Goods Act means a. an unconditional willingness to enter into an agreement with the seller on terms specified. b. conduct by the buyer to accept the offer made by the seller. c. accepting the goods. d. accepting the terms of the contract of sale. e. any conduct by the buyer in relation to the goods that amounts to a recognition of the existence of a contract. Answer: e Diff: 1 Type: MC Topic: Requirements of the Sale of Goods Act Skill: Recall 26) When a contract is wholly oral, the first problem of the court is a. to determine the liberal meaning of the words. b. to speak to the parties. c. to read the contract. d. to determine the dictionary meaning of the provisions. e. to determine what exactly the parties agreed to. Answer: e Diff: 1 Type: MC Topic: The Distinction Between Substance and Form Skill: Recall 27) Which of the following is true with regard to a contract that has to be in writing? a. If the contract is handwritten, it must be in ink. b. All implied terms must be carefully identified. c. If the contract is a guarantee, consideration must be identified. d. The parties must meet to discuss the terms. e. The contract does not have to be wholly within a single document. Several written notes may be taken together to satisfy the Statute of Frauds.

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Answer: e Diff: 2 Type: MC Topic: Requirements for a Written Memorandum Skill: Applied 28) Which of the following is true about consumer protection statutes? a. Provincial legislation is not as encompassing as federal legislation. b. The federal government believes there is the need to be a big brother upon which one can call. c. It covers businesses as well as consumers. d. It only addresses the buying and selling of goods. e. It is concerned with only one party to the contract, the purchaser. Answer: e Diff: 1 Type: MC Topic: Consumer Protection Legislation Skill: Recall 29) Allen was negotiating to rent a flat in Bob's house. During the negotiations, Allen told Bob that if he took the flat, he would have use of two basement rooms for the storage of his surplus furniture and also the use of the garden. Subsequently, a written agreement was drawn up for the lease of the flat that made no reference to either the storage rooms or the garden. In this case, a. because the negotiations were not included in the contract, Allen will get the flat, not the storage rooms or garden. b. because of the parol evidence rule, Allen cannot give evidence of the use of the storage rooms and garden as being part of the contract c. although the parol evidence rule applies, the contract being partly oral and partly written, Allen can give evidence about the storage rooms, but not the garden. d. although the parol evidence rule applies, the contract being partly written and partly oral, Allen can provide evidence of the oral part of the contract about the storage rooms and garden. e. none of the above Answer: e Diff: 3 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Type: MC Topic: The Parol Evidence Rule Skill: Applied 30) The plaintiffs were growers of oranges in Spain and the defendants were ship owners. The plaintiffs wished to export their oranges to England and shipped them to the defendants' vessel, relying on an oral promise by the defendants' agent that the vessel would sail straight to London. In fact, the vessel went first to Antwerp, so that the oranges arrived late in London and the plaintiffs lost a favourable market. When the plaintiffs claimed damages for breach of contract, the defendant owners relied on the bill of lading, which expressly allowed them to proceed "by any route whether directly or indirectly" to London. In this case, a. the bill of lading is evidence of the entire contract between the plaintiffs and ship owners. b. the bill of lading contains an express term, and the defendants are bound by that term. c. the contract consists of both the written bill of lading and the oral promise by the defendant's agent. d. evidence of the oral promise of the defendant's agent cannot be admitted because of the parol evidence rule. e. the court will find that there is no contract at all. Answer: c Diff: 3 Type: MC Topic: The Parol Evidence Rule Skill: Applied 31) A agrees to buy a share in B's invention for a certain sum on the condition that C first approves the invention. However, the written contract makes no reference to C's approval. C never gives his approval. B now sues A for the purchase price. In this situation, a. whether or not C gives his approval is not relevant to the main contract between A and B. b. C's approval is a condition precedent that must be met before there is a contract between A and B c. the parol evidence rule applies to exclude the condition of C's approval. d. C's approval would be a warrantee used to overcome the parol evidence rule. e. A cannot rely on C's approval as a condition to the contract with B, because C is not a party to the contract. Copyright © 2016 Pearson Canada Inc.

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Answer: b Diff: 2 Type: MC Topic: The Parol Evidence Rule Skill: Applied 32) A makes a contract under which B Company is to repair and repaint A's pier. Under the contract, A has the right to specify the materials to be used. B Company induces A to specify the use of a particular paint that it made, giving A assurances of its quality. The paint is supplied by B Company, but it is found to be unsuitable, and A has to spend $40 000.00 to correct the matter. In a lawsuit by A against B, a. the court will find that the inducement of the quality of paint was a collateral contract that formed the consideration for the main contract to repair and repaint A's pier. b. the court will find that B Company's inducement of the quality of the paint was a mere invitation to treat and nothing more. c. the court will be unable to get around the parol evidence rule and A will lose her or his law suit. d. the court will find that A should have ensured that the inducement of the quality of the paint was put into the written contract. e. the court will find that B Company's assurances about the quality of the paint is a condition precedent to the contract. Answer: a Diff: 2 Type: MC Topic: The Parol Evidence Rule Skill: Applied 33) A and B have just signed a written agreement for the purchase by A of B's house. During the negotiations, A made it clear to B that his purchase was conditional on A conducting a building inspection of house within five days of the date of the agreement, which was satisfactory to A. However, this condition is not included in the agreement. In this situation, a. evidence of the building inspection would be admissible because it is a collateral agreement, the consideration for which is the agreement of purchase and sale. b. evidence of the building inspection would not be admissible because, since this is an agreement for land, the Statute of Frauds applies to bar evidence of the building inspection. c. evidence of the building inspection cannot be given because of the parol evidence rule. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

d. evidence of the building inspection would be admissible because it is a subsequent agreement. e. evidence of the building inspection would be admissible because it is a condition precedent to the agreement of purchase and sale. Answer: e Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Applied 34) A agrees to paint B's house. B then says to A, "If you paint my house, I'll give you $500.00." In this situation, a. the first agreement does not include the price, but the second agreement does. b. together, the promise to pay and the first agreement to paint form one whole contract. c. the entering into the main contract is the consideration for the collateral contract. d. the promise to pay $500.00 is collateral to the first agreement to paint. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Parol Evidence Rule Skill: Applied 35) A and B enter into a lease whereby A is to lease a unit in a plaza from B to be used as a retail men’s clothing store. When the lease is drawn up and signed, it simply says that A is leasing the unit as a store. A now takes the position that he can have any kind of store and decides to rent out videos and DVDs, just like the Video and DVD store already in the plaza. In this situation, a. the court will attempt to resolve the ambiguity for A and B. b. the court will look to the intention of A and B in entering into the lease. c. the court will permit evidence that A intended to use the store as a retail men’s clothing store and that B leased the unit to A on this basis. d. the term store in the written lease is ambiguous. e. all of the above Answer: e Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Diff: 3 Type: MC Topic: The Parol Evidence Rule Skill: Applied 36) A and B are negotiating a contract by faxes going back and forth between them. During their negotiations, they agree on the subject matter of the contract, the price, and the date of performance. However, both agree that once the negotiations are complete, a formal written contract will be prepared and signed. In this situation, a. one issue is whether the decision of A and B to put the negotiations into a formal written contract is a mere expression of their desire as to the manner in which the contract transaction will proceed. b. one issue is whether the negotiations contain all of the essential elements of a contract. c. one issue is whether the decision of A and B to put the agreement that arises out of the negotiations into a formal written contract is a term of the agreement. d. one issue is whether the decision of A and B to put the negotiations into a formal written contract is a condition precedent to the formation of a contract. e. none of the above Answer: e Diff: 3 Type: MC Topic: The Parol Evidence Rule Skill: Applied 37) A is employed by B as a truck driver. C is A's partner, and they go on deliveries together. One day, while backing up the truck, A drives negligently and injures C. C successfully sues B on the basis of vicarious liability. In a law suit by B against A, a. the court will try to create a new employment contract between A and C so as to allow C to recover from A. b. the court will imply a term into A's contract of employment with B that A will take reasonable care and skill in the performance of his duties. c. the court will not imply any term into A's contract of employment with B. d. the court will look to custom and usage of the trade to determine whether it should imply a term in the employment contract between A and C. e. none of the above Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Type: MC Topic: The Parol Evidence Rule Skill: Applied 38) A and B have been dealing together for 10 years, during which time A buys steel ingots from B. Throughout the 10-year period, A has always ordered the highest quality steel from B and B has delivered it. Last week, A ordered 1000 ingots of steel from B, but when he filled out the purchase order, A forgot to specify the highest quality of steel, and when the purchase order was received, B's employee delivered steel ingots of a lesser quality to A. A refuses the shipment, and B, whose business is suffering in a bad economy, finds himself forced to sue A. In this situation, a. the court will be unable to import any kind of term into the contract because it is in writing. b. the court will consider that it was a condition precedent to the purchase by A that the steel ingots be of the highest quality. c. the court will look at the previous dealings of A and B and imply a term that B was to supply steel ingots of the highest quality. d. the court will set aside the contract by reason that it is silent as to the quality of steel that B is to supply to A. e. none of the above Answer: c Diff: 2 Type: MC Topic: The Parol Evidence Rule Skill: Applied 39) When a person goes to court to have a provision of a contract interpreted, the court will a. ask a jury to determine the meaning of the words. b. assign its own meaning to the words. c. seek the most reasonable meaning that can be attributed to the words in the circumstances. d. examine the facts of the situation and then ask the parties what they meant. e. determine the meaning of the words by asking the parties what they meant. Answer: c Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Topic: The Relationship Between Formation and Interpretation of Contracts Skill: Recall 40) In choosing between conflicting testimony, a court will a. refuse to accept either testimony because one person's word is as good as another's, and it will impose its own meaning. b. seek corroboration of one of the versions of a story from a third party, and if that is not possible, it will choose between the versions by basing its decision on the credibility of the parties. c. choose a version of the story that is in accordance with well-known legal principles. d. refuse to accept either testimony because one person's word is good as another's, and it will impose a meaning that is determined by a jury of ordinary persons. e. choose the version of the story that is in accordance with societal norms. Answer: b Diff: 1 Type: MC Topic: The Interpretation of Express Terms Skill: Recall 41) What is the parol evidence rule? a. the rule that requires that persons on parole seek the approval of a court before entering into any contract b. the rule that requires a party to a contract from adducing evidence from a third party regarding discussions he or she may have had with such a third party about the provisions of a contract c. a rule that prevents convicted persons on parole from entering into contractual obligations d. the rule that prevents a party from adding to a contract a term that was previously agreed upon but was not included in the final written contract. e. The rule that prevents a court from interpreting a contract that is illegal. Answer: d Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

42) Which of the following is NOT true? a. The parol evidence rule does not affect the interpretation of express words already in a contract. b. The parol evidence rule does not prevent evidence of oral contracts entered into after the written contract. c. The parol evidence rule permits evidence of oral contracts entered into after the parties entered the written contract. d. The parol evidence rule excludes evidence of oral contracts entered into after the parties entered into a written contract. e. The parol evidence rule excludes terms that were discussed before entering into a contract but were not included in the contract. Answer: d Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Applied 43) A collateral contract is a. an unenforceable agreement that is related to another written agreement. b. a separate agreement between the parties included in a written contract. c. an agreement between parties to a contract that precedes another written agreement. d. a separate agreement between the parties made at the same time as a main agreement between the parties, but not included in the written document. e. a void agreement that is related to another written agreement. Answer: d Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Recall 44) What is a condition precedent? a. an event that happens before a contract takes effect b. an event that is related to a contract and happens before a contract takes effect c. an unconditional undertaking given by a promisee to the promisor to perform an event before a contract takes effect Copyright © 2016 Pearson Canada Inc.

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d. any set of circumstances or events that the parties agree must be satisfied or must happen before their contract takes effect e. an undertaking, conditional on the execution of a contract between the parties, that a promisee makes to a promisor prior to entering into a contract Answer: d Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Recall 45) Mercantile Limited, a corporation in Toronto, enters into an agreement with Jackson to advance $300 000 to Jackson for the purchase of farming equipment. Jackson agrees to give Mercantile Limited a mortgage over his home as security for the advance of the money. The terms of the agreement contain an appraisal provision that the commitment to make the loan is subject to an appraisal of Jackson's home of at least $350 000. The appraisal provision is known as a. an implied term. b. a warranty. c. a condition term. d. a condition precedent. e. an appraisal warranty. Answer: d Diff: 2 Type: MC Topic: The Parol Evidence Rule Skill: Applied 46) An implied term is a. a term that the court will ask the jury to consider implying in the contract. b. a term that the promisor intended to include in the contract. c. an express term that is removed from the contract. d. a term that the parties advise the court can be implied into the contract. e. a term that is not included in the contract but which the parties, as reasonable persons, would have included had they thought about it. Answer: e Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Recall 47) Which of the following is NOT a usual source of implied terms? a. terms that are reasonably necessary, in accordance with the expectation of the parties, to promote business efficacy b. long-established customs in particular types of trades c. long-established customs in particular types of transactions d. what the parties discussed prior to entering the contract e. none of the above Answer: d Diff: 1 Type: MC Topic: The Parol Evidence Rule Skill: Recall 48) Michael Products Limited and Jensen Corporation enter into an agreement under which Michael Products Limited agrees to supply 20 tonnes of soap to Jensen Corporation. Jensen agrees to pay $20 000 for the product. The agreement includes a provision to the effect that the agreement is conditional of Jensen providing a letter from a bank, no later than two days after the execution of the agreement, that Jensen Corporation has the funds to pay for the goods. Three days after the signing of the agreement, Michael Products Limited has not provided the letter from the bank. Jensen Corporation can_ because a. continue with the contract; the contract is not void b. walk away from the contract; the contract is void c. continue with the contract; the contract is effective d. terminate the contract; the contract is void Answer: b Diff: 3 Type: MC Topic: The Parol Evidence Rule Skill: Applied

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49) To interpret the express provisions of a contract, a court will a. examine the most widely held meaning of the words. b. begin with the ordinary meaning of the words and then will examine their meaning within the context of the words. c. examine the ordinary meaning of the words and then will determine the most widely held meaning of the words. d. begin with the ordinary meaning of the words and then will ask a jury to determine the societal meaning of the words. e. examine the meaning of the words within the context and then will examine the ordinary meaning of the words. Answer: b Diff: 2 Type: MC Topic: The Interpretation of Express Terms Skill: Recall/Applied 50) Which of the following is NOT true? a. The parol evidence rule does not affect the interpretation of express terms already in a contract. b. Implied terms usually result from long-established customs. c. When parties deal expressly with a matter in a contract, a court is not precluded from finding an implied term on the same matter. d. The parol evidence rule does not exclude evidence of an oral agreement that the parties may each after they have entered into the written agreement. e. The courts will admit evidence of an oral understanding about a condition precedent even when the written contract specifies that the rights of the parties are governed exclusively by the written contract. Answer: c Diff: 2 Type: MC Topic: Implied Terms as a Method of Interpretation Skill: Recall/Applied 51) To determine the ordinary meaning of words in a contract, the court will consider a. what the intention of the parties was. b. what the parties said during their negotiations. Copyright © 2016 Pearson Canada Inc.

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c. what the dictionary says. d. what is usual business practice. e. all of the above Answer: c Diff: 2 Type: MC Topic: The Interpretation of Express Terms Skill: Recall/Applied 52) A business contract includes a term saying that a manufacturer will use "smoothgrained sand" in a construction project "if this quality is available. The court will most likely imply that the terms of the contract require the manufacturer to put reasonable efforts into trying to find the specified materials. This is an example of the court introducing an implied term based on a. statutory requirements. b. previous dealings between the parties. c. business efficacy. d. principles of statutory interpretation. e. the nature of the trade. Answer: c Diff: 2 Type: MC Topic: Implied Terms as a Method of Interpretation Skill: Recall/Applied 53) Evidence regarding certain oral terms that were discussed between the parties to a contract that has been reduced to writing a. cannot be introduced into court because of the rule of express terms. b. cannot be introduced into court because there were no prior dealings between the parties. c. cannot be introduced into court because of the parol evidence rule. d. cannot be introduced into court because of the rule regarding consideration. e. cannot be introduced into court because of the rule of implied terms. Answer: c Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: The Parol Evidence Rule Skill: Recall/Applied 54) Implied terms usually result from a. a decision of the court. b. a decision of the promisee. c. long-established customs of a particular trade. d. a decision of the promisor. e. agreement between the parties. Answer: c Diff: 1 Type: MC Topic: The Interpretation of Express Terms Skill: Applied 55) The essential elements of a contract that must be in a written memorandum are the parties and the price. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Requirements for a Written Memorandum Skill: Recall 56) When we say that a contract is unenforceable under the Statute of Frauds, we mean that there never was a contract at all. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 2 Type: TF Topic: The Effect of the Statute on Contracts Within Its Scope Skill: Recall 57) A contract that is unenforceable under the Statute of Frauds may be saved by a subsequent written memorandum. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Requirements for a Written Memorandum Skill: Recall 58) A written document can contain both a guarantee and an indemnity. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall/Applied 59) An oral contract concerning land will always be unenforceable under the Statute of Frauds. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall/Applied 60) When a contract is oral, the first task of a court is to determine what the parties agreed to. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Requirements for a Written Memorandum Skill: Recall 61) At common law, once the terms of a contract are determined, it is irrelevant that it is only a verbal contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Distinction Between Substance and Form Skill: Applied 62) One Ontario Consumer Protection Act provision prohibits a motor vehicle repairer from charging for work unless an estimate meeting the prescribed requirements has been given or waived. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 3 Type: TF Topic: Consumer Protection Legislation Skill: Recall 63) The Statute of Frauds requires that contracts with minors must be in writing. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Effect of the Statute on Contracts Within Its Scope Skill: Recall 64) A guarantee to be enforceable must be in writing; however, a promise of indemnity does not have to be in writing to be enforceable. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall 65) Under the Statute of Frauds, a promise of indemnity and a promise of guarantee must be in writing to be enforceable. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 10: Writing and Interpretation

Diff: 1 Type: TF Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall 66) Mary tells John, "I shall pay the debt my sister owes you." This statement is a promise of guarantee. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall/Applied 67) An unenforceable contract is a void contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Distinction Between Substance and Form Skill: Applied 68) Consumer protection statutes address the form and content of consumer contracts relating to goods only. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Copyright © 2016 Pearson Canada Inc.

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Type: TF Topic: Consumer Protection Legislation Skill: Applied 69) The best way to ensure that terms advantageous to a business are enforceable against a consumer is to use a detailed standard form contract that meets the requirements of consumer protection legislation. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Strategies to Manage the Legal Risks Skill: Applied 70) An oral contract determined to be unenforceable pursuant to the Statute of Frauds is void. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Statute of Frauds Skill: Recall 71) The parol evidence rule excludes evidence about the formation of a contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: TF Topic: The Parol Evidence Rule Skill: Recall/Applied 72) A judge is in the best position to assess credibility. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Relationship Between Formation and Interpretation of Contracts Skill: Recall 73) The contra proferentem rule is used against the party who made the contract in favour of the party who did not. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Interpretation of Express Terms Skill: Recall/Applied 74) The consideration for a main contract can be a collateral contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: The Parol Evidence Rule Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 75) Generally speaking, the parol evidence rule is hard and inflexible. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Parol Evidence Rule Skill: Recall/Applied 76) In the formation of a contract, the intention of the parties may be just as important as the essential elements of the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: The Parol Evidence Rule Skill: Applied 77) The parol evidence rule does not permit evidence of oral contracts entered into between the parties before they enter into a written agreement. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Parol Evidence Rule Skill: Applied Copyright © 2016 Pearson Canada Inc.

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78) The parol evidence rule does not permit evidence of oral contracts entered into between the parties after they enter into a written agreement. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Parol Evidence Rule Skill: Applied 79) Mercantile Limited, a corporation in Toronto, enters into an agreement with Jackson to advance $300 000 to Jackson for the purchase of farming equipment. Jackson agrees to give Mercantile Limited a mortgage over his home as security for the advance of the money. The terms of the agreement contain an appraisal provision that the commitment to make the loan is subject to an appraisal of Jackson's home of at least $350 000. The appraisal provision is known as an appraisal warranty. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Parol Evidence Rule Skill: Applied 80) Conditions precedent can be enforced if they are oral. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Copyright © 2016 Pearson Canada Inc.

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Topic: The Parol Evidence Rule Skill: Recall 81) A court will sometimes recognize the existence of an implied term from discussions that the parties had prior to entering into the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Implied Terms as a Method of Interpretation Skill: Applied 82) A court will sometimes recognize the existence of an implied term from customs in a particular trade or transaction. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Implied Terms as a Method of Interpretation Skill: Applied 83) When parties deal expressly with a matter in a contract, a court is not precluded from finding an implied term regarding that same matter. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Copyright © 2016 Pearson Canada Inc.

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Topic: Implied Terms as a Method of Interpretation Skill: Recall/Applied 84) In what way does the Sale of Goods Act differ from the Statute of Frauds where there is no written contract? Answer: In such a situation, the contract would be unenforceable under the Statute of Frauds; however, under the Sale of Goods Act, the contract will be enforced if the purchaser can show one of the following: acceptance of the goods, part payment accepted by the seller, or something "by way of earnest" given by the buyer to the seller. Diff: 2 Type: ES Topic: Requirements of the Sale of Goods Act Skill: Recall/Applied 85) What are the essential elements of a written memorandum? Answer: They are the parties, the subject matter, and the price. Diff: 1 Type: ES Topic: Requirements for a Written Memorandum Skill: Recall 86) Generally speaking, in what three situations will the question of the applicability of the Statute of Frauds arise? Answer: The three situations are where the contract is entirely oral, where the contract is partly oral and partly written, and where the contract is entirely in writing, whether in one document or spread through several documents. Diff: 2 Type: ES Topic: The Distinction Between Substance and Form Skill: Recall/Applied

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87) What is the difference between a promise of guarantee and a promise of indemnity? Answer: A promise of guarantee is a promise given by a party to be secondarily liable for a debt in the event that the debtor is unable to pay. A promise of indemnity is a promise by a party to be primarily liable for a debt in place of the debtor. Diff: 2 Type: ES Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall/Applied 88) What is the doctrine of part performance? Answer: The doctrine of part performance is the doctrine that provides that where a party has partly performed an oral contract related to an interest in land, the court will accept such part performance as evidence of the contract in place of the written contract. Diff: 1 Type: ES Topic: The Doctrine of Part Performance Skill: Recall 89) Why would the Statute of Frauds apply to an agreement to lease an apartment but not to a contract to renovate an apartment? Answer: The Statute of Frauds applies to contract concerning interests in land. A lease is an interest in land, but a construction contract is not an interest in land. Diff: 2 Type: ES Topic: The Effect of the Statute on Contracts Within Its Scope Skill: Recall/Applied 90) Explain the doctrine of part performance in the context of the Statute of Frauds. Answer: Copyright © 2016 Pearson Canada Inc.

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The Statute of Frauds renders unenforceable certain types of contracts where such contracts are not in writing. One of these contracts are contracts concerning interests in land. Under the doctrine of part performance, however, if a plaintiff can show to the satisfaction of a court that he or she has partly performed an oral contract relating to an interest in land, in reliance on the contract, the court will accept the performance as evidence of the contract in place of the written contract. Diff: 2 Type: ES Topic: The Doctrine of Part Performance Skill: Recall 91) Explain how an oral contract that is unenforceable because it is not in writing, may still affect the relationship between the parties. Answer: The Statute of Frauds renders unenforceable certain oral contracts that are not in writing. Although an oral contract may be unenforceable because it is not in writing, it can still affect the relationship between the parties in various ways. For example, both parties to the contract may choose to perform their obligations under the contract. Second, if a party accepts goods and services under a contract that is unenforceable because of the Statute of Frauds, that party cannot retain the benefit that he or she has received without paying for it. Thirdly, although a contract may be unenforceable, the parties may enter into a written memorandum after the contract is formed which will satisfy the requirement of the Statute of Frauds. Finally, although a oral contract may not be enforceable under the statute of frauds, it may have the effect of dissolving an earlier written contract which is still binding on the parties. Diff: 2 Type: ES Topic: The Distinction Between Substance and Form Skill: Applied 92) Regardless of the legal requirements, what are the practical advantages of a written record? Answer: There are a significant number of advantages with a written record. First, the written record provides a reliable record of the terms upon which agreement was reached. Frequently, parties may disagree as to what was said; a written record reduces the possibility that there will be disagreement about the nature of the terms of the agreement. As well, human memory is not infallible. Persons who reach agreement may tend to Copyright © 2016 Pearson Canada Inc.

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forget the terms of the agreement if they rely on their memories. It is better to trust a written record than human memory. Finally, the existence of a written record assists in the enforcement of a contract. Diff: 2 Type: ES Topic: The Distinction Between Substance and Form Skill: Applied 93) Distinguish between a promise of guarantee and a promise of indemnity. Answer: A promise of guarantee is a promise given by a party to be secondarily liable for a debt in the event that the debtor is unable to pay. A promise of indemnity is a promise by a party to be primarily liable for a debt in place of the debtor. Diff: 2 Type: ES Topic: The Types of Contract Affected by the Statute of Frauds Skill: Recall/Applied 94) A and B are negotiating a contract under which, if it is concluded, B will purchase A's land. A sends a fax to B stating, "I will sell you the 40 acres of land that I own at 1234 Concession Road 2, County of Simcoe for $100 000.00.” B faxes the following response: "I can't pay $100 000.00. Will you take $92 000.00?” On receiving this fax, A responds by saying, “$92 000.00 is the lowest that I can go." After thinking about it for a time, B faxes back to A saying, "I'll pay the $92 000.00, but I want you to throw in your harvester machine." A then responds by fax, which says, "Done. But maybe we should put the agreement in writing." No further response is forthcoming from B and the agreement is never put into a formal written document. A few days later, B bumps into A and says, “I'm getting the money to pay you for your farm.” To which A replies, "Oh, I changed my mind, and since we don't have written contract, the deal is off." In this situation, what will both A and B argue, and who is most likely to succeed? Answer: A will argue that there is no formal written contract that contains all of the essential elements necessary for a contract. Any oral contract, even with the essential elements, is unenforceable by reason of the Statute of Frauds. On the other hand, B will present all of the faxes that went back and forth between A and himself and will argue that, taken together, they constitute a written contract which itself contains all of the essential elements: the parties, A and B; the property, 1234 Concession Road 2, County of Simcoe

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and the harvester, and the price $92 000.00. In this case, B will succeed because the court will rely on the written faxes to evidence the contract. Diff: 3 Type: ES Topic: Requirements for a Written Memorandum Skill: Applied 95) Explain how courts choose between conflicting testimony. Answer: Since a court is reluctant to accept the direct testimony of one party over the other, it will first look to corroboration of the version of each from a third party or from the actions of the parties in relation to the contract. However, where there is no corroboration, the court will determine the matter based on the credibility of the parties themselves. Diff: 2 Type: ES Topic: The Interpretation of Express Terms Skill: Recall 96) The contra proferentem rule establishes a form of equality among the parties to a contract. Explain. Answer: Normally there is equal bargaining strength between the parties. However, there are cases where one party has a stronger position than the other and in a sense the weaker party has no choice but to enter into a standard form contract prepared by the stronger party. In these circumstances, the rule serves to protect the weaker party against ambiguities in the standard form contract, thereby equalizing bargaining power. Diff: 3 Type: ES Topic: Implied Terms as a Method of Interpretation Skill: Applied 97) Is not implying terms in a contract contrary to the rule that the function of the court is not to write or rewrite the contract for the parties? Answer: Copyright © 2016 Pearson Canada Inc.

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By implying terms in a contract, the court is not writing or rewriting the contract for the parties; rather, it is finding a way by which it can give effect to their intention. For this reason, implied terms are usually confined to custom and usage of the trade, previous dealings, etc., ways by which the court can ascertain the intention of the parties. Diff: 3 Type: ES Topic: Implied Terms as a Method of Interpretation Skill: Applied 98) The dictionary meaning of a word does not always clarify its meaning. Explain. Answer: One of the approaches to interpretation is the plain or ordinary meaning approach. This requires that in interpreting a contract, the courts adopt the dictionary or ordinary meaning of the words. However, the ordinary meaning does not always clarify its meaning. This is because words may have more than one meaning even in the dictionary. As well, the ordinary meaning of words, as found in the dictionary, could change depending on the context. Diff: 2 Type: ES Topic: The Interpretation of Express Terms Skill: Recall 99) When a contract is subject to a condition precedent and the condition is not satisfied, the contract ceases to exist. Explain. Answer: A condition precedent is an event that the parties agree must be satisfied before a contract is effective. Because the event was a precondition for the contract to be effective, and the contract was not satisfied, the contract is not effective, but void. The party for whose benefit the condition is included may walk away from the contract. Diff: 2 Type: ES Topic: The Parol Evidence Rule Skill: Applied

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100) What is the plain meaning approach to the interpretation of contracts? What are the limitations of this approach? Answer: The plain meaning approach to the interpretation of contracts is an approach that restricts the interpretation of the words in the contract to the ordinary or dictionary meaning of the words used. The limitation of this approach is that there are few words with plain or ordinary meanings. Some words have more than one meaning, depending on the context in which the word is used. As well, the meaning of words may change according to time and place. Diff: 2 Type: ES Topic: The Interpretation of Express Terms Skill: Recall/Applied 101) From the point of view of risk management, what conclusion about the clarity of form of a contract would you suggest arises out of your reading of this chapter? Answer: This chapter deals with problems in contracts caused by ambiguous and omitted terms and the ways in which the court attempts to deal with these problems. From a risk management point of view, the majority of these problems could be eliminated by carefully preparing a contract, and by ensuring that all necessary terms are set out in the contract in as simple and clear a form as possible. In turn, this suggests that parties to a contract should not rush into the contract, but, rather, should take some time in its negotiation and preparation. The result would be less likelihood of finding oneself in court arguing about what a provision or provisions in the contract meant or was/were supposed to mean. Diff: 3 Type: ES Topic: The Relationship Between Formation and Interpretation of Contracts Skill: Applied 102) The dictionary meaning of a word does not always clarify its meaning. Explain. Answer: One of the approaches to interpretation is the plain or ordinary meaning approach. This requires that in interpreting a contract, the courts adopt the dictionary or ordinary meaning of the words. However, the ordinary meaning does not always clarify its meaning. This is because words may have more than one meaning even in the dictionary. Copyright © 2016 Pearson Canada Inc.

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As well, the ordinary meaning of words, as found in the dictionary, could change depending on the context. Diff: 2 Type: ES Topic: The Interpretation of Express Terms Skill: Recall 103) When a condition precedent is not satisfied, the contract ceases to exist. Explain. Answer: A condition precedent is an event that the parties agree must be satisfied before a contract is effective. Because the event was a precondition for the contract to be effective, and the contract was not satisfied, the contract is not effective, but void. The party for whose benefit the condition is included may walk away from the contract. Diff: 2 Type: ES Topic: The Parol Evidence Rule Skill: Applied 104) What are some of the primary goals of a court in interpreting a contract? Answer: There are number of goals of the courts in interpreting contracts. Generally, in interpreting contracts, courts seek to (a) give validity to the contract, (b) do justice between the parties, and (c) give effect to the intention of the parties as far as it can be determined. Diff: 2 Type: ES Topic: The Relationship Between Formation and Interpretation of Contracts Skill: Recall 105) What is an implied term? In what circumstances are the courts likely to find that an implied term is appropriate to the interpretation of the contract? Answer: An implied term is a term not expressly included in a contract that is implied into a contract by a court, usually derived form customs of the trade or transaction, that the Copyright © 2016 Pearson Canada Inc.

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parties would reasonably have included in the contract had they turned their mind to it. As a general rule, the courts will imply a term that is reasonably necessary to make the contract effective. A court will not let the reasonable and legitimate expectations of the parties be defeated merely because the contract does not expressly deal with a serious matter that affects the basis of the transaction. As a general rule, the court will imply a term into a contract where such a term is needed to give business efficacy to the transaction as must have been intended by the parties. Diff: 2 Type: ES Topic: Implied Terms as a Method of Interpretation Skill: Applied 106) As far as managing legal risks, what strategies can contracting parties adopt to reduce the risk of encountering disputes with respect to the interpretation of the contract? Answer: The parties should take care in preparing the written contract. Care is often taken when parties enter into large, important agreements that require legal assistance. However, small deals involving relatively simple contracts can still result in interpretation disputes between parties. To reduce the risk of dispute, the parties should give consideration to incorporating a definition section, setting out a statement of the purpose of the agreement, save pre-contractual memos and e-mails that may assist in interpretation, include an “entirety” clause as well as a “severability” clause, prepare standard form contracts ahead of time for use in simple deals, refer customers to standard terms and conditions on websites, request clarification of language included in an offer if it is too vague, confirm the understanding and meaning of an offer prior to its acceptance, and of course seek legal assistance in the drafting. Finally, legal assistance in the drafting of any contract will avoid many pitfalls. Diff: 3 Type: ES Topic: Strategies to Manage Legal Risks Skill: Applied

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1) The effect of the doctrine of privity of contract is that a. a person who is not a party to a contract cannot obtain benefits or rights under it. b. a unilateral contract is unenforceable against parties who have privity. c. parties to a contract are protected by the law. d. a bilateral contract is unenforceable against a promisee. e. a person can obtain rights under a contract to which he or she is not a party. Answer: a Diff: 1 Type: MC Topic: Privity of Contract Skill: Applied 2) H owes C $700.00. By agreement between H and R, R promises to pay this debt in return for H's undertaking to convey a house to him. C now sues R on his promise. In this situation, a. there is no contract between H and C. b. there is a contract between H and R. c. privity of contract prevents C from succeeding. d. there is no contract between R and C. e. all of the above Answer: e Diff: 3 Type: MC Topic: Privity of Contract Skill: Applied 3) A enters into a contract with B whereby in consideration of the intended marriage of A's daughter to B's son, each of A and B will pay B's son a sum of money. A fails to pay the money and now B's son sues A. In this situation, a. B's son will succeed because he is a party to the contract between A and B. b. B's son will not succeed because there is no privity between B's son and A. c. B's son will not succeed because an intended marriage is no consideration at all. d. B's son will succeed because a trust relationship was created.

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e. B's son will succeed because the consideration was the marriage of B's son to A's daughter. Answer: b Diff: 2 Type: MC Topic: Privity of Contract Skill: Applied 4) Dunlop sold a number of their tires to Dew & Co. on the terms that Dew & Co. would not resell them below certain listed prices and that, in the event of a sale to trade customers, Dew & Co. would get a similar undertaking not to sell below the listed prices. Dew & Co. sold the tires to Selfridge, who agreed to observe the restrictions and to pay Dunlop the sum of $5.00 for each tire sold in breach of this agreement. Selfridge in fact supplied tires to two of their own customers below the listed price. Dunlop now sues Selfridge to recover the two sums of $5.00 as liquidated damages and asks for an injunction to restrain further breaches of the agreement. In this situation, a. there is a no contract between Dew & Co. and Dunlop. b. Dunlop has no contractual connection to the contract between Selfridge and Dew & Co. c. Selfridge is not in breach of the contract between Dew & Co. and Dunlop. d. Selfridge has a contract with Dunlop. e. there is a contract between Dunlop and Selfridge. Answer: b Diff: 3 Type: MC Topic: Privity of Contract Skill: Applied 5) Parker owes money to both Gregory and Williams. He agrees with Williams to assign to him the whole of his property if Williams will pay the debt due to Gregory. The property is duly assigned, but Williams fails to pay Gregory. Gregory and Parker sue in equity to compel performance of William's promise. In this situation, a. the lawsuit by Parker and Gregory will succeed. b. Gregory acquired an equitable right through the mediation of Parker's agreement. c. Parker will be regarded as trustee for Gregory. d. Parker need not have joined Gregory in the law suit. e. all of the above Copyright © 2016 Pearson Canada Inc.

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Answer: e Diff: 3 Type: MC Topic: Equitable Assignments Skill: Applied 6) A policy of life insurance provided that the insurers would pay to the insured or his assignees the sum of $1000.00 if he died before July 31, 1926. The insured assigned the benefit of the policy to his wife and gave written notice of the assignment to the insurers. The policy was later extended, on the payment of an additional premium, for a further three months, but the benefit of the extension was not assigned to the wife. The insured died within the three-month extension period and the matter went to court on the issue of whether or not the wife benefited from the extension of the policy so as to be entitled to the insurance money. In this case, a. the rule regarding notice of an assignment was not followed. b. the extension of the policy was for the benefit of the wife and a trust had been created in her favour so as to entitle her to the insurance money. c. the intention of the insured was not to benefit his wife, so she gets nothing. d. the normal rule of privity applies and the wife gets nothing. e. none of the above Answer: b Diff: 3 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Applied 7) Peter was a coal merchant. In March 1962, he contracted to sell the business to his nephew John in consideration (1) that for the rest of Peter's life John should pay him $20.00 a week and (2) that if Peter's wife survived him, John should pay her an annual annuity of $15.00 a week. John took over the business and paid Peter the agreed sum until Peter died in November 1963. He then paid Peter's widow $15.00 for one week and refused to pay any more. The widow in both her personal capacity and as administratrix of Peter's estate brought an action against John in which she claimed all arrears under the annuity not paid her and asked for specific performance of the contract regarding the annuity. In this case, a. the widow will succeed, but in her capacity as administratrix of Peter's estate only. b. the widow will succeed, but in her personal capacity only. c. the widow will not succeed because only Peter could enforce the contract with John. Copyright © 2016 Pearson Canada Inc.

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d. the widow will not succeed because there is no privity between her and John. e. none of the above Answer: a Diff: 3 Type: MC Topic: Assignments by Operation of Law Skill: Applied 8) Where an assignment of a debt is equitable only, a. the assignee alone can sue the debtor to enforce payment. b. both the assignor and assignee must sue together to enforce the payment. c. the assignor alone can sue the debtor to enforce payment. d. none of the above e. all of the above Answer: b Diff: 2 Type: MC Topic: Equitable Assignments Skill: Applied 9) Which of the following best demonstrates the concept of vicarious liability? a. Jack is employed by Jim as a trainee mechanic. Jack goes to a party on the weekend and is asked by a friend, Mary, to check her car that won’t start. Jack checks the car. A few minutes after Mary drives away, the car’s ignition explodes injuring Mary. b. A man’s dog runs out of the house and mauls a letter carrier. c. A cow leaves its pasture, walks into the garden of another farmer and destroys all the farmer’s crops. d. Jack is employed by Jim as a trainee mechanic. Jim’s sister, Maggie, brings her car to the shop. It has an engine problem. Jack has never worked on a car’s engine before. Jim asks Jack to work on the engine. Jack works on the engine. Later when Maggie drives off in the car, the engine explodes injuring Maggie. e. Jack is injured on the job as a result of slipping on oil in the shop. Answer: d Diff: 3 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Privity of Contract Skill: Applied

10) A Company contracts to build a house for B, and the contract expressly states that the contractor may from time to time use the services of subcontractors. In the course of performing the contract, one of the subcontractors negligently builds a wall, which falls over, destroying B's car. In this situation, a. the damage to the car is too remote and neither A Company nor the subcontractor can be sued. b. only the subcontractor can be sued. c. only the contractor, A Company, can be sued. d. both the subcontractor and A Company can be sued. e. none of the above Answer: d Diff: 2 Type: MC Topic: Privity of Contract Skill: Applied 11) A Co. is a carrier of goods. A Co. uses a standard form contract that contains a provision which states that the risk of loss is to be borne by the owner of the goods and that A Co. will not be held liable for its negligence or the negligence of its employees. In the course of carrying B's goods, one of A Co.'s employees is negligent and the goods are damaged. In this situation, a. only the employee who was negligent will get the benefit of the provision in the contract. b. both A Co. and the employee who is negligent will get the benefit of the provision in the contract. c. neither A Co. nor the employee will get the benefit of the provision in the contract. d. only A Co. gets the benefit of the provision in the contract. e. the provision in the contract is void as against public policy. Answer: b Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Privity of Contract Skill: Applied 12) When it comes to a manufacturer who negligently manufactures goods, a. only the consumer who purchased the goods and suffered harm may sue the manufacturer. b. only the family members who suffer harm can sue the manufacturer. c. both the consumer and his or her family members who suffer harm can sue the manufacturer. d. the family members cannot sue the manufacturer because there is no privity between them and the manufacturer. e. none of the above Answer: c Diff: 2 Type: MC Topic: Privity of Contract Skill: Applied 13) Vicarious performance is where a. a third party performs an obligation in place of another person who is ultimately liable for proper performance. b. an employee performs an obligation in place of another employee and the performing employee is liable for proper performance. c. parties to a contract enter into another agreement that has the effect of transferring the liability to perform to a third party. d. an employer performs an obligation in place of its employee and is liable for proper performance. e. parties to a contract agree to terminate a contract and substitute a new contract in place of the old one. Answer: a Diff: 1 Type: MC Topic: Privity of Contract Skill: Applied

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14) Mary wants to be able to take care of her sons when she is away. She decides to give an amount of money to a friend, Melanie, with the instructions that she is to use that money to care for the children when she is away. The money given to Melanie is called ________ and Melanie is a ________. a. deposit; trustee b. trust; trustee c. fund; trustee d. endowment; money caretaker e. fund; constructive trust Answer: b Diff: 1 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Applied 15) Which of the following is true? a. A trustee is not the legal owner of the property that she or he is administering. b. A constructive trust is a relationship that exists between a trustee and beneficiary. c. The legal owner of trust property is the true owner of the property. d. A trustee is the legal owner of the property that she or he is administering. e. The beneficiary of a trust cannot enforce the trust in his or her favour. Answer: d Diff: 1 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall 16) Mary wants to be able to take care of her sons when she is away. She decides to give an amount of money to a friend, Melanie, with the instructions that she is to use that money to care for the children when she is away. Melanie is called a ________ and the children are called ________. a. guardian; trustees b. caretaker; trustees c. money caretaker; beneficiaries d. trustee; beneficiaries Copyright © 2016 Pearson Canada Inc.

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e. constructive trust; beneficiaries Answer: d Diff: 2 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 17) Which of the following is NOT an example of an exception to the privity of contract rule? a. a life insurance policy b. collateral contracts c. the trust d. bilateral contracts e. the undisclosed principal in an agency Answer: d Diff: 1 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall 18) The right to tangible property that can be possessed is known as a. assignment of rights. b. a chose in action. c. chattel property rights. d. a chose in possession. e. equitable assignment. Answer: d Diff: 1 Type: MC Topic: Assignment of Rights Skill: Recall 19) The right to intangible property is known as

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a. intangible property right. b. equitable assignment of property. c. a chose in action. d. a chose of property. e. a chose in possession. Answer: c Diff: 1 Type: MC Topic: Assignment of Rights Skill: Recall 20) A negotiable instrument is a. valuable documents that can be pledged as security to another. b. an instrument that can be given in exchange for a promise of another. c. an instrument that is used in negotiations. d. a written promise by a party given in exchange for a promise of another. e. a written contract containing a promise, express or implied, to pay a specific sum of money to the order of a designated person or to bearer. Answer: e Diff: 1 Type: MC Topic: Negotiable Instruments Skill: Applied 21) A receiving order is used in a. negotiations. b. tort proceedings. c. legal proceedings for breach of a sales agreement where the promisee is to receive products from another. d. bankruptcy proceedings. e. proceedings involving negotiable instruments as a defence to an action on the negotiable instrument. Answer: d Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Assignments by Operation of Law Skill: Recall 22) A person who, although not the legal owner, may compel the trustee to provide benefits of a trust to him is called the a. trust benefactor. b. secondary beneficiary. c. beneficial owner. d. beneficiary. e. trustee. Answer: c Diff: 1 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall 23) A contracting party who, unknown to the other party, is represented by an agent is called a. a secondary agent. b. a principal. c. an undisclosed principal. d. a collateral agent. e. a collateral principal. Answer: c Diff: 1 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall 24) The statement that an assignee "takes subject to the equities" between the parties means that a. for the assignment to be enforced it must be an equitable assignment.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

b. the assignee gets no greater rights against the debtor/promisor than the assignor had. c. the debtor/promisor can enforce any rights it has against the assignor against the assignee. d. the court must decide whether it is fairer for the assignor or the assignee to be paid under the assignment. e. before an assignee can enforce an assignment against the debtor/promisor it must demonstrate fairness. Answer: b Diff: 2 Type: MC Topic: The Assignee's Title Skill: Recall/Applied 25) Which of the following is NOT a trust arrangement? a. a mother transferring assets to provide for her infant should she pass away b. your broker requiring sufficient funds in your account to cover a deficit c. property of a bankrupt being transferred to a trustee d. a corporation transferring the title to fixed assets to a trustee for bondholders as security for the payment of the bonds e. parents setting up a fund for the education of their children Answer: b Diff: 2 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 26) Landlord and tenant entered into a five-year lease. One year after the lease began, tenant assigned its rights under the lease to assignee. Two years after taking possession of the premises, assignee stopped paying rent to landlord. In order to recover rent due, landlord has a right to sue a. tenant, but only if assignee is bankrupt. b. tenant. c. tenant, but only if at the time of the assignment, tenant agreed to be bound. d. assignee. e. assignee and tenant. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Answer: b Diff: 2 Type: MC Topic: Exceptions to the Privity of Contract Rules Skill: Applied 27) As a general rule regarding assignments, one may assign ________ to a third party. a. rights and liabilities b. rights but not liabilities c. obligations and benefits d. obligations but not benefits e. liabilities but not rights Answer: b Diff: 2 Type: MC Topic: Assignment of Rights Skill: Recall 28) Ted provides lawn care services to a number of customers. He cannot personally perform all of his obligations under each contract, so he arranges for third parties to do some of the work. In these circumstances, Ted cannot a. assign his contractual obligations to the third parties. b. pay the third parties any more than the contract price. c. fail to advise his customers that third parties are performing the work. d. take a vacation while the work is being performed. e. hire his own employees to do the work. Answer: a Diff: 3 Type: MC Topic: Privity of Contract Skill: Applied 29) Generally, a contract does not confer any benefit or impose any obligations on a stranger to the contract. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Privity of Contract Skill: Recall/Applied 30) An exemption clause is a provision in a contract that limits the liability of a party. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Privity of Contract Skill: Recall/Applied 31) Where a promisee has obtained a promise for the benefit of a third party, a constructive trust exists. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 32) The rule regarding privity can be overcome by a finding of a collateral contract entered into by the same parties. a. True Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall 33) When the assignment is merely part of a debt, the assignment is an equitable and not statutory assignment. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Assignment of Rights Skill: Recall/Applied 34) The effect of the doctrine of privity of contract is that a unilateral contract is unenforceable against the promisee. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Privity of Contract Skill: Applied 35) The legal owner of trust property is the true owner of the property. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 36) A trustee is the legal owner of the property that he or she is administering. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 37) Mary gives Jack an amount of money to be used to look after her children while she is away. Jack is the legal owner of the money given to him. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Applied 38) Liabilities may be assigned to a third party. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Answer: b Diff: 1 Type: TF Topic: Assignment of Rights Skill: Recall 39) Landlord and Tenant entered into a five-year lease. One year later, Landlord sold the premises to Purchaser. Purchaser is bound by the lease. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall 40) An undisclosed principal is a contracting party who unknown to the other party is represented by an agent. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Exceptions to the Privity of Contract Rules Skill: Recall 41) Ordinarily, a debtor/promisor must consent to an assignment. a. True Incorrect: Incorrect b. False Correct: Correct

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Answer: b Diff: 2 Type: TF Topic: Assignment of Rights Skill: Recall 42) Who is an assignor? Answer: An assignor is party that assigns its rights under a contract to a third party. Diff: 1 Type: ES Topic: Assignment of Rights Skill: Recall 43) Briefly explain the general rule of contract that gives rise to the concept of privity of contract. Answer: The general rule is that a contract does not confer any benefits or impose obligations on a stranger to a contract. To succeed in an action in contract, the plaintiff must prove privity of contract with the defendant—that is, he or she must show that they are both parties to the same contract. Diff: 2 Type: ES Topic: Privity of Contract Skill: Recall 44) Vicarious performance is a necessity in the real world. Explain. Answer: In many contracts, the understanding is that by their very nature they must be performed by a number of persons who are not parties to the contract. Contacts for the construction of buildings, the manufacture of goods, and the transport of goods are some examples. In each case, the contractor, manufacturer, or transporter relies on someone else to perform either part or all of the work. Diff: 3 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Type: ES Topic: Privity of Contract Skill: Recall/Applied 45) When can intermediate carriers successfully claim the protection of an exemption clause? Answer: When the contract expressly states that they should be its beneficiaries and should be entitled to the protection of the clause. Diff: 2 Type: ES Topic: Exceptions to the Privity of Contract Rules Skill: Recall/Applied 46) Explain how a transferee of rights under a negotiable instrument may obtain greater rights against the maker of the instrument than an assignee of contractual rights might have against the debtor/promisor under an assignment. Answer: Under an assignment of contractual rights, the assignee obtains no greater rights against the debtor/promisor than the assignor had. Any valid defence of the debtor/promisor against the assignor will be equally effective against the assignee. A transferee of rights under a negotiable instrument does not take subject to the equities, and there are very few defences that the maker can use against the transferee of a negotiable instrument. Diff: 3 Type: ES Topic: Negotiable Instruments Skill: Applied 47) Explain the concept of a chose in action. Answer: A chose in action is a right to intangible property, such a stocks, patents, and contracts, that may be enforced by a court action. Diff: 1 Type: ES Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Topic: Assignment of Rights Skill: Recall 48) Explain the phrase "an assignee takes subject to equities." Answer: One of the fundamental rules is that an assignee cannot acquire a title that is better than that of the assignor. The assignee thus takes title subject to equities, that is, subject to any rights or claims against title. Thus, if a contract that was induced by a fraudulent misrepresentation of the assignor (Jack) is assigned, the assignee (Philip) has no better chance of enforcing the contract than the assignor (the original perpetrator of the fraudulent misrepresentation) has. Diff: 1 Type: ES Topic: The Assignee's Title Skill: Applied 49) An assignee of a contract takes the contract subject to equities. Explain the meaning of this phrase with the use of examples. Answer: One of the fundamental rules is that an assignee cannot acquire a title that is better than that of the assignor. The assignee thus takes title subject to equities, that is, subject to any rights or claims against title. Thus if a contract that was induced by a fraudulent misrepresentation of Jack, the assignor, is assigned, the assignee, Philip, has no better chance of enforcing the contract than Jack, the original perpetrator of the fraudulent misrepresentation, has. Diff: 3 Type: ES Topic: Exceptions to the Privity of Contract Rules Skill: Applied 50) Since contracts can benefit non-parties, should the rules relating to privity of contract be changed in Ontario? Answer: Where a contract benefits a non-party, it makes sense to abolish or change the rule of privity in order that justice can be done by permitting the enforcement of a contract by a non-party who derives a benefit under the contract or where the contract expressly Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

authorizes the non-party to enforce his rights. This appears to be the direction of the Supreme Court of Canada with respect to exemption clauses and also appears to have been adopted in the United States, England, Australia, New Zealand, and New Brunswick. It makes sense that it should be adopted in Ontario as well. Diff: 3 Type: ES Topic: Privity of Contract Skill: Recall/Applied 51) Explain the difference between negotiability and assignability. Answer: Negotiable instruments are capable of being negotiated. A negotiable instrument is a written contract containing a promise express or implied to pay a specific sum of money to the order of a designated person or to bearer. The process of transferring a negotiable instrument from one person to another is known as negotiation. Negotiation can be considered to be a special kind of assignment that differs from ordinary assignments in certain ways. First, while notice is important in an ordinary assignment, notice is not important in negotiation and does not affect the transfer of the negotiable instrument. As well, while an assignor may be unable to sue a promisor, the promisor may be sued by a subsequent holder of the negotiable instrument who has given consideration for the instrument to the promisor, even if the promisor himself could not have enforced the instrument. Diff: 3 Type: ES Topic: Negotiable Instruments Skill: Applied 52) How has the privity of contract rule been modified with respect to insurance? Answer: The privity of contract rule means that a non-party to a contract has no rights under a contract and cannot obtain any benefits under the contract. This would mean, for instance, that the beneficiary of a life insurance policy could not sue under the policy and could obtain no rights under the policy. However, the privity of contract rule has been modified with respect to insurance. Typically, under a life insurance policy, a person pays a premium in exchange for a promise from the insurer that upon his or her death, the insurer will pay a specified amount of money to his or her beneficiary. Thus the beneficiary, although not a party to the contract, obtains rights under the contract contrary to the privity of contract rule. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 11: Privity of Contract and the Assignment of Contractual Rights

Diff: 3 Type: ES Topic: Exceptions to the Privity of Contract Rules Skill: Applied 53) What is vicarious performance? What types of contracts cannot be vicariously performed? Answer: Generally, a promisor cannot escape her or his liability by substituting someone for heror himself without the consent of the promisee. Vicarious performance occurs when a third party performs on behalf of the promisor, who remains responsible for proper performance. As a general rule, vicarious performance is not possible in personal contracts, that is, where the personal performance by the promisor is the reason why the promisee entered into a contract. An example of a personal contract where vicarious performance is not possible is a piano recital where the reason for the promisee entering into a contract with the promisor is to hear that particular pianist, and not a substitute, play. Diff: 3 Type: ES Topic: Privity of Contract Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

1) A and B agree in writing that A will renovate B's house for $20 000.00. A renovates the house and B pays the money. In this situation, a. the contract has been discharged by performance. b. the parties are free to go on to do whatever they like. c. all the obligations under the contract have been met by A and B. d. the contract is at an end. e. all of the above Answer: e Diff: 2 Type: MC Topic: Discharge by Performance Skill: Recall/Applied 2) A and B agree in writing that A will sell to B $5000 in widgets by September 1. On August 28th, B tenders payment of the $5000.00 on A, who refuses to accept it and later refuses to deliver the widgets to B because their value went up after the contract was entered into. In this case, if A sues B for breach of contract and B successfully counterclaims for specific performance, a. A is in breach of contract and B will only have to pay the $5000.00, but no interest or costs. b. by not continuously trying to ensure that A accepts the $5000.00, B is in breach of contract. c. A is in breach of contract and B is not bound to do anything more. d. the contract is at an end. e. none of the above Answer: a Diff: 2 Type: MC Topic: Discharge by Performance Skill: Recall/Applied 3) S contracted to build a machine for F for a price of $8800.00. F paid $1000.00 on account. When the machine was nearly completed, S refused to do more unless F paid another $3000.00. F sued to recover the $1000.00 and for other compensation, and S counterclaimed for the contract price. Expert evidence indicated that the machine was not substantially completed at the time of F's refusal to do more. In this situation at common law, Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

a. F will recover the full $8800.00 even though he defaulted in completing the machine. b. although the work is not yet completed, a quantum meruit claim can be asserted by S. c. the contract continues to exist. d. F's actions together with a failure to complete the machine cancelled the contract, so S will not succeed and must pay back the deposit of $1000.00. e. none of the above Answer: d Diff: 2 Type: MC Topic: Discharge by Performance Skill: Applied 4) L contracted with M for the supply and installation of building materials and the renovation of M's property. L made certain payments, but refused to pay the balance because of defects in the workmanship. Evidence indicated that M had substantially completed the contract. In this case, a. the contract is at an end. b. L substantially performed the contract. c. M is entitled to damages for breach of contract valued at the cost of remedying the defects in workmanship. d. the contract is an entire contract. e. all of the above Answer: e Diff: 2 Type: MC Topic: Discharge by Performance Skill: Applied 5) A agrees to build a machine for B by September 1 for $3000.00. On August 15, both A and B agree not to proceed with the contract. In this situation, a. the contract has not been discharged and the parties must complete their respective obligations. b. the contract has been discharged by waiver. c. the contract has been discharged by anticipatory breach. d. the contract has been discharged by a condition precedent. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

e. the contract has been discharged by a condition subsequent. Answer: b Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Recall/Applied 6) A agrees in writing to buy B's property for $20 000.00. The agreement states that A shall have five days from the date of the agreement to find mortgage financing. A is unable to find mortgage financing in five days and notifies B. In this case, a. the contract has been discharged by operation of a condition subsequent. b. the contract has been discharged by waiver. c. the contract has not been discharged. d. the contract has been discharged by operation of a condition precedent. e. the contract has been discharged by novation. Answer: d Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Recall/Applied 7) A has just hired B as his employee. The contract, which is in writing and for a twoyear term, contains a provision that states that the first three months of B's employment is a probationary period during which A will determine whether B's employment will continue. At the end of the three-month period, A advises B that B's services are no longer required. In this case, a. A is within his rights because the probationary period is a condition subsequent. b. A is within his rights because the probationary period is a condition precedent. c. A is in breach of contract with B because B has performed his end of the bargain. d. A is in breach of contract when he tells B his services are no longer required. e. none of the above Answer: e Diff: 2 Type: MC Topic: Discharge by Agreement Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

Skill: Recall/Applied 8) At common law, in order for a contract to be discharged by frustration, a. the circumstances must be such that the contractual obligations of the parties have become incapable of being performed. b. there must be such a long interruption or delay that it renders performance really that of a different contract. c. no party to the contract must be in default. d. each party to the contract must be innocent. e. all of the above Answer: e Diff: 2 Type: MC Topic: Discharge by Frustration Skill: Recall/Applied 9) A agrees in writing to sell to B two printing presses by September 1 for $5000.00. B gives a deposit of $1000.00. Due to a tornado, A's production facility is destroyed on August 25, so A cannot deliver the printing presses to B. In a lawsuit by B for the return of the deposit, the court will say at common law, a. B is not entitled to the return of the deposit because A did not confer a benefit on him. b. the contract was discharged by the frustrating event of the tornado on August 25. c. there was contract between A and B. d. Had A conferred even the smallest benefit on B, such as delivering some printing press parts, A would have to return the deposit. e. all of the above Answer: e Diff: 3 Type: MC Topic: Discharge by Frustration Skill: Recall/Applied 10) A enters into a contract with B under which A will sell to B 1000 barrels of fish for $8000.00. The contract provides that the risk passes to the buyer on delivery of the shipping documents. B pays a deposit of $1200.00 and A delivers five barrels of fish to

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

B. Five days later A's warehouse is destroyed by an explosion caused by faulty repairs to a gas pipe. Under the modern Frustrated Contracts Acts, a. A must still complete the contract because it has not been frustrated. b. B would get back his deposit less the value of the five barrels of fish delivered to him. c. B would get back his full deposit. d. all of the above e. none of the above Answer: d Diff: 3 Type: MC Topic: Discharge by Frustration Skill: Recall/Applied 11) A unilateral contract is discharged by performance when a. performance is genuinely attempted by both parties even if one party's performance is incomplete. b. a term of the contract specifies an event that must occur before the contract will proceed and that event does not occur. c. both parties attempt tender of performance. d. both parties perform all their obligations under the contract. e. an act of God occurs after the contract is entered into. Answer: d Diff: 1 Type: MC Topic: Discharge by Performance Skill: Recall 12) While travelling in the U.S.A., Joey bought some items at Payless Drug Store. The store refused to take in payment either Joey's Canadian currency or his personal cheque— saying they wanted U.S. cash or a major bankcard. Here we have a contractual issue of a. payment using credit. b. tender of performance. c. discrimination against Canadians. d. exchange rates and value of currency.

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e. discharge by performance. Answer: b Diff: 2 Type: MC Topic: Discharge by Performance Skill: Recall/Applied 13) Bulldog Logging Co. agreed to clear 40 hectares of land for Palmer Construction Corp., who had paid in advance for this service. Later, Palmer realized that they only needed 35 hectares cleared and released Bulldog Logging from the contract after they had cleared just 35 hectares. What should take place in order for the original contract to be legally discharged? a. Pay back an appropriate amount of the advanced payment thereby establishing the gratuitous promise. b. Do nothing, but be prepared to clear the five remaining hectares if requested. c. The parties should place this waiver in writing and under seal. d. The remaining five hectares will have to be cleared, otherwise a new contract will need to be negotiated. e. Offer a tender of performance to Palmer Construction. Answer: c Diff: 3 Type: MC Topic: Discharge by Agreement Skill: Applied 14) In material alteration, a. the parties are directly concerned with the discharge of an existing contract. b. the parties are basically preoccupied with the new arrangement, and the discharge of the old contract is incidental. c. a replacement of one of the parties discharges the original contract and substitutes a new one. d. there is an agreement not to proceed with performance of a contract already in existence. e. none of the above Answer: b Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

Diff: 1 Type: MC Topic: Discharge by Agreement Skill: Recall 15) Which of the following provides the best example of discharge by accord and satisfaction? a. A customer prepays for 5 kilograms of prime rib, but cancels the order because he instead wants to buy 25 kilograms of filet mignon for a business party. b. A butcher’s shop changes ownership and the new owner fills the outstanding orders. c. A butcher fills his order two days late because he was seriously ill. d. A butcher runs out of Grade AAA beef and offers Grade A as a substitute (with a good discount) to all customers with existing orders. e. A butcher's shop burns down and the owner is not able to fill his orders. Answer: d Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Applied 16) A novation agreement respecting a party or parties is only effective if a. the new party introduced by novation consents in writing. b. the creditor serves notice in writing on the debtor. c. the parties to the original contract and the new party introduced by novation all give their consent. d. all parties to the agreement have already performed their obligations under the agreement. e. the replacement contract contains a clear condition precedent. Answer: c Diff: 1 Type: MC Topic: Discharge by Agreement Skill: Recall

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17) Four partners own the used car dealership Square Deal Ltd. The company needed more working capital, so the partners went to the bank officer for a loan. The bank officer stipulated that she would approve the loan application if each of the owners signed a personal guarantee on the loan. This was agreed to by the four, but when it came time for signing, one of the partners was on an extended trip to Asia and couldn't be reached. The other three signed the document. Based on the three guarantees, the bank decided to go ahead with the loan to Square Deal Ltd. Are the guarantees enforceable against the three partners? a. Yes, they are, since the bank extended the loan without objection from the partners. b. No, they are not, because the partner in Asia had the "deep pockets." c. Yes, they are, since there was good consideration given. d. No, they are not, since the condition precedent was never met. e. No, they are not, because there was a definite lack of consideration. Answer: d Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Applied 18) Park-Lot Maintenance Corp. entered into a three-year contract with Beliis Fair Mall for snow removal. The contract was in writing, but it was agreed orally that the snow would need to be at least 10 centimetres deep before the contract was operative. Which is the applicable legal concept? a. The parol evidence rule will not allow the oral stipulation to be enforced by the courts. b. The oral part is a condition precedent and therefore renders the contract void. c. The oral part is a condition subsequent and is effective for three years. d. The oral part is a condition precedent and therefore enforceable. e. The contract is in effect regardless of the oral stipulation. Answer: d Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Applied 19) A contract provides for its own dissolution when there is a. a condition subsequent. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

b. accord and satisfaction. c. material alteration of the terms. d. novation. e. a waiver. Answer: a Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Recall 20) A company that installs heavy equipment is to be paid upon the completion of each stage in the tooling of a new factory. Yet it is the factory owner's own chief engineer who does the inspection and makes the approval of each stage. Will the courts enforce this arrangement as a condition precedent? a. Yes, they will, because both parties agreed to this arrangement in the contract. b. No, they won’t, but any dispute can be settled based on fairness and equity. c. Yes, they will, since this is the way things are done in the trade. d. No, they won’t, since there is an obvious conflict of interest. e. No, they won’t, since quantum merit should apply in this situation. Answer: a Diff: 3 Type: MC Topic: Discharge by Agreement Skill: Applied 21) David, a manufacturer's agent, is under contract to represent Joseph Tool Co. in western Canada. This contract contains "an option to terminate" clause. What is the likely meaning of this clause? a. With notice, only David can opt out of this contract. b. This clause stipulates when performance has been completed. c. This clause amounts to discharge by accord and satisfaction. d. With notice, only Joseph Tool Co. can opt out of this contract. e. With notice, either or both companies can opt out of this contract. Answer: e Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Discharge by Agreement Skill: Applied 22) A party to a contract might forego the defence of frustration by a. making it a condition precedent. b. being in a province that has its own Frustrated Contracts Act. c. placing an exemption clause on everything. d. making it a condition subsequent. e. an express promise worded in such an absolute and unconditional way as to rule out any reservation for the party's benefit. Answer: e Diff: 2 Type: MC Topic: Discharge by Frustration Skill: Recall 23) The doctrine of frustration, a. if not applied, discharges the plaintiff from her or his contractual obligations. b. can be applied in cases where the subject matter did not exist at the time of the agreement. c. only applies where there is a Frustrated Contracts Act. d. is a practical and reasonable solution to be imposed by a court under extreme circumstances that were not contemplated by the contracting parties. e. could be applied successfully as a defence in a case where honouring contractual obligations would bring hardship upon the promisor. Answer: d Diff: 2 Type: MC Topic: Discharge by Frustration Skill: Recall/Applied 24) A contract might be discharged by the doctrine of frustration if a. the frustrating event is contemplated by the contract. Copyright © 2016 Pearson Canada Inc.

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b. the contract becomes purposeless after it was entered into. c. the contract is expressly absolute. d. the frustrating event is self-induced. e. the contract was impossible to perform at the time it was entered into. Answer: b Diff: 1 Type: MC Topic: Discharge by Frustration Skill: Recall/Applied 25) The general rule for the discharge of a contract through frustration is as follows: a. A party will be able to use self-induced frustration successfully. b. The frustrating event must defeat the common intention of both parties. c. Failure to perform is often excused by a wide variety of circumstances where the offending party is not at fault. d. The Frustration Contracts Act is applicable in cases where the Sale of Goods Act applies. e. It is only effective if performance becomes impossible or purposeless before the agreement was made. Answer: b Diff: 2 Type: MC Topic: Discharge by Agreement Skill: Applied 26) Jerry, a college business major, contracts with the Southwestern Co. to sell books door-to-door in Portsville, Ontario. Upon learning that a local by-law requires a $25 per day licence, Jerry declares the contract frustrated and goes home. Would the courts agree with Jerry's contention? a. Yes, they would agree, since it is no longer a profitable business. b. Yes, they would agree, since the license fee is a cost of doing business that was not contemplated by Jerry. c. Yes, they would agree, because the town intended the by-law to restrict door-to-door selling. d. No, they would not agree, because this is "self-induced" frustration.

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e. No, they would not agree, because the by-law was beyond Jerry's control. Answer: d Diff: 3 Type: MC Topic: Discharge by Frustration Skill: Applied 27) A and B enter into a contract whereby A agrees to supply B with 10 000 tins of tuna at the rate of 1000 tins per month from his tuna factory in Bayport, Nova Scotia, and B agrees to pay A $2 per tin. A supplies 1000 tins of tuna, but before he can collect, his factory is destroyed by fire. If the contract is discharged by frustration, which of the following statements is correct? a. A must obtain the tuna from another source to satisfy the contract. b. B will have to pay A the sum of $2000 because there was no deposit. c. Only future obligations are discharged, and B must pay A the sum of $2000. d. All obligations under the contract are discharged, A and B's obligations are both discharged, and B does not have to pay A the sum of $2000. e. B will not have to pay A the sum of $2000 because there is no longer a contract. Answer: c Diff: 2 Type: MC Topic: Discharge by Frustration Skill: Applied 28) Jekyll agrees to sell Hyde a certain super-strength hair remover capsule. While it is still in Jekyll's laboratory, the only capsule is swallowed by a night-time guard dog. What will happen in this case? a. The contract is discharged because of a waiver by both parties. b. The contract is discharged because a provision of the Sale of Goods Act applies. c. The contract is discharged by the Frustrated Contracts Act. d. The contract is void because of mistake in assumption. e. Jekyll is relieved of his liability on grounds of hardship in performance. Answer: b Diff: 3 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Discharge by Frustration Skill: Applied 29) Interlake Shipping Co. transports grain in large barges across Lake Michigan. In March, one of its barges was caught in an ice flow, where it "jammed," with the resultant destruction of its cargo. The carrier's property insurance refused to pay because the hazard was not covered under the policy. And the owner of the cargo had no insurance. Does this occurrence fall under the doctrine of frustration for the carrier? a. Yes, it does, since it was an act of God. b. Yes, it does, because it involved the perishing of the goods. c. No, it doesn’t, because the event was preventable. d. Yes, it does, because Interlake had no insurance to cover its property. e. No, it doesn’t, since the event was due to carelessness. Answer: b Diff: 3 Type: MC Topic: Discharge by Frustration Skill: Recall 30) Julie was told by ComputerLand that if she were to purchase 10 or more USB keys, she would receive a free USB hub in the mail. However, shortly thereafter, the supplier of such hubs went out of business and could no longer fill orders. Then Julie sued ComputerLand, who used "frustration" in its defence. Which of the following is true? a. Frustration is impossible because it is too late for rescission. b. The manufacturer of the USB keys and hubs would be liable. c. Since the source is destroyed, the agreement is frustrated. d. Since Julie did not specify the source, the agreement is not frustrated. e. Since the carrying case is free, this agreement lacks consideration. Answer: d Diff: 2 Type: MC Topic: Discharge by Frustration Skill: Recall 31) Munson Fixtures Inc. has contracted with Weibe Installations to provide faucets for a major building project. The contract specifies that 400 Munson 6LS faucets shall be Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 12: The Discharge of Contracts

delivered on June 8. Similar faucets are made by other manufacturers. Which of the following is the only situation where the contract might be discharged by frustration? a. Munson Fixtures delivers the correct faucets but Weibe refuses them because they seem to be too shiny. b. A fire, lit by a disgruntled employee, burns down the building project. c. The factory that makes and stores Munson 6LS faucets burns down—May 23. d. Munson Fixtures experiences severe financial difficulties and can no longer fund the faucet-making operation. e. The faucets are set aside (for this order), then stolen on April 1; Munson only manufactures about 30 of the 6LS faucets per day. Answer: c Diff: 3 Type: MC Topic: Discharge by Frustration Skill: Applied 32) Each province in Canada has a Limitations Act. Which of the following statements correctly describes what happens to a contract after the time set forth in the Act has expired? a. The contract is discharged by the courts. b. The defendant cannot raise equitable defences to a breach of contract action. c. The contract can no longer be enforced unless the plaintiff agrees to forfeit his or her rights. d. Contractual obligations become "statute barred." e. The party to the contract who is entitled to collect money will be required to ask for a ruling by the court. Answer: d Diff: 2 Type: MC Topic: Discharge by Operation of Law Skill: Recall 33) Tender of performance means to perform an obligation under a contract. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 3 Type: TF Page Reference: 252 Topic: Discharge by Performance Skill: Recall 34) A contract that is discharged by performance is one in which the respective legal obligations of the parties have been fulfilled. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Discharge by Performance Skill: Recall 35) Performance for the purpose of discharge by performance can take any number of different forms, depending on the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Discharge by Performance Skill: Recall 36) Accord and satisfaction is an agreement not to proceed with the performance of a contract already in existence. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Discharge by Agreement Skill: Recall 37) Where an event makes performance of a contract more difficult or may mean that it may take a little longer, the event is still a frustrating event. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Discharge by Performance Skill: Recall/Applied 38) Bankruptcy does not discharge a bankrupt from all contractual obligations. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Discharge by Operation of Law Skill: Recall/Applied 39) For a contract to be fully discharged, one party must complete performance. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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Answer: b Diff: 2 Type: TF Topic: Discharge by Performance Skill: Applied 40) A frustrating event is one that was not foreseeable by the parties. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Discharge by Frustration Skill: Recall/Applied 41) A debtor who makes an unsuccessful but reasonable attempt to pay will be free from further liability on interest owing on the amount. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Discharge by Performance Skill: Recall 42) An agreement by parties to a contract not to proceed with performance is not supported by consideration. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 3 Type: TF Topic: Discharge by Agreement Skill: Applied 43) Jack agrees to paint John's home for $500.00. Wishing to re-negotiate the deal, Jack, the night before the job, throws away his paint brushes and other equipment. The next day he tells John that thieves have stolen his equipment and so the contract will have to be cancelled. Jack's conduct is not a breach of the contract because the contract is frustrated. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Discharge by Frustration Skill: Recall/Applied 44) When there is a contract for sale of goods, destruction of the source of the goods will frustrate the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Discharge by Frustration Skill: Recall/Applied 45) Where the required elements for frustration in the Sale of Goods Act are present, the Frustrated Contracts Act will not apply. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Discharge by Frustration Skill: Recall 46) A sells goods to B for $5000.00 and B gives A a deposit of $1000.00. Both A and B agree that the risk remains with the seller, A, until the shipping documents are delivered to the purchaser, B. A ships two of the goods to B and then the rest of the goods are destroyed while in A's possession at no fault of A. In this case, at common law, what would happen to B's deposit? Answer: Although the contract is frustrated, B would lose her or his deposit. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Applied 47) A sells goods to B for $5000.00 and no deposit is paid. Before the balance of the goods is delivered, the goods are destroyed. In this case, at common law, explain whether the seller will get anything for the value of the goods delivered. Answer: At common law, the seller will not get anything for the goods already delivered to B since the contract is an entire contract and payment is not required until A completes the contract. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Applied 48) Explain the effect of a condition subsequent. Answer: Copyright © 2016 Pearson Canada Inc.

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Where a contract contains a condition subsequent, the contract exists, but can be brought to an end or discharged by the event provided for in the condition subsequent. Diff: 2 Type: ES Topic: Discharge by Agreement Skill: Recall/Applied 49) What is tender of performance, and why would a party to a contract make a tender of performance? Answer: Tender of performance is the attempt to perform all your obligations under a contract. Whether or not the other party to the contract accepts your attempt, you receive the benefit of the tender of performance in that you are not in breach of contract nor liable for any further interest or costs. Diff: 1 Type: ES Topic: Discharge by Performance Skill: Recall 50) Explain why a waiver might not be enforceable. Answer: If one party to a contract has already fully performed her or his part, but the other has not, the first receives no consideration for its waiver of the other's duty to perform. Yet, the waiver would be enforceable if it were placed under seal. Diff: 2 Type: ES Topic: Discharge by Agreement Skill: Recall 51) Charles and his family live in Halifax. He was offered a good accounting position at Johnstone & Custer Ltd. in Vancouver. He agreed to take the job if the company could find his family suitable housing in the vicinity of the company. After two months, and having been presented with 17 different "suitable" houses, Charles declared that the condition to the employment contract had not been met. Does the firm Johnstone & Custer have any legal claim on the employment contract? Copyright © 2016 Pearson Canada Inc.

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Answer: This is a condition precedent where Charles is allowed to define what is meant by "suitable." The accounting firm will not be entitled to any damages on the employment contract. This amounts to a legitimate legal loophole for Charles. Diff: 3 Type: ES Topic: Discharge by Agreement Skill: Applied 52) John and Sally enter into a contract for the lease of a used automobile. The term of the contract states that John can terminate the lease agreement if Sally fails to make a required lease payment within 10 days of the due date. Sally fails to make the required payment and on the eleventh day declares the contract cancelled. Will Sally be successful? Explain your answer. Answer: The contract is not at an end because John is the party that has the option to terminate and Sally cannot exercise that option for John. An option to terminate can bring a contract to an end if the party who has the option to terminate elects to treat the contract as terminated. Diff: 2 Type: ES Topic: Discharge by Agreement Skill: Applied 53) Give an example of self-induced frustration. What is the legal result? Answer: The text gives the example of a company selling its only dump truck, thereby making it unable to perform a contract to transport top soil . This action would amount to a breach of contract. Diff: 2 Type: ES Topic: Discharge by Frustration Skill: Recall

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54) What is the effect of frustration on a contract? What, at common law, happens to a deposit paid prior to a contract being frustrated? Answer: The doctrine of frustration discharges the parties to the contract from further performance under the contract. Past performance is not usually affected. Under common law, a deposit that has been paid by one of the parties is returned if no beneficial performance has taken place and retained if there has been any beneficial performance under the contract. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Recall/Applied 55) A truck slides off a mountain road in a snow storm. The contents, Nike shoes, are spread all over a ravine far below. Explain how the seller of the goods, who retained title, might use frustration in his defence. Answer: Because of frustration, both parties are immediately discharged from liability under the contract. The seller cannot sue for the price, nor can the buyer sue for failure to deliver. Yet, the buyer can recover any deposit that was made. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Applied 56) Jack sells Payless Habitat 750 hats. These are yet to be produced from a new factory in Centreville, Ontario. Delivery day on the contract is in six months’ time. After the contract is entered into, the town of Centreville refused a conditional land permit necessary for the building of the factory. As it turns out, Jack will have to find another piece of land for his factory. Is Jack bound by his contract to supply hats? Give reasons for your answer. Answer: The contract is impossible to perform, and as long as that issue was not addressed in the contract, the contract could be frustrated. Diff: 3 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Discharge by Frustration Skill: Applied 57) Contracts can be discharged by agreement. Name and describe four examples of discharge by agreement. Answer: Examples of discharge of a contract by agreement include: a. waiver, a mutual agreement to waive future obligations b. substituted agreement, where a new contract is substituted for the old, usually by virtue of material alteration c. novation agreement, where the first contract ends by the immediate creation of a new one, usually by the substitution of parties to the contract d. accord and satisfaction, where the parties to the contract agree that they want to discharge the contract and one party either pays money or provides something of value to the other party in return for being released from the contractual obligation Diff: 2 Type: ES Topic: Discharge by Performance Skill: Recall/Applied 58) Since any possible frustrating event can be made a term of the contract, why do we need the doctrine of frustration? Answer: To have any frustrating event be part of the contract would require extensive lists of exemptions for excusing performance. Usually with this procedure the cost of administrative time and legal advice would outweigh the benefits, and even then everything couldn't be thought of, and the list would not likely be exhaustive. The doctrine of frustration overcomes these obstacles by recognizing that performance of a contract can be affected by the occurrence of events beyond the control or fault of the parties to it. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Recall/Applied

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59) On October 1, Mary Miller, a world-renowned entertainer, entered into a contract with Quality Production Ltd. to perform a concert in Sudbury, Ontario, on December 15. On October 15, Quality signed a contract to rent the Centennial Hall from its owners, Business Buildings Ltd., for the evening of December 15. Business Bldg. was advised of the purpose for which Quality was renting the hall, and Quality paid Business Bldg. a deposit of $5000. Quality had tickets printed, advertised the concert, hired a band, and paid Mary Miller a $7500 advance. Expenses by December 10 totalled $12 500 excluding the advance to Mary Miller. a. If on December 10, the Centennial Hall burned to the ground through no fault of Business Bldg., would Quality be able to sue Business Bldg. for its losses, and if so, what would Quality likely recover? Explain any legal principles and defences the parties may rely upon. b. If on December 10, the above (a) did not happen but Mary Miller died, could Quality successfully sue Mary Miller's estate for damages, and if so, what would Quality likely recover? What legal principles and defences would be available to the parties? Answer: a. The contract would be discharged because of the doctrine of frustration if: (i) the frustrating event occurred after the formation of the contract and was not dealt with by the contract, (ii) the frustrating event resulted in the impossibility of performance, and (iii) the event was not self-induced. The above test is met in this case, and Quality would not be able to sue Business for the losses it suffered. A complete answer to this question should involve a discussion of what happens to the deposit and that would depend upon whether the common law or a provincial statute applied. b. The death of Mary Miller is a frustrating event and Quality could not successfully sue Mary Miller's estate because the contract would be discharged by virtue of the doctrine of frustration. The issue arises as to what happens to the $7500 advance paid to Mary Miller. Under the common law it would be returned, since Mary Miller had not performed any of her obligations under the contract. The jurisdiction may have a statute that deals with deposits. If so, the statute would supersede the common law. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Applied 60) Clyde entered into a contract with Lucy Produce to supply eight tons of tomatoes. A flood destroyed the field where Clyde was growing his tomatoes, so he refused to supply the tomatoes. What legal grounds could Clyde advance for not supplying the tomatoes? What is Lucy Produce's best defence? What is the likely outcome of an action commenced by Lucy Produce for breach of contract? Answer: Copyright © 2016 Pearson Canada Inc.

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Clyde would rely on the doctrine of frustration because the flood made his contract impossible to perform. Perhaps he would claim an implied term that the tomatoes were to come from his field. Lucy Produce's best defence would be that the source of the tomatoes was not expressly stated and Clyde therefore has an obligation to obtain tomatoes from an alternate source. The outcome of a lawsuit might depend on such factors as the availability to Clyde of other sources of supply, trade practice, and past dealings. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Recall 61) In December, a California importer contracted with a Guatemala exporter for a plane load of roses to be shipped to Los Angles from Guatemala City the first week in February. Because of a regional hail storm in January, the exporter's usual sources of supply dried up to the extent that he could not obtain sufficient quantities of quality roses in Guatemala, so arranged for a shipment from the Cameron Highlands in Malaysia. When the shipment arrived in Los Angles, the importer refused it—based on the fact the roses didn't come from Guatemala. Give the legal arguments of each party. Answer: The exporter would claim frustration as to source and the reasonableness of a substitute shipment—it being of equal or better quality—and that even though the substitute was different, the differences were not sufficient for a discharge of the contract, only for damages. The importer would claim there was an implied term that the roses would be from Guatemala (perhaps because the exporter was located there) and that the Guatemala roses were in some way better (in type, quality, or reputation) than the ones shipped from Malaysia. In other words, the importer would need to build a case to justify his own breach of contract. Here, the seller took a high risk in trying to mitigate in this way without clearing the substitution with the buyer in advance. Otherwise, he would have had the defence of frustration, since the source had been destroyed. As it is, the buyer has a fairly strong case for rejecting the shipment, since the roses from these two areas of the world are significantly different in nature. Diff: 3 Type: ES Topic: Discharge by Frustration Skill: Applied 62) Leaving aside frustration or the operation of law as a means of discharging a contract, what is it that the other forms of discharge have in common with each other and what does this really mean? Copyright © 2016 Pearson Canada Inc.

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Answer: They all have some form of agreement between the parties in common. This means that, in reality, the parties themselves provide for a manner of discharge, either in the contract itself, such as a condition subsequent or condition precedent, or in one fashion or another when they enter into a new agreement that alters the original agreement, such as novation, substitution, waiver, or accord and satisfaction. Diff: 3 Type: ES Topic: The Ways in Which a Contract May Be Discharged Skill: Applied 63) Because frustration is only available for unanticipated or unforeseen events, and because the rules are arbitrary, what can contracting parties do to better manage the legal risks? Answer: It is important prior to finalizing the contract that the parties deal with all possible obstacles. This is really a form of conducting due diligence. Time should be spent imagining the variables that might occur, thereby allowing the parties to customize frustration clauses that can be included in the contract. Diff: 3 Type: ES Topic: Strategies to Manage the Legal Risks Skill: Recall/Applied

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1) A breach will discharge a contract if a. the injured party elects to treat it as discharging the contract. b. the breach is of the whole contract or an essential part of the contract. c. the breaching party decides to abandon its obligations under the contract as a result of the breach. d. the breach causes injury to the innocent party. e. the innocent party suffers significant financial loss. Answer: a Diff: 1 Type: MC Topic: Implications of Breach Skill: Recall 2) Terms in a contract agreed to by parties of unequal bargaining power that give an unfair advantage to the powerful party over the weaker party are referred to as a. material terms. b. warranties. c. unconscionable terms. d. conditions. e. standard terms. Answer: c Diff: 3 Type: MC Topic: Exemption Clauses Skill: Recall 3) Even if the wording of an exemption clause applies to a situation that has occurred and the clause is not determined to be unconscionable at the time the contract was formed, a court may still refuse to enforce it if the injured party can a. point to some paramount consideration of public policy sufficient to override the public interest and freedom of contract. b. prove it is an unreasonable term. c. prove a significant loss. d. claim an unjust enrichment. e. argue the clause is restitutionary in nature. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 3 Type: MC Topic: Exemption Clauses Skill: Recall/Applied 4) Any ambiguity in an exemption clause must be interpreted against the _________ party because that party had every chance to make the ambiguity more clear. a. remote b. third c. drawing d. assigning e. minor Answer: c Diff: 3 Type: MC Topic: Exemption Clauses Skill: Recall 5) Use this fact situation to answer the questions that follow. On January 1, A Co. enters into a contract with B Co. to build a stadium. The date of completion of the contract is August 1. On February 2, A Co. faxes to B Co. a letter that states that it is having problems with its steel girder supplier and that if these continue, it may not be able to complete on time, although it will try to find other suppliers if necessary. On February 15, B Co. enters into a contract with C Co. to build the stadium. On March 1, A Co., which finally received its shipment of steel girders, attended at the construction site to begin its work only to find C Co. there. In a lawsuit by A Co. against B Co., B Co. will argue that a. by electing to treat the contract as at an end, it was entitled to enter into the contract with C Co. b. A Co.'s fax of February 2 was an express repudiation of the contract. c. in light of A Co.'s repudiation, B Co. was entitled to elect to treat the contract as at an end or to affirm the contract. d. it elected to treat the contract as at an end. e. all of the above

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Answer: e Diff: 3 Type: MC Topic: Express Repudiation Skill: Applied 6) Use the fact situation in Q5 to answer the related question that follows. In the same lawsuit, A Co. will argue that a. the act of B Co. entering into the contract with C Co. on February 15 was an express repudiation of the contract. b. its fax of February 2 did not constitute a repudiation of the contract. c. not being a repudiation, the contract was still in force. d. having repudiated the contract on February 15 in the way it did, the contract was at an end and A Co. was relieved from further performance. e. all of the above Answer: e Diff: 3 Type: MC Topic: Express Repudiation Skill: Applied 7) Use the fact situation in Q5 to answer the related question that follows. In the same lawsuit, the court is most likely to find that a. the fax of February 2 from A Co. was a material change in the contract. b. the fax of February 2 from A Co. was an express repudiation of the contract. c. the contract between B Co. and C Co. on February 15 was proper in the circumstances. d. the fax of February 2 from A Co. was an implied repudiation. e. the entering into the contract with C Co. on February 15 was an express repudiation of the contract by B Co. Answer: e Diff: 3 Type: MC Topic: Express Repudiation Skill: Applied

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8) Use this fact situation to answer the questions that follow. You are driving into the north entrance of a parking lot and pull up beside the ticket machine. At the south entrance facing out into the street is a sign that says: "The owners of this lot will not be responsible for any loss or damage however caused to a motor vehicle while parked in this lot." You take a ticket from the machine, park your car, and leave. When you come back, your car has been broken into and its contents stolen. You now wish to sue the parking lot owners. The sign facing out into the street contains a. an exclusion clause. b. an express term of the contract. c. a limited liability clause. d. an ambiguous clause. e. an implied term of the contract. Answer: a Diff: 2 Type: MC Topic: Failure of Performance Skill: Applied 9) Use the fact situation in Q8 to answer the related question that follows. In deciding whether you should win your lawsuit against the parking lot owners, the court will a. look at the type of damage to your car and the contents that was stolen. b. look at how wealthy the parking lot owners are. c. look at the wording on the sign. d. look at the ticket. e. look at whether the words on the sign were brought to your attention. Answer: e Diff: 2 Type: MC Topic: Failure of Performance Skill: Applied

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10) Use the fact situation in Q8 to answer the related question that follows. If the sign had been facing you as you drove into the parking lot but had read "The owners of this parking lot will not be responsible for any damage to your car," in a lawsuit by you for damage to the car and for the stolen contents, a. the parking lot owners will be liable for both the damage to your car and the lost contents. b. the parking lot owners will not be liable because the damage and loss was beyond their control. c. the parking lot owners will be liable for the damage to your car, but not the lost contents. d. the words of the sign will be a good defence to your action because you saw it as you drove into the lot. e. the parking lot owners will be liable for the lost contents, but not the damage to your car. Answer: e Diff: 3 Type: MC Topic: Failure of Performance Skill: Applied 11) George Edwards has just bought a brand new furnace from Henry’s Furnace Company. Towards the end of the installation of the furnace, a piece of piping falls on the furnace and scratches one side of it. Because of the scratch, George does not want to pay for the furnace. In a lawsuit by Henry’s Furnace Company for payment a. George will successfully defend the lawsuit because the scratch is a major breach and terminates the contract. b. George will successfully defend the action because a brand new furnace is not the same as a scratched furnace. c. George will successfully defend the lawsuit because the scratch fundamentally changed the contract. d. George will lose the lawsuit because the scratch is a minor breach of the contract. e. George will lose the lawsuit because he already provided a post-dated cheque for the full amount of the furnace. Answer: d Diff: 3 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Implications of Breach Skill: Applied

12) An injured party cannot elect to treat a breach as discharging him or her from its obligations under a contract unless a. the breaching party elects to treat the breach as discharging him or her from contractual obligations. b. the breaching party suffers financial loss. c. the innocent party suffers financial loss. d. the breach causes physical injury. e. it is of the whole contract or an essential part of the contract. Answer: e Diff: 1 Type: MC Topic: Implications of Breach Skill: Recall 13) A breach of a minor term in a contract a. does not entitle an aggrieved party to abandon obligations under a contract. b. will enable an aggrieved party to elect to treat the breach as discharging the contract. c. does not entitle an aggrieved party to damages. d. amounts to a frustration of the contract. e. amounts to a termination of the contract. Answer: a Diff: 1 Type: MC Topic: Implications of Breach Skill: Recall/Applied 14) Which of the following is NOT true about how a breach may occur? a. Jack may breach the contract by acting in a manner that makes his promise impossible to perform. b. Jack may breach a contract by expressly repudiating his liabilities. Copyright © 2016 Pearson Canada Inc.

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c. Jack may breach a contract by calling James and advising him that he will be ten minutes late in arriving at the home of James to start painting the home. d. Jack may breach a contract by tendering an actual performance that falls short of his promise. e. Jack may breach a contract by failing to perform all his obligations. Answer: c Diff: 2 Type: MC Topic: Implications of Breach Skill: Applied 15) Jack has a contract to deliver goods to Jim on June 2. On the morning of June 2, Jack tells Jim that he will not be able to deliver the goods as promised. This is a. an express repudiation of the contract. b. a rescission of the contract. c. an implied repudiation. d. a minor breach. e. a warranty. Answer: a Diff: 1 Type: MC Topic: Express Repudiation Skill: Applied 16) Jack has a contract to deliver goods to Jim on June 2. On May 31, Jack calls Jim and advises him that he cannot deliver the goods on June 2. This is a. an anticipatory breach. b. an early breach. c. an implied repudiation. d. an early termination. e. a rescission. Answer: a Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Express Repudiation Skill: Applied 17) Jack agrees to paint the home of Jim. During the negotiations, Jim leads Jack to believe that he is in some financial predicament and so cannot pay the full fee. Jack agrees to give him a discount because of his predicament. A few days before Jack is due to perform, he learns from a source that Jim is a very wealthy man. Jack decides that because he has been tricked he will not honour his obligation to paint the home. He gives away all his tools and equipment and tells Jim that he cannot paint the home because his tools have been stolen. Jack's conduct is a. a breach of contract by implied repudiation. b. a breach of a condition. c. not a breach of contract. d. a breach of contract because Jack's conduct renders performance impossible. e. a breach of contract by express repudiation. Answer: d Diff: 2 Type: MC Topic: One Party Renders Performance Impossible Skill: Applied 18) A condition is a. a fundamental event that must be fulfilled before another can happen. b. a contractual obligation that must happen before another can take place. c. a term of a contract that must be fulfilled by the promisee. d. an essential term of a contract. e. a contractual event that must take place before another can happen. Answer: d Diff: 1 Type: MC Topic: Implications of Breach Skill: Recall 19) A warranty is a. a non-essential term of a contract. Copyright © 2016 Pearson Canada Inc.

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b. a guarantee of performance given by one party to another. c. a guarantee contained in a contract regarding the performance of an obligation. d. a non-essential term of a contract that guarantees the performance of an obligation. e. an essential term of a contract that guarantees the performance of an obligation. Answer: a Diff: 1 Type: MC Topic: Implications of Breach Skill: Recall 20) Between the time when a contract is formed and the date of performance, a promisee is entitled to a. notice of any anticipatory breach. b. performance of the warranties. c. notice of any intention on the party of a party to breach the contract. d. notice of all conditions and warranties. e. a continuous expectation of performance. Answer: e Diff: 2 Type: MC Topic: Express Repudiation Skill: Recall 21) The effect of the doctrine of substantial performance is that a. where there is substantial performance, a court will entertain a suit for damages for breach of contract. b. a promisee cannot seize upon a trivial failure of performance to avoid his or her obligations under a contract. c. where there is substantial performance, a court will not entertain a suit for damages for breach of contract. d. the promisee who has substantially performed a contract is entitled to damages. e. the promisor who has substantially performed a contract is entitled to damages. Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Failure of Performance Skill: Recall/Applied 22) An exemption clause in a contract can protect a party from liability for a. damages. b. negligence. c. deliberate acts of employees. d. breach of contract. e. all of the above Answer: e Diff: 3 Type: MC Topic: Failure of Performance Skill: Applied 23) Exemption clauses are a. not used in contracts for the sale of goods. b. strictly construed by the courts against the party that seeks to rely on them. c. not considered by courts. d. strictly construed by the courts against the parties for whom they are drawn. e. not used in employer–employee contracts. Answer: b Diff: 2 Type: MC Topic: Failure of Performance Skill: Recall/Applied 24) The concepts of unjust enrichment and restitution are part of the gradually expanding development in the area of a. quasi tort. b. quasi contract. c. unconscionability. d. damages. Copyright © 2016 Pearson Canada Inc.

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e. substantial performance. Answer: b Diff: 3 Type: MC Topic: Mistakes and Performance Skill: Recall 25) Which of the following is NOT true? a. Not every breach may distract a contract. b. If a breach is of a minor term, the contract is still binding on both parties. c. A party to a contract may breach it by acting in a way that makes performance impossible. d. If a breach is of an essential term, the party not in breach is still bound, but the party committing the breach may elect to discharge the contract. e. A major term may be broken in only a minor respect. Answer: d Diff: 2 Type: MC Topic: Failure of Performance Skill: Recall/Applied 26) Michael's Shop has a standard from contract that includes an exemption clause. Michael enters into an agreement with Jill. Jill signs the agreement without reading it because she says she trusts Michael. When Michael fails to perform his part of the agreement, Jill tries to sue. The court, in considering the effect of the exemption clause, will most likely a. seek the opinion of Jill on how the clause will affect her. b. strictly construe the clause against Michael. c. require that experts provide it with a report on the effect of the clause. d. refuse to apply the court. e. apply the clause. Answer: b Diff: 2 Type: MC Topic: Failure of Performance Copyright © 2016 Pearson Canada Inc.

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Skill: Recall 27) There are three circumstances when a court will refuse to apply an exemption clause to protect the breaching party from liability. Which of the following is NOT one of these circumstances? a. when the clause does not apply to the circumstances b. when there is a strong public policy reason against enforcement c. when the clause was unconscionable at the time of contracting d. when the parties were of equal bargaining power at the time of contracting Answer: d Diff: 3 Type: MC Topic: Exemption Clauses Skill: Recall/Applied 28) An award of damages a. seldom comes out of a case for breach. b. aims to place the injured party in the same position as if the contract had been completed. c. is an "equitable remedy" for breach. d. usually accompanies a rescission. e. is a tool used by the courts to act as a punishment to those who breach a contract. Answer: b Diff: 1 Type: MC Topic: Damages Skill: Recall 29) Liability in contract a. acts as an incentive to commit a breach of contract. b. acts as an economic deterrent to committing a breach of contract. c. acts as a punishment for committing a breach of contract. d. acts as both an economic deterrent and a punishment for committing a breach of contract.

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e. all of the above Answer: b Diff: 3 Type: MC Topic: Damages Skill: Applied 30) The consequences of a purely economic approach to breach of contract can result in a. the decision by a party to ensure that all contractual obligations are met. b. the decision by a party not to perform a contractual obligation. c. the decision by a party to breach the contract. d. the decision by a party to actually weigh the consequences of breach against its reward. e. the decision by a party to merely perform a contractual obligation. Answer: d Diff: 3 Type: MC Topic: Damages Skill: Applied 31) Where by reason of a breach of contract an innocent party suffers loss, a. entitlement to damages will depend on the size of the loss occasioned by the breach. b. entitlement to damages will only be considered if the innocent party actively takes steps to reduce its losses. c. entitlement to damages will depend solely on the nature of the breach committed. d. entitlement to damages will be dependent on the remedy chosen. e. damages will automatically flow regardless of what the innocent party does. Answer: b Diff: 2 Type: MC Topic: Damages Skill: Applied 32) The fact that a party enters into a contract with knowledge of special liability if it fails to perform Copyright © 2016 Pearson Canada Inc.

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a. has a direct effect on the amount of damages that will be awarded against it. b. has no material effect on the amount of damages that will be awarded against it. c. has the effect of rendering the contract a nullity in the event of a breach. d. has a minimal effect on the amount of damages that will be awarded against it. e. none of the above Answer: a Diff: 2 Type: MC Topic: Damages Skill: Applied 33) In contract, the material time for measuring damages is a. the time of the wrongdoing. b. both the time of wrongdoing and the time the contract is formed. c. the time the breach occurs. d. the time the contract is formed. e. the time the tort was committed. Answer: d Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 34) In a contract of sale, where the seller fails to deliver goods on time, the measure of damages will normally be a. the loss or losses that is/are reasonably foreseeable by the seller at the time the contract was made. b. only the loss or losses that occur(s) at the time of the breach. c. the loss or losses that is/are reasonably foreseeable by the seller at the time of the breach. d. all losses, whether or not reasonably foreseeable by the seller. e. only the loss or losses that is/are reasonably foreseeable by the buyer at the time the contract was made.

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Answer: a Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 35) General damages are a. damages that cannot be precisely calculated in monetary terms. b. damages that are meant to punish the wrongdoer, whether calculable or not. c. damages that include both readily calculable damages and damages that cannot be precisely calculated. d. damages that can be readily calculated. e. all of the above Answer: a Diff: 3 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 36) Where the parties to a contract agree in advance on an amount of damages to be paid in the event of a breach, in order for the damages to be effective, a. they can be any amount agreed on by the parties, who are presumed to know what they have contracted for. b. they must be reasonable in the context of the contract. c. they must be meant to penalize the party committing the breach. d. they must relate solely to the breach, without regard to penalty or reasonableness. e. none of the above Answer: b Diff: 3 Type: MC Topic: The Measurement of Damages Skill: Applied 37) Where the losses suffered by an innocent party for breach of contract are minimal in nature, an award of damages Copyright © 2016 Pearson Canada Inc.

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a. may be outweighed by the litigation costs incurred by the innocent party. b. will be a vindication of the innocent party. c. will usually be pursued as a matter of principle. d. establishes the validity of the innocent party's claim. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Measurement of Damages Skill: Applied 38) Generally speaking, to successfully seek an equitable remedy for breach of contract, a plaintiff must a. come to court with “clean hands.” b. be a party against whom the remedy would otherwise be awarded were he a defendant. c. have paid a substantial consideration for the defendant's promise. d. launch his lawsuit within a reasonable amount of time of the breach. e. all of the above Answer: e Diff: 3 Type: MC Topic: Equitable Remedies Skill: Recall/Applied 39) When a breach of contract has occurred, the purpose of damages is to a. make the case an example to the rest of the community that this type of behaviour will not be tolerated. b. have the damages reflect the severity of the breach. c. compensate the wronged party for the loss incurred. d. provide a deterrent for the breaking of moral and legal obligations. e. punish the party who has committed the breach by making him or her pay compensation. Answer: c Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Damages Skill: Recall 40) Casey Construction abandoned its $23 million North County road project after spending $7 million. By this time, one progress payment of $5 million had been made. The county immediately contracted with Beachwood Corp. to take over and finish the project for $21 million. Expectation damages for Casey Construction would be a. the difference between $16 and $21 million. b. the difference between $21 and $23 million. c. zero, since Casey did $2 million of work where no payment was received. d. none; only consequential damages might apply. e. the difference between $18 and $21 million. Answer: e Diff: 3 Type: MC Page Reference: 291 Topic: The Measurement of Damages Skill: Applied 41) Farmer Gibson ordered an irrigation pump from Sinclair Farm Supply, where he has an open account. When they attempted to deliver, he refused to accept, claiming he could get a better deal elsewhere. Legally, Gibson could be charged for all damages that naturally flow from this breach. Assuming Sinclair made free deliveries and it had more pumps than customers, the damages would include a. the damages associated with Gibson not being able to properly irrigate his land. b. only the expected profits on this item. c. transportation as well as a restocking charge. d. only two-way transportation to Gibson's farm. e. expected profits, delivery charge, and a restocking charge. Answer: e Diff: 3 Type: MC Topic: The Measurement of Damages

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Skill: Recall 42) Construction of the shopping centre was to be completed by October 15 (late penalties were included in the contract) and tenants such as FabricLand would move in by November 1. However, the contractor for the shopping centre was 43 days late in completing and now FabricLand is suing the shopping centre owner for ________ damages, and the shopping centre owner is suing the contractor for ________ damages. a. expectation; liquidated b. expectation; consequential c. consequential; reliance d. general; liquidated e. general; consequential Answer: b Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Applied 43) Carlos, an antique dealer, contracted to buy an antique dining room set at a garage sale for $700. He made a down payment and agreed to return on the weekend to pick it up. Then Carlos contacted a former customer who he knew wanted such an item. This customer agreed to pay $850 for the set. However, when Carlos returned on the weekend to where the garage sale had been, he found that the dining room set had been sold to someone else for $900 and had already been hauled away. Carlos was given back his down payment cheque. Does Carlos have any other claim to damages? a. Yes, he does, for mental anguish. b. No, he doesn’t; there are no further damages. c. Yes, he does, for $150 of consequential damages. d. Yes, he does, for $200 of consequential damages. e. Yes, he does, for $200 of expectation damages. Answer: c Diff: 3 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied

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44) Hastro Toys Mfg. operates on a "just-in-time" inventory basis. When one of its suppliers missed a 2:00 p.m. delivery of a key component, the entire assembly line was shut down for the balance of the day. Hastro is suing its supplier for ________ damages. a. reliance b. expectation c. liquidated d. consequential e. general Answer: d Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 45) Lambhair Corp. contracted with Prof. Jones for a two-week series of seminars with employees in the Appliance Division. Prof. Jones put in 10 days of specific preparation only to have the series cancelled at the Appliance Division and rescheduled at the Tool Division. This change required Prof. Jones to put in another 5 days of specific preparation. This change was a breach of the original contract. Prof. Jones is entitled to what type of damages? a. consequential b. nominal c. general d. reliance e. expectation Answer: d Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Applied 46) A genuine estimate of damages contained in a contract as a term of the contract can best be described as a. reliance damages. b. liquidated damages.

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c. nominal damages. d. expectation damages. e. consequential damages. Answer: b Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Applied 47) Speedy Courier Service has a phrase on their order form that reads, "We deliver on time or our delivery is free." In legal terminology, this is a. an advertising gambit. b. liquidated damages. c. a promotional come-on. d. a self-imposed penalty clause. e. consequential damages. Answer: b Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 48) Specific performance will NOT generally be available for breach of a contract for a. sale of goods. b. contracts requiring unique personal skill or judgment. c. sale of goods that have been custom-made. d. sale of works of art. e. sale of antiques. Answer: b Diff: 1 Type: MC Topic: Equitable Remedies Skill: Recall Copyright © 2016 Pearson Canada Inc.

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49) Rachel had been looking forward to her two weeks of vacation in Paris, France, with a Never Late Inc. tour group. The day before the tour was to leave Toronto, Rachel was told that the entire tour had to be cancelled because of a "mix-up in hotel accommodations." She was immediately given a full refund of her money. What sort of additional damages is Rachel entitled to? a. consequential—since breach was the result of negligence in making hotel reservations b. general—since there was mental anguish c. nominal—to recognize the breach that did occur d. none—since she received all her money back e. expectation—for cost of a substitute tour Answer: b Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Applied 50) In rare circumstances courts have awarded punitive damages if the behaviour of the breaching party is considered to be a. malicious. b. in bad faith. c. high-handed. d. arbitrary. e. any of the above Answer: e Diff: 3 Type: MC Topic: Types of Damages Skill: Applied 51) Nominal damages are a. assessed with purely personal or passionate reasons. b. assessed where a party commits a tort within the context of a contract. c. awarded to serve as an acknowledgement to a breach of contract where no appreciable loss has been sustained by the promisee. Copyright © 2016 Pearson Canada Inc.

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d. used for allowing the case to go to a higher court. e. where damages are determined by local bylaws. Answer: c Diff: 2 Type: MC Topic: The Measurement of Damages Skill: Recall/Applied 52) Chin Chang agreed to buy an antique dresser from Pedro for $2500. He made a down payment of $750 and agreed to return and pick the item up at a later date. However, when he returned, Pedro refused to give him the furniture, saying that he had found a buyer who would pay a higher price. Chin Chang may be entitled to which of the following equitable remedies? a. injunction b. specific performance c. rectification d. compensation e. damages Answer: b Diff: 2 Type: MC Topic: Equitable Remedies Skill: Applied 53) Which of the following is NOT an equitable remedy? a. injunction b. specific performance c. rescission d. punitive award e. quantum meruit Answer: d Diff: 2 Type: MC Topic: The Measurement of Damages Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 54) Danny agreed to sell a large painting to Mary for $5000. It has a sentimental value to Mary—being a painting of her house in 1938. Before delivery, Danny discovered the sentimental interest of Mary and refused to sell it at the agreed-upon price. Which of the following statements is correct? a. Mary is entitled to damages of $5000. b. Mary could claim the remedy of specific performance because the painting is so special to her. c. Danny can demand compensation for the painting's full esthetic value. d. Mary is not entitled to an equitable remedy because the subject of the contract is not real property. e. Danny does not have to deliver the painting at the original price because of the doctrine of mistaken value. Answer: b Diff: 1 Type: MC Topic: Equitable Remedies Skill: Applied 55) All of the following may bar someone from obtaining an equitable remedy EXCEPT a. if to do so would affect an innocent purchaser. b. if the plaintiff is a minor and the contract couldn't be enforced against him or her. c. if the plaintiff her- or himself did not have "clean hands." d. if there were unreasonable delays in taking the other party to court. e. if no attempt was made by the defendant to mitigate damages. Answer: e Diff: 3 Type: MC Topic: Equitable Remedies Skill: Applied 56) An order of specific performance a. would always apply to the buyer of real property (i.e., land and buildings). b. requires one party to a contract to refrain from acting in a particular manner. Copyright © 2016 Pearson Canada Inc.

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c. requires that the defendant do a certain act, usually something not specified in the contract. d. requires that the defendant do a certain act, usually fulfilling his or her part of the contract. e. requires that the party in breach pay a specific monetary sum to the other party. Answer: d Diff: 1 Type: MC Topic: Equitable Remedies Skill: Recall 57) The Lockheart Community has a restrictive covenant that does not allow more than a 1 metre solid fence within 3 metres of any public walkway. Ignoring the covenant, Mr. Bailey starts to build a 2 metre high rock wall along his front sidewalk. Mr. Bailey might be subject to a. a restraining order. b. the sheriff's ordnance writ. c. the community compliance marshal. d. the building inspector. e. a court injunction. Answer: e Diff: 1 Type: MC Topic: Equitable Remedies Skill: Applied 58) Onar Development stopped progress payments to its general contractor, Shape Construction. Upon the advice of their lawyer, Shape decided to sue for rescission of the contract rather than collect damages for breach. Shape will most likely a. collect under quantum meruit. b. ask for specific performance. c. get expectation damages. d. file for bankruptcy. e. get an injunction.

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Answer: a Diff: 3 Type: MC Topic: Equitable Remedies Skill: Applied 59) How can the judgment creditor extract money from the judgment debtor? a. by obtaining a garnishee order against the creditor's wages b. by instructing a court-appointed councilor to set up a payment schedule, which, if not followed, can amount to contempt of court for the debtor c. by relying on the plaintiff's legal council, who is responsible for collecting the money awarded in the judgment d. by requesting the sheriff to levy execution against the assets of the debtor e. by having the court collect the money through its authorized collection agency Answer: d Diff: 2 Type: MC Topic: Methods of Enforcing Judgment Skill: Recall/Applied 60) A breach of a minor term will not discharge a contract, but a major term that is broken in only a minor respect will discharge a contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Express Repudiation Skill: Applied 61) An express repudiation only occurs when one party to a contract actually tells the other party that it refuses to perform its obligations under the contract. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Express Repudiation Skill: Recall/Applied 62) An anticipatory breach occurs where a party to a contract fails to perform its obligations under the contract on the date set for performance of the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Express Repudiation Skill: Recall/Applied 63) Unconscionable terms in a contract can be unfair even if they are agreed to by parties of equal bargaining power. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Exemption Clauses Skill: Recall/Applied 64) A promissor is entitled to enforce a contract when it has performed to the best of its ability even though its performance does not comply in a major way with the requirements of a contract. a. True Copyright © 2016 Pearson Canada Inc.

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Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Doctrine of Substantial Performance Skill: Applied 65) A willful or negligent act by the promissor that destroys its ability to fulfill its contractual promises amounts to a breach of contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: One Party Renders Performance Impossible Skill: Recall/Applied 66) It is contrary to public interest to allow an exemption clause to insulate an offending party for conduct approaching criminal or fraudulent behaviour. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Exemption Clauses Skill: Recall 67) Where a person has a contractual obligation, he or she has to perform the whole obligation before being entitled to enforce the contract. He or she cannot perform part of the obligation and then seek to enforce the contract. Copyright © 2016 Pearson Canada Inc.

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a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Failure of Performance Skill: Recall 68) Exemption clauses are generally strictly construed against the party that is not seeking to rely on them. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Failure of Performance Skill: Recall/Applied 69) The doctrine of substantial performance says that there will be rescission if each party does not substantially perform its obligations under the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Page Reference: 275 Topic: Failure of Performance Skill: Recall/Applied

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70) Damages are not available for an anticipatory breach because the time for performance has not arrived. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Express Repudiation Skill: Recall 71) If one party breaches a condition of a contract, the other party will generally be entitled to repudiate the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Express Repudiation Skill: Recall 72) The failure of an innocent party to take steps to reduce the loss arising from a breach of contract is of no consequence at all. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Damages Skill: Applied

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73) The expression that damages must flow naturally from the breach of a contract has been meant to refer to only those damages that actually flow from the breach. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Damages Skill: Applied 74) It is fair to say that the damages for breach of contract may well exceed the damages arising in tort. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Measurement of Damages Skill: Recall/Applied 75) Punitive damages will often be awarded where the conduct of the party in breach is high-handed, malicious, arbitrary, or highly reprehensible. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Measurement of Damages Skill: Recall/Applied

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76) Specific performance will always be granted to a purchaser of land. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Equitable Remedies Skill: Applied 77) Jack's supplier fails to deliver the products Jack has ordered at the required time. Jack is expected to do what he can to reduce his losses. This is called mitigation of losses. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Damages Skill: Recall/Applied 78) An injunction is available in a variety of circumstances, including where the contract does not contain a negative covenant. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Equitable Remedies Skill: Applied 79) The remedy of rescission involves suspending the operation of a contract temporarily. Copyright © 2016 Pearson Canada Inc.

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a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Equitable Remedies Skill: Applied 80) Where a creditor serves an employer with an order that requires the employer to retain a portion of the debtor's wages each payday, the employer has been served with an execution order. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Methods of Enforcing Judgments Skill: Recall/Applied 81) In an action to enforce a covenant in restraint of trade in an employment contract, the court may grant an injunction. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Equitable Remedies Skill: Recall/Applied

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82) Where an anticipatory breach occurs, the innocent party must carefully consider its election. Explain. Answer: The election is to either accept the breach, terminate the contract and sue for damages, or keep the contract alive and wait for the date of performance of the contract. By electing to keep the contract alive, the innocent party continues the contract and all of its obligations under it, which could end up being dangerous. Diff: 3 Type: ES Topic: Failure of Performance Skill: Applied 83) What is anticipatory breach, and why is it considered to be a form of express repudiation? Answer: Express repudiation takes place when a party advises the other party that it does not intend to perform its contractual obligations. This often occurs at the time performance is called for. Anticipatory breach is a form of express repudiation, but it occurs before the agreed-upon time for performance. Diff: 3 Type: ES Topic: Express Repudiation Skill: Recall/Applied 84) When might a warranty in a contract be a good answer to a lawsuit for breach of contract? Answer: Generally, where the parties are of equal bargaining strength and enter into a contract with a warranty in it, the warranty will protect the party who gives it. Diff: 1 Type: ES Topic: Express Repudiation Skill: Applied

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85) What is the distinction between a minor breach and a major breach? Answer: The breach of a non-essential term of a contract allows the innocent party to sue for damages but requires that the innocent party comply with its obligations. On the other hand, a major breach is the breach of the whole contract or of an essential term, which gives the innocent party an election—it can repudiate the contract and sue for damages or affirm the contract, comply with its obligations, and sue for damages. Diff: 3 Type: ES Topic: Implications of Breach Skill: Applied 86) Explain the notion of continuous expectation of performance. Answer: The courts have held that a contract exists from the moment it is entered into, and not only from the time performance commences. Thus a contract can be broken in the period between the formation of the contract and its performance, such as in the case of an anticipatory breach. Thus a party to a contract is entitled to a continuous expectation of performance in the period between the formation of the contract and its performance. If a party breaks a contract during this intervening period, it is an anticipatory breach. Diff: 2 Type: ES Topic: Express Repudiation Skill: Recall/Applied 87) Explain the attitude of the courts towards the use of exemption clauses. Answer: The courts generally frown on the use of exemption clauses because they are perceived as giving the party who drafts them an advantage over the other party. This is especially so where the party who drafts the clause is the party in breach. Where the party who prepares the exemption clause is the party in breach, the courts have avoided the applicability of the exemption clause by (a) strictly construing the clause against the person in breach, (b) striking down the clause when the clause was unconscionable at time of contracting, and (c) failing to enforce the clause when there is a strong public policy reason against enforcement.

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Diff: 2 Type: ES Topic: Exemption Clauses Skill: Recall/Applied 88) Damages are a common law remedy. What is the purpose of damages, and how do they achieve their purpose? Answer: An award of damages for breach of contract is intended to place the injured party in the same position he or she would have been in but for the breach. It achieves its purpose by awarding money as compensation for losses suffered as a result of the breach of contract. Diff: 1 Type: ES Topic: Damages Skill: Recall/Applied 89) Explain why it is necessary for an innocent party to mitigate the damages occasioned by a breach of contract. Answer: This is because in determining the damages that an innocent party has suffered, the courts will deduct any amount or amounts by which the innocent party could have reduced its losses. This could result in either substantially reducing or completely eliminating the damages to be recovered. Diff: 3 Type: ES Topic: Damages Skill: Applied 90) A liquidated damages clause will not always be effective. Explain. Answer: A liquidated damages clause that provides for an amount of damages which far exceeds and is out of proportion to the probable consequences of breach will be considered to be a penalty clause and will be disregarded by the court in assessing damages for breach. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: The Measurement of Damages Skill: Recall/Applied 91) A party seeking an equitable remedy must come to court with “clean hands.” Explain. Answer: Equitable remedies are discretionary in nature, and there must be some compelling reason for a court to employ them. To provide such a remedy to a plaintiff who acted unethically or who was guilty of sharp practice would be to reward the plaintiff for such conduct, something which the courts refuse to do. Diff: 2 Type: ES Topic: Equitable Remedies Skill: Recall/Applied 92) Give an example of a business mitigating the effects of breach of contract by the other party. Answer: For example, perishable goods that are not accepted on delivery should be immediately sold to someone else before they lose their value. Or if a supplier does not deliver a critical component as promised, you should find another supplier before you run out of inventory. Diff: 2 Type: ES Topic: The Measurement of Damages Skill: Recall/Applied 93) Give an example of damages that flow naturally from the breach of a contract. Answer: For example, a building contractor abandons a job. A new contractor is found to come in and complete the job. Damages that flow naturally from the breach would amount to any additional cost in obtaining and paying the new contractor over what would have been paid to the first contractor. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: The Measurement of Damages Skill: Recall/Applied 94) Why would courts be willing to give specific performance routinely in the purchase of real property, both for the seller and for the buyer? Answer: Courts grant specific performance on land because each piece is unique and the purchaser usually has a specific use in mind. The reason the seller can also get specific performance is because of both the general principle of mutual remedies and the recognition of the responsibilities and burdens associated with real property ownership. Diff: 2 Type: ES Topic: Equitable Remedies Skill: Applied 95) Distinguish an injunction order from an order for specific performance. Answer: An injunction is an order preventing someone from acting in a particular manner while an order of specific performance is an order requiring the defendant to do a certain act, usually to fulfill his part of a contract. In both instances the penalty for failing to comply with the order is being cited for contempt of court. Diff: 2 Type: ES Topic: Equitable Remedies Skill: Applied 96) Explain the circumstances under which a claim of quantum meruit would be successful. Answer: Quantum meruit exists when there is a request for goods or services but there was no agreement as to price. The court will require payment of the market value of benefit conferred. This concept can be applied to a contractor who repudiates a contract because the other party is guilty of a fundamental breach and yet the contractor has made valuable benefits to the project.

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Diff: 2 Type: ES Topic: Equitable Remedies Skill: Applied 97) Should you win a money judgment in the court, how would you collect the money? Answer: The force of the court judgment is usually sufficient for the judgment debtor to raise the money and pay voluntarily. However, you may have to take steps to enforce payment. For instance, you might request the sheriff to levy an execution order to seize and sell various assets of the judgment debtor. Diff: 2 Type: ES Topic: Methods of Enforcing Judgment Skill: Applied 98) What is an exemption clause? Explain the attitude of the courts towards exemption clauses. Answer: Exemption clauses are clauses in contracts that seek to exclude the liability of a party to the contract or that exempt such a party from liability for failing to perform his or her obligation. The courts, in most situations, have seen exemption clauses as being unfair and have tried to limit their effect. First, the courts have taken the position that an exemption clause will be strictly construed against the party that seeks to rely on it. Further, where the courts have come across an exemption clause in situations where the party is not required to sign a document, for example, where a person purchases a bus or train ticket, the courts have said that the party seeking to rely on the exemption clause must have provided the customer with adequate notice. Diff: 2 Type: ES Topic: Failure of Performance Skill: Applied 99) When there is significant imbalance in the bargaining power of the parties, the stronger party can take an unfair advantage of the weaker one by extracting agreement to

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unconscionable terms. With respect to exemption clauses, what obligations have been imposed on Internet retailers pursuant to Ontario’s consumer protection laws? Answer: Internet retailers are required to provide written copies of their “Internet agreement” to consumers, including disclosure of any “restrictions, limitations and conditions imposed by the supplier.” This would include any attempt by the retailer to reduce its liability by way of an exemption clause. Failure to disclose the required information allows the consumer to rescind the Internet contract. Although the courts have held that exemption clauses in online consumer contracts may be binding, they cannot be “hidden” from consumers. Diff: 3 Type: ES Topic: Exemption Clauses Skill: Applied 100) A party to a contract may break the contract in various ways. Explain. Answer: A party to a contract may break it in three main ways, namely, by expressly repudiating his or her liabilities; by acting in a ways that makes the promise impossible to perform; and by either failing to perform at all, or tendering actual performance that falls short of its promise. Diff: 2 Type: ES Topic: Express Repudiation Skill: Recall/Applied 101) A party to a contract has a continuous expectation of performance. Explain. Answer: The courts have held that a contract exists from the moment it is entered into, and not only from the time performance commences. Thus a contract can be broken in the period between the formation of the contract and its performance, such as in the case of an anticipatory breach. Thus a party to a contract is entitled to a continuous expectation of performance in the period between the formation of the contract and its performance. If a party breaks a contract during this intervening period, it is an anticipatory breach. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Express Repudiation Skill: Applied 102) Describe why the doctrine of substantial performance is of practical importance. Answer: The doctrine of substantial performance states that a promisor is entitled to enforce a contract when it has substantially performed, even if its performance does not comply in some minor way with the requirements of the contract. Substantial performance is of practical value because it covers those situations where the performance of promisor, though defective in a very minor way, is still sufficient enough so as to bind the party. The importance of the doctrine lies in the fact that a party to a contract cannot seize on some trivial failure of performance to avoid its own obligations. Diff: 2 Type: ES Topic: Failure of Performance Skill: Recall/Applied 103) Buildco Limited enters into a contract that has an exemption clause. Buildco's employees, during the course of constructing the home of Jack, fail to exercise care, as a result of which the home is damaged and Buildco is liable to Jack. Will Buildco be able to rely on the exemption clause? Answer: The courts generally frown on the use of exemption clauses because they are perceived as giving the party who drafts them an advantage over the other party. This is especially so where the party who drafts the clause is the party in breach. Where the party who prepares the exemption clause is the party in breach, the courts have avoided the applicability of the exemption clause (a) by strictly construing the clause against the person in breach, (b) if the clause was unconscionable at the time of contracting, and (c) where there is a strong public policy reason against enforcement. Diff: 3 Type: ES Topic: Failure of Performance Skill: Applied 104) Peevyhouse v. Garland Coal & Mining Company is a decision of a United States court. Given the decision in this case, and applying the rule of stare decisis as it pertains Copyright © 2016 Pearson Canada Inc.

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to decisions of Canadian courts, just how valuable is the decision in this case, and should it be adopted in Canada? Answer: This case held that the cost of performance rule would permit the plaintiffs to receive a greater benefit from the breach by the defendant than could otherwise be gained by full performance. Here the court employed a strictly economic analysis in rendering its decision, which, in turn, had the effect of discouraging the defendant from performing its obligations under the contract. Using the cost of performance rule to measure the damages might have created an incentive for the defendant to perform its obligations. Further, the decision tends to ignore the plaintiffs' subjective interests as owners and also tends to ignore the rights of a party to hold another party to obligations that it agreed to from the outset of the contract. In fact, given the questions that it raises, there is every reason to question the value of this decision. Being the decision of an American court, fortunately, Canadian courts are not bound by it and can disregard it. Diff: 3 Type: ES Topic: Challenges in Measuring Damages Skill: Applied 105) B.C. Metal Works agreed to purchase steel rod from Vancouver Smelters Ltd. Delivery was to take place on April 1. On March 24, Vancouver Smelters advised Metal Works that the steel rod could not be delivered because of production problems. Metal Works accepted the anticipatory breach of Vancouver Smelters and reserved their right to sue for damages. On April 1, Metal Works commenced looking for an alternate supply of steel rod and located a supply in Seattle, Washington. The rods could not be delivered for seven days, causing Metal Works to shut down their operations for three days. Metal Works sued Vancouver Smelters for breach of contract. What legal obligation did Metal Works have, and what remedy would they be entitled to? Answer: Once B.C. Metal Works accepted the breach of contract and reserved their right to sue for damages, they had a duty to immediately mitigate potential losses. The liability of Vancouver Smelters is for damages that could reasonably be anticipated arising naturally from the breach. However, these are subject to the obligation of Metal Works to take reasonable steps to reduce the damage being suffered. As Metal Works failed to mitigate by immediately looking for a new supplier, they would not be able to recover damages resulting from the delay. Therefore, they would be left with damages for difference in price but not damages resulting from the operations having to be shut down. Diff: 3 Type: ES Copyright © 2016 Pearson Canada Inc.

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Topic: Damages Skill: Applied 106) Troy Feldmon agreed to purchase a house from Jenny King for $60 000. Jenny King had previously agreed to sell the house to another individual, but that transaction had not been completed due to the purchaser's default. Jenny was very concerned that steps be taken to ensure Troy was serious about completing the purchase, so she demanded a deposit of $20 000 and that the contract state "in the event that the purchaser does not complete the transaction the entire deposit would be forfeited as liquidated damages." As it happened, Troy was unable to complete the purchase due to an unexpected financial setback. Jenny King then declared the deposit forfeited. Will Troy be able to recover all or part of his deposit? Answer: The court will abide by the parties' calculation of damages if it is satisfied that the parties have made a genuine pre-estimate of the losses (which flow from breach of the contract). In this case, the large deposit was not based upon the parties' genuine pre-estimate of losses, but was an attempt by Jenny to ensure that the purchase would be completed. The stated $20 000 would be in the nature of a penalty rather than the losses from a contract breach. Therefore, Troy would be able to apply for relief against forfeiture of the deposit. He would be liable to pay actual damages suffered by Jenny and would, as well, be able to recover the balance of the deposit. Diff: 2 Type: ES Topic: The Measurement of Damages Skill: Applied 107) Name two equitable remedies. Describe three ways in which a party will lose its right to claim an equitable remedy. Answer: Both specific performance and injunction are equitable remedies. A party will lose its right to claim an equitable remedy under the following circumstances: a. The plaintiff does not have clean hands, in other words, the client is guilty of some unethical conduct. b. The plaintiff is guilty of delay in taking legal action where he seeks the equitable remedy. c. The equitable remedy will have an effect on an innocent third party. d. The contract was not for valuable consideration, such as one that was simply placed under seal. Copyright © 2016 Pearson Canada Inc.

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e. If the plaintiff is not subject to equitable remedies, he will not be able to claim equitable remedies, such as a contract with an infant plaintiff. Diff: 2 Type: ES Topic: Equitable Remedies Skill: Applied 108) Alice Munroe entered into a contract with Joe Green for the sale of Alice's car to Joe. Joe's plan was to use the car for parts. After the sale had been completed and the car was partially dismantled, Joe discovered that the transmission had been cannibalized. In other words, some of the transmission parts had been removed. Joe wished to get his money back from Alice. Discuss whether or not he is entitled to his money back. Answer: Joe Green's wish would be for rescission of the contract. In order to be entitled to rescission, there must be a breach of a condition and Joe must be in a position to restore the subject matter back to Alice in essentially the same condition as received. In this case, since Joe had partially dismantled the car and perhaps extracted some benefits (other parts), he would not be in a position to restore the car to where it was. Therefore, he would not be entitled to rescission; however, he would be able to claim damages (e.g., the value of the missing transmission parts). Diff: 3 Type: ES Topic: Equitable Remedies Skill: Applied 109) On April 10, Mel entered into a contract to sell his house to Nan at a price of $300 000. Title was to transfer May 31. Nan paid Mel a deposit of $20 000. A clause in the contract between them said: "If the buyer does not complete as specified, the seller can elect to keep the deposit as liquidated damages." On April 30, Nan told Mel she could not complete the contract because she could not sell her own house. Mel immediately entered into a contract to sell his house to Paul for $320 000. Nan insists that Mel return her deposit because he has suffered no damages. Will a court order Mel to return her deposit? Answer: The contract between Mel and Nan contained a liquidated damages clause in which the parties agree in advance the amount to be paid as damages if the contract is breached. As long as this is a genuine attempt by the parties to estimate what the loss would be, it does not matter that the actual loss is less than what the parties estimated. This deposit would be well within industry norms. The courts are reluctant to overturn these provisions, and they are rarely recoverable. It is very unlikely that Nan would get her deposit back. Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: ES Topic: The Measurement of Damages Skill: Applied

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1) In the sale of goods, a. passing of title and passing of ownership are separate concepts. b. ownership and possession are separate concepts. c. the change in possession and a transfer of title are the same thing. d. the buyer has title when goods are paid for. e. the seller has title until delivery. Answer: b Diff: 1 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 2) A Co., a local importer of steel ingots, enters into a contract with B Co., a large wholesaler of steel, to supply B Co. with ten 50-pound steel ingots, which B Co. will try to sell on behalf of A Co.; B Co. is to return to A Co. any unsold ingots. In this situation, the agreement is a. an option agreement. b. a consignment agreement. c. an agreement to sell. d. a sale agreement. e. an agreement of purchase and sale. Answer: b Diff: 2 Type: MC Topic: The Sale of Goods Act Skill: Applied 3) The principle of caveat emptor applies only to situations where a. the seller has made no misrepresentation about the goods. b. the goods can be inspected by the buyer. c. the goods are specific items. d. the goods are in existence. e. all of the above

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Answer: e Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Recall/Applied 4) A, a thief, steals 100 stereo amplifiers from B's warehouse and takes them to a flea market, where he sets up a stand that makes it appear that his business is selling stereo equipment. B finds out that A has sold an amplifier to C, an amplifier dealer. In this case, under the Ontario Sale of Goods Act, a. B can retake possession of the amplifier from C only if A accompanies him. b. the title to the amplifier has passed to C, against whom B has no recourse. c. B's only recourse is against C. d. B can retake possession of the amplifier from C. e. B has no recourse against A or C. Answer: b Diff: 3 Type: MC Topic: Title to Goods Skill: Applied 5) Playgrounds Inc. manufactures playgrounds for children of all ages. After discussions with a representative of Playgrounds Inc., and relying on those discussions, Happy High School orders a playground from Playgrounds Inc., specifying that the playground is for older children and teenagers, age 9 and over. Playgrounds Inc. delivers a playground that, when assembled, is only 1.25 metres high and cannot be used by Happy High School's children. Happy High School refuses to keep the playground and will say that under the Sale of Goods Act a. the playground does not meet the sale by description test. b. the playground meets the sale by description test. c. the playground does not meet the fitness for purpose test. d. the playground meets the fitness for purpose test. e. the playground meets both the fitness for purpose and the sale by description tests. Answer: c Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Terms in a Contract of Sale Skill: Applied 6) John purchases a 2009 Pontiac automobile from Car Dealers Inc. Within three weeks, the car's transmission fails to work. Assuming that the car was not warranted against such an event, under the Sale of Goods Act, the failure of the transmission would amount to a breach of the implied condition of a. description. b. merchantable quality. c. seller's title. d. fitness for purpose. e. none of the above Answer: b Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 7) Every year at the end of the selling season in September, Jones & Co., a furniture manufacturer, offers special discounts on wholesale prices for the furniture it has not sold. S Co. goes to Jones & Co.'s warehouse and buys all remaining leather sofas and pays for them. In the presence of S Co.'s representative, the sofas are immediately set aside on the warehouse loading dock for pick up by S Co. the next day. That night, the sofas are destroyed by a warehouse fire. In this case, a. title of the sofas does not pass to S Co. until the sofas are actually on S Co.'s truck. b. title of the sofas passed to S Co. when the sofas were set aside on the loading dock. c. title of the sofas does not pass to S Co. until it comes to pick them up. d. title of the sofas did not pass to S Co. because leather sofas were not specified in the contract. e. title of the sofas does not pass to S Co. because the contract for the sofas is a conditional contract. Answer: b Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Applied Copyright © 2016 Pearson Canada Inc.

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8) Jones Ltd. places an order with Playgoods Ltd. for 100 children’s playhouses. The contract provides that Playgoods Ltd. will pack the playhouses in boxes carrying the Jones Ltd. name and its "J" logo, which Jones Ltd. will supply. Jones Ltd. supplies the boxes, but before Playgoods Ltd. has had an opportunity to pack the playhouses into the boxes, the playhouses are destroyed by a fire in its warehouse. In this case, a. title had not yet passed to Jones Ltd. because Playgoods Ltd. failed to notify Jones Ltd. that the playhouses had not been packed in the appropriate boxes. b. title to the playhouses passed to Jones Ltd. at the time Jones Ltd. supplied the boxes. c. title to the playhouses would have passed to Jones Ltd. when Playgoods Ltd. packed the playhouses in the appropriate boxes. d. title to the playhouses did not yet pass to Jones Ltd. because Playgoods Ltd. failed to set the playhouses aside. e. title to the playhouses passed to Jones Ltd. at the time of the contract. Answer: a Diff: 2 Type: MC Topic: Title to Goods Skill: Applied 9) Plastics Ltd. manufactures heavy duty plastic cogs and wheels for elevators and just received an order from Elevators Inc. for 10 cogs and 10 wheels, all heavy duty and tested for specified strength before shipment. Plastics Ltd. has already manufactured the cogs and wheels, but before it has a chance to test them, it receives an order from another company for cogs and wheels and decides to fill that order instead. In this case, a. title in the cogs and wheels passed to Elevators Inc. at the time of the contract. b. title in the cogs would pass as soon as the cogs and wheels were set aside for Elevators Inc. c. title in the cogs and wheels passed to Elevators Inc. at the time they were manufactured by Plastics Ltd. d. title in the cogs and wheels would not pass to Elevators Inc. until the cogs and wheels were set aside for Elevators Inc. and tested. e. title in the cogs and wheels passed to Elevators Inc. when Plastics Ltd. sold the cogs and wheels to the other company. Answer: d Diff: 3 Type: MC Topic: Title to Goods Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 10) Plastics Ltd., which manufactures plastic bottles, has a contract with Carbonation Inc. under which it ships boxes of bottles to Carbonation Inc. at specified times and in specific quantities. The contract goes on to state that Carbonation Inc. can return any boxes of bottles that are not sold. Pursuant to the contract, Plastics Ltd. ships the specified number of boxes of bottles to Carbonation Ltd.'s warehouse. Two weeks later there is a fire in the warehouse and the boxes of bottles are destroyed. In this case, a. title to the boxes of bottles passed to Carbonation Inc. at the time of the contract. b. title to the boxes of bottles passed to Carbonation Inc. at the time they were delivered to Carbonation Inc.'s warehouse. c. title to the boxes of bottles passed to Carbonation Inc. at the time they were destroyed by fire. d. title in the boxes of bottles did not pass to Carbonation Inc. because the boxes of bottles had not yet been set aside by Carbonation Inc. e. title to the boxes of bottles did not pass to Carbonation Inc. because Carbonation Inc. did not give notice of its acceptance and no fixed time for return was specified. Answer: e Diff: 3 Type: MC Topic: Title to Goods Skill: Applied 11) Jack buys a second-hand car from Charles, who is not a retail seller. The province in which the sale takes place does not require that the car be certified. After two months, Jack finds that the car requires substantial repairs. In this case, a. there is a breach of the implied condition of fitness for purpose. b. there is a breach of the implied condition of merchantable quality. c. there is a fundamental breach of contract. d. there is a breach of the implied warranties under the Sale of Goods Act. e. the maxim caveat emptor applies. Answer: e Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Applied Copyright © 2016 Pearson Canada Inc.

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12) The definition of chattels includes all of the below EXCEPT a. animals. b. buildings. c. pieces of land. d. goods that derive their value intrinsically. e. furniture. Answer: c Diff: 1 Type: MC Topic: The Sale of Goods Act Skill: Recall 13) Caveat emptor, which means "let the buyer beware," functions to limit the liability of sellers. However, it is not a rigid rule. An situation in which a seller would NOT be able to use this defence would be if a. the goods are in existence and are specific items that may be inspected by the buyer. b. the buyer had every opportunity to inspect the goods. c. the seller appeared to be knowledgeable about the product. d. the seller made no misrepresentation concerning the goods. e. the seller has made misrepresentations about the goods. Answer: e Diff: 1 Type: MC Topic: Terms in a Contract of Sale Skill: Recall/Applied 14) Caveat emptor is a worthwhile argument for the seller when a. it is under the scope of Sales of Goods Act. b. the goods are not specific. c. the goods are not in existence. d. the seller has made some misrepresentation. e. the seller does not have title.

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Answer: a Diff: 1 Type: MC Topic: Terms in a Contract of Sale Skill: Recall 15) When a buyer relies on a catalogue and a sample in placing an order, the Sale of Goods Act implies a. warranty of suitability. b. condition of fitness. c. condition of merchantability. d. condition that the goods will correspond with the description. e. warranty of fitness. Answer: d Diff: 1 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 16) Under the Sale of Goods Act, the seller of stolen goods can be sued by their recipient (the buyer) for breach of a. an express condition. b. a duty. c. a warranty. d. a guarantee. e. an implied condition. Answer: e Diff: 1 Type: MC Topic: Terms in a Contract of Sale Skill: Recall/Applied 17) When goods are sold by sample as well as description, which of the following statements is correct?

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a. If the goods all correspond with the description, the bulk need not correspond with the sample. b. The description must be in expressed terms, otherwise we go by the sample. c. The goods must be of merchantable quality. d. The bulk of the goods must correspond with the sample only. e. The goods must correspond to the description and the bulk must correspond with the sample. Answer: e Diff: 1 Type: MC Page Reference: 318 Topic: Terms in a Contract of Sale Skill: Recall/Applied 18) Colin had been having trouble with wild animals. He asked the sales associate at Hardware Sales what kind of motion detection light would be best to install in his pump house. According to the Sale of Goods Act, Colin should expect a light that a. would not be restricted by the usual exemption clauses. b. will need careful installation for the product to be warranteed. c. meets his description. d. requires skill and labour for installation, therefore is not protected by the Act. e. is reasonably fit for the purpose. Answer: e Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Recall/Applied 19) Amos has purchased a discontinued radio clock from the local discount electronics outlet. Upon arriving home, he notices that the timer is not functional. He wonders if he could legally demand his money back and consults you. You tell him that a. sellers are strictly liable for what they sell, so simply bring it back for a refund. b. there is an implied condition that the goods will be of "merchantable quality." c. since the item was discontinued, all sales are final, and the store does not need to return his money. Copyright © 2016 Pearson Canada Inc.

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d. title has not passed until the seller has "put item into a deliverable state." e. he should first consult the bill of sale for any exemption clauses. Answer: b Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 20) The Sale of Goods Act deals with the sale of goods by sample and/or description. Which of the following statements is correct? a. If goods are sold by sample, there is an implied term of suitability. b. It is an implied condition that goods by description alone be of merchantable quality. c. If goods are sold by sample and description, it is a breach of implied warranty if the goods do not correspond with both the sample and the description. d. If goods are sold by sample only, there is an implied condition that the buyer must have a reasonable opportunity of comparing the bulk to the sample. e. It is an implied warranty that the goods sold by sample alone be of merchantable quality. Answer: d Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Recall/Applied 21) "The sole warranty between the seller and buyer is the warranty set out in this contract." This written statement is an example of a. a statement of suitability. b. a condition of fitness. c. a bill of lading. d. a condition of merchantability. e. an exemption or disclaimer clause. Answer: e Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Terms in a Contract of Sale Skill: Applied

22) International Shippers Corp. wants your advice on the legal implications of international trade. Business has been developing in parts of the Middle East where it's sometimes hard to collect from customers. You advise International Shippers that they should a. ensure all of their shipments are covered by an order bill of lading. b. first clear each contract through the relevant government department. c. ensure all of their shipments are COD. d. retain a lien on the goods. e. ensure all of their shipments are covered by a straight bill of lading. Answer: a Diff: 2 Type: MC Topic: Terms in a Contract of Sale Skill: Applied

23) Which of the following is a remedy of the seller under the Sale of Goods Act? a. resale b. chattel title c. order bill of lading d. wrongful withholding or disposition e. caveat emptor Answer: a Diff: 2 Type: MC Topic: Remedies of the Seller Skill: Applied 24) A sanction intended to compel acceptance upon delivery of goods is called a Copyright © 2016 Pearson Canada Inc.

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a. injunction. b. guarantee. c. deposit. d. partial payment. e. lien. Answer: c Diff: 2 Type: MC Topic: Remedies of the Seller Skill: Applied 25) While in the shopping mall, Mabel special ordered a $29.95 DVD from VistaVideo. She was asked to place a $10 deposit on the order because it was "store policy." A little while later, before leaving the mall, Mabel changed her mind about ordering the video because she needed the $10 for something else. VistaVideo refused to return the money. Is Mabel entitled to get the $10 back? a. No, she is not, since the $10 was a deposit. b. Yes, she is, because it is liquidated damages. c. Yes, she is, since as of yet no costs were accrued in ordering the DVD. d. Yes, she is, because the $10 was intended to be part payment. e. No, she is not, because the $10 was not a genuine estimate of the probable loss resulting from a breach. Answer: a Diff: 2 Type: MC Topic: Remedies of the Seller Skill: Applied 26) If in respect of a contract for the sale of goods there is a breach of warranty, the remedy available pursuant to the Sale of Goods Act is a. damages but not repudiation of the contract. b. damages and repudiation of the contract. c. rescission of the contract. d. repudiation of the contract but not damages. e. damages or repudiation of contract. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 1 Type: MC Topic: Remedies of the Seller Skill: Recall/Applied 27) The Carlsons were preparing for a four-day family reunion in their home starting on June 19. On June 15 they ordered a large new dining room table from Levitts Furniture to accommodate the expected relatives. Levitts promised delivery out of their local warehouse three different mornings during the week, but each time they gave feeble reasons why they couldn't do it. On the afternoon of June 18, the Carlsons phoned Levitts, cancelled their order, and demanded their money back. What is the Carlsons' legal remedy? a. damages for breach of warranty b. tort damages for wrongful disposition of goods c. remedies under consumer protection legislation d. rescission for breach of condition e. specific performance because of the uniqueness of the situation Answer: d Diff: 2 Type: MC Topic: Remedies of the Buyer Skill: Applied 28) Which of the following is NOT a remedy of the buyer? a. action for the price b. sue for breach of contract c. sue for damages in tort d. rescission of contract e. specific performance Answer: a Diff: 1 Type: MC Topic: Remedies of the Buyer Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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29) Henry stops at a yard sale to look for old musical equipment. He sees an amplifier that is exactly what he has been looking for. Henry believes it is worth a lot more money than the $50 the owner is requesting. Henry asks the owner whether or not the amplifier is in good working condition. The owner tells him that he knows nothing about the amplifier and is not prepared to comment further. Henry purchases the amplifier for $50. Later he finds out that it is stolen from a nearby music store and did not belong to the seller at the time he purchased it. Henry’s action for recovery of his money against the seller will a. succeed because the owner breached an implied term as to title. b. succeed because the music store will likely pay him a reward. c. fail because of the principle of caveat emptor. d. fail because the owner made no representations about the amplifier. e. none of the above Answer: a Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 30) Billy goes to a yard sale and looks for old car stereos. He finds a system that he has been looking for. Billy believes it is worth a lot more money than the $25 the owner is asking for. Billy asks the owner whether or not the system is in good working condition. The owner tells him that he knows nothing about the quality of the tuner and speakers and is not prepared to comment further. Billy purchases the system for $25. Later he finds out that the system is stolen and did not belong to the owner at the time he purchased it. Billy’s action for recovery of his money against the owner will a. fail because of the caveat emptor principle. b. fail because the owner would not comment on the quality of the system. c. succeed because the actual owner told Billy he would pay him a reward. d. succeed because the owner breached an implied term as to title. e. fail because Billy only learned of the problem after both parties performed their obligations under the agreement of purchase and sale. Answer: d Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 31) Ted goes to his neighborhood hardware store and asks for a six foot by two foot piece of plywood. He also requests that it be “sturdy”. Ted purchases the plywood and proceeds to use it as a makeshift bridge for his dog, a 75 pound black lab, to cross over a small ditch in the backyard. The first time his lab attempts to cross the bridge it breaks and the dog falls into the ditch fracturing a bone. Ted’s suit against the hardware store for the vet bills will a. succeed for breach of implied term of fitness because Ted specifically asked for the plywood to be “sturdy”. b. fail because Ted did not expressly state the particular purpose for which he intended to use the plywood and therefore the hardware store did not breach any implied term of fitness. c. succeed because the hardware store meets the implied term of merchantable quality by selling the plywood to Ted in these circumstances. d. fail because there was no breach of the implied term as to description. e. none of the above Answer: b Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 32) George goes to his neighbourhood hardware store and asks for a four-foot by eightfoot piece of plywood. He also requests that it be “thick and strong.” George purchases the plywood and proceeds to use it as a makeshift bridge on his driveway over a small ditch. The first time he attempts to drive his tractor over the makeshift bridge, the plywood collapses, causing damage to the tractor. George’s suit against the hardware store will a. succeed for breach of implied term of fitness because George specifically asked for the plywood to be “thick and strong.” b. succeed because George has likely incurred consequential losses as well.

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c. fail because George did not expressly state the particular purpose for which he intended to use the plywood and therefore the hardware store did not breach any implied term of fitness. d. fail because there was no breach of the implied term as to description. e. succeed because the hardware store breached the implied term of merchantable quality by selling the plywood to George in these circumstances. Answer: c Diff: 3 Type: MC Topic: Terms in a Contract of Sale Skill: Applied 33) Legislation governing consumer contracts does not ban the use of standard form contracts. Rather, it controls the use of standard form contracts employing various techniques including all of the following except a) controls the use of pressure sales tactics. b) requires notice and disclosure of onerous terms. c) gives the consumer a statutory right to claim triple damages, i.e. three times the actual loss. d) provides the consumer with a chance to “back out” once they have had time to consider onerous terms. e) inserts terms into the contract. Answer: c Diff: 3 Type: MC Topic: Consumer Contracts Skill: Applied 34) In relation to consumer contracts and the protections provided by legislation, a consumer is defined as an individual (not an organization) purchasing a product or service for the following use a) personal. b) family. c) household.

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d) non-business. e) all of the above Answer: e Diff: 3 Type: MC Topic: Consumer Contracts Skill: Applied 35) John returned home from work and checked his mailbox to see if anything had been delivered that day. To his surprise, he received a package of magazines from a magazine distributor. John proceeded to open the package and over the course of the next several days, read through the magazines. He then gave them to his dentist for use by patients at the dental office. Approximately thirty days later John received a demand letter from the magazine distributor requesting payment of the magazines which John had not requested. In a subsequent Small Claims action brought by the magazine distributor for payment, the following would likely be the outcome a) the magazine distributor would succeed because John used the magazines. b) as a recipient of unsolicited goods John can use them without becoming liable for their price. c) John only became liable when he removed the magazines from his residence and took them to the dentist’s office. d) John would not be liable because he did not sign a contract. e) John would be liable because he did not immediately package up the magazines and return them to the magazine distributor before reading them. Answer: b Diff: 3 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 36) Janice purchased a new home and entered into a rental contract for a sprinkler system. There were no services provided by the lawn care company, only the sprinkler system itself which was installed by Janice. One of the sprinkler heads did not function properly and ran continuously after hours. Janice’s basement flooded and she sued the company for damages. The contract contained an exemption clause restricting the lawn Copyright © 2016 Pearson Canada Inc.

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care company’s liability for water damage to $100. Additionally the contract did not include any express term with respect to fitness for purpose. In these circumstances, given that services were not provided by the seller in relation to a consumer contract, Janice would likely a) fail at trial because exemption clauses are permitted by sale of goods legislation. b) succeed at trial because sellers cannot escape liability in relation to consumer contracts by requiring buyers to sign exemption clauses. c) fail because the contract was not breached by the seller. d) fail because the damages sustained by Janice were too remote and did not flow from the loss. e) succeed because Janice installed the sprinkler system on her own and likely was not given proper instructions from seller. Answer: b Diff: 3 Type: MC Topic: Terms Added to Consumer Contracts Skill: Applied 37) Standard form contracts employed by sellers are carefully regulated by legislation when it comes to the sale of goods or services to consumers. Some businesses attempt to prevent consumers by applying to the court to enforce their rights through class actions. This is done by inserting a term requiring that disputes be resolved by way of arbitration. In essence, the consumer is precluded from participating in any class action. Three provinces, Ontario, Alberta and Quebec, have legislated away this benefit to sellers by a) allowing arbitrators to hear class proceedings. b) by legislating that arbitration clauses in consumer contracts are void and unenforceable. c) by increasing the damages that can be awarded against sellers at arbitration. d) by requiring sellers to bring these onerous terms to the attention of the consumer prior to signing the contract. e) by forcing sellers to incorporate federally. Answer: b Diff: 3 Type: MC

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Topic: Specific Types of Terms Skill: Applied 38) Samuel incorporated a company federally in order to sell fire prevention equipment to consumers across Canada. His lawyers have told him that he can use the same standard form contract across the entire country. However, because each of the provinces have different legislation with respect to consumer contracts, some terms may be valid and enforceable in some provinces and yet void and unenforceable in others. In order to employ the use of a single standard form contract while at the same time protecting his interests, Samuel should a) include a term in the contract that states that any term deemed to be illegal, void or unenforceable may be severed or cut out of the contract leaving the balance of the contract to be in force. b) draft separate standard form contracts for each province taking into account the different legislation in force. c) employ the use of oral contracts with consumers which are at common law equally as enforceable as written contracts. d) forget the idea of selling his product to all Canadians and focus on one particular province. e) ensure that the standard form contract has an airtight exemption clause. Answer: a Diff: 3 Type: MC Topic: Specific Types of Terms Skill: Applied 39) Philip lives in a small apartment in Toronto along with his elderly mother. He has a phone in his name. Although she is ill and requires regular care from Philip, he is routinely distracted by telemarketing communications from one particular business attempting to sell him travel packages. Philip asked them not to call back but the telephone communications continued. He decided to look into the matter and found that a recently established “National Do Not Call List” had been established by the Canadian Radio-television and Telecommunications Commission. Philip proceeded to register his number. As a result, telemarketers must not call to solicit. Which of the following is not an exception permitting telemarketers to call Philip’s number? a) The telemarketer is a registered charity. b) The call is made on behalf of a political party. Copyright © 2016 Pearson Canada Inc.

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c) The call is made by a business with whom Philip has an existing relationship. d) The telemarketer directs the telephone inquiries to Philip’s mother. e) The telemarketer calls more than three years after the initial registration. Answer: d Diff: 3 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 40) Nasty Travel is a company that sells vacation time share packages. To do this, first it contacts potential customers, telling them that if they come to one of its meetings, they will receive a prize. Once a person comes to the meeting, Nasty's representatives use very high pressure tactics to virtually force this person to buy a time share package and sign the documents. They then give this person a very inexpensive gift. In fact, this happened to John just two days ago. Under present-day consumer legislation, a. if John decides to go ahead with the purchase, he is bound to do so. b. if Nasty does not give John back his money, John can sue Nasty for its return. c. John has a cooling-off period to decide if he wants to go ahead with the purchase. d. if during the cooling-off period, John decides to terminate the contract, Nasty must give his money back to him. e. all of the above Answer: c Diff: 2 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 41) George Shifty is not a very nice guy. In fact, George has just incorporated a telemarketing company solely to make money off of the unsuspecting people his company contacts. For the next six months, the company's telemarketers will be selling funeral caskets and marketing to people over the age of 70. Once a person is contacted, the telemarketer tells him or her that before a casket can be sold, the person must send in an administrative deposit equal to one-fifth of the value of a casket. If they do this, they will receive a casket within eight months. At the end of six months of telemarketing the caskets, the company has received $1 500 000.00 in administrative charges, which George immediately pockets, leaving the company insolvent. Then George gets on a Copyright © 2016 Pearson Canada Inc.

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plane for an extended vacation in a South American country that has no extradition treaty with Canada and loses himself in that country. In this case, a. the company has committed the offence of deceptive telemarketing. b. since the company is insolvent and George cannot be found, there is no practical recourse. c. had George stayed in Canada, he could have been convicted as a director of the company. d. the company can be fined in the millions of dollars. e. all of the above Answer: e Diff: 3 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 42) The War Veterans League sent Martha five sheets of labels with her name and address on them. The enclosure also had a request for a $5.00 payment. If Martha is going to use the self-addressed stickers, is she legally required to send in the payment? a. No, she is not, since legislation prohibits the sending of unsolicited goods. b. No, she is not, since this would be a gratuitous donation anyway. c. Yes, she is, since use gives the consideration for a binding agreement. d. Yes, she is, because there is a moral obligation when benefits are obtained. e. No, she is not, since consumer protection statutes expressly state that use of goods does not amount to an acceptance of a seller's offer. Answer: e Diff: 2 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 43) A cooling-off period in door-to-door selling a. is for a period of 48 hours. b. applies to goods but not services. c. has the same provisions throughout Canada. Copyright © 2016 Pearson Canada Inc.

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d. departs from an established common law rule. e. only applies to sales over $100. Answer: d Diff: 2 Type: MC Topic: Business Sales Tactics Targeting Consumers Skill: Applied 44) The Sale of Goods Act applies to provision of services. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Sale of Goods Act Skill: Applied 45) The implied conditions in the Sale of Goods Act apply to any and all sales of goods. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Terms in a Contract of Sale Skill: Applied 46) A buyer who specifies goods purchased under a trade name can always rely on the implied condition of fitness for purpose in the Sale of Goods Act. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 3 Type: TF Topic: Terms in a Contract of Sale Skill: Applied 47) Under the Sale of Goods Act, defects in goods sold in accordance with a sample that has been provided need not be apparent on reasonable examination. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Terms in a Contract of Sale Skill: Recall/Applied 48) The Sale of Goods Act makes it possible for a seller to exempt itself from the implied conditions by making the exclusions express terms of the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Terms in a Contract of Sale Skill: Recall/Applied 49) Title in goods purchased by an innocent purchaser outside the ordinary course of business from a third party who did not own those goods does not pass to the innocent purchaser. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Terms in a Contract of Sale Skill: Recall/Applied 50) Jack is a sales agent. He takes delivery of motor vehicles and sells them from his dealership. When Jack makes a sale, the property in the goods passes between Jack and the buyer. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Title to Goods Skill: Applied 51) Under the Sale of Goods Act, when a person possesses goods, she or he is also the owner of the goods. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Sale of Goods Act Skill: Recall/Applied 52) Paper Products Ltd. sold paper to Lillian to use in brochures she was producing for a client. Before making the contract, Paper Products Ltd. showed Lillian a sample of the paper it was going to sell her, and Lillian approved of the choice. The paper provided to Lillian matched the sample she had been shown. One month after she bought the paper, Copyright © 2016 Pearson Canada Inc.

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Lillian found that it had yellowed and that it was useless for the brochures. Paper Products Ltd. is not liable to Lillian for breach of an implied term under the Sale of Goods Act because Lillian approved a sample of the paper she bought. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Terms in a Contract of Sale Skill: Applied 53) The Criminal Code of Canada sets a maximum “legal” interest rate, and the federal Interest Act requires that interest rates in written contracts be expressed in annual percentages. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Specific Types of Terms Skill: Recall 54) Risk of loss and title to goods go hand in hand. Explain. Answer: Where the contract is silent as to when the risk of loss passes from the seller to the buyer, one must determine if and when title to the goods passes to the buyer. Diff: 2 Type: ES Topic: Title to Goods Skill: Applied 55) Explain the difference between a deposit and a down payment. Copyright © 2016 Pearson Canada Inc.

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Answer: A deposit is a sum of money paid by the buyer to the seller to be forfeited if the buyer does not perform the buyer's part of the bargain, while a down payment is a sum of money paid by a buyer as an initial part of the purchase price. Generally speaking, the distinction is important, because a deposit is meant to protect a seller at least to that extent in the event of the buyer's non-acceptance, while the effect of a down payment will depend on whether title to the goods has passed at the time of the buyer's repudiation. Diff: 2 Type: ES Topic: Remedies of the Seller Skill: Recall/Applied 56) What is wrongful detention, and what does it entitle a buyer to do? Answer: Wrongful detention is a tort that occurs when a seller refuses to deliver goods to a buyer in which title has passed to the buyer. In such a case the buyer is entitled to damages. Diff: 2 Type: ES Topic: The Seller's Liability Skill: Recall/Applied 57) Amanda sold goods at a flea market. She displayed her goods on a large table and marked the price with a label on each item. Dalton chose a piece of china from Amanda's table and paid her the labelled price of $59. Two days later, he returned and demanded his money back based on the fact that the piece of china was not "Royal Crown" but "Crowne Royale." Does Amanda have to return his money? What principle of law governs in this case? Answer: Amanda made no representations about the item being purchased by Dalton, and the applicable principle would be caveat emptor. It applies in circumstances where the seller has made no misrepresentation. In this case, Dalton cannot obtain the return of the purchase price. Diff: 1 Type: ES Topic: Terms in a Contract of Sale Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 58) What type of a sale of goods is subject to an implied condition that the goods shall be of merchantable quality, and under what circumstances is that implied condition avoided by the seller? Answer: Where goods are bought by description (e.g., from a seller who deals in goods of that description), there is an implied condition that the goods are of merchantable quality. The buyer can lose that protection if she or he has an opportunity to examine the goods (as opposed to simply reading what's on the package or listening to the sales clerk). The protection is only lost in respect to defects in the goods that an examination ought to have revealed. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 59) Is there any difference between unascertained goods and future goods? Explain. Answer: Unascertained goods are goods that have not been selected and appropriated to the contract. They may or may not be future goods. However, future goods are always unascertained goods, since they are not yet in existence. Diff: 2 Type: ES Topic: Title to Goods Skill: Applied 60) Hugo agreed to purchase all the oil contained in a tank for $1 per litre. He paid a deposit of $400 and agreed to participate in measuring the quantity contained by the tank. While Hugo and the owner of the tank were walking towards the tank with the measuring equipment, the tank burst and all the oil was lost. The owner's records indicated there were 962 litres in the tank. Who had title to the spilled oil? Answer: The sale was of specific goods in a deliverable state. Yet, these goods had to be measured to ascertain the price to be paid. Title did not pass until measurement took place (Rule 3),

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and therefore remained with the vendor. This is so notwithstanding the fact that the vendor had an estimate in fairly precise terms of the amount of oil in the tank. Diff: 3 Type: ES Topic: Title to Goods Skill: Applied 61) What is a bill of lading and what is its purpose? Answer: A bill of lading is a shipping document that is usually signed by the carrier to acknowledge that specific goods have been received by it for shipment. It contains the terms of the contract between the shipper and the carrier and in some cases is evidence of title. Diff: 2 Type: ES Topic: Title to Goods Skill: Applied 62) One of the remedies of a seller is to maintain a lien on the goods. When does the right to a lien end? Answer: A seller only has a right to maintain a seller's lien on goods while they remain in her or his possession or when she or he can recover possession of the goods prior to their being delivered to the buyer. Diff: 2 Type: ES Topic: Remedies of the Seller Skill: Applied 63) The vendor's remedy of lien only exists in certain circumstances. List three circumstances in which a contract of sale creates a right of lien for the seller. Answer: The right of a vendor to maintain a vendor's lien exists (1) when payment is required upon delivery of the goods, (2) where goods have been sold on credit and the credit terms Copyright © 2016 Pearson Canada Inc.

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have expired without payment (with vendor still in possession), and (3) where the seller still has possession of the goods when the buyer becomes insolvent. Diff: 2 Type: ES Topic: Remedies of the Seller Skill: Applied

64) Albert sells collectibles. He received a telephone call from Penelope White, who was looking for cranberry glass. Albert advised her that he had several sets of cranberry glass. After describing them to her over the phone, she agreed to purchase them. He shipped them to Penelope and when they arrived she refused to accept them. What remedies, if any, is Albert entitled to? Answer: Albert will be entitled to bring an action for damages for non-acceptance of the goods (assuming the goods did corresponded with Albert's description). The measure of damages would be the loss that directly and naturally flows from the breach. In this case, the damages would include the expenses Albert had been put to, along with his expected profits, or perhaps any difference in the price should he resell these sets at a lower price. Diff: 2 Type: ES Topic: Remedies of the Seller Skill: Applied

65) Herman agreed to sell his entire model railway to Dixie Grant for $1700. Dixie signed an agreement that stated that the goods were available for pickup on September 1st and that she had paid a deposit of $500. Dixie refused to pick up the goods on September 1, and Herman shortly thereafter sold the goods to a third party for $1650. What right does Dixie have to the recovery of her deposit? Answer: The court will only allow a deposit to be treated as liquidated damages if it is satisfied that the parties made a genuine attempt to determine in advance the probable loss if there Copyright © 2016 Pearson Canada Inc.

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was a default by purchaser, or where it would be reasonably understood that the money would be forfeited upon default. In this case, there is no indication of any discussion regarding the deposit, so Herman's remedy may very well be restricted to retaining from the deposit only the actual amount of his losses. Diff: 2 Type: ES Topic: Remedies of the Seller Skill: Applied 66) Describe four common law remedies a buyer may have against a seller of goods. Answer: Four common law remedies of a buyer include: (1) damages for breach of contract, (2) rescission in the event of misrepresentation or breach of condition, (3) an order of specific performance if the vendor refuses to deliver the goods and damages are not an adequate remedy, and (4) damages in tort for product liability or fraudulent misrepresentation. Diff: 2 Type: ES Topic: Remedies of the Buyer Skill: Applied 67) In consumer transactions in Ontario, it may not be possible to contract out of the terms implied by the Sale of Goods Act. Explain what this means and its significance. Answer: While the Sale of Goods Act provides that a seller may use an exclusion or exemption clause to contract out of the terms implied by the Act, the Ontario Consumer Protection Act appears to void any such clauses. This means that potentially, a retailer is put in a very difficult position, because against a consumer, the retailer will always be bound by the provisions of the Sale of Goods Act. However, such clauses will still be effective between the manufacturer or wholesaler from whom the retailer purchased the goods, leaving the retailer without any recourse if there is a problem with those goods. Diff: 3 Type: ES Topic: Terms in a Contract of Sale Skill: Applied

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68) Jack viewed a 1995 Mustang on the lot of Tim's Quality Autos Ltd. (Tim's). Jack approached Tim's and enquired about purchasing a vehicle. On January 5th, Jack signed a purchase agreement with Tim's to purchase the vehicle. a. Tim's was required to fix the lock on the driver's door before delivering the vehicle to Jack. They then did fix the lock and notified Jack the car was ready. However, just prior to Jack's picking up the vehicle, it was mysteriously damaged. Who is responsible to fix the damages as between Tim's and Jack? b. If the agreed-upon purchase price for the vehicle was $9000 and Jack paid a $5000 deposit when the agreement was signed and thereafter discovered that the vehicle was encumbered with a $6000 chattel mortgage, what courses of action are available to Jack, and what is the best one? Answer: (a) Rule 2 applies in this case. Once the lock was fixed and Jack was notified that it had been fixed, title passes to Jack. As between Jack and Tim's (excluding bailment) the damage to the vehicle falls upon Jack. (b) There is an implied warranty that goods will be free of encumbrances that are not specified at the time of the contract. In this instance, Jack's remedy is one of damages for breach of warranty. This amounts to taking the funds owing Tim's (over and above the deposit) and setting them off against the amount owing under the chattel mortgage. Then Tim's would be liable for the $2000 deficiency. Diff: 3 Type: ES Topic: Title to Goods Skill: Applied 69) Don Mills wished to purchase an automobile. He saw a 1994 Mustang advertised for sale in the local newspaper. Don talked to the owner, Mary Smyth, and advised her that he didn't know much about cars but needed a reliable, comfortable car for long-distance travel. Mary confirmed that she found her Mustang comfortable and it was probably what Don needed. Don then examined the car and purchased it from Mary for $5000. They both signed a short contract, which contained a clause stating that the car was sold "as is and with no warranties whatsoever." a. If Don found that the car was uncomfortable and not suitable for long-distance highway travel, what action, if any, could he bring against Mary, and what would be the likely outcome? b. If, the day after Don purchased the car, the transmission failed and the engine seized up, what action could Don take against Mary? What remedies could he claim and what defences would Mary likely raise? c. If Don discovered that the Mustang was encumbered by a chattel mortgage that was not disclosed by Mary, what remedies would be available to Don? Give the legal basis for your answer. Copyright © 2016 Pearson Canada Inc.

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Answer: a. As there is no express warranty contained in the contract, Don must rely upon the implied condition that the goods are reasonably fit for the purpose required. In this case there is no express representation about the comfort or condition of the car. In addition, the selling of cars is not something that Mary normally does; therefore Don would not likely be successful in claiming breach of the implied condition that the goods are reasonably fit pursuant to the provisions of the Sale of Goods Act. b. Don could claim breach of an implied condition regarding quality pursuant to The Sale of Goods Act, and misrepresentation as well. Likely defences by Mary would include caveat emptor, lack of a false statement of fact (by only expressing opinions), and that she was not in the business of selling cars, and there was no implied condition regarding the motor or transmission. Don would likely claim that the condition of the motor and transmission was fundamental to the contract and that therefore rescission was in order. He might be able to avoid the claim of caveat emptor by claiming that the state of the motor and transmission is not easily determined through a reasonable inspection. The exemption clause would not normally apply because of the fundamental nature of the breach. However, if the parties had discussed the possibility of serious motor or transmission problems, and it was understood that the exemption clause was fully meant to cover such possibilities, then Mary would be successful. c. The Sale of Goods Act provides that there is an implied warranty that the car is free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time when the contract is made. Since the encumbrance was not disclosed, a breach of warranty has occurred and Don is entitled to damages equal to the cost of discharging the encumbrance. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 70) Discuss the difference between title to goods, ownership, and possession of goods, using a consignment agreement to illustrate your point. Answer: The ownership and title to goods are basically the same thing. Ownership or title allows a party to maintain or recover possession because he or she has the legal right to the goods. Possession itself, however, is merely current control over the goods and does not mean that one has the right to appropriate for one’s own use or exclude others (like the owner) from controlling the goods. In a consignment situation, possession of the goods passes to the consignee but title remains with the consignor. This illustrates the difference between holding the title and having possession. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Title to Goods Skill: Applied 71) Brent Cook owns and operates a farm supply store selling feed and hardware for the farm. a. Mary Martin wants to buy a type of mink feed that must be ordered from Regina. Brent has a sample, which he shows Mary. What rights does Mary have before she is bound to accept the feed when it arrives at Brent's store, and under what circumstances can she reject the goods? b. Donald Jones enters the store and buys 15 metres of marine rope used primarily by water skiers. The rope breaks while being used by Donald to raise bales of hay from a truck to the hay loft of Donald's barn. The bales fell onto the truck, damaging it and injuring Donald who was sitting in the cab. Donald sues Brent on the basis of breach of implied condition of fitness for the rope. What must Donald establish in order to be successful? What defences does Brent have? What is the likely outcome? Answer: (a) When goods are sold by sample, Mary is entitled to a reasonable opportunity of comparing the bulk with the sample, and she can reject the goods if the bulk does not correspond with the sample. (b) Donald must establish that he is entitled to the benefit of an implied condition that the goods will be reasonably fit for the purpose for which he was using them. Did he rely on the seller's skill or judgment after making known to the seller the particular purpose for which the goods were required? And are the goods of a description that is in the normal course of the seller's business to supply? Brent has many defences. The facts do not indicate that the purpose for which the goods were required were made known to the seller or that the seller's skill or judgment was relied upon. As a result, Donald will not be successful. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 72) Shannon Smith sold her five-year-old Toyota to Doris Night on February 3. On the contract of sale, which both signed, she put the words "as is". Doris had test-driven the car with Shannon present on February 1 and had commented on a rattle in the front end and some noises in the transmission. Shannon replied to those inquiries as follows: "I think the rattle is from a loose heater cable and I know there are no transmission problems." On February 5, Doris telephoned Shannon and advised her that the car was inoperable because the transmission had seized up and Doris wanted to know what Copyright © 2016 Pearson Canada Inc.

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Shannon was going to do about it. That evening in the bar Shannon told her friends the above and they had the following comments and advice: a. Don't pay any attention to Doris, caveat emptor applies. b. Since the car has been delivered the contract is discharged by performance. c. Since you allowed Doris to examine the car and test drive it the transmission failure is solely Doris' problem. d. You shouldn't have said anything about the transmission but because you did you must fix the car or take it back and refund the purchase price. Shannon does not know what to do and asks for your advice. Comment on each of the (a) to (d) above with respect to the legal basis for each comment and its accuracy. Express your opinion of the liability (if any) of Shannon. Answer: Statements (a), (b), and (c) are inaccurate: (a) because the claim of caveat emptor would not apply to a latent defect and would not be available where there is an express representation; (b) because misrepresentation was pre-contractual and unless it was innocent and the right to rescind has been lost, a claim for damages is still available; (c) because an examination does not relieve Shannon of potential liability for latent defects that could not have been reasonably discovered upon an examination. Advice (d) is partially correct in that there has been a misrepresentation. If the defect in the vehicle is fundamental, the disclaimer clause "as is" would not be enforced by the court. If the misrepresentation is fraudulent or negligent, Shannon is subject to either rescission or damages, the remedy being chosen by Doris. If the misrepresentation is innocent, Shannon is only subject to the remedy of rescission, and if Doris loses her right to rescind, she has no other remedy. Shannon is at least liable for damages given the facts of this case. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 73) Janice Stone wanted to go rock climbing and needed some rope. She went to Bill's Hardware Store, told the sales associate that she wanted some rope, and described to him what she was going to use it for. The sales associate recommended a polypropylene rope, and on the basis of this recommendation, Janice bought the rope. Janice used the rope for rock climbing and was injured when the rope broke. She subsequently learned that polypropylene rope is unsuitable for rock climbing because it wears wherever it is bent and is hence subject to breakage. a. Janice sued Bill's Hardware Store. What must she prove to be successful, and what are her chances of success?

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b. If Janice brought in a sample of polypropylene rope and asked specifically for that type of rope, would the result be different than (a) above? Answer: (a) Janice can sue Bill's Hardware Store on the basis that the rope sold to her had an implied condition that it was reasonably fit for the purpose it was purchased for. Janice must prove that she made known to the seller the particular purpose for which the goods were required, that she made known to the vendor that she was relying on his skill or judgment, and she must show that the goods are of a description that is in the course of the seller's business to supply. Her chances of success are excellent because she has met the above-noted requirements. (b) If Janice had brought in a sample of polypropylene rope, she would not have been successful, because she could not have demonstrated that she relied upon the seller's skill or judgment. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 74) John and Jane entered into an agreement for the sale and purchase of an ornate oak table. The purchase price was $450. The contract was silent as to the time for payment. John, the vendor, insisted that the $450 be paid to him before he would deliver the table. Jane insisted that the table be delivered to her before she paid the $450. Who has taken the correct position? Give the legal basis for your answer. Answer: In the absence of an agreement as to payment and delivery in the contract they are concurrent conditions. Since the place of delivery is normally the seller's place of business or where the goods are located at the time of the contract, John would be more correct than Jane. If there was an agreement that the goods should be delivered to Jane, then payment at Jane's residence would be required. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 75) ABC Ltd. enters into a contract on the sale of a filing cabinet, which was located in their Halifax warehouse. If the filing cabinet was destroyed while being transported from Halifax to the purchaser's business premises in Moncton, who would bear the loss if the terms of the contract were: a. FOB Halifax Copyright © 2016 Pearson Canada Inc.

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b. COD c. CIF Moncton Answer: (a) FOB (free on board) Halifax means that the vendor has thereby discharged his or her duty when he or she arranges the proper transport of the goods to their destination. The loss therefore falls to the purchaser. (b) COD means cash on delivery, and the duty of the seller is not discharged until the goods are tendered to the buyer. The loss therefore falls to the vendor. (c) CIF means cost, insurance, freight, and the vendor's duty is completed when he or she arranges for all three. In this case, arrangements for all three having been made, the loss would fall to the insurer or the purchaser and not to the vendor. Diff: 2 Type: ES Topic: Terms in a Contract of Sale Skill: Applied 76) Donald visited the premises owned by Mary's Hay Farm Ltd. and viewed a stack of more than 4000 bales of hay. He agreed to purchase 800 bales for $2.00 per bale. He paid the $1600 and advised that he was going to get his truck and would return in about three hours. When Donald returned three hours later he noticed that there was a smoldering pile of debris where the stack of bales had previously been. The entire stack had been destroyed. Who is entitled to the $1600? Give the legal basis for your answer. What additional fact do you need to know in order to confirm your answer? Answer: Title to unascertained goods does not pass until they are selected and appropriated categorically to the contract. If the 800 bales had been separated out and Donald had been notified (e.g., on his cell phone) by Mary's Hay Farm prior to the destruction, title would have passed to Donald, and so would the risk. If, on the other hand, the stack of bales had been destroyed prior to the 800 bales being separated, the risk still remains with Mary's Hay Farm, and the $1600 paid could be recovered by Donald. Diff: 1 Type: ES Topic: Title to Goods Skill: Applied 77) Philip agrees to sell his 1972 Corvette to Phyllis for $25 000. Phyllis agrees to make a down payment of $12 500 immediately and to pay the remaining $12 500 within 30 days. After making the down payment, Phyllis encounters serious financial difficulties and is unable to come up with the balance of the contract price. She advises Philip that she will Copyright © 2016 Pearson Canada Inc.

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be unable to close the deal and asks for her down payment back. Philip refuses, claiming that the monies previously paid are to be forfeited if she does not perform her remaining obligations under the contract. What are Phyllis’s chances of success in a lawsuit to recover the $12 500? Answer: It is important to distinguish between a deposit and a down payment. A deposit has traditionally been characterized by the courts as a form of liquidated damages intended to protect the seller in the event of the buyer’s non-performance. Deposits traditionally are forfeited upon breach by the buyer. A down payment however constitutes a part payment of the purchase price and is unrelated to the seller’s probable loss in the event of a breach by the buyer. Phyllis’s action for recovery of the down payment would be successful subject to a counterclaim brought by Philip to recover any losses he sustained as a result of Phyllis’s breach. Diff: 3 Type: ES Topic: Remedies of the Seller Skill: Applied 78) Are the disclosure statements that set out the cost of borrowing and that are required to be provided under consumer protection legislation really a protection for many borrowers whose credit is poor or who need to borrow money? Answer: Although the average borrower can shop around for interest rates, the fact is that in situations where the borrower's credit is less than good or where the loan is needed immediately, the borrower has little choice but to accept the offered financing, whether the borrower agrees or disagrees with the disclosure statement, rendering the need for a disclosure statement moot. Diff: 3 Type: ES Topic: Specific Types of Terms Skill: Applied 79) Why is it important that a consumer who has financed a purchase have the same rights against the finance company as against the merchant who sold the goods? What law gives the consumer this assurance? Answer: Copyright © 2016 Pearson Canada Inc.

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Without these rights, the consumer would be liable on the financing contract and there would be no opportunity to refuse to pay for the goods if they proved defective or if the dealer refused to perform its warranties. An amendment to the Bills of Exchange Act makes finance companies subject to consumers' defences against sellers. Diff: 2 Type: ES Topic: Specific Types of Terms Skill: Recall

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1) A and B agree that A will lease a truck owned by B. The truck is valued at $30 000 and the term, which cannot be cancelled, is three years, by which time A will have paid slightly more than $22 500.00 in lease payments. In this situation, the lease is best described as a. a hire-purchase agreement. b. a security lease. c. a financing lease. d. an operating lease. e. a purchase or capital lease. Answer: e Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Applied 2) A leases a harvesting machine from B to be used during the harvesting season in Ontario, which is from the beginning of August to the end of September. In this case, the lease is best described as a. a financing lease. b. an operating lease. c. a purchase or capital lease. d. a hire-purchase agreement. e. none of the above Answer: b Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Applied 3) Use the facts of this situation to answer the related question that follows it. A enters into an agreement with B, an automobile dealer. A does not have the cash to buy the car, so a leasing arrangement is made under which each lease payment is a payment towards the purchase of the car. Ownership of the car remains with B until A makes the last payment, at which time it is transferred to A.

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In the fact situation above, the lease is best described as a. a hire-purchase agreement. b. an operating lease. c. a sale and purchase agreement. d. a security lease. e. none of the above Answer: d Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Recall/Applied 4) Use the fact situation in Q3 to answer the related question that follows. Using the fact situation above, assume that just after B, the dealer, enters into the lease agreement with A, he assigns the lease to a financing company, which gives notice to A to make all payments to the company until the price has been paid in full, at which time the company will transfer the car to A. In this case, the lease is best described as a. a security lease. b. a finance lease. c. an operating lease. d. a hire-purchase agreement. e. an agreement of purchase and sale. Answer: b Diff: 3 Type: MC Topic: Types of Chattel Lease Skill: Applied 5) A and B enter into an agreement for a car whereby A will make lease payments for a certain term, after which A will have the option of buying the car by a final payment of $5000.00. In this case, the lease is best described as a. a hire-purchase agreement. b. an operating lease.

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c. a security lease. d. a finance lease. e. an agreement of purchase and sale. Answer: a Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Recall/Applied 6) A takes his car into B's car repair shop. B does substantial repairs to A's car and presents A with an invoice for $1500.00. A says, "I'll come back later to pay you" and leaves. A couple of months go by and A has not returned to pay for the repairs. B has which of the following options? a. B can sue A for the cost of repairs. b. B has a lien on the car for the amount of repairs. c. B can sell the car to recover the cost of repairs after a certain period of time. d. B can retain possession of the car pending payment. e. all of the above Answer: e Diff: 2 Type: MC Topic: Types of Bailment Skill: Applied 7) In a bailment of common carriage, where the bailor proves that the goods were given to the bailee in good condition but were returned damaged, the bailee will be held liable unless it can show that the damage was caused by a. the default of the bailor, an act of God, or the dangerous condition of the goods. b. an act of God or dangerous condition of the goods only. c. the default of the bailor or dangerous condition of the goods only. d. the default of the bailor or an act of God only. e. none of the above Answer: a Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Types of Bailment Skill: Recall/Applied 8) While A is staying in a hotel, A's room is broken into and her jewellery is stolen. The hotel provided state of the art security and the latest and most secure locks on all guest room doors. If A sues the hotel, at common law, a. A will not succeed because A cannot show negligence on the part of the hotel or its employees. b. A will only succeed by way of a quantum meruit claim. c. A will not succeed because the hotel's duty is only to take reasonable care of the belongings of its guests. d. A will succeed because innkeepers are liable for loss or theft of their guests' belongings. e. all of the above Answer: d Diff: 2 Type: MC Topic: Types of Bailment Skill: Applied 9) A and B are neighbours. B wants to trim his hedges, but his trimmer is broken. Being close neighbours, A and B often borrow things from each other, so B borrows A's trimmer from A's garage. This is an example of a. a bailment of storage. b. a bailment of common carriage. c. a gratuitous bailment. d. a bailment for reward or value. e. none of the above Answer: c Diff: 2 Type: MC Topic: Bailment Skill: Applied

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10) A sends a package valued at $400.00 to B by means of the courier company X Co. In the contract between A and X Co., there is a limitation of liability clause that limits X Co.'s liability for damage or loss caused to the goods by any reason whatsoever, including the negligence of X Co. and/or its employees, to $20.00. When the goods reach B, they are damaged. If A sues X Co. for the full $400.00, a. A will not succeed because the limitation of liability clause is effective to reduce A’s damages to $20.00. b. A will not succeed because A cannot prove that X Co. or its employees were negligent. c. A will succeed because X Co. is a private carrier. d. A will succeed because X Co. has a very high standard of care. e. A will succeed because the court will strike out the limitation of liability clause. Answer: a Diff: 3 Type: MC Topic: Types of Bailment Skill: Applied 11) Hilda rented a hospital bed from Medical Leasing Co. for her bedridden father. In the contract she was referred to as the ________ and Medical Leasing was referred to as the ________. a. lessee; lessor b. leasor; leasee c. bailor; bailee d. lessor; lessee e. owner; renter Answer: a Diff: 1 Type: MC Topic: Leasing Skill: Recall/Applied 12) Identify which of the following statements correctly describes a hire-purchase agreement. a. The contract does not create a bailment and the hirer has no contractual obligation to pay the purchase price.

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b. The contract gives the hirer a lien on the goods preventing the owner from selling the goods to another. c. This is simply another name for a chattel mortgage on an automobile. d. The contract creates a bailment, but the hirer has a contractual obligation to pay the purchase price. e. The contract creates a bailment and the hirer has an option to purchase the item at the end of the stipulated term. Answer: e Diff: 2 Type: MC Topic: Leasing Skill: Applied 13) Marcus rented some scaffolding to aid in replacing the siding of his house. This type of lease would be referred to as a. an operating lease. b. a security lease. c. a capital lease. d. a performing lease. e. a functioning lease. Answer: a Diff: 1 Type: MC Topic: Types of Chattel Lease Skill: Recall/Applied 14) Given its importance, how does the accounting profession determine whether a lease is an operating lease or a purchase capital lease? a. by observing what ledger account the transaction was recorded in b. by determining the intentions of the lessee c. based on whether the item being leased is a capital asset or not d. based on whether title is likely to pass at the end of the lease period e. by asking whether the asset is to be used short-term or long-term Answer: d Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Recall/Applied 15) A reason to sue for breach of a contract of bailment rather than for negligence is that in a contract of bailment, a. the bailee must disprove negligence. b. no limitation clause will protect the bailee against liability for damage to the goods. c. the bailee is strictly liable for any damage to the goods. d. the bailee owes the bailor a higher standard of care. e. all of the above Answer: a Diff: 3 Type: MC Topic: Rights and Duties of a Bailee Skill: Applied 16) Quincy owns a metal fabricating company. He is desperately in need of working capital in order to carry out several large orders. Therefore he sells his heavy stamping equipment to Beneficial Leasing Inc. in a five-year purchase lease plan. This arrangement amounts to a. a sale and leaseback. b. an operating lease. c. the mortgaging of assets. d. the ducktail plan. e. one of the highest costs in asset financing. Answer: a Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Applied 17) The tax advantage in leasing arrangements is most apparent a. for the lessee. Copyright © 2016 Pearson Canada Inc.

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b. for the lessor. c. where payments are being expensed rather than capitalized. d. in the off-balance-sheet financing. e. for the government. Answer: b Diff: 2 Type: MC Topic: Types of Chattel Lease Skill: Recall/Applied 18) In leases, who is most likely to carry the insurance and bear the cost of maintenance and repairs? a. In operating leases, it would be the lessee. b. In a finance lease, this is done by the lessor. c. In a three-year automobile lease, it would be the lessor. d. These are usually the responsibility of the lessor in purchase leases. e. In purchase leases, it would be the lessee. Answer: e Diff: 2 Type: MC Topic: Common Terms in Chattel Leases Skill: Recall/Applied 19) Which of the following would NOT be a defence for a carrier that is sued for damage caused to goods during shipping when there is no contractual limitation of liability? a. reasonable care b. act of God c. inherent vice d. fault of the shipper e. all of the above would be defences to liability Answer: a Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Rights and Duties of a Bailee Skill: Recall/Applied 20) Rex, a licensed contractor, rented a heavy duty brush cutter from YouRentAll Inc. Within the first few minutes of use, the blade came off and extensively damaged the shroud and housing of the machine. It was determined that the bolts that held the blade on were left loose by some previous user. YouRentAll sued Rex for the repair costs, claiming Rex should have checked out the machine before using. Assuming the lease contract did not speak to this type of situation, how would the court rule? a. The plaintiff would win, since there is an implied condition here. b. The defendant would win, since there is an implied warranty of fitness. c. The plaintiff would win, since they are in the business of renting chattels. d. The defendant would win, because lessor needs to take care of all repairs. e. The plaintiff would win, because proper standard of care was not shown. Answer: b Diff: 2 Type: MC Topic: Rights and Duties of a Bailee Skill: Applied 21) Miles acquires a power generator under a two-year lease with the manufacturer. After four months, Miles realizes he no longer needs the generator. He delivers the generator back to the supplier, hoping that his lease payments will stop, but to his dismay, he is informed that he will be expected to pay the remaining twenty payments. Will Miles legally be required to finish all the lease payments? a. Yes, he will, because this is an operations lease. b. No, he won’t, because the lessor has the chattel in his possession. c. No, he won’t, since he is no longer receiving benefits under the lease. d. Yes, he will, since the contract made no provision for early termination. e. No, he won’t, since he no longer requires the use of the generator. Answer: d Diff: 2 Type: MC Topic: Rights of the Parties Skill: Recall/Applied

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22) Bailment a. requires transfer of possession of personal property. b. arises only from a contract between bailor and bailee. c. is a consignment with transfer of title. d. alters ownership of a specific item. e. cannot include a chattel. Answer: a Diff: 1 Type: MC Topic: Bailment Skill: Recall 23) Which of the following is true regarding bailments? a. A change of ownership does not occur; the bailee is only putting his or her property in the bailor's custody. b. The courts want to keep contracts alive, so they will often rescind a bailment. c. Under a bailment arrangement, there can arise a time when the possessor can sell the goods against the owner's wishes. d. If Sally were suing her dry cleaners for the loss of her coat, Sally must prove that the dry cleaners were negligent. e. John put his house under the care of a neighbour until he returns from vacation. For John to take custody of it again is an example of a bailment. Answer: c Diff: 2 Type: MC Topic: Rights and Duties of a Bailee Skill: Applied 24) Sid asks his neighbour Carl to take care of his lawnmower while Sid is on holidays. While he's gone, Carl uses the lawnmower to mow his brother's lawn across town. In the legal sense, Sid is the ________ and Carl is the ________. a. bailee; bailor b. consignee; user c. lessor; lessee d. owner; renter Copyright © 2016 Pearson Canada Inc.

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e. bailor; bailee Answer: e Diff: 2 Type: MC Topic: Types of Bailment Skill: Recall/Applied 25) Regarding bailments, which of the following is true? a. Articles held under bailment form assets available to creditors in bankruptcy. b. Bailments are not confined to personal property. c. Trusts are bailments because there is a transfer of property. d. Chequing accounts at the bank are a form of bailment. e. Contents in a safety deposit box are a form of bailment. Answer: e Diff: 2 Type: MC Topic: Types of Bailment Skill: Applied 26) A finder, in the legal sense, is a. a keeper, if she or he owns the land the goods are found on. b. not bound to take possession of what he or she finds; but once he or she does, he or she becomes a bailee for the owner. c. obligated, regardless of how valueless the goods are, to find the owner of the goods. d. a keeper, as long as property has no monetary value. e. a gratuitous bailor of the goods found. Answer: b Diff: 2 Type: MC Topic: Bailment Skill: Applied 27) An example of a gratuitous bailment for the benefit of the bailee would be

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a. the lending of a car for the bailee to take a trip. b. giving a friend your camera so he can take pictures for you on his trip. c. a lawnmower left with a friend who had offered to repair it. d. valuables left in a relative's safe. e. a pet left with a neighbour during vacation. Answer: a Diff: 1 Type: MC Topic: Bailment Skill: Applied 28) Temporary custody of a car belonging to a friend who has no garage and is going away on a business trip is an example of a. a bailment service. b. bailment borrowing. c. bailment for value. d. bailment benefiting bailor. e. gratuitous bailment–bailee benefit. Answer: d Diff: 2 Type: MC Topic: Rights and Duties of a Bailee Skill: Recall/Applied 29) Lucy brought her badly stained Persian rug in to be cleaned. The cleaners gave her a receipt in which a clause disclaimed all liability for damage arising from normal handling. When Lucy returned for the rug, it was in an advanced state of deterioration. The cleaners claimed it was exempted from damages by its written disclaimer. The courts would a. exempt the cleaners from liability based on the exemption clause. b. interpret the clause most strongly against the plaintiff. c. side with Lucy's claim for damages. d. explain why the exemption clause would not apply. e. require a reasonable explanation as to why the damage was not the result of negligence. Copyright © 2016 Pearson Canada Inc.

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Answer: e Diff: 1 Type: MC Page Reference: 350 Topic: Rights and Duties of a Bailee Skill: Applied 30) Which of the standards of care listed below describe the standard of care required by a business that hires out equipment? a. care equivalent to what a prudent and diligent person would take in the use of his or her own property b. care equivalent to a gratuitous bailment for the benefit of the bailor c. care equivalent to a gratuitous bailment for the benefit of both parties d. bailment standards set by the Universal Commercial Code e. care equivalent to bailment of a common carrier Answer: a Diff: 1 Type: MC Page Reference: 350 Topic: Rights and Duties of a Bailee Skill: Applied 31) A work associate leaves his bike each day in your garage while both of you commute to work in your car. (This associate pays $5 per day for riding in your car.) One day the bike is stolen out of your locked garage. Are you responsible for the loss of this bike? a. No, you are not, because you met the standard of care required. b. No, you are not, because your work associate automatically assumed this risk. c. No, you are not, since it was gratuitous bailment with a low standard of care. d. Yes, you are, because your home owner's insurance will pay for it. e. Yes, you are, since it was stolen from your property. Answer: a Diff: 1 Type: MC Page Reference: 350 Copyright © 2016 Pearson Canada Inc.

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Topic: Rights and Duties of a Bailee Skill: Applied 32) For $5600, Jackstone Inc. agreed to repackage and ship nine container loads of toys from China. These containers from China were to be received during the next three months. Two containers arrived and were serviced according to the contract. The other seven containers never arrived and neither did any payment. What is Jackstone legally entitled to? a. Since a lien is no longer possible, Jackstone should sue on price. b. He is entitled to the entire $5600 since a fundamental breach has occurred. c. He is entitled to $1200, since that is the proportion serviced. d. He is entitled to quantum meruit on two containers plus loss of profits on the rest of the containers. e. Since this is a service, it warrants specific performance. Answer: d Diff: 1 Type: MC Page Reference: 351 Topic: Rights and Duties of a Bailee Skill: Applied 33) The operating lease tends to be a long-term lease, and the purchase lease tends to be a short-term lease. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Types of Chattel Lease Skill: Recall 34) In both chattel leases and bailment, ownership remains with the property owner who gives possession of the property to another for a period of time on the understanding that it will be returned. Copyright © 2016 Pearson Canada Inc.

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Types of Chattel Lease Skill: Applied 35) A hire-purchase agreement gives only possession of the chattel, not ownership. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Leasing Skill: Applied 36) A gratuitous bailment can only be for the benefit of the bailee, never for the benefit of the bailor. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Types of Bailment Skill: Applied 37) In relation to chattel leases, quiet possession means that the lessor will not interfere with the lessee's possession or use of the chattel so long as the lessee complies with the terms of the lease. Copyright © 2016 Pearson Canada Inc.

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Common Terms in Chattel Leases Skill: Recall/Applied 38) Where a licence is given, unlike with a bailment, the licensee assumes responsibility for safekeeping. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Bailment Skill: Recall/Applied 39) Bailment is the transfer or deposit of personal property such that the party to whom the property is transferred becomes the owner. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Page Reference: 347 Topic: Bailment Skill: Recall

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40) A bailor is better off on the insolvency of its bailee than a creditor is on the insolvency of its debtor. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Rights and Duties of a Bailee Skill: Recall/Applied 41) A bailee (a hotel) is liable for damage to goods of guests only if the damage was caused by the negligence of the hotel's employees. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Types of Bailment Skill: Recall/Applied 42) A gratuitous bailment is one where one party pays a nominal fee or gratuity as consideration for the other keeping personal property. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Bailment Skill: Recall/Applied

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43) A gratuitous bailment is always for the benefit of the bailee. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Types of Bailment Skill: Recall/Applied 44) If goods are damaged while in the possession of a bailee, the bailee is strictly liable. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Types of Bailment Skill: Recall/Applied 45) The notion of an "inherent vice" is a defence. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Types of Bailment Skill: Applied 46) Explain the difference between an operating lease and a purchase lease.

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Answer: An operating lease tends to be short-term, where there is no expectation of transfer of ownership (e.g., the renting of a car for the weekend). A purchase lease is relatively longterm, where the cost is roughly amortized over the useful life of the chattel. Here there is the possibility of ownership transfer. Diff: 2 Type: ES Topic: Types of Chattel Lease Skill: Recall/Applied 47) The majority of chattel leases are merely forms of bailment. Discuss. Answer: Bailment is the transfer of possession of personal property (chattels) to another person for a period of time with the expectation that the property will be returned. Many chattel leases also transfer possession of a chattel to another person for a period of time with the same expectation of return. As a result, it can be said that such chattel leases are nothing more than a form of bailment. Diff: 3 Type: ES Topic: Bailment Skill: Applied 48) The relationship of bailment may occur without any contract between the bailor and the bailee. Explain, giving an example. Answer: Bailments that are without reward or payment do not normally have a contract. Such bailments are voluntary and gratuitous in nature, such as when your friend borrows your car. Diff: 2 Type: ES Topic: Types of Bailment Skill: Applied 49) Explain why the duty of care and hence resulting liability is greater in bailments for reward or payment than in gratuitous bailments. Copyright © 2016 Pearson Canada Inc.

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Answer: Gratuitous bailments are generally voluntary in nature, and there is no exchange of money, while bailments for reward or payment are contractual and money is exchanged. For this reason, the expectations of the bailor are greater in bailments for reward, and so is the resultant duty of care of and liability of the bailee. Diff: 2 Type: ES Topic: Rights and Duties of a Bailee Skill: Applied 50) What are the bailment rights of the lessee? Answer: In the leasing of goods, the lessee is governed by the terms and rights as set forth in the contract, both express and implied. These would include the right to quiet possession and having article fit for the purpose for which it was hired, free from defects, and not subject to wrongful dispossession. Statutes may give additional rights. Diff: 2 Type: ES Topic: Rights of the Parties Skill: Recall/Applied 51) Define Bailment. Answer: Bailment is a transfer or deposit of personal property on the understanding that the party receiving the property will return it at a later time or dispose of it as directed. Ownership does not change. Diff: 1 Type: ES Topic: Bailment Skill: Recall 52) Why is a bailor better off on the insolvency of its bailee than a creditor on the insolvency of its debtor?

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Answer: A bailor is better off because the articles entrusted to the bailee legally belong to the bailor, so they must be returned. An unsecured creditor has no title to the debtor's articles and will only receive a pro rata share of the assets in bankruptcy. Usually the creditor sustains a significant loss in the recovery of his claim, while the bailor has his articles returned and suffers no loss. Diff: 2 Type: ES Topic: Rights and Duties of a Bailee Skill: Recall 53) Provide one example of a gratuitous bailment and one example of a bailment for value. Answer: Any example that demonstrates that no payment is made for the bailment is sufficient for a gratuitous bailment and any example that demonstrates that a payment is involved is sufficient for a bailment for value. Diff: 2 Type: ES Topic: Types of Bailment Skill: Recall/Applied 54) Under the rules of what general area of law is there a duty imposed on all bailees to take care of property bailed to them? Answer: All bailees are under a duty by the rules of the law of torts to take care of the property bailed to them. Diff: 1 Type: ES Topic: Rights and Duties of a Bailee Skill: Recall/Applied 55) What defences are available to a common carrier to avoid liability against a bailor whose goods were damaged when in the possession of the common carrier?

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Answer: The common carrier has the defences of inherent vice in the goods shipped, an act of God or the King's enemies, or that the shipper has been guilty of a breach of duty. Diff: 2 Type: ES Topic: Types of Bailment Skill: Applied 56) When can a warehousing firm that has issued a warehouse receipt for goods avoid liability in not returning the exact goods stored? Answer: It can avoid liability when the goods stored are fungible. That is, they are replaceable with identical goods also in storage. For instance, grain of the same grade and quantity in a grain elevator. Diff: 2 Type: ES Topic: Types of Bailment Skill: Recall 57) Common carriers may limit the amount of their liability when the shipper does not declare the value of goods. Usually these terms must be approved by the Canadian Transportation Agency, which has jurisdiction over the common carrier. Discuss the benefit to both the shipper and the common carrier with this arrangement. Answer: The common carrier bases its freight charges on all of the terms of the contract. The clause limiting liability thus requires the shipper to declare a higher value when necessary and to pay a correspondingly higher rate for the greater liability undertaken by the common carrier. The shipper is then on notice and knows the extent to which it should contract separately for insurance. Diff: 3 Type: ES Topic: Types of Chattel Lease Skill: Applied

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58) Hotelkeepers and common carriers are both insurers of their customers' goods. What is the liability distinction between these two insurers? Answer: Common carriers undertake to indemnify the shipper against loss whether it occurs through the carrier's fault or not. Hotelkeepers are liable as insurers for the disappearance by loss or theft of their guests' goods, but only if they or their employees are to blame. In other words, the responsibility for goods is shared with the guest, since the guest has control over the goods from time to time. Diff: 2 Type: ES Topic: Types of Bailment Skill: Recall/Applied 59) Marie drove her car to a parkade. The attendant took her keys, saying that he would park the vehicle and that he needed the keys because the vehicle might be required to be moved. In the parkade, vehicles were parked in two tiers. To remove a vehicle from the second tier, it was necessary to move the vehicle immediately in front of it in the first tier. Marie paid for the parking and was given a ticket with her vehicle licence number written on it. At the entrance to the parkade, two signs were prominently displayed, one requesting that the conditions on the ticket be read and the other stating that the car with its contents were left at the owner's risk. The conditions on the ticket repeated that the car was parked at the owner's risk and that charges were only for parking space use and that the parkade assumed no responsibility for loss through fire, theft, collision, or otherwise to the car or its contents, whether due to the parkade's negligence or otherwise. During the day Marie's vehicle was temporarily parked on the street immediately in front of the parkade to accommodate the removal of several vehicles. The attendant threw the keys under the front seat and left the car unlocked. The vehicle was stolen and never recovered. Marie said she did not see the signs nor read the conditions on the ticket. Identify the issues raised by these facts. Should Marie succeed in an action against the parkade? Answer: Marie should succeed in the action. The issues are whether a bailment was created and what the is effect of the disclaimers in the signs and ticket. A bailment for value was created, for the storage of the vehicle. A bailee for value is expected to take the same care of the goods as a prudent and diligent person should of goods belonging to those with whom it transacts business—a standard of care that is at least as high and probably higher than it might choose to apply to its own goods. The loss of the vehicle resulted from the parkade's failure to meet the required standard of care. Due to the prominence of the signs, an alert person should have seen them. However, these disclaimers would not be sufficient to relieve the parkade of its vicarious responsibility arising from the negligence of its employee. Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: ES Topic: Rights and Duties of a Bailee Skill: Applied 60) Some texts, like this one, separate most chattel leases from bailment, while others suggest that many forms of chattel lease are included in bailment. Based on the characteristics of both bailment and the majority of chattel leases, discuss whether the distinction between them should be maintained. Answer: The essential elements of bailment are (1) the transfer of possession of personal property (2) for a period of time (3) with the expectation of return. The majority of chattel leases and particularly operating leases have the same essential elements. Even purchase leases, finance leases, and security leases have, until the moment of transfer of ownership, principally the same elements. As a result, it might be more justified to say that any distinction between chattel leasing and bailment should be dispensed with instead of being maintained. Diff: 3 Type: ES Topic: Types of Chattel Lease Skill: Applied 61) Zed went into a café located on the third floor of a department store. The café was in an enclosed room with no provision for storing parcels or coats. Immediately outside the café, however, was a rack with hangers and a shelf overhead. Once inside the café, one could not see the rack or shelf. Zed hung his coat on the rack and placed his hat on top of the rack. When Zed finished his meal and came out of the café, he discovered that his hat and coat were missing. Identify the issues. Should Zed be able to successfully sue the department store for his losses? Answer: The issues are whether or not a bailment has been created, and, if a bailment has been created, whether the department store has met the appropriate standard of care. Zed should be successful in his action. Since the bailment was a necessary incident to the café's operation, a bailment for value was created and the bailment was for the benefit of both parties. Zed availed himself of the accommodation provided, and this constituted delivery of his hat and coat to the department store. A bailee for value is expected to take the same care of the goods as a prudent and diligent person should of goods belonging to those with whom it transacts business—a standard of care that is at least as high and probably higher than it might choose to apply to its own goods. The law presumes Copyright © 2016 Pearson Canada Inc.

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negligence when the goods bailed are missing. The bailee has to prove that the non-return of the goods was for other causes consistent with due care on its part. Diff: 2 Type: ES Topic: Rights and Duties of a Bailee Skill: Applied 62) Yale took a $900 three-piece suit into ABC Drycleaning Inc. When he returned to pick it up, he was advised that it had been stolen, along with the clothing of a number of other customers. The dry cleaning building had metal bars covering the windows, and the clothes of Yale and the other customers were in a locked room. The thief had, with a lot of effort, removed the bars to one of the windows and smashed off the lock to the room containing the clothes. Should Yale be able to succeed in an action against ABC Drycleaning? Give reasons for your opinion. Answer: Yale would probably not succeed. A bailment for value was created, and a bailee for value is expected to take the same care of the goods as a prudent and diligent person should of goods belonging to those with whom it transacts business—a standard of care that is at least as high and probably higher than it might choose to apply to its own goods. ABC Drycleaning has satisfied this standard of care. The outside windows were barred, and the clothes were in a locked room. So the loss of the clothing was not due to the negligence of ABC Drycleaning Inc. Diff: 2 Type: ES Topic: Rights and Duties of a Bailee Skill: Applied 63) Lila gives her watch to Josh for repair. Josh has Lila sign a work order that says that Josh's maximum liability in case the watch is lost or damaged will be $100. Josh is unable to repair the watch himself, and so takes it to Fritz, who specializes in repair of watches of this type. Unfortunately Fritz drops the watch down a heating duct, and it cannot be found. The value of the watch was $2000. Fritz has offered to pay Lila $100, but she claims he is responsible for the value of the watch. Is she correct? Answer: A relationship of bailment exists between bailor and sub-bailee, even though there is no contract between them. It is a bailment for value, and the sub-bailee should take diligent and prudent care of the goods. The sub-bailee will have to disprove negligence, which will be difficult in a situation where the sub-bailee has dropped a watch down a heating Copyright © 2016 Pearson Canada Inc.

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duct. Will the limitation clause in the contract between Lila and Josh limit Fritz's liability to $100? There is no contract between Lila and Fritz that contains this limitation, so presumably it will not protect Fritz. On the other hand, the book cites a case where the sub-bailee was protected by a clause to which it was not a party because the bailor had authorized the sub-bailment, which does not appear to be the case here. Diff: 3 Type: ES Topic: Bailment Skill: Applied 64) Identify which three of the following statements are FALSE. a. A finder generally acquires a good title against everyone except the owner, but this rule has been disqualified by the courts so that it applies only to things found in what the courts have chosen to call non-public places. b. When goods are damaged in the hands of a business acting as a bailee, the burden of proving it was not negligent is placed upon the bailee because it is difficult for the bailor to ascertain exactly how the loss occurred. c. At common law a warehousing firm obtains a lien upon goods. d. An act of God is a natural catastrophe, and it will not include fire unless it has been started by lightning. e. A hotel may refuse to accept the goods of a guest for safe deposit and retain the benefit of reduced liability under the applicable provincial legislation. Answer: Statements (a), (c), and (e) are false. Diff: 2 Type: ES Topic: Rights and Duties of a Bailee Skill: Applied

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1) A's building is insured by B Co. under a standard policy that covers all loss occasioned by fire. A's business is not doing well, and A figures that if his building is destroyed by fire, he can put part of the insurance proceeds into his business to keep it running. One evening, A starts a fire in his building that subsequently destroys it. In this case, a. the insurance company is bound to pay the proceeds of insurance to A. b. the insurance company is not bound to pay the insurance proceeds at all. c. the insurance company is not bound to pay the proceeds of insurance to A, but must pay it to A's family. d. the insurance company is bound to pay the insurance proceeds to A's business. e. none of the above Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 2) A wants to insure his business property and contacts his insurance agent, who has agency contracts with a number of different insurance companies. The agent prepares a binder of insurance and sends it to A. A few days later, A receives the insurance policy. In this case, the contract is made a. when A pays the first premium. b. when the agent prepares the insurance binder. c. when A receives the policy and pays the first premium. d. when A receives the policy of insurance. e. when A receives the insurance binder. Answer: b Diff: 3 Type: MC Topic: Insurance Terminology Skill: Applied 3) A wants to obtain life insurance for himself and contacts his insurance agent, who arranges the policy with an insurance company. A few days later, the insurance policy is issued and then it is delivered to A, but it requires him to pay the first premium, which he does. In this case, the contract is made a. when A pays the first premium. Copyright © 2016 Pearson Canada Inc.

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b. when A pays the first premium after the insurance policy is delivered to him. c. when the insurance agent arranges the policy with the insurance company. d. when A contacts his insurance agent. e. when the insurance company issues the policy. Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 4) A is going on vacation in the middle of December when the temperature will be below zero degrees Celsius. His policy requires that while he is away, A must arrange to have his house looked after by someone. A makes arrangements with his friend B, who agrees to regularly look after the house while A is away, and A gives B a key. While A is away, the furnace, which was installed three weeks ago by the manufacturer, stops working and the house temperature drops below zero. As a result, the pipes in the upstairs washroom freeze and then burst, causing water damage throughout the entire house. An investigation discloses that B, believing that the house would be fine, decided not to check the house as he had promised to do. In this situation, a. A's insurance company will not have to honour the policy and restore the house. b. A's insurance company will only honour the policy and sue the furnace manufacturer to recover the cost of restoring the house. c. A's insurance company will only honour the policy and restore the house. d. A's insurance company will only honour the policy and will sue B to recover the cost of restoring the house. e. A's insurance company will honour the policy and sue both B and the furnace manufacturer to recover the cost of restoring the house. Answer: e Diff: 3 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 5) A, a smoker, applies for life insurance, designating his wife, who is also a smoker, the beneficiary. When A fills out the insurance application, he does not disclose that he is a smoker, and the insurance company agrees to insure him. A few weeks later, A has heart by-pass surgery and is told not to get out of bed. However, A does not listen and decides Copyright © 2016 Pearson Canada Inc.

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to go to the washroom. On his way to the washroom A suffers a stroke and dies. A's wife now wants to collect the insurance proceeds. In this situation, a. A's wife will succeed in collecting the insurance proceeds because she is A's designated beneficiary. b. A's wife will not succeed in collecting the insurance proceeds because A failed to disclose his smoking on the application for insurance. c. A's wife will succeed in collecting the insurance proceeds because the cause of A's death was not related to smoking. d. A's wife will not succeed in collecting the insurance proceeds because there is no privity between her and the insurance company. e. A's wife will not succeed in collecting the insurance proceeds because she is a smoker. Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 6) C guarantees the loan of A to Happy Bank. The guarantee provides that before the bank can sue C, it must give C notice. A defaults on the loan and the bank simply sues A and C. In this case, a. C will be liable because A is party to the proceedings. b. C will be liable on the guarantee. c. C will not be liable because only A as principle debtor is liable. d. C will not be liable because the bank made material changes to the guarantee. e. C will not be liable because the bank breached the terms of the guarantee. Answer: e Diff: 2 Type: MC Topic: Guarantee Skill: Applied 7) John and Henry go to the bank so that Henry can borrow $50 000.00. The bank will only give Henry the money if John guarantees it, and John agrees in writing to do this. A couple of months later and unknown to John, Henry and the bank agree to material changes to Henry's loan, including increasing the interest rate substantially. If Henry defaults on the loan and the bank decides to sue both Henry and John, Copyright © 2016 Pearson Canada Inc.

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a. John's guarantee and Henry's debt are discharged by the changes made to the loan. b. John will be held liable on his guarantee, but Henry will not be because of the material changes to the loan. c. John, as guarantor, will be held liable on his guarantee, and Henry, as principal debtor, will be held liable on the debt. d. John's guarantee is discharged due to the changes made to the loan, and the bank can only sue Henry on the debt. e. none of the above Answer: d Diff: 3 Type: MC Topic: Guarantee Skill: Applied 8) Edward is the principal shareholder in Family Company, which has a loan with Nasty Bank. The company is experiencing financial difficulties that are making it difficult to pay off the loan on time. However, the bank tells the company that if Edward, as principal shareholder, guarantees the loan, it will give the company one more year to pay off the loan. A couple of weeks later and after Edward has given his guarantee to the bank, the branch of the bank that extended the loan has a change of managers. When the new manager sees the poor financial health of the company, he makes a demand for immediate payment on both the company and Edward and puts the company into receivership. In this case, if the bank decides to sue Edward and the company, a. the company will be liable on its loan and Edward will be liable on his guarantee. b. Edward will be liable as principal shareholder. c. Edward will not be liable on his guarantee, because there was a material change in the term of the loan. d. Edward will be liable on his guarantee so long as the bank sues the company first. e. Edward will not be liable on his guarantee, which was discharged by the bank manager's arbitrary actions. Answer: e Diff: 3 Type: MC Topic: Guarantee Skill: Applied

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9) A company loans money from a bank. As part of the security for the loan, the bank takes security over the company's warehouse, the value of which is sufficient to pay off the loan. Henry, a shareholder in the company, also guaranteed the loan, but he did so because he knew that the value of the warehouse was enough to pay it off. The company defaults on the loan and the bank appoints a receiver-manager who is responsible for managing the company. The receiver-manager fails to renew the insurance on the warehouse, and one evening it catches fire and is badly damaged. Assume the company's loan is for $100 000.00 and that the value of the warehouse has been reduced from $120 000.00 to $60 000. If the company now defaults on its loan and the bank sues Henry on his guarantee, a. Henry will have no liability because his guarantee is discharged by the wrongful omission of the receiver-manager. b. Henry will have no defence and will be liable for $100 000.00. c. the bank must first sell the warehouse before it can sue Henry. d. Henry will rely on the bank's devaluation of the warehouse and will be liable for $40 000.00. e. Henry will rely on the bank's devaluation of the warehouse and will be liable for $60 000.00. Answer: d Diff: 3 Type: MC Topic: Guarantee Skill: Applied 10) A wants to buy a building to use as a warehouse. A has seen the building he wants to buy and knows the purchase price is $500 000.00. A calls his agent and tells him he wants immediate insurance on the building. He gives him all the particulars and tells him to insure the building for $500 000.00, which the agent proceeds to do. After a month of negotiations, A finally enters into an agreement of purchase and sale, and two weeks later he becomes the owner of the building. A half a year later, the building is badly damaged by fire. In this case, a. A has no coverage under the policy because it is void, since A had no insurable interest in the building at the time the insurance policy was taken. b. A has no coverage for damage caused by fire because he did not comply with the disclosure requirements of the insurance company. c. A's coverage under the policy began when A became the owner of the building, and the insurance company will pay for the damage to the building. d. A's coverage under the policy began when A entered into the agreement of purchase and sale for the building, and the insurance company will pay for the damage to the building. Copyright © 2016 Pearson Canada Inc.

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e. A's coverage under the policy began when he called his agent, and the insurance company will pay for the damage to the building. Answer: a Diff: 3 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 11) When the parties agree to a change in the terms of an existing insurance contract, they may do so by attaching a separate paper called a. an amendment. b. a supplement. c. an endorsement. d. a recommendation. e. a rider. Answer: c Diff: 1 Type: MC Topic: Insurance Terminology Skill: Recall/Applied 12) Which of the following is NOT one of the four basic aspects of an insurance contract? a. nature of the risk covered b. amount of the premium c. amount of insurance coverage d. duration of the protection e. designation of the beneficiary Answer: e Diff: 2 Type: MC Topic: Insurance Terminology Skill: Recall/Applied

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13) Donna owns a commercial building that has a small retail shop, three offices, and a small warehouse. Each unit is rented out to a different company. She has taken out a standard fire insurance policy for the appraised value of the building. On July 1st, the building and its contents are destroyed by fire. The cause of the fire was never determined. Which of the following is true? a. The policy will pay for the damages to the building and all personal property contained within. b. The policy will pay for the building and any furnishings owned by Donna up to the face value of the policy. c. The policy will pay for damaged inventory in the warehouse. d. The policy will pay for replacement costs of the building. e. The policy will pay for the damaged inventory and lost profits of each tenant. Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 14) Larson had a fire last month in his sportswear shop. Luckily he had "business interruption insurance." This insurance will NOT pay for a. lost profits during the time the shop is closed. b. reduction in the value of inventory. c. overhead expenses while the shop is closed. d. cost of moving to temporary accommodations. e. money expended to reduce business losses. Answer: b Diff: 2 Type: MC Topic: Types of Insurance Skill: Applied 15) Simon purchased for cash a used boat and trailer from Haggard Maritime Inc. at 4:56 p.m. He phoned his insurance agent and asked if he could get insurance immediately so he could bring the boat and trailer home. The agent said, "You are covered as of 12:01 noon today." Simon got into a traffic accident at 6:32 p.m. the same day, whereby the boat and trailer were severely damaged. Will the insurance company pay this claim? Copyright © 2016 Pearson Canada Inc.

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a. No, it won’t, since the agent's actions were illegal and probably against company policy. b. This would depend on who was at fault in the accident. c. No, it won’t, since acceptance had not been received from the company. d. No, it won’t, because the agent would not have been able to bind the company. e. Yes, it will, because the agent would have authority to bind the company. Answer: e Diff: 2 Type: MC Topic: Insurance Terminology Skill: Applied 16) LawnTrim Inc. is in need of working capital. It sold at a discount its account receivables to a factor—without recourse. LawnTrim is using a form of a. credit insurance. b. customer service. c. liability insurance. d. creditor guarantee. e. fidelity insurance. Answer: a Diff: 1 Type: MC Page Reference: 363y Topic: Types of Insurance Skill: Applied 17) In June, Ken developed glaucoma, a condition of the eyes that if untreated results in blindness. By August, Ken was legally blind, yet he continued to drive. He informed neither the Ministry of Transportation nor his insurance company of the changed condition of his eyes. On September 12, he got into a serious automobile accident where he was driving and was at fault. Will the insurance company need to pay this claim? a. Yes, it will, because he had a valid driver’s licence. b. Yes, it will, because the policy had not been changed or cancelled. c. No, it won’t, because "utmost good faith" is required. d. No, it won’t, because his drivers licence would be void. Copyright © 2016 Pearson Canada Inc.

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e. No, it won’t, because the insurer was not notified of the change in risk. Answer: e Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 18) Subrogation in insurance law is the a. insurer's right to retain damaged goods and recover the residual value of them when an insurance payout has been made. b. acquisition by the insurer of the insured's right to sue third parties upon the insurer paying the insured's losses. c. protection afforded an employee under a fidelity bond. d. process of making additions to coverage under an insurance policy through use of riders. e. selling of book debts without recourse to a factor. Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 19) Julie entered an art gallery with a bookbag over her shoulder. She was asked by a security guard to leave the bookbag at the front desk, but she refused to do so. As she looked at a display of pottery, she carelessly swung the bookbag around and knocked over a pottery display case, destroying its contents valued at $4000. Julie then asked the security guard if the gallery had insurance on the pottery, and she was told that it did. Will Julie need to pay the damages? a. No, she won’t, because it was "just one of those things." b. No, she won’t, because she lacks an insurable interest. c. Yes, she will, because she lacked utmost good faith by taking the bookbag in after being told not to. d. Yes, she will, because of subrogation. e. No, she won’t, because the art gallery's insurer will pay the loss. Answer: d Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 20) Property insurance is not assignable without a. consent of the insured. b. novation. c. subrogation. d. acceptance of new policy holder. e. promise of indemnity. Answer: b Diff: 1 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 21) Co-insurance is a technique used by insurance companies to a. prevent policy holders from working the system. b. have a competitive edge over their competitors. c. keep from being ripped off by insurance fraud. d. meet government mandates. e. provide extra service to their customers. Answer: a Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 22) A building owned by X Company is insured for $100 000, but the insurance contract contains an 80 percent co-insurance clause. The building is damaged by fire to the amount of $20 000. The depreciated replacement value of the insured property is $250 000. The insurance company will then pay a. $8000.

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b. $15 000. c. $5000. d. $10 000. e. $20 000. Answer: d Diff: 3 Type: MC Topic: Special Aspects of the Contract of Insurance Skill: Applied 23) Key Bank would not give Tony a business loan without a suitable guarantor. So Tony's father signed as a guarantor. He must make the loan payments when a. the bank requests. b. notified in writing by the creditor. c. notified in writing by the debtor. d. Tony requests. e. Tony defaults. Answer: e Diff: 1 Type: MC Topic: Guarantee Skill: Recall/Applied 24) Nancy missed a payment on her signature loan to Pacific Bank. The bank threatened to bring her to court unless she could pledge some assets or find someone to be a guarantor. Nancy's friend Lynn agreed to sign as guarantor provided Nancy wouldn't tell Lynn's husband. In response to Lynn's promise, what is the necessary consideration for the guarantee? a. the bank's act of forbearance b. that Nancy not tell Lynn's husband c. that Lynn sign the contract under seal d. Nancy's endearment to a friend e. There is no consideration—that's a problem. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Guarantee Skill: Applied 25) In May, farmer Smith sold one of his tractors to farmer Jones for $26 000. Smith received $6000 down and a 7 percent note payable (for $20 000) to be paid on October 15th. In need of cash, farmer Smith brought the note to his bank for discounting. The bank gave cash less 5 percent for the note, whereas farmer Smith endorsed the note in favour of the bank. Farmer Smith performed an act of a. indemnity. b. subrogation. c. discharge. d. novation. e. guarantee. Answer: e Diff: 2 Type: MC Topic: Guarantee Skill: Recall/Applied 26) Uncle Ralph told Jody's parents, "Supply Jody with what she needs to get off to a good start at university and I'll take care of all the bills." Legally, we identify Uncle Ralph as a. Jody's educational guarantor. b. the maker of a promise of indemnity. c. Jody's sponsor. d. the guarantor of all university bills. e. the one to provide a guaranteed education. Answer: b Diff: 2 Type: MC Topic: Guarantee Skill: Applied

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27) While Stella was in Hong Kong, a loan came due that she had guaranteed. The creditor, a kindly old man, extended the due date on the loan for thirty days, interest free. Did this action by the creditor discharge Stella from her obligation? a. Yes, it did, since Stella was not consulted on this change. b. Yes, it did, since her position as a guarantor was clearly prejudiced. c. No, it did not, since the change is obviously to the benefit of the guarantor. d. Yes, it did, because consent by Stella would be required. e. No, it did not, because the risk is not materially altered to her detriment. Answer: e Diff: 2 Type: MC Topic: Guarantee Skill: Applied 28) Which of the following does NOT affect the enforceability of a guarantee? a. the release by the creditor of security placed in support of the loan without the guarantor's approval b. the absence of a note or memorandum signed by the guarantor c. lack of consideration d. the release of other guarantors by the creditor without the knowledge of the remaining guarantors e. the death of the primary debtor Answer: e Diff: 1 Type: MC Topic: Guarantee Skill: Recall 29) James was the guarantor for a loan Edward had at the bank. Edward had also pledged a coin collection as security for the loan. The loan came in default, so James made the remaining payments. Who gets the coin collection? a. The bank does, since it is the bank's loan that was defaulted. b. James does, since the coin collection is his consideration for the guarantee. c. James does, since he has the right of subrogation. d. Edward does, since the loan is now fully paid up. Copyright © 2016 Pearson Canada Inc.

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e. James does, since he has the right of set-off. Answer: c Diff: 2 Type: MC Topic: Guarantee Skill: Applied 30) Which of the following is NOT a defence available to a guarantor when an action is brought by the creditor to have the guarantor held liable for the debt of the principal debtor? a. any defence that the primary debtor had b. misrepresentation on the part of the creditor in selling the goods c. res ipsa loquitur (the facts speak for themselves) d. defences in contract, such as lack of consideration e. set-off between the creditor and debtor Answer: c Diff: 2 Type: MC Topic: Guarantee Skill: Applied 31) A tenant carelessly drops a candle, and the resulting fire destroys the landlord's premises. The landlord's loss is fully covered under the landlord's fire insurance policy, and the insurance company compensates the landlord for the loss. In these circumstances, a. the tenant will have to indemnify the landlord for any increase in the landlord's insurance premiums. b. the tenant will be liable to compensate the insurer. c. the tenant will have no liability. d. the tenant will be liable only if the tenant acted deliberately. e. the landlord can recover fully from the tenant. Answer: b Diff: 2 Type: MC Topic: Special Aspects of the Contract of Insurance

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Skill: Applied 32) The concept of subrogation applies to the liability of a guarantor under a loan guarantee. Under the concept of subrogation, a. the lender must attempt to realize on any security for the loan before claiming from the guarantor. b. the guarantor that compensates a lender takes over the right of the lender to sue the borrower. c. the lender can sue the guarantor if there is default by the borrower under the loan. d. the lender must attempt to collect from the borrower before pursuing the guarantor for payment of the loan. e. none of the above Answer: b Diff: 2 Type: MC Topic: Guarantee Skill: Recall/Applied 33) The act of forbearance of some deed at the request of the guarantor is usually consideration to the guarantor in a contract of guarantee. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Guarantee Skill: Applied 34) A guarantee occurs when a third party agrees to pay off a loan made to another. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 2 Type: TF Topic: Guarantee Skill: Applied 35) Exemption clauses in insurance contracts are strictly interpreted by the courts. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 36) An offer to purchase life insurance is accepted when the agent provides the applicant with an insurance binder. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 37) A comprehensive general insurance policy is one that covers most types of damage or loss to an insured's property as well as providing third party liability. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: TF Topic: Types of Insurance Skill: Recall 38) Subrogation allows an insurance company to recover its loss from the person(s) responsible without having to pay the insurance proceeds to the insured. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Applied 39) An insurance contract is one that is usually said to require utmost good faith on the part of the parties. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Applied 40) Where certain terms are changed in a policy, the document that records the changes is not an endorsement. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Page Reference: 362 Topic: Insurance Terminology Skill: Applied 41) If an insured has been negligent, the insurance policy will generally be void. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Recall 42) The right of subrogation does not apply in all cases, but it is presumed to apply if it is not expressly excluded. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Recall/Applied 43) To be entitled to the proceeds of an insurance policy, a person must have an economic interest in the property that is the subject matter of the insurance policy. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 1 Type: TF Topic: Special Aspects of the Contract of Insurance Skill: Recall 44) Joe obtains a loan from a bank, and his wife, Mary, gives a personal guarantee as security. The guarantee is expressed as being a continuing guarantee. Two months later, Joe also obtains a line of credit from the same bank. This time Mary does not sign a guarantee. Mary is happy because she believes that the bank will not come after her if Joe defaults on the line of credit. Is Mary's belief true or false? a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Guarantee Skill: Applied 45) What is the purpose of insurance, and how does it achieve its purpose? Answer: The purpose of insurance is to purchase protection against a possible loss. It shifts the risk of loss from the person purchasing the protection to an insurance company, who spreads the risk among its policy holders—each having paid in premiums to the company. Diff: 1 Type: ES Topic: Insurance and the Management of Legal Risk Skill: Applied 46) Why is obtaining insurance important for most businesses? Answer:

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It minimizes the liability of a business by having the insurer provide protection for loss or damage instead of requiring the business to pay for the loss or damage itself, which, in many cases, could financially devastate the business. Diff: 1 Type: ES Topic: Insurance and the Management of Legal Risk Skill: Recall/Applied 47) Explain the difference between an insurance agent and an insurance broker. Answer: Generally speaking, an insurance broker conducts an independent business and acts for individuals who wish to obtain insurance, while an insurance agent is either an employee or an agent of an insurance company who arranges contracts of insurance with persons seeking to protect themselves or their property. Diff: 1 Type: ES Topic: Insurance Terminology Skill: Recall/Applied 48) Explain the difference between an indemnity and a guarantee. Answer: In a guarantee, a third party agrees to be responsible for the liability of a principal debtor should that debtor not be able to discharge it. However, in an indemnity, the third party alone agrees to incur liability for the debt. Diff: 1 Type: ES Topic: Guarantee Skill: Applied 49) If a material change in risk occurs after a fire insurance policy has been entered into, what must the insured do in order to maintain his or her coverage? When this occurs, what options does the insurer have? Answer:

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When a material change of risk occurs in a policy of insurance other than life insurance, the insured must notify the insurer promptly and the insurer can either cancel the policy of insurance and refund the unearned premium or increase the premium commensurate with the risk. Diff: 1 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 50) Sam needs a loan for his carpet business. The bank agrees to make him a loan provided that his wife Pam gives the bank a personal guarantee agreeing to be responsible is there is default under the loan agreement. Pam signs a guarantee for the loan. Sam defaults under the loan agreement and the bank sues Pam on the personal guarantee. Pam's defence is that there was no consideration for the guarantee because she had no ownership or financial interest in her husband's business, and she received none of the loan proceeds. Is she correct that she is not bound by the guarantee because there is no consideration? Answer: In order for there to be consideration, it is not necessary that the guarantor receive any economic benefit from the lender. For there to be consideration, the lender must pay a price for the guarantee at the request of the guarantor. The price on the lender's part is giving up the loan to Sam at Pam's request. Diff: 2 Type: ES Topic: Guarantee Skill: Applied 51) Define the term "insurable interest" and state the effect on the insured where he or she does not have an insurable interest. Answer: An insurable interest requires a genuine risk of loss; that is, if damage occurs to the insured property, it results in a loss to the insured. One cannot collect a benefit under an insurance policy unless one sustains a measurable loss. Diff: 2 Type: ES Topic: Special Aspects of the Contract of Insurance Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 52) Kathleen, feeling quite depressed, decides that a few rounds of Russian Roulette would cheer her up. Unfortunately, she loses. Two years earlier, a life insurance policy was issued to her mother, Joan. Will the insurance company pay Joan under this policy? Discuss the legal basis for the insurance company's argument that they are not liable. Answer: Russian Roulette has the attendant risk of loss of life, and the benefactor of anyone who engages in Russian Roulette would not be able to successfully claim that the loss of life was entirely accidental. The insurance company would therefore deny the claim. Diff: 1 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 53) Contracts of insurance contain statutory terms that require, for example, that the insured give prompt notice to the insurer of any loss suffered by the insured. If the insured fails to meet such terms, what effect does it have on the contract of insurance? Answer: If one breaches a statutory or other term of an insurance policy, such failure may give the insurer the ability to deny coverage and therefore avoid liability for payment of the claim. However, some provinces require that innocent third parties be paid regardless of such breaches. Diff: 2 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 54) What constitutes the consideration to the guarantor in a contract of guarantee? Answer: Occasionally there is an economic benefit, but more commonly it is the performing of some act or the forbearance of some deed at the request of the guarantor. Diff: 1 Type: ES Copyright © 2016 Pearson Canada Inc.

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Topic: Guarantee Skill: Applied 55) Why it is important for a contract of guarantee to be in writing and signed by the guarantor? Answer: Since there is usually a lapse of time between the consideration taken and the consideration given, an oral guarantee might be conveniently denied at the very time it becomes needed. Further to that, if an oral guarantee were binding, there would be a real danger of inexperienced people being induced to undertake obligations that they do not really understand. Diff: 2 Type: ES Topic: Guarantee Skill: Applied 56) In the case of Demeter v. Dominion Life Assurance Co., a husband applied to the court as owner and beneficiary of a policy of life insurance for payment of the proceeds as a result of the death of his wife. She died because he murdered her. Why will courts not enforce a contract of insurance in these circumstances? Answer: Where the claim for insurance proceeds arises as a result of a criminal or deliberate wrongful act of an insured, the courts will not enforce a contract of life insurance. First of all, it would be contrary to public policy to allow the insured to profit from his or her own crime. Furthermore, it would be contrary to the purpose of insurance to allow the insured to recover compensation for a loss he or she had deliberately caused. Demeter, as owner and beneficiary under policies issues on the life of his wife, was unable to recover and his action dismissed. Diff: 3 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 57) Bill was a good friend of John and thought that John was gradually getting quite sickly. In fact it looked so serious that Bill thought John might lose his job due to depression and illness. Hoping to benefit from the situation, Bill purchased a life and disability policy on John. This policy would provide monthly payments to Bill if John Copyright © 2016 Pearson Canada Inc.

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was disabled due to illness. As it turned out, John was disabled due to illness, and pursuant to the terms of the policy of insurance, Bill made a claim under the policy. Will the insurance company pay Bill the monthly payments provided for under the policy? Explain your answer and comment on the applicable legal principles. Answer: Bill would need an insurable interest in John. We have no information that Bill was dependant on John or on his income. Therefore, Bill would not suffer any pecuniary loss as a result of John's ill health. So the insurance company would not pay on the claim. The insurance principle is that one is not to profit from insurance, but can only get compensation for losses suffered. A better plan would have been for John to have taken out the policy since he has something to lose (his job) from his prolonged illness. However, under the utmost good faith, he would have had to described his condition at the time he applied for the policy. Diff: 2 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 58) As between a principal debtor and a guarantor, what are the rights of the creditor on the principal debtor's default, and why are they important? Answer: The creditor can choose to sue the principal debtor, or the guarantor, or both. That is, subject to making demands on a guarantor, when there is a default by the principal debtor, the creditor can choose whom it wishes to sue. The creditor has no obligation to sue the principal debtor before it sues the guarantor. This is important because guarantees are usually given and accepted on the basis that the guarantor has sufficient assets to pay off the indebtedness of the principal debtor, whose default could well indicate that the principal debtor no longer has the means or assets with which to pay of its debt. Diff: 3 Type: ES Topic: Guarantee Skill: Recall/Applied 59) Milton, who is 19 years old, purchased a car but found that he was in a position of having to pay extremely high insurance rates. As a way of avoiding those high payments, he had a bill of sale made out to his father and had the car registered in his father's name. His father took out an owner's policy from All Risk Insurance Limited. As was later revealed, Milton's father never paid for the vehicle and Milton remained the true owner Copyright © 2016 Pearson Canada Inc.

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and operator. Then, later, when Milton was involved in an accident, the claim was submitted by the father (since the policy was in his name). Upon discovering the true state of affairs, the insurance company refused to pay for damage caused by the accident. What legal basis would the insurance company have to refuse to pay the claim? Answer: Milton's father will suffer no loss as a result of the accident, as he is only the legal owner of the vehicle and not the beneficial owner. Therefore, since Milton's father has no insurable interest in the car, the insurer can deny liability. In addition, there was misrepresentation on the part of Milton's father or, at the very least, non-disclosure of information that is important to the insurer. Since insurance contracts demand the utmost good faith, the insurer could also deny liability on this basis. Diff: 2 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 60) Leah, while driving her vehicle on a narrow road in the mountains, comes to a bridge that does not appear very stable. After considering her alternatives for a moment, she decides to drive over the bridge. The bridge collapses and her vehicle is destroyed. Is the insurance company liable on her car insurance policy? What legal arguments could they raise if they wish to deny coverage? Answer: The issue here is whether or not the loss is entirely accidental. The argument of the insurance company would be that Leah knew the bridge was unstable and chose to drive on it anyway. If they could prove that Leah knew the bridge would not hold her vehicle, they would be successful; however, in this situation, it is unlikely they could prove it, so they would not be able to deny coverage. Diff: 2 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 61) When Dennis applied for a policy of life insurance, one of the questions on the medical questionnaire asked: "Have you ever been hospitalized?" Dennis answered truthfully that he had been hospitalized in 1993 to have his tonsils out and in 1996 to have his appendix out. The life insurance policy was issued. Sixteen months later Dennis died of a heart attack and the insurance company discovered that he had been hospitalized in 1985 due to a mild heart attack. The beneficiary of the life insurance policy applied for Copyright © 2016 Pearson Canada Inc.

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the death benefit, claiming quite correctly that Dennis had been truthful in the application, but the insurance company refused to pay the death benefit. What legal basis does the insurance company have for refusing to pay? Answer: Insurance contracts are contracts of the utmost good faith, and non-disclosure of information vital to the insurer will allow the insurer to avoid liability under the policy. Here knowledge of a prior hospitalization for a heart attack is vital to the insurer, and its non-disclosure would normally enable the insurer to deny liability. However, in some provinces the Uniform Insurance Act would apply. This Act limits to two years the insurer's right to rescind life insurance contracts on grounds of inaccurate statements or non-disclosure by the insured. Diff: 3 Type: ES Topic: Special Aspects of the Contract of Insurance Skill: Applied 62) Medical malpractice insurance protects doctors from significant judgments in negligence suits. For many years the costs of this insurance in North America has been rising; however, doctors in the United States pay significantly more in premiums than do doctors in Canada. Why is there such a discrepancy between these levels of premiums? Answer: There are two main reasons why, as a general rule, doctors in the United States pay more for medical malpractice insurance premiums than do doctors in Canada. First, the number of medical malpractice lawsuits in Canada has been on the decline since 1996. A reduction in the number of lawsuits leads to a reduction in the legal costs to defend these actions, thereby contributing to lower premiums. Second, in the United States the size of the average settlement in medical malpractice cases has increased. This has forced premiums upwards for American doctors. This has led to the introduction in some states of tort reform, including caps on damage awards and limits on recovery of plaintiffs’ lawyers’ fees. Diff: 3 Type: ES Topic: International Issue - Medical Malpractice Insurance Skill: Recall/Applied

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1) The president of A Co. introduces B to a third party as his vice-president of marketing and sales. In reality, however, A Co.'s president makes it clear to B that he is only the vice-president of marketing and has no authority to make sales. If B now enters into a contract for the sale of A Co.'s goods to the third party, as between A Co. and the third party, a. there is no contract because B does not have express authority over sales. b. there is a contract because B had apparent or ostensible authority to enter into it. c. there is no contract because B can only deal with matters of marketing. d. there is no contract because it was not ratified by A Co. e. none of the above Answer: b Diff: 2 Type: MC Topic: Contracts with Third Parties Skill: Applied 2) A Co. develops land. From time to time, it has used B, an independent contractor, as its agent to help it buy land. In fact, A Co. even lets B keep an office in its head offices, and on occasion C, a third party, has seen B's office when he has had meetings at A Co. If B enters into an agreement of purchase and sale on behalf of A Co. to purchase C's land, a. there will be no agreement because B does not have the necessary authority. b. there will be no agreement because A Co. did not ratify the contract. c. there will be an agreement because B had express authority to enter into it. d. there will be an agreement between A Co. and C because A Co. is estopped from arguing that B did not have the authority to enter into it. e. none of the above Answer: d Diff: 3 Type: MC Topic: Contracts with Third Parties Skill: Applied 3) X Co. owns land all over downtown Toronto. From time to time, X Co. has used John Jones as its agent to sell land that it owns. X Co. hires John and tells him it wants to sell a downtown property located on Front Street. It instructs John to list the property for $1 million, but that it will take $900 000.00. John has a friend, Mary, who is interested in buying the Front Street property, but rather than listing it at $1 million, he simply tells Copyright © 2016 Pearson Canada Inc.

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Mary "For $900 000.00 it's yours," and she agrees. John, having effected the sale, now wants to be paid his commission by X Co. In this situation, a. John has apparent or ostensible authority to sell the land. b. John has breached his fiduciary duty owed to X Co. c. X Co. can refuse to pay John his commission. d. there is an agreement of purchase and sale between X Co. and Mary for the Front Street property. e. all of the above Answer: e Diff: 2 Type: MC Topic: Duties of an Agent to the Principal Skill: Applied 4) Until yesterday, when X Co. fired Henry, Henry was employed as a purchasing representative, and over the time, he worked for X Co., Henry compiled an extensive list of X Co.'s customers. Henry, who is extremely angry over being fired, decides to get back at X Co., so he contacts X Co.'s largest supplier and on behalf of X Co. enters into a contract for the purchase by X Co. of 1 million dollars worth of goods that X Co. really has no need for. In this situation, a. there is a contract between the supplier and X Co. b. not having notified its customers, X Co. is estopped from arguing that there is no contract. c. X Co. had a duty to notify its suppliers that Henry had been fired. d. not having notified its customers, X Co. held out Henry as having the authority to make the contract. e. all of the above Answer: e Diff: 3 Type: MC Topic: Contracts with Third Parties Skill: Applied 5) Edward is the president of Jones and Sons Ltd., Wholesalers (J&S). He recently hired George Cummings as his national marketing and advertising manager. Yesterday, Edward took George to a convention where, after a few drinks, he introduced George to the president of Sears as his national sales manager. The next day, after his hangover had Copyright © 2016 Pearson Canada Inc.

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subsided, Edward called the president of Sears and told him the truth about George. A couple of days later, George entered into a contract with Sears under which J&S sold 2 million dollars worth of furniture to Sears. J&S now refuses to honour the contract. If Sears sues J&S on the contract, a. Sears will lose because the contract is unconscionable. b. Sears will lose, but will have a quantum meruit claim. c. Sears will win because Edward held out George as the national sales manager of J&S. d. Sears will lose because final acceptance of the contract had to come from J&S. e. Sears will lose because its president knew that George was only the national marketing and advertising manager of J&S. Answer: e Diff: 2 Type: MC Topic: Contracts with Third Parties Skill: Applied 6) Happy Burgers is a successful fast food restaurant. Having decided to expand its operation, Happy Burgers decides to approach independent business people with the intention of licensing its operation to them, finding them a location for a Happy Burgers restaurant, setting up the restaurant, and training them in its operation. In return, they will pay Happy Burgers a royalty fee based on a percentage of their gross sales. This arrangement is an example of a. an agreement of purchase and sale. b. a license agreement. c. a franchise agreement. d. an agency agreement. e. a royalties agreement. Answer: c Diff: 2 Type: MC Topic: Franchising Skill: Applied 7) X Co. in Montreal retains Y as its purchasing agent to purchase goods from all over the world. If Y, having purchased goods in England, enters into an agreement with a shipping company to ship the goods to Montreal, Copyright © 2016 Pearson Canada Inc.

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a. Y will be in breach of the agency agreement because entering his agency agreement with X Co. is specific. b. Y will not be in breach of his agency agreement with X Co. because X Co. has ratified the shipping contract. c. Y will not be in breach of his agency agreement with X Co. because he has implied authority to enter into shipping agreements. d. Y will be in breach of the agency agreement with X Co. because he has no authority to enter into shipping agreements. e. none of the above Answer: c Diff: 3 Type: MC Topic: Contracts with Third Parties Skill: Applied 8) Where a person who is really acting as agent for another does not tell this to a third party and enters into a contract with the third party, the third party a. can only sue the agent, whether or not the principal is disclosed. b. must decide whether to sue the agent or the principal. c. can argue a mistake rendering the contract voidable at the third party's option. d. can only sue the undisclosed principal, but not the agent. e. must attempt to limit its losses by rescinding the contract. Answer: b Diff: 3 Type: MC Topic: Contracts with Third Parties Skill: Applied 9) John, while acting as Henry's sales agent, negligently drives his car into the wall of Alice's house. In this situation a. Alice can only sue Henry, because he is John's principal. b. Alice can sue both John, who is primarily negligent, and Henry, who is vicariously liable for John's acts or omissions. c. Alice is estopped from suing Henry, who had no control over John. d. Alice can only sue John, because he was negligent. Copyright © 2016 Pearson Canada Inc.

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e. all of the above Answer: b Diff: 2 Type: MC Topic: The Agent Alone Is Liable on the Contract Skill: Applied 10) Albert is friends with Robert, the president of A. Co. When Albert hears about a lucrative deal with Y Co. that would benefit A Co., he immediately enters into a contract with Y Co., telling Y Co. that he is A Co.'s agent. When Albert tells Robert what he has done, Robert telephones Y. Co. and confirms the contract. In this case, as between A Co. and Y Co., a. there is no contract because Albert is an independent contractor. b. there is a contract because Robert ratified it on behalf of A Co. c. there is no contract because Albert had no authority to enter into it for A Co. d. there is a contract because Y Co. ratified it. e. Y Co. is estopped from arguing that there is no contract. Answer: b Diff: 3 Type: MC Topic: Contracts with Third Parties Skill: Applied 11) In Montreal, Mike represents six different Canadian business firms in the sale and servicing of their products. Mike is a. an independent agent. b. a plural employee. c. a company representative. d. a contingency agent. e. a sales and servicing broker. Answer: a Diff: 2 Type: MC Topic: The Nature of Agency

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Skill: Recall/Applied 12) A entered into an agency agreement with agent B. B entered into a contract under seal with third party C. A was not named in the contract, but B described herself as "agent." Which one of the following statements is best applied to these facts? a. C can sue A and B on the contract. b. B can sue C or be sued by C on the contract. c. A can sue C and B on the contract. d. A and C can sue B on the contract. e. A may sue C or be sued by C on the contract. Answer: e Diff: 2 Type: MC Topic: Creation of an Agency Relationship Skill: Applied 13) Charlie owns a small parcel of land in Toronto. He wants his sister, who lives within a short distance of the land, to sell the parcel for him. In order for his sister to be able to sign all the real estate documents, Charlie needs to authorize a. a lawyer to act as principal during the closing. b. a broker to bring the parties together. c. a sales agent to carry out his instructions. d. power of attorney for his sister. e. a local real estate agent to make out the papers. Answer: d Diff: 1 Type: MC Topic: Creation of an Agency Relationship Skill: Recall/Applied 14) James was an ordinary salesman for Bulldog Electric Ltd., but his business card read "Territory Manager." He had no authority to sell his company's products for a reduced price, yet he told a potential customer, "I'll give you a 10 percent reduction if you place an order today." Legally speaking, will the customer be able to get the reduced price should he sign the contract? a. Yes, he will, because the contract is already in existence. Copyright © 2016 Pearson Canada Inc.

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b. No, he won’t, since there had been no past dealings. c. Yes, he will, because James had apparent authority. d. Yes, he will, since trade practice would establish the terms of sale. e. No, he won’t, because James did not have actual authority. Answer: c Diff: 2 Type: MC Topic: Contracts with Third Parties Skill: Applied 15) Zelda is a Hollywood movie star wanting to buy recreational property. She describes her specifications to Craig and asks him to make an offer to purchase if he finds a suitable property. She asks him not to divulge her identity. Craig finds an ideal property and makes a written offer in his own name to purchase the property for $500 000.00. The vendor signs an acceptance. Zelda suffers a financial setback and refuses to go through with the contract. Whom can the vendor sue? a. Craig only b. Zelda or Craig c. Zelda only d. Zelda and Craig e. neither Zelda nor Craig Answer: a Diff: 2 Type: MC Topic: The Agent Alone Is Liable on the Contract Skill: Applied 16) Jonathan is a used car enthusiast. He enters into an agency agreement with Andrea. She owns a used car lot. The agency agreement limits Jonathan’s authority to purchase used vehicles for under $25,000 and to ship them by flat bed trailer to Andrea’s lot. When passing through Toronto one Saturday morning, Jonathan stops at the auto auction and sees a 1985 Jaguar that he wanted to bid on for Andrea. He was successful and purchased the vehicle for $24,000. However, he had no flat bed trailer and as such decided to drive the vehicle to Andrea’s lot in London. He immediately arranged for automobile insurance on her behalf but without her authority. Near Kitchener he was involved in an automobile accident which resulted in the jaguar being a total write-off. No one was injured. He contacted Andrea and informed her of the situation. She Copyright © 2016 Pearson Canada Inc.

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immediately contacted the insurance company to ratify the insurance contract. In these circumstances a. Given that there was no personal injury, the insurance contract can be ratified. b. So long as the initial call made by agent was prior to the accident, the insurance contract can be ratified. c. Because Jonathan had the apparent authority to enter into the insurance contract, it is binding on Andrea. d. Andrea was unable to ratify the contract because at the time she attempted to do so the accident had already occurred. Answer: d Diff: 3 Type: MC Topic: The Authority of the Agent Skill: Applied 17) Jack previously transferred a piece of waterfront property next to his home to his daughter Alana. One day a real estate agent knocked on his door and asked whether the property was for sale. Jack told the agent that it was for sale “for the right price”. The agent told Jack he had a customer who might be interested in buying it. Jack immediately signed a listing agreement with the agent giving him the authority to sell the property on his behalf. He failed to disclose the fact that he was not the actual owner. Shortly thereafter the agent returned with an offer. Jack countered the offer and the agent returned a short time later to advise that there was a binding deal. Jack subsequently told Alana that he had sold the property on her behalf and made a substantial profit. She told her father that she “did not want to sell” and that she was planning on building a home on the property in the near future. Jack immediately contacted the real estate agent and informed him that he was not the actual owner and that his daughter did not want to sell. In these circumstances, the purchaser’s best remedy is a. an action seeking an order confirming the adoption by Alana of the contract made by Jack. b. an action against Jack for damages for breach of warranty of authority. c. an action against Alana alone for breach of contract. d. an action against Jack alone for “holding out”. e. an action against Jack seeking injunctive relief. Answer: b Diff: 3 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: MC Topic: Rights and Liability of Principal and Agent Skill: Applied 18) If my son takes a luxury cruise without my permission and has the company send me the bill and I pay, I create the impression that I will always pay for this type of conduct. If I fail to inform the company that I will not pay again, this refers to the idea of a. false authorization. b. agent inducement. c. estoppel. d. mutual reliance. e. all of the above Answer: c Diff: 2 Type: MC Topic: Contracts with Third Parties Skill: Applied 19) Joe is appointed to sell a yacht on explicit instructions from the owner. Joe is acting with a. apparent authority. b. unilateral authority. c. promissory reliance. d. actual authority. e. mutual dependence. Answer: d Diff: 1 Type: MC Topic: Contracts with Third Parties Skill: Recall/Applied 20) Ingrid was the purchasing agent for Fashion Boutique Inc. She was authorized to place orders up to $10 000 but would have to get the owner's approval for anything larger. On January 17, she placed an order for $13 672 without getting approval. Will the vendor be able to enforce this contract? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

a. No, he won’t, since this size of order would be expected in the trade. b. Yes, he will, because the customer was clearly informed of the limitation. c. Yes, he will, since it is within actual authority. d. No, he won’t, because they did not check to see if Ingrid had approval. e. Yes, he will, since they had no reason to believe that Ingrid did not have the authority. Answer: e Diff: 2 Type: MC Topic: Contracts with Third Parties Skill: Recall/Applied 21) For "selling-off-price-list," Vera was terminated from her position as sales rep for the Crouger Co. Two months after the termination, Vera is still sending in orders from her former customers. This raises the issue of a. whether Vera was really terminated or not. b. whether notification was given to customers. c. whether the company is estopped from accepting liability. d. whether there is "holding out" by Crouger Co. e. who gets the commissions. Answer: d Diff: 1 Type: MC Topic: Contracts with Third Parties Skill: Recall/Applied 22) An agent will be liable for breach of warranty of authority if a. the agent misrepresents the scope of the agent's authority, and the principal is not bound to the contract with the third party. b. the agent accepts commissions from both principal and third party without full disclosure. c. there is a clause in the contract between principal and third party that makes it clear that the principal is not bound until the principal approves the contract. d. the agent does not make it clear to the third party that the agent is acting in a representative capacity. e. the agent breaches the terms and conditions of the agent's contract with the principal. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 2 Type: MC Topic: The Agent Alone Is Liable on the Contract Skill: Recall 23) David, the owner of BayView Reality Inc., decided to buy one of his own firm's listings for investment purposes. The principal (owner of the property) refused to pay any commissions or reduce the price on this transaction. Can this impasse be legally resolved? a. Yes, it can; all we need is an "arms-length" transaction with third party involvement. b. No, it cannot, since the agent has placed his own interest in conflict with that of the principal, therefore such a contract is illegal and void. c. Yes, it can; they both simply need to negotiate between them a satisfactory deal. d. No, it cannot, because David would lose his realtor's license if he completed this transaction. e. Yes, it can, since the real estate arbitration board would issue a ruling. Answer: c Diff: 2 Type: MC Topic: Duties of the Principal to the Agent Skill: Applied 24) Barney explains to Mrs. Adams that the contract is an option on her land, that he is an agent, and that the principal wants to remain undisclosed at the present time. If Mrs. Adams signs the option agreement, can it be enforced against her even though the principal is not named and the agent fails to sign? a. No, it cannot, because an agent always lacks the authority to bind an undisclosed principal. b. No, it cannot; since this agreement is for interest in land, it must have all the essential terms of a written contract. c. Yes, it can, because the agent clearly identified himself. d. Yes, it can, since only the charged party needs to sign the agreement. e. No, it cannot, since the names of both parties are needed on a written contract. Answer: d Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: MC Topic: Contracts with Third Parties Skill: Applied 25) If an agent is liable for fraudulent misrepresentation in making a contract, the third party may rescind the contract. And if the agent was acting within his apparent authority, the third party may sue the principal as well as the agent for a. conspiracy to defraud. b. warranty of authority. c. breach of contract. d. agency negligence. e. tort of deceit. Answer: e Diff: 1 Type: MC Topic: The Agent Alone Is Liable on the Contract Skill: Recall/Applied 26) Gene Stone told the Harders that he was an agent for the Trouplow Corp. and was raising money for a local expansion program. He then proceeded to sell them fifteen $1000 12 percent bonds. In truth, the Trouplow Corp. had never heard of Gene Stone, but they did have 12 percent bonds available for local residents to buy. To recover the $15 000 paid, the Harders should sue a. both agent and principal on the breach of contract. b. the Trouplow Corp. on the tort of deceit. c. Gene Stone for rescission of contract. d. for criminal prosecution of Gene Stone. e. Gene Stone for breach of warranty of authority. Answer: e Diff: 2 Type: MC Topic: The Agent Alone Is Liable on the Contract Skill: Applied 27) None of the contracts between the six independent manufacturer's agents and the ABC Company speak as to how the contracts can be terminated. All six agents have been Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

doing a splendid job for several years in selling ABC's products. However, last week, ABC's board of directors decided to turn the selling function over to the company's own employees. This is to be completed within the next 30 days. Can the company's agency contracts with the independent agents be legally terminated, and if so, how? a. Yes, they can be terminated by failing to renew the contracts upon expiration. b. Yes, they can be terminated by declaring the company's sales project to be at an end. c. No, they cannot be terminated without a breach and the resulting severance damages. d. Yes, they can be terminated, since a reasonable time has passed for each agency contract. e. Yes, they can be terminated by simply having the principal give notice that it wishes the relationship to come to an end; no other explanation is required. Answer: e Diff: 2 Type: MC Topic: Terminating an Agency Relationship Skill: Applied 28) A franchise agreement most likely gives the franchisee the right to a. locate and design their own business premises. b. demand direct financial assistance from the franchisor. c. use their own accounting, inventory control, and purchasing systems. d. franchisee protection legislation. e. trademarks, trade names, and logos belonging to the franchisor. Answer: e Diff: 1 Type: MC Topic: Franchising Skill: Recall 29) A franchisor, Garden Delicious Inc, has 73 franchised outlets across Canada using the theme "healthy eating." Its Surrey, B.C., franchisee, Tom Cain, has been adding bagels to the regular "authorized" menu. Garden Delicious Inc. has asked Tom on several occasions to stop, but he has refused, saying that the contract does not specifically prohibit adding items to the menu. Legally speaking, will the franchisor be able to stop this practice? a. Yes, he will, since the franchisor has the money and legal clout to force compliance. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

b. Yes, he will, because there is an implied term that the franchisee is to protect the goodwill and trademarks and trade secrets of the franchisor. c. Yes, he will, since this practice will decrease the profits for all franchisees. d. No, he won’t, since Tom is an independent businessperson, he can manage his business as he sees fit—within the law. e. No, he won’t, since this practice will set a healthy precedent among the other franchisees. Answer: b Diff: 2 Type: MC Topic: Franchising Skill: Recall/Applied 30) The major difference between the franchisee–franchisor relationship and the agent– principal relationship is that only a. the franchisee relationship permits a business to expand rapidly. b. principals employ the assistance of others in order to reach out to a wider public. c. franchisors give authorization for entering into contracts. d. agents market the principal's products. e. franchisees contract with members of the public on their own behalf, not as agent for the franchisor. Answer: e Diff: 2 Type: MC Topic: Franchising Skill: Applied 31) Ratification of a contract by a principal serves to terminate the contract with a third party made by the principal's agent. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: TF Topic: Contracts with Third Parties Skill: Recall/Applied 32) Agency by estoppel goes hand in hand with the apparent or ostensible authority of an agent to enter into the contract. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Contracts with Third Parties Skill: Applied 33) Only independent contractors, not employees, can be agents. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Creation of an Agency Relationship Skill: Recall 34) An agency agreement comes to an end when the agent breaches the agreement. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Terminating an Agency Relationship Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Skill: Applied 35) A franchisor guarantees that its franchisee will always succeed. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Franchising Skill: Applied 36) A company that represents, either by words suggestive of that relationship or by acquiescing in similar contracts made for it by that person in the past, that someone is its agent, is permitted to deny any such relationship, upon the provision of notice. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Contracts with Third Parties Skill: Recall 37) A real estate agent tells a purchaser that she has authority to sign a contract for sale of property on behalf of the vendor. The purchaser relies on that representation and signs an acceptance. The vendor refuses to complete the contract because the agent did not have authority to sign the contract on behalf of the vendor. The vendor will be bound to complete the contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: TF Topic: Contracts with Third Parties Skill: Applied 38) A franchisor has a fiduciary duty towards the franchisee. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Franchising Skill: Applied 39) Pursuant to some franchise agreements, a potential source of profit to the franchisor is derived from exclusive supply arrangements. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Contents of a Typical Franchise Agreement Skill: Recall 40) Franchising agreements are typically standard form contracts prepared by the franchisor and presented to the franchisee on a take-it-or-leave-it basis. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Topic: Strategies to Manage the Legal Risks Skill: Recall 41) If conflicts arise with the agent’s own interests or with the interests of those with whom he or she is connected, disclosure to all persons affected is unnecessary. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Strategies to Manage the Legal Risks Skill: Recall 42) Why is the purchase of a franchise not a guarantee of success for the franchisee? Answer: While purchasing a franchise may better the chances of success for the franchisee, the franchisee is an independent businessperson and the success of his or her franchise depends on numerous factors, some of which are outside the control of the franchisor. Diff: 3 Type: ES Topic: Franchising Skill: Applied 43) What does it mean when we say that an agent is the fiduciary of his principal? Answer: This means that there is a fiduciary relationship between the agent and principal that imposes a duty on the agent to act in good faith for the principal. This usually means that the agent must disclose to the principal all information relevant to whatever the agent has been engaged to do, since the failure to act in good faith can and does permit the principal to refuse payment to the agent. Diff: 2 Type: ES Topic: Duties of an Agent to the Principal Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Skill: Recall/Applied 44) How is the scope of an agent's authority to enter into contracts for a principal extended so as to permit the agent to do the job which the principal hired him or her to do? Answer: Although agency contracts usually state specifically what it is that the agent is to do for a principal, often there are things that are incidental to the contract that must also be done by the agent. For example, making arrangements for shipping goods that are purchased through the efforts of the agent. In these cases, there is an implied term of the contract that the agent has the authority to do acts incidental to whatever the agent was contracted to do. Diff: 3 Type: ES Topic: Contracts with Third Parties Skill: Applied 45) How is the agency relationship used in a corporation and a partnership? Answer: Since a corporation is an artificial "person," it has its officers or other authorized employees act as agents on its behalf for entering into contracts. In a partnership each partner is presumed by law to be an agent of the other partners, usually with wide authority to act on behalf of the firm. Diff: 2 Type: ES Topic: Contracts with Third Parties Skill: Applied 46) What documents can an agent who has been granted a power of attorney sign. Answer: Normally a power of attorney is issued under the seal of the principal. This allows the agent to sign documents on behalf of the principal which need to be under seal themselves (such as real estate transactions). Diff: 1

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: ES Topic: Creation of an Agency Relationship Skill: Recall/Applied 47) How may the transaction known as consignment create an agency by estoppel? Answer: A consignment transfers physical possession of the goods from the consignor to the consignee. The transfer of possession gives the consignee the appearance of ownership or at least implies authority to sell the goods as agent for the owner whether this be the case or not. Diff: 3 Type: ES Topic: Contracts with Third Parties Skill: Applied 48) Is it legally permissible for an agent to work for two principals; such as for both the seller and the buyer in a real estate transaction? Answer: The law permits this as long as both parties are fully aware of and have agreed to the arrangement. However, there is a high risk for conflict of interest, where the agent is not acting in good faith for one of the two parties. Diff: 2 Type: ES Topic: Duties of the Principal to the Agent Skill: Recall/Applied 49) Give reasons why a company would expand through franchising rather then through the setting up of its own branches. Answer: The franchise method of expansion is less costly to the company wanting to expand in that the franchisee arranges the necessary capital through his own resources. Also, less direction and control is needed within a franchise organization as compared to having employees manage branch locations. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

Type: ES Topic: Franchising Skill: Applied 50) In relation to each of the following statements, identify the way in which the agency relationship has been established. a. X consigned his automobile to Z with instructions to sell same immediately. Z was a mercantile agent. Z used the vehicle as security for a loan from Y, who knew nothing about X or his instructions to Z. b. Z, a common carrier, transported perishable goods for X. The goods started to spoil, and Z was unable to contact X, who had left the country on an extended vacation. Z sold the goods to Y and received a reasonable price with regard to the condition of the goods. c. X executes a power of attorney in favour of Z, authorizing Z to sell specific land described in the power of attorney. d. X, without the authority of Z, sells certain of Z's furniture at a garage sale. Shortly after the sale, Z learns of it and approves of X's actions. Answer: In statement (a), the agency was created by estoppel. In statement (b), the agency was created by necessity. In statement (c), the agency was created by express agreement. In statement (d), the agency was created by ratification. Diff: 3 Type: ES Topic: Contracts with Third Parties Skill: Applied 51) Why is it important that a company advise all of its customers and suppliers that it has fired an employee? Answer: Often in the course of the employee's employment, the employee will come into contact with many, if not all, of the company's customers and suppliers, from whose point of view the employee has express authority to act on behalf of his or her employer. Failure to notify customers and suppliers that an employee is no longer employed by the company has the result of continuing to hold out to the customers and suppliers that the employee is still employed by the company and has his or her normal authority to act on the company's behalf. The result is that, should the employee, out of spite for being fired, decide to get even with the company, he or she can enter into contracts with customers or suppliers of the company that will bind the company. And although the company may have the right to sue the employee for damages, the fact is that normally the employee Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

will either not have any money or enough money to reimburse the company or be judgment proof, leaving the company with little or no recourse. Diff: 3 Type: ES Topic: Contracts with Third Parties Skill: Applied 52) Does the franchisor have a fiduciary duty towards the franchisee? How about the other way around? Answer: In general, there is no fiduciary duty between them. They are both independent entrepreneurs and should investigate, weigh the risks, and ask all the questions the situation warrants. They are expected to deal fairly and respectfully with each other— with a long-term perspective regarding their relationship. Diff: 2 Type: ES Topic: Franchising Skill: Applied 53) Identify which duty of agent to principal, if any, is being breached in the situations below. a. X, a valued client of the agent, requests the agent to attend a land auction and to bid on a specific piece of land if it is free and clear of encumbrances and restrictions. The agent, although not knowledgeable about auctions or real estate, attends and successfully bids on the property. However, the agent did not understand the legalese contained in a brochure given each of the bidders, which stated that the property the agent obtained would be subject to a restrictive covenant restricting the development and use of the property. b. The agent is instructed to attempt to purchase a specific piece of land and is authorized to offer up to $100 000 for same. The agent purchases the property for $85 000 and collects $95 000 from his principal, and in so doing advises the principal that the acquisition cost was $95 000. c. The principal retains agent X due to the agent's public reputation as an outstanding tax expert and requests that the agent attend a tax inquiry to represent him. X agrees to do this but instead delegates it to a sub-agent, who unsatisfactorily represents the principal. d. The principal instructs the agent not to pay more than $50 000 for a lot. The agent commits its principal to pay $60 000 for the lot.

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Answer: In statement (a), the agent has breached the duty of competence. In statement (b), the agent has breached the duty of good faith. In statement (c), the agent has breached the duty of personal performance. In statement (d), the agent has breached the duty of obedience. Diff: 2 Type: ES Topic: Duties of an Agent to the Principal Skill: Applied 54) Why should an agent representing a principal always make it clear to a third party that the agent is representing a principal, and not acting on the agent's own behalf? Answer: If the agent does not make it clear that the agent is acting in a representative capacity, the agent could be personally bound to a contract entered into with a third party. If the agent appears to be contracting on its own behalf, it can be bound to the contract even though it was really representing a principal. The third party could sue either the agent or the principal if the contract is breached. Diff: 2 Type: ES Topic: The Agent Alone Is Liable on the Contract Skill: Recall/Applied 55) Explain for each of the following statements whether the agent has liability to the third party. a. The agent enters into a contract on behalf of its principal with a third party. Unknown to the agent, its principal had died two months previously. b. The agent acts on behalf of an undisclosed principal. The agent acting on behalf of the principal enters into a contract with the third party. The contract is made in the agent's name, and the circumstances surrounding the contract show that the agent categorically described himself as a principal throughout the negotiations. c. The agent enters into a contract with the third party but represents himself neither as a principal nor an agent. d. The agent enters into a contact with the third party. Prior to entering the contract, the agent advised the third party that he was acting on behalf of a principal that did not wish to disclose its name at the present time. Answer: Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 17: Agency and Franchising

The agent is liable to the third party in statements (a), (b), and (c). (a) There is no agency agreement when the principal is dead; therefore the agent is acting on his own behalf. He should have kept closer communication with the principal. (b) Regardless of undisclosed principal, the agent must clearly and consistently describe her- or himself as agent to third parties. (c) If there is no apparent authority, the agent does not designate him- or herself as an agent, then as to the third party, he or she is fully responsible. (d) In this case, the principal alone will be liable. The third party has freely chosen to deal with an undisclosed principal. Diff: 3 Type: ES Topic: Contracts with Third Parties Skill: Applied 56) Name five occasions in the absence of an employment relationship when an agent's authority may be terminated. Answer: In the absence of evidence of an employment relationship, an agent's authority may be terminated on any of the following occasions: (1) at the end of a time specified in the agency agreement (2) at the completion of the particular project for which the agency was formed (3) upon notice by either the principal or the agent to the other that he or she wishes to end the agency Diff: 2 Type: ES Topic: Terminating an Agency Relationship Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

1) Albert is employed by a large construction company and is in charge of purchasing the company's building supplies. When Albert enters into contracts for the company with its suppliers, Albert is a. both an agent and an employee of the company. b. an independent contractor. c. an employee of the company. d. an agent of the company. e. all of the above Answer: a Diff: 2 Type: MC Topic: Relationship of Employer and Employee Skill: Recall/Applied 2) John works for a large plumbing company on a job-by-job basis. While the company finds John each of his jobs, he has his own tools and uses a company truck with the name of the company on it. John's work is always subject to supervision by the company. In this case, John can be said to be a. an independent contractor. b. both an agent of the company and an independent contractor. c. an employee of the company. d. both an agent and an employee of the company. e. an agent of the company. Answer: c Diff: 3 Type: MC Topic: Relationship of Employer and Employee Skill: Applied 3) Henry is a carpenter by trade who has his own tools and his own truck. Henry works for a construction company, and after each job, he provides the company with an invoice for the work he has performed. In this case, Henry is a. both an agent of the company and an independent contractor. b. an employee of the company. c. an independent contractor. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

d. an agent of the company. e. both an agent and an employee of the company. Answer: c Diff: 2 Type: MC Topic: Relationship of Employer and Employee Skill: Applied 4) Martin is employed by a delivery company and uses one of the company's trucks to make his deliveries. One day after work, Martin borrows the truck, and while he is driving home, he loses control of the truck and collides with Alice's car, causing damage to the car and injuries to Alice. In this case, Alice will a. sue both Martin as the principal tortfeasor and the delivery company, which is vicariously liable. b. sue both Martin as the principal and the delivery company under the principle of vicarious performance. c. sue Martin only because he alone is the tortfeasor. d. sue the delivery company only because it is Martin's employer. e. not be able to sue either the delivery company or Martin because the accident was Alice's fault. Answer: c Diff: 2 Type: MC Topic: The Employer's Liability Skill: Applied 5) John Jones is in the roofing business and enters into a contact with George Hopkins to put a new roof on George's house. John, who is extremely busy, decides to contract out the work to Albert. When Albert arrives, George refuses to let him do the work. In this case, under the contract, a. George can refuse to let Albert do the work. b. Albert is merely John's agent. c. either John or Albert can do the work. d. George must permit Albert to do the work. e. Albert is merely John's employee.

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Answer: a Diff: 3 Type: MC Topic: The Employer's Liability Skill: Applied 6) Gerald, who is 59 years old, has been employed by a large telephone company for 14 years in one of the company's top management positions, although there is no formal written contract of employment between them. The company is not doing well financially and wants to let Gerald go, but does not know what kind of notice to give Gerald. If the company comes to you, its lawyer, for advice, you will tell it that the length of the notice period will depend on a. the availability of similar employment given Gerald's experience and education. b. Gerald's age. c. the fact that Gerald is in a top management position. d. the length of Gerald's employment with the company. e. all of the above Answer: e Diff: 3 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 7) Allen, a research technician, has a contract of employment with a research company under which the term of Allen's employment is three years and Allen agrees to a confidentiality clause respecting anything related to the business of the company. Two years into his contract, Allen decides to make some extra money by selling some of the company's new designs to a competitor for $200 000.00. A month later, the company finds out what Allen has done and fires him. In this case, a. the company has properly dismissed Allen for breach of the confidentiality clause in his employment contract. b. the company has wrongfully dismissed Allen. c. the company has properly dismissed Allen because the three-year period of employment is at an end. d. the company has constructively dismissed Allen. e. the company has properly dismissed Allen for just cause. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 8) Elaine is employed by a large multinational company in a top management position where she oversees a staff of 100 employees. There is no formal written employment contract between Elaine and the company, but she is paid an annual salary of $150 000.00 and given a company car; an expense account; and, at the end of each year, a bonus. One day, Elaine, who is an avid supporter of the Conservative Party, has an argument with the president of the company, who is an avid supporter of the Liberal Party. A couple of weeks later, Elaine receives a memo from the company's head office advising her that she is being transferred to the company's shipping department and that her company car, expense account, and bonus have been terminated. Elaine comes to you, her lawyer, for advice. In this case you, will tell Elaine a. that the company is in breach of its employment contract with Elaine. b. that she has been wrongfully dismissed by the company. c. that the company has the right to do what it has done and that Elaine has not been wrongfully dismissed. d. that Elaine has been constructively dismissed by the company. e. none of the above Answer: d Diff: 2 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 9) In early September, John is employed by a technology company for an indefinite term as its quality control supervisor. John was hired on the basis of his resumé, which stated that he had extensive experience in quality control supervision, which was not true. A month later, although the company had not found out about John's misrepresentation, the company summarily dismissed John, because his actions as quality control supervisor made no sense and had jeopardized the safety of the 10 employees under his control. In this case, a. the company has the right to dismiss John for misrepresentation. b. the company has wrongfully dismissed John. c. the company has the right to dismiss John for just cause. d. the company has the right to dismiss John under the terms of his employment contract. Copyright © 2016 Pearson Canada Inc.

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e. the company has constructively dismissed John. Answer: c Diff: 2 Type: MC Topic: Grounds for Dismissal Without Notice Skill: Applied 10) George works for a large national corporation as its vice-president of sales. He earns $100 000.00 a year and has a company car and gas expense account, both of which are valued at total of $8000.00 a year. Five years into his employment with the company, the company wrongfully dismisses him and refuses to give him a letter of reference. Also, when George applies for other jobs and the companies to which George has applied for other jobs contact his company, it lies about his performance. In a wrongful dismissal lawsuit against the company, one of the heads of damages that John will seek for the actions of the company after it dismissed him will be a. damages for loss of income based on a reasonable notice period. b. general damages for pain and suffering. c. damages pursuant to the Wallace decision. d. economic damages. e. special damages for out-of-pocket expenses. Answer: c Diff: 1 Type: MC Topic: Wrongful Dismissal Skill: Applied 11) Which of the following is NOT true? a. The relationship of employer and employee is one of contract in which one party, the employer, enters into a contract with an independent party, the employee, to do a specified task. b. The relationship of employer and employee is one of contract. c. An employer is not liable for the torts committed by a person to whom an employee has delegated work without the consent of the employer. d. The distinction between an agent and employee is one of function only. e. An employer is not vicariously liable for all torts committed by his or her employees.

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Answer: a Diff: 1 Type: MC Topic: Relationship of Employer and Employee Skill: Recall/Applied 12) When an employer has hired an employee for a specified period and the time has elapsed, a. the employee is required to provide the employer with two months’ notice. b. the employee is required to provide the employer with reasonable notice. c. no notice is required before the termination of the employee's employment. d. the employer is required to provide the employee with two months’ notice. e. the employee is required to apply to a court to terminate the agreement. Answer: c Diff: 1 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Recall/Applied 13) The usual minimum notice requirement for a week hiring is a. two clear weeks' notice. b. two days' notice. c. one clear week's notice. d. one day's notice. e. no notice. Answer: c Diff: 1 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Recall 14) Which of the following is NOT relevant in determining how much notice is reasonable in case of wrongful dismissal? a. the age of the employee

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b. the economic situation of the employer c. the length of service of the employee d. the employee's special expertise and training e. the possibilities the employee has for re-employment Answer: b Diff: 2 Type: MC Topic: Grounds for Dismissal Without Notice Skill: Recall 15) The usual minimum reasonable notice for a monthly hiring is a. one month's notice. b. no notice. c. two weeks' notice. d. one week's notice. e. one day's notice. Answer: a Diff: 1 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 16) Notice is not required a. when the period of employment is only two months. b. when the period of employment is three months. c. when the period of employment is two weeks. d. when the employee is dismissed for cause. e. when the period of employment is only one month. Answer: d Diff: 1 Type: MC Topic: Notice of Termination of Individual Employment Contracts Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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17) Dismissal for cause is a. dismissal for unjustified causes. b. dismissal for justified reasons. c. dismissal without notice and further obligation by the employer when the employee's conduct amounts to a breach of contract. d. dismissal for causes not specified in the contract of employment. e. dismissal for causes specified in the contract of employment. Answer: c Diff: 1 Type: MC Topic: Grounds for Dismissal Without Notice Skill: Recall 18) Incompetence, disobedience, and misconduct justify an ending of the contract of employment for breach, but illness justifies an ending of the contract of employment for a. duress. b. misrepresentation. c. frustration. d. mistake. e. breach. Answer: c Diff: 2 Type: MC Topic: Grounds for Dismissal Without Notice Skill: Recall/Applied 19) Where the employment of an employee is not ended for just cause, a. the employee may demand to be reinstated. b. the contract is deemed to have been frustrated. c. the termination is voidable. d. the employee may commence an action for wrongful dismissal. e. the conduct of the employer is an anticipatory breach.

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Answer: d Diff: 1 Type: MC Topic: Wrongful Dismissal Skill: Applied 20) Damages for wrongful dismissal a. is the amount of money that is equivalent to two months' salary. b. is the amount of money that is equivalent to six months' salary. c. is the amount of money that will compensate the employee for pain and suffering. d. is calculated in the same way as damages for the commission of a tort. e. is the amount of money that will compensate the employee for failure to receive the required notice of termination. Answer: e Diff: 1 Type: MC Topic: Wrongful Dismissal Skill: Recall 21) Pay equity legislation is intended to a. eliminate gender discrimination in remuneration. b. ensure that persons under a disability are accommodated in the workplace. c. ensure that employers provide equal working conditions for all employees. d. ensure that employers establish reasonable hours of work. e. ensure that general working conditions are safe. Answer: a Diff: 1 Type: MC Topic: Employee Welfare Legislation Skill: Recall/Applied 22) Which section of the Charter prohibits discrimination on a variety of grounds? a. Section 17 b. Section 34 Copyright © 2016 Pearson Canada Inc.

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c. Section 15 d. Section 28 e. Section 12 Answer: c Diff: 1 Type: MC Topic: Employee Welfare Legislation Skill: Recall 23) Systemic discrimination is a. discrimination that is pervasive throughout an employer's work force. b. discrimination on the basis of race. c. discrimination on the basis of sex. d. discrimination that is harmful. e. discrimination on the basis of gender. Answer: a Diff: 1 Type: MC Topic: Employee Welfare Legislation Skill: Recall 24) Collective bargaining is a. establishing conditions of employment by negotiation between an employer and the bargaining agent for its employees. b. bargaining between employees. c. bargaining between employers. d. bargaining between employers and employees. e. bargaining between certain employees and the employer. Answer: a Diff: 2 Type: MC Topic: Collective Bargaining Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

25) A bargaining agent is a. an employee who acts as a mediator between the employees and the employer. b. an independent person retained by the employees to enter into negotiations with the employer. c. an employee who is nominated by the employees to negotiate with the employer. d. a person or persons appointed by the employees and employer to mediate a dispute between the employees and employer. e. a union that has been certified by the labour relations board and has the exclusive right to bargain with the employer on behalf of the bargaining unit. Answer: e Diff: 2 Type: MC Topic: Collective Bargaining Skill: Recall/Applied 26) A closed shop agreement is a. an agreement between two employees. b. a collective agreement that requires all employees to be members of the union. c. an agreement between employees and employers regarding the nature of working conditions. d. an agreement between various departments or groups of employees. e. an agreement respecting the time when shops may be open and closed. Answer: b Diff: 1 Type: MC Topic: Implications of the Collective Agreement for the Individual Employee Skill: Recall/Applied 27) An employee's liability does not fall within the scope of employment if a. the employee's actions are not related to performance of his or her duties. b. the employee carries out his or her duties in an unauthorized manner. c. the employee is not at the employer's premises. d. the employer is not present.

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e. the employee acts in a manner contrary to the employer's instructions. Answer: e Diff: 1 Type: MC Topic: The Employer's Liability to Third Persons Skill: Recall/Applied 28) If an employee commits a serious act of misconduct, such as theft, an employer can terminate the employment relationship immediately without notice. When the misconduct is unacceptable but does not allow the employer to terminate the employment on the basis of a single incident, the employer must a. wait for the offending conduct to occur again. b. reduce the employee’s pay. c. tell the employee to keep up the good work. d. warn the employee that the offending conduct is unacceptable and that further occurrences will result in termination. e. condone the offending conduct. Answer: d Diff: 3 Type: MC Topic: Grounds for Dismissal Without Notice Skill: Applied 29) Jack Machinery Limited is a clothing company. Jake is an employee of the company. Part of Jake's work includes attending at the home of purchasers to repair machines purchased directly from Jack Machinery and still under warranty. Jake is due to attend at the home of Mary to repair a machine purchased by Mary. He cannot make it, and so he asks a friend, Mike, to attend for him. Mike is not an employee of Jack Machinery Limited. While at the home of Mary, Mike gets into an argument with Mary and during the course of the argument slaps Mary. Mary can now sue Jack Machinery Limited for assault and battery. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

Type: TF Topic: The Employer's Liability Skill: Applied 30) Today it is unlawful for a company to monitor its employees for the purpose of ensuring that they perform their employment duties. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Wrongful Dismissal Skill: Recall/Applied 31) Pay equity legislation focuses on either equal pay for equal work or equal pay for work of equal value. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Employee Welfare Legislation Skill: Recall/Applied 32) In Ontario, labour unions have the status to commence and defend an action at law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

Topic: Labour Disputes Skill: Recall/Applied 33) The legislation of most provinces regarding minimum standards applicable to employment provides no protection for employees who have employment contracts that exclude their operation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Employee Welfare Legislation Skill: Applied 34) Today, mandatory retirement has been abolished throughout Canada. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Employee Welfare Legislation Skill: Recall/Applied 35) Bontel Systems is a computer company. The company is going through a financial crisis, as a result of which the management decides to reduce costs by laying off some workers. The financial crisis excuses the company from providing the employees concerned with notice of termination. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 36) James employs several workers in his window washing company. One of these persons is Robert. James does not trust Robert. He believes Robert is disobedient and incompetent. He says Robert is trouble waiting to happen. James dismisses Robert because of this concern. He does not have any concrete evidence regarding his fears. A few days after his dismissal, Robert commences an action for wrongful dismissal. Just before James files his defence to the claim, he receives new information, which supports and confirm his fears about Robert. On the basis of this new information, he knows that his termination was not wrongful. James cannot use this new information to justify conduct that was carried out prior to the finding of the new information. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Grounds for Dismissal Without Notice Skill: Applied 37) An employer can dismiss an employee who has done nothing wrong. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Notice of Termination of Individual Employment Contracts Skill: Recall/Applied 38) Collective bargaining is bargaining between employers and employees. a. True Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Collective Bargaining Skill: Recall/Applied 39) An employer that dismisses an employee can give the employee reasonable notice of termination and avoid paying damages for wrongful dismissal. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Notice of Termination of Individual Employment Contracts Skill: Recall 40) A rights dispute is one that arises between a union and an employer regarding the right of the union to act as the bargaining agent for the employees. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Labour Disputes Skill: Recall/Applied 41) In addition to the normal damages awarded in wrongful dismissal lawsuits, another type of damages is often awarded specifically where the employer's conduct after dismissal is unconscionable. Explain these damages, providing examples of the conduct that gives rise to them. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

Answer: These damages are known as Wallace damages, awarded in the Wallace decision, a decision of the Supreme Court of Canada. Examples of the conduct that gives rise to such damages are the refusal or failure of an employer to give a letter of reference and/or misstatements about the employee's abilities designed to hurt the employee's chances of obtaining alternative employment. Diff: 2 Type: ES Topic: The Employer's Liability to Third Persons Skill: Applied 42) Given the developments in new technology, including computers and computer software, it can be said that monitoring of employees will become commonplace in the next few years. Discuss. Answer: Notwithstanding statutes such as the federal Personal Information Protection and Electronic Documents Act, the fact is that monitoring employees using new technology is merely an extension of the employer physically supervising employees to ensure that they do what they were hired to do. While at work, the employee's responsibility is to his or her employer, and anything which detracts from this could affect the employee's performance. Further, use of the employer's technological devices, such as computers and cell phones, is supposed to be restricted to employment purposes only and not for personal use. Thus, there is good reason to support the monitoring of employees by employers and to believe that this will increase in the next few years so as to become commonplace. Diff: 3 Type: ES Topic: Wrongful Dismissal Skill: Applied 43) Reinstatement of an employee who has been wrongfully dismissed should be considered a remedy in itself in wrongful dismissal actions. Explain. Answer: Generally common law courts have been unlikely to award reinstatement as a remedy; however, given that reinstatement has become commonplace for union employees and to non-union employees under the Canada Labour Code, there seems to be good reason to

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suggest that it should be used more often in cases of wrongful dismissal in the private sector. Diff: 3 Type: ES Topic: Wrongful Dismissal Skill: Applied 44) What is a closed shop agreement? Answer: It is a collective agreement that requires all employees to be members of the union. Diff: 1 Type: ES Topic: Collective Bargaining Skill: Recall 45) Jack Machinery Limited is a clothing company. Jake is an employee of the company. Part of the work of Jake includes attending at the home of purchasers to repair machines purchased directly from Jack Machinery and still under warranty. Jake is due to attend at the home of Mary to repair a machine purchased by Mary. He cannot make it, and so he asks a friend, Mike, to attend for him. Mike is not an employee of Jack Machinery Limited. While at the home of Mary, Mike gets into an argument with Mary and during the course of the argument slaps Mary. Can Mary sue Jack Machinery Limited for assault and battery? Explain your answer. Answer: An employer is vicariously liable for torts committed by an employee during the course of that employee's employment. There are a number of qualifications to this rule. First, the tort must have been committed during the course of employment of the employee, and the tort must have been committed by the employee. Thus if the employee delegates the work to another person without the consent of the employer, the employer will not be liable. In the above scenario, Jake delegates the work to Mike without the consent of Jack Machinery. Jack Machinery is thus not liable for the tort committed by Mike during the course of the work he does. Diff: 3 Type: ES Topic: The Employer's Liability to Third Persons Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

46) Pay equity legislation aims to eliminate gender discrimination in employment remuneration. What is the difference between the concept of "equal pay for equal work" and the concept of "equal pay for work of equal value"? Answer: Under the concept of equal pay for equal work, there cannot be different pay levels for men and women doing the same job. Under the concept of "equal pay for work of equal value," there must be an evaluation of what each job is worth, and even though the jobs are different, two jobs of the same worth cannot be remunerated at different rates. Diff: 3 Type: ES Topic: Employee Welfare Legislation Skill: Recall 47) Explain the types of disputes that can affect trade unions. Answer: There are four kinds of disputes that can affect trade unions, namely, jurisdictional, recognition, interest, and rights disputes. Jurisdictional disputes are disagreements between unions respecting the right to represent certain employees. A recognition dispute is one between an employer and a union with respect to the recognition of the union as the bargaining agent of the employees, and its right to negotiate on behalf of the employees. An interest dispute is one that arises when an employer and a union cannot reach agreement about the terms to be included in a collective agreement. A rights dispute is a difference of opinion between employer and union on the interpretation of the terms of a collective agreement. Diff: 2 Type: ES Topic: Collective Bargaining Skill: Recall/Applied 48) George works for a large national company as its vice-president of sales. He earns $120 000.00 a year and is given a company car and gas expense allowance, the total value of which on a yearly basis is $10 000.00. He also receives a yearly bonus of $50 000.00 where the company's sales exceed 1 million dollars a year. John, who is 55 years of age, has just been summarily dismissed by the company. Although John has tried to find alternative employment, he has been unable to do so partly because the company refused to give him a letter of reference and has been telling companies to whom John has applied that John is incompetent, when this is not true at all. Assuming that a Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 18: The Contract of Employment

reasonable notice period is 14 months, that John received $30 000.00 in Employment Insurance benefits, and that damages under the Wallace decision of $25 000.00 were awarded in another case similar to John's, explain how John's damages would be calculated. Answer: First, we would determine what compensation John would receive based on a reasonable notice period of 14 months. This would be calculated by dividing his salary plus benefits by 12 months and multiplying it by the notice period. In this case, this would equal ($120 000.00 + $8000.00 + $55 000.00)/12 x 14 = $215 000.00. Second, from this amount we would deduct anything received by John, or, in this case, his EI benefits of $30 000.00, giving us a subtotal of $185 000.00. Third, we would see whether John attempted to mitigate his damages by trying to find alternative employment, which is exactly what he did, but he was unsuccessful. Fourth, we would see whether this was a proper case for Wallace decision damages, which it is, and so we would add these to John's other damages (essentially $185 000.00 + $30 000.00 = $215 000.00). The only question left is whether this might be a proper case for punitive damages. If it is, then those damages would be added to the $215 000.00. Diff: 3 Type: ES Topic: Wrongful Dismissal Skill: Applied 49) How does an independent contractor differ from an employee? Answer: The relationship of employer and employee is established by a contract that gives one person, the employer, the right to direct and control the work of the other party, the employee. An employee is different from an independent contractor. An independent contractor enters into a contract with an employer to perform certain specific services. Upon the completion of the services, the contract ends. The contract between the independent contractor and the employee does not create an employer–employee relationship because the independent contractor is not subject to the supervision of the employer. His or her job is to produce a specified job, but the means by which this is achieved is the independent contractor's, and not the employer's. Diff: 2 Type: ES Topic: Relationship of Employer and Employee Skill: Recall/Applied

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50) On what grounds is a business justified in dismissing its employees without notice? Answer: As a general rule, notice is required before employment is terminated. However, where the employee is being dismissed for cause, the employer has no obligation to provide notice of termination. Dismissal for cause means that the conduct of the employee amounts to a breach of the employer–employee agreement. Examples of conduct that would provide justification for a termination without notice are misconduct, incompetence, disobedience, and permanent disability. Diff: 2 Type: ES Topic: Grounds for Dismissal Without Notice Skill: Recall/Applied 51) Jack Machinery Limited is a clothing company. Jake is an employee of the company. Part of the work of Jake includes attending at the home of purchasers to repair machines purchased directly from Jack Machinery and still under warranty. Jake is due to attend at the home of Mary to repair a machine purchased by Mary. He cannot make it, and so he asks a friend, Mike, to attend for him. Mike is not an employee of Jack Machinery Limited. While at the home of Mary, Mike gets into an argument with Mary and during the course of the argument slaps Mary. Can Mary sue Jack Machinery Limited for assault and battery? Explain your answer. Answer: An employer is vicariously liable for torts committed by an employee during the course of that employee's employment. There are a number of qualifications to this rule. First, the tort must have been committed during the course of employment of the employee, and the tort must have been committed by the employee. Thus if the employee delegates the work to another person without the consent of the employer, the employer will not be liable. In the above scenario, Jake delegates the work to Mike without the consent of Jack Machinery. Jack Machinery is thus not liable for the tort committed by Mike during the course of the work he does. Diff: 3 Type: ES Topic: The Employer's Liability to Third Persons Skill: Applied 52) Explain the implications of collective agreements for employees. Answer: Copyright © 2016 Pearson Canada Inc.

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A collective agreement is an agreement between employees and employers negotiated on behalf of the employees by the bargaining agent, usually referred to as the union. The parties to a collective agreement are the employer and the representative union. The role of the union in the employer–employee relationship is to act as the bargaining agent for the employees and enter into negotiations with the employer to establish conditions of employment on behalf of the employees. Although collective agreements provide employees with collective bargaining power and enable them to achieve collective goals, they sacrifice individual employee preferences to collective ones. Diff: 2 Type: ES Topic: Collective Bargaining Skill: Recall/Applied 53) What is reasonable notice? Why must employers in non-union settings provide reasonable notice to terminated employees when the employer does not have just cause to terminate? Answer: Every contract of employment at common law contains an implied term with respect to termination of employment. Notice of termination involves telling an employee in advance that the employment relationship will end. If the parties have not entered into an employment contract containing an express term relating to termination, then the obligation on the employer is to provide reasonable notice. There are four key factors that the court looks at to determine how much notice a terminated employee should receive. These include the length of employment; the character of employment; the age of the employee; and the availability of similar employment, given the education, training, and experience of the employee. These are often referred to as the “Bardal factors.” Failure by the employer to provide reasonable notice upon termination can result in a wrongful dismissal lawsuit. Diff: 3 Type: ES Topic: Notice of Termination of Individual Employment Contracts Skill: Applied 54) Tom has been employed as a sales manager for Vanessa’s Used Cars for more than twenty years. Economic conditions in the car business have worsened, and Vanessa believes she needs to terminate Tom’s employment. She receives legal advice that based on Tom’s age, length of employment, and character of employment and on the availability of similar employment given his education, training, and experience, Tom should receive eighteen months’ notice of termination. Vanessa believes that once she provides Tom with notice of termination he will not be an effective sales manager and Copyright © 2016 Pearson Canada Inc.

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that she will lose more business during the year and a half in which Tom remains as her sales manager. What options does she have as far as the manner in which she provides this notice? Answer: Notice of termination can be provided in one of two ways. An employer can provide working notice. Although the employee receives advance notice of the termination, the effective date is at the end of the working notice period. Alternatively, employers can make a payment in lieu of notice. Vanessa would have the opportunity to make a payment of the amount of compensation the employee would earn during the reasonable notice period, thereby satisfying her obligation to provide reasonable notice at law. She could then require Tom to leave immediately. Diff: 3 Type: ES Topic: Notice of Termination of Individual Employment Contracts Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 19: Negotiable Instruments

1) Albert owes George a sum of money and gives George a cheque made out to George for the amount he owes. In this case, George is a. the payor of the cheque. b. the assignor of the cheque. c. the payor of the cheque. d. the holder of the cheque. e. the endorser of the cheque. Answer: d Diff: 2 Type: MC Topic: Negotiability Skill: Applied 2) Use the fact situation below to answer the questions that follow. John owes Edward a sum of money and gives Edward a cheque made out to Edward for the amount he owes. Edward also owes a sum of money to Albert, and on receiving the cheque from John, Edward signs his name only on the back of the cheque. When Edward delivers the cheque to Albert, the cheque becomes a. a bearer cheque. b. an assignment cheque. c. a promissory note. d. an endorsement cheque. e. all of the above Answer: a Diff: 2 Type: MC Topic: Endorsement Skill: Applied 3) Use the fact situation in Q2 to answer the related question that follows. If instead of Edward signing the back of the cheque in his name, before Edward gives the cheque to Albert, Edward signs the cheque over to Albert and then gives it to him, then Albert becomes

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 19: Negotiable Instruments

a. the endorsee and holder of the cheque. b. the assignor and endorsee of the cheque. c. the promissor and holder of the cheque. d. the payor and bearer of the cheque. e. all of the above Answer: a Diff: 3 Type: MC Topic: Endorsement Skill: Applied 4) S, the accountant for a railway company, forged the signature of the company's signing officer on a company cheque. The cheque was payable on the company's account and made out to another company controlled by S. The agreement between the company and its bank had no provision requiring the company to verify the monthly statements sent it by the bank for any discrepancies. Eventually, the company discovered the forgery and demanded that the bank return the money to its account, but the bank refused. In a lawsuit by the company against the bank for recovery of its money, a. the bank will succeed because it simply honoured the cheques, which were negotiable instruments. b. the bank will successfully defend the lawsuit because the cheques were forged by the company's accountant. c. the company will succeed because there was no agreement between the bank and the company requiring the company to verify its statements. d. the company will succeed but on a quantum meruit basis only. e. the bank will succeed because the company owed the bank a duty to maintain internal audit controls, which would have found the problem. Answer: c Diff: 3 Type: MC Topic: Defences Skill: Applied 5) Use the fact situation below to answer the questions that follow. Albert prepares a cheque and has it certified at his bank. However, on his way home, Albert loses the cheque. Albert immediately advises his bank of the loss of the certified Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 19: Negotiable Instruments

cheque, puts a stop payment on it, and asks the bank to replace it with another certified cheque. In this case, if the certified cheque is negotiated, a. Albert's advice to the bank of the loss of the cheque discharges the bank from having to honour it. b. being certified, no stop payment can be put on the cheque and the bank must honour it. c. Albert can put a stop payment on the cheque and the bank will not have to honour it. d. the bank can put a stop payment on the cheque and the bank will not have to honour it. e. none of the above Answer: b Diff: 2 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied 6) Use the fact situation in Q5 to answer the related question that follows. When Albert advised the bank that the cheque was lost and put the stop payment on it, he then asked the bank to replace it with another certified cheque. The bank responded by telling Albert that it would only replace the cheque if Albert entered into an indemnity agreement with the bank indemnifying the bank in the event the cheque was found and presented for payment. In this case, a. the bank can refuse to replace the lost certified cheque because it always has the right to refuse to honour any negotiable instrument. b. the bank can refuse to replace the lost certified cheque unless Albert agrees to give it the indemnity agreement. c. the bank cannot refuse to replace the lost certified cheque with another one because Albert is the original drawer. d. the bank cannot refuse to replace the lost certified cheque because the stop payment is effective to protect the bank if the original certified cheque is presented for payment. e. none of the above Answer: b Diff: 3 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied Copyright © 2016 Pearson Canada Inc.

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7) On a piece of paper, A writes a memo that sets out the name of his bank, his bank account number, and a statement indicating that the bank is required to pay to B whatever amount B desires. A then puts his signature at the bottom and gives the memo to B. In this case, the memo is a. a cheque. b. a negotiable instrument. c. a promissory note. d. a bill of exchange. e. none of the above Answer: e Diff: 3 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied 8) Albert, a supplier of goods, owes George $2000.00. Albert gives George a note for $2000.00 payable in 60 days. A couple of weeks later, George buys $800.00 worth of goods from Albert. If George has not paid Albert the $800.00 by the time the 60 days has expired and Albert claims payment of the $2000.00 note, a. Albert need not honour the note until George has paid him the $800.00. b. Albert must honour the note and pay the $2000.00. c. Albert can deduct, or set-off, the $800.00 owed by George against the $2000.00 that he owes and pay George $1200.00. d. Albert need not honour the $2000.00 note until a reasonable time after the 60 days expires. e. none of the above Answer: c Diff: 2 Type: MC Topic: Defences Skill: Applied 9) A forges his signature on a cheque made in favour of B, who then endorses it to the order of C. C then endorses the cheque to the order of D, who has no way of knowing that the cheque has been forged. In this case, Copyright © 2016 Pearson Canada Inc.

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a. D is the holder in due course of the cheque. b. D is the payee of the cheque. c. D is the endorser of the cheque. d. D is not a holder in due course of the cheque. e. D is the assignee of the cheque. Answer: a Diff: 2 Type: MC Topic: Defences Skill: Applied 10) A prepares and signs a promissory note, but leaves the amount blank. The note is subsequently stolen by B, who fills in the amount and negotiates it to C. C now looks for payment from A, who refuses. If C sues A, a. A will successfully defend the lawsuit on the basis of lack of delivery of an incomplete instrument. b. A will be liable to C because C is now the payee of the note. c. A will successfully defend the lawsuit on the basis of lack of capacity. d. A will successfully defend C's lawsuit on the basis that B committed a fraud. e. A will be liable to C because C is a holder in due course. Answer: a Diff: 2 Type: MC Topic: Defences Skill: Applied 11) Delivery of a negotiable instrument in payment a. is only a conditional discharge. b. is an acceptance. c. is a guarantee of payment. d. completely discharges the debt. e. indemnifies the payor. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall 12) The Bills of Exchange Act governs which of the following kinds of instruments? a. bills of exchange only b. bills of exchange and negotiable instruments c. drafts only d. bills of exchange, promissory notes, and cheques e. bills of exchange, negotiable instruments, and cheques Answer: d Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall 13) On April 5, Tim gave Winnie a cheque for $3000 drawn on his bank account to pay for a horse. The cheque was postdated to April 15. On April 7, the horse died, and Tim stopped payment on the cheque. On April 12, Winnie took Tim's cheque to Big Bank and endorsed it. Big Bank gave her cash in the face amount of the cheque. When Big Bank sent the cheque for clearing, Tim's bank refused to honour the cheque because of the stop payment Tim had placed on it and returned the cheque to Big Bank. Which of the following statements is true? a. A postdated cheque is not a negotiable instrument. b. One cannot stop payment on a cheque. c. Tim is not liable to Big Bank because he put a stop payment on the cheque before Winnie endorsed it over to Big Bank. d. Only Winnie is liable to Big Bank. e. Tim is liable to Big Bank because Big Bank is a holder in due course of a negotiable instrument. Answer: e Diff: 3 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied Copyright © 2016 Pearson Canada Inc.

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14) A demand draft is a. a bill of exchange that is payable within a stipulated period, after presentation. b. a bill of exchange on which the expression demand draft is written. c. a bill of exchange that is payable within a stipulated period, after the date stated on the instrument. d. a bill of exchange that is payable immediately upon presentation without any days of grace. e. a bill of exchange that is payable at sight. Answer: d Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall 15) Which of the following defences is available to the drawer of a cheque who is being sued by a holder in due course of a negotiable instrument? a. The cheque was obtained through breach of contract. b. The payee was negligent. c. The drawer's signature was a forgery. d. The cheque was obtained through misrepresentation. e. A and B Answer: c Diff: 2 Type: MC Topic: Defences Skill: Recall 16) Jack writes a note for Mary. The note states, "I, Jack, promise to pay you, Mary, $500.00 on January 4, 2003, or anytime after that date when a demand is made." Jack has given Mary a a. maker note. b. promissory note. c. certificate note. d. certification. Copyright © 2016 Pearson Canada Inc.

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e. promise in a note. Answer: b Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied 17) Sight drafts can be used as a. certificates of deposit. b. promissory notes. c. collection devices. d. share certificates. e. finance notes. Answer: c Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied 18) The bank on which a cheque is drawn is called a. the accepting bank. b. the certifying bank. c. the promissory note bank. d. the drawee bank. e. the drawer bank. Answer: d Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall 19) Jack provides James with a cheque in payment for the delivery of goods. Later, when Jack checks the goods, he realizes that James has delivered the wrong goods. Jack wishes to cancel the cheque. Jack may go to the bank and request a Copyright © 2016 Pearson Canada Inc.

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a. cancel document. b. negotiable instrument. c. de-certification order d. stop payment order. e. stop payee document. Answer: d Diff: 1 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied 20) The difference between a cheque and draft is that a. the drawee on a cheque is a bank or financial institution, whereas the drawee of a draft may be a financial institution or bank. b. a cheque is a bill of exchange drawn against a bank that is payable on demand, whereas a draft is not payable on demand. c. a cheque is a bill of exchange drawn against a person that is payable on demand, whereas a draft is drawn against a financial institution. d. a cheque is not a negotiable instrument, whereas a draft is a negotiable instrument. e. a cheque is a bill of exchange, whereas a draft is not a bill of exchange. Answer: a Diff: 3 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Applied 21) The two classes of negotiable instruments are a. promissory notes and drafts. b. promissory notes and cheques. c. those governed by the Bills of Exchange Act and those governed by other statutes and other laws. d. sight drafts and time drafts. e. those governed by the Bills of Exchange Act and share certificates.

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Answer: c Diff: 1 Type: MC Topic: History Skill: Recall/Applied 22) Liability of the drawer, acceptor, or maker on a bill of exchange is dependent on a. the delivery of the bill. b. the negotiation of the bill. c. the presentment of the bill. d. the signing of the bill. e. the signing and delivery of the bill. Answer: a Diff: 2 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied 23) Liability of the drawee on a bill of exchange is dependent on a. the signing and delivery of the bill. b. the acceptance and delivery of the bill. c. the signing of the bill. d. the negotiation of the bill. e. the presentment of the bill. Answer: b Diff: 2 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied 24) Delivery of a bill may be actual or a. incomplete. b. ineffective. c. constructive. Copyright © 2016 Pearson Canada Inc.

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d. by notification. e. pretend. Answer: c Diff: 2 Type: MC Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied 25) Joseph obtains a draft that states as follows: "pay to the order of Joseph Daniels the sum of $1000." Joseph wants to negotiate this instrument to Jack Spratt to pay a debt owing to Jack. To negotiate this instrument, Joseph must a. indicate accepted on the draft and then deliver it to Jack. b. endorse and deliver the instrument to Jack. c. present the instrument to Jack's bank and have it accepted and then transfer it to Jack. d. endorse and present the instrument to Jack's bank. e. hand over the draft to Jack and get a receipt. Answer: b Diff: 2 Type: MC Topic: Methods of Negotiation Skill: Applied 26) A person who negotiates an instrument in bearer form is known as a. transferor. b. transferee. c. a transferor by delivery. d. a transferee by delivery. e. delivering party. Answer: c Diff: 2 Type: MC Topic: Methods of Negotiation Skill: Recall/Applied

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27) Which of the following is NOT a real defence to an action on a bill? a. misrepresentation b. incapacity of contract because of infancy c. cancellation of the instrument d. alteration of the instrument e. absence of delivery when the instrument is incomplete when taken Answer: c Diff: 2 Type: MC Topic: Defences Skill: Recall/Applied 28) Many retail businesses have taken steps to minimize the risks associated with negotiable instruments. These steps include a. not presenting any instrument for payment. b. not accepting accommodation bills. c. acting as a factor. d. not accepting cheques or bills of exchange as payment for goods. e. signing all drafts without recourse. Answer: d Diff: 3 Type: MC Topic: Strategies to Manage Legal Risks Skill: Recall 29) Negotiable instruments began as a form of bill of exchange. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Copyright © 2016 Pearson Canada Inc.

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Topic: Origin Skill: Recall 30) A buyer on consumer credit has no defence against a finance company that sues him as holder of his promissory note. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Defences Skill: Applied 31) A remote party who fails to meet the standards of a holder in due course is subject to real defences only. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Defences Skill: Applied 32) A minor who makes a cheque payable to a holder is always liable to the holder. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Defences Copyright © 2016 Pearson Canada Inc.

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Skill: Recall/Applied 33) A holder in due course who suffers a loss arising from a forged endorsement can recover from the party who acquired the instrument immediately following the forgery. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Defences Skill: Applied 34) On the death of a maker or acceptor of a bill of exchange, her or his liability passes to her or his personal representatives. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Defences Skill: Recall/Applied 35) Where a bill of exchange is payable at sight, or after sight, presentment is necessary. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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36) Presentment of a bill is necessary where the bill of exchange is payable at sight, or after sight, because there is the need to determine the time at which payment is due. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Applied 37) Tina gave Zach a cheque for $1000 to pay for a TV. Zach took the cheque to Cash Mart, he endorsed it, and Cash Mart paid him $950. Cash Mart is a holder in due course of a negotiable instrument. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Defences Skill: Applied 38) Sight drafts can be used as collection devices. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Recall Copyright © 2016 Pearson Canada Inc.

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39) A promissory note is presented for acceptance. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Recall 40) A promissory note is not a bill of exchange. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Applied 41) Certification is an undertaking by the bank to pay the amount of the cheque to the drawer when it is presented for payment. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Nature and Uses of Negotiable Instruments Skill: Applied 42) Negotiability is the special quality possessed by negotiable instruments. Copyright © 2016 Pearson Canada Inc.

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Negotiability Skill: Applied 43) Liability of the drawee on a bill of exchange is dependent on the acceptance and delivery of the bill. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Prerequisites for Liability Skill: Applied 44) Delivery of a bill may be actual or constructive. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Prerequisites for Liability Skill: Applied 45) Explain the consequences when a document is not negotiable by reason of a condition.

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Answer: Although a document may not amount to a negotiable instrument, because it has a condition in it, it may still be enforceable between the original parties and be capable of assignment as an ordinary contractual right. In such circumstances, the Bills of Exchange Act does not apply and the rights of the parties are subject to the general rules governing contractual assignments. Accordingly, a holder of such an instrument cannot enforce the promise until the condition is met. Diff: 3 Type: ES Topic: Negotiability Skill: Applied 46) Explain how time drafts can be used as a means of finance for a business drawing them. Answer: By discounting the time drafts at a bank or pledging them as security for a loan, the drawer can obtain cash in advance of the time when the payment is due from the customer. Diff: 2 Type: ES Topic: Nature and Uses of Negotiable Instruments Skill: Applied 47) Explain why putting a stop payment on a cheque may not be binding on a bank. Answer: This is because the relationship between a bank and a customer is generally contractual in nature and often the agreement that is signed favours the bank in such situations, including exempting the bank from any liability for failure to pay the cheque amount out of the customer's account after the customer has put a stop payment on it. Diff: 2 Type: ES Topic: Nature and Uses of Negotiable Instruments Skill: Applied 48) Who is the drawer of a bill? Copyright © 2016 Pearson Canada Inc.

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Answer: The drawer of a bill is the party who draws up the bill of exchange. Diff: 1 Type: ES Topic: Nature and Uses of Negotiable Instruments Skill: Recall 49) Who is a drawee? Answer: A drawee is the party who is required to make payment on a bill of exchange. Diff: 1 Type: ES Topic: Nature and Uses of Negotiable Instruments Skill: Recall 50) What is a time draft? Answer: A time draft is a bill of exchange that is payable within a stipulated period after the date stated on the instrument or after presentation. Diff: 1 Type: ES Topic: Nature and Uses of Negotiable Instruments Skill: Recall 51) Explain the effect of certification of a cheque. Answer: Certification is an undertaking by the bank to pay the amount of the cheque to its holder when it is later presented for payment. Diff: 1 Type: ES Topic: Nature and Uses of Negotiable Instruments Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 52) Describe the difference between a bearer instrument and an order instrument. Answer: A bearer instrument is one that is payable to bearer. An instrument that is payable to bearer may be negotiated by delivery alone. An order instrument is one that is payable to order, or to the order of a specified person. An order instrument is negotiated by endorsement and delivery. Diff: 1 Type: ES Topic: Methods of Negotiation Skill: Applied 53) Explain the difference between negotiable instruments and other contracts. Answer: The transfer of negotiable instruments is distinguished from that of other contracts by three features: negotiable instruments may be transferred from one holder to another without the promisor being advised about each new holder; an assignee may sometimes acquire a better right to sue on the instrument than the assignor had; and a holder may sue in its own name any other party liable on the instrument without joining any of the remaining parties. Diff: 2 Type: ES Topic: Negotiability Skill: Applied 54) Explain the purposes of endorsement. Answer: An endorsement is a means to carrying out the following purposes: transferring title to an instrument that is payable to order; giving increased security to the payee or subsequent holder; identifying the party who is entitled to payment; and acknowledging partial payment. Diff: 2 Type: ES Copyright © 2016 Pearson Canada Inc.

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Topic: Endorsement Skill: Applied 55) Describe the difference between a bearer instrument and an order instrument. Answer: A bearer instrument is one that is payable to bearer. An instrument that is payable to bearer may be negotiated by delivery alone. An order instrument is one that is payable to order, or to the order of a specified person. An order instrument is negotiated by endorsement and delivery. Diff: 1 Type: ES Topic: Methods of Negotiation Skill: Applied 56) Given that the majority of negotiable instruments are now being replaced by electronic transactions and, further, that there is a movement toward digital currency and transactions, will the old method of doing business using bills of exchange and negotiable instruments one day find itself outdated and will such legislation become obsolete? Answer: The development of bills of exchange and negotiable instruments was a necessary substitute for carrying coins and other funds. This was followed first by transmitting funds by cable and telegraph and later by telex; and these methods of transferring funds in business to business transactions were themselves replaced by credit cards and later by debit cards. Today, the majority of consumers no longer pay by cheque, and the number of those who do is rapidly dwindling. The result would seem to be that there has been a shift away from the use of bills of exchange and negotiable instruments to an almost instantaneous transfer of funds via the Internet. Soon even these methods will be replaced as currency becomes digital in nature. Despite the fact that some argue that there will be just as many, if not more, problems caused by moving to digital currency and payments, there is good reason to believe that in the future such digital forms of currency and transactions will become the norm, making bills of exchange legislation and laws regarding negotiable instruments obsolete. Diff: 3 Type: ES Topic: Modern Developments Skill: Applied

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57) Who is a holder in due course, and what are the requirements that must be met for a holder to be a holder in due course? Answer: Holder in due course is the expression that is used to identify the innocent third party that is accorded the greatest rights that are available to an innocent third party holder of a negotiable instrument. For a holder to be a holder in due course, four conditions must be satisfied. These are (a) the holder must have taken the instrument complete and regular on its face; (b) the holder must have acquired the instrument before it was overdue and without notice of any prior dishonour; (c) the holder or someone through whom the holder claims must have given consideration for the instrument; and (d) the holder must have taken the instrument in good faith and without notice of any defect in the title of the person who negotiated it. A holder in due course takes an instrument free of any defects in the instrument. Diff: 2 Type: ES Topic: Holder in Due Course Skill: Applied 58) Explain the nature of the liability of a drawer on a draft and cheque. Answer: The drawer of a draft undertakes that when it is presented it will be accepted and paid according to its terms and that if it is dishonoured the drawer will compensate the holder or any endorser who is compelled to pay it. The drawer of a cheque undertakes that the cheque will be paid from his or her account on demand and that if there are insufficient funds in his or her account, he or she is liable to the holder and any endorser from whom the holder may recover. Diff: 2 Type: ES Topic: Liabilities of Parties Skill: Applied 59) Explain the difference between a bearer instrument and an order instrument. Answer: A bearer instrument is one that is payable to bearer. An instrument that is payable to bearer may be negotiated by delivery alone. An order instrument is one that is payable to order, or to the order of a specified person. An order instrument is negotiated by endorsement and delivery. Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: ES Topic: Methods of Negotiation Skill: Applied 60) A court in British Columbia decided that a promissory note payable at a variable interest rate (e.g., prime + 1% per annum) was not a negotiable instrument. Why might the court make this decision? How might the decision affect the rights of a third party obtaining the promissory note through endorsement? Answer: For the promissory note to be a negotiable instrument, it must be a "sum certain." The court decided that because one could not determine from the outset what would be paid under the promissory note (because interest would fluctuate according to market conditions), the promissory note was not a negotiable instrument. A third party that obtained the note through endorsement would not be a holder in due course, and therefore would be subject to any mere personal defences that applied between maker and payee. Diff: 3 Type: ES Topic: Negotiability Skill: Applied 61) Negotiable instruments are different from other contracts. Explain this difference. Answer: The transfer of negotiable instruments is distinguished from that of other contracts by three features: negotiable instruments may be transferred from one holder to another without the promisor being advised about each new holder; an assignee may sometimes acquire a better right to sue on the instrument than the assignor had; and a holder may sue in its own name any other party liable on the instrument without joining any of the remaining parties. Diff: 2 Type: ES Topic: Negotiability Skill: Applied

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1) John Jones applied for a patent for his new invention in May 1992 and the patent was granted in 1994. The patent will expire in a. May 2007. b. May 2015. c. May 2010. d. 50 years after John's death. e. May 2012. Answer: e Diff: 2 Type: MC Topic: Patents Skill: Applied 2) Rogers Canada Ltd. has just created a very attractive, totally new design for a cell phone keypad for use in all of its cell phones. If the company wishes to protect its new design, it will do so under a. the Copyright Act. b. the Industrial Design Act. c. the Patent Act. d. the Trade-marks Act's service marks provisions. e. all of the above Answer: b Diff: 1 Type: MC Topic: Industrial Designs Skill: Applied 3) Use this fact situation to answer the related questions that follow. Alice worked as an employee of a large computer conglomerate, but without an employment contract dealing with ownership of new software programs. As part of Alice's job, she produced a very unique software program for routing emergency calls to the U.S. Homeland Security Office. In this case, the software program can only be a. copyrighted by Alice. Copyright © 2016 Pearson Canada Inc.

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b. copyrighted by the company. c. patented by the company. d. patented by Alice. e. copyrighted by the Homeland Security Office. Answer: b Diff: 2 Type: MC Topic: Copyright Skill: Applied 4) Use the fact situation in Q3 to answer the related question that follows. If the program were copyrighted by the company under a written employer–employee contract, a. Alice would have the right to have her name associated with it no matter what the contract said. b. Alice would have the right to have her name associated with it unless the contract said otherwise. c. only Alice could license the program to the Homeland Security Office who wished to use it. d. the length of copyright protection for the program would be 50 years. e. neither Alice nor the company would have any rights unless the copyright was registered. Answer: d Diff: 3 Type: MC Topic: Copyright Skill: Applied 5) George & Co., Ltd. patented an invention in Canada in 2005 for which there is huge public demand. Happy Co. is in the same line of business, and has the capacity to meet the demand for the new product. In this situation, a. if George & Co., Ltd. is not able to approach supplying the demand for the product, Happy Co. could apply for a compulsory license so it can manufacture the product. b. George & Co., Ltd. may lose its patent altogether if it cannot meet the demand. c. if Happy Co. is granted a compulsory licence, it must pay a reasonable royalty to George & Co., Ltd. Copyright © 2016 Pearson Canada Inc.

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d. all of the above e. none of the above Answer: d Diff: 3 Type: MC Topic: Patents Skill: Applied 6) Use this fact situation to answer the related questions that follow. John Bigs has been in business selling T-shirts for three years now. His T-shirts are called "Bigs" and have the silver and red logo design JB on the left front breast area. The entire public knows John's T-shirts by the name Bigs and the logo JB. John has just heard that another company is contemplating making T-shirts like his own using a logo in silver only that reads JB and intends to call them "BGs." At common law a. the name Bigs is John's trademark. b. the logo JB is John's trade name. c. the name Bigs is John's trade name and the logo JB is his trademark. d. only the name Bigs is John's trade name, but the logo is not a trademark. e. the silver and red logo JB is John's trade name. Answer: c Diff: 2 Type: MC Topic: Trademarks Skill: Applied 7) Use the fact situation in Q6 to answer the related question that follows. If the other company actually makes the T-shirts and sells them, it will have committed a. industrial design infringement b. copyright infringement. c. the common law tort of passing-off and a breach of section 7 of the Trade-marks Act. d. the common law tort of passing-off only. e. patent infringement. Copyright © 2016 Pearson Canada Inc.

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Answer: c Diff: 2 Type: MC Topic: Trademarks Skill: Applied 8) Use the fact situation in Q6 to answer the related question that follows. Assume that John Bigs has not secured the name and logo of the T-shirts by registration and that the other company registers the name and logo under the Trade-marks Act. In order to protect himself, John will a. ask the court for an injunction. b. sue for trademark infringement. c. patent the name and logo. d. bring proceedings to have the registration expunged. e. sue for trade name infringement. Answer: d Diff: 3 Type: MC Topic: Trademarks Skill: Applied 9) For his new invention, Henry applied for a patent on May 12, 1994, in Canada, on September 28, 1994, in France, and on June 19, 1994, in England. If Henry's patent was duly granted under the Union Convention of Paris on October 17, 1994, his patent protection in France will expire on a. September 28, 2014. b. June 19, 2014. c. May 12, 2024. d. May 12, 2014. e. October 17, 2014. Answer: d Diff: 3 Type: MC Topic: Patents

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Skill: Applied 10) Enterprise Canada carries on the business of renting cars and has registered under the Trade-marks Act. A business consulting service calling itself Enterprise Canada would likely fail in an attempt to register such a name because "Enterprise Canada" a. is a certification mark. b. is probably a prohibited mark. c. does not meet the "coined" requirement to be a trade name. d. is not a sufficiently distinctive guise. e. is not a service mark. Answer: b Diff: 2 Type: MC Topic: Trademarks Skill: Applied 11) 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. a. patent; trade name; distinctive guise; certification mark b. compulsory licence; license; trademark; patent c. patent; industrial design; trademark; copyright d. industrial design; patent; trademark; copyright e. trademark; compulsory licence; industrial design; copyright Answer: c Diff: 2 Type: MC Topic: Patents Skill: Recall/Applied 12) Great Film Company (GFC) makes movies in DVD format and sells them to video stores for sale or rental. It owns the copyright in the films and the DVDs. GFC has just learned that Shady Video Store (SVS) is making knock-offs or copies of its movies on DVD and selling them to the public. In this case, GFC can a. sue SVS for damages for copyright infringement.

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b. ask the court for an Anton Pillar order to permit GFC to go to SVS and seize the illegal DVDs. c. ask the court for an injunction preventing SVS from copying and selling GFC's DVDs. d. ask for an accounting of SVS's profits. e. all of the above Answer: e Diff: 3 Type: MC Topic: Copyright Skill: Applied 13) Albert, a graduate student at York University in Toronto, photocopied portions of a book copyrighted by the University of Toronto. Albert used the book to gain information vital to the preparation of his graduate thesis. On finding out what Albert did, the University of Toronto (U of T) sued Albert for copyright infringement. In this case, a. U of T will not succeed because Albert can copy copyrighted works for the purpose of research. b. U of T will not succeed because a university has no standing to bring a law suit. c. U of T will succeed against Albert because it owns the copyright. d. U of T will not succeed because Albert had no intention of infringing its copyright. e. none of the above Answer: a Diff: 2 Type: MC Topic: Copyright Skill: Applied 14) A manufactures a container with a distinct ornamental shape to it, and now A's customers identify that design with A. if A wishes to protect the design of the container, A can a. register the design as both a trademark and an industrial design. b. register the design as an industrial design only. c. patent the design. d. copyright the design. e. register the design as a trademark only. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 2 Type: MC Topic: Industrial Designs Skill: Applied 15) A is employed as a research technician in a large technology company. In his employment contract there is a confidentiality provision prohibiting A from disclosing confidential information relating to the company. If A goes ahead and discloses the company's confidential information, he will be guilty of a. industrial design infringement. b. patent infringement. c. trademark infringement. d. breach of contract. e. copyright infringement. Answer: d Diff: 2 Type: MC Topic: Confidential Information, Trade Secrets, and Know-How Skill: Applied 16) Jack starts a music store called MusicHill. The store specializes in hip hop and other popular music for teenagers. Later, Mary also sets up her own music store and calls it Musichills. To protect his trademark, Jack may a. register his mark under the Trade-marks Act. b. bring a passing-off action against Mary. c. register his mark under the Patents Act. d. register his mark under the Copyright Act. e. register his mark as an industrial design. Answer: b Diff: 2 Type: MC Topic: Trademarks Skill: Applied

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17) Which of the following is NOT an element of the tort of passing-off? a. The plaintiff's services and goods must enjoy a reputation that is of some value worth protecting. b. The plaintiff must have suffered damage in consequence of passing-off. c. The defendant must have misrepresented its goods, service, or business as those of the plaintiff. d. The plaintiff must establish beyond a reasonable doubt that the misrepresentation has taken place. e. There must either be actual confusion or a likelihood of confusion in the public's mind between the goods and services of the plaintiff and those of the defendant. Answer: d Diff: 2 Type: MC Topic: Trademarks Skill: Applied 18) Which of the following is NOT a condition that must be satisfied for a mark to be registered? a. The mark must not be clearly descriptive or deceptively misdescriptive of the character or quality of the wares or services, or their place of origin. b. The mark must not be a word that is primarily merely the name or surname of an individual who is living or who died within the preceding 30 years. c. The plaintiff must establish, with the support of witnesses, that the mark is his own. d. The mark must not be the name of any of the wares or services in connection with which it is used. e. The mark must not be likely to be confused with a registered trademark. Answer: b Diff: 2 Type: MC Topic: Trademarks Skill: Recall/Applied 19) Which of the following is NOT a moral right? a. the right to be associated with the work as its author by name or pseudonym or to remain anonymous Copyright © 2016 Pearson Canada Inc.

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b. the right to the integrity of the work c. the right to prevent the work from being distorted or mutilated d. the right to prevent the work from being used in association with a product, service, or cause e. the right to be paid upon the performance of the work Answer: e Diff: 1 Type: MC Topic: Copyright Skill: Recall/Applied 20) Jack, at the request of Michael, makes copies of the latest CD of Jimmy Bones, a well-known pop star. Michael sell the CDs made for him by Jack to a store called Best Music. Best Music has no knowledge that the CDs being sold to it are pirated copies of the copyrighted work. Which of the above parties will be liable for copyright infringement? a. Jack and Michael b. Michael and Best Music c. Jack, Michael, and Best Music d. Jack e. Michael Answer: c Diff: 3 Type: MC Topic: Copyright Skill: Applied 21) Which of the following is NOT a feature of an industrial design that is protected under the Industrial Design Act? a. the method of manufacturing the parts b. the handle that opens the door c. patterns on the design d. the shape of patterns on the design e. the shape of the design

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Answer: b Diff: 2 Type: MC Topic: Industrial Designs Skill: Applied 22) Mary makes a photocopy of a textbook she is required to review for a class. Which of the following is true? a. Mary is protected by the law regarding injunctions. b. Mary is liable for infringement of a trademark. c. Mary has to provide the author of the work with royalties for making the copy. d. Mary is protected by the principle of fair dealing. e. Mary is liable for copyright infringement. Answer: d Diff: 2 Type: MC Topic: Copyright Skill: Applied 23) A trademark may be renewed indefinitely and is relatively easy to register. Registration should therefore be completed by a business before it a. seeks copyright protection. b. asks its employees to execute a confidentiality agreement. c. invests heavily in naming a company or promoting a brand. d. claims an industrial design. e. brings an action for impeachment. Answer: c Diff: 3 Type: MC Topic: Strategies to Manage Legal Risks Skill: Recall/Applied 24) A trademark does not have to be registered to be protected. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Trademarks Skill: Recall/Applied 25) A design that has a distinctive shape can only be protected by registration as an industrial design. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Industrial Designs Skill: Recall/Applied 26) The copying of a musical work for the private use of the person copying it constitutes copyright infringement. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Copyright Skill: Recall/Applied 27) Patents granted based on applications filed before October 1989 last 20 years. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 1 Type: TF Topic: Copyright Skill: Recall 28) If A reproduces and sells a film whose author copyrighted it in a country that is not a signatory to the Berne Convention, the author cannot sue A for copyright infringement. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Copyright Skill: Applied 29) Generally speaking, computer software can be protected by both copyrighting it and patenting it. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Copyright Skill: Applied 30) A copyright assigned by A to B cannot be further assigned by B to C without the consent of A. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 3 Type: TF Topic: Copyright Skill: Applied 31) Genetic alterations in animals can be patented. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Patents Skill: Recall/Applied 32) Patent protection lasts 20 years from the date of the invention. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Patents Skill: Recall 33) Where an employee of a company invents a new machine during company time, only the employee can copyright it. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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Answer: b Diff: 1 Type: TF Topic: Copyright Skill: Applied 34) One of the elements of the tort of passing-off is that the plaintiff must establish beyond a reasonable doubt that the misrepresentation has taken place. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Trademarks Skill: Applied 35) Section 2 of the Trade-marks Act defines a trademark to include a distinguishing guise. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Trademarks Skill: Recall 36) Registration alone does not make a person the owner of a trademark. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 1 Type: TF Topic: Trademarks Skill: Recall 37) Copyright arises automatically simply by the act of creation. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Copyright Skill: Applied 38) There is no copyright of ideas. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Copyright Skill: Recall/Applied 39) Alice invents a kayak rudder that is virtually identical to one for which Jim has a patent in Canada. Alice did not know of Jim's rudder and did not copy it. Alice should not produce and market her rudder in Canada because she could be liable for patent infringement. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 1 Type: TF Topic: Patents Skill: Applied 40) Features in an industrial design that are solely functional or utilitarian are not protected under the Industrial Design Act. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Industrial Designs Skill: Applied 41) What is an Anton Pillar order? Answer: It is an order of the court permitting a party who believes that another party is infringing its copyright or trademark to attend at the place of business or other location of the other party to seize the infringing copies. Diff: 2 Type: ES Topic: Trademarks Skill: Recall/Applied 42) When does the common law tort of passing-off occur? Answer: Generally passing-off occurs when one party manufactures or sells goods that are similar to or identical to goods manufactured by another party, and which the public associates with the original manufacturer. The goods are passed-off by the wrongdoer as being those of the original manufacturer. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Trademarks Skill: Recall/Applied 43) Why is it important to seek an injunction in actions for copyright or trademark infringement? Answer: A party who is suffering damages because another party may be infringing his or her copyright or trademark wants to put an immediate stop to both the infringement and the losses that it is suffering as a result of the infringement. An injunction restrains the infringing party from committing further acts of infringement, which in turn reduces the losses of the party whose copyright or trademark is being infringed. Diff: 3 Type: ES Topic: Trademarks Skill: Applied 44) Where a design is such as to give rise to both a trademark and an industrial design, is it wise to register it under the Industrial Design Act? Why or why not? Answer: Although a design may be such as to be an industrial design and can be registered under the Industrial Design Act, it may also be a distinguishing guise and protected under trademark law. In this regard, protection as a trademark is often preferable because registration under the Industrial Design Act is for only 10 years, whereas under trademark law, property rights are not dependent on registration and, further, protection by registration is 15 years under the Trade-marks Act and may be indefinite if renewed. Diff: 3 Type: ES Topic: Industrial Designs Skill: Recall/Applied 45) Is it always necessary to suffer damages before an action for passing-off can be brought? Answer: The simple answer to this question is no, particularly in circumstances where the passingoff deliberately suggests an association with another's product. For example, an Copyright © 2016 Pearson Canada Inc.

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advertising campaign that incorrectly associates a product with the product of another and actually benefits that other product may still amount to passing-off. Diff: 2 Type: ES Topic: Trademarks Skill: Applied 46) Explain why an inventor might prefer to protect an invention by way of trade secret rather than applying for a patent. Answer: If the inventor applies for a patent, the inventor has to disclose the invention to the world. Patent protection lasts for 20 years from the date of application, and during that period the inventor has the exclusive right to exploit the invention, but anyone can exploit the invention after that period. The advantage of protecting the invention by way of trade secret is that the protection can last forever (if the inventor can keep the invention secret for that long). (Other reasons might include the expense of applying for a patent, and the possibility that the invention might not be patentable). Diff: 2 Type: ES Page Reference: 472 Topic: Confidential Information, Trade Secrets, and Know-How Skill: Applied 47) An Anton Pillar order gives the party to whom it is granted the right to go into the business or other premises of someone who may be guilty of copyright infringement even before a lawsuit is commenced. In such a situation, what value would such an order have? Answer: The value of an Anton Pillar order is that it allows a party who has good reason to believe his or her copyright is being infringed to actually obtain the evidence before the offending party has the notice of a lawsuit against it. This makes it easier for the innocent party to prove a case of infringement even before the lawsuit is commenced, since once the offending party realizes it is being sued, there is a tendency for it to attempt to dispose of or hide the infringing materials or goods, making it more difficult for the innocent party to prove infringement. Diff: 3 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Copyright Skill: Applied 48) Explain how confidential information is protected today. Answer: Today, confidential information is protected so long as the information is not disclosed to the general public. There are no application procedures for protection. Rather, the information receives protection through lawsuits for breach of express terms in a contract; for breach of an obligation of confidence that can be implied in a contract or can arise by reason of a fiduciary relationship; and where information is conveyed in circumstances suggesting a relationship of confidence or where a reasonable person would understand that the information was being disclosed in confidence. Diff: 2 Type: ES Topic: Confidential Information, Trade Secrets, and Know-how Skill: Applied 49) Today, are downloaders likely to be guilty of copyright infringement, and why? Answer: A downloader is a person who downloads swapped music files over the Internet. Such a person is actively copying the music, which is copyrighted. This process has been labelled format shifting and is not exempt from the application of the Copyright Act. In consequence, downloading would appear to amount to a form of copyright infringement. Diff: 2 Type: ES Topic: Copyright Skill: Recall/Applied 50) The basic rights of the owner of copyright are different from his or her moral rights. Explain. Answer: Copyright is the expression used to describe certain basic right of the creator of a work. These include (a) the right to produce or reproduce the work in question, (b) the right to perform or deliver the work in public, (c) the right to publish the unpublished work, (d) the right to translate the work, and (e) the right to exhibit the work in public. Moral rights Copyright © 2016 Pearson Canada Inc.

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are the rights of the creator of a work to prevent the work from being distorted or misused. There are four main kinds of moral rights. These are (a) the right to the integrity of the work; (b) the right to prevent its being distorted or mutilated; (c) the right to prevent the work from being used in association with some product or service, cause, or institution; and (d) the right to be associated with the work as author where the work is copied, published, or performed. Diff: 2 Type: ES Topic: Copyright Skill: Recall/Applied 51) Explain the notion of fair dealing in copyright law. Answer: An infringement of copyright occurs when another person, without the consent of the owner, does an act that only the owner has the right to do. Thus the unauthorized copying, performance, or recording of a copyrighted work is an infringement. It is not necessary for the entire work to be copied to for the copying to constitute an infringement. The absence of authority is the defining aspect of an infringement. Certain acts that would amount to an infringement are not deemed to be infringements and are expressly permitted by the Copyright Act. These acts are those that are generally classified as "fair dealing" with the creation. Fair dealing is essentially the expression that denotes the exemption that is given to fair use of copyrighted work. These include use of the work for (a) private study or research, (b) criticism and review, and (c) news reporting. Diff: 2 Type: ES Topic: Copyright Skill: Applied 52) The protection of a business’s intellectual property (IP) is a significant concern when dealing with employees, consultants, or independent contractors. Furthermore, as businesses develop a new concept with the assistance of employees, consultants, or independent contractors, issues of ownership and confidentiality must be addressed. What steps can businesses take to effectively protect their existing IP or the development of a new concept? Answer: Employees, consultants, or independent contractors should be subject to a confidentiality agreement and an agreement establishing ownership of the property in the business. Copyright © 2016 Pearson Canada Inc.

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These agreements need to be prepared and signed before any work is undertaken. If an employee, consultant, or independent contractor brings to the business their own IP and seeks to retain ownership of any work product, his or her rights should be preserved in the original engagement contract. An IP code of conduct should also be developed to protect the integrity of the business’s IP and to limit liability for the infringing behaviour of others. The code should set standards for use and misuse and should control use of technology by prohibiting downloading, uploading, sharing, and format shifting except in accordance with defined rules. Diff: 3 Type: ES Topic: Strategies to Manage the Legal Risks Skill: Recall/Applied

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1) A's family has owned a parcel of land for five generations. There are no restrictions or conditions attached to the land. In this case, A's family holds the land a. as a licence. b. as a leasehold interest. c. in fee simple. d. as a life estate. e. as an easement. Answer: c Diff: 2 Type: MC Topic: Estates in Time Skill: Applied 2) Use this fact situation to answer the related questions that follow. John owns a cottage property and wants to ensure that on his death, his wife will have the use of the property as long as she lives, but that when she dies it will be transferred to his two sons. To accomplish this, John will give his wife a. an estate in fee simple of the land. b. a leasehold interest in the land. c. an easement in the land. d. a life estate in the land. e. a licence in the land. Answer: d Diff: 2 Type: MC Topic: Estates in Time Skill: Applied 3) Use the fact situation in Q2 to answer the related question that follows. Also in this case, at common law the two sons will be referred to as a. lessees. b. reversioners. Copyright © 2016 Pearson Canada Inc.

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c. licencees. d. remaindermen. e. life tenants. Answer: d Diff: 2 Type: MC Topic: Estates in Time Skill: Recall/Applied 4) John and Edward own property in Toronto. Edward owns 45 percent of the property, and John owns the remaining 55 percent. Both John and Edward can deal with their respective interests in the property at any time without the consent of the other. In this case, John and Edward own the property as a. joint tenants. b. tenants in common. c. remaindermen. d. servants. e. licencees. Answer: b Diff: 2 Type: MC Topic: Estates in Time Skill: Applied 5) Albert and his spouse, Mary, want to buy a piece of property in Toronto and wish to have ownership that will permit the transfer of the land to either of them on the death of the other. To accomplish this, they will take title as a. lessees. b. reversioners. c. joint tenants. d. tenants in common. e. licencees. Answer: c Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Estates in Time Skill: Applied 6) Use this fact situation to answer the related questions that follow. A and B own farms in southern Ontario next to one another in an area where the land registry system applies. They have access to their farms by means of a road that runs along the northerly edge of both properties. Both A and B live in their houses, which are situated at the southernmost portions of their farms. At the northeastern end of B's property there is a bus stop at the side of the road, where A catches the bus to work. A now decides that he will cut across B's land to get to the bus stop and begins to do this, creating a pathway over B's land without B's knowledge or consent. If A continues to cut across B's land for 10 years, a. A will acquire a possessory right to the path. b. A will acquire an easement in the path by prescription. c. A will acquire an easement in the path by adverse possession. d. A will acquire no easement in the path at all. e. none of the above Answer: a Diff: 2 Type: MC Topic: Interests Less Than Estates Skill: Applied 7) Use the fact situation in Q6 to answer the related question that follows. If A uses the path for a period of at least 20 years, A will acquire a. an easement by adverse possession only. b. a licence by prescription, but not adverse possession. c. an easement by both prescription and adverse possession. d. an easement by prescription only. e. a licence by adverse possession, but not by prescription. Answer: c Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Interests Less Than Estates Skill: Applied 8) Use the fact situation in Q6 to answer the related question that follows. If title to both farms was registered in the land titles system, a. A will acquire a possessory right to the path. b. A will acquire an easement in the path by prescription. c. A will not acquire an easement in the path at all. d. A will acquire an easement in the path by adverse possession. e. A will acquire a licence in the path. Answer: c Diff: 2 Type: MC Topic: Registration of Interests in Land Skill: Applied 9) A owns a farm in rural Ontario, but lives in Toronto. B owns the farm right next to A's farm and earns his living as a farmer. If B enters into an agreement with A whereby B can plant and harvest crops on A's land, A has granted B a. an easement. b. a licence. c. a lease. d. an estate in fee simple. e. none of the above Answer: b Diff: 2 Type: MC Topic: Interests Less Than Estates Skill: Applied 10) Use this fact situation to answer the related questions that follow. On January 1, 2009, A enters into an agreement of purchase and sale to purchase B's property in downtown Toronto and takes the agreement to his lawyer.

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Among other things, and before the transaction closes, A's lawyer will conduct a. a search of taxes. b. a building/zoning compliance search of B's property. c. an execution search. d. a title search of B's property. e. all of the above Answer: e Diff: 2 Type: MC Topic: Registration of Interests in Land Skill: Applied 11) Use the fact situation in Q10 to answer the related question that follows. In addition to the searches that A's lawyer will conduct, A's lawyer will need to examine a. all court orders affecting B's property. b. all encroachments over B's property. c. all federal statutes providing for ownership of mineral rights. d. all unregistered easements affecting B's property. e. a survey of B's property. Answer: e Diff: 2 Type: MC Topic: Registration of Interests in Land Skill: Applied 12) Use the fact situation in Q10 to answer the related question that follows. Assume that the agreement of purchase and sale between A and B is silent as to production of a survey, but permits A or his authorized representative to inspect the property. In this case, to protect himself a. A will obtain a survey at B's expense. b. A will obtain a survey and the cost will be shared equally by A and B. c. A cannot obtain a survey under the terms of the agreement. d. A will obtain a survey at A's expense. Copyright © 2016 Pearson Canada Inc.

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e. A will not need to obtain a survey at all. Answer: d Diff: 2 Type: MC Topic: Registration of Interests in Land Skill: Applied 13) A geological survey of land owned by George in northern Ontario indicates that there are gold deposits under the soil, which makes the land very valuable. George approaches a mining company and agrees to let the company mine the gold for a very large sum of money. The agreement goes on to provide that the company will also pay George a portion of the value of gold extracted each year by the company. In this case, George and the company have entered into a. a life interest agreement. b. a mineral lease. c. an oil lease. d. a licence agreement. e. an easement. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Land Skill: Applied 14) Use this fact situation to answer the related questions that follow. Edward and John own residential lots of land in Ontario that are beside each other. The previous owners of the lots wanted to save themselves the cost of surveys and put up a fence on what they thought was the lot line between the two properties. Edward bought his lot in 1961, and from that time on began to landscape a 3 metre wide strip beside the fence; erecting a rock wall 3 metres from the fence; planting trees, shrubs, and flowers; and constructing a small fountain between the wall and the fence. In 1986, John purchased his lot and had a survey done, which disclosed that the fence had been placed 3.3 metres inside his lot, so John proceeded to move the fence back to the lot line and in the process destroyed all of the landscaping that Edward had done. Assuming that the property was in the land registry system, in this case a. Edward acquired ownership of the strip of land by adverse possession. Copyright © 2016 Pearson Canada Inc.

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b. Edward acquired possessory ownership of the strip of land by adverse possession. c. Edward is now the absolute owner of the strip of land. d. the strip of land has become part of Edward's land, and Edward can sue John for the damage caused to his landscaping. e. all of the above Answer: e Diff: 3 Type: MC Topic: Interests Less Than Estates Skill: Applied 15) Use the fact situation in Q14 to answer the related question that follows. Also in this case, a. Although John's acts amount to nuisance, he cannot be sued in damages. b. John's acts in destroying the landscaping amount to a nuisance, and he can be sued in damages. c. Although John can be sued in damages, he is not a trespasser. d. John is a trespasser and can be sued in damages. e. John's acts constitute slander of Edward's title, and he can be sued in damages. Answer: d Diff: 3 Type: MC Topic: Interests Less Than Estates Skill: Applied 16) A freehold estate a. an interest in land that is indeterminate in time. b. a holder of a life estate. c. an interest in land that is closest to complete ownership. d. a fixed time during which a person holds an interest in land. e. an estate in land held for the life of one person. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Estates in Time Skill: Recall 17) A life estate is a. an interest in land that is indeterminate in time. b. an interest in land that is closest to complete ownership. c. a holder of a life estate. d. an estate in land held for the life of one person. e. a fixed time during which a person holds an interest in land. Answer: d Diff: 1 Type: MC Topic: Estates in Time Skill: Recall 18) After a life estate has been carved out, the balance of the fee simple is called a. a balance. b. an estate reversion. c. a remainder. d. a remainder of estate. e. a balance of estate. Answer: c Diff: 1 Type: MC Topic: Estates in Time Skill: Recall 19) Which of the following can create an easement? a. the right to exclusive occupation of a building for 25 years b. permission from your neighbour to hold a garage sale in his yard c. the right to use your neighbour's driveway to reach the garage on your property d. the right to go onto your neighbour's property to extract coal Copyright © 2016 Pearson Canada Inc.

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e. all of the above Answer: c Diff: 2 Type: MC Topic: Interests Less Than Estates Skill: Recall/Applied 20) Tenancy in common and joint tenancy are distinguished by a. probate. b. leasehold interests. c. probate fees. d. legal fees. e. the right of survivorship. Answer: e Diff: 1 Type: MC Topic: Estates in Time Skill: Recall 21) Jack and Mary owned their matrimonial home as joint tenants. Approximately two weeks before he passed away, Jack prepared a new document that transferred his interest in the home to his sister Janet. Jack's conduct is known as a. transference. b. preparing a will. c. severance. d. separation of interest. e. last will and testament. Answer: c Diff: 1 Type: MC Topic: Government Regulation of Land Skill: Recall 22) A building scheme is different from a restrictive covenant because a building scheme Copyright © 2016 Pearson Canada Inc.

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a. applies only to a condominium development. b. covers an entire neighbourhood. c. requires an owner to get developer approval before building. d. does not bind future purchasers. e. can be extinguished if the majority of owners agree. Answer: b Diff: 2 Type: MC Topic: Interests Less Than Estates Skill: Recall 23) In a condominium, structures and areas that are external to a condominium unit, such as the reception, stairs, gardens, and gymnasium, are referred to as a. joint tenancy areas. b. common elements. c. communal areas. d. general areas. e. estates. Answer: b Diff: 1 Type: MC Topic: Government Regulation of Land Skill: Recall/Applied 24) A unit in a multiple-unit development that may be owned in fee simple is usually referred to as a. real estate development. b. life estates. c. a condominium. d. joint tenancy. e. a tenancy in common. Answer: c Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Government Regulation of Land Skill: Recall/Applied 25) Jack buys a farm house. The day after he buys the home he sees Joseph, another farmer, walking over his property with a pail, towards a nearby stream. Jack is angry that Joseph is walking over his land and he tells Joseph not to do so. Joseph tells him that he has a right to walk over the land to fetch water from the stream. Joseph tells Jack that the right has existed since Joseph's great-grandfather purchased the property. This means that Jack's property is a a. severance. b. servient tenement. c. right of way. d. statutory easement. e. dominant tenement. Answer: b Diff: 2 Type: MC Topic: Estates in Time Skill: Recall/Applied 26) To seize to hold and sell land in order to realize the amount due under a judgment registered against the owner is a. a foreclosure sale. b. to levy execution. c. a levy sale. d. a creditor execution. e. to expropriate the property. Answer: b Diff: 1 Type: MC Topic: Registration of Interests in Land Skill: Recall 27) When land is compulsorily transferred to a public body pursuant to statute, this is known as Copyright © 2016 Pearson Canada Inc.

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a. transfer by operation of statute. b. reservation. c. transfer. d. levy execution. e. expropriation. Answer: e Diff: 1 Type: MC Topic: The Transfer of Interests in Land Skill: Recall 28) In some parts of Canada, using another person’s land may give an adjoining landowner an easement over her or his neighbour’s land. An easement by prescription will not be created if a. there is a continuous exercise of the right for a period of at least 20 years. b. the exercise of the right is conducted openly. c. the exercise of the right is without fraud or deceit. d. the owner is aware of the use and does not object. e. the exercise of the right is without force or threats against the owner. Answer: d Diff: 3 Type: MC Topic: Interests Less Than Estates Skill: Recall 29) By the terms of his will, Ted gives a life estate in a small home he owns to his brother Bob. Ted then directs that the rest of the fee simple pass to his brother’s son Philip after Bob dies. Bob’s son is referred to as a. the reversion man. b. life tenant. c. the remainder man. d. tenant in common. e. servient tenement.

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Answer: c Diff: 3 Type: MC Topic: Estates in Time Skill: Recall/Applied 30) Absolute ownership of real property does not entitle the owner to sell it. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Estates in Time Skill: Applied 31) An estate in land given by A to B during A's life gives A a remainder in the land. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Estates in Time Skill: Applied 32) Where A leaves his land to his spouse for life and after her death to his son for life and after the son's death to his daughter, the daughter holds a life estate in the land. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: TF Topic: Estates in Time Skill: Applied 33) Where A takes a shortcut over B's land for six years without B's consent, A is a trespasser. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: The Transfer of Interests in Land Skill: Applied 34) An easement can only be acquired through the use of land and never by way of a grant or transfer from the owner of the land. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Interests Less Than Estates Skill: Applied 35) Today, most utility companies have easements over residential property. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Copyright © 2016 Pearson Canada Inc.

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Topic: Interests Less Than Estates Skill: Applied 36) Two benefits of owning a condominium are absolute ownership and the sharing of all common expenses. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Government Regulation of Land Skill: Recall 37) An eavestrough that overhangs A's house onto B's land is an encroachment. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Transfer of Interests in Land Skill: Applied 38) Jack buys a farmhouse. The day after he buys the home, he sees Joseph, another farmer, walking over his property with a pail, towards a nearby stream. Jack is angry that Joseph is walking over his land, and he tells Joseph not to do so. Joseph tells him that he has a right to walk over the land to fetch water from the stream. Joseph tells Jack that the right has existed since Joseph's great-grandfather purchased the property. This means that Joseph has a right of way. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 2 Type: TF Topic: Interests Less Than Estates Skill: Applied 39) Erin and Oliver own their house as joint tenants. Erin makes a will leaving her interest in the house to her parents; Oliver makes a will leaving his interest in the house to his parents. Erin and Oliver are both killed as a result of a car accident. Erin dies one week before Oliver. Her interest in the house will pass to her parents. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Estates in Time Skill: Applied 40) Unless someone has adverse possession, the law presumes an owner to be in possession of his or her property. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Interests Less Than Estates Skill: Applied 41) Michael has been in adverse possession of a home for close to 30 years. Assume that the limitation period for adverse possession is 31 years and that a few months before the end of the thirtieth year the owner returns to the property and demands rent from Michael, which Michael pays. This means that adverse possession has been interrupted and the limitation period will start to run again. a. True Copyright © 2016 Pearson Canada Inc.

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Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Interests Less Than Estates Skill: Recall/Applied 42) What is a condominium corporation? Answer: A condominium corporation is a corporation whose members are the owners of the condominium. The condominium corporation is responsible for managing the whole condominium property. Diff: 1 Type: ES Topic: Government Regulation of Land Skill: Recall 43) Explain two major advantages of the land titles system of registration. Answer: First, title to real property is guaranteed under the land titles system, and if a mistake is made, then a claim can be made against the various land titles assurance funds. Second, no longer can land be acquired or lost by adverse possession. Diff: 2 Type: ES Topic: Registration of Interests in Land Skill: Recall/Applied 44) These days, it is wise for a purchaser of real property to obtain title insurance. Explain. Answer:

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Not only does title insurance protect the purchaser against defects in title such as easements and encroachment, it also protects the purchaser/owner against identity theft and fraudulent transfers of his, her, or its property. Diff: 3 Type: ES Topic: Registration of Interests in Land Skill: Applied 45) It has been suggested that the disadvantages of owning a condominium are actually minimal. Explain one situation where this statement may be less than accurate. Answer: When condominiums are new or relatively new, the expenses related to them, such as repairs, are relatively small and, further, they are shared by the unit owners. However, as condominium buildings and properties age, their owners face huge contributions towards repair and upkeep of the buildings or properties, which may come as a surprise, and the reserve funds set aside for this purpose are often insufficient to cover the cost. Diff: 3 Type: ES Topic: Government Regulation of Land Skill: Applied 46) Explain the difference between a restrictive covenant and a positive covenant. Answer: A restrictive, or negative covenant, is a covenant that restricts a purchaser from doing something, whereas a positive covenant requires the purchaser to do something with respect to the land. While the former runs with the land and binds successive purchasers of the property, the courts have held that the latter is not binding on successive purchasers of land. Diff: 2 Type: ES Topic: Interests Less Than Estates Skill: Applied 47) Explain the common law concept of severance.

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Answer: Severance is the term used to describe the means by which a joint tenancy is converted into a tenancy in common, and the most common way for this to be done is for a joint tenant to transfer his or her interest to a third party during his or her lifetime. Diff: 2 Type: ES Topic: Estates in Time Skill: Recall/Applied 48) What is expropriation? Answer: Expropriation is the compulsory transfer of land to a public body by operation of a statute. Diff: 1 Type: ES Topic: The Transfer of Interests in Land Skill: Recall 49) When is an owner's title to property extinguished? Answer: When a person obtains adverse possession of property and the owner does not interrupt the adverse possession before the end of the limitation period, the owner's title is extinguished. When this happens, the possessor becomes the new owner. Diff: 1 Type: ES Topic: The Transfer of Interests in Land Skill: Recall/Applied 50) Describe the two main classifications of interests in land. Answer: The modern system of land ownership classifies interests in land as follows: (1) the time during which a person who held the interest in the land had an exclusive right to the possession of the land and (2) the kind of use to which the person who had an interest in

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the land could put it. The first kind of ownership is known as estates in time, and the second kind of ownership is known as interests less than estates. Diff: 2 Type: ES Topic: The Nature of Interests in Land Skill: Recall/Applied 51) What is a life estate? Answer: A life estate is an estate in land held for the life of one person. Diff: 1 Type: ES Topic: Estates in Time Skill: Recall 52) A is making his last will. He wants to leave his cottage property to his daughter and her husband, but in such a way that neither of them can deal with the property without the consent of the other and that when one of them dies, the other will become the owner of the property. He also wants to leave his condominium for the use and possession of his son during his son's lifetime, and after that to his niece and her husband, although he wants to specify that his niece will have an undivided 85 percent interest in the condominium and her husband an undivided 15 percent interest. State the type of estates that the beneficiaries will have in A's property, as well as the type and quality of ownership. Answer: The gift to the daughter and her husband is an absolute gift; that is, they will take the property absolutely, giving them ownership in fee simple. Further, they will take title to the property as joint tenants to reflect A's wishes. As for the son and niece, the son has been left a life estate in the condominium, while the niece and her husband will have absolute ownership of the condominium or ownership in fee simple, but will hold title as tenants in common as to their specified interests. Diff: 2 Type: ES Topic: Estates in Time Skill: Applied

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53) Explain why it is important to conduct, before closing, a zoning search of property that is the subject matter of an agreement of purchase and sale. Answer: For various reasons, municipalities, cities, and towns have the right to pass laws called by-laws that restrict the use of property. These by-laws affect the zoning of the property. For example, a property can be designated either for residential use or for a number of different commercial uses. Most purchasers have a specific use of the property in mind, and the only way to ensure that they can use the property for the purposes for which they bought it is to conduct a zoning search to confirm that such use is legal. Where the property ends up being zoned for a use that prohibits the use intended by the purchaser, the purchaser can have the agreement of purchase and sale set aside. Diff: 3 Type: ES Topic: Registration of Interests in Land Skill: Applied 54) Before present-day legislation, which permits electronic registration, grants of land by deed had affidavits attached to them that identified both the vendor and the purchaser, and these affidavits were sworn under oath. As a result, identity theft and fraud seldom occurred. Today, however, such affidavits have been done away with in transfers, particularly in situations where registration is by electronic means. Given the rise in identity theft and the corresponding number of fraudulent transfers related to land, discuss whether there is good reason to return to the ways of the past and, if not, the best way to protect the parties involved in the purchase and sale of land. Answer: The rise in fraudulent transactions has occurred mainly because the safeguards relating to the identity of the vendor and purchaser available in the old grants by deed are no longer available. This is made worse because of the guarantees provided by the land titles system of registration. Thus, someone who fraudulently obtains title to land registered under the land titles system is for all intents and purposes the owner of the land. This suggests that the old system of grant by deed using affidavits related to identifying the parties may have been wiser. However, since it is unlikely that electronic registration will be eliminated, title insurance becomes a prudent way of dealing with problems relating to identity theft and fraud. Diff: 3 Type: ES Topic: Registration of Interests in Land Skill: Applied Copyright © 2016 Pearson Canada Inc.

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55) Explain the effect of severance and how can it be done. Answer: Severance is the process whereby a joint tenancy is turned into a tenancy in common. The right of survivorship ends. Most commonly, the transfer to a third party by a joint tenant of his or her undivided interest in land during the joint tenant's lifetime will effect a severance of the joint tenancy. Diff: 2 Type: ES Topic: Estates in Time Skill: Recall/Applied 56) Michael has been in adverse possession of a home for close to 30 years. Assume that the limitation period for adverse possession is 31 years and that a few months before the end of the thirtieth year the owner returns to the property and demands rent from Michael, which Michael pays. Explain the effect on Michael's adverse possession. Answer: Adverse possession is the exclusive possession of property by someone who openly uses the property as if he or she were the owner and ignores the claims of others and the owner. When a person adversely possesses property for a stipulated period of time, the limitation period, the title of owner is extinguished. However, adverse possession ceases to be effective if it is interrupted by the owner before the end of the limitation period. Thus in the above case, if the limitation period is 31 years and close to the end of the thirtieth year the owner comes and demands rent, which is paid, then the adverse possession is interrupted. When adverse possession is interrupted, the limitation period starts again. Diff: 2 Type: ES Topic: The Transfer of Interests in Land Skill: Applied 57) Explain the distinction between a tenancy in common and a joint tenancy. Answer: Tenancy in common and joint tenancy are expressions that are used to define concurrent interests in land. When two or more persons own land concurrently, they are deemed to be tenants in common in the absence of any special agreement between them. Joint tenancy arises where two or more persons own land concurrently and the parties agree Copyright © 2016 Pearson Canada Inc.

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that they are joint tenants. The distinguishing difference between joint tenants and tenants in common is the notion of the "right of survivorship." Joint tenants have a right of survivorship. This means that in the event that a joint tenant passes away, the interest of that tenant automatically passes to the other joint tenant or tenants by right of survivorship. Tenants in common have no right of survivorship. When a tenant in common dies, his or her interest goes to his or her heirs. Diff: 2 Type: ES Topic: Estates in Time Skill: Applied 58) A potential purchaser of land is often provided with a time period under the agreement of purchase and sale to search for information relating to the property. This has the effect of reducing the risks of receiving defective title. One of the sources of information that can be obtained or requisitioned is a survey. What is a survey, and why is it important for a purchaser to consider obtaining? Answer: A survey is a detailed drawing or map of the real property showing all of the boundaries of the land and locations of the buildings, fixtures, encroachments, or overhangs. The only way to confirm the exact physical location of buildings and fences on a property is to obtain a survey. One of the things that a survey confirms is whether or not a structure purportedly being sold is actually on the lot. Erected fences and existing driveways are located in relation to the boundaries of the property. The survey can also identify possible claims for adverse possession. Unfortunately, surveys are expensive. The parties to an agreement of purchase and sale should address in the agreement whether or not a survey will be provided as a condition of sale and, if so, which party has the obligation to supply it. Diff: 3 Type: ES Topic: Strategies to Manage Legal Risks and Claims That Are Not Registered on Title Skill: Recall/Applied

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1) An interest in land for a definite period of time is called a a. leasehold interest. b. period. c. lease. d. periodic tenancy. e. term. Answer: e Diff: 1 Type: MC Topic: The Nature of the Relationship Skill: Recall 2) A and B are friends, and for years now, on B's invitation, A has used B's vacant land in northern Ontario to hunt wild game. In this case, A is a a. subtenant. b. trespasser. c. licensee. d. tenant at will. e. tenant. Answer: c Diff: 2 Type: MC Topic: The Nature of the Relationship Skill: Applied 3) A enters into a lease with B whereby A will lease office space in B's building commencing March 1. But since B has to renovate the office for A and it will not be ready by March 1, as a gesture of goodwill, B permits A to use another office in the building until A's office is ready and charges A a small sum during this time. In this case, the use by A of the office pending completion of his own office creates a. a licence. b. an easement. c. a tenancy at sufferance. d. a tenancy at will.

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e. a periodic tenancy. Answer: d Diff: 2 Type: MC Topic: Classes of Tenancies Skill: Recall/Applied 4) A rents his property to B for a term of five years. At the end of the term, A has not been able to rent the property out and simply permits B to continue to stay on the property without paying rent. In this case, B is a. a tenant at will. b. a tenant at sufferance. c. a licensee. d. a periodic tenant. e. a trespasser. Answer: b Diff: 2 Type: MC Topic: Classes of Tenancies Skill: Recall/Applied 5) A and B enter into a lease for property owned by B for a term of four years commencing April 1, 2009, and ending March 31, 2013. In this case, the lease creates a. a periodic tenancy. b. a tenancy at will. c. a license. d. a tenancy for a fixed or certain term. e. a tenancy at sufferance. Answer: d Diff: 1 Type: MC Topic: Classes of Tenancies Skill: Recall/Applied

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6) A and B enter into a lease for B's property. Under the lease, which has no specific term, A makes his payments monthly. In this case, at the end of each month, a. the lease becomes a license. b. the lease becomes a tenancy at sufferance. c. the lease becomes a tenancy at will. d. the lease comes to an end. e. the lease is automatically renewed for another month. Answer: e Diff: 2 Type: MC Topic: Classes of Tenancies Skill: Applied 7) Edward enters into a lease with Charles to rent commercial property and use it as a convenience store. The lease is for a term of five years. After a couple of months, Edward's business is not doing very well, so Edward decides to assign the lease to John, who makes his rent payments directly to Charles. In this case, a. the assignment to John makes only Edward liable to Charles for a breach of the lease. b. the assignment to John makes both Edward and John liable to Charles for a breach of the lease. c. the assignment to John makes only John liable to Charles for a breach of the lease. d. the assignment to John discharges the lease between Edward and Charles. e. none of the above Answer: d Diff: 3 Type: MC Topic: Covenants Skill: Applied 8) A owns a single-storey commercial building in downtown Toronto, which he has leased to B for use as an office. A few months after the lease was entered into, A sold the building to C together with A's lease. C bought A's building because he wanted to convert it into a luxury restaurant. Just after C become the owner of the building, C started to enter B's offices on a daily basis without notice and, further, began a small construction project in front of the building, which not only obstructed access to the building, but also made so much noise that it constantly disturbed B, B's staff, and B's clients. In this situation, Copyright © 2016 Pearson Canada Inc.

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a. C has breached the covenant for quiet enjoyment and B can sue A and C for damages and seek an injunction against C. b. C has breached the covenant for quiet enjoyment and B can sue only A for damages. c. C has breached the covenant for quiet enjoyment and B can sue only C for damages. d. C has breached the covenant for quiet enjoyment and B can only sue A and C for damages if he so chooses. e. C has not breached the covenant for quiet enjoyment because, as owner of the building, C has the right to do the construction and enter B's premises at any time. Answer: a Diff: 3 Type: MC Topic: Remedies of the Tenant Skill: Applied 9) A orally agrees with B to lease an office in B's building for four years. A moves in and renovates the office and also pays monthly rent to B pursuant to their agreement. B now decides to arbitrarily tell A to leave because there is no lease. If A wants to make B specifically perform the lease, a court will most likely find that a. the lease is unenforceable under the Statute of Frauds, but A's acts will give him a quantum meruit claim for the renovations. b. the lease is unenforceable under the Statute of Frauds, but A's acts constitute part performance and the lease should be upheld. c. the lease is unenforceable under the Statute of Frauds, and A's acts do not amount to part performance so effectively there is no lease. d. the lease is unenforceable under the Statute of Frauds, but A's acts will give him a claim for unjust enrichment for the renovations. e. all of the above Answer: b Diff: 3 Type: MC Topic: Oral Leases Skill: Applied 10) Use this fact situation to answer the related questions that follow. Albert entered into a commercial lease with a company for a term of 15 years, with an option to renew for a further term of 5 years. During the second year of the lease, the company entered into a 17-year lease with Harvey for the same building, but at a Copyright © 2016 Pearson Canada Inc.

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substantially increased rate of rent. Before entering into the lease, Harvey's lawyer conducted all proper searches related to the building and found no problems. In this case, a. Albert's lease has been extinguished. b. Albert's lease is now subject to Harvey's lease c. Albert's lease has become a licence. d. Albert will succeed in setting Harvey's lease aside. e. none of the above Answer: a Diff: 3 Type: MC Topic: Sale of the Landlord's Interest Skill: Applied 11) Use the fact situation in Q10 to answer the related question that follows . If Albert had wanted to better protect himself when he entered into his lease, Albert should have a. posted notices inside the building stating that he had a lease with the company. b. published notice of the lease in the local newspaper. c. registered the lease on title of the building. d. made sure the company could not gain entry into the building. e. obtained an indemnity agreement from Harvey. Answer: c Diff: 2 Type: MC Topic: Sale of the Landlord's Interest Skill: Recall/Applied 12) Jack enters into a verbal agreement with the owner of a home. He will reside in one of the rooms in the home and will share the kitchen with the owner. He does not sign a formal lease, and he is advised that he can leave the premises at any time without notice. Likewise the landlord may ask him to leave the premises at any time without notice. Jack's tenancy is a. term certain tenancy. Copyright © 2016 Pearson Canada Inc.

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b. leasehold tenancy. c. a tenancy at will. d. a periodic tenancy. e. a tenancy at sufferance. Answer: c Diff: 2 Type: MC Topic: Classes of Tenancies Skill: Recall/Applied 13) Jack is on vacation and enters into an agreement with the owner of a home. He will reside in one of the rooms in the home and will share the kitchen with the other tenants. He will vacate the premises at the end of his vacation, in one month. If at the end of the month Jack does not vacate the premises and the landlord does not agree to Jack staying on, Jack becomes a. a periodic tenant. b. a tenancy at sufferance. c. a tenant at will. d. a term certain tenant. e. an overholding tenant. Answer: e Diff: 2 Type: MC Topic: Classes of Tenancies Skill: Recall/Applied 14) Which of the following is NOT a typical covenant of the tenant in a lease? a. fitness for occupancy b. restriction on assignment and subletting c. restriction on pets d. responsibility for insurance e. payment of rent Answer: a Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Covenants Skill: Recall 15) The landlord's covenant of quiet enjoyment means that a. the landlord will not do anything to interfere with the tenant's possession and use of the premises. b. the tenant will not bring other persons onto the premises. c. the landlord will not make excessive noise that could interfere with the right of the tenant to peace and quiet. d. the tenant will not make excessive noise that could disturb others, including the landlord and other tenants. e. the tenant will not disturb other tenants. Answer: a Diff: 2 Type: MC Topic: Covenants Skill: Recall/Applied 16) Waste, in connection with leased premises, refers to a. garbage bought onto the premises by third parties. b. damage caused by the voluntary or involuntary acts of the tenant that has the effect of reducing the value of the property. c. garbage of the tenant. d. human waste. e. garbage of the landlord. Answer: b Diff: 1 Type: MC Topic: Covenants Skill: Recall 17) Where there has been a breach of the lease contract, a landlord, in addition to suing for damages, has a duty a. to mitigate damages. Copyright © 2016 Pearson Canada Inc.

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b. to re-enter the premises to seize the property of the tenant. c. to return the property of the tenant to the tenant. d. to report the breach to the rental tribunal. e. to check to determine whether there has been any damage to the property. Answer: a Diff: 2 Type: MC Topic: Remedies of the Landlord Skill: Applied 18) The right of the landlord to seize the assets of the tenant to sell them to realize rental arrears is called a. forfeiture. b. distress. c. surrender. d. re-entry. e. termination. Answer: b Diff: 1 Type: MC Topic: Remedies of the Landlord Skill: Recall 19) To end a periodic tenancy, the landlord or tenant must serve a a. notice of termination. b. notice of injunction. c. notice of commencement of proceedings. d. notice to quit. e. notice of withdrawal. Answer: d Diff: 1 Type: MC Topic: Termination and Renewal of a Tenancy Copyright © 2016 Pearson Canada Inc.

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Skill: Recall 20) Mary's tenancy is due to end on June 2, 2003. On that date, Mary does not leave the premises and pays the landlord rent for another month. The term certain tenancy is converted into a a. term certain tenancy. b. tenancy at will. c. periodic tenancy. d. tenancy at sufferance. e. month to month tenancy. Answer: c Diff: 2 Type: MC Topic: Termination and Renewal of a Tenancy Skill: Applied 21) Objects that are attached to the land or a building but are distinguished from the land itself are called a. chattels. b. accessories. c. additions to land. d. fixtures. e. fixings. Answer: d Diff: 1 Type: MC Topic: Fixtures Skill: Recall 22) Which of the following is NOT a question one would ask when determining whether an object is a fixture? a. What was the value of the object? b. How much damage, if any, will be caused to the building by its removal? c. Has the object been fastened to the building with the intention that it become a part of the building? Copyright © 2016 Pearson Canada Inc.

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d. What use is to be made of the object? e. How securely and permanently is the object attached? Answer: a Diff: 2 Type: MC Topic: Fixtures Skill: Applied 23) Maab owns a small pet shop. He carries on business in commercial premises he leases from his landlord Susan. Due to a down turn in the local economy, Maab fails to pay his rent for three months. Susan takes the appropriate steps to reenter the premises and evict Maab for failure to pay rent. Maab was unable to remove all of his assets from the premises before the reentry. He has a large aquarium with thousands of dollars of exotic fish that Susan has now threatened to sell and apply the proceeds to the outstanding rent arrears. Is she legally entitled to do so? a. Yes, because Maab failed to remove all of his assets prior to the reentry and eviction. b. Yes, because the landlord has a general right to seize assets of the tenant found on the premises and sell them to recover arrears of rent. c. No, because a commercial landlord is never entitled to sell assets owned by a tenant. d. No, because the landlord is not permitted to exercise the right of eviction and subsequently exercise a right of distress. e. Yes, because Maab is a commercial tenant. Answer: d Diff: 3 Type: MC Topic: Fixtures Skill: Applied 24) Bill operates a small skate sharpening business in the local mall. The lease is for five years with an option to renew for a further five years. After taking possession, Bill brings into the premises a skate sharpening machine which is fastened to the floor with four bolts. He carries on business for five years and decides to relocate. Bill does not exercise the option to renew. He removes the skate sharpening machine the day before the lease expires and repairs the four holes in the floor so as to prevent any damage. His landlord learns that the skate sharpening machine has been removed and threatens to sue Bill alleging that he removed a fixture which belonged to the landlord. The landlord tells Copyright © 2016 Pearson Canada Inc.

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Bill that he has rented the premises to a new tenant and “sold” the skate sharpening machine to the new tenant. In this case a. The skate sharpening machine cannot be removed because it affects the right of an innocent third party – the new tenant. b. Any fixtures installed by the tenant during the course of the tenancy cannot be removed. c. The skate sharpening machine is a tenant’s fixture and it may be removed before the end of the tenancy. d. The skate sharpening machine can be removed because it was not at any time considered at law to have become a fixture. e. The skate sharpening machine should be put into storage pending a court order. Answer: c Diff: 3 Type: MC Topic: Fixtures Skill: Applied 25) Jack enters into a lease with Mary for a term of one year. Before she leased the property, Mary granted a mortgage over the property to the Royal Bank of Canada. Mary does not advise the Royal Bank of Canada of the lease. A month later Mary defaults under the mortgage. Which of the following is true? a. The Royal Bank of Canada's title is subject to lease. b. The Royal Bank of Canada is bound by the lease and cannot obtain possession. c. The Royal Bank of Canada can evict Jack and sell the property. d. Jack can continue to observe the terms of the lease. e. The Royal Bank of Canada cannot evict Jack and get a new tenant. Answer: c Diff: 2 Type: MC Topic: Sale of the Landlord's Interest Skill: Applied 26) A financial arrangement that enables a business to purchase a house and sell it to a financial institution that in turn gives a long-term lease of the property back to the business is called Copyright © 2016 Pearson Canada Inc.

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a. a saleback. b. a leaseback. c. a mortgageback. d. a loanback. e. a purchaseback. Answer: b Diff: 1 Type: MC Topic: Sale of the Landlord's Interest Skill: Recall 27) The right of the landlord to distrain is also sometimes referred to as a. forfeiture. b. distress. c. right of re-entry. d. joint tenancy. e. leaseback. Answer: b Diff: 1 Type: MC Topic: Remedies of the Landlord Skill: Recall 28) Which of the following is NOT true? a. The landlord has a statutory duty to insure the premises for the benefit of the tenant. b. A landlord may obtain an injunction to stop a tenant from acting in such a way that would be in breach of the lease. c. In the event of a bankruptcy, a landlord has priority over other creditors to the amount of three months' rent. d. The landlord's covenant under a lease includes quiet enjoyment of the premises. e. Distress is the right of the landlord to seize assets of the tenant found on the premises and sell them to realize unpaid rent. Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Covenants Skill: Applied 29) Selena rents an apartment from her landlord Stuart on a month to month basis. She also operates a small restaurant a short walk away which she also rents from Stuart. Neither lease imposes any obligation on the landlord to make repairs. One cold night in December the hot water heater in her apartment stopped working. She contacted her landlord and he immediately arranged for repairs to be completed at his expense. The following morning when Selena arrived at the restaurant she noticed that a pipe had frozen and there was significant damage to the kitchen. She contacted Stuart again but he refused to do anything to repair or pay for the damages. A landlord in these circumstances a. Is not liable to make repairs to the restaurant. b. Has an obligation to make repairs to the restaurant. c. Is legally responsible for the damage because he has an economic incentive to maintain the restaurant. d. Has the same obligations to repair the restaurant as he does the apartment. e. A landlord in these circumstances must apply to a court of law for directions. Answer: a Diff: 3 Type: MC Topic: Covenants Skill: Applied 30) The abandonment by the tenant of the premises during the term of the lease is called a. forfeiture. b. surrender. c. right or re-entry. d. distress. e. termination. Answer: b Diff: 1 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Topic: Remedies of the Landlord Skill: Recall 31) A tenant cannot obtain an easement over the property of another. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Nature of the Relationship Skill: Recall/Applied 32) The only covenant binding on a landlord is the covenant to pay rent. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Covenants Skill: Recall/Applied 33) Where a tenant enters into a lease for a unit in a commercial plaza under which no one else in the plaza can carry on the same business, the lease contains a restrictive covenant. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Covenants Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Skill: Applied 34) A lease can be brought to an end if both the landlord and the tenant sign a surrender of lease agreement. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Remedies of the Landlord Skill: Applied 35) In an assignment of lease and a sublease, the assignee and the subtenant are responsible to the landlord. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Covenants Skill: Recall/Applied 36) Jack enters into a verbal agreement with the owner of a home. He will reside in one of the rooms in the home and will share the kitchen with the owner. He does not sign a formal lease, and he is advised that he can leave the premises at any time upon the provision of a month's notice. Likewise the landlord may ask him to leave the premises upon the provision of a month's notice. Jack's tenancy is tenancy at will. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Type: TF Topic: Classes of Tenancies Skill: Recall/Applied 37) Jack enters into a verbal agreement with the owner of a home. He will reside in one of the rooms in the home and will share the kitchen with the owner. He does not sign a formal lease, and he is advised that he can leave the premises at any time without notice. Likewise the landlord may ask him to leave the premises at any time without notice. Jack's tenancy is tenancy at will. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Classes of Tenancies Skill: Recall/Applied 38) Jack is on vacation and enters into an agreement with the owner of a home. He will reside in one of the rooms in the home and will share the kitchen with the other tenants. He will vacate the premises at the end of his vacation, in one month. Jack's tenancy is a term certain tenancy. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Classes of Tenancies Skill: Recall/Applied 39) A tenancy that lasts from month to month is not a lease that will bind purchasers of the property. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Correct: Correct Answer: b Diff: 2 Type: TF Topic: Classes of Tenancies Skill: Recall 40) Waste, in connection with leased premises, refers to garbage bought onto the premises by third parties. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Covenants Skill: Recall 41) Mary's tenancy is due to end on June 2, 2013. On that date Mary does not leave the premises. The term certain tenancy is converted into a tenancy at will. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Termination and Renewal of a Tenancy Skill: Applied 42) If a tenant abandons residential premises, in some provinces the landlord must attempt to find a new tenant in order to mitigate damages. a. True Correct: Correct b. False Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Remedies of the Landlord Skill: Recall 43) Mary's tenancy is due to end on June 2, 2013. On that date Mary does not leave the premises and pays the landlord rent for another month. The term certain tenancy is converted into a tenancy at sufferance. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Termination and Renewal of a Tenancy Skill: Applied 44) Privity of estate with a new landlord brings to an end privity of contract with the former landlord. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Sale of the Landlord's Interest Skill: Recall/Applied 45) A landlord is permitted to exercise the right of eviction and simultaneously or subsequently exercise a right of distress only where the landlord has given proper notice at law. a. True Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Remedies of the Landlord Skill: Recall 46) In commercial tenancies, there is often an issue with respect to ownership of goods, trade fixtures, and leasehold improvements. From the tenant’s perspective, the best way to eliminate or reduce any dispute with respect to these issues is to ensure that they are addressed and spelled out in the lease. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Strategies to Manage Legal Risks Skill: Recall 47) Explain why today legislation has been enacted to provide greater protection to residential tenancies and not to commercial tenancies. Answer: Although commercial and residential tenancies share many similarities, provincial legislation has been enacted to protect residential tenancies because often the bargaining power between the landlord-owner and the tenant is unequal, with the landlord-owner having the greater bargaining power, and also because the leased premises are a home to the tenant. However, in commercial leases often the bargaining power is more equal, and even if it is not, there is greater reluctance to regulate the commercial activities of the parties. Diff: 3 Type: ES Topic: Residential Tenancies Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Skill: Applied 48) A normal assignment of lease by a tenant leaves the tenant liable to the landlord in the event of a breach or default by the assignee. Explain a practical solution to such a situation to relieve the tenant of liability and list one qualification to it. Answer: Obtaining an indemnity agreement from the assignee may not amount to much if the assignee has no assets. Thus, instead of a direct assignment between the tenant and assignee (new tenant), where possible, the landlord and tenant should agree to bring the original lease to an end and have the new tenant enter into a new lease with the landlord. However, this will only be possible where the landlord is satisfied that the new tenant has sufficient assets to honour its obligations under the new lease. Diff: 3 Type: ES Topic: Covenants Skill: Applied 49) What are two main considerations that a business person would have in considering whether to buy and lease commercial property instead of residential property as an investment? Answer: The first consideration is related to contract. In a commercial lease the owner of commercial property can and usually does insert a number of terms in the lease that impose positive obligations on the tenant and put the owner in the position of having very little, if anything at all, to do with the property, with the result that the building owner makes money by receiving the rent and the value of his property remains consistent (or possibly increases) because of the obligations of the tenant(s). The second consideration is that the amount of legislation regulating residential tenancies makes them less attractive as an investment. Diff: 3 Type: ES Topic: Residential Tenancies Skill: Applied 50) Who is an overholding tenant? Answer: Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

An overholding tenant is a tenant who remains on the premises without a new agreement with the landlord after the expiry of the lease. Diff: 1 Type: ES Topic: Classes of Tenancies Skill: Recall 51) What is a tenancy at will? Answer: A tenancy at will is a tenancy in which the tenant resides on premises at the will of the landlord. The tenant has no right to exclude the landlord from the premises, and the landlord may demand possession at any time. Diff: 1 Type: ES Topic: Classes of Tenancies Skill: Recall 52) In the absence of an express provision in the lease, what property is a tenant entitled to remove at the end of the tenancy? Answer: A tenant can remove its own chattels. The tenant can also remove trade or tenant's fixtures— objects that were brought on to the premises by the tenant and used in that tenant’s own particular business, provided that the tenant can remove those fixtures without doing irreparable damage to the premises and that the tenant repairs any damage done during the process of removal. Diff: 2 Type: ES Topic: Fixtures Skill: Recall 53) Jack rents an apartment and hangs a picture of his girlfriend on the wall. Is the picture considered to be a fixture? Explain. Answer:

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Fixtures are items that are fixed to the land or a building and are considered to be part of the building or land. As a general rule, an object that is not attached to the building or land is not a fixture. The picture that is merely hanging on a wall by a hook or a screw is thus not a fixture. Diff: 2 Type: ES Topic: Fixtures Skill: Recall/Applied 54) Jack rents an apartment and fixes a television stand to the wall. The stand enables the television to be placed close to the wall as opposed to on a table or on the ground. Is the television stand considered to be a fixture? Explain. Answer: Fixtures are items that a fixed to the land or a building and are considered to be part of the building or land. As a general rule, an object that is not attached to the building or land is not a fixture. The television stand is fixed to the wall, so presumably it is a fixture unless at the time it was fastened to the wall there was no intention that it become part of the building. Presumably when Jack fixed the stand to the wall, he had no intention that it would become part of the building. The stand was fixed for his convenience only, and so the stand is not a fixture. Diff: 2 Type: ES Topic: Fixtures Skill: Recall/Applied 55) Today, in commercial leases, it is common for the landlord to make the tenant responsible for virtually everything with respect to the property, including repairs, structural repairs, and payment of all taxes and utilities. Such leases are often referred to as "net net" leases, because the landlord has little or no responsibility and still is paid rent. Why do you think that “net net” leases are frowned upon when it comes to residential leases? Answer: The value of a “net net” lease is that the landlord receives rent and is relieved from doing anything in relation to the property. However, payment of repairs, structural repairs, taxes, and utilities makes it a very expensive proposition for the commercial tenant, but the tenant also gets deductions and tax credits for many of these expenses and it is presumed that the business of such a tenant will generate sufficient profit to enable the tenant to meet its obligations under a “net net” lease. However, the same cannot be said Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

for residential tenants, who often earn only enough money to meet their monthly expenses, making a “net net” lease a hardship on such tenants or preventing them from renting at all. Diff: 3 Type: ES Topic: Residential Tenancies Skill: Applied 56) Jack enters into a lease with Mary, his landlord. The terms of the lease are very generous to Jack. Six months later, Mary sells the home and transfers all her interest to the new owner. Explain how the new owner can receive both the rights and duties of the former landlord when Jack was not a party to the sale of the home and did not consent to it. Answer: When a landlord sells his or her property that is subject to a lease, the landlord parts with both the reversion and the benefits of the covenants given by the tenant. The new owner succeeds to both the rights and duties of the former landlord. Although there is no privity of contract between the new owner and the tenant, the new owner is able to receive both the benefits and the duties of the former landlord because of privity of estate. Privity of estate is the relationship that arises between a new landlord and a tenant as a result of their respective interests in land that is transferred to a transferee. In the scenario, then, privity of estate arises between Jack and the new owner, so the new owner is able to receive both the rights and duties of the lease agreement. Diff: 1 Type: ES Topic: Sale of the Landlord's Interest Skill: Applied 57) What is the difference between an assignment of a lease and a sublease? Answer: A tenant generally has a right to assign the lease. However, because the reputation of a tenant is important to the landlord, the right to assign is usually subject to the consent of the landlord. It is usually implied, however, that this consent will not be unreasonably withheld. When a tenant assigns the lease to a third party, the tenant does not by such assignment terminate his or her contractual obligations under the lease. The tenant may still be held liable for the performance of the obligations under the lease if the assignee fails to perform. While an assignment of a lease is a transfer of the whole o the remainder of the tenant's term to the assignee, a sublease is a transfer of only a part of the tenant's term to the subtenant. Unlike an assignment, a sublease may differ from the main lease in Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

a variety of ways, including the rent payable and the extent of the premises sublet. In both an assignment and a sublease, the tenant remains ultimately liable for the performance of the obligations under the lease in the event that the assignee or the sublessee does not pay. Diff: 2 Type: ES Topic: Covenants Skill: Applied 58) What are some of the major changes in the law regarding residential tenancies? Answer: Most provinces have enacted legislation that draws a distinction between residential tenancies and commercial tenancies. Some of the changes brought about by these new laws regarding residential tenancies are as follows: (a) the prohibition against the requisition of security deposits in excess of one month's rent, (b) the obligation on the part of the landlord to maintain the premises, (c) the application of the doctrine of frustration to residential tenancies, (d) the release of the tenant from his or her obligation to perform in the event of a breach by the landlord, (e) the abolition of the remedy of distress, (f) the imposition of a duty on the landlord to mitigate its loss in the event of a breach of the lease by the tenant, and (g) the imposition of an obligation not to unreasonably withhold consent if the tenant wishes to assign the lease. Diff: 2 Type: ES Topic: Residential Tenancies Skill: Applied 59) In commercial tenancies, there is often a conflict between the interests of landlords and tenants and their respective creditors. What risks do creditors of landlords and tenants face when considering seizure of goods located in the leased premises and sale of the financed assets? Answer: In commercial tenancies, both landlords and tenants often have their own creditors. These creditors must be careful when considering their legal entitlement to seize and sell goods located on the premises. The right to seize goods and sell the financed assets may be displaced by rights under the lease. A tenant may have previously owned goods that have become attached to the landlord’s land as a fixture. A landlord’s right to distrain may also take precedence over the creditor’s. A creditor is encouraged to reserve title to goods until full purchase price has been paid in order to secure for itself a priority. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 22: Landlord and Tenant

Diff: 3 Type: ES Topic: Strategies to Manage Legal Risks Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

1) Use this fact situation to answer the related questions that follow. George Good owns a house in downtown Toronto worth $750 000.00. George has a DVD rental store and needs money to capitalize it. On June 1, 2008, George goes to the Royal Bank, which gives George a mortgage loan for $450 000.00. The bank then sends the mortgage documents to its lawyer with instructions to register the mortgage no later than June 30, 2008. On June 22, 2008, George attends at the office of the lawyer for the Royal Bank and signs the documents. On June 24, 2008, George meets with his accountant, who tells him that George will need to put another $250 000.00 into his business. On June 25, 2008, George goes to TD Canada Trust and arranges another mortgage on his house for $250 000.00, to be registered by June 30, 2008. George signs the mortgage documents at TD Canada Trust, which then sends them to its lawyer on June 27, 2008, for registration by June 30. On June 30, the lawyers for both Royal Bank and TD Canada Trust get ready to register their respective mortgages; however, the lawyer for the Royal Bank has an emergency that causes him to leave his office without registering the Royal Bank mortgage. At 11:30 a.m. on that day, the lawyer for TD Canada Trust registers the TD Canada Trust mortgage on title to George's land. Later that day, when the Royal Bank's lawyer returns to his office, he immediately registers the Royal Bank mortgage, at 3:27 p.m. Assuming that the Royal Bank mortgage was to be a first mortgage, at common law, a. it would transfer an equitable interest in George's house to the Royal Bank. b. it would transfer legal title of George's house to the Royal Bank. c. it would transfer the equity of redemption in George's house to the Royal Bank. d. it would transfer the equity in George's house to the Royal Bank. e. it would simply be a lien on encumbrance on title to George's home. Answer: b Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 2) Use the fact situation in Q1 to answer the related question that follows. Assuming that the Royal Bank mortgage was to be a first mortgage, in Ontario, a. it would transfer legal title of George's house to the Royal Bank. b. it would simply be a lien on encumbrance on title to George's home. c. it would transfer an equitable interest in George's house to the Royal Bank. d. it would transfer the equity in George's house to the Royal Bank. e. it would transfer the equity of redemption in George's house to the Royal Bank. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Answer: b Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 3) Use the fact situation in Q1 to answer the related question that follows. If only the Royal Bank mortgage were registered on title to George's home, based on what was on title, the equity of redemption in George's home would be a. $250 000.00 b. $50 000.00 c. $750 000.00 d. $450 000.00 e. $700 000.00 Answer: d Diff: 3 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 4) Use the fact situation in Q1 to answer the related question that follows. Assuming that both the Royal Bank and the TD Canada Trust mortgage were registered on title to George's home, the equity in the home would be a. $450 000.00 b. $250 000.00 c. $700 000.00 d. $50 000.00 e. $750 000.00 Answer: d Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

5) Use the fact situation in Q1 to answer the related question that follows. Given the time of registration of the Royal Bank and the TD Canada Trust mortgages, a. the Royal Bank mortgage is a first mortgage. b. the TD Canada Trust mortgage is a first mortgage. c. both mortgages rank equally. d. the TD Canada Trust mortgage is void as against the Royal Bank mortgage. e. the Royal Bank mortgage is void as against the TD Canada Trust mortgage. Answer: b Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 6) Use the fact situation in Q1 to answer the related question that follows. The term or phrase used to describe the position or rank of the Royal Bank and TD Canada Trust mortgages on title based on the time of registration is a. equity of redemption. b. equity. c. priority. d. calculation period. e. amortization period. Answer: c Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 7) Use the fact situation in Q1 to answer the related question that follows. Given the date and time of registration of the Royal Bank and the TD Canada Trust mortgages, if George defaults in payment of the TD Canada Trust mortgage, TD Canada Trust can a. sell the property under power of sale. b. seek judgment on the covenant for payment for the balance remaining on its mortgage. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

c. bring an action for foreclosure. d. bring an action for possession of the property. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Mortgagee's Remedies Upon Default Skill: Applied 8) Use the fact situation in Q1 to answer the related question that follows. Based on the date and time of registration of the Royal Bank and the TD Canada Trust mortgages, if George defaults in payment of the Royal Bank mortgage, a. the Royal Bank can sell George's house, but must pay off TD Canada Trust out of the sale proceeds. b. the Royal Bank can sell George's house and can keep the sale proceeds. c. TD Canada Trust can sell George's house, but must first pay off the Royal Bank out of the sale proceeds. d. there is a corresponding default in the TD Canada Trust mortgage and TD Canada Trust can sell George's house. e. the Royal Bank cannot sell George's house unless TD Canada Trust consents. Answer: a Diff: 2 Type: MC Topic: Second Mortgages Skill: Applied 9) Use the fact situation in Q1 to answer the related question that follows. Based on the date and time of registration of each of the two mortgages, assume that six months after the registration of the mortgages, George defaults on the TD Canada Trust mortgage and that his house is now worth $600 000.00. On a sale of the house by TD Canada Trust, the Royal Bank would receive a. $450 000.00. b. $50 000.00. c. $700 000.00. d. $250 000.00. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

e. $100 000.00. Answer: e Diff: 2 Type: MC Topic: The Mortgagee's Remedies Upon Default Skill: Applied 10) Use the fact situation in Q1 to answer the related question that follows. Based on date and time of registration, if the property is worth $200 000.00 and George defaults on the Royal Bank mortgage and the bank immediately brings foreclosure proceedings, a. it can only gain possession of the property. b. it will have title to George's house subject to the TD Canada Trust mortgage. c. it will obtain enough money from the sale to pay off the TD Canada Trust mortgage. d. it will cut out the interest of TD Canada Trust. e. none of the above Answer: b Diff: 2 Type: MC Topic: Second Mortgages Skill: Applied 11) Use the fact situation in Q1 to answer the related question that follows. Assume that George comes into an inheritance and pays off the TD Canada Trust mortgage in full. TD Canada Trust will give George a. a cancellation of the debt. b. a transfer of its mortgage. c. a discharge of its mortgage. d. a partial discharge of its mortgage. e. an assignment of its mortgage. Answer: c Diff: 2 Type: MC Topic: Transferring a Mortgagee's Interest in Land Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Skill: Applied 12) Under the registry system, when a first mortgagee gives a discharge of its mortgage to the mortgagor, the effect of the discharge if registered is to a. act to reconvey legal title of the land to the mortgagor. b. acknowledge that the mortgage debt has been paid in full. c. act as a cancellation of the encumbrance on the land. d. act to bring all rights and remedies of the mortgagee to an end. e. all of the above Answer: e Diff: 2 Type: MC Topic: Transferring a Mortgagee's Interest in Land Skill: Applied 13) George owns an acre of land and severs, or divides, it into building lots. Before George can build on the lots he requires money to finance the construction costs, so he goes to his bank and gets first mortgage financing in the amount of $1.5 million and the bank registers the mortgage on all the building lots. If George finishes construction on one building lot, sells it, and pays down the bank's mortgage, the bank will give George a. a complete assignment of the mortgage. b. a complete discharge of the mortgage. c. a partial assignment of the mortgage. d. a reconveyance of legal title to all the lots. e. a partial discharge of the mortgage. Answer: e Diff: 2 Type: MC Topic: Transferring a Mortgagee's Interest in Land Skill: Applied 14) Mary is buying a home for the first time. She has $200 000.00 in her bank account and has been pre-approved for a $100 000.00 mortgage. Mary now finds a house priced at $300 000.00 and based on her calculation of the money in her account and the preapproved mortgage, she enters into an agreement of purchase and sale for it with its owner. In this case, Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

a. Mary's calculation is not correct, and she will probably not have enough money to close the transaction. b. Mary's calculation is correct, and she will probably have enough money to close the transaction. c. Mary's calculation is correct, and she will definitely have enough to close the transaction. d. Mary's calculation is correct, and she will probably have enough money to close the transaction. e. none of the above Answer: b Diff: 3 Type: MC Topic: A Typical Real Estate Transaction Skill: Applied 15) On receipt of an agreement of purchase and sale from a purchaser of property, the first thing a prudent lawyer should do is a. conduct a search of title of the purchased property. b. conduct a search of taxes for the purchased property. c. conduct a search of the zoning by-laws affecting the purchased property. d. ensure that the purchaser has sufficient money to purchase the property and pay all costs related to the purchase. e. all of the above Answer: d Diff: 3 Type: MC Topic: A Typical Real Estate Transaction Skill: Applied 16) A lender who accepts an interest in land as security for a loan is called a. a mortgagor. b. a insured. c. a mortgagee. d. a pledgor. e. a lender. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Answer: c Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Recall 17) An order by a court that ends the right of the mortgagor to redeem the mortgage within a fixed time is called a. an injunction. b. the equity of redemption. c. a foreclosure. d. a writ. e. damages. Answer: c Diff: 1 Type: MC Topic: The Essence of Mortgage Law Skill: Recall 18) The right of the mortgagee, given by a statute or the terms of the mortgage, to sell the property upon default is called a. an equitable sale. b. legal sale. c. a power of sale. d. an equitable right to sell. e. sale by court. Answer: c Diff: 2 Type: MC Topic: Sale by a Mortgagor of His Interest Skill: Recall 19) A mortgagee is a. a preferred creditor. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

b. a secured creditor. c. an unsecured creditor. d. a general creditor. e. a subsequent creditor. Answer: b Diff: 1 Type: MC Topic: Mortgagee's Rights Compared With Rights of Other Creditors Skill: Recall 20) Which of the following is NOT a covenant of the mortgagor? a. to pay the debt and accrued interest, at the stipulated times b. to pay the taxes on the land the buildings c. to execute the necessary discharge of the mortgage upon payment in full d. to keep the premises in a reasonable repair e. to keep the property adequately insured in the name of the mortgagee Answer: c Diff: 2 Type: MC Topic: Mortgagee's Rights Compared With Rights of Other Creditors Skill: Applied 21) A mortgage that permits repayment of the debt at any time without notice or penalty is called a. a partial mortgage. b. a closed mortgage. c. a conventional mortgage. d. an open mortgage. e. an insured mortgage. Answer: d Diff: 1 Type: MC Topic: Transferring a Mortgagee's Interest in Land Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Skill: Recall 22) Which of the following is NOT a typical stage in a real estate transaction? a. cleaning the premises b. acceptance of the offer c. submission of an offer to purchase d. preparation of documents, including a statement of adjustments, by the seller e. the submission of requisitions by the purchaser's solicitor Answer: a Diff: 1 Type: MC Topic: A Typical Real Estate Transaction Skill: Recall 23) Upon a sale of property, the document that sets out the debits and credits that must be adjusted to arrive at the proper amount to be paid on closing is called the a. requisitions. b. draft deed. c. statement of adjustments. d. charge. e. charge/mortgage. Answer: c Diff: 1 Type: MC Topic: A Typical Real Estate Transaction Skill: Recall 24) A creditor who has no security other than the debtor's promise to pay is a. a secured creditor. b. an preferential creditor. c. a preferred creditor. d. a general creditor. e. a mortgagee.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Answer: d Diff: 2 Type: MC Topic: Mortgagee's Rights Compared with Rights of Other Creditors Skill: Recall/Applied 25) The date for completing the sale of a real estate transaction is known as a. the discharge date. b. the mortgage date. c. the closing date. d. the equitable date. e. the final date. Answer: c Diff: 1 Type: MC Topic: Mortgagee's Rights Compared with Rights of Other Creditors Skill: Recall 26) In a foreclosure, even after the final day for redemption, the mortgagee may successfully sue the mortgagor for the debt a. until the six-month period has expired. b. until the one-month period has expired. c. until the period prescribed in the Statute of Limitations runs out. d. after the property has been sold to another party. e. only if the mortgagor has sufficient funds to pay the debt. Answer: c Diff: 2 Type: MC Topic: The Essence of Mortgage Law Skill: Applied 27) If a mortgagee does not register the mortgage, the mortgagee a. loses the right to foreclose on the property. b. loses the right to sue the mortgagor. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

c. cannot enforce the mortgage against the property if it is sold. d. loses the right to have a court-supervised sale. e. all of the above Answer: c Diff: 2 Type: MC Topic: Transferring a Mortgagee's Interest in Land Skill: Recall/Applied 28) Under the land titles system, a first mortgage transfers legal title in the mortgage land to the mortgagee. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Essence of Mortgage Law Skill: Recall/Applied 29) Foreclosure can only be obtained by commencing an action at law for foreclosure. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Mortgagee's Remedies Upon Default Skill: Recall 30) On default of a mortgage, the full amount of the balance outstanding becomes due. a. True Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Essence of Mortgage Law Skill: Recall 31) The rules regarding assignments continue in respect of mortgages that are assigned. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Transferring a Mortgagee's Interest in Land Skill: Recall/Applied 32) Partial discharges of a mortgage act to reconvey all of the land that is mortgaged. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Transferring a Mortgagee's Interest in Land Skill: Recall/Applied 33) A mortgage that can be paid off before its maturity date without penalty or bonus is a closed mortgage. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Answer: b Diff: 1 Type: TF Topic: Transferring a Mortgagee's Interest in Land Skill: Recall 34) A mortgage need not require registration of a discharge to cancel the mortgage debt. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Transferring a Mortgagee's Interest in Land Skill: Applied 35) Usually there is no difference in the rights and remedies afforded to a first and second mortgagee in their respective mortgages. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Mortgagee's Remedies Upon Default Skill: Applied 36) A third mortgage is a mortgage of the equity of redemption. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

Diff: 2 Type: TF Topic: Second Mortgages Skill: Applied 37) In a real estate transaction, the draft deed is usually prepared by the vendor. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: A Typical Real Estate Transaction Skill: Recall 38) Who is a general creditor? Answer: A general creditor is a creditor who has no security other than the debtor's promise to pay. Diff: 1 Type: ES Topic: Mortgagee's Rights Compared with Rights of Other Creditors Skill: Recall 39) In order to prevent mortgage fraud, as between a bank or finance company that is in the business of giving mortgages and the lawyer who acts on the mortgage, who do you think might have a higher duty to ensure that the borrowers are not imposters, and is this the case in the real world? Answer: Usually it is the bank or finance company that is approached first by the borrowers, and such institutions have somewhat sophisticated resources available to confirm the identity of the borrowers, including credit, background, and social insurance number checks, while a lawyer has only limited resources available to check identity, such as a driver's licence, copies of title documents, or reporting letters respecting the property to be mortgaged. Thus, between the two, the bank or finance company should have the higher Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

duty. However, the current state of law suggests that it is the lawyer who must ultimately take steps to confirm the identity of the borrower. Diff: 3 Type: ES Topic: Mortgage Fraud Skill: Applied 40) Explain the difference between equity of redemption and equity. Answer: The equity of redemption is the amount required to pay off a mortgage on title to property, while the equity is the value of the land less any mortgage debts or encumbrances affecting the land. Diff: 2 Type: ES Topic: The Essence of Mortgage Law Skill: Recall/Applied 41) Explain why, in difficult economic times, it might be wiser for a mortgagee to foreclose rather than to sell the property. Answer: In difficult economic times, not only does the value of the property decrease substantially, but the ability of the mortgagee to recover any deficiency after a sale of the property is also greatly diminished. In such a case, the mortgagee may have little option but to foreclose the property, become the title holder, and wait for better economic times when it can sell the property at a price sufficient to recover its money and, in some cases, make a profit. Diff: 3 Type: ES Topic: The Mortgagee's Remedies Upon Default Skill: Applied 42) What should a prudent mortgagee do when a mortgagor defaults on the mortgage and abandons the mortgaged property? Answer: Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

In such a case, to protect the value of the mortgaged property and thus its mortgage, a prudent mortgagee should, if necessary, take possession of the property to maintain it in good condition and immediately sell it under power of sale. Diff: 2 Type: ES Topic: The Mortgagee's Remedies Upon Default Skill: Applied 43) Explain why a mortgage is good protection for the mortgagee in circumstances where the mortgagor may be insolvent or goes bankrupt. Answer: A mortgage makes the mortgagee a secured creditor as regards the mortgaged property, and normally this means that between itself and unsecured creditors, the mortgagee gets repayment of its loan through either a sale or foreclosure, while the other creditors who have no security are left to be satisfied out of the mortgagor's remaining assets, which are often non-existent. Diff: 2 Type: ES Topic: The Mortgagee's Remedies Upon Default Skill: Applied 44) Who does the equity of redemption benefit, and how does it do so? Answer: The equity of redemption benefits the mortgagor by permitting him or her to rectify a breach of his or her obligation of covenants under a mortgage. Diff: 2 Type: ES Topic: The Essence of Mortgage Law Skill: Recall/Applied 45) What is an acceleration clause, and what is its purpose? Answer:

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

This is a clause found in a mortgage contract. It states that upon default of any installment payment, the whole of the principal plus accrued interest is immediately due. This allows the mortgagee to pursue all its remedies. Diff: 2 Type: ES Topic: The Essence of Mortgage Law Skill: Recall/Applied 46) Explain the concept of a mortgage. Answer: A mortgage under the common law is a conveyance of an interest in land by a mortgagor, the borrower, to the mortgagee, the lender, as security for a debt, with a condition that if the debt is repaid by the appointed day, the conveyance becomes void and the interest reverts to the mortgagor. Diff: 1 Type: ES Topic: The Essence of Mortgage Law Skill: Recall/Applied 47) Today, with an increase in instances of mortgage fraud, there are times when homeowners can actually lose their property. Explain why recourse to the Land Titles Assurance Funds of various provinces may be of little value to such homeowners. Answer: Mortgage fraud can result in a mortgagee lending money and taking a mortgage on property owned by people whose identities have been stolen. Once registered against title to the property of such people, the mortgage is a valid mortgage, and in the event of a default, the court will normally support the right of the mortgagee to enforce its remedies under the mortgage. If the mortgagee sells the property to a bona fide purchaser for value, then the innocent homeowner whose identity has been stolen loses his or her home. Reimbursement for the loss of the home out of the assurance fund may compensate financially for the loss, but cannot compensate for the innocent party's emotional and sentimental attachment to the property. Diff: 3 Type: ES Topic: Mortgage Fraud Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

48) Assume that you are a developer of land who wants to purchase some land and divide it into building lots and then build and sell homes on them. Explain the type of mortgage that you will obtain and how it will permit you to sell the homes you build. Answer: In such a case, it is common for a developer to obtain a building mortgage over the entire property, under which, when each home/lot is sold, the developer will pay a specific amount of money to the mortgagee in repayment of the mortgage and in return obtain a partial discharge of the mortgage attached to the particular lot sold. As each lot is sold, this will continue until the mortgage is paid off in full. Diff: 2 Type: ES Topic: Transferring a Mortgagee's Interest in Land Skill: Applied 49) Explain why, when there is a first mortgage on title of property, interest rates are higher for subsequent mortgages given on the same property. Answer: The reason is that a subsequent mortgagee bears the risk of a greater loss than does the first mortgagee, who is usually assured that it will recover all or most of its mortgage loan. On default of a first mortgage, the subsequent mortgagee may have to keep the first mortgage in good standing or alternatively stand to lose a part or all of its mortgage loan. Thus, higher mortgage rates charged by subsequent mortgagees reflect the greater risk borne by the subsequent mortgagee. Diff: 1 Type: ES Topic: Second Mortgages Skill: Recall/Applied 50) What is a reverse mortgage? Why might a reverse mortgage be an advantage to an older person? Answer: People can give mortgages on their own houses and receive a lump sum or periodic payments based on the market value of the property, interest rates, and estimates of life expectancy. The mortgage will be repaid only upon resale or death, at which point, if the market value of the house is greater than the accrued debt, the lender pays the excess to the mortgagor’s estate, and if the value of the house is less, the mortgagor absorbs the Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 23: Mortgages of Land and Real Estate Transactions

deficiency. This can be of benefit to older people who want to remain in their homes but do not have the income to do so. It provides them with an income, and the right to remain in their homes. Diff: 2 Type: ES Topic: Provincial Variations Skill: Recall/Applied 51) Where the vendor accepts an offer to purchase his or her property, what are five of the matters that the purchaser will have to investigate before closing? Answer: When an offer to purchase property is accepted, the purchaser will typically conduct an investigation and submit requisitions. Five matters that will be investigated are (a) title to the property, including the identification of any claims registered against the property; (b) state of the real property tax payments; (c) state of mortgage payments by the vendor and any amounts owing under the mortgage; (d) zoning by-laws and any outstanding work orders; and (e) any claims against the vendors registered with the sheriff. Diff: 2 Type: ES Topic: A Typical Real Estate Transaction Skill: Applied 52) When faced with a mortgagor’s default, a mortgagee has options available to collect on the outstanding mortgage indebtedness. Briefly describe the options available to a mortgagee and what factors may influence a mortgagee’s decision on how to proceed. Answer: When a mortgagor defaults, the most significant factor that generally determines how a mortgagee proceeds is the value of the property relative to the outstanding mortgage indebtedness. If the value of the property greatly exceeds the indebtedness, the mortgagee may attempt to foreclose, thereby taking the property in satisfaction of the outstanding indebtedness. The mortgagor can prevent this from happening by redeeming the property within the time set by the court. At the very least, the mortgagor would prefer a sale, given that the value of the property greatly exceeds the indebtedness. On the other hand, where the outstanding mortgage indebtedness is close to or exceeds the value of the property, mortgagees would likely proceed with a sale, preserving the mortgagee’s right to recover a judgment for any shortfall on the personal covenant of the mortgagor. Diff: 3 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Strategies to Manage Legal Risks Skill: Recall/Applied

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1) Which of the following is true about sole proprietorships? a. Generally they are subject to different regulations than are other forms of business. b. Just as corporations, they must abide by human rights legislation and meet health and safety regulations for the employees. c. Business names of all sole proprietorships must be registered. d. Sole proprietorships require government formalities to get established. e. Sole proprietorships comprise the smallest number of businesses in Canada. Answer: b Diff: 2 Type: MC Topic: Sole Proprietorships Skill: Recall/Applied 2) A and B have decided to carry on a business in partnership in Ontario, and A has his lawyer prepare a detailed partnership agreement setting out their respective rights and obligations. However, at the last minute, B refuses to sign the agreement and A, who trusts B, decides that the agreement is unnecessary. In this case, the partnership will be governed by a. the law of contract. b. the terms of the partnership agreement. c. the Partnership Act. d. the Business Names Act. e. the principles of equity. Answer: c Diff: 2 Type: MC Topic: The Nature of Partnership Skill: Applied 3) For three years, John, Michael, and Mary have carried on a business that is charitable in nature. Each of them contributed capital to the business and has his or her duties set out in an agreement. The form of business that they have created is a. a sole proprietorship. b. a joint venture. c. a general partnership. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

d. a limited liability partnership. e. none of the above Answer: e Diff: 3 Type: MC Topic: The Nature of Partnership Skill: Applied 4) Albert and Edward have just become lawyers and wish to set up a practice together. In order to best protect themselves, they should conduct the practice as a a. corporation. b. general partnership. c. joint venture. d. limited liability partnership. e. limited partnership. Answer: d Diff: 2 Type: MC Topic: Limited Liability Partnerships Skill: Recall/Applied 5) John and George have been talking about going into business together. John wants the business as an investment and has the money necessary to set it up, but wants no responsibility and little liability. On the other hand, George wants to run the business and is prepared to accept the liability that goes with it. In this case, the agreement that John and George will enter into to do business together is a. a shareholders agreement. b. a joint venture agreement. c. a trust agreement. d. a limited partnership agreement. e. a limited liability partnership agreement. Answer: d Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Topic: Limited Liability Partnerships Skill: Applied 6) Use this fact situation to answer the related questions that follow. A, B, and C have been carrying on a business in partnership for two years but are not getting along very well. The business manufactures plastic cups. A has just learned that B and C are going to throw him out of the partnership and, to get even with them, A, who has no assets, resigns and immediately enters into a contract with a third party on behalf of the business to purchase $100 000.00 worth of supplies. When the supplies arrive, B and C refuse to accept them. If the third party decides to sue for damages for breach of contract, it can sue a. B and C. b. A, B, and C. c. B alone. d. C alone. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Liability of a Partner Skill: Applied 7) Use the fact situation in Q6 to answer the related question that follows. The liability that arises in this case is based on the principle that a. each partner is an agent of the partnership. b. a partnership is bound by the acts or omissions of its partners. c. it is the duty of the partnership to notify customers of the resignation of a partner. d. partners are jointly liable for the contracts of the partnership. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Liability of a Partner

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Skill: Applied 8) Use this fact situation to answer the related questions that follow. Albert, John, George and Alice are partners in the accounting firm AGJM, but have no partnership agreement. In the event that Albert dies, a. the partnership continues between John, George, and Alice. b. the partnership is dissolved. c. the partnership will continue, with Albert's estate replacing Albert as a partner. d. the partnership becomes a joint venture. e. the partnership continues, but the firm name must be changed. Answer: b Diff: 2 Type: MC Topic: Termination of Partnership Skill: Applied 9) Use the fact situation in Q8 to answer the related question that follows. Assume that the partnership is governed by a partnership agreement, which provides that on the retirement or bankruptcy of a partner, the partnership and firm continues. In such a case, on Albert's death, a. the partnership will continue, with Albert's estate replacing Albert as a partner. b. the partnership will continue between John, George, and Alice. c. the partnership will become a joint venture. d. the partnership will be dissolved. e. the partnership will continue, but the firm name must be changed. Answer: d Diff: 3 Type: MC Topic: Termination of Partnership Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

10) A, a partner in a furniture business called A & B Furniture, causes an accident with the business's delivery truck and injures Alice, who is standing at a bus stop. Assume that in the law suit Alice will be entitled to $1 million in damages. Also assume that A has personal assets of $250 000.00 and B has personal assets of $450 000.00 and that the firm has assets of $1.5 million. In deciding who to sue, Alice will consider that a. if Alice sues the firm alone its assets will cover her damages. b. if Alice sues A and B only and succeeds, she cannot sue the firm. c. if Alice sues A only and succeeds, she cannot sue B or the firm. d. if Alice sues B only and succeeds, she cannot sue A or the firm. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Liability of a Partner Skill: Applied 11) Usually the sharing of profits is an indication of a partnership. In which of the following situations will this be true? a. to pay the spouse of a deceased partner an annuity b. to pay an employee as part of his or her remuneration c. to pay the seller of a business an amount for goodwill varying with the profits d. to repay a debt owed e. none of the above Answer: e Diff: 2 Type: MC Topic: The Nature of Partnership Skill: Applied 12) Which of the following is NOT true about partnerships? a. Personal creditors of the individual partner have first call against partnership assets. b. A partnership is sometimes treated as a separate entity. c. A partnership may be sued in the firm's name, and, upon exhaustion of assets, the plaintiff may now go after the personal assets of any of the partners.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

d. Dower rights do not apply to partnerships. e. Generally, a person is liable only for the obligations of a partnership created while she or he is a member of the firm. Answer: a Diff: 1 Type: MC Topic: The Nature of Partnership Skill: Recall/Applied 13) Fred is a partner in a land development partnership. He has learned independently of an opportunity to pursue a land development project with Nelly. Nelly refuses to be involved in business with Fred if he associates his partnership in the project. Nelly will do business with Fred only if he is independent of his partners. Fred will have no liability to his partners if a. he keeps the opportunity secret. b. he is careful to inform any third parties with whom he and Nelly do business that he is not acting on behalf of the partnership. c. he ensures that anything he does on the project is outside office hours. d. no damages are suffered by the partnership. e. none of the above Answer: e Diff: 2 Type: MC Topic: The Relationship Between Partners Skill: Applied 14) Two years ago the Citizens Bank lent the Carlin & Hickel Partnership $2 million. Now the firm is defaulting on their monthly payments. Which of the following partners will be liable on this loan? a. a partner who died six months ago b. a partner who retired from the firm last summer and obtained, through novation, a liability release from this loan c. a person who is not actually a partner but is currently allowing himself to be represented as a partner so the firm can refinance this Citizens Bank loan d. all six limited partners e. a partner who has been with the firm for less than two years Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 3 Type: MC Topic: The Liability of a Partner Skill: Applied 15) A partnership is treated as a separate entity with respect to a. the paying of income taxes. b. its ability to exist independent of its owners. c. passing it on to heirs. d. bankruptcy. e. having its own assets and liabilities. Answer: e Diff: 1 Type: MC Topic: The Nature of Partnership Skill: Recall/Applied 16) A partnership agreement falls under the Statute of Frauds a. if by its terms it extends beyond one year and performance has not begun. b. because it involves the formation of a company. c. if it is to be dealing with real property. d. if it is to last longer than a year. e. because memories will fade and a written record is essential. Answer: a Diff: 2 Type: MC Topic: The Creation of Partnership Skill: Applied 17) The greatest risk of liability to which a partner subjects her- or himself results from a. failure to create a binding partnership agreement under the Partnership Act. b. negligence or other torts of the firm's partners. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

c. possible contractual obligations of the partnership. d. personal liabilities incurred by the other partners. e. illegal activities of the other partners. Answer: c Diff: 2 Type: MC Page Reference: 568 Topic: The Liability of a Partner Skill: Applied 18) Carter, a partner in a financial planning firm, solicited a client without reporting it to the firm. He used the letterhead, business cards, and facilities of the firm. He then defrauded the client out of $138 000 and left for Honduras. Will the firm be liable to this client? a. Yes, it will, because the firm could then go after Carter and collect for its loss. b. Yes, it will, since Carter was working without apparent authority. c. Yes, it will, since all partners are responsible for "any wrongful act" of another partner. d. No, it will not, since Carter was breaking his fiduciary duty to the other partners. e. No, it will not, since this act to defraud is illegal and partners do not have to support illegal acts. Answer: c Diff: 2 Type: MC Topic: The Liability of a Partner Skill: Applied 19) Chico and Amos decide to be partners in the storage and delivery business. Chico has some land with buildings to contribute, and Amos has a large van and a small truck to contribute. After two years (and sharing profits equally), they decide that the business is not worth all the trouble, so they liquidate. The land and buildings bring $45 000, and the two vehicles bring $7000. How should the proceeds be divided? a. In absence of a clear agreement, the Partnership Act gives each back his original investment. b. It all depends on their original intentions as to what was partnership property. c. Chico should get the $45 000. d. It depends on whether they want to remain friends. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

e. Since they are equal partners, they should each get $26 000. Answer: b Diff: 2 Type: MC Topic: The Relationship Between Partners Skill: Recall/Applied 20) You do not trust your partners and are concerned about liabilities you may incur if you continue to associate with them in business. To ensure that you are safe from any future liability toward third parties that did business with the partnership while you were a partner, you should a. retire and place a legal notice in the official provincial government publication. b. sell your partnership interest to someone else. c. get your partners to sign an acknowledgement that you will not be responsible towards third parties that have a claim against the partnership d. retire and send a notice to all third parties who did business with the partnership. e. none of the above Answer: d Diff: 2 Type: MC Topic: The Liability of a Partner Skill: Applied 21) For the last 14 months, Greer has been a junior partner in a Vancouver law firm. Until now he was receiving a monthly salary of $5000. Senior partners have just decided to stop all salaries because of a pending lawsuit against the firm. It was determined the firm would not make profits for at least the next eight months. Is the firm obliged to continue Greer's salary? a. No, it is not, since partners can only be paid out of profits. b. Yes, it is, since salaries are the first call on the firm's profits. c. No, it is not, since the firm cannot claim the doctrine of frustration. d. Yes, it is, since salaries are an expense that comes off before profits are figured. e. Yes, it is, since Greer has a wife and kids who are dependant on the salary for basic living expenses. Answer: a Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Diff: 2 Type: MC Topic: The Nature of Partnership Skill: Applied 22) Lou, Pete, and Carl are all partners in a feed store business. Carl would like to retire but wants his son, Carl Jr., to take his place as partner. Is there any way Carl can have his son become a partner? a. Yes, he can, but only by getting agreement from any two existing partners. b. Yes, he can, since partnership positions can be transferred through assignment. c. Yes, he can, with the consent of all existing partners. d. Yes, he can, by bringing Carl Jr. in as manager and then working him into a partner position. e. No, he can’t, because it's only Carl's profits that can be assigned. Answer: c Diff: 2 Type: MC Topic: The Nature of Partnership Skill: Recall 23) Three men decided to form a partnership to look for buried treasure. Luke and Mark had expensive equipment, experience, and expertise, but the third partner, Cyrus, had a treasure map. Cyrus had his holidays start a few days earlier than the other two, so he went ahead "to set up camp." Lo and behold, before the others arrived, Cyrus found the treasure. So when Luke and Mark arrived, he immediately dissolved the partnership and claimed the entire treasure for himself. Do Luke and Mark have any legal claim to the treasure? a. Yes, they have a fiduciary duty to take their share. b. No, they don’t, because Luke and Mark's assets were not used to find the treasure. c. Yes, they do, because the treasure was found before the partnership was dissolved. d. No, they don’t, because the partnership was dissolved before the treasure was made known. e. Yes, they do, because Cyrus has both possession and the upper hand. Answer: c Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Topic: Termination of Partnership Skill: Applied 24) Helen and George formed an equal partnership for the raising of flowers to sell at the county fair. After three seasons of mediocre results, George lost interest and only came around to "see how things were going." However, the fourth summer went very well for Helen and she made a large profit. Can George now claim half the profits? a. No, he can’t, since the partnership was dissolved by estoppel. b. Yes, he can, since neither partner terminated the partnership. c. Yes, he can, since the ratio for dividing of the profits cannot be changed. d. No, he can’t, because with Helen's application, the court will dissolve this partnership. e. No, he can’t, since George did very little to manage or help in the business. Answer: b Diff: 2 Type: MC Topic: Termination of Partnership Skill: Applied 25) The court may upon an application by one or more partners order the partnership dissolved under which circumstance? a. a partner is found mentally incompetent b. a partner willfully or persistently commits a breach of the partnership agreement c. a partner becomes permanently incapable of performing his part of the partnership agreement d. a partner is guilty of conduct that adversely affects the carrying on of the business e. all of the above Answer: e Diff: 2 Type: MC Topic: Termination of Partnership Skill: Applied 26) A contractual joint venture differs from a partnership in that a. there is a fiduciary relationship between the participants. b. it pools assets and expertise for a business endeavour. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

c. it is a relationship for a specific undertaking with a limited duration. d. profits are retained jointly for use in another project. e. the liability will be construed to be joint and several. Answer: c Diff: 1 Type: MC Topic: Joint Ventures Skill: Recall 27) A Limited Liability Partnership (LLP) protects a partner from some personal liability. Even though a partner in an LLP is not liable for debts, liabilities, or obligations arising from the negligent acts or omissions of other partners or employees, a partner is subject to all of the following EXCEPT a. remaining liable for his own negligent acts or omissions. b. remaining liable for the negligent acts or omissions for those who are under the partner’s direct supervision and control. c. standing to lose the full extent of his net worth. d. standing to lose the value of his partnership share. e. being an agent of the firm and his other partners for the purpose of the business of the partnership. Answer: c Diff: 3 Type: MC Topic: Limited Liability Partnerships Skill: Recall/Applied 28) Which of the following is NOT a fiduciary duty owed by one partner to another? a. Partners are bound to render true accounts and full information of all things affecting the partnership to any partner. When it comes to business of the partnership, partners do not keep information secret from one another. b. Every partner must account to the firm for any benefit derived by him or her without the consent of the other partners from any transaction concerning the partnership or any use by him or her of the partnership property name or business connection. There shall be no secret benefits. c. Every partner must disclose to every other partner any interest she or he has in any other partnership or corporation. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

d. A partner must account for and pay over to the firm any profits made by him or her in carrying on any business of the same nature as that of the partnership and competing with the firm. Answer: c Diff: 3 Type: MC Topic: Fiduciary Duties Skill: Recall/Applied 29) A Limited Liability Partnership (LLP) is different from a limited partnership. Which of the following is NOT true? a. In a limited partnership there must be at least one general partner who has unlimited liability. b. Limited partnerships are not restricted to the professions. c. In a limited partnership, the partner’s liability is limited to the total amount of capital contributions of all partners. d. Unlike partners in an LLP, limited partners lose their limited liability if they participate in management. Answer: c Diff: 3 Type: MC Topic: Limited Partnerships; Limited Liability Partnerships Skill: Recall/Applied 30) The type of unincorporated business that is usually owned by one person is called a partnership. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Nature of a Partnership Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

31) In Ontario, in the absence of a partnership agreement, the provisions of the Partnership Act apply to a general partnership. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Creation of a Partnership Skill: Applied 32) In a limited partnership, although the limited partner actively engages in the management of the partnership business, only the general partner has unlimited liability. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Limited Partnerships Skill: Applied 33) Chartered accountants can carry on a limited liability partnership without a limited liability partnership agreement. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Limited Liability Partnerships Skill: Recall/Applied

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34) An individual who decides to carry on business in his or her name need not register the business. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Sole Proprietorships Skill: Recall/Applied 35) A partnership incurs no liability for a breach of trust committed by one of its partners. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Liability of a Partner Skill: Recall/Applied 36) A partnership is a business relationship between two or more persons, but not all business relationships between two or more persons are partnerships. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Nature of Partnership Skill: Applied 37) A partnership has no independent existence in law. Copyright © 2016 Pearson Canada Inc.

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Nature of Partnership Skill: Recall/Applied 38) If there is no explicit partnership agreement, each partner will share in the profits of the partnership according to that partner's proportionate capital contribution. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Relationship Between Partners Skill: Recall/Applied 39) Johnson, Michael & Associates is a partnership of accountants. One evening, Bosco, the truck driver for the firm, during the course of performing his duties, gets into an accident with James. James is injured and later commences a personal injury action against the partnership. James obtains judgment of $250 000 against the partnership. The partnership is not insured and has only $150 000 in its account. James may recover the balance of $100 000 from the personal assets of any of the individual partners. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Liability of a Partner Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

40) James and John go into business together as partners. They each decide to make contributions to the business of the partnership. James has two vans worth $15 000, which he gives to the partnership. John owns an old farmhouse worth $60 000 that they decide can be used as a warehouse, and John gives it to the partnership. Five years later, there is a falling out and they decide to end the partnership. By this time the warehouse is worth $80 000 and the vans are worth $12 000. John will be entitled to $80 000 and James will be entitled to the depreciated value of the vans, namely $12 000. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Relationship Between Partners Skill: Applied 41) Mike, James, and Mary, advertising consultants, enter into a partnership and name it Sensational Adverts. About a year a year after the partnership is established, Mike and Mary have an argument and Mike tells the other partners that he will soon be leaving the partnership. A week later, Sensational Adverts is invited to submit a bid to produce an advert for a local beer company. Mike, who is the member of the partnership in charge of beer adverts, sees this as an opportunity to start his own business. Mike resigns from Sensational Adverts, starts his own company, and then submits a bid. Mike's bid is accepted. There is nothing legally wrong with Mike's conduct. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Relationship Between Partners Skill: Recall/Applied 42) Partners are generally liable for the torts committed by another partner in the ordinary course of the business. Furthermore, each partner is jointly liable for the debts and

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

obligations of the firm. A Limited Liability Partnership (LLP) limits a partner’s liability as a result of the negligent acts or omissions of another partner. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Limited Liability Partnerships Skill: Recall 43) What are the advantages of carrying on a business venture as a partnership rather than as a sole proprietorship? Answer: Working together, members of a group may pool their knowledge and skills, and their physical and financial resources. Larger undertakings and greater risks can be tackled, and as for business decisions, usually "two heads are better than one." Diff: 2 Type: ES Topic: The Nature of Partnership Skill: Applied 44) Explain why partners should always have a partnership agreement. Answer: A partnership agreement can be tailored to the specific needs and requirements of a particular partnership business, setting out the duties and responsibilities of the partners and dealing with such matters as the death, retirement, or bankruptcy of a partner. The terms of such an agreement supersede the provisions of various provincial partnership acts, which often can adversely affect the intentions of the partners. Diff: 2 Type: ES Topic: The Creation of a Partnership Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

45) What are two important factors in determining the type of partnership that parties may wish to enter into? Answer: The first is whether one party wishes to limit his or her liability and not participate in the management or business of the partnership, and the second is whether or not the parties are professionals who wish to limit liability for their respective negligence. Diff: 2 Type: ES Topic: The Creation of a Partnership Skill: Applied 46) What steps should a retiring partner take to ensure that his or her liability as a partner is at an end? Answer: The retiring partner should ensure that the partnership provides notice of his or her retirement to everyone whom it has dealt with prior to the partner's retirement, and also put a notice of his or her retirement in the official gazette of the province in which the partnership is carried on. Both are necessary steps to take to protect against transactions entered into the partnership after his or her retirement. Diff: 2 Type: ES Topic: Termination of Partnership Skill: Applied 47) Bill and Joe agreed to form a partnership to carry on their goal of distributing food to the needy as a charitable endeavour. Is this a true partnership? Answer: Bill and Joe's enterprise is not a true partnership because the Partnership Act states that a partnership is a relationship that exists between persons carrying on business in common with a view of profit. Bill and Joe are not carrying on their endeavour with a view to profit. Diff: 2 Type: ES Topic: The Nature of Partnership

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Skill: Applied 48) Explain how a partnership can be formed by implication. Answer: Ordinarily partnerships are formed by express agreement, usually in writing, but occasionally verbally, or by implication. If two or more parties enter into an ongoing business relationship, jointly contribute capital, jointly engage in management decisions, and share the profits of the enterprise (rather than the gross receipts), then the enterprise can be deemed to be a partnership. Diff: 2 Type: ES Topic: The Creation of a Partnership Skill: Recall/Applied 49) Is a well-drafted, carefully thought-out partnership agreement a guarantee of a successful partnership? If not, what is? Answer: A well-drafted agreement simply minimizes one major potential hazard. The other elements that should be present for a partnership to succeed are a sound business idea, mutual trust and good faith, diligence of application, and reasonably good luck. Diff: 2 Type: ES Topic: The Creation of a Partnership Skill: Applied 50) Why should you register the partnership with the province? Answer: Beside the fact that you may be fined if your partnership is not registered, good reasons to register include that it provides some essential information to the public about the partnership. This could, for example, allow a prospective creditor or supplier to check the accuracy of information given by a member of the firm. Diff: 2 Type: ES Topic: The Creation of a Partnership Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

Skill: Recall 51) Three women form a partnership. They contribute the same amount of capital and they have agreed to share equally on the profits. If a loss occurs, need they share equally on the loss? If they each put in roughly the same amount of time, can their salaries be different? Explain your answer in both cases. Answer: By agreement, they can make any sort of arrangement they want. Usually losses would be allocated in the same proportion as profits, but they need not be. For instance, one of the women may have the "deep pockets." There may also be reasons why they wish the salaries to be different. If agreement cannot be reached on these matters, then the rules set forth in the Partnership Act apply. Diff: 2 Type: ES Topic: The Liability of a Partner Skill: Applied 52) In a contractual joint venture, how do the participants protect themselves from the liabilities of their partners? Answer: The participants limit their liability by providing that their only contribution will be those things specifically set out in the agreement, that the agreement shall not be construed as a partnership, and that their liability will not be joint and several. Diff: 2 Type: ES Topic: Joint Ventures Skill: Recall/Applied 53) What protection does a limited partnership offer to the limited partner, and how can the benefit be destroyed by the limited partner? Answer: A limited partnership permits the limited partner to be liable only for the amount she or he contributed to the partnership. She or he can lose that benefit of limited liability if she or he takes control or takes active part in the management of the partnership. Failure to comply with proper registration will also result in loss of limited liability.

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Diff: 2 Type: ES Topic: Limited Partnerships Skill: Applied 54) You are interested in creating a business and have a friend who is also interested in the same type of business, but you are not a professional and you feel that even the best of friends can have a falling out when they go into business together. Is there really any practical difference between considering a sole proprietorship and a partnership for your business? Answer: In such a case it can be argued that, given that partners are jointly and severally liable for the debts, and that acts and omissions of the partnership and the firm are also liable, there is no fundamental difference between the two business forms. In fact, it could also be argued, particularly where you do not trust anyone else, and are prepared to accept the liability that goes with the business, that there is no practical difference except that a sole proprietorship may negate worrying about not getting along with a partner or the consequences of a falling out between partners and would avoid the cost of preparing a partnership agreement. Diff: 2 Type: ES Topic: Sole Proprietorships Skill: Applied 55) Compared to a sole proprietorship, what are some disadvantages in carrying on business as a partnership? Answer: Disadvantages include joint and several liability for the partners, and a cumbersome decision-making process where, in the absence of an agreement to the contrary, each partner has an equal say in how the partnership should be run. Other disadvantages include the fact that partnerships have no separate tax existence and the income of the partnership is the income of the partners. Also, partnership interests cannot be transferred without the consent of all the partners, which gives a partnership very limited liquidity. Diff: 2 Type: ES Topic: The Nature of Partnership Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

56) Why is it practical to think of a partnership as having its own separate personality rather than just the collective rights and duties of all the partners? Answer: A partnership by necessity has a semi-separate existence of its own. Certainly, as an accounting matter, it has its own assets, liabilities, and financial statements. It also has its own name and address. It can sue and be sued in its own name. Creditors must look to the firm itself before looking to the individual partners for satisfaction on a debt. And in spite of the death or retirement of one of its members, most partnerships continue on with the business. Diff: 2 Type: ES Topic: The Nature of Partnership Skill: Applied 57) Partners have fiduciary duties one to another, and if they are professionals they have fiduciary duties to their clients. How would these duties differ? Answer: The duties would be similar in both cases. The professional/partner would need to provide and reveal any pertinent information to the client that affects the advice given, and provide and reveal any pertinent information to the partners that might affect the partnership. The professional/partner is not to secretly profit from the relationship with either the client or the partnership. Nor is he or she to go into competition with either the client or the partnership. Diff: 2 Type: ES Topic: The Relationship Between Partners Skill: Applied 58) Shirley Brown and Dora Cowan both wanted to operate a grocery store. Dora owned a small retail building and Shirley had 20 years of retailing experience. Shirley approached Dora to rent her building, and while they were talking about rental rates, Dora said, "Why don't you open a store and we will split the profits." Shirley agreed, opened and ran the store, and paid Dora one-half of the profits on a monthly basis. After two years, a customer, Betty Smith, entered the store and tripped over some packing crates left near the entrance, breaking an arm and a leg. Betty then sued both Shirley and Dora—alleging that they were partners. Shirley had not purchased liability insurance to cover such a loss. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 24: Sole Proprietorships and Partnerships

(1) What defence would Dora have to Betty's action? What might Shirley claim? (2) If Betty is successful, from whom can she collect her judgment? (3) If a partnership is in existence, how can either Shirley or Dora terminate it, and what would happen to the assets of the partnership? Answer: 1) Dora's defence would be that no partnership existed. In this case there was no express agreement between the parties and no apparent intention to form a partnership. If the partnership was formed by implication, the Partnership Act sets out some of the criteria that the courts will consider. One criteria is a division of profits, which is present here, but would not be conclusive. Another factor is whether or not both parties have taken part in the management of the business. This factor is not present. Other considerations are whether or not there was the supply of capital or the taking on of debt by both parties. If Shirley is not a partner, she is a sole proprietor and has liability as such. The only benefit to Shirley in claiming that a partnership existed would be to create joint and several liability. 2) If a partnership exists, both Dora and Shirley are jointly and severally liable to Betty. That means Betty can collect all of her judgment from either Shirley or Dora or part of it from both. If no partnership exists, her right is limited solely to collecting her damages from Shirley. 3) The most common way a partnership can be terminated is by a notice to terminate served by either party upon the other. When terminated, the assets are utilized in the following order: (a) in payment of debts and liabilities of the partnership, (b) in repayment of loans of the partners, and (c) in return of capital of the partners. The balance left over is then divided among the partners according to their entitlement to a division of profits. Diff: 3 Type: ES Topic: The Nature of Partnership Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

1) A, B, and C are three lawyers who want to start a construction business. Each has enough capital to invest in the business to avoid borrowing money from the bank, and all of them want to limit their liability as much as possible while having a role in the management and operation of the business. In this case, they can protect themselves by a. setting up a limited partnership. b. setting up a joint venture. c. setting up a partnership. d. setting up a limited liability partnership. e. incorporating a company. Answer: e Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 2) A and B incorporate a trucking company in which, of the 100 issued common shares, A holds 45 shares and B holds the rest. The company has a fleet of trucks valued at $200 000. In this case, the fleet of trucks is owned by a. A alone. b. B alone. c. A, B, and the company. d. the company alone. e. both A and B. Answer: d Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 3) Megacorp Ltd. is a large private Ontario construction company in which Albert, John, and Michael are the shareholders and George, Mary, and Sam are the directors. Recently, Albert and John started up a building supplies business, which now has a contract to provide building supplies to Megacorp Ltd. However, Michael objects to this. In this situation, a. Michael is not correct in objecting because Albert and John have no fiduciary duty to Megacorp Ltd. Copyright © 2016 Pearson Canada Inc.

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b. Michael is correct in objecting because Albert and John are shareholders in Megacorp Ltd. c. Michael is correct in objecting because Albert and John have a fiduciary duty to Megacorp Ltd. d. Michael is not correct in objecting because Albert and John have a duty of good faith to Megacorp Ltd. e. none of the above Answer: a Diff: 3 Type: MC Topic: The Nature of a Corporation Skill: Applied 4) John and Peter wish to incorporate their grocery business as Happy Groceries Ltd. To do so, among other things, they must a. decide on the by-laws of the corporation. b. complete articles of incorporation. c. obtain a certificate of incorporation. d. conduct a name search. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 5) Use this fact situation to answer the related questions that follow. Mary and Joan are dentists who practise dentistry in Ontario as Mary and Joan PC. A year after incorporation, one of Mary's patients suffers injuries as a result of Mary's negligence. In this case, who is liable for the patient's injuries? a. Mary and the corporation only b. Mary alone c. the corporation alone Copyright © 2016 Pearson Canada Inc.

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d. Mary, Joan, and the corporation e. Mary and Joan only Answer: b Diff: 1 Type: MC Topic: Types of Business Corporation Skill: Applied 6) Use the fact situation in Q5 to answer the related question that follows. Assume that at the time of Mary's negligence, the company has failed to pay one of its suppliers of dental products. In this case, the supplier can sue a. Mary, Joan, and the corporation. b. Mary and Joan alone. c. Mary and the corporation. d. Mary alone. e. all of the above Answer: e Diff: 3 Type: MC Topic: Types of Business Corporation Skill: Applied 7) Albert is employed by a large company that manufactures aluminum siding. The company allows Albert to use its truck for deliveries and also for his personal use. The truck has the name of the company on it. One evening after the company has closed for business, Albert causes an accident while driving the truck and damages the car of a third party. In this situation, a. Albert is personally responsible for the damages of the third party and the company has no liability. b. the company alone is vicariously liable to the third party for the damages. c. both Albert and the company are liable for the third party's damages. d. Albert alone as an employee of the company is responsible for the third party's damages. e. none of the above

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

Answer: a Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 8) John, who has a reputation for dishonesty, recently incorporated an investment company to protect himself from liability for his dishonest activities. John makes himself an employee of the company and fraudulently misrepresents an investment to a new customer who invests a large sum of money, which John pockets. A few days later the company goes bankrupt. In this situation, the investor a. can sue John for breach of fiduciary duty. b. can move to have the court pierce the corporate veil and sue John directly for fraud. c. can sue both the company and John. d. can sue only the company. e. none of the above Answer: b Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 9) John and George wish to incorporate their manufacturing business and intend to manufacture and sell their products throughout Canada. In such a case, they should consider incorporating a. a federal company. b. an international company. c. a professional corporation. d. a private provincial company. e. none of the above Answer: a Diff: 1 Type: MC Topic: Types of Business Corporation Skill: Recall/Applied

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10) Albert is the principal shareholder of a large investment company and holds 45 percent of its common shares, which are valued at $500 000.00. Recently, Albert's company invested heavily in a gold mining company, which fraudulently represented finding and owning a new gold deposit in northern Canada. Albert's company lost a substantial amount of money, with the result that the value of Albert's common shares dropped to $25 000.00. Albert now launches a lawsuit against the gold mining company for the loss in value of his shares. In this case, a. Albert will be entitled to a quantum meruit claim against the gold mining company. b. Albert will recover his loss because his cause of action is in fraud or deceit. c. Albert will not recover his loss because he has no claim for damages for a wrong done to his company. d. Albert will recover his loss because the court will lift the corporate veil of the gold mining company. e. Albert will recover his loss because the court will force the gold mining company to insure his shares. Answer: c Diff: 3 Type: MC Topic: The Nature of a Corporation Skill: Applied 11) In comparison with a partnership, which of the following is NOT considered to be an advantage of the corporate form of business? a. limited liability b. continuous existence c. duty of good faith d. transfer of ownership e. professional management Answer: c Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Recall 12) Which of the following will NOT end the existence of a corporation? Copyright © 2016 Pearson Canada Inc.

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a. a dissolution order by the court b. the death of all shareholders in a single accident c. a resolution of the shareholders d. a failure to pay the annual corporation franchise fee e. a failure to comply with statutory regulations Answer: b Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Recall 13) A shareholder who engages in a conflict of interest with a corporation in which the shareholder holds shares must a. pay damages to the corporation. b. disgorge any profit the shareholder makes through the conflict of interest. c. sell the shareholders shares to the corporation. d. get the consent of the corporation in which the shareholders holds shares. e. none of the above Answer: e Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Recall 14) Jim incorporated his small business so that he would obtain limited liability on company indebtedness. But when he applied for a bank loan, the bank insisted that he give a personal guarantee for the loan made to the corporation. Has the incorporating of the business helped Jim as far as limiting his business liability? a. No, it has not, since all venders and creditors will be more leery about extending credit. b. Yes, it has, because it might help in other types of liability, such as product liability. c. No, it has not, because bankers become more cautious when they see individuals incorporate just to avoid personal liability. d. No, it has not, because personal guarantees are required either way. e. Yes, it has, because the bank has more confidence in issuing his company the loan.

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Answer: b Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Applied 15) The doctrine of ultra vires, as applied to corporations, has now been abolished throughout Canada. This means that Canadian corporations a. do not have the capacity and all the rights, powers, and privileges of a natural person. b. can only act through the authority vested in their agents. c. cannot be held to contracts entered into that are outside of their charter. d. cannot act beyond their constitutional powers. e. have broadened powers and capacity to contract. Answer: e Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Recall/Applied 16) A parent corporation will be liable to creditors of a subsidiary corporation a. only if the parent corporation and the subsidiary corporation have exactly the same directors. b. only if the subsidiary corporation is a private (non-distributing) corporation. c. only if the parent corporation owns more than 50 percent of the shares in the subsidiary corporation. d. only if the parent corporation owns 100 percent of the shares in the subsidiary corporation. e. none of the above Answer: e Diff: 2 Type: MC Topic: The Nature of a Corporation Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

17) The classic case that established the existence of the corporation as a separate legal entity is a. Hart versus Hart, 1868. b. The Partners' Cases, a series of small cases in 1903. c. Salomon's Case, 1897. d. The Forms and Processes Case, 1902. e. all of the above Answer: c Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Recall 18) Regarding corporations, which statement follows the principle of limited liability? a. a director who drives dangerously and causes an accident while on company business b. shareholders of a small, private company provide security or personal guarantees on loans made to their company c. a corporation is liable for its own debts d. the trustee in bankruptcy requires shareholders to repay corporate property received prior to bankruptcy e. a dividend is paid to a shareholder although the corporation make no profits—the shareholder is liable for the corporation's debt to the extent of the dividend Answer: c Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Applied 19) Associated corporations constitute a statutory limitation on the concept of separate corporate identities. In the legal sense, what is an associated corporation? a. corporations that have interlocking directorates b. corporations producing the same product type, such as Coca Cola and Pepsi or Apple and IBM c. corporations that buy and sell to each other d. corporations that sell to the same market Copyright © 2016 Pearson Canada Inc.

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e. where one corporation controls another or where two or more corporations are controlled by the same person Answer: e Diff: 1 Type: MC Topic: The Nature of a Corporation Skill: Recall 20) Until the nineteenth century, all corporations were created by a. crown document. b. royal soliloquy. c. charter. d. deed. e. grant. Answer: c Diff: 1 Type: MC Topic: Methods of Incorporation Skill: Recall 21) Which of the following is included in the articles of incorporation? a. any restrictions on the business that may be carried on other provisions that the incorporators choose to include b. if there are two or more classes of shares, the rights and restrictions attached to each c. any restrictions on the transfer of shares d. name of the corporation e. all of the above Answer: e Diff: 1 Type: MC Topic: Methods of Incorporation Skill: Applied

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22) Six years ago, Michael incorporated his small business in Alberta. Now, in order to do business in Ontario, Michael must a. resubmit papers to Alberta. b. register with the Ontario government. c. re-register as a federal corporation. d. realize that the CBCA is not suitable for small business. e. form a corporation federally or with the Province of Ontario. Answer: b Diff: 2 Type: MC Topic: Methods of Incorporation Skill: Applied 23) Jack, who recently retired, wants to invest in a new upstart local company, The Turmoil Corp. As part of the deal for investing in The Turmoil Corp., the company has agreed to give Jack "...some sort of maintenance or security job for as long as he feels able." This agreement would best be placed a. in the charter. b. under seal, since it lacks consideration. c. in writing, since it falls under the Statute of Frauds. d. in the by-laws, since it will need changing. e. in a separate side agreement, so as to avoid clutter and confusion. Answer: e Diff: 2 Type: MC Topic: The Constitution of a Corporation Skill: Applied 24) Bill and Ted decide to set up a small company to invest in real estate. Before incorporating they find a prime piece of real estate that is suitable for investment purposes. They want to buy the property through a limited company but have not as yet incorporated. They attend at a lawyer’s office for purposes of filing articles of incorporation. The lawyer asks them what name they plan to use for the corporation. Bill immediately says “Bill and Ted’s Excellent Investments Inc.”. The lawyer advises them that she will need some time to have the name approved through the appropriate government office. Bill tells the lawyer there is no time to wait for the name approval. In these circumstances Bill and Ted can Copyright © 2016 Pearson Canada Inc.

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a. Tell the real estate agent to “hold off” for a couple of days until the name is approved. b. Use a “number name” where the registry simply assigns a number to the new corporation and worry about the name change later. c. Opt to form a partnership instead. d. File a “request to delay name of corporation form” at the time of filing the articles of incorporation. e. Hire a new lawyer. Answer: b Diff: 3 Type: MC Topic: The Constitution of a Corporation Skill: Applied 25) Which of the following is NOT a distinguishing feature of closely held corporations? a. The number of share holders is restricted. b. The directors of the company are prohibited from holding more than 60 percent of the outstanding shares. c. The number of required shareholders can be as small as one. d. Any invitation to the public to buy shares is prohibited. e. The right to transfer shares must be restricted in some manner. Answer: b Diff: 1 Type: MC Topic: Types of Business Corporations Skill: Applied 26) Luzzos Corp. is a closely held corporation where "The right to transfer shares needs to be restricted in some manner." This is most likely to be done by a. required consent of the board of directors. b. placing the restriction outside the corporate charter. c. giving the right of first refusal to the existing shareholders. d. placing the restriction in a by-law. e. giving a large shareholder the right of veto. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 1 Type: MC Topic: Corporate Securities Skill: Applied 27) In the articles of incorporation jurisdictions, the concept of authorized capital has been abolished. Now, what's important is a. whether a new issue can be sold to current owners. b. the total number of shares issued and consideration received for each of those shares. c. whether there is a par value or a no par value on the shares sold. d. whether the distinction can be maintained between the preferred and the common shares. e. the difference between issued capital and paid-up capital. Answer: b Diff: 2 Type: MC Topic: Methods of Incorporation Skill: Applied 28) Elvin inherited 1000 shares of 7 percent preferred. She has been assured by her broker that the company is in sound financial health even though it did not pay any dividends this year. Elvin should next find out whether a. this preferred stock qualifies for the dividend tax credit. b. rights are cumulative. c. there is any collateral for these shares. d. rights are participating. e. the preferred stock is included under the registered class rights. Answer: b Diff: 2 Type: MC Topic: Corporate Securities Skill: Applied

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29) Several years back, while Tommy was still in school, he mowed the lawn of widow Jerome's large estate. Since she could not pay Tommy in cash, she gave him 100 bearer bonds of the Delray Corp. Tommy believes he will be able to cash in on these bonds because he a. does not need to obtain endorsement since Mrs. Jerome is now deceased. b. only suspects they were obtained fraudulently. c. is an innocent holder for value. d. is not subject to any real defence, such as forgery. e. has no idea of how the law works. Answer: c Diff: 2 Type: MC Topic: Corporate Securities Skill: Applied 30) Bond and share certificates in bearer form are considered to be negotiable instruments. The holder of such instruments, if acquired honestly, is said to have acquired them a. for value. b. without notice of defect. c. in good faith. d. under apparent ownership. e. truthfully. Answer: c Diff: 2 Type: MC Topic: Corporate Securities Skill: Applied 31) In rare circumstances, courts are prepared to disregard the separate existence of a corporation and “lift the veil” to impose liabilities on those who control it. Which of the following is NOT one of the conditions that must be met for the court to impose liability on an individual? a. The individual must control the corporation. b. The individual must be a shareholder of the corporation.

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c. The individual exercises the control of the corporation to commit a fraud, a wrong, or a breach of duty. d. The misconduct must be the cause of the plaintiff’s injury. Answer: b Diff: 3 Type: MC Topic: Lifting the Corporate Veil Skill: Recall/Applied 32) Restrictions on share transfers are common and can take almost any form. Such restrictions must be set out in the corporation’s constitution and must be noted on the share certificate, otherwise a. the shares are not transferable. b. the shares have no value. c. the restrictions are not binding on a purchaser who has no notice of them. d. a preemptive right is created. e. any transfer will be ultra vires. Answer: c Diff: 3 Type: MC Topic: The Transfer of Corporate Securities Skill: Recall/Applied 33) In both theory and reality, a corporation always protects the liability of its shareholders. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Nature of a Corporation Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

34) A corporation can sue and be sued in its own name. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Nature of a Corporation Skill: Recall/Applied 35) The principle that a corporation has an existence separate from its shareholders is absolute and there are no exceptions. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Nature of a Corporation Skill: Applied 36) When we speak of lifting the corporate veil, we are referring to the ability of a court to recognize a proper case where the corporation has been set up simply as a means of protecting its incorporators from liability for acts of fraud or breach of duty. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Nature of a Corporation Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

37) There is no practical difference between the rights of a shareholder and those of the holder of a debenture. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Corporate Securities Skill: Applied 38) When a corporation is liquidated, the first group of persons to be paid are the preferred creditors. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Corporate Securities Skill: Recall/Applied 39) When a corporation issues more than one class of shares, the specific rights of each class do not have to be set out in the constitution. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Corporate Securities Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

40) Edith is the only shareholder and director of Edie Inc., a corporation incorporated by Edie two years ago. Edie is also the president of Edie Inc. Edie Inc. has no employees and no assets. Edie will be personally liable to creditors of Edie Inc. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Nature of a Corporation Skill: Applied 41) A professional corporation is a special type of corporation that may be established by members of a profession. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Types of Business Corporations Skill: Recall/Applied 42) A private corporation is one that is not permitted to offer its shares to the public. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Types of Business Corporations Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

43) The by-laws of a corporation are always appended to the articles of incorporation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Constitution of a Corporations Skill: Recall/Applied 44) The ultra vires doctrine applies in most provinces in Canada. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Nature of a Corporation Skill: Applied 45) There is no practical difference between a limited liability partnership and a professional corporation. Explain. Answer: Neither the partners of a limited liability partnership nor the shareholders of a professional corporation are liable for the negligent acts or omissions of another partner or shareholder; however, they remain responsible for the debts and liabilities of the partnership or corporation. Diff: 2 Type: ES Topic: Types of Business Corporation Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

46) Leaving aside certain mandatory requirements for federal corporations, what is the main consideration in deciding whether to incorporate federally or provincially? Answer: Generally speaking, the main consideration is whether the business activity to be carried on is national in scope or restricted to a specific province or territory. Diff: 2 Type: ES Topic: Methods of Incorporation Skill: Recall/Applied 47) In a private corporation without a shareholders agreement, why would it be necessary to restrict the transfer of shares by first requiring the consent of the board of directors? Answer: In most private corporations, the incorporators are also the directors and the shareholders. In the event of a falling out between the shareholders, such a provision is necessary to ensure that shares are not sold to a new party who cannot get along with the existing shareholders and also to ensure that the proper value is given and received for the shares. Diff: 2 Type: ES Topic: Corporate Securities Skill: Applied 48) What is the doctrine of ultra vires in corporate law and what is its current effect across Canada? Answer: Ultra vires means "beyond the powers of a corporation," that is, an attempt by a corporation to do an act outside its capacity as defined in its charter. The doctrine has been abolished by the federal Canada Business Corporations Act. Diff: 1 Type: ES Topic: The Nature of a Corporation Skill: Recall 49) What does it mean to pierce the corporate veil? When can this be done? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

Answer: This is where the courts have been prepared to disregard the separate existence of a corporation to see what lies beyond it, usually to show that the corporation and the one who owns it are one and the same. This might occur when there appears to be "fraud, a wrong, or a breach of duty." Diff: 2 Type: ES Topic: The Nature of a Corporation Skill: Applied 50) What capacity and powers does a corporation have in the eyes of the law? Answer: According to the federal Canada Business Corporations Act (CBCA) and most of the related provincial statutes, a corporation has the capacity and all the rights, powers, and privileges of a natural person. Diff: 1 Type: ES Topic: The Nature of a Corporation Skill: Recall/Applied 51) If you are a small, local, one-person business, can you incorporate under the federal CBCA (Canada Business Corporations Act)? Explain. Answer: Even though the CBCA is especially suitable for large businesses that carry on their activities nation-wide (or world-wide), it is also available for any size business anywhere in Canada. There may be numerous reasons for preferring the federal incorporation over that of the province. Diff: 1 Type: ES Topic: Methods of Incorporation Skill: Recall/Applied 52) The "charter" is an unsuitable instrument for reflecting special arrangements and side agreements between shareholders. Explain. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

Answer: The charter is an incorporating document filed with the state. It can only be altered by a special resolution, requiring the approval of a two-thirds majority of the shareholders and the filing of the amended charter. To gain flexibility, these documents should be kept as short as possible. Diff: 2 Type: ES Topic: Methods of Incorporation Skill: Applied 53) Explain the concept of the preferred shareholder. Answer: Preferred shareholders have the right to receive dividends before any are given to the common stockholders. So if the common stockholders are to get dividends for the period, the preferred stockholders must get their stipulated percentage first. In some corporations, any back deficiencies to the preferred stockholders must be made up before common shareholders get current dividends. Diff: 2 Type: ES Topic: Corporate Capital Skill: Applied 54) The attribute of negotiability of bond and share certificates has increased the problem of forged and stolen certificates. Explain. Answer: Since an innocent holder for value can obtain good title to a stolen certificate, looser practice has developed in accepting these certificates. From this, it has also become easier to pass off forged (and therefore worthless) certificates. Diff: 2 Type: ES Topic: Corporate Securities Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

55) John, Susan, and Terence retain a lawyer to incorporate a company that they expect will be taken public in the future. What basic information should the lawyer give to them concerning the incorporating documents? Answer: All companies are initially incorporated as private companies. It is only after following the appropriate steps set out in securities legislation that a private company can be taken public. If “going public” is expected, then the original incorporating documents, including the articles of incorporation and by-laws, should comply with the higher standards of corporate governance. Diff: 3 Type: ES Topic: Strategies to Manage the Legal Risks Skill: Recall/Applied 56) Although the theory is that a private corporation provides the best protection from liability for its incorporators, why is this not always the case in practice? Answer: Usually, in order to capitalize the company, the incorporators may be required to borrow money from a financial institution and will have to enter into a loan agreement personally and together with the company for the sum borrowed and/or provide a guarantee for that sum. The same may apply to a company that is active but requires capitalization. Further, shareholders or directors may be required to co-sign or guarantee contracts entered into by the company. In such cases, although the shareholders are protected from liability for many of the acts or omissions of the company, they incur personal liability should the company default on its loans or on a particular contract. Diff: 3 Type: ES Topic: The Nature of a Corporation Skill: Applied 57) Florence has $100 000 to invest. She decides to invest in the common shares of a well-known blue chip company. As part owner, how would she expect to participate in the company and to benefit from her investment? Answer: She would have very little influence as part owner of the company. She is entitled to vote (one vote for each share owned) at the annual shareholders meeting, where shareholders elect the members of the board. However, she should profit in two ways from the Copyright © 2016 Pearson Canada Inc.

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investment: (1) she will receive quarterly dividends that represent her share of the profits that are being distributed and (2) she may realize an appreciation in the value of the stock, representing growth and value of the company as perceived by the thousands of other shareholders. Of course legally, there is no assurance that either possibility will take place as expected. Diff: 2 Type: ES Topic: The Nature of a Corporation Skill: Applied 58) Explain the general distinction between the capital of a corporation and indebtedness of a corporation. Who owns the capital of the corporation? Answer: Capital of a corporation is also known as equity and is owned by the shareholders of the corporation. A company's capital is an asset that, as a general rule, does not have to be repaid, but indebtedness is a liability that must be repaid by the company whether it's making money or not. An example of a person holding indebtedness of a corporation would be a debenture bondholder. Another example would be any mortgagee. Diff: 2 Type: ES Topic: Corporate Capital Skill: Applied 59) Milton Brown is a business consultant who obtained confidential information about a publicly traded corporation which, if made public, would cause the stock to rise dramatically. Milton formed a private corporation with himself as the sole shareholder and director and had that corporation purchase stock in the publicly traded corporation. When the news that Milton was already aware of became public, the price of the publicly traded shares increased dramatically and the corporation Milton had formed sold its shareholdings at a substantial profit. Milton is subsequently charged with insider trading, that is, using confidential information for his own personal gain. His defence is that the gain was made by his corporation and not by himself and that his corporation is a separate legal entity. Will Milton's defense be successful? Give the legal basis for your answer. Answer: Milton would likely be unsuccessful in his plea because the court would lift the corporate veil. The corporation is a mere sham created to shield Milton from potential prosecution for his breach of fiduciary duty and breach of statutory provisions regarding insider Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

trading. When a corporation is a sham, the court will disregard it to allow the prosecution of the person committing the illegal act. Diff: 2 Type: ES Topic: The Nature of a Corporation Skill: Applied 60) Mario Black has, along with two others, formed a corporation to market specialized computer software. Each partner initially purchased ten common shares at $10 a piece, giving the corporation $300 in capital. The company requires an additional $25 000 to operate. Describe three different ways the corporation could acquire that $25 000 and give a brief reason why you would recommend or not recommend each of the ways. Answer: Three ways of raising $25 000 would include: (1) selling additional shares in the corporation, (2) borrowing money from the shareholders (by way of shareholders' loans), and (3) borrowing money from external sources by issuing bonds or promissory notes. (1) Equity is beneficial from the company's standpoint because it is carried as an asset and not as a liability. The person supplying the equity, however, is not entitled to the return of his or her money because he or she becomes a shareholder and not a creditor. (2) Shareholders' loans, if the corporation is dissolved, are repaid prior to the distribution of funds to shareholders. If only one shareholder is going to inject the $25 000, she or he may be glad to have that priority. (3) Debt instruments such as bonds or promissory notes are carried by the corporation as a liability on its books. The interest on these instruments would be a legal obligation. If the corporation has pledged any assets in support of the debt, upon dissolution, they would be available to the secured creditors, giving them priority over unsecured creditors and shareholders. A combination of the above three ways of raising money might be appropriate. Diff: 2 Type: ES Topic: The Nature of a Corporation Skill: Applied 61) Explain the difference between the rights of a shareholder and a bondholder. Answer: A corporation can borrow money by issuing bonds to a lender, and the lender becomes a creditor of the corporation. Interest paid to bondholders is a debt of the corporation and, in contrast to dividends, need not be paid out of profits. Bonds stipulate a fixed rate of Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 25: The Nature of a Corporation and Its Formation

return and must be redeemed at their maturity date. Bondholders have security in the assets of the corporation and will rank ahead of general creditors as regards repayment of debt. They do not share in the growth or profitability of the corporation. Shareholders are owners, not creditors, of the corporation. They have no right to a dividend, and dividends can be paid only if the corporation is profitable. The value of each shareholder’s interest fluctuates with the fortunes of the corporation. Diff: 2 Type: ES Topic: Corporate Securities Skill: Recall

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

1) Use this fact situation to answer the related questions that follow. A, B, and C are directors of Multi Corp Ltd., a private provincial corporation that is presently negotiating the purchase of another company, Gladstone Inc., whose business should compliment the business of Multi Corp Ltd. Based on a report arising from a review of the books, records, and financial statement of Gladstone Inc. by Multi Corp's accountants, A, B, and C have every reason to believe that the acquisition of Gladstone Inc. will benefit Multi Corp Ltd. and increase its yearly profits substantially. As a result, A, B, and C vote to go ahead with the purchase by Multi Corp Ltd. of Gladstone Inc. However, after the purchase, it is found that the books and records of Gladstone Inc. had been fraudulently manipulated and that it was really in poor financial health. When this information is discovered, the value of Multi Corp Ltd.'s shares falls dramatically and Multi Corp Ltd. is forced into bankruptcy. Needless to say, the shareholders of Multi Corp Ltd. blame A, B, and C for their losses and commence an action against them for damages equal to the lost value of their shares. In this case, the shareholders will likely argue that A, B, and C a. did not act in the best interests of Multi Corp Ltd. b. breached their fiduciary duty to Multi Corp Ltd. c. did not act in the best interests of the shareholders of Multi Corp. Ltd. d. breached their duty of care, diligence, and skill to Multi Corp Ltd. e. breached their duty of care, diligence and skill to the shareholders of Multi Corp Ltd. Answer: d Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 2) Use the fact situation in Q1 to answer the related question that follows. In this situation, assuming the company is an Ontario company, the best argument of A, B, and C in their defence of the lawsuit under both federal and Ontario legislation is that a. on behalf of the shareholders of the company, they exercised reasonable diligence in assessing the value of Gladstone Inc. b. the shareholders have no cause of action against them as any duty is owed to the company only. c. they committed no breach of fiduciary duty to Multi Corp Ltd. d. they committed no breach of fiduciary duty to the shareholders of Multi Corp Ltd. e. on behalf of the company, they exercised reasonable diligence in assessing the value of Gladstone Inc. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Answer: b Diff: 3 Type: MC Topic: Duties of Directors and Officers Skill: Applied 3) Use the fact situation in Q1 to answer the related question that follows. In this situation, assuming that Multi Corp Ltd. brought the lawsuit, at common law, the best argument that A, B, and C would have is that a. they have not breached the duty of good faith owed to the shareholders of Multi Corp Ltd. b. they have not committed a breach of fiduciary duty owed to Multi Corp Ltd. c. they have not committed a breach of fiduciary duty owed to the shareholders of Multi Corp Ltd. d. the business judgment rule applies and they are not liable. e. the due diligence rules do not apply at common law. Answer: d Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 4) Use the fact situation in Q1 to answer the related question that follows. Assume that at the time A, B, and C were making their decision, C also had an interest in Gladstone Inc., which he did not disclose to A and B, but that C chose not to take part in the vote. Also assume that when Multi Corp went bankrupt, a receiver was appointed, who sued A, B, and C on behalf of the company. In this case, the receiver will a. succeed against A and B, regardless of whether they were diligent and used the established degree of care. b. not succeed against A, B, and C because when A and B voted, they were diligent and used the established degree of care. c. not succeed against A, B, and C because there was no breach of fiduciary duty to Multi Corp Ltd. d. succeed against C for failure to disclose his interest in Gladstone Inc. e. succeed against A, B, and C because directors are jointly and severally liable.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Answer: b Diff: 3 Type: MC Topic: Duties of Directors and Officers Skill: Applied 5) Use this fact situation to answer the related questions that follow. Jane is the director of a private national company and has a number of friends who are the directors or officers of other large private national companies. One weekend, Jane and her family are invited to a barbecue at the home of Jane's good friend Edmund, who casually tells Jane as her friend that his company is about to sell a number of franchises and that anyone can pick them up relatively cheap. In the situation above, if Jane decides to buy one or more of the franchises and the company finds out what she has done and sues her, it will probably argue that a. Jane breached her duty of care owed to the company. b. Jane breached her duty of good faith owed to the company. c. Jane had an undisclosed interest in Edmund's corporation. d. Jane came into the information in her capacity as a director of the company. e. none of the above Answer: d Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 6) Use the fact situation in Q5 to answer the related question that follows. In the fact situation above, a. the company will not succeed against Jane because Jane committed no breach of duty of care. b. the company will succeed against Jane for damages for breach of duty of care. c. the company will not succeed against Jane because Jane received the information not in her capacity as director of the company. d. the company will succeed against Jane for damages for improper receipt of corporate information. e. the company will succeed against Jane for damages for breach of fiduciary duty. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Answer: c Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 7) Use the fact situation in Q5 to answer the related question that follows. In the fact situation above, assume that instead of being told about the franchises at the barbecue, Edmund told this to Jane during a meeting with her in her office at the company. In this case, the lawsuit a. would succeed because Jane was acting in her capacity as director of the company. b. would not succeed because Jane was not acting in her capacity as a director of the company. c. would not succeed because it was a friendly meeting. d. would succeed because Jane was unjustly enriched at the expense of the company. e. would not succeed because Jane had used due diligence. Answer: c Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 8) Use the fact situation in Q5 to answer the related question that follows. In the fact situation above, assume that instead of being told about the franchises at the barbecue, Edmund told this to Jane during a meeting with her in her office at the company. In this case, the result of the lawsuit would most likely be a. that Jane is deemed to have bought the franchises as an agent of the company which now owns them. b. that Jane must pay damages to the company. c. that Jane must resign as a director of the company. d. that Jane must assign the franchises which she bought to the company. e. none of the above Answer: a Diff: 2 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Type: MC Topic: Duties of Directors and Officers Skill: Applied 9) John, the controlling shareholder of a large national company, elected Allan, Edward, and Mary as its directors. John has just heard of a venture that may or may not be beneficial to the company, but using his power as controlling shareholder, wants to go ahead with it and tells the three directors to approve it, which they do. It then turns out that the venture does more harm than good to the company. In this case, a. John owes no fiduciary duty to the corporation. b. John owes no duty to account to the corporation. c. John owes no duty to the corporation. d. John owes no duty of care to the corporation. e. all of the above Answer: e Diff: 3 Type: MC Topic: Shareholders Skill: Applied 10) Charles, a minority shareholder in a large private provincial company, has just learned that the controlling shareholder together with the directors of the company intend to sell a large portion of the property owned by the corporation at a price less than its fair market value. If Charles wants to stop this, he will a. seek the oppression remedy. b. launch a derivative action. c. bring an appraisal remedy. d. seek an order to wind up the company. e. all of the above Answer: b Diff: 2 Type: MC Topic: The Protection of Minority Shareholders Skill: Applied 11) Use this fact situation to answer the related questions that follow. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

George, John, Edward, and Mary each own 25 percent of the common shares of a private company that they incorporated five years ago. At that time, they decided that they did not need a shareholders' agreement. Now there has been a falling out between them and the three men have used their majority vote to take away Mary's salary, terminate her employment with the company, and remove her as a director and officer of the company. In this case, Mary has recourse to a. a derivative action. b. an oppression remedy. c. the appraisal remedy. d. winding up the company. e. all of the above Answer: b Diff: 2 Type: MC Topic: The Protection of Minority Shareholders Skill: Applied 12) Use the fact situation in Q11 to answer the related question that follows. The most likely result of the recourse taken by Mary will be that a. the court will order that Mary's shares be valued and then purchased by the remaining shareholders. b. the court will order Mary and all of her benefits and positions reinstated. c. the court will find that the other three directors have breached their obligation to act in the best interests of the company. d. the court will order the other three out of the company. e. the court will order the company to pay Mary damages. Answer: a Diff: 2 Type: MC Topic: The Protection of Minority Shareholders Skill: Applied 13) Use this fact situation to answer the related questions that follow.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

A and B are the shareholders of a private Ontario company and each holds 50 percent of the issued common shares. There is no shareholder agreement. At a general meeting, A and B, who have had a falling out, cannot agree on anything, from the business of the company in the next year to the election of the directors and appointment of the officers. In this situation, a. B must sell his shares to A. b. A must sell his shares to B. c. the company is effectively locked or deadlocked as to its operation. d. the company will simply continue as it had before the meeting. e. they will go to court and have the court decide the matter. Answer: c Diff: 3 Type: MC Topic: Shareholders Skill: Applied 14) Use the fact situation in Q13 to answer the related question that follows. Assume that A and B have a unanimous shareholder agreement, which provides that for the time being the accountant of the corporation shall have the deciding vote in the event of a deadlock between the shareholders. If the accountant votes with A against B, a. B is bound by the vote. b. B can bring a derivative action. c. B can use the oppression remedy. d. B can move to wind up the company. e. B must sell his shares to A. Answer: a Diff: 2 Type: MC Topic: Shareholder Agreements Skill: Applied 15) Use the fact situation in Q13 to answer the related question that follows.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Assume that A and B have a unanimous shareholder agreement, which provides that at any time, a shareholder can serve a notice on the other shareholder to buy the other's shares for fair market value. If A and B could not resolve their impasse, then a. B could serve this notice on A. b. A could serve this notice on B. c. if B served this notice on A first, A would have to sell his shares in the company to B at fair market value, d. if A served the notice on B first, B would have to sell his shares in the company to A for fair market value. e. all of the above Answer: e Diff: 3 Type: MC Topic: Shareholder Agreements Skill: Applied 16) The CEO of a corporation is a. chosen from the board of directors. b. appointed or hired by the board of directors. c. hired by the president. d. in charge of the board meetings. e. elected by the shareholders. Answer: b Diff: 1 Type: MC Topic: The Structure of the Modern Business Corporation Skill: Recall 17) In a distributing public company, auditors are appointed by a. the directors. b. the shareholders. c. the Securities Commission. d. the audit committee of the board of directors. e. the treasurer. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Answer: b Diff: 1 Type: MC Topic: Shareholders Skill: Recall 18) Which of the following is NOT a duty of the directors of corporations? a. to adopt by-laws governing the business b. to issue shares c. to call meetings of shareholders d. to take care of the day-to-day business of the corporation e. to declare dividends Answer: d Diff: 1 Type: MC Topic: The Structure of the Modern Business Corporation Skill: Recall 19) Martin is a newly elected director of the Alliance Corporation. After being told of what would be expected of him, he is not sure he wants the position. However, upon investigating, he finds out that the only thing he will be liable for is a. employee wages if the corporation becomes insolvent. b. to attend all regularly scheduled board of director meetings. c. to exercise a high standard of care, diligence, and skill. d. to act with the professional standards of a director. e. to study items on the agenda before each director's meeting. Answer: a Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Applied 20) Directors owe duties to a. the public. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

b. creditors of the corporation. c. the shareholders. d. the corporation. e. all of the above Answer: e Diff: 2 Type: MC Topic: Duties of Directors and Officers Skill: Recall/Applied 21) Joseph is director of Marttel Inc. The company is thinking about buying some land in which Joseph is part owner. At the board of directors meeting where this is discussed and voted on, Joseph should a. reveal, discuss, and vote on the matter since this is his fiduciary duty. b. explain fully of his interests in the land, then vote his conscience. c. abstain from voting on the matter since this is a potential conflict of interests. d. be silent and refrain from voting on this matter. e. graciously be absent from the meeting. Answer: c Diff: 1 Type: MC Topic: Duties of Directors and Officers Skill: Recall/Applied 22) Sometimes almost all the directors of a company have interests in a contract. They should a. present the contract to the management for a decision. b. vote as a total board of directors. c. present the contract to a general meeting of shareholders for their ratification after full disclosure has been made. d. gather the remaining independent directors and form a quorum. e. vote as a corporate committee of the whole. Answer: c Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 26: Corporate Governance: The Internal Affairs of Corporations

Type: MC Topic: Duties of Directors and Officers Skill: Recall/Applied 23) A director will be criminally liable where she or he a. uses corporate information to make personal profit. b. acts as corporate agent to the determent of the corporation. c. gets involved with insider trading. d. intercepts a corporate opportunity. e. directly competes with the corporation in her or his own business. Answer: c Diff: 1 Type: MC Topic: Duties of Directors and Officers Skill: Recall/Applied 24) Jacob is a minority shareholder in a closely held corporation. Recently he was dismissed from his marketing management position, and now the board of directors is stopping him from transferring his stock to a cousin. He has a. lost his rights as a minority stock holder. b. been locked in. c. been locked in and frozen out. d. legal claims against the board of directors. e. been frozen out. Answer: c Diff: 2 Type: MC Topic: The Protection of Minority Shareholders Skill: Recall/Applied 25) What are pre-emptive rights? a. rights to buy as many shares as are available b. rights to send in a proxy statement for any meeting c. rights to retain one’s proportionate holdings in a firm Copyright © 2016 Pearson Canada Inc.

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d. rights to vote out any director without cause e. rights to vote cumulatively or in blocks Answer: c Diff: 1 Type: MC Topic: Shareholders Skill: Recall 26) Which of the following is NOT a statutory safeguard when considering disclosure? a. the financial statement b. appointment of inspector c. documents of record d. pre-emptive rights e. record of insider trading Answer: d Diff: 2 Type: MC Topic: Shareholders Skill: Applied 27) Regarding financial rights, shareholders have a right to a. receive dividends when declared by the corporation. b. dividends when the corporation makes a profit. c. some discrimination in the payment of dividends. d. dividends paid in the order of preferences assigned to classes of shareholders—starting with the common shareholders. e. capital appreciation as a result of retained earnings. Answer: a Diff: 1 Type: MC Topic: Shareholders Skill: Recall

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28) The only "document of record" the company need NOT allow access to by the shareholders is a. minute books of board of directors' meetings. b. a copy of the company charter. c. a register of directors. d. a register of all transfers of shares. e. a copy of all special resolutions. Answer: a Diff: 2 Type: MC Topic: Shareholders Skill: Recall/Applied 29) Which of the following best describes the appraisal remedy? a. the right of the court to grant relief to shareholders who are victims of oppressively unfair actions b. the right of an auditor to have access to all the corporation's information c. the right of a minority shareholder to apply to the court for a liquidation order d. the right of a dissenting shareholder to have his or her shares bought out by the corporation e. the right of shareholders to appoint an auditor Answer: d Diff: 1 Type: MC Topic: The Protection of Minority Shareholders Skill: Recall 30) The winding up (dissolution) of a corporation can be required by a court in order to rescue a a. bankrupt shareholder. b. CEO who has reached an impasse with the board of directors. c. director who has been unjustly dismissed. d. locked-in shareholder. e. minority shareholder from a buyout by others. Copyright © 2016 Pearson Canada Inc.

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Answer: d Diff: 2 Type: MC Topic: The Protection of Minority Shareholders Skill: Recall/Applied 31) Claude will be a minority shareholder in a new corporation. All interested parties are now in a meeting to draft the incorporating documents. To protect his rights as a minority shareholder, Claude wants certain provisions included in a well-drafted shareholder's agreement. Which of the following provisions is unnecessary and won't be included in such an agreement? a. the right to participate in management b. the unanimous approval of all shareholders c. the right to a fair price for her share interest d. the right to employment e. for the agreement to be included inside the charter Answer: e Diff: 2 Type: MC Topic: Shareholder Agreements Skill: Applied 32) A proceeding brought by one or more shareholders in the name of the corporation in respect of a wrong done to the corporation is referred to as a. an oppression action. b. a winding-up action. c. a derivative action. d. an appraisal action. e. a negligence action. Answer: c Diff: 3 Type: MC Topic: The Protection of Minority Shareholders Skill: Recall Copyright © 2016 Pearson Canada Inc.

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33) To ensure the accuracy of financial statements, business corporation legislation provides for the appointment of an independent ____________ by the shareholders. a. accountant b. chief financial officer c. ombudsperson d. auditor e. chartered accountant Answer: d Diff: 3 Type: MC Topic: The Shareholders Right to Information Skill: Recall 34) Canadian courts have consistently held that a majority shareholder owes __________ to act for the welfare of the corporation. a. fiduciary duties b. no positive duty c. a duty of loyalty d. a non-compete duty e. a positive duty Answer: b Diff: 3 Type: MC Topic: Duties of Shareholders Skill: Recall 35) When a director has a duty to acquire property for the corporation and instead acquires it for herself, she has a. intercepted an opportunity belonging to the corporation and has committed a breach of duty. b. an obligation to immediately disclose the acquisition of the property to the shareholders. c. no obligation to disclose and has not committed any breach of duty. d. breached her obligation not to compete with the corporation. Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 3 Type: MC Topic: Interception of Corporate Opportunity Skill: Recall/Applied 36) Directors are responsible for the day-to-day operation of a company's business. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Directors Skill: Recall/Applied 37) Directors are appointed by the officers of the corporation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Directors Skill: Recall/Applied 38) A director who fails to act in the best interests of a company is liable in damages to the shareholders. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Topic: Duties of Directors and Officers Skill: Applied 39) A shareholder who is not a director can operate a business that competes with the business of the company in which she or he is a shareholder. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Shareholders Skill: Applied 40) A shareholder who is being pushed out of a company by the other shareholders because they hold a majority of common shares can always use the remedy of a derivative action. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Protection of Minority Shareholders Skill: Applied 41) Generally speaking, the common shares of a minority shareholder will be ordered to be purchased at fair market value by the remaining shareholders who have been found guilty of oppressing him or her. a. True Correct: Correct b. False Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 2 Type: TF Topic: The Protection of Minority Shareholders Skill: Recall/Applied 42) A director or officer of a public trading company who uses private information about the company to purchase shares of the company to make a profit is an insider trader. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Duties of Directors and Officers Skill: Recall/Applied 43) A director who refuses to disclose his interest in another company at a directors meeting where the purchase of the other business is being voted on has committed a breach of trust. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Duties of Directors and Officers Skill: Applied 44) If a corporation is profitable, directors must declare a dividend to holders of common shares according to their proportionate shareholding. a. True Incorrect: Incorrect b. False Copyright © 2016 Pearson Canada Inc.

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Correct: Correct Answer: b Diff: 1 Type: TF Topic: Shareholders Skill: Recall 45) Jack is a director of Metallica, a construction corporation. During the course of his work as director of the corporation, Jack learns that the government is about to ask for tenders for the construction of a highway. If Jack resigns from his position as director and then sets up a new corporation that successfully bids for the government contract, he will not be in breach of his duty as a director. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Duties of Directors and Officers Skill: Applied 46) Originally, courts did not consider insider trading as harmful to the corporation and so it did not consider it a breach of the fiduciary duty owed to the corporation. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Insider Trading Skill: Recall 47) In a small private provincial company where the shareholders are also the directors and officers, does corporate governance really matter? Copyright © 2016 Pearson Canada Inc.

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Answer: In such companies little thought is given by the shareholders to the concept of corporate governance, and so long as the shareholders get along, this appears to remain the case. However, it should be remembered that even here, they should be mindful of the duties imposed by legislation on directors. Diff: 2 Type: ES Topic: What Is Corporate Governance? Skill: Applied 48) Notwithstanding legislation designed to impose duties on directors, why do you think that large corporations get away with breaches of duties and even fraud at the level of the directors and controlling shareholders, if any? Answer: These companies normally have associated companies owned or controlled by the principal shareholder, enabling the funneling of money between the two without any apparent impact on the value of shares of the minority shareholders. In such cases, the principal or controlling shareholder controls the directors, who act in concert with the controlling shareholder to take steps internally to cover up what is being done, such as devising accounting methods that hide fraudulent or improper activities and cannot be detected without a forensic audit. It is only when the minority shareholders sustain heavy losses or information about the improper conduct is leaked to them that the extent of the improper activities by the parties responsible is discovered. Diff: 3 Type: ES Topic: Duties of Directors and Officers Skill: Applied 49) Can a shareholder agreement protect a minority shareholder from oppressive acts of the majority shareholders and, if so, how? Answer: While a shareholder agreement, if properly tailored, can deal with any matter which the parties to it want dealt with, there is no such thing as absolute protection for a minority shareholder. Rather, provisions setting out mechanisms to be used in a situation of oppression can be inserted in the agreement. Two such provisions are as follows: First, those that can be employed at any time for the purchase of the shares of the minority shareholder by the majority shareholders, and vice versa. Second, mandatory arbitration Copyright © 2016 Pearson Canada Inc.

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provisions dealing with matters that are oppressive in nature can also be put in the shareholder agreement to be used whenever the question of oppression of a minority shareholder arises. Diff: 1 Type: ES Topic: Shareholder Agreements Skill: Applied 50) Which is more preferable: a simple shareholder agreement or a unanimous shareholder agreement? Why? Answer: A simple shareholders agreement need not be between all of the common shareholders, and even if it is, it must be restricted to the roles of the parties as shareholders. A unanimous shareholder agreement must be between all the common shareholders and need not be restricted to the role of the parties as shareholders. Further provisions in such an agreement usually supersede the provisions of provincial and federal legislation, permitting the powers of the directors to be restricted in whole or part. Thus, a unanimous shareholder agreement would be more preferable to have. Diff: 2 Type: ES Topic: Shareholder Agreements Skill: Applied 51) In what circumstances is the appointment of the auditor of the corporation unnecessary? Answer: Such an appointment is unnecessary in a private corporation where the shareholders have agreed unanimously to dispense with an auditor. Diff: 2 Type: ES Topic: Shareholders Skill: Recall 52) What is the difference between the business of a corporation and the affairs of a corporation? Copyright © 2016 Pearson Canada Inc.

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Answer: Under the Canadian Business Corporations Act, the "affairs" are the internal arrangements among those responsible for running a corporation and its main beneficiaries—the shareholders. The "business" is the external relations between a corporation and those who deal with it as a business enterprise—its customers, suppliers, and employees—as well as relations with government regulators and society as a whole. Diff: 1 Type: ES Topic: What Is Corporate Governance? Skill: Recall 53) Dan is a director of a corporation, and without disclosing his conflict of interest, he entered into a contract to supply the corporation with widgets. The contract was made in the name of his mother so that the corporation would not know that Dan was involved. Pat is a minority shareholder in the corporation, has found out about the conflict, and intends to bring a derivative action against Dan. Explain what a derivative action is. Why is a derivative action appropriate in the circumstances? What must Pat show in order to bring a derivative action? What remedy might a court award? Answer: With a derivative action, a minority shareholder can bring an action on behalf of the corporation. A derivative action is appropriate in these circumstances because Pat is complaining about breach of a duty that is owed to the corporation, not to her personally. Any remedy would be paid to the corporation, not to her. To bring a derivative action, Pat would have to show that the directors refuse to bring the action themselves, that she is acting in good faith, and that it appears to be in the best interests of the corporation that the action be brought. The court could force Dan to disgorge any profit arising out of the conflict of interest. Diff: 2 Type: ES Topic: The Protection of Minority Shareholders Skill: Applied 54) What duties do directors owe to shareholders of the corporation? Answer: Directors owe no general duty to the shareholders of the corporation, because their duties are owed almost entirely to the corporation itself. However, they do need to call meetings, provide financial statements, keep records, and the like. Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: ES Topic: Duties of Directors and Officers Skill: Recall/Applied 55) Explain what it means for a director to give the corporation the right of first refusal. Give an example. Answer: If it appears in a particular circumstance that the director has acquired or could obtain something of potential interest and value to the corporation, this director needs to first offer it to the corporation before retaining it for him- or herself. For example, a valuable mining claim where the corporation is a mining company. Diff: 2 Type: ES Topic: Duties of Directors and Officers Skill: Applied 56) Qualco Lumber Ltd. owned a timber license over 50 000 hectares of forest in British Columbia. The British Columbia government notified Qualco that it intends to cancel this valuable license. A director of Qualco immediately upon hearing of the cancellation sells all his shares. When would that director be liable for insider trading and when would he not? Answer: If a director has information that comes to him or her in his or her capacity as a director and which is of a confidential nature and will likely affect the value of the shares, the use of that information is insider trading. If the director uses information widely available to the public, the selling of shares is probably not insider trading. Diff: 2 Type: ES Topic: Duties of Directors and Officers Skill: Applied 57) Explain how a proxy is used. Answer: Copyright © 2016 Pearson Canada Inc.

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A proxy is the assignment of voting rights to any shareholder who will be present at a shareholder meeting. Any shareholder of voting shares who cannot attend the shareholder meeting can give her or his votes by proxy to any other shareholder who will be attending the meeting. Diff: 1 Type: ES Topic: Shareholders Skill: Recall/Applied 58) As you have seen in previous chapters, these days it is common in sophisticated contracts to have provisions requiring mandatory mediation or binding arbitration to resolve disputes arising between the parties. As between the majority and minority shareholders of a corporation, who do you think would favour one form of dispute resolution over the other? Answer: Mandatory mediation serves to help the parties to try to resolve a dispute, but is not binding on the parties and leaves access to the courts as a final alternative, while binding arbitration will, subject to an error in jurisdiction, determine the dispute once and for all. Thus, a majority shareholder is more likely to want a mandatory mediation provision in a shareholders agreement, so that if he or she does not like the result he or she still has recourse to the courts through litigation. From a bargaining perspective, the sometimesstaggering costs of litigation can act as a deterrent to minority shareholders involved in such a dispute, giving the majority shareholder an edge in the dispute and often forcing the minority shareholders to settle on terms favourable to the majority shareholder. Conversely, minority shareholders will want a binding arbitration provision in a shareholders agreement to resolve disputes, because even if they lose, the costs are far less than the uncertainty of mediation followed by litigation, and the matter can be determined quickly. Diff: 3 Type: ES Topic: Shareholder Agreements Skill: Applied 59) Why should a director or officer of a corporation ensure that a contract is signed in such a way as to make it clear that it is being signed on behalf of the corporation? Answer: A corporation is a legal entity, and in matters of contract, it can only sign a contract through those officers, directors, or employees who are authorized by the corporation to Copyright © 2016 Pearson Canada Inc.

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do so. However, situations have occurred where in the place for signature, the director, officer, or employee has simply signed the contract relying on the fact that the contract is between the corporation and another party, but without reference to the name of the corporation or the fact that it is being signed by the corporation's authorized representative. The result is that where a problem occurs, often the question becomes whether the contract was signed on behalf of the corporation or whether the director, officer, or employee was signing it in his or her personal capacity, and if the latter, incurring personal liability under it. To avoid this situation, the person signing for the corporation should ensure that it is clear that he or she is signing on behalf of the corporation only. Diff: 3 Type: ES Topic: The Structure of the Modern Business Corporation Skill: Applied 60) Have the numerous changes to corporate legislation, which impose more and more duties on directors of corporations, changed the concept of limited liability for shareholders of small privately held companies who are often also the directors and officers, so as to act as a possible deterrent to incorporation as the best method of limiting liability? Answer: This is not an easy question to answer. There is no doubt that legislative changes that impose more and more duties on directors may well have an effect on small privately held corporations, increasing the potential for liability of their shareholders who are also the directors or officers. However, thus far, small privately held corporations have not been the subject of scrutiny to the same degree that has recently characterized large private corporations or public corporations. Moreover, in such companies, it is rare to find breaches of duty, because the shareholders have much closer control. The result would seem to be that, together with the income tax advantages that such corporations enjoy, there is no real deterrent, and the limited liability enjoyed by their shareholders continues even where they are directors or officers, although this may change if and when such corporations begin to be scrutinized more closely. Diff: 3 Type: ES Topic: Duties of Directors and Officers Skill: Applied 61) The Delphi Corp. owns 60 percent of Lynden Sand & Gravel Inc. Delphi, with its voting power, elected all three directors on Lynden's board. Then the board decided to Copyright © 2016 Pearson Canada Inc.

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sell one of Lynden's gravel reserves to Delphi at only half its value. As a minority shareholder in the Lynden corporation, how have you been affected by this transaction? Answer: The directors of Lynden have been in breach of their duty to act in good faith and in the interests of their corporation. The corporation has been injured because the value of its assets has been reduced, but the loss falls entirely on its minority shareholders since the majority shareholder, Delphi Corp., gains more as the purchaser (100 percent) than it loses as a shareholder of the seller (60 percent). So Delphi, as the controlling shareholder of Lynden, will not have any complaint; it's only the minority shareholders (like yourself) who have cause to complain. Diff: 2 Type: ES Topic: Duties of Directors and Officers Skill: Applied 62) Explain why most corporations issue pre-emptive rights on their new issues of stock when pre-emptive rights are generally not recognized by courts in Canada. Answer: The principle that shareholders should be able to maintain their share of ownership in the face of a new stock issued is well recognized in the business world. Therefore, preemptive rights are many times included in the charter or by-laws of a corporation. Alternately, pre-emptive rights may be voluntarily recognized by the directors when there is a new issue of stock. Then there is the situation where without pre-emptive rights, the courts may disallow the issue. This is a situation where, instead of the purpose of the new issue being to raise capital, the purpose is to affect voting control. If this can be demonstrated, the courts will restrain the corporation from making the issue, or it may subsequently declare the issue void. Besides, you're more apt to keep your current stockholders happy with pre-emptive rights. Diff: 2 Type: ES Topic: Shareholders Skill: Applied 63) Mary, Martha, Marge, and Alice incorporate a private corporation for the purpose of wholesaling sports equipment. Each owns an equal number of shares. Their incorporating documents neither specify what business the corporation is in nor restrict the type of business the corporation can operate. Martha, Mary, and Marge are the three directors and officers of the corporation, while Alice is being frozen out of the company's decision Copyright © 2016 Pearson Canada Inc.

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making. She has never been elected as a director, has never had a position in the management, and has not had any of her resolutions passed at the annual shareholder's meeting. Also, the corporation seemed to have abandoned its original purpose and gone into a different business—one that doesn't interest Alice. Explain to Alice the "oppression remedy" and its advantages over two other kinds of remedy. Answer: The oppression remedy is being widely adopted across Canada. It provides far greater flexibility than the alternatives, such as a derivative action or a "just and equitable" winding up. Where the complainant has been treated unfairly or oppressively, the court will, in the oppression remedy, give any order it considers just and appropriate to the situation. The most common judgment is to require the majority shareholders to buy out the minority interest at a fair price. This might be the best resolution for Alice, since it would free up her investment to pursue an interest more to her liking. Diff: 2 Type: ES Topic: The Protection of Minority Shareholders Skill: Applied 64) Explain the concepts of debt and equity capital. Answer: Corporations when they are established need to raise money. There are two ways in which this is done, namely, by borrowing from lenders and by issuing shares. Money raised by borrowing from lenders is referred to as debt capital and money raised by the issuance of shares is referred to as equity capital. Diff: 2 Type: ES Topic: The Structure of the Modern Business Corporation Skill: Applied

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1) A parks his car in a no-parking zone and A gets a ticket. In this case, A has committed a. an absolute liability offence. b. a mens rea offence c. a criminal offence. d. no offence. e. a strict liability offence. Answer: a Diff: 2 Type: MC Topic: Liability Arising from Business Responsibilities Skill: Applied 2) Susie owns a small tool and die company. She has hired an occupational health and safety expert to assess the workplace on a monthly basis in order to identify potential dangers that could injure her employees. The expert reports back to her every month. Part of the reason Susie incurs the costs of hiring this expert is a. To avoid any civil action brought by an injured worker. b. To prove that she took all reasonable steps in the circumstances should she ever be charged with an occupational health and safety offence after the injury of a worker. c. To prevent an attempt by any party to “pierce the veil” of the corporation and seek damages against her personally. d. To provide her with the basis to raise a “reasonable doubt” should she be charged with any regulatory offence. e. To avoid a conflict of interest. Answer: b Diff: 3 Type: MC Topic: Liability Arising from Business Responsibilities Skill: Applied 3) Bill and four friends are driving to the movies. The vehicle Bill is driving is travelling 21 km per hour over the speed limit. Terry is one of the passengers in the back seat. He intentionally throws an empty bottle at a pedestrian who is walking on a nearby sidewalk. She is struck with the bottle and injured. The police pull the car over and charge Bill and

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Terry with separate offences. The classification of the offences with which they are charged is as follows a) absolute liability and mens rea. b) strict liability and mens rea. c) mens rea and absolute liability. d) strict liability and absolute liability. e) Not listed above. Answer: a Diff: 3 Type: MC Topic: Liability Arising from Business Responsibilities Skill: Applied 4) A and B carry on business as a general partnership, which recently went bankrupt. In the event that the partnership assets are insufficient to pay off the creditors of the partnership, a. both A's and B's personal assets will be seized. b. neither A's nor B's personal assets will be seized. c. only B's personal assets will be seized. d. only A's personal assets will be seized. e. none of the above Answer: a Diff: 2 Type: MC Topic: Protection of Creditors Skill: Applied 5) Walter and Gordon are the shareholders of a small private Ontario company, which recently went bankrupt due to the world wide recession, owing $100 000.00 to its creditors. Unfortunately the company's assets are only $50 000.00. In this case, the amount available to satisfy the creditors of the company will be a. $50 000.00 plus Gordon's assets only. b. $50 000.00 plus Walter's assets only. c. $50 000.00 plus the assets of both Walter and Gordon. Copyright © 2016 Pearson Canada Inc.

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d. $50 000.00 only. e. none of the above Answer: d Diff: 2 Type: MC Topic: Protection of Creditors Skill: Applied 6) John and George are the shareholders of a private provincial company, which has capital assets of $250 000.00. Lately, due to the recession, the company has not been doing well financially, but it is going to issue dividends of $50 000.00 each to John and George. A few days later the company declares bankruptcy. In this case the creditors of the company a. can recover the value of the dividends from John and George as shareholders. b. can look to the assets of the company. c. can recover the value of the dividends from John and George as directors. d. can look to the assets of the company and receive the value of the dividends issued to John and George. e. all of the above Answer: e Diff: 2 Type: MC Topic: Protection of Creditors Skill: Applied 7) Use this fact situation to answer the related questions that follow. Edward is employed by a large furniture manufacturing company to purchase supplies and regularly deals with the company's largest supplier. Yesterday, Edward entered into a contract with that supplier to sell it some of his company's furniture. In this situation, a. there is a contract between Edward, the supplier, and Edward's company. b. there is a contract between Edward and the supplier only. c. there is no contract between Edward, the supplier, and Edward's company. d. there is no contract between Edward's company and the supplier. Copyright © 2016 Pearson Canada Inc.

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e. there is a contract between Edward's company and the supplier. Answer: d Diff: 2 Type: MC Topic: Civil Liability of Corporations Skill: Applied 8) Use the fact situation in Q5 to answer the related question that follows. Assume that before Edward entered into the contract with the supplier, the president of Edward's company invited Edward to a lunch with the supplier and after a few drinks stated that Edward was also in charge of company sales. Also assume that later in the day and back at his office, the president reminded Edward that he had nothing to do with sales for the company. In this case, a. there is no contract between Edward, the supplier, and Edward's company; it is provisional only. b. there is a contract between Edward and the supplier only. c. there is no contract between Edward's company and the supplier. d. there is a contract between Edward, the supplier, and Edward's company. e. there is a contract between Edward's company and the supplier. Answer: b Diff: 2 Type: MC Topic: Civil Liability of Corporations Skill: Applied 9) Use the fact situation in Q5 to answer the related question that follows. Now assume that the supplier delivered supplies to Edward's company totalling $50 000.00 and that the company is overdue in its payment for the supplies. In this situation, the supplier can sue a. Edward only. b. the company only. c. Edward and the company. d. Edward, the company, and its president. e. all of the above

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Answer: b Diff: 2 Type: MC Topic: Civil Liability of Corporations Skill: Applied 10) John is employed by a large private company that manufactures top-quality bicycles. John's duties are to test the bicycles after they have been assembled. During one such test the brakes on the bicycle being tested fail, causing John to lose control and scrape the side of George's brand new car. In this case, George can sue a. the company only. b. both John and the company. c. John, the company, and the employee who assembled the bike John was testing. d. John only. e. John, the company, and the employee who made the brakes on the bicycle being tested. Answer: b Diff: 2 Type: MC Topic: Civil Liability of Corporations Skill: Applied 11) Use this fact situation to answer the related questions that follow. Albert, who is a sole proprietor who wants to expand his present business, which makes and supplies plastic containers, has decided to incorporate his business to limit his liability. Yesterday, Albert signed the articles of incorporation at the office of his lawyer, just before he had a business meeting with a large retail store. During that meeting Albert agreed to manufacture and supply 20 000 plastic containers to the retail store. Thinking that his new company would be incorporated shortly, Albert decided to sign the contract on behalf of a corporation to be incorporated. A couple of days later Albert's lawyer told Albert that his new company had been incorporated. A month went by during which the retail store found that the containers were defective, and since there was no warrantee on them, the store spent $15 000.00 to repair them. In this case, in bringing a lawsuit, the store will consider a. that Albert's assets can be seized to satisfy a judgment. b. that liability will rest with Albert and not his new company. c. that Albert's new company has not adopted the contract. Copyright © 2016 Pearson Canada Inc.

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d. that Albert signed the contract on behalf of a company to be incorporated. e. all of the above Answer: e Diff: 3 Type: MC Topic: Civil Liability of Corporations Skill: Applied 12) Use the fact situation in Q9 to answer the related question that follows. Assume that in the week after the contract was entered into, Albert's new company told the retail store that it was adopting the contract made with Albert. In this case, in bringing a lawsuit, the retail store will consider that a. since the company adopted the contract, Albert might well be relieved of liability to the retail store. b. there is no express term in the contract relieving Albert of liability under the contract. c. this does not appear to be a proper case where liability can be apportioned. d. the company adopted the contract. e. all of the above Answer: e Diff: 3 Type: MC Topic: Civil Liability of Corporations Skill: Applied 13) Use the fact situation in Q9 to answer the related question that follows. Assume that in the contract there was a term that provided that Albert would no longer be bound by the contract. In this case, the retail store will most likely a. sue Albert's old business. b. sue Albert and the new company. c. sue the new company only. d. sue Albert only. e. none of the above Answer: c Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Civil Liability of Corporations Skill: Applied 14) Use this fact situation to answer the related questions that follow. John is an engineer in a large, public car manufacturing company that recently released a new line of cars in which the gasoline tanks were installed just in front of the rear bumper. John was aware that tests of the new cars indicated that in a high-speed rear-end collision the gas tanks would explode. John sent a memo to his supervisor about this and the supervisor forwarded the memo to upper management, including the directors and the CEO of the company, who had a study done to determine how may claims the company was likely to have against it resulting from this defect and comparing it to the cost of recalling all of the new cars and fixing the defect. The study concluded that the cost of paying the claims would be substantially less than the cost of recalling all of the cars and fixing them. As a result, the CEO with the board of directors decided not to fix the defect. In the first year of sales of the new line of cars, there were 12 occasions where occupants of the car were seriously injured by exploding gas tanks in rear-end collisions. In this case, in theory and based on current law, most likely a. the upper management of the company, including the directors and CEO, will be exposed to criminal liability. b. the upper management of the company, including the directors and CEO, will be exposed to liability in tort. c. the company will be found criminally liable for criminal negligence causing bodily harm. d. the company will be found civilly responsible in tort. e. all of the above Answer: e Diff: 3 Type: MC Topic: Criminal Liability of Corporations. Skill: Applied 15) Use the fact situation in Q12 to answer the related question that follows. Assume that John went to a local newspaper and told it about the results of the tests on the company's new line of cars and the newspaper published the story. Also assume that the company finds out that John was the one who gave the story to the newspaper and summarily fires John. In this case the company has committed the offence of a. criminal negligence causing bodily harm. Copyright © 2016 Pearson Canada Inc.

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b. whistle-blowing retaliation. c. distributing false statements. d. criminal fraud. e. all of the above Answer: b Diff: 2 Type: MC Topic: Criminal Liability of Corporations Skill: Applied 16) Use this fact situation to answer the related questions that follow. George is a director in a large federally incorporated national pulp and paper mill that often uses bleach and other chemicals to make its paper white. Recently, the bleach and other chemicals have been flowing into the river right beside the mill, polluting it and killing the fish and wildlife in it. George supervises the machines that are used to remove harmful contaminants from the chemicals before they are permitted to flow into the river, and realizes that they are not working properly. He immediately tells his supervisor, who makes a request for repairs to the company's director, Robert, who is responsible for all environmental matters. In turn, Robert sends a report to the full board of directors and CEO about the problem with the machines and the pollution it is causing. The board and CEO agree to implement measures immediately to repair the machines and clean up the river, and take corresponding action. In this case, under the Canada Environmental Protection Act, a. the board of directors and CEO can defend themselves using the due diligence argument. b. the CEO is presumed to have committed an offence under the Act. c. the board of directors are presumed to have committed an offence under the act. d. the company has committed an offence under the Act. e. all of the above Answer: e Diff: 3 Type: MC Topic: Liability for Environmental Offences Skill: Applied

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17) Use the fact situation in Q14 to answer the related question that follows. Assume that when Robert advises the board of directors and CEO of the problems, they instruct him to forget about the matter and try to find a way to cover the whole thing up. In this case, a. the board of directors has committed an offence under the Act. b. the CEO has committed an offence under the Act. c. the due diligence defence will not help the board or the CEO. d. the company has committed an offence under the Act. e. all of the above Answer: e Diff: 3 Type: MC Topic: Liability for Environmental Offences Skill: Applied 18) In spite of the fact that a corporation does not meet the solvency test, it can a. buy back shares. b. pay wages to employees. c. pay dividends. d. make loans to directors. e. none of the above Answer: b Diff: 2 Type: MC Topic: Protection of Creditors Skill: Recall 19) Directors may become personally liable to the corporation for deficiencies if, when they pay out dividends, the corporation cannot meet a. a shortage of working capital. b. the test of bankruptcy. c. a scheduled bond redemption. d. current corporate indebtedness. e. the solvency test. Copyright © 2016 Pearson Canada Inc.

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Answer: e Diff: 1 Type: MC Topic: Protection of Creditors Skill: Applied 20) Several years back Dean Pigeon with two friends invested $300 000 equity capital into a new corporation. As it turns out, they have more capital in the business than they can profitably use. Will the CBCA allow them to take out the excess capital? a. Yes, it will, provided the corporation can satisfy the court that the capital is truly unutilized. b. Yes, it will, provided the corporation has no creditors. c. No, it will not, since the excess is not accumulated retained earnings. d. Yes, it will, as long as the corporation can satisfy both parts of the solvency test. e. No, it will not, because a "capital fund" is not available to shareholders. Answer: d Diff: 2 Type: MC Topic: Protection of Creditors Skill: Applied 21) When it is unlawful to declare dividends because of a deficiency in the capital fund and yet the shareholders want a quick pay-out, then a. Revenue Canada can issue "not withstanding" tax credits. b. the corporation needs to earn enough profits to restore the deficiency. c. shareholders can lend money to the corporation and receive interest payments in return. d. the corporation can re-capitalize at a lower amount. e. wages can be paid to officers instead of dividends. Answer: b Diff: 1 Type: MC Topic: Protection of Creditors Skill: Applied

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22) In Canada, the jurisdiction over the securities industry is a. divided between federal and provincial governments. b. with the federal Parliament. c. substantially within provincial jurisdiction. d. with the federal Securities and Exchange Commission. e. with each of Canada's four stock exchanges. Answer: c Diff: 2 Type: MC Topic: Protection of Investors Skill: Applied 23) Mandy had her securities licence suspended by the securities commission, yet she continues to buy and sell stock as an investment dealer. Mandy certainly a. has committed a criminal offence. b. will have all her stock trades cancelled and/or reversed. c. will be barred for life from working in the securities industry in Canada. d. must go up before the discipline committee of the securities commission. e. will face private discipline by the investment house where she is an agent. Answer: a Diff: 1 Type: MC Topic: Protection of Investors Skill: Recall 24) Schemes of government regulation resemble traditional criminal law because a. damage is done through committing a tort rather than through breach of a contract. b. conviction for an offence is typically punished by imprisonment. c. it must be proved the accused not only committed the offence, but also was at fault and had mens rea (a guilty mind). d. they are enforced by the RCMP. e. they prohibit certain kinds of conduct and punish those who ignore the prohibitions. Answer: e Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Criminal Liability of Corporations. Skill: Applied 25) Under the regulatory offence of "strict liability," the standard that must be met for obtaining a conviction is a. the same as under the regulatory offence of "absolute liability." b. to let the accused try to avoid liability by proving that she or he was completely unaware of the regulation. c. to satisfy the court that the breach is of the regulation rather than a statute. d. where the doing of the prohibited act raises a presumption that an offence has been committed—unless the accused can prove she or he took all reasonable care. e. to prove the existence of mens rea (a guilty mind). Answer: d Diff: 1 Type: MC Topic: Liability Arising from Business Responsibilities Skill: Applied 26) Under criminal law, corporations are subject to be punished. Punishment can take place by a. heavy fines on the corporation itself. b. imprisonment of the directors. c. finding the "directing mind" behind the offence and fining and/or imprisoning this person. d. dissolving the corporation. e. all of the above Answer: e Diff: 1 Type: MC Topic: Criminal Liability of Corporations. Skill: Applied

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27) Hazel was deliberately cheated by a clerk at the Hamilton Bay Corp. Can the corporation be found guilty of a criminal offence? a. Yes, it can, since there is obviously a "directing mind" in this act. b. Yes, it can, since the clerk was an employee working at her job at the time. c. No, it cannot, because she was a low-level employee. d. Yes, it can, because there is vicarious liability to the corporation. e. No, it cannot, since corporations cannot be criminally found guilty. Answer: c Diff: 2 Type: MC Topic: Criminal Liability of Corporations Skill: Applied 28) When it comes to damage of the environment, any person who actually commits an offence is personally liable a. provided he or she was not acting within the scope of his authorized activities. b. if there was no direct participation in the offence. c. even if a senior officer ordered him to perform. d. provided he or she had no knowledge of the offence. e. provided he or she had no significant role in controlling what happened. Answer: c Diff: 2 Type: MC Topic: Liability for Environmental Offences Skill: Recall/Applied 29) Pat is one of 16 owners of Camstick Ltd. This corporation has been fined $30 000 for polluting the town's water supply. Pat is on the board and now finds himself charged and being convicted on the same matter. The judge finds that Pat personally knew and did nothing about the polluting. Not only that, but he has no remorse concerning the incident. The judge is now giving him, under the Environmental Protection Act, the maximum prison term of a. 12 months. b. 10 years plus $50 000. c. 90 days. Copyright © 2016 Pearson Canada Inc.

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d. 5 years plus $10 000. e. 3 years plus $5 000. Answer: a Diff: 1 Type: MC Topic: Liability for Environmental Offences Skill: Recall/Applied 30) In order to avoid an environmental accident, a business should take all of the following steps EXCEPT a. review current practices to learn whether any of their activities create a concern about health, safety, or breach of environmental regulations. b. keep up-to-date with current technology and best practices adopted across their industry. c. take every reasonable precaution to meet the latest standards. d. directors should not try to educate themselves about the business’s activities and risks but rather hire knowledgeable individuals who can deal with potential environmental problems. Answer: d Diff: 3 Type: MC Topic: Strategies to Manage the Legal Risks Skill: Recall 31) The Criminal Code of Canada contains some offences that are applicable to corporate conduct. With respect to whistle-blower retaliation, it is an offence to a. threaten a whistle-blower or potential whistle-blower. b. discipline a whistle-blower or potential whistle-blower. c. demote a whistle-blower or potential whistle-blower. d. request a statement from a whistle-blower or potential whistle-blower. e. fire a whistle-blower or potential whistle-blower. Answer: d Diff: 3 Type: MC Topic: Criminal Liability of Corporations Copyright © 2016 Pearson Canada Inc.

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Skill: Recall 32) The characteristics of corporations presents special problems for criminal liability in part because a. it is often impossible to determine which individual is exercising control. b. a corporation cannot be imprisoned. c. the corporate veil cannot be pierced. d. a corporation is not subject to fines. e. a corporation cannot be dissolved. Answer: b Diff: 3 Type: MC Topic: Criminal Liability of Corporations Skill: Applied 33) There are a number of statutes that contain protections for the benefit of employees. Which of the following pieces of legislation does not contain any provisions with respect to protection of employees? a. occupational health and safety legislation b. human rights legislation c. employment standards legislation d. sale of goods legislation e. workplace safety legislation Answer: d Diff: 3 Type: MC Topic: Protection of Employees Skill: Recall

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b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Liability Arising from Business Responsibilities Skill: Applied 35) Offences under the Criminal Code of Canada are both criminal and regulatory in nature. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Criminal Liability of Corporations Skill: Recall/Applied 36) The failure of a company to ensure that its employees are well trained for the job they do and to ensure that their workplace is safe is an offence under occupational health and safety legislation. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Protection of Employees Skill: Recall/Applied 37) Secondary market liability occurs when someone who owns shares in a company sells them in circumstances where information released about the state of the company is false and not yet corrected. Copyright © 2016 Pearson Canada Inc.

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a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Protection of Investors Skill: Recall/Applied 38) Corporations are always liable in tort for contracts entered into with third parties. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Civil Liability of Corporations Skill: Recall/Applied 39) To escape personal liability, when a party enters into a pre-incorporation contract, it is enough for that party to simply state on the written contract that he or she is entering into the contract on behalf of a company to be incorporated. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Civil Liability of Corporations Skill: Recall/Applied 40) A corporation that is not paying its creditors in a timely fashion is probably insolvent. a. True Copyright © 2016 Pearson Canada Inc.

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Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Protection of Creditors Skill: Applied 41) No knowledge of the law is a good defence to an absolute liability offence. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Liability Arising from Business Responsibilities Skill: Recall/Applied 42) At present, and largely due to the Enron debacle and the events of the world-wide recession of 2008, there is a trend toward a greater consideration of ethics in corporate business. Will this continue? Answer: Public awareness is heightened by such events. However, as time goes by and business returns to normal, there is a greater likelihood that the profit motive will return and that the events that gave rise to that heightened awareness will be forgotten, regardless of how much legislation is passed. Diff: 2 Type: ES Topic: Protection of the Public Interest Skill: Recall/Applied 43) Why has provincial and federal legislation removed the requirement of mens rea for regulatory offences? Copyright © 2016 Pearson Canada Inc.

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Answer: This burden is extremely difficult to meet, and in order to better regulate such matters as health, safety, and the environment, it makes more sense to let the evidence raise presumptions of guilt, which can only be rebutted by the due diligence defence. Diff: 2 Type: ES Topic: Liability Arising from Business Responsibilities Skill: Applied 44) Explain why legislation is necessary in areas of law other than contracts or torts to regulate the conduct of corporations and those who run them. Answer: While the theory of the corporation as a natural person permits common law to regulate corporations in matters of contract and torts, this theory breaks down when attempting to determine who within a corporation may be responsible for a breach of criminal or regulatory matters. For this reason, it makes more sense to legislate rules relating to the conduct of those individuals within a corporation without whom the corporation could not function. Diff: 2 Type: ES Topic: Protection of the Public Interest Skill: Applied 45) Explain why the insolvency and maintenance of capital tests are important when it comes to corporations. Answer: This is because with corporations, unlike with other business forms, a creditor's rights are limited to the assets held by a corporation and these tests are a legislative attempt to force corporations to have enough assets available to satisfy their creditors and to ensure that those assets are not depleted by issuing dividends or through redemption and repurchase of shares. Diff: 2 Type: ES Topic: Protection of Creditors Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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46) How serious is Canada about taking steps to reduce greenhouse emissions? Answer: Although Canada ratified the Kyoto Protocol in 2001 and agreed to reduce such emissions substantially by 2012, the fact is that participation in the Protocol is voluntary only. Further, in May 2006, Canada's environment minister advised that Canada would not meet this 2012 target, suggesting that Canada was not really committed to the Protocol. Then, in 2011, Canada withdrew from the protocol, suggesting it is not as serious as it should be about reducing harmful greenhouse emissions. Diff: 1 Type: ES Topic: Liability for Environmental Offences Skill: Applied 47) Regarding ratification of pre-incorporation contracts, how has the CBCA resolved the problem presented by common law? Answer: Under the CBCA, a corporation ratifies a pre-incorporation contract simply by taking any action or conduct signifying its intention to be bound—provided the adoption and ratification takes place reasonably promptly after the corporation comes into existence. Diff: 1 Type: ES Topic: Civil Liability of Corporations Skill: Recall 48) In trying to protect corporate creditors, what is the solvency test? Answer: The solvency test requires that the directors of a corporation become personally liable for any deficiency resulting from the payment of dividends when the firm is insolvent, that is, unable to meet its debts as they fall due, or where the realizable value of its assets has become less than its total liabilities. Diff: 2 Type: ES Topic: Protection of Creditors

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Skill: Recall/Applied 49) What condition(s) must be met before a corporation may purchase its own shares? Answer: Under the CBCA, a corporation may redeem or purchase its own shares for a number of specified reasons, subject to satisfying both parts of the solvency test. Diff: 2 Type: ES Topic: Protection of Investors Skill: Recall/Applied 50) In addition to the licensing and prospectus provisions, the legislation has introduced further controls on the securities industry. Give a couple of examples. Answer: Examples might include: (1) the securities commission control over the stock exchanges, (2) control over trading of already outstanding securities, (3) financial information that must be disclosed on a regular basis, (4) provisions to make the proxy a more effective means of registering shareholders' opinions, and (5) publication of insiders' transactions. Diff: 2 Type: ES Topic: Protection of Investors Skill: Applied 51) Explain how directors and senior officers can be held liable when the corporation commits a criminal offence. Answer: The courts have found the actions of directors and senior officers to be those of the corporation itself both with regard to the actual committing of the acts and the required guilty or negligent mind. Diff: 2 Type: ES Topic: Criminal Liability of Directors and Officers Skill: Recall/Applied

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52) What standard of care and skill is usually imposed by the court on an accused corporation and its directors when the activities of the corporation were carried on negligently? Answer: The "due diligence in carrying out their duties test" will apply, but this test has an everchanging standard as technology changes and it also may be affected by the knowledge and expertise of the individuals involved. Diff: 1 Type: ES Topic: Criminal Liability of Directors and Officers Skill: Recall 53) Use this fact situation to answer the related questions that follow. After the Enron scandal and the collapse of the high-tech stock market, recommendations were made to attempt to protect the public against a recurrence of the same sort of situation. However, only a few of these were implemented. Explain why. Answer: Executive compensation schemes link performance to the profitability of the company, rather than to stability or corporate social responsibility. Bonuses are often in the form of stock options whose values rise with the price of corporate shares. This situation reinforces bottom line decision making with a view to short-term profit and may even encourage inflated financial reporting. Diff: 2 Type: ES Topic: Protection of Investors Skill: Recall 54) Use the fact situation in Q1 to answer the related question that follows. Based on the Enron situation, a question arises as to how inflated financial reporting occurs. To better understand this, consider that large public corporations retain top-tier accounting firms who are well aware of established standards for proper completion of financial statements and reports. If this is the case, and the accountants for such corporations inflate financial statements and reports, should not these accountants also be held liable for misleading the public?

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Answer: Since accountants are familiar with the finances of such companies and their financial health, and since they know the established accounting procedures to be followed, a good argument can be made that when they inflate financial statements or reports, they are just as responsible for the consequences as are the directors and CEOs. However, for some reason, government legislation seems to exclude them. Diff: 3 Type: ES Topic: Protection of Investors Skill: Applied 55) Use the fact situation in Q1 to answer the related question that follows. Based on the Enron situation, if some form of liability should flow down to the accountants of such corporations, what about the lawyers for such corporations, who not only have a duty to advise against many of the acts committed by such corporations, but who also act for such corporations on transactions that deplete corporate assets when they cannot help but know that the corporation is insolvent or close to insolvency? Answer: It is difficult to believe that lawyers acting on transactions for such corporations do not know that the effect of such transactions is to deplete corporate assets. One might expect that lawyers have a continuing duty to advise directors, officers, and CEOs about the legality of their actions or those of the corporation. And in a real sense they are parties to those acts. Thus, a good argument can be made that lawyers should be held accountable to the public and exposed to liability when engaging in such activities in which they cause harm of loss to the public. However, like with accountants, government legislation seems to exclude them. Diff: 3 Type: ES Topic: Protection of Investors Skill: Applied 56) Explain the general purpose of securities legislation in Canada. How are these purposes achieved? Answer: The general purpose of securities legislation in Canada is to prevent fraudulent practices and require full disclosure to prospective buyers of shares and certain other securities offered to the public. It achieves its purpose by punishing those engaged in fraudulent practices and practices prohibited by statute. Securities regulation is a provincial matter, Copyright © 2016 Pearson Canada Inc.

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and the enforcing bodies exercise further controls by requiring registration and licensing of certain persons who deal in securities. The main way that securities legislation achieves its purpose of full disclosure before the issuance of securities is by requiring that a prospectus be filed and approved before distribution of shares takes place. There are penalties for issuing a false or misleading prospectus, and a prospectus is a contract of the utmost good faith. Diff: 2 Type: ES Topic: Protection of Investors Skill: Recall/Applied 57) Marian, Phillis, and Lauren are three directors at A Mart Supplies Ltd. The corporation has $150 000 in assets, including capital and $110 000 in debt. (1) If the directors passed a resolution redeeming all the preferred shares of the corporation for $50 000, what remedy would unpaid creditors of the corporation have and against whom? (2) If Phillis and Lauren voted in favour of a directors' resolution approving the corporation's purchase of artwork from an unknown artist for $60 000 for resale purposes and it turned out that the work was unsaleable and was ultimately disposed of for less than $10 000, what remedy would unpaid creditors have and against whom? Answer: (1) The directors have breached the solvency test, and as directors they may be personally liable to the creditors for any shortfall created thereby. The corporation, of course, remains liable for its debts. The shareholders have limited liability and would, therefore, not normally be liable for the shortfall. (2) The corporation is the only entity likely liable to creditors in this case. As long as the directors were acting bona fide and in good faith with a view to the best interests of the corporation, they would not be liable. The solvency test has not been breached here. Diff: 2 Type: ES Topic: Protection of Creditors Skill: Applied 58) Ward Bond was the sole director of Able Contractors and Hauling Ltd. The corporation entered into a contract to dig up and remove a below-ground storage tank that contained a residue of pesticides. The corporation dug up the tank and placed it on a flatbed truck for transportation to an approved disposal facility. While the tank was being transported, it started to rain. The driver called Ward to ask what he should do, because he had no tarpaulin to cover the tank. Ward knew that a tarpaulin would be useful but the cost would be several thousand dollars ,so Ward instructed the driver to park the truck Copyright © 2016 Pearson Canada Inc.

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until the rain had stopped. The driver did so in a restaurant parking lot and the rain washed out the pesticide residue from the tank. It leaked onto the parking lot below the truck. The driver noticed this and called Ward to find out what to do and Ward told him to leave immediately and go to the disposal facility. The pesticide residue was ultimately discovered and led to a clean-up at a cost of $35 000. What potential liability is there as a result of this situation? Who do you think will be liable, and what is the nature of their liability? Answer: The corporation has civil liability, which could result in its being successfully sued for damages of $35 000 caused to the restaurant. The corporation may also be liable for criminal prosecution if they have breached some statutory provisions. The penalty would be a fine in all likelihood. Ward could have personal liability in this case. As he has not met the "due diligence" test and, in fact, actively promoted the commission of an offence, he could be liable for a criminal prosecution, which might result in his being jailed. Diff: 2 Type: ES Topic: Liability for Environmental Offences Skill: Applied 59) What is meant by the indoor management rule? Answer: Corporations enter into contracts with third parties. One issue that arises is whether such contracts are authorized and whether all the necessary things that need to be undertaken for the contract to be effective have been done. Because of the difficulty that a third party faces in making inquiries into the internal workings of a corporation to determine whether the proper procedures have been followed, the courts have held that in the absence of notice of an irregularity, an outsider who deals with a corporation is entitled to assume that the corporation's internal procedures have been followed. This principle is known as the indoor management rule. Diff: 1 Type: ES Topic: Civil Liability of Corporations Skill: Applied

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1) B, a car dealership, sells A a car on terms that provide that A will have possession of the car for a period of three years, during which A will make monthly payments; however, ownership in the car remains with the dealership until A makes the last payment. In this case, A and the dealership have effected a. a conditional sale. b. a consignment. c. a chattel lease. d. a chattel mortgage. e. a floating charge. Answer: a Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 2) Use this fact situation to answer the related questions that follow. A is buying a video business including the inventory of DVDs, which is valued at half the worth of the business, but A only has half the purchase price, so B agrees to help A out. In this case, to help A buy the business, B will a. take back a floating charge over the inventory. b. take a chattel lease over the inventory for the balance of the purchase price. c. take back a mortgage/charge on the inventory. d. take back a chattel mortgage on the inventory. e. none of the above Answer: d Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 3) Use the fact situation in Q2 to answer the related question that follows. In this situation, if B takes back a chattel mortgage on the inventory, title to the inventory a. remains with A. Copyright © 2016 Pearson Canada Inc.

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b. is immediately transferred to A and retransferred to B. c. remains with B until A has made the first payment. d. remains with B until B gives notice to A to transfer title to B. e. remains with B until A makes the last payment. Answer: b Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 4) A decides to purchase B's office, which consists of an industrial condominium unit and inventory and equipment. However, A only has enough money for the deposit and B agrees to help him. In this case, to help A finance the purchase, a. a mortgage/charge on the condominium unit and a chattel mortgage on the inventory and equipment. b. B will give A a mortgage/charge on both the condominium unit and the inventory and equipment. c. B will enter into a conditional sales agreement with A. d. B will give a chattel mortgage on the condominium unit and a mortgage/charge on the inventory and equipment. e. a mortgage/charge on the condominium unit and a floating charge on the inventory and equipment. Answer: c Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 5) A purchases a chattel from B under a conditional sales agreement. A few days later and unknown to B, A sells the chattel to C, who believes A is the owner. At common law, B a. cannot do anything. b. can only sue C for the value of the chattel. c. can only sue A for breach of the agreement. d. can retake possession of the chattel from C.

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e. none of the above Answer: d Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 6) Use this fact situation to answer the related questions that follow. A enters into a conditional sales agreement with B, a truck dealership, for the purchase of a truck that B has ordered from the manufacturer but will not receive for another month, during which time A must make his first payment. In this case, under PPSA legislation, attachment occurs a. if B delivers the truck to A before the agreement is signed. b. when A makes his first payment. c. on the signing of the agreement and delivery of the truck to A. d. when B takes possession of the truck from the manufacturer. e. immediately on the signing of the agreement. Answer: c Diff: 3 Type: MC Topic: Personal Property Security Legislation Skill: Applied 7) Use the fact situation in Q6 to answer the related question that follows. Also in this case, B's security interest is perfected a. immediately on B getting possession of the truck from the manufacturer. b. when the truck is delivered to A. c. immediately in signing the agreement. d. immediately on registration by B of a financing statement. e. all of the above Answer: d Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Personal Property Security Legislation Skill: Applied 8) Use this fact situation to answer the related questions that follow. A purchases a video business from B, who takes back a chattel mortgage on the inventory, which is composed of DVDs. The chattel mortgage states that it covers afteracquired property. B then registers this mortgage under the provincial PPSA. A few months later, A needs to purchase more DVDs and goes to his bank to borrow the money for the purchase. In turn, the bank takes a chattel mortgage for the amount of its loan, registers its chattel mortgage, and gives A the money. A then buys the DVDs. In this case, under PPSA legislation, the bank has a. a purchase money security interest. b. a guarantee. c. a chattel mortgage. d. a promissory note. e. a bill of exchange. Answer: a Diff: 2 Type: MC Topic: Personal Property Security Legislation Skill: Applied 9) Use the fact situation in Q8 to answer the related question that follows. Also in this case, as between B and the bank, a. neither B's security interest nor the bank's have priority over the other. b. the bank has no security. c. the bank's security interest has priority over B's. d. B's security interest has priority over the bank's security interest. e. none of the above Answer: c Diff: 2 Type: MC Topic: Personal Property Security Legislation Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 10) A, a manufacturer, enters into a conditional sales agreement with B, a retail seller of goods, under which A supplies 100 amplifiers to B. The manufacturer registers the agreement under provincial PPSA legislation. B now sells one amplifier to C and a few days later defaults on the conditional sales agreement. In this case, the manufacturer a. can both sue C for the value of the amplifier and retake possession of it from C. b. can only retake possession of the amplifier from C. c. can only sue C for the value of the amplifier. d. can only look to B and its security agreement. e. none of the above Answer: d Diff: 2 Type: MC Topic: Personal Property Security Legislation Skill: Applied 11) Bill owns a small factory which manufactures seatbelt parts for the automobile industry. Although business has steadily increased for the last two years, the company still owes the bank a significant amount of money. In fact, to secure start up monies, the company was required to provide a chattel mortgage to the bank including an after acquired property clause. Bill becomes aware that a machine used to manufacture seatbelt parts has become available from a local businesswoman. However, Bill’s company cannot pay cash for the machine and cannot provide the businesswoman with any security in relation to its existing assets. A special priority can in fact arise if the businesswoman reserves a security interest in the seatbelt making machine itself. This interest is known as a) a perfected security interest. b) a purchase-money security interest (PMSI). c) an attachment or performance of agreement. d) an unperfected security interest. e) a trust deed. Answer: b Diff: 3 Type: MC

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Topic: Personal Property Security Legislation Skill: Applied 12) Where security devices are agreed to in advance as terms in the contract, they are often called a. non-consensual security interests. b. collateral security. c. consensual security interests. d. the pledge of assets. e. the creditor back-up system. Answer: c Diff: 1 Type: MC Topic: The Meaning of "Security" Skill: Recall 13) Jack and Reba purchased some furniture on a conditional sale contract. This couple carries no insurance on their household goods. The furniture is stolen one Sunday afternoon. Who will most likely take the loss? a. the thieves, since this is a liability claim and they are to blame b. the merchant, since they still hold title and have insurance covering their insurable interests c. the state, since this is a criminal case d. the bailee, since this is a bailment for value on the sale of goods e. this couple, because the conditional sale contract gives them strict liability Answer: e Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 14) Each of the following may create consensual security interests EXCEPT a. guarantees. b. leases.

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c. liens. d. consignments. e. accounts receivable. Answer: c Diff: 2 Type: MC Topic: The Meaning of "Security" Skill: Applied 15) Phillip, who has a loan on his car at the bank, has placed his car on consignment at the local used car lot. His law professor tells Phillip that consignments can amount to a secured type of credit. If this is true, who is the creditor? a. the consignor b. nobody, because in this case, the professor is wrong c. the next purchaser of the car d. the consignee e. the bank Answer: a Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 16) Regarding the remedies of a conditional seller, she or he a. retains a lien on the title to the chattel. b. has the right to possession of the chattel so long as the terms of the conditional sale agreement are being met. c. loses ownership of the chattel as soon as the buyer makes his or her final payment. d. takes title away from the buyer when he or she defaults. e. is entitled to use force in recovering goods by self help. Answer: c Diff: 2 Type: MC Topic: Methods of Securing Credit Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 17) Some provinces have provided relief to conditional buyers by a. making the buyer liable for any deficiency after resale of the goods. b. not allowing any allowing equity position to accumulate with progression of payments. c. knowing the resale of chattels to be "value destructive," requiring the conditional seller to turn over any surplus realized. d. allowing the use of the acceleration clause. e. giving recovery rights when debt is paid within a given period of time. Answer: e Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 18) The Hendersons have purchased their new riding lawnmower on a conditional sale contract. They have just been notified that the contract was assigned to a finance company. The Hendersons may now a. have the protection of a holder in due course as guaranteed by the Bills of Exchange Act. b. expect to have the same defences they had against the retailer. c. have to sue for their rights under the contract. d. be subject to all the personal defences that the seller has against the conditional buyer. e. have the benefits of a cut-out clause. Answer: b Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Applied 19) What is the difference between a chattel mortgage and a conditional sale contract? a. In a conditional sale contract the security is the property sold, whereas a chattel mortgage can have as security any chattels. b. A chattel mortgage must be registered to affect third parties, whereas a conditional sale agreement does not need to be registered to affect third parties. Copyright © 2016 Pearson Canada Inc.

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c. If there is default under a conditional sale contract, the seller can seize the goods and sue the buyer for any deficiency, whereas under a chattel mortgage the chattel mortgagee can only seize the goods. d. A conditional sale is a personal obligation of the buyer, whereas a chattel mortgage does not bind the chattel mortgagor personally. e. none of the above Answer: a Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Recall 20) Which one of the following requires permission from the security holder before the item(s) used as collateral can be sold? a. chattel mortgage b. pledge c. real estate mortgage d. stock-in-trade e. floating charges Answer: a Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Recall 21) A bill of sale can be used as an instrument of credit. Which document is the bill of sale most like when it is used as an instrument of credit? a. a consignment agreement b. an assignment c. a negotiable instrument d. a chattel mortgage e. a pledge Answer: d Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Methods of Securing Credit Skill: Recall/Applied 22) If an owner sells you goods that have been pledged as security for a loan, the claim against those goods is known as a. a contract pledge. b. a secured transaction. c. security interest. d. creditor interests. e. collateral. Answer: c Diff: 2 Type: MC Topic: Methods of Securing Credit Skill: Recall 23) Sometimes conditional sale contracts exist between the manufacturer and the retailer. How does the consumer know she or he is getting clear title to the goods purchased? a. In this case the Mercantile Agency Rule would be suspended. b. Because if she didn't, it would fly in the face of consumer expectations. c. She doesn't know for sure, that's wherein the problem lies. d. The federal Personal Property Security Act guarantees it to consumers. e. By provincial statute—buyer acquires good title if the goods are resold in the ordinary course of business. Answer: e Diff: 3 Type: MC Topic: Effect of Security Interests on Purchasers Skill: Applied 24) Sonny bought a computer from The Bad Guys on a conditional sales contract. Two months later Sonny sold the computer to Fred without mentioning it was not paid for. Can The Bad Guys recover the computer from Fred? a. No, they cannot, provided Fred is an innocent third party. Copyright © 2016 Pearson Canada Inc.

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b. No, they cannot, since this is a consumer transaction where title is guaranteed. c. Yes, they can, but it would be easier for them to get the money from Sonny. d. Yes, they can, if the security device is properly registered with the province. e. Yes, they can directly from Fred, or they can force Sonny to retrieve the computer. Answer: d Diff: 2 Type: MC Topic: Effect of Security Interests on Purchasers Skill: Applied 25) When dealing with security interest, the failure of a creditor to register a. will result in a legal offence, which invalidates the creditor's interests. b. would always be quite foolish. c. may be a matter of too much trouble and expense. d. will risk that the debtor can prevail in a lawsuit. e. allows the provisions in the Sale of Goods Act to govern where there is an innocent third party. Answer: c Diff: 2 Type: MC Topic: Effect of Security Interests on Purchasers Skill: Applied 26) Can the chartered banks require security for loans outside section 427 of the federal Bank Act? a. Yes they can, namely, guarantees by third party. b. No, they can only require security for those types of security listed in the Act. c. Yes, they can, namely, pledge of shares and bonds. d. Yes, they can, namely, assignment of book debts. e. Yes, they can, namely, warehouse receipts and order bills of lading. Answer: b Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Security for Bank Loans Skill: Recall 27) Milton ordered a fancy telescope from a catalogue, using his bank credit card. When it arrived it seemed quite different from the telescope of the catalogue description. Neither the catalogue company nor the manufacturer would take the telescope back. Milton now wants the chartered bank that issued the credit card to reverse the charges. Does Milton have a legal claim against the bank? a. Yes, the federal Bank Act requires chartered banks to be advocates for consumers in respect to credit card purchases. b. No, Milton must pursue remedies through the Better Business Bureau. c. Yes, they are the assignee of the seller. d. No, the bank is a lender to Milton and not an assignee of contracts from sellers. e. Yes, he has, but who can afford to sue a chartered bank? Answer: d Diff: 3 Type: MC Topic: Security for Bank Loans Skill: Applied 28) Self-liquidating financing is usually the best form of financing for a. doctors. b. students. c. teachers. d. lawyers. e. farmers. Answer: e Diff: 1 Type: MC Topic: Security for Bank Loans Skill: Applied 29) Which of the following is NOT included in the categories of persons to whom a bank may loan money under the Bank Act? a. doctors Copyright © 2016 Pearson Canada Inc.

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b. farmers c. fishermen d. manufacturers e. aquaculturalists Answer: a Diff: 1 Type: MC Topic: Security for Bank Loans Skill: Recall 30) Which of the following is NOT a form of security for bank loans? a. chattel mortgage b. assignment of office furniture c. assignment of book debts d. guarantee of a third party e. mortgage of real estate Answer: b Diff: 1 Type: MC Topic: Security for Bank Loans Skill: Recall

31) Junior is interested in buying one of his neighbour’s motor vehicles. They have agreed upon a price and Junior intends to ask his father for a small loan to assist in funding the purchase. Prior to completing the sale, it would also be wise for Junior to a. register the agreement of purchase and sale under the PPSA. b. conduct a PPSA search to determine whether or not any security interests have been registered. c. conduct a sheriff search to determine if there are any outstanding judgments against his neighbour. d. put title to the vehicle in his father’s name. e. conduct a title search of his neighbour’s property. Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 3 Type: MC Topic: Strategies to Manage the Legal Risks Skill: Applied

32) Self-liquidating financing is usually the best form of financing for farmers. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Security for Bank Loans Skill: Applied 33) A mortgage on land gives the mortgagee security in the land in priority over other secured interests registered under provincial PPSA legislation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Personal Property Security Legislation Skill: Applied 34) At common law, a bona fide purchaser for value without notice acquires ownership in goods from a seller who appears to own them, but does not. a. True Incorrect: Incorrect b. False Correct: Correct Copyright © 2016 Pearson Canada Inc.

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Answer: b Diff: 2 Type: TF Topic: Methods of Securing Credit Skill: Applied 35) A prudent creditor who has entered into a chattel mortgage will always conduct a search of title in the local land titles office. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Personal Property Security Legislation Skill: Applied 36) Banks that have perfected security for loans as required by the Bank Act always have priority over any other form of security registered under provincial PPSA legislation. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Security for Bank Loans Skill: Applied 37) An unsecured creditor is no different from a creditor who fails to register a security interest under provincial PPSA legislation. a. True Correct: Correct b. False Incorrect: Incorrect Copyright © 2016 Pearson Canada Inc.

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Answer: a Diff: 2 Type: TF Topic: The Meaning of "Security" Skill: Recall/Applied 38) One of the rights of a lending bank in the event a borrower defaults is the right to sell the security without notice to the borrower. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Security for Bank Loans Skill: Recall/Applied 39) An acceleration clause permits a chattel mortgagor to pay off the mortgage more quickly. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Methods of Securing Credit Skill: Recall 40) A properly registered security interest is generally effective against all third parties. a. True Incorrect: Incorrect b. False Correct: Correct

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Answer: b Diff: 2 Type: TF Topic: Personal Property Security Legislation Skill: Applied 41) When may a secured creditor choose not to register its security interest? Answer: A creditor whose business is selling relatively low-value goods to many different customers may not find it worthwhile to trace goods wrongfully disposed of by a debtor and will usually save itself the trouble and cost of registering its security interest. Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Recall/Applied 42) Why is it important for a creditor who intends to give a loan taking chattels as security to first do a PPSA search? Answer: It is important in order to ensure that the creditor will have proper security in the chattels in priority to other creditors and also to ensure that there is sufficient value in the chattels to cover the loan, since a registered security interest in the same chattel may have been given to another creditor. Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Applied 43) Where a bank gives a loan, taking back and perfecting security under section 147 of the Bank Act, why is registration under provincial personal property security legislation a prudent practice? Answer: To ensure that there is no conflict with creditors properly secured under provincial legislation and to ensure that the bank will always have priority over the claims of other secured creditors. Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: ES Topic: Security for Bank Loans Skill: Applied 44) What advantage does a secured creditor have over an unsecured creditor when they both are forced to collect an overdue account? Answer: The secured creditor need not invoke the rather lengthy judicial machinery required to obtain an execution order, but can proceed on its own to enforce its rights over the security. Diff: 2 Type: ES Topic: The Meaning of "Security" Skill: Recall/Applied 45) Explain what is meant by the term "financing leases." Answer: This term refers to leases that serve as a type of security device. The effect of such financing leases is much the same as if the lessor company lent the lessee the money to buy the asset and the lessee then undertook to repay the borrowed money in regular installments. Diff: 2 Type: ES Topic: Methods of Securing Credit Skill: Recall 46) For consumer goods, how much value to a creditor is the right of repossession? Answer: The fear of repossession by the consumer provides an incentive to perform on the contract and avoid the sanction. When the right is actually exercised, however, the realizable value to the creditor is usually quite disappointing. There would be value in having prior claim to asset over other parties, especially over creditors in bankruptcy.

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Diff: 2 Type: ES Topic: Methods of Securing Credit Skill: Applied 47) What is "perfection" of a secured interest under personal property security legislation? Why is "perfection" relevant to the rights of a secured lender? Answer: Perfection of a secured interest can occur either when the lender takes possession of the security or when the lender files a financing statement in the registry. The lender establishes its priority, and its rights against third parties such as purchasers, from the time it perfects its security. Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Recall/Applied 48) Sometimes a lease agreement can be construed as a security agreement rather than a true lease. Why is this distinction important for the lessor to determine? Answer: This is important because if the contract is construed to be a security agreement, it should be registered. If it needs to be registered and is not, then other creditors may have claim to the asset(s). Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Applied 49) How is it that security devices mislead innocent third parties? Answer: A debtor left in possession of goods may appear to own assets that it in fact does not own. A third party may innocently buy goods that are encumbered by security interests. Or a purchaser may simply be unaware of the risks associated with known security interests.

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Diff: 2 Type: ES Topic: Effect of Security Interests on Purchasers Skill: Applied 50) How might the assignment of book debts (owed to the assignor) seriously prejudice the position of general creditors and prospective general creditors? Answer: This is where book debts (such as accounts receivable) are assigned to a creditor when the borrower defaults on the loan. General creditors usually rely on book debt for their security, so when a company gets in trouble, this type of assignment effectively removes their security. Diff: 2 Type: ES Topic: Effect of Security Interests on Other Creditors Skill: Recall/Applied 51) Does a bank have a right of lien against property left in its safekeeping by one of its borrowers? Answer: No, a bank does not have a lien against property left with the bank for safekeeping, such as property left in a safety deposit box. Diff: 2 Type: ES Topic: Security for Bank Loans Skill: Recall/Applied 52) In what way could a consignment contract be an indirect type of credit? Use an example to explain. Answer: Wholesale distributors or manufacturers ship merchandise to retailers on consignment. By the terms of the consignment contract, the merchandise remains the property of the wholesale distributor or manufacturer. The retailer agrees to become the insurer of the goods to the amount of their wholesale price and, as agent of the consignor for the purpose of selling the goods, to be accountable for all money received on the sale of the Copyright © 2016 Pearson Canada Inc.

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merchandise up to its wholesale price. Thus the consignor provides financing in the form of goods rather than money and, by the terms of the consignment contract, the consignee "owes" the consigned merchandise (to the value of its wholesale price) to the consignor. Diff: 2 Type: ES Topic: Methods of Securing Credit Skill: Applied 53) Why do you think that provincial legislators have enacted personal property security legislation? Answer: The primary driving force of our economy is commerce, and PPSA legislation recognizes this, attempting to ensure that financial institutions and other lenders are well protected. The failure to provide such protection could lead to the collapse of those institutions and, in turn, the economy. Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Applied 54) Identify in relation to each of the statements below what security device is being described. (1) The lender takes possession of the assets or of documents evidencing the borrower's ownership. (2) The borrower retains possession of the property and the lender's security interest is in the title to specific goods or after acquired property. (3) The seller retains title until the purchase price is paid but in the meantime the buyer has possession of the subject matter of the sale. (4) The manufacturer or wholesale distributor retains title to the merchandise while the retailer obtains possession of the merchandise. Answer: In statement (1) the security device is a pledge. In statement (2) the security device is a chattel mortgage. In statement (3) the security device is a conditional sales contract. In statement (4) the security device is a consignment. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: Methods of Securing Credit Skill: Recall/Applied 55) Alvin Smith bought a car from XYZ Autos Inc., a car dealership, for the price of $15 000. Alvin paid $5000 cash and entered into a conditional sales contract to finance the remaining $10 000. Alvin had obtained the $5000 from his bank and executed a chattel mortgage for $9000 in favour of his bank. This represented $5000 for the deposit and $4000 in existing indebtedness. After Alvin obtained the car, he provided the bank with a description and its serial number. The bank completed the chattel mortgage with this information and registered a financing statement under the prevailing personal property security legislation. XYZ Autos Inc. similarly registered a financing statement, but did this three days later than the bank. Alvin subsequently defaulted under both securities. Which of the creditors has priority to the car, and why? Answer: Here the Personal Properties Security Act (PPSA) gives special priority to a purchasemoney security interest (provided it is registered). Therefore, XYZ Autos Inc. has priority with its security interest on the car, even though the bank had registered their interests first. Diff: 2 Type: ES Topic: Personal Property Security Legislation Skill: Applied 56) Charles Brown, a fisherman, gave security to a bank under section 427 of the Bank Act in order to finance the purchase of a fishing boat from Triumph Ship Builders Ltd. The bank duly registered the standard form of notice with the Bank of Canada in relation to the fishing boat. A year later, Charles sold the fishing boat to Sea Traders Inc., who were marine mercantile agents. Sea Traders were unaware of the bank's section 427 security and made no attempt at searching for encumbrances against the fishing boat. Sea Traders in the normal course of business sold the fishing boat to Harold Walker, a bona fide purchaser for value. Charles left the country permanently after his sale to Sea Traders. Discuss the bank's position against each of Sea Traders, Charles Brown, and Harold Walker. Answer: The bank should be successful in an action against Sea Traders Inc. for conversion. If Sea Traders had searched it would have found the bank's security registered. The bank would not be likely to succeed against Harold Walker, a bona fide purchaser for value. Harold had dealt with a mercantile agent and through trade custom and common law obtained a

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good title for value, free and clear of all adverse claims. Of course, the bank also has a claim against Charles if he can be found and extradited back to Canada. Diff: 2 Type: ES Topic: Security for Bank Loans Skill: Recall

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1) Jumping Jellyfish Corporation is a Canadian business that is indebted to a number of persons and entities. On January 2, 2003, the accountant of Jumping Jellyfish examines the books and makes the determination that the current debts of the corporation total $2 million, and the assets and cash total only $200 000. The accountant concludes that the corporation will be unable to pay its debts as they become due. The corporation is a. insolvent and bankrupt. b. insolvent. c. a trustee. d. a receiver. e. bankrupt. Answer: b Diff: 1 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall/Applied 2) Use this fact situation to answer the related questions that follow. General Widgets is a large provincial manufacturing company that has been in business for a number of years, but when the economic recession began in 2008, the company found itself experiencing a lack of sales, which affected its ability to pay its suppliers. George is the principal shareholder of the company and has an outstanding shareholders loan of $100 000.00. Between January 2008 and February 2008, the company was managing to pay its creditors, although slowly, and its assets were sufficient to satisfy its indebtedness, but by the end of January 2008 its assets have shrunk well below its debt load. In March 2008, George ensures that the company repays his shareholders loan. Thereafter, in December 2008, the company actively decides to pay only its major creditor, a supplier with whom George is good friends. Also in December 2008, seeing that General Widgets is sinking deeper and deeper into debt, George decides to incorporate a new company into which he transfers $300 000.00 of General Widgets' assets. On March 1, 2009, General Widgets makes a voluntary assignment in bankruptcy. In this case, the fact that between January and February 2008 the company was just managing to pay its creditors probably means that a. the company is bankrupt. b. the company is insolvent. c. the company is borderline insolvent. d. the company is solvent. e. none of the above Copyright © 2016 Pearson Canada Inc.

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Answer: d Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 3) Use the fact situation in Q2 to answer the related question that follows. Also in this case, the date on which it can be argued that the company is insolvent is a. January 2008. b. March 1, 2009 c. February 2008. d. March 2008. e. the end of January 2008. Answer: e Diff: 3 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 4) Use the fact situation in Q2 to answer the related question that follows. In light of the bankruptcy of General Widgets, the payment of George's shareholders loan is probably a. a reviewable transaction only. b. both a reviewable transaction and a fraudulent transfer. c. a fraudulent assignment only. d. a fraudulent preference only. e. a fraudulent transfer only. Answer: d Diff: 2 Type: MC Topic: Builders' Liens Skill: Applied

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5) Use the fact situation in Q2 to answer the related question that follows. Given the bankruptcy of General Widgets, the payment to the company's largest supplier is probably a. a fraudulent preference only. b. a reviewable transaction only. c. both a reviewable transaction and a fraudulent preference. d. a fraudulent transfer only. e. a fraudulent assignment only. Answer: a Diff: 2 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 6) Use the fact situation in Q2 to answer the related question that follows. Given the bankruptcy of General Widgets, the incorporation of the new company by George is a. a fraudulent assignment. b. a reviewable transaction. c. a fraudulent preference. d. a fraudulent transfer. e. none of the above Answer: e Diff: 3 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 7) Use the fact situation in Q2 to answer the related question that follows. In order to recover the amount of George's shareholders loan, the trustee in bankruptcy of General Widgets will a. sue George for damages for breach of duty of care. b. sue George for breach of fiduciary duty. c. apply to the court to have the transaction nullified. Copyright © 2016 Pearson Canada Inc.

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d. apply to the court to enquire whether it is a reviewable transaction. e. all of the above Answer: c Diff: 2 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 8) Use the fact situation in Q2 to answer the related question that follows. In light of the history of the company prior to its bankruptcy, in determining whether the payment made to the largest supplier is a fraudulent preference, the court will also consider a. that this supplier knew that the company was in poor financial condition. b. that the payment of this supplier was made within 12 months preceding the bankruptcy of General Widgets. c. that the payment of this supplier was made at the time the company was insolvent. d. that this supplier was George's friend. e. all of the above Answer: a Diff: 3 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 9) Use the fact situation in Q2 to answer the related question that follows. Assume that the company was located in Ontario. In order to recover the assets of General Widgets that George transferred to the new company, the trustee in bankruptcy would a. ask the court to review the transaction. b. ask the court to set aside the transaction as being a settlement. c. ask the court to set aside the transaction as being a fraudulent conveyance. d. ask the court to nullify the transaction as being a fraudulent preference. e. none of the above Answer: c Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 10) Use the fact situation in Q2 to answer the related question that follows. Assume that by March 2009, the company's business was starting to recover, but the company was still insolvent. In this case, instead of voluntarily assigning itself into bankruptcy, General Widgets could have a. made a commercial proposal. b. commenced winding-up proceedings. c. made a consumer proposal. d. obtained a receiving order. e. all of the above Answer: a Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 11) Use the fact situation in Q2 to answer the related question that follows. Assume that the bank is a secured creditor of General Widgets and that its security is greater than the amount that the company owes to the bank, which enforces its security. In such a case, a. the bank cannot enforce its security, but it will share rateably with the other secured creditors. b. the bank cannot enforce its security during the bankruptcy of the company. c. the bank can retain the full amount recovered under its security. d. the bank must repay the trustee in bankruptcy any excess recovered over the amount of the debt owed it. e. none of the above Answer: d Diff: 3 Type: MC Topic: Administration of a Bankrupt’s Affairs Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 12) Regarding bankruptcy, public policy would be primarily concerned with a. making it easy and inexpensive to apply for bankruptcy. b. the punishment of honest debtors who after bankruptcy simply re-engage in the same questionable business activities. c. placing some limits on who can use bankruptcy proceedings. d. forcing reputable creditors to accept an arrangement designed to save a debt-ridden company. e. keeping economic initiative alive. Answer: e Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 13) The Superintendent of Bankruptcy has the power to a. investigate where a bankruptcy offence may have been committed. b. issue directives to trustees or receivers. c. intervene in any bankruptcy court proceeding. d. suspend or cancel a trustee's license. e. all of the above Answer: e Diff: 1 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall 14) Danny is thinking of bankruptcy for his business, but so far he has not made an assignment, nor is the business subject to a receiving order. Yet, because Danny meets all the requirements of bankruptcy, the Bankruptcy and Insolvency Act refers to Danny as a. a candidate for bankruptcy. b. an insolvent person. c. an applicant for bankruptcy.

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d. being bankrupt. e. a consumer debtor. Answer: b Diff: 1 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 15) In a bankruptcy proceeding, the creditors can, if they wish, appoint a. any number of inspectors. b. a substitute trustee. c. the court of jurisdiction. d. an official judicial observer. e. the official receiver in bankruptcy. Answer: b Diff: 1 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall 16) A commercial proposal made by an insolvent person is an offer made by the debtor to its creditors a. to not resist a receiving order. b. whereby the debtor agrees to file for bankruptcy. c. to make an assignment of all assets. d. for providing an orderly repayment of its debts (or some part of its debt) over a period of time. e. to reorganize its business and straighten out its affairs. Answer: d Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall

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17) Laura had made a commercial proposal (Division I) to her creditors. They have accepted it by a two-thirds vote. The next step is for the trustee to a. schedule a hearing in the Bankruptcy Court. b. apply to the court to have the proposal declared binding upon all the creditors. c. get the approval of the receiver in bankruptcy. d. determine if the agreement is prejudiced against general creditors. e. file the document with the Superintendent of Bankruptcy. Answer: b Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall 18) James had made a consumer proposal (Division II) to his creditors. He wanted a reduction and extension of time for the payment of his debts. A formal meeting was not requested by any of the creditors. Now the administrator must a. run a public notice in the newspaper. b. get approval of the proposal from the court. c. notify and file the document with all creditors. d. provide counselling to the debtor. e. see that all the provisions meet Division I rules. Answer: c Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall/Applied 19) The Steamboat Co. is Charlie's sole creditor. He owes them $6500 from his sign painting business. In order to obtain a receiving order, Steamboat must a. comply with all formalities required by the federal Bank Act. b. make sure the debtor has committed an act of bankruptcy within the previous six months. c. file a petition with the court in the creditor's judicial district. d. provide the court with the name of the appointed trustee. Copyright © 2016 Pearson Canada Inc.

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e. prove the facts alleged by any other petitioning creditor. Answer: b Diff: 1 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Recall/Applied 20) Under the Bankruptcy and Insolvency Act, the claims of unpaid employees against the assets of a bankrupt employer rank in priority a. ahead of unsecured creditors. b. partly as preferred creditors. c. pro rata with secured creditors. d. partly ahead of secured creditors. e. none of the above Answer: b Diff: 2 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Recall 21) You are a duly licensed and appointed trustee to handle the Markin Brothers bankruptcy. You have taken possession of both personal and business assets of Sam and Joe Markin. You have retrieved all the books and documents relating to their affairs. You also have the authority to do each of the following EXCEPT a. borrow further money for the business by pledging any remaining unsecured assets. b. negotiate with creditors to take specific assets in lieu of a money settlement. c. dismiss any unqualified inspectors. d. take over the management of the business. e. employ a lawyer, who will be paid out of bankruptcy funds. Answer: c Diff: 2 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied Copyright © 2016 Pearson Canada Inc.

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22) Mike's business is not doing too well and he is contemplating bankruptcy unless things change soon. As he currently deals with his creditors, the guiding principle should be that a. creditors of the same class should be treated equally. b. preferences should not include family or friends. c. all transactions within three months preceding bankruptcy are indefensible. d. transfers of property such as the sale of inventory will be invalidated. e. bankruptcy is an avenue of last resort and should be avoided at all cost. Answer: a Diff: 2 Type: MC Topic: The Bankruptcy and Insolvency Act Skill: Applied 23) In bankruptcy proceedings, the term "settlements" refers to a. the amount each creditor is willing to settle for to satisfy its claim. b. the end results in the bankruptcy proceedings. c. the negotiations between classes of creditors. d. gifts of property made by the debtor before becoming bankrupt. e. complying with each provision in the Bankruptcy and Insolvency Act. Answer: d Diff: 1 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Recall 24) In the context of bankruptcy proceedings, liquidating dividends are a. proceeds from the sale of assets over and above the security claims. b. funds distributed to shareholders when a corporation is in bankruptcy. c. the distributed funds that are over and above the stated book value. d. unexpected returns from assets that were unaccounted for in the books. e. payments made to creditors from time to time as realization of the debtor's assets permits. Copyright © 2016 Pearson Canada Inc.

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Answer: e Diff: 1 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Recall 25) Of the preferred creditors, the highest priority of claim is a. up to $2000 arrears in wages per employee. b. up to three months of rent due to the landlord. c. expenses and fees of the trustee in bankruptcy. d. up to two years of municipal taxes. e. the amount required by government to be deducted from employees' salaries. Answer: c Diff: 1 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Recall 26) The court might refuse a debtor's discharge by bankruptcy for any of the following reasons EXCEPT that a. the debtor caused the bankruptcy by living off of funds taken from the business. b. the debtor neglected to keep proper books. c. the debtor failed to satisfactorily account for losses or deficiencies in assets. d. three months preceding bankruptcy the debtor gave an undue preference to a creditor. e. the debtor's assets proved insufficient to pay the unsecured creditors more than fifty cents on the dollar. Answer: a Diff: 1 Type: MC Topic: Administration of a Bankrupt’s Affairs Skill: Applied 27) A bulk sale, as defined by provincial statutes, is a sale a. of all goods in process and semi-finished inventories. Copyright © 2016 Pearson Canada Inc.

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b. governed by the federal Bulk Sales Act. c. of such a large portion of the assets that the business will cease to operate. d. whose purpose is to deprive creditors of their equitable share in the assets of the company. e. of essentially all the stock-in-trade, fixtures, and chattels of a business. Answer: e Diff: 1 Type: MC Topic: Other Statutory Protection of Creditors Skill: Recall 28) Each of the following parties has a right to file a builders' lien EXCEPT the one that a. is an architect and has prepared plans for the building. b. sells tools or machinery to the contractor. c. delivers goods directly to the contractor's premises and can prove that the goods were used in the construction. d. rents equipment for use on the contract site. e. delivers goods directly to the building site. Answer: b Diff: 2 Type: MC Topic: Builders' Liens Skill: Recall/Applied 29) Brianna, a framing contractor, has a duly registered builders' lien on the property owned by Bowing Development. This lien gives Brianna the right to a. bring an action and obtain a court order appointing a trustee. b. commence a legal action within 90 days against the general contractor. c. place a claim on the owner's business assets. d. obtain 15 percent of the statutory holdback. e. personally take possession of the property in order to realize her claim. Answer: a Diff: 2

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Type: MC Topic: Builders' Liens Skill: Applied 30) For five years, Maxine had been regularly receiving the same bill for $850 from Credit Landscaping. She didn't think she should pay it because they botched up the landscaping around her house. However, now, after these five years, she sends them a $425 cheque with a note saying, "Take this—it's all you're going to get." This move by Maxine will a. start the time all over again on the statue of limitations. b. get herself out of the liability. c. have no effect on the limitation time period. d. immediately give rise to a legal action. e. spur Credit Landscaping to turn the balance owed over to a collection agency. Answer: c Diff: 2 Type: MC Topic: Limitations Statutes Skill: Applied 31) In most Canadian jurisdictions, a plaintiff must start court proceedings within a twoyear period. Limitation periods are justified on any of the following grounds EXCEPT that a. a person who fails to pursue a claim leaves the other party in a state of uncertainty that ought not to continue permanently. b. as time passes, it becomes more difficult to produce the evidence concerning the facts of the case. c. memories fade over time. d. any unreasonable delay provides defendants with an opportunity to hide assets or become judgment proof. Answer: d Diff: 3 Type: MC Topic: Limitations Statutes Skill: Recall/Applied

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32) Businesses are often required to extend credit as a means of increasing sales. Before granting credit, businesses are encouraged to take any of the following steps EXCEPT a. take advantage of the available public records of credit history, proposals, and bankruptcies. b. search both the corporate name of the debtor and its directors and officers to determine if the company is merely a fresh start after a bankrupt business. c. not request personal guarantees of the principals because the company’s agreement to pay will always suffice. d. take security in the goods provided. e. set up a control system to monitor lien periods for building supplies and limitation periods. Answer: c Diff: 3 Type: MC Topic: Strategies to Manage the Legal Risks Skill: Recall/Applied 33) As far as claims against the property of a bankrupted debtor go, the trustee pays the general creditors in priority to which of the following? a. secured creditors b. preferred creditors c. super priority claims d. deferred creditors Answer: d Diff: 3 Type: MC Topic: Payment of Claims Skill: Recall 34) All creditors are considered to be equal in bankruptcy law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Recall/Applied 35) The RRSPs of a bankrupt are exempt from seizure. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Recall/Applied 36) An unpaid seller who repossesses goods from a bankrupt and then sells them, can still make a claim for any deficiency in respect of those goods. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Applied 37) Where an insolvent person transfers land which he owns to his spouse at one-third of its fair market value within 12 months of his bankruptcy, his spouse may be required to pay the difference gained to the trustee in bankruptcy. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Applied 38) Where, just before declaring bankruptcy, a person transfers title of real property to his children telling them that he wants to protect the property from bankruptcy, the transfer is a fraudulent conveyance or transfer. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Applied 39) On a bankruptcy, preferred creditors rank in priority before secured creditors. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Recall/Applied 40) A secured creditor does not have to prove its debt before its debt ranks as a claim against the bankrupt's estate. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Recall/Applied 41) A builder's lien is available only to creditors who participate directly as workers, or who supply material for use directly in the construction work. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Builders’ Liens Skill: Applied 42) An assignment in bankruptcy is a procedure under which a person voluntarily declares bankruptcy. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Bankruptcy and Insolvency Act Skill: Recall 43) When a debtor makes an assignment is bankruptcy, the court will discharge the person from obligations to creditors. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: TF Topic: Administration of a Bankrupt’s Affairs Skill: Recall 44) The Bankruptcy and Insolvency Act distinguishes between three classes of debtors. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: The Bankruptcy and Insolvency Act Skill: Recall 45) What is a bulk sale? Answer: A bulk sale is a sale of all or substantially all of the assets of a business. Diff: 1 Type: ES Topic: Other Statutory Protection of Creditors Skill: Recall 46) A trustee in bankruptcy has the same general duties as does a normal trustee. Explain. Answer: Apart from her or his duties and obligations under the Act, like a normal trustee, a trustee in bankruptcy has a duty to act in the best interests of the bankrupt, to distribute the estate fairly and at the best price, and to protect it. Further, she or he owes a duty of good faith to the bankrupt. Diff: 2 Type: ES Topic: Administration of a Bankrupt’s Affairs Skill: Applied Copyright © 2016 Pearson Canada Inc.

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47) Provincial legislation regarding fraudulent transfers goes further than the Bankruptcy and Insolvency Act. Explain. Answer: While the federal Act applies only to a bankrupt's transfer of property within a certain amount of time before the date of the bankruptcy, provincial fraudulent conveyances/transfers legislation is not conditional on bankruptcy and permits any creditor recourse against a debtor who transfers property with the intention of defeating not just that creditor, but all of his or her creditors. It is a means of ensuring that the debtor's assets remain available to satisfy his or her creditors. Diff: 3 Type: ES Topic: Administration of a Bankrupt’s Affairs Skill: Applied 48) In Ontario, on a sale of assets, what normal searches should the buyer conduct? Answer: The buyer should conduct a bankruptcy search of the seller, a PPSA search of the seller, an executions search of the seller, and a bulk sales search. Diff: 2 Type: ES Topic: Other Statutory Protection of Creditors Skill: Applied 49) What is the difference between a bankrupt person and an insolvent person? Answer: A bankrupt person is a person against whom a receiving order has been made or who has made an authorized assignment. An insolvent person is a person who, though not bankrupt, meets the qualifications. For instance, he or she is unable to meet obligations as they become due, his or her property has a realizable value insufficient to pay all obligations, or he or she has ceased paying his or her current obligations in the ordinary course of business as they generally become due. Diff: 2 Type: ES Topic: The Bankruptcy and Insolvency Act Copyright © 2016 Pearson Canada Inc.

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Skill: Recall/Applied 50) Under the Bankruptcy and Insolvency Act, what is a commercial proposal? Answer: A commercial proposal is an offer made by the debtor to his or her creditors providing for the orderly repayment of his or her debts (or at least some part of his or her debts) over a period of time. The proposal, if it is accepted by a sufficient proportion of the creditors, can be declared binding on all creditors by the court. Diff: 1 Type: ES Topic: The Bankruptcy and Insolvency Act Skill: Recall 51) Regarding bankruptcy, what does it mean not to be dealing at "arm's length" with another party? When might this occur? Answer: This refers to transactions where a creditor's rights may be jeopardized by the debtor entering into a contract with a relative, a friend, or a corporation in which she or he has a major interest. The debtor may have bought or sold property at something other than the fair market value in order to benefit her- or himself at the expense of the creditor. Diff: 1 Type: ES Topic: Administration of a Bankrupt’s Affairs Skill: Recall/Applied 52) What conditions must be satisfied by the seller of unpaid goods in order to repossess them from a bankrupt business? Answer: The creditor must demand the return within 30 days of delivery, and the goods must still be in the possession of the purchaser. The goods must also be identifiable and must be in the same condition as when they were sold. Diff: 2 Type: ES Topic: Administration of a Bankrupt’s Affairs Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 53) What is a "vulture fund"? What role can a vulture fund play in helping creditors who are involved in bankruptcy proceedings? Answer: A vulture fund involves investors who are prepared to purchase debt from creditors at a discount. Risk of non-payment is thus transferred from the creditor to the investors. This can provide a market in which creditors, particularly smaller creditors, can settle claims more quickly than would be the case if they had to wait for bankruptcy proceedings to take their course. Diff: 1 Type: ES Topic: Other Methods of Liquidation and Reorganization Skill: Applied 54) What is the object of bulk sales legislation? Answer: The object of bulk sales legislation is to protect the creditors of a person making a bulk sale. The legislation proceeds on the premise that the creditors are entitled to the assets of the debtor's business as security for the amounts owing to them. Diff: 1 Type: ES Topic: Other Statutory Protection of Creditors Skill: Applied 55) In respect to a statute-barred debt, under what circumstances is there a presumption of a new promise to pay the whole indebtedness? Answer: The presumption of a new promise to pay arises from the mere fact of making a part payment without other evidence to contradict the presumption. Diff: 1 Type: ES Topic: Limitations Statutes Skill: Recall/Applied Copyright © 2016 Pearson Canada Inc.

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56) What is a fraudulent preference? Give an example of a fraudulent preference. Answer: A fraudulent preference is a payment of money or transfer of property that is made to one creditor with the view to giving that creditor a preference over other creditors. For example, if Jack, who happens to be insolvent, has a number of credit cards, including Amex, Visa, and MasterCard, he cannot choose to pay the Amex and not pay the other cards. This would be preferring the Amex card over the other cards. Diff: 2 Type: ES Topic: Administration of a bankrupt’s Affairs Skill: Recall/Applied 57) To what extent does building lien legislation really protect subcontractors, workers, and suppliers of goods, and who really benefits? Answer: While building lien legislation makes it mandatory that an owner/builder or general contractor hold back from 10 to 20 percent of the contract price to protect those involved in a construction project, the holdbacks are rarely sufficient to reimburse those for whom they are held for the goods or services installed on or supplied to the project. Further, court proceedings under such legislation are lengthy and the amount recovered is often decreased substantially by the litigation costs. Small businesses, contractors, and suppliers require a steady cash flow and often owners/builders and general contractors use the threat of non-payment or of building lien procedure and litigation as a means to bargain down the contract price with such subcontractors, workers, and suppliers, allowing the owners/builders and general contractors to pocket the difference. Diff: 3 Type: ES Topic: Builders' Liens Skill: Applied 58) When is an undischarged bankrupt liable to a fine or imprisonment? Answer: A bankrupt is liable to both imprisonment or to a substantial fine if he or she fails to perform any duties under the Bankruptcy and Insolvency Act. Examples would be failing to submit him- or herself for examination by the official receiver to explain his or her conduct; making a fraudulent disposition of his or her property before or after Copyright © 2016 Pearson Canada Inc.

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bankruptcy; giving untruthful answers to questions put to him or her during an examination; destroying, concealing, or falsifying books or documents; or obtaining any credit or property by false representations before or after bankruptcy. Diff: 2 Type: ES Topic: Administration of a bankrupt’s Affairs Skill: Recall 59) Bo Red operated Bo’s Appliance, a retail appliance business, from premises he was leasing. He sold his complete inventory to a competitor, Mom's Appliance Warehouse Inc., for $100 000. He then carried on business from the premises devoted solely to selling compact discs, records, and DVDs. This business operation was greatly diminished from the previous appliance operation. The creditors of Bo in relation to the appliance business are unpaid and just now discover, two months after the sale to Mom's Appliance, that Bo is no longer in the appliance business. What remedies, if any, do Bo's Appliance’s creditors have? Answer: The appliance creditors can bring an action against Mom's Appliance under the provisions of the Bulk Sales Act. Bo's Appliance did not comply with the provisions of the Act to ensure that creditors were paid in relation to the bulk sale of the appliances. The sale is voidable and Bo's Appliance becomes liable to the appliance creditors. The appliance creditors could also commence an ordinary debt action against Bo; however, their best recourse is an action against Mom's Appliance Warehouse in respect to the bulk sale. Diff: 2 Type: ES Topic: Other Statutory Protection of Creditors Skill: Applied 60) Robert Badger operated a hardware business as a sole proprietorship and owed $200 000 to creditors. On June 1, 1998, he transferred $20 000 of inventory to Smith Supplies Inc. to pay in full the indebtedness he owed that company. At the time he was not paying his debts as they became due. Instead he paid some money towards accounts when pressed, or he negotiated with them to give him more time to pay. On July 15, he transferred a truck used in the business for one dollar to his cousin. On July 2h, a creditor obtained a default judgment and the sheriff seized goods on July 28 in relation to that judgment. The goods were later sold in a judicial sale. On July 29, he purchased on credit $15 000 worth of new inventory. On August 14, a creditor petitioned him into bankruptcy. List each incident where there is an act of bankruptcy. Discuss Robert's situation in relation to the provisions of the Bankruptcy and Insolvency Act. Copyright © 2016 Pearson Canada Inc.

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Answer: Robert Badger has committed the following acts of bankruptcy: (1) a failure to meet liabilities generally as they became due (2) a fraudulent preference in the transfer of inventory to Smith Supplies Inc. in full payment of the indebtedness owed them (3) a fraudulent transfer of assets in the transfer of the truck to his cousin (4) a failure to redeem goods seized under the execution against him Robert may ultimately have the court refuse or suspend his discharge from bankruptcy unless he reveals all the above transactions so that the trustee in bankruptcy can effectively reverse the results and Robert will be able to convince the court that he is simply an "honest but unfortunate debtor." Diff: 3 Type: ES Topic: Administration of a bankrupt’s Affairs Skill: Applied 61) I.M. Construction Ltd. decided to profit from the real estate boom and build a small retail and office building on land that it owns. Before the building is complete I.M. Construction Limited becomes insolvent. The property is subject to a mortgage that is not fully advanced and to many builders' liens. There have been inquiries from a number of parties who would be interested in renting space in the building. The real estate market is still booming. What practical advice do you have for the mortgage company and the lien holders? Answer: The lien holders should attempt to reach an agreement with the bank to arrange for the bank to advance the balance of the mortgage to permit the completion of the building. Thereafter, they should attempt to sell the building. If a suitable buyer can be found, the lien holders will be paid in full, assuming the purchase price is sufficient to cover same. A variation on this is to lease space to the parties who have expressed interest in renting and then to sell the building. This may be more attractive to certain purchasers because the building will be generating some revenue and the purchaser has only to find tenants for the remaining space. Diff: 2 Type: ES Topic: Builders' Liens Skill: Applied

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1) Public international law is a. law involving the relations between public officials of different countries. b. law involving the relations between public entities from different countries. c. law involving the relationships between states. d. law involving the relations between citizens of different countries as it concerns their private activities. e. law involving the relations between the citizens of different countries as it concerns their public activities. Answer: c Diff: 1 Type: MC Topic: Law and International Business Skill: Recall 2) When we speak of foreign presence, we mean that a. a business invests in a foreign-owned company. b. a business moves from one country to a foreign country. c. a business establishes trade relations with a foreign country. d. a foreign company buys out a local business. e. a business establishes an agent or representative office in a foreign country. Answer: e Diff: 2 Type: MC Topic: Law and International Business Skill: Recall/Applied 3) Foreign investment occurs when a. a branch of a business enters into trade relations with a foreign country. b. the subsidiary of a business enters into trade relations with a foreign country. c. a business invests money in a foreign business. d. a business establishes a branch or subsidiary in a foreign country. e. a business invests money in a foreign country. Answer: d Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: MC Topic: Law and International Business Skill: Recall/Applied 4) Use this fact situation to answer the related questions that follow. A company in Canada has just entered into a contract for the sale of goods to a company in France; however, the contract is silent as to the law that will apply. In this case, in the event of a dispute, a Canadian court will look at a. where the negotiations for the contract were held. b. the intention of the parties. c. the type of goods being sold. d. where the offer was made. e. where the offer was accepted. Answer: b Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Skill: Recall/Applied 5) Use the fact situation in Q4 to answer the related question that follows. In the event that the Canadian court cannot determine which law will apply from the intention of the parties, it will a. impose Canadian law on the parties. b. impose international law on the parties. c. impose the law of France on the parties. d. impose the law of the country most connected to the contract. e. nullify the contract as being too uncertain. Answer: d Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Skill: Applied Copyright © 2016 Pearson Canada Inc.

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6) Use the fact situation in Q4 to answer the related question that follows. When the Canadian court cannot determine which law will apply from the intention of the parties, among other things, the court will consider a. the place of business of the parties. b. the place of acceptance of the risk. c. where the contract was to be performed. d. where the contract was made. e. all of the above Answer: e Diff: 3 Type: MC Topic: The Resolution of International Disputes Skill: Applied 7) An export sale normally requires at least a. the insurance policy or certificate. b. the contract of sale. c. the bill of lading. d. the invoice. e. all of the above Answer: e Diff: 2 Type: MC Topic: Foreign Trade Skill: Recall/Applied 8) A, based in Canada, enters into a contract for the sale of goods to B in Germany. The contract provides that A is to make the goods available to B at A's own warehouse. In this case, the arrangement between A and B is a. a DDP contract. b. an FOB contract. c. a CIF contract. d. an EXW contract. Copyright © 2016 Pearson Canada Inc.

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e. none of the above Answer: d Diff: 2 Type: MC Topic: Foreign Trade Skill: Applied 9) A, based in Canada, has a contract with B, in Denmark, for the sale by A to B of certain goods. The contract specifies that A bears responsibility for shipping the goods and for insuring them. In this case, A and B have entered into a. an EXW contract. b. a CIF contract. c. an FOB contract. d. a DDP contract. e. none of the above Answer: b Diff: 2 Type: MC Topic: Foreign Trade Skill: Applied 10) A, based in Canada, agrees to sell goods to B in Australia. The contract provides that B will manage shipment of the goods and A will deliver the goods to and load them on a carrier designated by B. In this case, A and B have entered into a. a DDP contract. b. a CIF contract. c. an FOB contract. d. an EXW contract. e. none of the above Answer: c Diff: 2 Type: MC Topic: Foreign Trade Skill: Applied Copyright © 2016 Pearson Canada Inc.

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11) A large multinational Canadian manufacturing company has just bought a majority of shares in a similar company located in Spain. This is an example of a. a limited investment in Spain. b. a portfolio investment in Spain. c. establishing a branch in Spain. d. a conditional portfolio investment. e. a direct foreign investment in Spain. Answer: e Diff: 2 Type: MC Topic: Law and International Business Skill: Applied 12) Use this fact situation to answer the related questions that follow. A, based in Ontario, enters into a contract with B, in Geneva, Switzerland, whereby B will manufacture and supply to A a certain quantity of watches. The negotiations first took place by faxes between Ontario and Geneva and were then held in person in Geneva. Most of the people connected with the negotiations and the contract live in Geneva and B's manufacturing plant is there. B manufactures the watches and then delivers them to A in Ontario. However, A refuses to accept them because they do not meet the specifications agreed on. There is a marked absence of the actual specifications in the contract, and it also does not contain a jurisdiction clause in the event of a dispute. Having rejected the delivered goods, A now goes out and buys the watches from a German manufacturer at twice the cost of the Swiss watches. In this case, under Ontario law, A can institute an action in Ontario against B because a. A is located in Ontario. b. it would be a hardship for A to sue in Switzerland. c. A suffered damages in Ontario. d. B impliedly consented to Ontario as the appropriate forum. e. none of the above Answer: c Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 13) Use the fact situation in Q12 to answer the related question that follows. If A institutes an action in Ontario against B, what argument(s) will B most likely raise to transfer the action to Geneva to be heard by a Swiss court? a. that the cost of bringing all of the parties from Geneva would be staggering b. that the majority of the parties are in Geneva c. that the negotiations were held in Geneva d. that the manufacturing plant is in Geneva e. all of the above Answer: e Diff: 3 Type: MC Topic: The Resolution of International Business Disputes Skill: Applied 14) Use the fact situation in Q12 to answer the related question that follows. The principle of law that allows a party to request a change of court of trial when it results in undue hardship is a. forum non conveniens. b. sempre fidelis. c. caveat emptor. d. res ipsa loquitur. e. volenti non fit injuria. Answer: a Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Skill: Recall/Applied 15) A large Korean car manufacturer has just built a new model car which it is going to sell in Canada. In Korea the car will be sold for the Canadian equivalent of $25 000.00 but to get into the market in Canada the car will be sold for $15 900.00 Canadian. In this case, the company has engaged in a. anti-dumping. Copyright © 2016 Pearson Canada Inc.

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b. normal business practices. c. export subsidization. d. dumping. e. a conspiracy. Answer: d Diff: 2 Type: MC Topic: Foreign Trade Skill: Applied 16) In commercial arbitration, a. the arbitration is presided over by an experienced arbitrator. b. the arbitrator's decision will bind the parties. c. the parties agree to resolve their dispute using this method. d. the arbitrator's decision can be easily enforced. e. all of the above Answer: e Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Skill: Applied 17) International business transactions require, by definition, parties in a. agreeing to bilateral treaties and trade agreements. b. two or more different countries. c. questions of public international law. d. the NAFTA or the GATT treaties. e. both private law and public law. Answer: b Diff: 2 Type: MC Topic: Law and International Business Skill: Applied Copyright © 2016 Pearson Canada Inc.

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18) Unlike domestic contracts, international contracts are more likely to involve special problems, such as a. complexities involving transportation, insurance, and financing. b. the use of carriers, insurers, and banks. c. the interference of foreign governments and their agents. d. the usual buyer–seller language barrier. e. those created by export houses and freight forwarders. Answer: a Diff: 2 Type: MC Topic: Law and International Business Skill: Applied 19) A buyer in British Columbia purchases equipment from a manufacturer in China. The contract between the parties stipulates that any dispute between the parties arising out of the transaction will be decided by an arbitrator in Switzerland. The buyer is not satisfied with the quality of the equipment and brings the dispute before an arbitrator in Switzerland. What law will the arbitrator apply to resolve the dispute? a. the law of British Columbia b. the law of Switzerland c. the law that has the closest connection with the contract d. the law of China e. the law that the parties agree should apply Answer: e Diff: 2 Type: MC Topic: The Resolution of International Business Disputes Skill: Applied 20) The best means of establishing the proper law for an international contract is a. to accept the same country where the contract would be submitted for arbitration. b. for the parties themselves to make express provision. c. for the parties to leave it by default to the country of signing. d. for the parties to leave it up to the rules of the court of jurisdiction. Copyright © 2016 Pearson Canada Inc.

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e. for the parties to make it subject to a "neutral" law. Answer: b Diff: 1 Type: MC Topic: Foreign Trade Skill: Recall/Applied 21) The invoice is of special importance in the international sale of goods. It not only provides information to the parties to the transaction, but also a. provides information for the international electronic data exchange. b. operates as a document of title. c. facilitates the financing. d. provides information to the customs authorities in the country of importation. e. acknowledges that the goods have been picked up by the shipping company. Answer: d Diff: 2 Type: MC Topic: Foreign Trade Skill: Recall/Applied 22) Export Industries Ltd., a Canadian corporation with a factory in London, Ontario, agrees to sell a customer in Germany 2000 microwave ovens FOB Lufnaia Airlines, Toronto, Pearson Airport. Which of the following statements is correct? a. Export is only liable if their employees damage the goods prior to their arriving in Toronto. b. Export is liable for the goods until they are loaded into Lufnaia Airlines. c. The customer's insurance covers the goods from the time they are separated out and loaded at the London, Ontario, factory. d. Export is liable until the goods leave Toronto on the airline. e. Title passes when the goods leave the London factory. Answer: b Diff: 2 Type: MC Topic: Foreign Trade Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 30: International Business Transactions

Skill: Applied 23) SlamDunk Inc., a Vancouver, B.C., firm, agrees to sell to SuperVideo Ltd. of Barcelona, Spain, 500 video games with DDP terms. This means that SlamDunk will arrange for and pay the cost of shipping, the insurance, and the a. export license. b. brokerage fee. c. inspection fee. d. agent's commission. e. import duties. Answer: e Diff: 2 Type: MC Topic: Foreign Trade Skill: Applied 24) Countertrade a. requires consuming the goods acquired in exchange. b. is where a seller agrees to accept trade credits instead of cash. c. involves less risk than does the simple sale. d. is not worthwhile where exchange controls exist. e. is where payment is made in goods produced or procured by the buyer. Answer: e Diff: 1 Type: MC Topic: Foreign Trade Skill: Recall 25) Dumping is the process where a. a foreign firm sells goods in Canada at prices lower than it sells these same goods for in its own domestic market. b. domestic producers of similar products cannot compete on price. c. the government is required to impose countervailing duties.

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d. a foreign government provides special benefits to its producer in order to assist them to export into Canada. e. many consumers are alienated toward the product because of the quality. Answer: a Diff: 1 Type: MC Topic: Foreign Trade Skill: Recall 26) Foreign direct investment to a Canadian investor a. is where the investor's purpose is to have an effective voice in the management of the enterprise. b. would involve owning the stock in a Canadian holding company. c. is seldom obtained through the establishment of a foreign branch or subsidiary. d. can be obtained by owning shares in a mutual fund devoting itself to foreign investments. e. is where one owns stock listed on a foreign stock exchange. Answer: a Diff: 2 Type: MC Topic: Foreign Investment Skill: Recall/Applied 27) The World Trade Organization provides two procedures for the resolution of disputes between countries. One way is to request the WTO Council to appoint a "panel" to adjudicate the dispute; the other way is a. a consultation and, if necessary, conciliation procedure—essentially a diplomatic solution. b. to turn over the matter to the International Mediation Review Board. c. by arbitration through an international arbitration panel. d. to submit to the International Compensation Board, who will review the matter and publish a report with their recommendations. e. to refer the dispute to the Free Trade Commission for settlement. Answer: a Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: The Resolution of International Business Disputes Skill: Recall 28) The forum non conveniens principle allows a court to refuse to hear a proceeding because another jurisdiction is more appropriate or more closely connected to the matter. Factors relevant to determining which of the multiple forums is more appropriate include all of the following EXCEPT a. the convenience, location, and expense for parties and witnesses in each forum. b. the avoidance of multiple proceedings—that is, whether a foreign jurisdiction has already assumed jurisdiction. c. the law to be applied to the dispute. d. whether the plaintiff has been declared a frivolous and vexatious litigant. e. the ability to enforce any resulting judgment. Answer: d Diff: 3 Type: MC Topic: The Resolution of International Business Disputes Skill: Recall 29) Courts require that an action have some “connecting factor” or a “real and substantial connection” with the country or province in which the party seeks to bring the action. The question of whether a court will hear an action and allow a lawsuit to proceed in the court of that jurisdiction is called a. ultra vires. b. foreign jurisdiction. c. parallel proceedings. d. assume jurisdiction. e. multiple proceedings. Answer: d Diff: 3 Type: MC Topic: The Resolution of International Business Disputes Skill: Recall

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30) The decision to invest in a foreign jurisdiction carries with it many risks. The possibility of the host country government assuming ownership of a foreign investor’s assets is referred to as a. forum non conveniens. b. national party autonomy. c. expropriation. d. joint venture. e. export subsidy. Answer: c Diff: 3 Type: MC Topic: Foreign Investment and International Law Skill: Recall 31) Foreign direct investment (FDI) is not normally conducted through the establishment of a. a branch. b. a subsidiary. c. a hostile takeover. d. a joint venture. Answer: c Diff: 3 Type: MC Topic: Foreign Investment Skill: Recall 32) An export sale normally requires at least four documents. These include all of the following EXCEPT a. the contract of sale. b. the bill of lading. c. the insurance policy or certificate. d. the letter of credit. e. the invoice.

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Answer: d Diff: 3 Type: MC Topic: Foreign Trade Skill: Recall/Applied 33) Aside from establishing a branch or subsidiary in a foreign country, an FDI is conducted by means of a partnership. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Foreign Investment Skill: Applied 34) A free trade area is one in which customs duties are always imposed. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Foreign Trade Skill: Recall/Applied 35) A portfolio investment is essentially a passive investment, normally in the form of government or corporate bonds or listed securities. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 30: International Business Transactions

Diff: 1 Type: TF Topic: Foreign Investment Skill: Recall 36) Where a Canadian company makes an investment in a foreign country, Canada is considered to be the "host" country. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Foreign Investment Skill: Recall/Applied 37) Conditions attached by a host country to a foreign investment are usually referred to as performance requirements. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Foreign Investment Skill: Applied 38) Notwithstanding that an action at law between contracting parties in different countries is brought in one country, the court of that country may decline jurisdiction on the basis of forum non conveniens. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 1 Type: TF Topic: The Resolution of International Business Disputes Skill: Recall/Applied 39) In Canada, a foreign corporation must be licensed or registered to acquire standing to bring a lawsuit in Canada. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Resolution of International Business Disputes Skill: Recall/Applied 40) Under Chapters 19 and 20 of NAFTA, in the event of a dispute, the Extraordinary Challenge Committee is the first body before which an arbitration is heard. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: The Resolution of International Business Disputes Skill: Recall/Applied 41) Before a court assumes jurisdiction over an international business dispute, the issue must have a connecting factor. a. True Correct: Correct b. False Incorrect: Incorrect

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Answer: a Diff: 1 Type: TF Topic: The Resolution of International Business Disputes Skill: Recall 42) In a countertrade, the seller agrees to accept payment in the form of goods procured or produced by the buyer. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Foreign Trade Skill: Recall 43) Agricultural products fall within the scope of NAFTA. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Foreign Trade Skill: Recall/Applied 44) The GATT and the WTO aim to reduce customs duties. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: TF Topic: Foreign Trade Skill: Recall 45) Anti-dumping duties may be levied when one country's goods are dumped in another country. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Foreign Trade Skill: Applied 46) A foreign plaintiff with no assets in Canada will likely be ordered to pay security for costs in an action at law commenced in Canada. Explain. Answer: Since the cost of a lawsuit in Canada can be quite high, the fact that a foreign plaintiff has no assets in Ontario will likely result in an order for security for costs so that the Canadian defendant does not have to chase the plaintiff for payment if costs are awarded to the defendant. Diff: 2 Type: ES Topic: The Resolution of International Business Disputes Skill: Applied 47) Explain the greatest fear of a foreign investor who invests in a developing country. Answer: The fear is that the assets of the foreign investor may be expropriated or naturalized by the host government without adequate compensation to the foreign investor. Diff: 2 Type: ES Copyright © 2016 Pearson Canada Inc.

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Topic: Foreign Investment Skill: Recall/Applied 48) Generally speaking, at least four documents are required for an export sale. Explain the most common documents. Answer: The first document is the contract of sale itself, which sets out the parties, subject matter, price, and any other relevant terms. Then there is a bill of lading, which is an acknowledgement by a carrier that the goods have been delivered for shipment. An insurance policy is also necessary, to evidence that the goods are insured against loss or damage, and finally, an invoice is required and must be correct in every respect, since it provides information not only for the parties themselves, but also for the customs authority of the country of importation. Diff: 2 Type: ES Topic: Foreign Trade Skill: Recall/Applied 49) Explain the purpose of the GATT and the WTO. Answer: The GATT was the principal instrument that laid down agreed rules for international trade from 1948 to 1995, when it was superseded by the WTO. The GATT applied to international trade in goods, but not to most agricultural products and textiles, while the WTO now extends GATT arrangements to include trade in some agricultural products, textiles, and services and the protection of intellectual property rights. Diff: 2 Type: ES Topic: Foreign Trade Skill: Recall/Applied 50) Explain the risk that a Canadian plaintiff takes in suing a foreign defendant in Canadian courts. Answer: The foreign defendant may have no assets in Canada to satisfy a judgment in favour of the plaintiff. Further, it may have little or no assets in its own country, making the judgment worthless, since it cannot be enforced. Copyright © 2016 Pearson Canada Inc.

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Diff: 2 Type: ES Topic: The Resolution of International Business Disputes Skill: Applied 51) International transactions result in a wide variety of legal relationships. Name some of the contractual relationships. Answer: These contractual relationships include contracts for the international sale of goods and supply of services, carriage of goods, bailment, insurance agency, and employment, and also agreements involving investments, intellectual property, partnerships, corporations, and creditors. Diff: 2 Type: ES Topic: Law and International Business Skill: Recall 52) What is the proper law of an international contract? Answer: The proper law is the law the parties intended to govern their contract. It can be determined by express provisions in the contract or, failing that, by a court determining what the parties intended based on the surrounding circumstances. Diff: 1 Type: ES Topic: The Resolution of International Business Disputes Skill: Applied 53) What are "Incoterms"? Answer: This is a set of standard terms adopted by the International Chamber of Commerce, originally published in 1936, which has become widely used and accepted. Diff: 2

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Type: ES Topic: Foreign Trade Skill: Recall 54) What information would you expect to see on the invoice used in an export transaction? Answer: The invoice states the names and addresses of the buyer and seller, the date of the order, a full description of the goods sold, details of packaging, and the price (on the basis of which customs duty is normally calculated). Diff: 2 Type: ES Topic: Foreign Trade Skill: Applied 55) Define and explain the term counter-trade. Answer: Counter-trade is a form of barter. The seller agrees to accept, instead of money, payment in goods produced or procured by the buyer. Of course, the "seller" will have to find a way of profitably disposing of the goods acquired in the exchange. Diff: 2 Type: ES Topic: Foreign Trade Skill: Recall 56) Why is it sometimes important to determine the country of origin of a good imported into Canada? Answer: This is important to determine if the goods are subject to an import preference, notably for products coming from Commonwealth, the Caribbean, and less-developed countries, or from Canada's NAFTA partners, Mexico and the U.S.A. Diff: 2 Type: ES Topic: Foreign Trade Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 57) What test does Investment Canada apply in order to authorize a foreign acquisition of a large Canadian business? Answer: To be authorized, the acquisition must be of significant benefit to Canada. Diff: 2 Type: ES Page Reference: 744 Topic: Foreign Investment Skill: Applied 58) Explain the doctrine of forum non conveniens. Answer: When a dispute involving an international business transaction arises and a party decides to commence legal proceedings, that party may commence the legal proceedings in a jurisdiction of his or her choice. Nevertheless, a court will sometimes question whether it has jurisdiction to hear the matter. As well, the opposing party may ask the court to stay the proceedings on the ground that it does not have jurisdiction. The court may decline to hear the matter on the ground that another forum, or jurisdiction, is more connected to the dispute than it is. The principle that permits a court to decline authority over a case because a case should be heard elsewhere is referred to as forum non conveniens. Diff: 2 Type: ES Topic: The Resolution of International Business Disputes Skill: Applied 59) Explain the advantages of commercial arbitration over litigation. Answer: The first advantage is that commercial arbitration removes the risk of a biased hearing in the home country of a party. Further, it provides the parties an opportunity to select an arbitrator who is an expert in the area of dispute. Additionally, the proceedings are private and confidential, and finally, the costs of commercial arbitration are much lower than litigation costs and the decision is usually rendered much more quickly.

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Diff: 2 Type: ES Topic: The Resolution of International Business Disputes Skill: Recall/Applied 60) Explain how private, public, and public international law come into play in international transactions. Answer: Transactions between private parties in different countries raise the question of which country's law will apply, which is an area that is governed by private law. On the other hand, since most governments regulate foreign trade and investment, transactions between private persons and governments are governed by public law. Finally, to open international markets for their businesses, governments often make bilateral or multilateral agreements, which can give rise to issues between those governments that are members or signatories to such agreements. This gives rise to public international law, which is used to resolve such disputes. Diff: 2 Type: ES Topic: Law and International Business Skill: Applied 61) Today, under NAFTA, when a Canadian consumer purchases goods in the United States, he or she is required to pay Canadian customs and excise duties and tax on those goods when bringing them back into Canada. If this is the case, can it be said that such customs and excise duties and taxes make NAFTA something less than a free trade agreement? Answer: While tariffs on goods between the members of NAFTA have been eliminated, the fact is that the charging of customs duties and excise taxes by Canada suggests that free trade benefits only large corporations and the member governments, but does not benefit the average Canadian consumer to the same degree. In fact, the imposition of customs and excise taxes on products purchased by Canadians in member countries often acts as a deterrent to such purchases, suggesting that, at least for the average Canadian consumer, free trade is not quite free at all. Diff: 2 Type: ES Topic: Foreign Trade Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 62) In the exporting of services, one area of considerable risk is the transfer of technology and the sale or use of intellectual property. Explain, and give examples of how this is true. Answer: In the transfer of such property, the host country's rules and the enforcement of laws governing the protection of intellectual property are quite important. For instance, a Canadian corporation that licenses a patent or a trademark or supplies production "knowhow" to the foreign company will be concerned that its rights are protected by the laws of that foreign country. It would be discouraging to find out that your trade secrets have become public knowledge or that your licensee has now become your competitor using the expertise obtained. Diff: 2 Type: ES Topic: Foreign Trade Skill: Applied 63) When would a government typically impose measures to deal with dumping or export subsidization? What measures might this government take? Answer: This government should determine the nature and extent of the domestic competition and whether there is, or will be, material injury to it. If so, the government would likely apply countervailing duties, depending on whether it felt there was more value in helping the domestic companies as compared to the benefit of reduced prices for purchasers. Diff: 2 Type: ES Topic: Foreign Trade Skill: Applied 64) The WTO promotes the principle of "non-discrimination." What is the principle of non-discrimination? How does that principle affect "most-favoured nation treatment"? How does it affect quotas? Answer: The principle of non-discrimination says that goods originating from one contracting state should not be treated any more favourably than goods originating from another Copyright © 2016 Pearson Canada Inc.

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contracting state, and that goods from another country of origin, after any appropriate tariff has been paid, should not be treated differently from domestic goods. In effect, all should receive national treatment. Most-favoured nation status, which would be applied reciprocally between two trading partners, should be applied amongst all contracting states. This principle should prevent quotas being imposed to prevent import of goods from contracting states. Diff: 2 Type: ES Topic: Foreign Trade Skill: Applied 65) Explain what a Canadian court would do to determine whether to permit the enforcement of a judgment obtained in a foreign country. Answer: The Canadian court would determine if there was a real and substantial connection between the substance of the action and the country in which judgment was granted. It would also have to be satisfied that the judgment was not obtained by fraud and that the judgment does not offend natural justice or public policy. Diff: 1 Type: ES Topic: The Resolution of International Business Disputes Skill: Applied 66) Explain the test that is applied in Canada before the foreign acquisition of a large Canadian business is authorized. Answer: Canada applies what is referred to as the significant benefit test. Before the foreign acquisition of a large Canadian business is authorized, the acquisition must be shown to be of significant benefit to Canada. Diff: 2 Type: ES Topic: Foreign Investment Skill: Applied

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1) Which of the following statements best describes "e-commerce"? a. E-commerce is the fastest growing sector of the economy. b. E-commerce includes the delivery of products by computer. c. E-commerce is the use of computer networks to facilitate transactions. d. Until 1995, e-commerce was almost non-existent. e. all of the above Answer: e Diff: 1 Type: MC Topic: E-commerce Skill: Recall/Applied 2) Use this fact situation to answer the related questions that follow. A and B have decided to go into the business of selling goods, but wish to use the Internet to reach potential customers all over Canada who can both buy from them and pay using the Internet. As prudent businesspersons, A and B will a. register a domain name. b. negotiate an Internet access agreement. c. negotiate a website development agreement. d. negotiate a website-hosting agreement. e. all of the above Answer: e Diff: 2 Type: MC Topic: E-commerce Skill: Applied 3) Use the fact situation in Q2 to answer the related question that follows. The type of business that A and B are setting up is called a. wholesale sales. b. electronic retailing. c. retail sales. Copyright © 2016 Pearson Canada Inc.

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d. e-commerce. e. digital retailing. Answer: b Diff: 1 Type: MC Topic: E-commerce Skill: Recall/Applied 4) Use the fact situation in Q2 to answer the related question that follows. The type of payment that the business will most likely use is a. credit cards. b. smart cards. c. cash. d. electronic cash. e. all of the above Answer: e Diff: 2 Type: MC Topic: E-commerce Skill: Recall/Applied 5) Use the fact situation in Q2 to answer the related question that follows. One major concern that A and B will have related to carrying on their business over the Internet is a. identity theft. b. public safety. c. fraud. d. money laundering. e. tax evasion. Answer: b Diff: 2 Type: MC Topic: E-commerce Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 6) Use the fact situation in Q2 to answer the related question that follows. In deciding on the best way to ensure that their customers agree to all of their terms and conditions of sale, A and B will consider a. using click-wrap agreement only. b. advertising a portion of the terms on their website. c. using a web-wrap agreement only. d. placing the terms directly on the business website. e. using either a web-wrap or click-wrap agreement or both. Answer: e Diff: 2 Type: MC Topic: E-commerce Skill: Recall/Applied 7) Use the fact situation in Q2 to answer the related question that follows. Since A and B are doing business in Canada, they do not have to worry about whether their contracts need to be in writing or whether an electronic signature constitutes a real signature because a. of the provisions of provincial electronic legislation only, which make e-contracts legal and e-signatures valid. b. of the provisions of the PIPEDA only, which make e-contracts legal and e-signatures valid. c. their validity and legality is guaranteed under the Charter of Rights and Freedoms. d. of the growing body of case law that has made e-contracts legal and e-signatures valid. e. of the provisions of both provincial e-commerce legislation and the federal PIPEDA. Answer: e Diff: 2 Type: MC Topic: E-commerce Skill: Recall/Applied 8) Use this fact situation to answer the questions that follow and relate to it.

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A and B, based in Ontario, decide that the name of their e-business, which will be displayed on the business website, will be AB's Sales. However, another company in British Columbia has been carrying on business as AB's Sales and has had the name prominently displayed on its web page for the past five years. This B.C. company also deals in the same kind of goods that A and B's business will deal in. As the lawyer for A and B, you will advise them that a. they can use the name AB's Sales throughout Canada. b. they can use the name AB's Sales only in Ontario. c. they can use the name AB's Sales everywhere in Canada except Ontario. d. they can use the name AB's Sales everywhere in Canada except British Columbia. e. they should reconsider using the name AB's Sales and change it to protect their business. Answer: e Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 9) Use the fact situation in Q8 to answer the related question that follows. Assume that the primary reason for using the name AB's Sales was because A and B knew about the B.C. company and wanted to get some of its business. In this situation, as their lawyer, you would advise A and B that a. they can use the name AB's Sales throughout Canada. b. they can use the name AB's Sales everywhere in Canada except British Columbia. c. they can use the name AB's Sales everywhere in Canada except Ontario. d. they should reconsider using the name AB's Sales and change it to protect their business. e. they can use the name AB's Sales only in Ontario. Answer: d Diff: 3 Type: MC Topic: E-commerce and the Law Skill: Applied

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10) Use this fact situation to answer the related questions that follow. John was recently fired from a large company located in Toronto, Ontario, which does business over the Internet. After being fired, John moved to New York City, U.S.A., and then set up a blog in which he maligned his former employer and its business practices. When the company read the blog, it decided to sue John and the Internet Service provider (ISP) over which John's blog was carried. In this case, the company will probably succeed against John in an action for a. the tort of defamation. b. a breach of the confidentiality provisions of John's employment contract. c. the tort of negligent misrepresentation. d. the tort of fraud. e. misrepresentation in contract. Answer: a Diff: 3 Type: MC Topic: E-commerce and the Law Skill: Applied 11) Use the fact situation in Q10 to answer the related question that follows. In attempting to determine the proper jurisdiction for its lawsuit, the company will probably a. rely on the rule that jurisdiction depends on a real and substantial connection with the country, state, or province and choose Ontario. b. rely on the rule that jurisdiction in Internet matters will be adopted by any court in any jurisdiction and will choose either Ontario or New York State. c. rely on the rule that jurisdiction depends on where the tort was committed and choose Ontario. d. rely on the level of Internet activity John's blog receives and choose New York State. e. rely on the rule that jurisdiction depends on the defendant's residence and choose New York State. Answer: a Diff: 3 Type: MC Topic: E-commerce and the Law

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Skill: Applied 12) Use the fact situation in Q10 to answer the related question that follows. Also in this case, a. the ISP can be sued, but will not be found liable. b. the ISP can be sued and will be found strictly liable. c. the ISP cannot be sued because it only provides a service. d. the ISP cannot be sued because an ISP is like an unincorporated association. e. none of the above Answer: a Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 13) Use this fact situation to answer the related questions that follow. Henry is developing a website for a large multinational Canadian manufacturing company located in British Columbia, which carries on its business over the Internet. His website incorporates the name of the company, its logo, which is a five-pointed flaming star, and also a link to the website of another company, located in Halifax, Nova Scotia, which is well known across Canada for its top-quality products and which has registered its name under the Trade-marks Act and its website under the Copyright Act. When the Nova Scotia company hears about Henry's company's website, it takes a good look at it and then, in order to ensure that it will not suffer a drop in sales, decides to sue Henry's company. In this case, Henry's company has a. committed a breach of the Industrial Design Act. b. only committed the tort of passing-off. c. committed a breach of the Copyright Act. d. only committed passing-off under the Trade-marks Act. e. committed both the tort of passing-off and a breach of the passing-off provisions of the Trade-marks Act. Answer: e Diff: 2

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Type: MC Topic: E-commerce and the Law Skill: Applied 14) Use the fact situation in Q13 to answer the related question that follows. Among other things, a breach or tort committed by Henry's company would be based on a. the confusion likely to be caused by the link to the Nova Scotia company. b. the real potential for a loss of sales by the Nova Scotia company. c. the link on the website to the Nova Scotia company. d. the fact that the Nova Scotia company has developed a reputation for quality goods. e. all of the above Answer: e Diff: 3 Type: MC Topic: E-commerce and the Law Skill: Applied 15) Use the fact situation in Q13 to answer the related question that follows. Now assume that when Henry designed the website, he did so without any links to the Nova Scotia company. In this case, a. only Henry owns the copyright in the website. b. neither Henry nor his company own the copyright in the website. c. only Henry's company owns the copyright in the website. d. both Henry and his company own the copyright in the website. e. none of the above Answer: c Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 16) Use the fact situation in Q13 to answer the related question that follows. Assume that Henry based his design for his company's website on a similar design which he found on the website of an Ontario company. In this case, Copyright © 2016 Pearson Canada Inc.

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a. only Henry would be infringing the Ontario company's copyright. b. only Henry's company would be infringing the Ontario company's copyright. c. both Henry and his company would be infringing the trademark of the Ontario company. d. both Henry and his company would be infringing the industrial Design Act. e. both Henry and his company would be infringing the copyright of the Ontario company. Answer: e Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 17) The Internet is a. cyberspace. b. the cyber information system. c. the interconnected logical networks that link millions of computers worldwide. d. e-cash. e. the space within the computer. Answer: c Diff: 1 Type: MC Topic: E-commerce Skill: Recall 18) Electronic retailing can be divided into the following categories: a. supplies of tangible goods and supplies of services. b. supplies of tangible goods and supplies of electronic goods. c. supplies of electronic goods and supplies of non-electronic goods. d. supplies of services and supplies of electronic goods. e. supplies of tangibles goods, supplies of services, and supplies of electronic goods. Answer: e Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: E-commerce Skill: Recall 19) Which of the following is an example of the supply of a service by electronic retailing? a. the subscription to an electronic magazine b. the purchase of an airline ticket online c. the transmission and downloading of software online d. the transmission and downloading of music e. the transmission of an order from an online catalogue Answer: b Diff: 2 Type: MC Topic: E-commerce Skill: Applied 20) E-cash is a software payment system that allows a. web-wrap agreements to be negotiated. b. netbanking. c. payment through the use of a debit card. d. payment through the use of a plastic credit card. e. the anonymous transfer of money over the Internet. Answer: e Diff: 1 Type: MC Topic: E-commerce Skill: Applied 21) Which of the following is NOT a matter that may be determined by the law of the jurisdiction in which a contract is made? a. the parties to the contract b. the capacity of the parties to contract c. the applicability of consumer protection legislation Copyright © 2016 Pearson Canada Inc.

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d. the legality of the contract e. any terms that are to be implied Answer: a Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 22) Top-level domain names are either "generic" or "national." Which of the following top-level domain names is national? a. .gov b. .ca c. .org d. .net e. .edu Answer: b Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Applied 23) The great majority of Canadian business corporations are registered in which of the following top-level domain names? a. .gov b. .com c. .edu d. .org e. .net Answer: b Diff: 1 Type: MC Topic: E-commerce and the Law Skill: Applied

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24) Which of the following statements best describes cybersquatting? a. Cybersquatting involves the registration of a domain name that contains a trademark or brand name. b. In cybersquatting, the trademark owner often finds it less expensive to buy the name from the registered owner than to sue. c. Cybersquatting almost certainly constitutes a trademark infringement. d. In cybersquatting, the infringer often offers to sell the domain name to the trademark owner. e. all of the above Answer: e Diff: 1 Type: MC Topic: E-commerce and the Law Skill: Applied 25) Authors or owners who post material on a website a. impliedly consent to it being reproduced. b. have not impliedly consented to fair dealing by users for education purposes. c. are not likely to take legal proceedings against commercial use of the material. d. impliedly consent to its being copied. e. will rarely take action against infringements that are non-commercial in nature. Answer: e Diff: 2 Type: MC Topic: E-commerce and the Law Skill: Recall/Applied 26) The term "spam" means a. the tort of trespass. b. an invasion of privacy. c. cybersquatting. d. cybermoney. e. electronic junk mail. Copyright © 2016 Pearson Canada Inc.

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Answer: e Diff: 1 Type: MC Topic: E-commerce and the Law Skill: Recall 27) The need for international agreements and action to control e-commerce is becoming increasingly obvious as a result of which of the following? a. Different countries have different rules, thereby impeding the development of ecommerce by responsible enterprises. b. Some countries are not regulating e-commerce. c. Some countries are not taxing e-commerce. d. Different countries have different rules, thereby discouraging the growth of more dubious activities. e. all of the above Answer: a Diff: 2 Type: MC Topic: International Aspects of E-commerce Skill: Applied 28) The impact of Internet copyright infringement can be devastating. Computer software developers and music producers, for example, have seen their industries destroyed by a. fair dealing. b. digital music sales. c. privacy. d. piracy. e. spam. Answer: d Diff: 3 Type: MC Topic: Copyright Skill: Recall/Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 31: Electronic Commerce

29) Canada’s Anti-Spam Legislation (CASL) prohibits the sending of or permitting of the sending of a commercial electronic message to an electronic address a. after the recipient has added the sender to the “no send list.” b. without the consent of the sender. c. without the consent of the Internet service provider. d. without the consent of the recipient. Answer: d Diff: 3 Type: MC Topic: Privacy Skill: Recall/Applied 30) Many of the legal risks associated with e-commerce can be avoided a. with a well-designed website and detailed contractual terms and conditions. b. by registering the business site with the Canada Revenue Agency. c. if users have access to a number of linking sites. d. by setting up an off-shore corporation not subject to stringent Canadian laws. Answer: a Diff: 3 Type: MC Topic: Strategies to Manage the Legal Risks Skill: Recall 31) Although domain names are addresses, it is common for a domain name to include an existing trademark. Consequently, the use of an exclusive domain name may a. amount to cybersquatting. b. amount to an infringement of another’s trademark. c. raise jurisdictional issues. d. cause party autonomy. Answer: b Diff: 3 Type: MC Topic: Intellectual Property

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Skill: Recall/Applied 32) The registration by a person of a domain name identical to that of an existing company and with or without that company's logo is called cybersquatting. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Applied 33) By posting material on a website, the author of that material provides his or her consent to its copying by others. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Applied 34) Libel and defamation are two distinct areas of law when it comes to posting untrue comments meant to malign the reputation of another on the Internet. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: E-commerce and the Law Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 35) Among other things, consumer protection legislation addresses acceptance by clicking an icon, communication of acceptance, electronic signatures, and writing. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Recall/Applied 36) Out-of-province retailers from whom Ontario consumers purchase goods over the Internet must comply with the provisions of Ontario consumer protection statutes. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Applied 37) Where a company's website makes a misleading or untrue statement about the goods or services which it supplies, the company may be found liable in misrepresentation. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: E-commerce and the Law Copyright © 2016 Pearson Canada Inc.

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Skill: Applied 38) Like any other legal dispute, a generic domain name dispute may be resolved by either litigation or arbitration. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Recall/Applied 39) The copying of material from a website is always protected by the "fair dealing" provisions of the Copyright Act. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Applied 40) The tort most closely associated with the Internet is nuisance. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Applied Copyright © 2016 Pearson Canada Inc.

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41) According to Canadian law, placing a copy of music on a shared directory does not constitute breach of copyright. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: E-commerce and the Law Skill: Recall 42) Explain what is meant by the term "e-commerce." Answer: E-commerce refers to the use of computer networks to facilitate transactions involving the production, distribution, sale, and delivery of goods and services in the marketplace. Diff: 1 Type: ES Topic: E-commerce Skill: Recall 43) Why is it that web-wrap agreements must be designed to ensure that all intended terms are brought to the attention of potential customers? Answer: This is because it is a requirement of both federal and provincial consumer protection legislation. In this regard, the Supreme Court of Canada has also made it clear that even hyperlinks to "terms and conditions" must be visible, functional, and accessible. Diff: 2 Type: ES Topic: E-commerce Skill: Recall/Applied 44) Why is it important to determine where an e-contract is made? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 31: Electronic Commerce

Answer: This is because generally, it not only determines which law will govern the contract, but also may affect the validity of the contract itself. Diff: 2 Type: ES Topic: E-commerce and the Law Skill: Recall/Applied 45) Explain the meaning of B2B and B2C transactions. Answer: B2B transactions are those between businesses, while B2C transactions are those between businesses and consumers. Diff: 2 Type: ES Topic: E-commerce Skill: Recall/Applied 46) What are the major areas of law that affect e-commerce? Answer: These are the law of contracts, the law of torts, trade-mark and copyright law, consumer protection law, privacy law, criminal law, and international law. Diff: 2 Type: ES Topic: E-commerce Skill: Applied 47) In relation to Internet crime, what is phishing? Answer: Phishing is the practice of using fraudulent e-mails and fake websites to induce recipients into disclosing personal financial data for use in identity theft. Diff: 1 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: E-commerce and the Law Skill: Recall/Applied 48) Identify the three categories into which electronic retailing can be divided. Answer: Electronic retailing can be divided into three categories: (1) supplies of tangible goods, (2) supplies of "electronic goods," and (3) supplies of services. Diff: 1 Type: ES Topic: E-commerce Skill: Recall 49) Identify four business uses of the Internet other than consumer sales and business-tobusiness transactions. Answer: The Internet is used (1) as an advertising medium; (2) for investment brokering; (3) for share trading; and (4) for gambling. Diff: 1 Type: ES Topic: E-commerce Skill: Recall/Applied 50) Define the term "web-wrap agreement" and describe the use of such agreements. Answer: A "web-wrap agreement" is a website document that sets out the contractual terms, the acceptance of which is indicated by "clicking" on the appropriate icon. These agreements spell out very clearly what are intended to be the legal consequences of clicking on each icon. This is intended to assist with the legal enforcement and interpretation of an ecommerce transaction. Diff: 1 Type: ES Topic: E-commerce and the Law Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 31: Electronic Commerce

51) Define and describe the term "domain name." Answer: The domain name is the registered Internet address of a website. Domain names always have two or more parts, separated by dots. The part on the right is the most general, and is referred to as the top-level domain. Top-level domains are either generic, such as commercial (.com), educational (.edu), governmental (.gov), network (.net), and organizational (.org), or they are national such as Canada (.ca). Diff: 2 Type: ES Topic: E-commerce and the Law Skill: Recall/Applied 52) In order to develop a comprehensive system of law that arises out of e-commerce, what are the three main issues that must be addressed? Answer: The first issue is the extent to which existing legal rules and principles can be applied to situations that arise in e-commerce. The second issue is whether and to what degree, if any, governments should regulate e-commerce. The third issue is the way in which law can address the transnational nature of e-commerce. Diff: 2 Type: ES Topic: E-commerce Skill: Applied 53) Today, what are the factors that help to determine what law governs a particular transaction over the Internet? Answer: These factors begin with a review of the contract in order to determine whether it contains an express provision of the law which is to govern the contract. Failing such a provision, we must attempt to determine where the contract was made, having regard to the intention of the parties evidenced by the circumstances surrounding the transaction. In the event that the law governing the contract is still unclear, then regard will be had to the system of law which is most closely related to the contract. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: International Aspects of E-commerce Skill: Recall/Applied 54) A number of years ago, before e-commerce gained momentum, in referring to the privacy of individuals, one of Canada's more noteworthy prime ministers made it clear that the government has no right to intrude into the bedrooms of the nation. Today, however, hackers in the privacy of their bedrooms can steal personal information or severely damage the computer equipment of others. This being the case, can the foregoing sentiment really be maintained, and should it be? Answer: The answer to this question involves determining whether and to what extent the actions of an individual are of a private nature. Based on events that have occurred since computers and the Internet became readily available to people, and more particularly since the rise of the theft of personal information or damage to computer systems by hackers, it now appears likely that the sentiment expressed by this particular prime Minister may have to give way to a larger concern, which is the safety of the public. To the extent that computers that may be located in the bedrooms of the nation are not used for criminal purposes, the idea of privacy in the bedrooms of the nation should continue. Yet strong arguments can be offered to suggest that there must be reasonable limits to this where the activity is of a criminal nature. Diff: 3 Type: ES Topic: E-commerce and the Law Skill: Applied 55) Explain the precautions that a business should take when the business is establishing an e-commerce site to be used to sell goods and services. Answer: The officials of the business should become familiar with the laws of other countries in which it intends to do business; where necessary, the business should customize contract terms for each country; the business should ensure that the design of the website brings the terms of the contract to the attention of customers before any contract is concluded; the website should state clearly which law and jurisdiction applies to any contracts formed; and the business should avoid giving customers too much freedom to amend terms, using yes/no, or accept/decline options wherever possible; and the business should maintain full back-ups of all contracts made via Web. Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: ES Topic: E-commerce and the Law Skill: Applied 56) As a general rule, the courts of most countries accept jurisdiction over a contract if the defendant is a resident or domiciled there; in the case of an extra-territorial defendant, jurisdiction is accepted only where there is an appropriate connection with the country. Why is this general rule often unsatisfactory in e-commerce situations, especially those involving consumer transactions? What resolution has been suggested? Answer: In an e-commerce consumer transaction, the vendor may be resident in another country and it may be quite impractical to expect the consumer to commence legal proceedings in a distant jurisdiction with, perhaps, a very different legal system. It may not even be possible to determine where the defendant is resident, since the Web address does not necessarily indicate its physical location. Diff: 2 Type: ES Topic: International Aspects of E-commerce Skill: Applied

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1) The reasonable expectation of privacy relating to a particular situation requires a. only an objective assessment of privacy expectations. b. neither a subjective nor an objective assessment of privacy expectations. c. no assessment of privacy expectations. d. only a subjective assessment of privacy expectations. e. both a subjective and an objective assessment of privacy expectations. Answer: e Diff: 2 Type: MC Topic: Privacy Skill: Recall/Applied 2) Territorial privacy involves a. protection of personal information. b. protection of one's home, business, and other personal spaces. c. issues of bodily integrity such as surveillance, search, and seizure. d. protection of government or national information. e. all of the above Answer: b Diff: 1 Type: MC Topic: Privacy Skill: Recall 3) The law of privacy balances a. an individual's right to privacy against the individual's right to security. b. the needs of society in a democratic state. c. the needs of society and an individual's right to privacy. d. the needs of society and court decisions relating to privacy. e. the requirements of territorial privacy against those of personal privacy. Answer: c Diff: 2 Type: MC Copyright © 2016 Pearson Canada Inc.

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Topic: Privacy Skill: Recall/Applied 4) In Canada, privacy is a. neither a fundamental human right nor a fundamental privilege. b. an absolute fundamental human right under the Charter. c. a fundamental human privilege allowing the government to give it and take it away. d. an absolute fundamental privilege under the Charter. e. a qualified fundamental human right under the Charter. Answer: e Diff: 2 Type: MC Topic: Privacy Skill: Recall 5) Which of the following is among the newest and greatest threats to privacy? a. digital storage devices b. the Internet c. data shadows d. biometrics e. all of the above Answer: e Diff: 2 Type: MC Topic: Privacy Skill: Applied 6) Outsourcing and transborder data flow occurs when a Canadian company a. sends personal information via fax to a company located in another country. b. opens up a branch in another province or country and sends personal data to it for processing. c. receives and works on matters relating to personal data from a company in another province.

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d. gives work related to the Canadian company which involves private data to an out-ofcountry company. e. none of the above Answer: d Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 7) A public federal company in Canada which issues credit cards to Canadians wants to save money and is now considering outsourcing the personal information of its clients to a company in the United States for the purpose of processing credit transactions. Before doing so, however, among other things, this Canadian company should a. ensure that the employees of the U.S. company are all computer literate. b. conduct a security analysis of the U.S. company before entering into any agreement with it. c. ensure that the Internet connection to the U.S. company cannot easily be disconnected. d. ensure that the computer equipment of the U.S. company has sufficient storage capacity. e. keep a copy of all data sent to the U.S. company. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Applied 8) Section 5 of the Privacy Act, Canada, provides for the collection of personal information by government institutions. However, one exception to this provided by the section permits such institutions to a. collect information directly related to an operating program or activity of the institution. b. avoid the normal requirements of the section if by doing so, the purpose or accuracy of the information might be compromised. c. obtain information directly from an individual after it discloses the purpose of obtaining it. d. opt out of the section altogether where it is in the best interests of the institution. Copyright © 2016 Pearson Canada Inc.

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e. avoid the normal requirements of the section if, by doing so, the institution will sustain much larger costs. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 9) Under the Privacy Act, Canada, a government institution can disclose information with the consent of an individual EXCEPT a. to a regulatory investigative body. b. in legal proceedings involving the government. c. for the purpose for which it was collected. d. information which is subject to solicitor–client privilege. e. for research or statistical purposes. Answer: d Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 10) Under the Privacy Act, Canada, a government institution cannot disclose personal information EXCEPT information a. injurious to international affairs. b. about someone other than the individual. c. contained in exempt data banks. d. in compliance with a subpoena or court order. e. prepared for or injurious to law enforcement or policing. Answer: c Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied

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11) Non-compliance with the provisions of the Privacy Act, Canada, is first monitored by a. the federal Privacy Commissioner. b. the courts. c. the Privacy Commissioner of the province in which the individual whose information is disclosed resides. d. the executive branch of the federal government. e. the Commissioner of Intergovernmental Affairs. Answer: a Diff: 1 Type: MC Topic: Government Regulation of Privacy Skill: Recall 12) A breach of the provisions of the Ontario Freedom of Information and Privacy Act can result in a. a reprimand of the Ontario government by the Premier of Ontario. b. liability in damages for the provincial crown. c. a reprimand of the Ontario government by an Ontario high court. d. only a finding that the Ontario Statute has been breached. e. both a finding that the Ontario Statute has been breached and a reprimand by the Premier of Ontario. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 13) Privacy legislation covering municipalities puts enforcement of a breach of privacy by municipal governments in the hands of a. the particular municipal Privacy Commissioner. b. the provincial Privacy Commissioner. c. the federal Privacy Commissioner. d. the Federal Court of Canada. e. the high courts of the province in which the municipality is located. Copyright © 2016 Pearson Canada Inc.

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Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 14) One exception to provincial legislation prohibiting the disclosure of the personal health information of an individual occurs where a. the information is released by a professional. b. it is necessary for the delivery of health services or public safety. c. its disclosure would give rise to government civil liability. d. it is necessary to protect the administration of a government-run health care facility. e. all of the above Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 15) Privacy in the education sector is regulated by a. the Personal Health Information Act of Manitoba. b. provincial Freedom of Information and Protection of Privacy Acts. c. the federal PIPEDA. d. provincial Education Acts. e. all of the above Answer: e Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall 16) The provisions of the PIPEDA apply to all commercial activities a. except where the matter is provided for in the Privacy Act, Canada, only.

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b. including matters provided for in the Charter of Rights and Freedoms. c. except where the matter is provided for in the federal Privacy Act and substantially similar provincial legislation. d. except where a province passes substantially similar legislation only. e. including all matters provided for in the Privacy Act, Canada, and substantially similar provincial legislation. Answer: c Diff: 3 Type: MC Topic: Government Regulation of Privacy Skill: Applied 17) Under the PIPEDA, in the event of a finding of non-compliance with the statute, a. both the federal Privacy Commissioner and the federal court can make orders. b. orders are never made, only findings. c. only the Supreme Court of Canada can make orders. d. only the federal court can make orders. e. only the federal Privacy Commissioner can make orders. Answer: d Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 18) The test for "reasonableness," for the purpose of Principle 2 of the Canadian Standards Association Model Code which has been incorporated into the PIPEDA and relates to collection of information necessary for an expressly identified purpose, is a. whether the loss of privacy is proportional to the benefit gained. b. whether there is a way to achieve the same end which is less intrusive of privacy. c. whether the measure taken is demonstrably necessary to meet that need. d. whether the measure taken will likely be effective in meeting that need. e. all of the above Answer: e Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 19) Opt-out consent is a. the consent of the data owner implied from the circumstances surrounding the matter which the data owner is opting out of. b. the consent of the data owner implied from a failure to expressly refuse consent. c. the implied consent of the data owner to a release of that data based on prior consents given to similar releases. d. the express written consent of the data owner to a release of that data. e. the consent of the data owner to opt out of having to provide express written consent. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 20) Which of the following is NOT one of the criteria developed to determine whether opt-out consent is acceptable in a particular circumstance? a. Information sharing must clearly define the precise limits of use or disclosure. b. The identified purpose must be clear, well defined, and brought to the attention of the data owner. c. Personal information must be highly sensitive in its nature and content. d. Personal information must be non-sensitive in nature and context. e. An easy, inexpensive, and convenient process for withholding consent must be available. Answer: c Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 21) One of the ways in which organizations can comply with the principle that information must be complete, accurate, and current is to ensure that

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a. they regularly review the personal information that they have collected. b. they collect as much personal information as they possibly can about an individual. c. they display the date to which the information is accurate. d. they continue to keep all personal information that they have collected and not just the information obtained. e. they regularly update personal information regardless of whether it is necessary to do so. Answer: c Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 22) Where an organization's practices lead to a breach of privacy or security under the PIPEDA, the organization a. must immediately notify an affected individual. b. must immediately notify the Privacy Commissioner. c. must notify an affected individual within a reasonable amount of time of the breach. d. need not notify the affected individual unless the information is extremely sensitive. e. need not notify the affected individual at all. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 23) Surveillance of employees in the workplace can take the form of a. covert surveillance only. b. consensual surveillance only. c. disclosed surveillance and consensual surveillance. d. disclosed surveillance only. e. covert, disclosed, and consensual surveillance. Answer: e Copyright © 2016 Pearson Canada Inc.

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Diff: 1 Type: MC Topic: Government Regulation of Privacy Skill: Recall 24) In order to determine whether surveillance in the workplace is reasonable, an employer must demonstrate that a. it is the only way to achieve the same end. b. it is necessary to meet a specific need. c. it will likely be effective in meeting that need. d. the loss of privacy is proportional to the benefit gained. e. all of the above Answer: e Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Applied 25) Disclosed surveillance occurs when a. the employer does not make the employee aware of surveillance. b. the employer tells the employee in advance about the surveillance, but does not obtain the employee's consent. c. the employer tells the employee in advance about the surveillance and obtains the employee's consent. d. the employer makes the employee aware of surveillance after installation and obtains the employee's consent. e. the employer tells its management about the surveillance and leaves it to them to tell the employee. Answer: b Diff: 2 Type: MC Topic: Government Regulation of Privacy Skill: Recall/Applied 26) When an employee uses the employer's computers to perform his or her work, Copyright © 2016 Pearson Canada Inc.

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a. the normal expectation of privacy does not exist, but both the PIPEDA and provincial legislation prohibit monitoring. b. the normal expectation of privacy continues to exist and the employee cannot be monitored. c. the normal expectation of privacy exists, but monitoring is an exception under the PIPEDA. d. the normal expectation of privacy does not exist and the employee can be monitored. e. the normal expectation of privacy exists, but monitoring is an exception under provincial legislation. Answer: d Diff: 3 Type: MC Topic: Government Regulation of Privacy Skill: Applied 27) Prior to the enactment of privacy legislation, the right to privacy was protected by a. canon law. b. existing property-based torts, such as trespass, nuisance, and defamation. c. the constitution. d. mercantile law. e. criminal law. Answer: b Diff: 2 Type: MC Topic: Civil Liability Skill: Applied 28) Use this fact situation to answer the related questions that follow. A large financial institution carries on business over the Internet; however, its computer systems are somewhat old and have not been updated with the latest security software available. A hacker now gets into the system and gains access to all of the personal information of the company's customers. In addition to any sanctions created by federal and provincial legislation, the company will be

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a. liable for damages for invasion of privacy. b. liable in damages for nuisance. c. liable in damages for negligence. d. liable in damages for trespass. e. liable in damages for defamation. Answer: c Diff: 2 Type: MC Topic: Civil Liability Skill: Applied 29) Use the fact situation in Q28 to answer the related question that follows. The basis for saying that the company will be liable in damages for negligence is a. the duty owed by the company to its customers at common law. b. the damages caused to the company's customers. c. the reasonable foreseeability test. d. the harm caused to the company's customers. e. the duty owed by the company to its customers under the PIPEDA. Answer: e Diff: 3 Type: MC Topic: Civil Liability Skill: Applied 30) In order to adopt effective and legally compliant privacy policies, a business should a. identify a person responsible for privacy within the organization. b. become familiar with privacy legislation, industry standards, and codes of conduct applicable to its activities. c. assess each type of information, practice, and risk. d. complete an audit of the company's activities. e. all of the above Answer: e Diff: 2 Copyright © 2016 Pearson Canada Inc.

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Type: MC Topic: Business Risk-management Strategies Skill: Recall/Applied 31) The Personal Information Protection and Electronic Documents Act (PIPEDA) is the comprehensive private-sector federal legislation controlling the collection, use, and disclosure of personal information during a commercial activity. Proposed PIPEDA reforms with respect to employers and employees would create a new consent exception that would allow employers to a. disclose health care information concerning an employee to third parties in emergency situations only. b. collect, use, and disclose personal information when managing or terminating an employee. c. conduct surveillance on employees in all places of employment, including washrooms. d. collect, use, and disclose personal information to prospective third party employers who request same. e. obtain financial information from an employee’s bank if and only if the employee is suspected of theft or misappropriation of funds in the workplace. Answer: b Diff: 3 Type: MC Topic: Specific Stakeholders - Employers and Employees Skill: Recall/Applied 32) Canadian Anti-Spam Legislation (CASL) prohibits all of the following EXCEPT a. sending unsolicited commercial electronic messages. b. employing spyware and other tactics often used to steal personal information about a computer user. c. installing a computer program without prior permission. d. the sending of faxes before 9:00 a.m. and after 9:30 p.m. on weekdays. Answer: d Diff: 3 Type: MC Topic: Specific Stakeholders - Consumers Skill: Recall

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33) Proposed amendments to the Criminal Code concerning privacy are to focus on, among other things, the custodian of the personal information. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Criminal Liability Skill: Recall 34) The motivation behind Canada's compliance with standards set by the European Directive on Protection of Data fails to give credibility to voluntary codes of conduct developed by industry, associations, and international organizations. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Codes of Conduct Skill: Recall 35) Where the PIPEDA imposes a duty on a business in respect of privacy, a breach of that duty can lead to a negligence lawsuit against that business. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Civil Liability Skill: Applied Copyright © 2016 Pearson Canada Inc.

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36) Today, there is no doubt that common law recognizes the independent tort of invasion of privacy as a distinct cause of action. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Civil Liability Skill: Recall/Applied 37) The breach of an outsourcing agreement results in both contractual and tortious liability. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Government Regulation of Privacy Skill: Applied 38) All telemarketers, including registered charities and political parties, must comply with the National Do Not Call List. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Government Regulation of Privacy Skill: Recall Copyright © 2016 Pearson Canada Inc.

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39) Personal privacy includes the protection of one's home, business, and personal spaces. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Privacy Skill: Recall 40) The law of privacy involves putting the needs of society above an individual's right to privacy. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Privacy Skill: Applied 41) Data shadows refers to electronic records of the computer activity of an individual. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Type: TF Topic: Government Regulation of Privacy Skill: Recall

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42) In Canada, privacy is governed by the constitution; the PIPEDA; the Privacy Act, Canada; and corresponding provincial legislation and related statutes. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Government Regulation of Privacy Skill: Applied 43) Under the Privacy Act, Canada, the purpose of collection of information need not relate directly to an operating program or activity of the institution collecting it. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Government Regulation of Privacy Skill: Recall/Applied 44) Under the federal Privacy Act, the head of a government institution has the right to refuse public access to any record of personal information. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Government Regulation of Privacy Skill: Applied

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 32: Privacy

45) One of the recent recommendations made by the Office of the Privacy Commissioner of Canada is the strengthening of the provisions governing the disclosure of personal information by the Canadian government to foreign states. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Government Regulation of Privacy Skill: Recall/Applied 46) In Canada, provincial privacy legislation that is substantially the same as the federal PIPEDA exempts provincial businesses from the PIPEDA. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Government Regulation of Privacy Skill: Recall/Applied 47) The PIPEDA regulates the reasonable handling of personal information according to the principles set out in the Canadian Standards Association Model Code. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: Government Regulation of Privacy Skill: Recall Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 32: Privacy

48) Upon request, a telemarketer must provide a toll-free number that the consumer can call to speak to an employee of the telemarketer or client. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 3 Type: TF Topic: Specific Stakeholders: Consumers Skill: Recall 49) In a given society, who determines the extent of privacy? Answer: Privacy law and, to some extent, individuals themselves, determine how much privacy citizens will sacrifice. Diff: 1 Type: ES Topic: Privacy Skill: Recall 50) Is there a specific provision in the Charter of Rights and Freedoms making privacy a fundamental human right ,and, if not, what does? Answer: There is no such provision in the Charter. However, the combined effect of section 7, which deals with life, liberty, and the security of person, and section 8, which protects against unreasonable search and seizure, is to limit the government's ability to interfere with an individual's personal rights. Diff: 1 Type: ES Topic: Privacy Skill: Recall 51) Explain whether the right to privacy is an absolute right, providing your reasons. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 32: Privacy

Answer: In Canada, the right to privacy is not absolute. Individuals are only entitled to as much privacy as would be reasonable to expect in a given set of circumstances. This reasonable expectation of privacy is necessary to balance the interests of government, institutions, and business against those of the individual. Diff: 1 Type: ES Topic: Privacy Skill: Recall/Applied 52) What do we mean when we say that privacy is a private-sector concern? Answer: Leaving aside governments, businesses constantly collect, use, store, and transfer personal information about their employees, customers, consumers, suppliers, and competitors. Technology has enhanced the employer's ability to monitor employee conduct and consumer behaviour through video surveillance, e-mail and telephone monitoring, and key card access systems. All of this makes privacy a private sector concern. Diff: 2 Type: ES Topic: Privacy Skill: Recall/Applied 53) To understand privacy law in Canada, it is extremely important to know the provisions of the federal Privacy Act, the PIPEDA, and corresponding provincial legislation. Explain. Answer: The federal Privacy Act governs the conduct of the federal government, its agencies, and public institutions. The PIPEDA is private sector legislation governing the collection, use, and disclosure of personal information during a commercial activity and covers all individuals, associations, etc. not covered by the federal Privacy Act. However, where a province has enacted legislation that is substantially similar to the PIPEDA, the provincial legislation applies, as does provincial legislation governing the conduct of provincial governments, agencies, and institutions. Accordingly, it is imperative to know each and every statute in order to determine which applies in a particular situation. Diff: 3 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 32: Privacy

Type: ES Topic: Government Regulation of Privacy Skill: Applied 54) Can health records that indicate the violent nature of an individual who is deeply disturbed be disclosed without the consent of the individual in question? Answer: Unlike in certain states in the United States, in Canada, provincial legislation dealing with personal health information appears to permit disclosure when it is necessary for public safety. This suggests that the information about the individual in the question can be disclosed if there is a real apprehension that the individual may be a danger to the public. Diff: 2 Type: ES Topic: Government Regulation of Privacy Skill: Recall/Applied 55) Explain the powers of the Privacy Commissioner under the PIPEDA. Answer: The Privacy Commissioner receives and investigates complaints and then issues a report. Although she or he cannot make orders, she or he can and often does refer the report to the federal court, which has the power to make orders implementing report findings. Diff: 1 Type: ES Topic: Government Regulation of Privacy Skill: Recall 56) It is said that the PIPEDA controls the collection, use, and disclosure of personal information during a commercial activity. What is meant by "commercial activity"? Answer: A commercial activity is any general or particular activity performed in the objectives of an organization that has a commercial aspect. Diff: 1 Type: ES Copyright © 2016 Pearson Canada Inc.

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Topic: Government Regulation of Privacy Skill: Recall 57) It appears that an employer has the right to monitor employees who use the employer's resources and equipment to do their work. Explain why. Answer: The resources and equipment are the property of the employer, who makes them available to the employee for the purpose of performing the work for which the employee was hired. Accordingly, the employer has the right to ensure that the resources and equipment are used for the purpose for which they were provided. Diff: 2 Type: ES Topic: Government Regulation of Privacy Skill: Applied 58) Explain some of the ways in which the Criminal Code deals with privacy violations. Answer: The Criminal Code creates the offences of fraud and impersonation to deal with matters of identity theft. Also, unauthorized intruders may be charged with unauthorized use of a computer, theft of telecommunications, or mischief in relation to data. Diff: 1 Type: ES Topic: Criminal Liability Skill: Recall/Applied 59) Explain what privacy is. Answer: Historically, privacy was described as "the right to be left alone" and considered to be essential to the autonomy, liberty, and integrity of the person. Today, privacy has three dimensions. The first is personal privacy and relates to issues on bodily integrity such as surveillance, seizure, and search. The second is territorial privacy, which deals with the protection of one's home, business, and other personal spaces, while the third is privacy of personal information, dealing with the protection of information personal to the individual. Particularly in the last case, privacy requires a balance between the needs of society and the rights of an individual.

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Diff: 2 Type: ES Topic: Privacy Skill: Recall/Applied 60) When it comes to outsourcing and transborder data flow to companies in the United States, what steps should Canadian businesses take, and are these steps sufficient to ensure protection of personal information? Answer: The steps a Canadian business should take are, first, to undertake a security analysis of the American company before contracting with it. Second, the Canadian business should inform its customers and data owners that it intends to outsource their personal information. The third step is to ensure that specific confidentiality, security, and reporting provisions are set out in the outsourcing agreement, while the fourth step is to seek regulatory approval of the outsourcing agreement where that approval is available. As a fifth step, the Canadian company should regularly audit the privacy practices of the American company. That said, decisions of Canadian courts and of the Privacy Commissions under the PIPEDA which permit outsourcing suggest that, in reality, only the third and fifth steps referred to herein are necessary to ensure compliance with the statute. British Columbia has severely restricted cross-border outsourcing and Alberta is also considering the issue, acknowledging that, regardless of contractual and regulatory safeguards, outsourcing is extremely problematic and should be curtailed. Time will tell whether other provinces will begin to restrict outsourcing or not permit it. Diff: 2 Type: ES Topic: Government Regulation of Privacy Skill: Recall/Applied 61) Summarize the key principles for collection, use, and disclosure of personal information under the PIPEDA. Answer: The PIPEDA permits organizations to collect, use, and disclose personal information or data (1) only for a specific expressly identified purpose that is reasonable and (2) so long as the data or information owner has knowledge of its collection, use, and/or disclosure and consents to it. Diff: 2 Type: ES Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 32: Privacy

Topic: Government Regulation of Privacy Skill: Recall 62) Traditionally, before the Charter of Rights and Freedoms and the enactment of both federal and provincial legislation dealing with privacy and its protection, the common law was the only source of protection of privacy. Explain the various areas of common law that protected and, to a degree, continue to protect privacy. Answer: The first area of common law that provided and continues to provide protection of privacy is contract law and, more particularly, actions for breach of contracts prohibiting disclosure of information. Confidentiality clauses and nondisclosure provisions have been and continue to be found in numerous types of contracts, ranging from modern outsourcing agreements to employment contracts. A second area is property-based torts, such as trespass and nuisance, and torts against the person, such as defamation. In trespass, the property owner is protected from those who do not have his or her consent to come onto the property, and in nuisance, a property owner is protected against interference with his or her use and enjoyment of property. So far as defamation is concerned, tort law affords a type of protection against attacks on a person's reputation. More recently, the tort of negligence has been used where a duty exists in relation to privacy and the PIPEDA creates such a duty permitting an aggrieved party to use negligence as a cause of action in cases of breach of the statute. Diff: 2 Type: ES Topic: Civil Liability Skill: Recall/Applied 63) In the historical approach to privacy, some philosophers have described privacy as something more like a privilege, because a privilege can be bestowed by government and, when necessary, taken away, as compared to a fundamental right, which is guaranteed. In this regard, consider the right to bear arms in the American constitution. Recent decisions of the United States Supreme Court have upheld this as an absolute right, striking down legislation attempting to limit or restrict it. With this in mind, discuss whether today in Canada, privacy can be said to be less than a fundamental human right afforded to Canadians and more like a privilege. Answer: To begin with, although the Supreme Court of Canada has held that, taken together, sections 7 and 8 of the Charter afford every Canadian the fundamental human right of privacy, the fact is that the same court has placed a limitation on this right in holding that individuals are only entitled to as much privacy as would be reasonable to expect in a given set of circumstances. This limitation, now referred to as the reasonable expectation Copyright © 2016 Pearson Canada Inc.

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of privacy, seems to conflict with the idea that a fundamental right should be absolute. Further, the fact that the federal government has chosen to pass both the Privacy Act and the PIPEDA suggests that it is not content to rely on the Charter to guarantee protection of privacy. Similarly, the fact that provincial governments have also enacted privacy legislation by means of numerous statutes also suggests that, like the federal government, they do not see the Charter as creating a fundamental human right of privacy. Here it must be noted that by its very nature, legislation passed by either the federal or provincial governments can, if necessary, be repealed or substantially altered or replaced, leaving it open to both levels of government to take away, change, or restrict the rights of privacy given. In all, it would seem that, so long as a "fundamental Charter right" is restrictive in nature and both levels of government can repeal legislation through which privacy protection is afforded to the public, it remains unclear whether, in Canada, privacy is truly a fundamental human right and it seems more likely that, in reality, it is nothing more than a privilege. Diff: 3 Type: ES Topic: Privacy Skill: Applied

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