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Legal Fundamentals for Canadian Business, 4e (Yates)

Chapter 4 Enforcing Contractual Obligations
1) Which one of the following mistakes voids a contract?

A) Two parties contracted for a shipload of coal, but unknown to both parties, at the time of the
contract the ship had sunk and the coal had been lost.
B) Two parties contracted for the sale and purchase of a painting for the price of $800. When the
contract was written up, the price was incorrectly stated as $900.
C) Sally and Mary had a serious misunderstanding about a term in the contract; the court found
that the more reasonable interpretation was that of Sally.
D) When Mr. and Mrs. Houston put their property up for sale, Sam, without speaking to the
Houstons or to their agent about the land, offered close to the asking price because he thought it
was suitable for growing wheat. After his offer was accepted, he learned it was not suitable for
wheat.
E) Sam bought three gallons of paint, but found he had made a mistake; two would have been
sufficient.
Answer: A
Diff: 3 Type: MC Page Ref: 97
Skill: Applied
2) On September 1, Beeton contracted to sell $4000 worth of specified Kenyan lumber to Cairns.
Beeton expected the arrival of the lumber soon, so the delivery date was set for September 8. On
September 5, Beeton assigned, in writing, his contractual right to receive the $4000 to his bank,
which was pressing him to reduce his $17 000 debt. The bank sent a written notice to Cairns
instructing him to forward the $4000 to the bank and not to pay Beeton directly. Unknown to
either Beeton or Cairns, the lumber had been lost at sea in August, before they had even entered
the contract. On these facts, which of the following is true?
A) The time for determining the "equities between the parties" is always the time that notice of
the assignment is given.
1
Copyright © 2016 Pearson Education, Inc.
B) This assignment was not a statutory assignment (i.e., it failed to satisfy the statutory
requirements for enforcement by the assignee against the debtor).
C) The assignee would receive whatever the assignor had assigned to him, namely, the $4000.
D) Because the assignment was made by Beeton to his bank in good faith, Cairns must pay the
bank $4000.
E) Because the goods bargained for had perished before the parties had contracted for them, the
court would hold the contract void.
Answer: E
Skill: Applied
2
3) In which of the following instances would the court most likely hold the contract to be void on
the basis of a mistake?
A) Carson and Leno had a serious misunderstanding about a term in the contract; the court found
that the more reasonable interpretation was that of Leno.
B) Barry and Mary contracted for the sale and purchase of a boat for the price of $1200. When
the contract was written up, the price was incorrectly stated as $1700.
C) Although the seller said nothing to the buyer about the characteristics of the answering
machine, the buyer bought it, thinking it would tell him the date and time of the call. Later, he
learned that it did not perform that function.
D) Sarah bought three rolls of wallpaper, but found she had made a mistake; two would have
been sufficient.
E) Two parties contracted for a shipload of fish, but unknown to both parties, at the time of the
contract the ship had sunk and the fish had been lost.
Answer: E
Skill: Applied
4) Which of the following will have the likely consequence of the court's finding the contract
void on the grounds of mistake?
A) Ms. Hunt bought some property erroneously thinking that the province was planning to put a
highway nearby, even though the seller had never made any such suggestion. She wants out of
the contract.
B) The parties signed a document that stated the consideration as $1100 instead of the $900 that
the buyer and seller had contracted for, but the buyer cannot prove the terms of the original
contract.
C) Annette bought a suit thinking she would be invited back for a second interview. She wasn't
and now wants to return the suit on the basis of mistake.
D) Mary contracted to buy "the Acura car" from a collector of cars. He was selling his 1994
model but she thought she was buying the 1990 model. The court, looking at all evidence, found
that the collector's interpretation was the more reasonable.
E) Mr. Armstrong accepted the offer by Sidhu, who was selling a "computer program," but
learned that they had a different understanding of what program was meant. The court cannot say
that one interpretation is better than the other.
Answer: E
Skill: Applied
3
5) In which of the following would the court find that the contract is void (i.e., not a binding
agreement)?
A) Two parties contracted for a tanker of oil, but unknown to either of them at the time of the
contract, the tanker had caught on fire and all the oil had burnt.
B) Kramer, thinking that the city was going to build a new school in the area, offered to buy a
house. She had not talked with the seller or his agent about the possibility of a school. After the
offer was accepted, she learned that there would be no such new school.
C) Ry and Ali, two parties to a contract, each had a different understanding about the term
royalties in the contract. The court found Ali's interpretation the more reasonable.
D) After some negotiation, Paul accepted Monafo's offer to sell him the painting for $5000.
When the contract was put in writing, the price was incorrectly stated as $500. Monafo could
prove the terms of the oral contract.
E) Joe bought pizzas, but after eating one he realized that purchasing them was a big mistake.
Answer: A
Skill: Applied
6) The equitable remedy of rectification is granted by the courts in which of the following
situations?
A) The seller made a fraudulent misrepresentation that induced the buyer to buy.
B) The parties to a contract disagree as to the meaning of a term in their contract.
C) The seller of goods has made an innocent misrepresentation that persuaded the buyer to buy.
D) A person buys something that he later learns he already owned.
E) Because of a mistake, a written document does not include a corrected term to which the
parties had orally agreed.
Answer: E
Skill: Recall
7) Which of the following situations gives rise to the application of the equitable remedy of
rectification?
A) The defendant has a justifiable defence of non est factum.
B) A written instrument, because of an obvious mistake, does not embody the unchanged terms
of an original oral agreement.
C) The two parties to a contract have made a mutual mistake and one of these parties is asking
the court to choose the more reasonable meaning of the terms in question.
D) The contract is one requiring "utmost good faith."
E) Both parties to a contract agree that they want to change some of its terms and thus apply
jointly to the court to have the relevant terms altered.
Answer: B
Skill: Recall
4
8) Jones offers to sell Smith his car. Smith thinks Jones is selling his 2009 Toyota, and Jones
thinks he is selling his 2012 Pontiac. This is an example of which of the following?
A) a mistake
B) fraudulent misrepresentation
C) shared mistake
D) misunderstanding
E) one-sided mistake
Answer: D
Skill: Applied
9) When two parties are involved in a misunderstanding as to the meaning of a term of the
contract, which of the following is usually applied by the court to settle the matter?
A) The court will find that there is no contract because there is no meeting of the minds.
B) non est factum
C) the most reasonable interpretation of the terms
D) the equitable remedy of rectification
E) caveat emptor
Answer: C
Skill: Recall
10) Clive and Bill were not friends but worked in the same firm. Both worked with computers
and had computers at home. They entered a contract in which Clive agreed to sell Bill his
"Apple, printer, and a compatible word processing program for $3000." When Bill went to take
delivery of the goods, he realized that there had been a great mistake. He thought Clive was
selling his Apple Macintosh. By "Apple" Clive meant his Apple IIe. Furthermore, unknown to
both of them at the time of the contract, the program disk had been destroyed by some coffee
accidentally spilled on it by a friend of Clive's wife. Bill refused to go through with the deal. On
these facts, which of the following is true if Clive sues Bill?
A) This is an example of caveat emptor and the purchaser has no remedy.
B) With regard to which computer is the subject matter of the contract, the court will determine
which computer was meant to be sold by the seller and declare that one to be the subject matter
of the sale.
C) With regard to the program disk, since all elements of a contract exist (i.e., offer, acceptance,
consideration, etc.), Bill must pay for it.
D) With regard to which computer is the subject matter of the sale, the court will examine which
interpretation is the more reasonable; if they are equally reasonable, that part of the contract, at
least, will be void.
E) Since the parties to the contract have a different understanding as to the subject matter of the
sale, they can ask the court for rectification, that is, for the court to rewrite the contract.
Answer: D
Diff: 2 Type: MC Page Ref: 97, 98
Skill: Applied
5
11) Mr. Frank, a foreman supervising 43 employees, was asked by his secretary to sign a form
requesting additional supplies needed on the factory floor. He was not careless when he
examined the form, but his secretary had cleverly arranged the signature line so that instead of
signing a request for supplies, he signed a cheque payable to his secretary. What plea, if any,
would be used to defend against her action on the cheque?
A) non est factum
B) mistake
C) illegality of object
D) rescission
E) rectification
Answer: A
Skill: Applied
12) The longer Adolph stayed on this job, the more he hated it. He thought the boss was too
demanding. He especially disliked being reprimanded for being late. One afternoon, he was
asked by a secretary to take a letter to the boss for his signature. The boss had had an eye
operation and was recuperating at home. Adolph got two signatures, one on the letter and one on
a note promising to pay Adolph $1000 in consideration for services rendered. The boss was not
careless, but couldn't read the papers. What plea or argument, if any, could the boss use to avoid
paying on the promissory note?
A) unconscionability
B) duress
C) shared mistake
D) rectification
E) non est factum
Answer: E
Skill: Applied
13) Len was behind in his work at the office. He decided to go in for a few hours on Sunday to
catch up. He asked a secretary to come in for four hours. He turned on his office TV. Just then,
his secretary came in and asked him to sign four letters that she said concerned general office
matters. He carelessly signed them without taking his eyes off the TV screen. One of the "letters"
was, in fact, a cheque for $500 payable to the secretary. The secretary cashed the cheque at her
bank, and when her bank presented the cheque for payment, Len instructed his bank not to
honour it. He said that he had been tricked and that his signing it was a big mistake. On these
facts, which of the following is true?
A) Undue influence would be Len's best defence on these facts.
B) Because Len did not know what he was signing, he cannot be held liable.
C) Len could avoid his obligation on the cheque on the basis of duress.
D) Len could avoid his obligation on the cheque on the basis of unconscionability.
E) Len's carelessness in failing to read what he was signing will likely defeat any claim of non
est factum.
Answer: E
Skill: Applied
6
14) Mr. and Mrs. H were induced to sign a mortgage in favour of M Co. Ltd. by Johnston, a man
living with their daughter. Johnston led them to believe that the document was an unimportant
amendment to an existing mortgage, when in reality it was a second substantial mortgage of their
home. Neither read the document nor questioned it. When the payments were in arrears, the
mortgagee took an action for foreclosure (to take Mr. and Mrs. H's home). Which of the
following is correct with respect to the legal position of the parties?
A) Mr. and Mrs. H will likely have to honour the mortgage contract even though they didn't read
it.
B) If the court finds that Johnston has committed a fraudulent misrepresentation, Mr. and Mrs. H
will not have to honour the mortgage.
C) If the court finds that this is an example of undue influence by Johnston, Mr. and Mrs. H will
not have to honour the mortgage.
D) If the court finds that this is an example of duress by Johnston, Mr. and Mrs. H will not have
to honour the mortgage.
E) If Mr. and Mrs. H can show they didn't read the document, they will not have to honour the
mortgage contract.
Answer: A
Skill: Applied
15) Often a party to a contract wants to avoid his or her obligations by arguing that the contract
was entered into because of a mistake, misrepresentation, undue influence, or duress. Which of
the following is true with regard to these areas of the law?
A) A buyer could not be awarded the equitable remedy of rescission if the seller honestly
believed that his or her misrepresentation, which persuaded the buyer to buy, was true.
B) Independent legal advice given to a person is good evidence of undue influence.
C) If a seller persuades a person to buy something by an innocent misrepresentation, the buyer
could ask for rescission and damages for the tort of deceit.
D) Where a written document embodies the original oral agreement, a party to the contract could
ask the court for the equitable remedy of rectification.
E) An illiterate or blind person might successfully argue non est factum and avoid his or her
obligations under a contract only if he or she was misled about the very nature of the document
and was not careless.
Answer: E
Skill: Applied
7
16) Which of the following will have the likely consequence of the court finding the contract
void on the grounds of mistake?
A) Mr. Ideer bought some property, erroneously thinking that the province was planning to put a
highway nearby, even though the seller had never made any such suggestion.
B) Mr. Twigg carelessly signed a mortgage for $24 000, which he was told was a mortgage for
only $14 000. This was assigned to Mr. Jones.
C) The parties signed a document that stated the consideration as $1200 instead of the $1100 that
the buyer and seller had contracted for, but the buyer cannot prove the terms of the original
contract.
D) Mr. Ille (a blind man), although using due care, signed a cheque for $100 in favour of his
caretaker, who had told him it was a receipt for money received.
E) Mr. Jones, without reliance on a salesperson, purchased an Android table from a store,
thinking it ran the Apple iOS.
Answer: D
Skill: Applied
17) Len's new secretary asked him to sign four letters that she said concerned general office
matters. One of the "letters" was, in fact, a cheque for $500, payable to the secretary. The
secretary cashed the cheque at her bank, and when her bank presented the cheque for payment,
Len refused to pay it. He said he had been tricked and it was all a mistake. On these facts, which
of the following is true?
A) Len would be obligated to honour the cheque no matter how careful he had been.
B) Even if Len had been careless, he will not have to honour the cheque.
C) Len may be able to avoid his obligation on the cheque on the basis of duress.
D) Len may be able to avoid his obligation on the cheque on the basis of unconscionability.
E) Len may be able to avoid his obligation on the cheque on the basis of non est factum.
Answer: E
Skill: Applied
8
18) John and Sam entered into a contract whereby John would sell auto parts from his junkyard
to Sam's Auto Repair. However, they ended up in a dispute over the condition of the parts to be
sold and could not agree on the meaning of terms used in the sales contract. John was invoicing
Sam's Auto Repair for considerably more money than Sam thought appropriate for the used and
often seriously damaged parts. When Sam paid less than the invoice amount, they ended up in a
legal dispute and asked the court to interpret their contract. Which of the following is false
regarding approaches the court might use to interpret the contract terms in dispute?
A) If the terms are clear and there is no ambiguity, the court might look at dictionaries for literal
meanings of the terms.
B) If the terms are clear and there is no ambiguity, the court might look at the common usage of
the industry for meanings of the terms.
C) Where there is ambiguity, the court might look at the rest of the contract to try to discern the
intention of the parties.
D) The court will supply missing terms and prices that are necessary for the contract to exist.
E) Where there is ambiguity, the court might look to other dealings between the parties.
Answer: D
Skill: Applied
19) Mr. Rice purchased software online from a major software company based in Ontario,
accepting the terms of the standard-form contract when he clicked on "Agree." When the
software failed to perform as advertised, Rice complained but his complaints were ignored.
When he threatened the software company with legal action, it was then pointed out to him that
the contract contained a number of exemption clauses that would preclude Rice from winning in
any legal action. Rice filed a lawsuit in Ontario. What is the court's likely approach to this
situation?
A) The court would likely refuse to interfere with the terms of the contract based on the
"principle of freedom to contract."
B) The courts would consider this a fundamental breach if it found the clauses to be
"unconscionable, unfair, and unreasonable."
C) The court would determine that Rice had equal bargaining power and therefore the court
could not support his position.
D) The court would support the software company's policy due to "an overriding policy reason."
E) The court is likely to interpret the exemption clauses very narrowly due to the nature of
standard-form contracts.
Answer: E
Skill: Applied
9
20) With regard to exemption clauses, which of the following is true?
A) When exemption clauses appear unfair, courts generally will not allow them.
B) Courts are generally reluctant to interfere with exemption clauses, even when they may
appear unfair.
C) When an exemption clause leads to an "unconscionable, unfair, or unreasonable result," the
doctrine of fundamental breach would apply.
D) To overrule an exemption clause, the courts first consider whether there exists some
"overriding policy" on the part of the defendant.
E) Courts are more likely to interfere with a contract in a commercial relationship than with a
contract in a consumer relationship.
Answer: B
Skill: Recall
21) Which of the following is an example of an exemption or limitation of liability clause?

A) This contract will automatically terminate in the event that the purchaser orders less than the
quota for four consecutive weeks.
B) The parties agree that the law of Ontario applies to any dispute under this agreement.
C) With respect to all information provided by this website, you agree that we shall not be liable
for any loss arising out of your use of this information, including without limitation, any indirect
or consequential damages.
D) This is the entire agreement between the parties covering everything agreed or understood in
connection with the subject matter of this transaction. No oral promises, conditions, warranties,
representations, understandings, or interpretations were relied on by either party to execute this
contract.
E) The parties agree that any notices required under this agreement be provided by facsimile or
other electronic transmission.
Answer: C
Skill: Applied
22) It came to your attention that your great-grandmother had signed a contract pursuant to
which she would be paying $5000 for an electronic organ that retails in reputable stores for
$3000. Furthermore, the interest being charged is 18%, even though today's rate fell to a 20-year
low. This debt is totally out of line with her pension income. It is apparent that she was misled by
the door-to-door salesperson who came to her home. On these facts, which of the following laws
is the most likely to help her?
A) non est factum
B) misrepresentation only
C) unconscionability only
D) both unconscionability and misrepresentation
E) undue influence only
Answer: D
Diff: 2 Type: MC Page Ref: 100, 101, 106
Skill: Applied
10
23) With regard to the law concerning misrepresentation, which of the following is true?
A) A statement of opinion can be a one-sided mistake.
B) The case law provides a remedy for a wildly exaggerated claim, such as "This is the best car
ever built."
C) A buyer could not be awarded the equitable remedy of rescission if the seller honestly
believed that the misrepresentation was true.
D) For fraudulent misrepresentation, the buyer could ask only for the equitable remedy of
rescission.
E) A misrepresentation can be a false assertion of fact that induces (persuades) the party to
contract, and need not be an assertion about a term of the contract.
Answer: E
Skill: Recall
24) Jenny went to the store and asked to see an AM-FM clock radio with a tape deck. The
salesman brought out a clock radio that he said had all of the features that she wanted. After
looking at the price tag and little else, Jenny said she would think about it. The salesman said that
this was the most popular model sold, that they sold 1000 of them during the World Series alone,
that it had the highest rating in Consumer Reports, and that he only had that one left. Jenny
bought it. Later, she found out that all of the statements made to her by the salesman were false,
including the one that the clock had all of the features she wanted, because it did not have an AM
band. Which of the following is true?
A) The equitable remedy of rescission is available only if Jenny is able to restore the clock radio
to the seller.
B) Jenny would only have a remedy for breach of contract (namely, the clock radio did not have
an AM band) because none of the other statements was about the clock radio itself.
C) The statements of the salesman are negligent only if the salesman knew they were false.
D) Jenny could obtain the remedy of rescission only if the statements made to induce her to
contract were fraudulent.
E) Jenny could return this clock radio to the seller only if she could prove undue influence.
Answer: A
Skill: Applied
25) Which of the following is false with regard to misrepresentation?

A) If the seller induces the buyer to buy by making a misrepresentation that she honestly thought
was true, the buyer has no remedy in equity.
B) A misrepresentation can be made about a term of a contract and result in an award of
damages.
C) For fraudulent misrepresentation, the buyer can be granted the equitable remedy of rescission.
D) Fraudulent misrepresentation can result in the seller being sued for damages for the tort of
deceit.
E) In law, a misrepresentation is a false statement of fact that persuades someone to enter into a
contract.
Answer: A
Skill: Recall
11
26) Mrs. Sharp, the owner of a restaurant, induced the Morissons to buy the business by a
misrepresentation; the invoices made her costs appear less than they actually were, and thus her
profits more than they actually were. On these facts, which of the following is false?
A) The court could award the equitable remedy of rescission if the evidence showed she had
fraudulently misrepresented the costs.
B) The court could not award the equitable remedy of rescission if evidence showed that Mrs.
Sharp really believed the invoices were accurate.
C) The court could not award the equitable remedy of rectification because the argument is not
about rectifying an erroneous written version of a previous oral contract.
D) The court could terminate the contract for breach of contract if the accurate statement of costs
and profit were essential terms of the contract.
E) The cause of action could be for the tort of deceit, if there was evidence that Mrs. Sharp
intended to deceive the Morissons.
Answer: B
Skill: Applied
27) Mr. Copperfield, a collector of movie memorabilia, bid $50 000 on the Batmobile. After
taking delivery, he discovered that the car was not the one actually used in the film Batman; it
was merely one of five cars used to promote the film. He is suing the seller, Mr. Eisenberg. If
Copperfield could prove any of the following, which would entitle him to return the Batmobile
and get his money back?
A) innocent misrepresentation by Eisenberg
B) fraudulent misrepresentation by Eisenberg
C) breach of contract by Eisenberg
D) negligent misrepresentation by Eisenberg
E) all of the above
Answer: E
Diff: 2 Type: MC Page Ref: 102, 103, 114
Skill: Applied
28) With regard to damages, which of the following is false?

A) Where a loss can be calculated, such as where wages already lost are involved or where more
money had to be paid to accomplish a contractual purpose, this is referred to as special damages.
B) Where damages have to be estimated, as in compensation for pain and suffering or an
estimate of future lost earnings, this is referred to as general damages.
C) In a breach of contract case for punitive damages to be awarded, there must be stand-alone
wrongful conduct present.
D) An example of damages would be a case of rescission where a buyer would return a car to the
seller and the seller would return the purchase price as well as any incidental repair expenses.
E) Normally, punitive damages designed to punish the breaching party rather than compensate
the victim for the loss are not available for breach of contract.
Answer: D
Skill: Recall
12
29) Which of the following constitutes a misrepresentation that would not allow the courts to
award the equitable remedy of rescission?
A) A man who contracted for an insurance policy did not state on the application form that he
had been treated for cancer. He died from the cancer two months later.
B) The seller concealed the broken drawer of the desk from the buyer. He would not be able to
see it until he got it home.
C) The seller persuaded the buyer to buy the car by misrepresenting it as having just been
serviced and passing the air-care test. Neither had been done, but the seller honestly believed that
both had been done.
D) The buyer was persuaded by the seller to buy the car by a misrepresentation that it had the
fewest repairs of any car of its class. After the buyer learned the truth, he kept the car for three
weeks to get some benefit from it before taking it back.
E) none of the above
Answer: D
Skill: Applied
30) With regard to the law concerning misrepresentation, which of the following is true?
A) If the buyer realizes the seller persuaded him to contract by a misrepresentation, he will not
be able to get the remedy of rescission if he was tainted with wrongdoing himself (i.e., not
coming with "clean hands").
B) Damages as a remedy are not available where the misrepresentation becomes part of the
contract.
C) A misrepresentation can be a true assertion of fact that induces (persuades) the party to
contract.
D) Rescission is available as a remedy for misrepresentation only if it is innocent
misrepresentation.
E) The case law allows a remedy for an opinion given by a non-expert.
Answer: A
Skill: Recall
31) Damages as a remedy will not be available in which of the following situations?
A) Jones makes a negligent misstatement, persuading Smith to enter a contract with him.
B) Jones, although being careful, makes an innocent misrepresentation, persuading Smith to
enter a contract with him.
C) Jones makes a fraudulent misrepresentation, persuading Smith to enter a contract with him.
D) A false statement made by Jones becomes a term of the contract.
E) none of the above
Answer: B
Skill: Applied
13
32) A computer salesman innocently misrepresented a fact about a Macintosh computer to a
customer. Although this fact was not about a term of the contract, it did induce the customer to
buy the computer. The customer has now learned the true facts and wants to return the computer.
If the store refused to take it back, the customer would ask the court for which equitable remedy?
A) rescission
B) restitution
C) injunction
D) damages
E) rectification
Answer: A
Skill: Applied
33) The office manager of a real estate agency was at an office supply store to replace a filing
cabinet when he saw a demonstration of a new Xerox copier. Undoubtedly, the agency would
benefit from the copier, especially since it had the capability of enlarging the original-a good
feature when dealing with the small print of contracts. The next day, he called the manager of the
store to discuss the machine further. The seller said that it was "10 years ahead of the
competition," that it "was rated as maintenance-free by an independent consumer research
group," and that he had "sold five to other real estate agencies in this area" and "had only one
left." The agency, relying on these statements, asked to have it delivered. When it arrived, the
office manager had learned that every statement made by the seller had been false; furthermore,
the seller did not send out the machine discussed, but the older model. Which of the following is
true?
A) The agency would have a remedy for breach of contract, but no remedy for other statements
that merely persuaded it to enter the contract.
B) The agency could have returned the machine even if it had been the right model, since the
remedy of rescission was available to it for misrepresentations made.
C) Had the office supply store sent the right model, the agency would have had no remedy.
D) The agency would have to keep the machine, but could sue the seller for damages for the tort
of deceit.
E) This is a "buyer beware" situation and the buyer has no remedy.
Answer: B
Skill: Applied
14
34) Keri went to Crandon's computer outlet with her brother Paul, who was buying a laser
printer. While she was waiting for him, she saw a poster saying that the store was collecting
funds for a special computer for a student recently disabled in an accident. The seller induced
Paul to buy the model "X" printer by stating as a fact that the printer could interface with his
Macintosh clone. Paul paid $900 for the printer. Also, Keri gave $15 to the student fund after the
seller confirmed he was collecting for the student's computer. Later, Paul and Keri learned that
neither statement was true (i.e., the printer didn't interface with Paul's computer and the store was
doing nothing for the student), and that the seller didn't believe that the statements were true
when he made them. On these facts, which of the following is true?
A) Only Keri has a remedy because she had been fraudulently misrepresented.
B) Paul could sue for damages due to an innocent misrepresentation.
C) Keri could sue for damages due to a misunderstanding.
D) The court would rescind Paul's contract only with proof that the seller knew his statement was
false.
E) Paul could sue for rescission because of the misrepresentation.
Answer: E
Skill: Applied
35) When Gary went into Computer Heaven, Ltd. to get a better manual for the program he was
trying to master, he was caught by a demonstration of a computer created by Next, Mr. Job's new
firm. He was fascinated by its performance. The salesman, Ross, told Gary that he should have
this machine; that "it was the latest computer; no other will ever be better"; that "UBC, Simon
Fraser, and BCIT just ordered over 1000 of them"; that he only had "a few left and the demand is
so great it will take almost a year for the next shipment to arrive." When Gary said he needed a
computer with at least 1000K memory, Ross said this model had 2000K. Gary was persuaded
and contracted for the computer. Later, Gary learned that every statement made by Ross was
untrue, including the one about the memory capacity; the model had only 800K. On these facts,
which of the following is true?
A) Only if Ross knew that all of the statements he made were false could Gary get a remedy.
B) Statements that induced Gary to contract, but that are not the terms of the contract, are not
significant enough for the courts to award a remedy by case law or by statute.
C) The exaggerated claim "it was the latest computer; no other will ever be better" is enough,
according to the case law, to allow Gary to get out of the contract.
D) Gary could be awarded the equitable remedy of rescission even if Ross honestly believed
everything he said was true.
E) Such misrepresentations could result in contractual remedies, legal or equitable, but not in tort
remedies.
Answer: D
Skill: Applied
15
36) A salesman innocently misrepresented a fact about a new printer to a customer. He honestly
believed that his statement was true and was not careless. Although this fact was not about a term
of the contract, it did induce the customer to buy that printer. The next day, the customer learned
the true facts and wanted to return the printer. If the store refused to take it back and the
customer sued, which of the following would be the most likely result?
A) the buyer's case would be dismissed
B) an injunction
C) an order of rescission
D) an award of damages
E) an order of specific performance
Answer: C
Skill: Applied
37) A fraudulent misrepresentation that induces another person to enter into a contract can result
in which of the following remedies?
A) rectification
B) rescission and/or damages
C) rescission only
D) damages only
E) There is no remedy available for fraudulent misrepresentation.
Answer: B
Skill: Recall
38) Mary has a little scam most everywhere she goes; she sells by saying anything. Her buyers
just have woes. Which of the following is true with regard to misrepresentation?
A) In some types of misrepresentation there are no remedies available.
B) If Mary induces the buyer to buy by making a misrepresentation that she honestly thought
was true, the buyer has no remedy in law or in equity.
C) For fraudulent misrepresentation, the buyer can be granted only the equitable remedy of
rescission.
D) There are several remedies available in case law for an exaggerated claim made by Mary.
E) A misrepresentation can be made about a term of a contract and result in an award of
rescission and/or damages.
Answer: E
Skill: Applied
16
39) Which of the following is an example of duress?
A) Joe wants to purchase Smith's car from him, and Smith sells it to someone else.
B) Joe refuses to sell Harry his car unless Harry offers him more money.
C) Joe threatens to smash Harry's car if Harry won't sell it to him.
D) Joe, knowing of Harry's financial situation, refuses to sell him his car.
E) Joe counter-offers Harry's original offer.
Answer: C
Skill: Applied
40) Randal embezzled $6000 of his employer's money and then disappeared. The employer's
accountant called at Randal's residence and discovered that his wife had a $3500 term deposit.
When the accountant threatened to have her husband arrested and imprisoned if she did not agree
to sign over the deposit, she assigned the term deposit to the employer to help to defray the loss
from the embezzlement. If the wife were later to sue for return of the term deposit, what would
be her grounds for avoiding the assignment?
A) mistake of law
B) non est factum
C) duress
D) fraudulent misrepresentation
E) undue influence
Answer: C
Skill: Applied
41) A real estate agent, Mr. Jones, was owed a $7000 commission, having sold property for Mr.
Quick. Quick couldn't be found, but Jones did find Quick's wife and learned that she had over
$20 000 in Treasury bills. Jones told her that if she didn't assign to him $7000 of the $20 000, he
would make sure her husband was imprisoned for his debts and "for other crimes" he knew
about. If she did make an assignment in writing to Jones of the $7000 but later tried to void the
agreement, she would argue which of the following?
A) privity
B) statutory assignment
C) duress
D) mistake
E) non est factum
Answer: C
Skill: Applied
17
42) When the courts find that undue influence is present, the resulting contract is:
A) binding.
B) void.
C) illegal.
D) voidable.
E) unenforceable.
Answer: D
Skill: Recall
43) With respect to having the court set aside a contract on the basis of undue influence, which
of the following is false?
A) Where undue influence is established, the resulting contract is voidable, not void.
B) If the court presumes the existence of undue influence, the person asking for the return of the
property will automatically get it back.
C) A contract made in favour of a dominant person who exerted undue influence over the weaker
party is voidable at the option of the weaker party.
D) If you are a dominant person in relation to an aged relative who wants to sell you his house
below market value, you should insist that the aged relative receive independent legal advice.
E) If a client transferred property to his lawyer and later claimed the transfer was due to undue
influence, the law would presume the transfer was due to undue influence.
Answer: B
Skill: Recall
44) You and your parents were both surprised when Grandmother said the doctor told her to
come for weekly checkups, because she didn't seem sick. Nevertheless, you dutifully took her to
and from her appointments for a period of about six months. She never talked about these
sessions, but loved to go. Now she has come to the family and said that she is sorry that she gave
the doctor the oil paintings and sold him the farm. On these facts, which of the following is
false?
A) A presumption of undue influence doesn't mean the weaker party will automatically get her
property back.
B) If a court held that the property was obtained by undue influence, the contract would be
voidable at the option of Grandmother, the weaker person.
C) It would be easier for Grandmother to argue duress than undue influence.
D) In a court action, if Grandmother claimed the return of her property on the basis of undue
influence, the court would presume undue influence and the doctor would have to prove that the
property was freely given.
E) If Grandmother had gone to her own lawyer for independent advice before conveying her
property to the doctor, she would have more difficulty arguing undue influence.
Answer: C
Skill: Applied
18
45) A woman sought to set aside a mortgage on the grounds of misrepresentation, undue
influence, and non est factum. She had been persuaded to enter into that mortgage contract with a
mortgage company by her doctor. Which of the following is true with regard to these challenges
to the mortgage contract?
A) If the court found that there was undue influence by her doctor, who obtained the money from
the mortgage, she would not have to repay the mortgage company.
B) If she failed to read the mortgage agreement, the mortgage would be void on the basis of non
est factum.
C) If the person who misled her as to the contents of the mortgage agreement honestly thought
what he was stating was correct, she could sue for only damages, not rescission.
D) If she were influenced to sign the mortgage by her doctor and the court found undue
influence, the mortgage would be void and she wouldn't have to pay the mortgage company.
E) If she were influenced to sign the mortgage by her doctor and the mortgage benefited the
doctor, the court would presume undue influence.
Answer: E
Skill: Applied
46) An 80-year-old woman signed, in the presence of a solicitor, a contract for land by which she
sold property to her daughter. She later asked the court to set the contract aside on the grounds of
non est factum (mistake) and undue influence. Which of the following is true with regard to these
grounds for the contract?
A) She can successfully use the plea of non est factum if she was not misled about the very
nature of the document.
B) If the aged mother received independent legal advice, it would be good evidence for the
daughter that the mother's transferring the property was done freely, without undue influence
being exerted.
C) If the court presumes that undue influence was used by the adult who gained from the
contract with an aged parent, the contract is automatically set aside.
D) She can successfully use the plea of non est factum if there is evidence that she was careless
when she signed the document.
E) If the lawyer were the daughter's husband, his advice would be seen as independent legal
advice.
Answer: B
Skill: Applied
19
47) Mr. Ho talked with Mr. Tarr, who ran a business called Roscali Roofing. Ho agreed to pay
Tarr $250 for the repair of his roof. In time, Gene Fix, Tarr's employee, came to Mr. Ho's and
worked on the roof. Fix used the wrong material in the repairs, which made all his effort
worthless; during the next rain, the roof leaked as before. Which of the following is true?
A) Ho could successfully sue Fix and Tarr for breach of contract since they were both connected
with the job.
B) Ho could successfully sue only Fix or Tarr for breach of contract, whichever he chooses, but
not both.
C) Ho could successfully sue only Tarr for breach of contract.
D) Ho could sue only Tarr because he is the one who did a poor job on the roof.
E) If Tarr doesn't pay Fix, Fix could sue Ho directly for his pay because he worked on Ho's roof.
Answer: C
Skill: Applied
48) With regard to the law governing privity of contract and assignment, which of the following
is true?
A) A statutory assignment is more difficult to enforce than an equitable assignment.
B) A party to a contract for services can assign both his contractual obligations and his
contractual rights.
C) An employee sent by his employer to do a routine job for one of the employer's customers is
not in a contractual relationship with the customer.
D) Novation refers to the modifications of the privity of contract rule since it allows a stranger to
the contract to receive benefits from the contract.
E) Assignments are modifications of the privity of contract rule since they allow ending the
original contract and entering into a new contract with changes in terms, such as substituting one
party for another.
Answer: C
Skill: Recall
20
49) Kassem is a real estate agent with his own firm. Because his agency is new in a competitive
field, he hired the company of Barrett and Barrett Ltd. to advise on an advertising strategy and to
design newspaper ads and brochures. Jack Barrett, senior employee, was handling the market
research, and the employee Armstrong was doing the illustrations. When the work was complete,
the ads went to press; unfortunately, after the printing, it was discovered that in all of the ads and
in every brochure, "Kassem" was spelled "Kassim." Armstrong had made the mistake in his
copy. On these facts, which of the following is true?
A) For breach of contract, Kassem could successfully sue only the company, Barrett and Barrett
Ltd.
B) Kassem's only recourse is against Armstrong, the employee who made the mistake.
C) Kassem can choose to sue either the company or its employee Armstrong for breach of
contract, but not both.
D) Kassem can sue both the company and its employee Armstrong for breach of contract, since
they were both connected with the job.
E) If the company did not pay Armstrong, Armstrong could sue Kassem for his pay because
Armstrong did work for Kassem.
Answer: A
Skill: Applied
50) Back in the days when people in Vancouver sold houses as houses and not for demolition,
Mrs. Reid prepared her house for the market by contracting with Silversteps Ltd. to have her
front steps replaced for the sum of $800. Warren, an employee of the company, worked for days
framing the stairs and pouring the concrete. Unfortunately, he had done the framing wrong and,
in addition, the concrete mix was faulty, so all of his efforts were in vain; the stairs were
worthless. On these facts, which of the following is true?
A) Mrs. Reid could successfully sue the manufacturer of the cement for breach of contract
because the cement was not fit for its purpose.
B) Mrs. Reid could successfully sue only Silversteps Ltd. for breach of contract.
C) Mrs. Reid could successfully sue Silversteps Ltd. for breach of contract or Warren for breach
of contract, but not both.
D) If Silversteps Ltd. failed to pay Warren under the employment contract, Warren could sue
Mrs. Reid directly for his pay because he worked on her stairs.
E) Mrs. Reid could successfully sue both Silversteps Ltd. and Warren for breach of contract
because they were both connected with the job.
Answer: B
Skill: Applied
21
51) Tong hired Hocaloski to design an ad for her business. Hocaloski assigned the work to
Peppar, her employee. After the ad ran, it was noticed that Peppar made a serious error; he gave
the wrong address and phone number of the business. On these facts, which of the following is
true?
A) Only Peppar is liable since he made the mistake.
B) Tong can sue either Hocaloski or Peppar, her employee, for breach of contract, but not both of
them.
C) If Hocaloski did not pay Peppar, Peppar could sue Tong for his pay because Peppar did do
work for Tong.
D) For breach of contract, Tong could successfully sue only Hocaloski.
E) Tong can sue both Hocaloski and Peppar for breach of contract, since they are both connected
with the job.
Answer: D
Skill: Applied
52) Privity of contract applies in which of the following situations?

A) where an insurance contract is involved
B) where a trust has been created
C) where a trust is involved
D) where an interest in land is involved
E) where goods are being sold
Answer: E
Skill: Recall
53) Mr. Jans owned a small building with four offices upstairs and a restaurant on the main floor.
Jans contracted with a company, Signs Limited, to construct a sign indicating the names of his
tenants and their room numbers. The sign was created and installed by John Monet, an employee
of Signs Limited. Signs Limited assigned $500 of the $700 contract price to Ms. Franz, its
landlord, when she called and pressed for the rent. Ms. Franz gave notice of the assignment in
writing to Jans. Read the following statements, independently of one another, and indicate which
is the true statement.
A) If the contract were completed satisfactorily, Franz could enforce the assignment, although it
is a partial assignment.
B) Franz cannot enforce this assignment because the assignment was not in writing, and only
assignments in writing will be enforced by the courts.
C) If Signs Limited fails to pay Monet's salary, Monet is legally entitled to sue Jans for it
because Monet did work for Jans.
D) If the sign were not done properly, Jans should sue Monet for breach of contract because
Monet, as employee, did the work.
E) If the assignment is not honoured by Jans, Franz's only recourse is to sue Monet, the
employee who actually did the work.
Answer: A
Skill: Applied
22
54) Able Company contracted to sell to Baker Company 400 barrels of chemical C for $1200.
Able Company assigned the entire $1200 in writing to Mr. Long, who sent a letter informing
Baker Company of the assignment and directing Baker Company to forward money to him
instead of Able Company. Unbeknown to both companies, at the time of the contract, the ship
carrying the chemical had sunk and all cargo was lost. Which of the following is true?
A) The assignment to Mr. Long would fail to be a statutory assignment.
B) Mr. Long will receive nothing from Baker Company because nothing is owed to Able
Company.
C) Mr. Long will receive part payment.
D) Mr. Long, the assignee, will receive $1200 from Baker Company.
E) Since Able Company has breached the contract, it pays compensation for the damages of both
Baker Company and Mr. Long.
Answer: B
Skill: Applied
55) Which of the following is true with regard to the law of contracts?
A) A statutory assignment is easier to enforce than an equitable assignment.
B) Assignments are modifications of the privity of contract rule, since they do allow one person
to take over the obligations of another.
C) The assignor for value of a negotiable instrument may acquire better rights than the assignee
has.
D) A party to a contract for services can assign both his contractual obligations and his
contractual rights.
E) An employee sent by his employer to do a routine job for one of the employer's customers is
in a contractual relationship with the customer.
Answer: A
Skill: Recall
56) Which of the following is false with regard to privity of contract and assignments?
A) Assignments are modifications of the privity of contract rule since they do allow a stranger to
the contract to receive benefits from the contract.
B) The rules governing negotiation (an assignment of a negotiable instrument such as a cheque)
differ from those governing regular assignments; the assignee may take more than the assignor
was entitled to receive.
C) A statutory assignment is harder to enforce in court than an equitable assignment.
D) There is case law confirming the proposition that an employee can have the benefit of an
exemption clause in the employer's contract with the customer.
E) A computer programmer who signs a contract for services can assign his contractual rights
but not his contractual obligations if the contract is silent on the matter of assignments.
Answer: C
Skill: Applied
23
57) Stanley operates a dog-walking service for a number of wealthy residents in the Hightower
subdivision. As a result of recently taking on a number of new clients, Stanley cannot personally
perform all of his obligations under each contract with each resident so he arranges for third
parties to do some of the dog walking. In these circumstances, Stanley cannot:
A) unilaterally assign his contractual obligations to the third parties to escape liability.
B) pay the third parties any more than the original contract price.
C) fail to advise his customers that third parties are performing the work.
D) hire his own employees to do the work.
E) enter into oral contracts with the third parties.
Answer: A
Skill: Applied
58) The Weyburn Farmers' Co-op contracted to sell a carload of grain to Mr. Takemori for
$2000. The co-op assigned, in writing, its contractual right to receive the $2000 to the Royal
Bank, to which it was indebted. The Royal Bank gave written notice of the assignment to
Takemori. Unknown to the buyer and the seller, at the time of the contract the grain had been
destroyed because of a train derailment caused by the negligence of the train conductor. On these
facts, which of the following is true?
A) The Royal Bank will receive $2000 from Takemori because there was an assignment in
writing and that is the sole test for determining whether the assignee will be paid the amount of
the assignment.
B) The Royal Bank, the assignee, will receive the $2000 because it could prove privity of
contract with Takemori.
C) The Royal Bank will receive part payment from Takemori.
D) The Royal Bank will receive nothing from Takemori, because Takemori owes nothing to the
co-op.
E) Because of the conductor's negligence, the railroad will have to honour Takemori's contract
with the Royal Bank.
Answer: D
Skill: Applied
24
59) Adam bought a boat from Charlie for $900 payable on November 6. On November 6, when
Charlie came for the money, Adam didn't have it. Adam was, however, employed by Ms. Bey to
do some market research. He was to be paid $1000 for his report, due on November 12. Charlie
wanted an assignment of $900 of the amount Adam expected to receive November 12. Adam
wrote out an assignment with all of the essential information and signed it. Charlie gave written
notice of the assignment with all pertinent information to Ms. Bey the next day, November 7. On
November 12, Adam had not finished his report. The contract provided that he would lose $100
for every week he was late. Adam was two weeks late in submitting his report. Which of the
following is true?
A) Ms. Bey must honour the notice of assignment by paying out the $900 on the day the notice
was received.
B) The assignment fails to be an assignment at all because Adam failed to get the consent of Ms.
Bey.
C) Charlie, the assignee, would receive $800 from Ms. Bey and have to look to Adam for the
other $100 owed.
D) Charlie would get nothing because Ms. Bey owed less than the amount assigned.
E) This assignment is a statutory assignment.
Answer: C
Skill: Applied
60) Mr. Zink hired Bruce Dorne to create a payroll program for his business. Bruce was to be
paid $4000 for the program. When Bruce was halfway finished, a creditor to whom he owed
$2000 pressed so hard for payment that Bruce assigned him $2000 of the contract price, an
amount he felt he had earned already. The creditor, Mr. Pressing, gave written notice that very
day to Mr. Zink. On these facts, which of the following is true? (Read each statement separately.)
A) If Bruce bungled the assignment and the court determined that nothing was owed to him,
Pressing could still get $2000 from Zink.
B) Pressing is entitled to $2000 from Zink when the contract is completed, if at least that much is
owed to Bruce by Zink at that time.
C) This assignment is a statutory assignment, not an equitable assignment.
D) This type of assignment is not recognized by the courts because it is an assignment of
contractual obligations.
E) Zink must pay $2000 to Pressing on the day the notice was given, because at that time Bruce
had done half of the work on the $4000 contract.
Answer: B
Skill: Applied
25
61) Although Zlotnic had been in business for a long time, he had been forced to borrow heavily
in the last few years. When his debt reached the limit of his line of credit, $100 000, the manager
of Regal Bank called him in for a talk. Subsequently, Zlotnic sold his house for $250 000 to the
Johnsons. He contracted to buy another house from the Scotts. From the proceeds he anticipated
receiving from the Johnsons, he assigned $200 000 to the Scotts, the purchase price of their
house, and assigned $50 000 to Regal Bank to reduce his debt. The assignment to the Scotts was
in writing; the assignment to the bank was not. The Scotts gave written notice of the assignment
to the Johnsons on March 1, the day the money was owed to Zlotnic. The Johnsons verified the
assignment and paid out the $200 000 to the Scotts. On March 2, Regal Bank gave written notice
of its assignment to the Johnsons. Unfortunately, at that time only $45 000 was owing to Zlotnic
because the Johnsons had paid $5000 to Canada Revenue Agency for Zlotnic. On these facts,
which of the following is true?
A) The assignment to the bank is a statutory assignment.
B) Regal Bank has no claim since the Johnsons didn't owe Zlotnic the specified $50 000 at the
time of the assignment.
C) Regal Bank must take "subject to the equities" between Zlotnic and the Johnsons (i.e., it can't
receive the whole $50 000).
D) Zlotnic needed the permission of the Johnsons, the debtors, before he could make any
assignments.
E) The assignment to the bank is not enforceable because it was not in writing.
Answer: C
Skill: Applied
62) Which of the following is true with respect to the law of negotiable instruments?
A) The Bills of Exchange Act is controlled by both federal and provincial legislation.
B) A holder in due course is in a better position than he or she would be as the receiver of
contractual rights through assignment.
C) A bill of exchange involves two parties.
D) The Bills of Exchange Act governs the area of bankruptcy and insolvency.
E) Negotiable instruments are controlled by provincial legislation.
Answer: B
Skill: Applied
63) Which of the following statements is correct with respect to breach of contract?
A) When a contract is repudiated before performance is due, the victim must wait until the time
of performance before taking any action.
B) When a condition is breached, the victim can treat the contract as ended.
C) When a warranty is breached, the victim can treat the contract as ended.
D) When a contract for the purchase of goods is breached, the warranty will require that the
goods be repaired by the seller.
E) When a condition is breached, a person can only sue for damages but must perform his or her
part of the contract.
Answer: B
Skill: Recall
26
64) 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 party cannot seize upon a trivial failure of performance by the other party 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) a party who has substantially performed a contract is entitled to damages.
E) a party who has substantially performed a contract is not entitled to damages.
Answer: B
Skill: Applied
65) Pat O'Grady owes Robinson $5000 in cash, but resented Robinson talking about O'Grady's
debt to mutual acquaintances. O'Grady wants to know which of the following tactics would be
legal performance.
A) not pay Robinson until Robinson came for it
B) pay Robinson on time but pay it all in dimes
C) deliver the money to Robinson's house instead of to his office at 3:00 a.m. on the due date
D) pay him on time but with a cheque
E) pay him on time in $5 bills
Answer: E
Skill: Applied
66) Which one of the following is true with regard to the ending of a contract by performance?
A) Legal tender consists of bills or coins in any amount.
B) If a person owing money has tendered payment in a reasonable way, at a reasonable time, and
it has been refused, he is free from any further obligation to pay.
C) In law, a certified cheque is the same as cash.
D) If a person attempts to perform services in accordance with the terms of the contract, and the
buyer refuses those services, the person attempting to perform can sue the buyer with no further
attempt to perform.
E) If a warranty is breached, the victim has no further obligation to perform under the contract.
Answer: D
Skill: Recall
27
67) Which of the following is true with regard to tender of performance?
A) If the seller attempts to deliver the contract goods at the time and place designated in the
contract, but the buyer refuses delivery, the seller will have to make another attempt to deliver
before he can sue for breach of contract.
B) If Pete shows up at Valley Service Station to fix the gas pumps on the date and at the time he
was supposed to, but Valley's manager tells him to come back later, Pete has no further
obligations and can sue for breach of contract.
C) If Ivan attempts to pay his $25 debt to Jan in 25-cent pieces, that attempt constitutes a lawful
tender of Ivan's obligation.
D) If Sam attempts to deliver the truckload of strawberries at Frank's produce plant at 8:00 p.m.
on Saturday, the berries cannot be refused as long as delivery was before the specified July 10
deadline.
E) If Walt attempts to pay Sarah the $750 debt he owes her with a cheque on the date and at the
place designated in the contract, she will have to accept that cheque even though there was no
mention of payment by cheque in the contract.
Answer: B
Skill: Applied
68) When an anticipatory breach has taken place (i.e., where a person, before performance is
due, states that he or she will not perform the contract):
A) the victim may sue immediately and not wait to see whether the contract is performed.
B) the victim must wait to see whether the contract is performed, but damages are calculated
from the time of the refusal.
C) the victim can get someone else to do the job but then cannot sue the original party to the
contract if it costs more.
D) the victim may not be able to recover damages that occur after the anticipatory breach.
E) such a statement made before performance is due has no effect on the contractual obligations
of the parties.
Answer: A
Skill: Recall
28
69) On February 1, Smyth contracted to buy Dupont's van. They agreed that Smyth would pay
the price of $7000 on March 1 and take delivery and the risk on that date. Smyth then contracted
to sell the van in Smithers on March 5 for $7600. On February 22, Dupont called Smyth and said
he wasn't going to sell the van; he had decided to keep it. On these facts, which of the following
is false?
A) Smyth could refuse to acknowledge a breach and press Dupont to complete the contact.
B) Smyth could agree to call off the contract; neither of them had yet performed.
C) Dupont's call is an express repudiation of the contract and is an anticipatory breach.
D) Smyth could acknowledge that Dupont was in breach but has to wait until after the
performance date to sue him for breach of contract.
E) Smyth could refuse to acknowledge a breach, but that would result in the possibility that the
contract could be breached later.
Answer: D
Skill: Applied
70) Susan enters into an unconditional agreement of purchase and sale to buy a home owned by
Alicia. The deal is scheduled to close on September 1. On June 10, less than three months prior
to closing, Susan writes a letter to Alicia indicating that she has changed her mind and will not
be buying her house. In these circumstances, the most likely scenario is for Alicia to:
A) treat the letter as constituting an anticipatory breach, treat the contract as discharged, and
place the home back on the market reserving her rights to sue Susan.
B) seek a court injunction forcing Susan to close on September 1.
C) seek no court action because the contract is frustrated.
D) commence a lawsuit immediately for punitive damages.
E) sue the listing agent for failing to secure a larger deposit.
Answer: A
Skill: Applied
71) Where one party refuses to perform his or her contractual obligations, what is the risk that
the second party runs if he continues to press the first party to perform?
A) The first party may expressly repudiate the contract and therefore not be liable for breach.
B) The second party may receive more damages for which he or she can't recover compensation.
C) The first party may continue to refuse to perform, and there is nothing the second party can do
about that.
D) The contract may be discharged by frustration.
E) The first party may breach a condition subsequent.
Answer: D
Skill: Recall
29
72) Identify the exception in one of the following situations, whereby the contract is discharged
by frustration.
A) Rudolph is due to appear in a local variety theatre that has just been destroyed in a fire of
unknown origin.
B) Frank has contracted to ride Emperor, a prize horse, in the Canada Day races on July 1, but on
June 28 the horse breaks a leg and has to be destroyed.
C) Jack contracts with Bill to build a barn on his one-hectare lot, but before the permit is
obtained, a new law prohibits barns on less than three hectares.
D) Gregory, a trucker with whom you contracted last month to haul potatoes tomorrow, phones
to tell you that his truck has broken down.
E) Jerry, a doctor, is due to perform a heart transplant operation on Mary, and the night before
the surgery his arthritis becomes so painful that he cannot hold a scalpel.
Answer: D
Skill: Applied
73) Ellis agreed to paint Lee's house for a price of $1500. A month before the performance was
due, Lee called and told Ellis that she had changed her mind and was going to have her house
restuccoed instead. Ellis insisted that they had a contract and that he was going to paint the house
anyway. Lee repeated that she was not going to go through with it, but Ellis insisted that the
contract was still on. Before further steps could be taken by either party, Lee's house was
destroyed by a freak airplane accident. Which one of the following statements describes the law
applicable to these facts?
A) Ellis will be able to successfully claim as damages the amount that he would have made if the
contract had been performed.
B) Ellis's conduct amounted to repudiation, and Lee could have sued for breach of contract
immediately after the phone call.
C) Lee's conduct did not amount to a breach since she told him a month before performance was
due that she didn't want the house painted.
D) Lee could have accepted Ellis's conduct as an anticipatory breach.
E) The contract has been discharged by frustration.
Answer: E
Skill: Applied
30
74) Which of the following would most likely result in the court finding that the contract had
been discharged by frustration?
A) McDonald agreed to buy Thornburn's horse, but unknown to both of them, at the time of the
contract the horse was dead.
B) McGee contracts to give a lecture at a convention on modern marketing, but the convention
was cancelled because of an epidemic.
C) Binks agreed to purchase the business from Kealy, but Binks suffered such great losses in the
recent stock market crash that he couldn't afford to go through with it.
D) Moore, a sculptor, was delivering a $15 000 work when he lost control of the car and the
work was crushed. He had been drinking heavily and had not bothered to wrap or box the work.
E) Cooper contracts to deliver 10 bushels of ripe tomatoes to Haig's restaurant, and Cooper's
tomato crop is destroyed by hail a few days before the delivery date.
Answer: B
Skill: Applied
75) Gill, a wholesale fish seller, agreed to provide Blanchet's Restaurant with 1000 kilograms of
fresh salmon per week throughout the months of July, August, and September. Things went as
planned for July and August. However, Gill was unable to meet the requirements of the contract
for the first two weeks of September because his boats simply did not catch enough, although
other companies did better and the fish were available for Gill to purchase, but at a higher price
than what Blanchet was paying him. Rather than sell at a loss, Gill simply did not supply during
that two-week period. At the end of that period, the Federal Fisheries Department shut down the
fishery altogether because of the depletion of fish. After that, no more fresh salmon was
available at all. Blanchet sued Gill for breach of contract with respect to his failure to deliver any
fresh salmon in September. Which one of the following statements accurately sets out the legal
situation here?
A) Gill is liable for breach of contract with respect to the first two weeks of September, but the
second two weeks' failure was caused by frustration for which he was not responsible.
B) The doctrine of frustration does not apply here because this is a sale-of-goods situation.
C) The contract was frustrated for the whole month of September by Gill's inability to obtain fish
in the way that he had intended, and thus he is not liable at all.
D) By not suing Gill as soon as he failed to deliver in the first two weeks of September, Blanchet
lost the right to complain, and then the subsequent governmental closure excused Gill's failure to
deliver any fish in September.
E) Gill was under a strict obligation to supply the fish and no excuses for failure are allowed.
Answer: A
Skill: Applied
31
76) Tara and Daughters Limited ("Tara") enters into a contract to manufacture machinery for Big
Ben Inc. The contract price is $200 000. The parties agree that the machinery is to be delivered
in 60 days. Which of the following unexpected events would discharge any further obligations
under the contract?
A) A number of Tara's key employees were absent through illness.
B) Tara had taken on too many other orders and had to give priority to its regular customers.
C) Tara's factory was flooded by a tsunami.
D) One of Tara's key suppliers failed to deliver necessary material to allow Tara to manufacture
the machinery.
E) Tara secured a new contract on better terms with a bigger client.
Answer: C
Diff: 2 Type: MC Page Ref: 115-117
Skill: Applied
77) Smedlap, a trucker, and Dewdney, a farmer, entered into a contract under which Smedlap
agreed to haul all of Dewdney's 2012 pumpkin crop to market in time for Halloween sales.
However, the day before Smedlap was to pick up the pumpkins, he called Dewdney and told him
that, since he had received such a good offer to buy his truck, he had sold it and therefore was
not able to haul Dewdney's pumpkins. There was not enough time for Smedlap to buy another
truck, but he was sure that Dewdney could make other arrangements and he hoped that he hadn't
unduly inconvenienced him. Unfortunately, Dewdney was not able to make arrangements in time
for the Halloween market, and instead he had to sell his crop to a pie-filling canner for much less
than he could reasonably have expected at the market. Furthermore, the market owners were so
disappointed by Dewdney's failure to deliver that they refused to give him their usual order for
Christmas turkeys, in contrast to previous years, when this had generated his major income for
the year. He was forced to find another outlet for his turkeys, and again he ended up selling to
commercial processors for a substantially lower price. As a result of these two events, Dewdney
was unable to keep up with his mortgage payments on the farm and eventually he lost it to the
bank in a foreclosure action. Dewdney is now suing Smedlap to recover these losses. Identify the
correct statement with respect to the question of whether Smedlap's conduct was a breach of
contract.
A) This was a breach that consisted of self-induced frustration.
B) Smedlap simply cancelled the contract, which he was entitled to do as long as it was before
performance was due.
C) This was not a breach because Smedlap did not do it maliciously, and he gave Dewdney what
he honestly believed was adequate notice to make other arrangements.
D) The contract was discharged by frustration.
E) Smedlap is not liable because it was not his fault that Dewdney was unable to make other
suitable arrangements.
Answer: A
Skill: Applied
32
78) Which of the following is true with regard to ending a contract by agreement?
A) A contract can be ended by agreement if one party has performed his or her obligation and
agrees to take something as satisfaction from the other although that other hasn't performed
according to the contract.
B) A contract can be ended by one party if he or she finds a better deal (e.g., by cancelling an
order that has been accepted) as long as this is done before performance.
C) A contract cannot be ended by the happening of a "condition subsequent" provided for in the
contract.
D) A contract can be ended unilaterally by one party.
E) A contract cannot be ended by agreement if neither party to the contract has performed his or
her obligation.
Answer: A
Skill: Recall
79) William enters into an agreement with Phyllis to advance $300 000 to Phyllis for the
purchase of garage equipment. Phyllis agrees to give William a mortgage over her 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 Phyllis' 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) a condition subsequent.
Answer: D
Skill: Applied
80) A contract is terminated by agreement in which of the following situations:

A) breach.
B) unilateral release.
C) frustration.
D) the occurrence of a condition subsequent.
E) a written statement by one party to cancel an accepted order.
Answer: D
Skill: Recall
33
81) Which of the following is true with regard to ending a contract by performance, agreement,
or breach?
A) If a person properly tenders performance of a service that is rejected by the other party, he is
required to try again and again.
B) If one party to the contract has paid for a service, but now the other party doesn't want to
perform, the contract is ended by agreement as long as both parties agree to call it off.
C) A person has legally tendered performance if he pays a $500 debt in 25-cent coins.
D) A contract can be ended by breach if there was either a breach of condition or a breach of
warranty.
E) A contract ends by agreement when the parties include in the contract a "condition
subsequent" (i.e., a clause that says the contract will end upon the happening of a specified future
event that then takes place).
Answer: E
Skill: Recall
82) Sam agreed to purchase and Joe agreed to sell a brand new Chrysler 300M that was
displayed in the showroom of Joe's Fine Cars. But instead of delivering the car to Sam, Joe sold
it to another customer who offered him more money. Which of the following is the appropriate
remedy in these circumstances?
A) specific performance
B) injunction
C) rescission
D) no remedy
E) damages
Answer: E
Skill: Applied
83) Which of the following statements is true with respect to the law of damages?
A) Damages are awarded for a breach of a condition but not for a breach of warranty.
B) If a contract contains a liquidated damages clause, the party who has breached the contract
has agreed to pay to the party wronged an amount equal to all the loss that directly and naturally
flows from the breach.
C) Damages are an order from the court for the breaching party to perform the contract as he or
she agreed to do.
D) Damages are intended to punish the wrongdoer for breaching the contract.
E) A deposit is an amount of money a party to a contract agrees to forfeit if he or she breaches
the contract.
Answer: E
Skill: Recall
34
84) Mike contracted to buy Rita's house in a written contract that provided for a deposit of
$10 000 to be forfeited in the event of Mike's failing to go through with the deal. This deposit
was an honest estimate of the damages Rita would suffer. On these facts, which of the following
is true?
A) If the contract price agreed upon was $150 000 and Rita, after Mike breaches the contract,
sells the house in one week for $138 000, she will still be able to recoup all her losses.
B) If Mike breaches the contract, he would not have to pay $10 000 even if Rita suffered a
substantial loss.
C) If Mike breaches the contract, he will have to pay Rita all damages that directly and naturally
flow from the breach.
D) If Mike breaches the contract, he would have to pay $10 000 even if Rita's actual loss was
$40 000.
E) A clause in a contract that provides for the forfeiture of a deposit is called an exemption
clause.
Answer: D
Skill: Applied
85) Which one of the following statements accurately describes the effect of a liquidated
damages clause on a plaintiff's claim in a breach of contract action?
A) The plaintiff will likely be awarded a judgment for all damages that "naturally and directly
flow" from the breach.
B) The court will likely award the amount set out in the clause if it considers that to be a genuine
estimate by the parties of the likely consequences of the breach.
C) This clause conclusively determines the amount of damages that the court can award.
D) Liquidated damages only apply to losses caused by excess water, such as floods or tidal
waves.
E) This clause requires the injured party to take all reasonable steps to mitigate (lessen) his or her
losses.
Answer: B
Skill: Recall
35
86) Adams signed a contract in which he promised to sell his house to Jefferson for $225 000.
The "deposit" to be paid was set at $4000, and the liquidated damages clause provided that the
deposit would be forfeited in the event that the buyer breached the contract. The buyer did
breach the contract. Because the cost of housing was falling, it was difficult, even after a
reasonable time had passed, to find a new buyer. The highest offer was $218 000. Adams
accepted. Which of the following is true with regard to Adams's remedies?
A) Adams could sue for an injunction to stop Jefferson from buying another house.
B) Adams would be entitled to the $4000 only, if the court held that the deposit was an honest
attempt of the parties to estimate damages.
C) Adams must sue for specific performance, which is the only remedy, an equitable remedy,
available to the parties in land transactions.
D) Adams would be entitled to damages for money lost — $7000 plus selling costs.
E) Adams could ask the court to order an accounting.
Answer: B
Skill: Applied
87) Which of the following is true with regard to remedies for breach of contract?
A) An injunction is an equitable remedy that forces a person to comply with the terms of the
contract.
B) The amount of damages to be given to the victim of the breach may be limited to the amount
specified in a liquidated damages clause of the contract.
C) A person who breaches a contract is liable for all loss that directly and naturally flows from
the breach, no matter how unforeseeable.
D) Specific performance is the proper remedy to stop a person from doing something that he or
she had promised in the contract not to do (e.g., not to compete, not to disclose secrets, etc.).
E) The victim of a breach can recover damages that he could have avoided if he or she had tried
to mitigate his or her loss.
Answer: B
Skill: Recall
88) Which of the following is true with regard to remedies for breach of contract?
A) If the seller has committed a "fundamental breach" of the contract, an exemption clause
absolves the seller from liability.
B) Non est factum is an equitable remedy forcing a person to comply with the terms of the
contract.
C) The victim of a breach can recover damages that he could have avoided if he or she had tried
to mitigate his or her loss.
D) Damages are awarded by the court to a person who has suffered loss because of a breach of
an essential term of the contract, but are not awarded for a breach of a non-essential term (i.e., a
warranty).
E) A person who breaches a contract is liable for all foreseeable loss that directly and naturally
flows from the breach.
Answer: E
Skill: Recall
36
89) Which of the following is true with regard to ending a contract by performance, agreement,
frustration, or breach?
A) If the court holds that a contract has been ended by frustration, the damages awarded by the
court will be the same as if the contract was ended by a breach.
B) A person who breaches a contract is liable for all loss that directly and naturally flows from
the breach, no matter how unforeseeable.
C) The victim of a breach can recover damages even for the loss he could have avoided if he had
tried to.
D) A victim of breach can only receive compensation in an amount that was reasonably
foreseeable by the breaching party at the time they entered into the agreement.
E) If a person owing money has tendered payment in a reasonable way, at a reasonable time, and
it has been refused, he is free from any further obligation to pay.
Answer: D
Skill: Recall
90) Harry agreed to make a new violin for Ted at a particularly attractive price. Before he
finished crafting it, however, an opportunity arose to work as a salesman for Joe's Fine Cars.
Since it was clear that he could never make a living as a violin maker, Harry took the job and
refused to finish the violin for Ted. Which of the following is the appropriate remedy in these
circumstances?
A) injunction
B) specific performance
C) rescission
D) damages
E) no remedy
Answer: D
Skill: Applied
91) Which of the following is one of the remedies generally available for a breach of contract?
B) punitive damages
C) anticipatory breach
D) novation
E) repudiation
Answer: A
Skill: Recall
37
92) Alan entered into a written contract for the purchase of a house owned by Joe. But as the
time to move approached, Alan discovered that Joe was refusing to move out and refusing to
transfer the property. Apparently a dissatisfied customer had driven through the showroom
window of Joe's new car dealership causing him considerable expense. Joe could no longer
afford to purchase the new luxury home in Langley to which he had intended to move. Which of
the following is the appropriate remedy in these circumstances for Alan, who really wants the
house?
B) damages
C) injunction
D) rescission
E) no remedy
Answer: A
Skill: Applied
93) Rick was a talented computer programmer and had agreed to work for Bill in his successful
computer software business, signing a one-year contract to that effect. On the day he was to start
work, and after a week of training where he learned a considerable amount of confidential
information about Bill's operation, Rick phoned Bill and announced that he was going to work
for Bill's competitor instead. Which of the following is the appropriate remedy in these
circumstances?
B) no remedy
C) rescission
D) accounting
E) injunction
Answer: E
Skill: Applied
94) Often, costs can be considerably reduced by including provisions in a contract for all
disputes to be handled through mediation and arbitration.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 96
Skill: Recall
95) The court will not allow the careless party to escape responsibility when a shared mistake is
the result of the negligence of one of the parties.
Answer: TRUE
Skill: Recall
38
96) When there is clear evidence that both parties agreed to something different than what was in
the written document, the courts will rectify the document.
Answer: TRUE
Skill: Recall
97) Misunderstanding occurs when each party has a different understanding of the terms of the
agreement, in which case the courts apply a reasonable interpretation of the contract.
Answer: TRUE
Skill: Recall
98) Rules of interpretation are guidelines used by the court to correct simple misunderstandings
in relation to the contract.
Answer: TRUE
Skill: Recall
99) To avoid a contract on the basis of non est factum, the mistake must have gone to the entire
nature of the agreement, not just to some aspect of it.
Answer: TRUE
Skill: Recall
100) Non est factum is available as a defence even when there is negligence on the part of the
person claiming it.
Answer: FALSE
Skill: Recall
101) When there is disagreement over the meaning of a term in a contract, the normal approach
taken by the courts is to apply the most reasonable interpretation, although the courts will refuse
to imply terms into the agreement that the parties have left out.
Answer: FALSE
Skill: Recall
102) For a misrepresentation to be actionable, it must become a term of the contract.

Answer: FALSE
Diff: 1 Type: TF Page Ref: 100, 101
Skill: Recall
103) In order to succeed in suing for a misrepresentation, that misrepresentation must have been
in writing.
Answer: FALSE
Skill: Recall
39
104) A misrepresentation must be a false statement of fact unless it is a statement by an expert.
Answer: TRUE
Skill: Recall
105) The victim of innocent misrepresentation can sue for damages but cannot ask for rescission.
Answer: FALSE
Skill: Recall
106) Fraudulent misrepresentation is intentionally misleading another person into a contract.

Answer: TRUE
Skill: Recall
107) The threat of violence makes a contract voidable.

Answer: TRUE
Skill: Recall
108) When it has been clearly established that one of the parties to the contract has been the
victim of undue influence, that contract is void.
Answer: FALSE
Skill: Recall
109) Undue influence takes place when one person uses violence to force another to enter into a
contract.
Answer: FALSE
Skill: Recall
110) Duress takes place when one person takes advantage of another's vulnerability because of a
special relationship with that person.
Answer: FALSE
Skill: Recall
111) Privity of contract is a principle that holds that a contract can affect only the immediate
parties to it.
Answer: TRUE
Skill: Recall
40
112) Novation is the term used when a new party is substituted for an original party to the
contract.
Answer: TRUE
Skill: Recall
113) An assignee is in no better position than the original contractor.

Answer: TRUE
Skill: Applied
114) When a negotiable instrument is used, the drawer of the instrument cannot use the rule of
privity to limit the claim of the holder.
Answer: TRUE
Skill: Recall
115) If Jones receives a promissory note from Smith and passes it on to Green, who qualifies as a
holder in due course, Green is the receiver of assigned contractual rights and is in the same
position as Jones.
Answer: FALSE
Skill: Recall
116) A holder in due course is in the same position as the person from whom a negotiable
instrument was received.
Answer: FALSE
Skill: Recall
117) A bill of exchange is an order by one person to another to pay money to a third.
Answer: TRUE
Skill: Recall
118) When a condition is breached, the victim can only sue for damages but must continue to
perform his or her obligations under the contract.
Answer: FALSE
Skill: Recall
119) A breach of warranty will bring the contract to an end.

Answer: FALSE
Skill: Recall
41
120) A breach of warranty allows a victim to sue for damages, but he or she must go through
with his or her obligations under the contract.
Answer: TRUE
Skill: Recall
121) When an outside, unforeseen event interferes with the performance of a contract, and there
is some other way to fulfill the contract, performance is required.
Answer: TRUE
Skill: Recall
122) For a contract to be frustrated, performance must be impossible.

Answer: FALSE
Skill: Recall
123) All rules of contract formation apply when parties agree to discharge a contract.
Answer: TRUE
Skill: Recall
124) For a contract to be ended by agreement, there must be consideration as well as agreement
on both sides.
Answer: TRUE
Skill: Recall
125) A condition precedent is a term of a contract that will bring that contract to an end when the
specified condition is met.
Answer: FALSE
Skill: Recall
126) A condition subsequent is an example of a contract being ended by agreement.

Answer: TRUE
Skill: Recall
127) The purpose of damages in contract law is to put the victim in the position he or she would
have been in had the contract been properly performed.
Answer: TRUE
Skill: Recall
42
128) The victim of a breach cannot recover damages that he or she could have avoided if he or
she had made a reasonable effort.
Answer: TRUE
Skill: Recall
129) A person who breaches a contract is responsible for all loss that flows from the breach, no
matter how unforeseeable.
Answer: FALSE
Skill: Recall
130) Damages are an example of an equitable remedy.

Answer: FALSE
Skill: Recall
131) Injunction is an example of an equitable remedy.

Answer: TRUE
Skill: Recall
132) Specific performance is an equitable remedy that requires the breaching party to perform
his or her part of the contract.
Answer: TRUE
Skill: Recall
133) It should make it easier to obtain an injunction if the terms of the contract set out an
injunction as an appropriate remedy in the case of breach.
Answer: TRUE
Skill: Recall
134) Quantum meruit is applied where the contract is breached after all work has been done.
Answer: FALSE
Skill: Recall
135) Where one person transfers his or her rights to benefits under a contractual relationship to a
third party, this is an example of ________.
Answer: assignment
Diff: 2 Type: SA Page Ref: 108
Skill: Recall
43
136) Simply put, with respect to contracts, what is the outcome of self-induced frustration?
Answer: breach of contract
Diff: 2 Type: SA Page Ref: 116
Skill: Recall
137) Discuss what happens when the parties to a contract make mistakes with respect to what
they have agreed.
Answer: This question requires a review of the whole area of mistake and also an examination
of the requirement of consensus in forming a contract. Students can even include a discussion of
misrepresentation when misleading statements induce the mistake. Students should distinguish
the different forms of mistake, including shared mistake, misunderstandings, and one-sided
mistakes, indicating the court's approach when each happens. The court will apply a reasonable
person test and apply the most reasonable interpretation when there is a disagreement over what
the terms of a contract mean. Only where both explanations are reasonable will the court declare
the contract void for lack of consensus. Where a shared mistake takes place-that is, where both
parties make the same mistake—it is only where the mistake is important, such as a mistake
about the existence of the subject matter, that it will be void. As far as a one-sided mistake, the
principle of caveat emptor usually applies, and the person who made the mistake is out of luck.
However, the principle of non est factum is available in limited circumstances, and students
should explain what this means and when non est factum is not available. Students should also
explain what happens when that one-sided mistake is induced by misrepresentation on the part of
the other party.
Diff: 3 Type: ES Page Ref: 96, 97
Skill: Applied
138) The facts of a case heard by the Supreme Court of Canada are as follows: Mr. and Mrs. H
were induced to sign a mortgage in favour of M.C.R. Ltd. by Johnston, a man living with their
daughter. Johnston led them to believe that the document was an unimportant amendment to an
existing mortgage when, in reality, it was a substantial second mortgage on their home. Neither
read the document nor questioned it. When the payments were in arrears, the mortgage company
took an action for foreclosure (to take the home). Mr. and Mrs. H. pleaded non est factum.
Would this defence succeed? If so, why; if not, why not?
Answer: The defence would not succeed as Mr. and Mrs. H were careless and as a result cannot
claim non est factum.
Diff: 2 Type: ES Page Ref: 97
Skill: Applied
139) Explain what remedies are available to the victim where misrepresentation becomes a term
of the contract.
Answer: normal contractual remedies, including damages, injunctions, specific performance
Diff: 1 Type: ES Page Ref: 119-122
Skill: Recall
44
140) Sam agreed to buy property from Joe to build a store of a certain design. Joe, the vendor,
was aware of the design and knew that an easement across the back of the property would
prevent such a building being erected, but said nothing. Sam purchased the property, later
discovered the easement, and learned that Joe knew about it. He sued for misrepresentation.
Discuss the likely outcome.
Answer: Sam will lose. Joe was under no obligation to tell Sam about the mistake. Silence or
non-disclosure will not amount to a misrepresentation unless some sort of specialized obligation
or relationship exists between the parties, which is not the case here.
Skill: Applied
141) Distinguish between innocent and fraudulent misrepresentation, indicating why the
distinction is important.
Answer: Innocent misrepresentation is involved where the person who made the misleading
statement honestly believed it to be true. Fraudulent misrepresentation is involved where the
person making the statement knew it was false or didn't believe it was true. The distinction is
important, since with innocent misrepresentation the only remedy is rescission, whereas with
fraudulent misrepresentation the victim may obtain rescission and/or damages.
Skill: Applied
142) Where the misrepresentation is innocent, explain the remedies available to the victim.
Answer: Rescission is the only remedy available where the misrepresentation is innocent.
Skill: Recall
143) "Where fraudulent misrepresentation is involved, the victim can obtain rescission and/or
damages, but where innocent misrepresentation is involved, the only remedy is damages."
Discuss the accuracy of this statement.
Answer: It is incorrect. With innocent misrepresentation, the remedy is rescission, not damages.
Skill: Applied
45
144) Discuss the various remedies that are available where one of the parties to the contract is a
victim of misrepresentation.
Answer: Students should show how misrepresentation applies primarily where one party is
induced to enter a contract, not just when the misrepresentation becomes part of the contract.
They should point out that, when the misrepresentation is innocent, the remedy available is
limited to the contract remedy of rescission, and they should explain what that means. Where the
misrepresentation has been intentional (i.e., fraudulent), the victim can seek rescission of the
contract or damages for the tort of deceit, or both. Similarly, in the case of negligent
misrepresentation, the victim may seek rescission or damages or both. Where the
misrepresentation becomes a term of the contract, the remedies are the normal contract remedies
including damages. Good students might point out that the damages awarded in contract law may
be different than the damages awarded in tort law. That is, with tort law you are put into the
position you would have been in had the misrepresentation not taken place (looking backward),
whereas in contract law you are put into the position you would be in had the contract been
properly performed (looking forward). Good students will also note that punitive damages may
be available in exceptional cases involving "malicious, oppressive, and high-handed misconduct
that offends the court's sense of decency."
Diff: 2 Type: ES Page Ref: 102-103,119-120
Skill: Recall
145) What is rescission?

Answer: This is an equitable remedy. This involves the court attempting to restore the parties to
a contract (in dispute) to their original positions.
Skill: Recall
146) Indicate under which circumstances the remedy of rescission may not be available.
Answer: where the victim of the misrepresentation has affirmed the contract; where it is
impossible to restore the parties to the original positions; where some third party is involved who
might be harmed by the rescission; or where the victim of the misrepresentation has done
something inappropriate, such as causing unreasonable delay or having cheated or misled the
other party
Skill: Recall
147) What is the significance of determining that the misrepresentation was negligent rather than
innocent?
Answer: The remedy of damages will be available as well as rescission.
Skill: Recall
148) Distinguish between duress and undue influence.

Answer: Duress involves controlling somebody's actions through threat of violence,
imprisonment, scandal, damage to property, or inappropriate financial pressure. Undue influence
involves controlling that person's actions through abuse of position and influence.
Skill: Recall
46
149) What is the effect of a court determining that undue influence has been present in a
contractual relationship?
Answer: The contract is voidable.
Skill: Recall
150) Indicate three situations where the courts will presume a relationship to involve undue
influence.
Answer: an adult with an infant child, the solicitor contract with a client, a doctor contracting
with a patient, a religious adviser contracting with a parishioner, a trustee contracting with a
beneficiary, and a guardian contracting with a ward
Skill: Recall
151) Discuss the development and importance of the principle of unconscionable contracts. In
your answer, compare unconscionability to insanity, duress, and undue influence.
Answer: Unconscionable contracts are a relatively recent development in contract law, but are
indicative of a modern trend toward protecting disadvantaged parties to a contract. Students must
show a clear understanding that this is not simply a protection given to all consumers who are
taken advantage of. Here, there must be some special vulnerability that creates an unequal
bargaining position, and even that is not enough. Students also must make it clear that the other
party has taken advantage of this vulnerability to the extent that the bargain that has been struck
is grossly unfair. It must be clear that the other contracting party has taken advantage of this
unique vulnerability. Students should give examples of what constitutes such vulnerability.
Examples might be mental impairment (short of insanity) or poverty. Note that students should
show that simply taking advantage of a favourable economic situation is not enough to be
unconscionable. So where one person is in poverty and the other charges a high rate of interest
on a loan because of the risk, that by itself will not be unconscionable. Students should also
distinguish unconscionability in contract law developed by the courts from the unconscionable
transactions statutes that have been passed in many jurisdictions, which usually have a much
narrower scope, often being limited to loan transactions or mortgages.
Skill: Recall
152) Discuss unconscionability with respect to contract law.

Answer: This principle allows the court to modify or set aside the contract on the basis of
vulnerability that has allowed one party to the contract to unfairly take advantage of the other
party to the contract.
Skill: Applied
153) Explain the impact of the principle of privity on contracts.

Answer: When two people enter into a contract, they bestow rights and benefits only on each
other. The third parties, who are not party to the contract, cannot enforce the contract.
Skill: Recall
47
154) Joe, a student at the local college, had a one-year lease on a suite in a house owned by Sam.
Sam sold that house to Jones without telling him about the lease. When Jones discovered Joe in
the suite, he demanded that Joe leave. Explain the rights of the parties in terms of privity of
contract.
Answer: Joe is not party to the contract between Sam and Jones, but his rights embodied in the
lease are said to run with the land, and Jones is bound by that lease and can't evict him. This is an
exception to the privity rule.
Skill: Applied
155) Explain what is meant by a novation.

Answer: A novation occurs where two parties have a contractual relationship and another comes
in, taking the place of one of those parties, but the terms of the contract remain the same. Note
that the agreement of both of the original parties is necessary for such a substitution.
Skill: Recall
156) Indicate what must be present in order for an assignment to qualify as a statutory
assignment.
Answer:
1. The assignment must be complete and unconditional.
2. It must be in writing.
3. There must be notice to the original debtor.
Skill: Recall
157) What is the significance of an assignment qualifying as a statutory assignment?

Answer: The assignee can sue the original party to the contract directly without involving the
assignor as a party to the action.
Skill: Recall
158) Joe agreed to paint Sam's house for $1000. Joe then assigned the $1000 claim to Harry, who
served notice on Sam about the assignment. When it came time for payment, Harry was
informed by Sam that he would not pay because the paint was peeling off his house. Harry said
that that was nothing to do with him and demanded payment. Explain the legal position of the
parties.
Answer: An assignee is in no better position than was the assignor. In these circumstances, Joe,
the original party in the contract, would not have been able to collect because the contract was
breached. Harry is in no better position; therefore, Harry cannot collect. He must turn to Joe, the
assignor, for any redress.
Skill: Applied
48
159) "Joe received a cheque from Sam for work he had done painting Sam's house, and Joe
passed that cheque to Harry. Harry took it, not knowing that the work done was defective.
Because of the principle that an assignee of contractual rights is in no better position than an
assignor, Harry would not be able to demand payment on that cheque from Sam." Discuss the
accuracy of this statement.
Answer: It is incorrect. Negotiable instruments are an exception to this rule. One of their unique
features is that if a negotiable instrument, such as a cheque, gets into the hands of an innocent
third party who qualifies as a holder in due course, that person will be able to enforce it even
when there is some problem like this to the original contract.
Skill: Applied
160) Distinguish between a cheque and a bill of exchange.

Answer: Both of these instruments involve three parties. A bill of exchange is used in any
situation where one party orders another to pay a third party on demand or sometime in the
future. A cheque is defined as a bill of exchange drawn on a bank and payable on demand.
Skill: Applied
161) When the holder of a negotiable instrument signs his name in the form of an endorsement
before passing it on to a subsequent holder, what risk does he take?
Answer: If the note is dishonoured, the payment can be collected from anyone who endorsed the
instrument.
Skill: Applied
162) "In contract law, warranty is a promise by the manufacturer of a product to be responsible
to make repairs on that product, if it's defective." Discuss the accuracy of this statement.
Answer: The statement is inaccurate. A warranty is a minor term of the contract, the breach of
which does not entitle the victim to treat his or her contractual obligations as ended. The victim
is, however, entitled to seek compensation for the imperfect performance.
Skill: Applied
163) What is the importance of the distinction between a breach of warranty and a breach of
condition?
Answer: When one of parties breaches a condition of the contract, the other party is entitled to
treat the contract as discharged and not perform its side of the agreement and is also entitled to
sue for damages or another remedy. When a breach of warranty takes place, however, the
contract is considered to be performed, and there is an obligation on the victim of the breach of
warranty to go through with its side of the agreement, although it can still bring an action for
compensation for the imperfect performance.
Skill: Applied
49
164) If a warranty in a contract is breached, what rights does the non-breaching party to that
contract have?
Answer: The contract cannot be ended but the non-breaching party may sue for damages.
Skill: Recall
165) Will anything short of the complete performance of the contractual terms amount to
performance of the contract and discharge the agreement?
Answer: Yes. Substantial performance, where an important term is substantially performed, and
where breach of warranty or a minor term has taken place. The contract is considered discharged
by performance, subject to an action by the other party for compensation for the inadequacies in
performance.
Skill: Recall
166) Joe paid Sam a debt owed of $50 000 by giving him 10 000 $5 bills. Sam refused to accept
the payment. Explain this legal position.
Answer: Coins are is not involved here and any number of bills constitutes legal tender;
therefore, Sam should have taken the money.
Skill: Applied
167) Joe owed Harry $500, but Harry was confused when Joe came to pay it back and refused to
take the money for the payment. Explain Joe's legal position.
Answer: Joe must pay, although payment was tendered at the appropriate time and place and
refused. Money under such circumstances is still owed, although the creditor must bear the costs
of collection in these circumstances.
Skill: Applied
168) The victim of anticipatory breach has two options available to him. What are they?
Answer: He can either ignore the repudiation and continue to demand performance or treat the
contract as discharged and make other arrangements.
Skill: Recall
169) What does an innocent party to an anticipatory breach risk should he or she continue to
demand performance?
Answer: Some unexpected event such as a natural disaster may make it impossible for the other
party to perform and any damages that otherwise may have been recoverable will be forfeited.
Skill: Applied
50
170) Discuss frustration in contract law and indicate when it is available and how and why it has
been modified by statute.
Answer: There are many situations where it simply would not be fair to force one party to live
up to a contract when the circumstances have changed to make that essentially impossible
through no fault of their own. Frustration discharges a contract where some outside unforeseen
uncontrollable event (by either party) makes performance of the contract impossible or
something essentially different in its very nature than what was agreed. Students should show an
understanding of this principle, likely giving several examples in the process. The more difficult
part is to explain what happens in the event of a contract being discharged by frustration. At
common law, it was "Let the loss lie where it falls." Good students might also note that any
money due and payable before the frustrating event still had to be paid. This was found to be
unworkable in some situations, so the court modified this approach by ordering the return of a
deposit. Here, the party that paid the deposit has received no benefit at all. This is the common
law position, and students should show an understanding of why this had to be changed by
statute. Statutes were passed (the Frustrated Contracts Act) that provided that, where one party
received a benefit, it would pay for that benefit received, and where a deposit was paid, some of
that deposit could be retained to pay for the costs incurred in preparation for performance of the
contract. Students should also indicate that these provisions may vary from jurisdiction to
jurisdiction. For example, the B.C. statute allows the courts to order compensation for costs
incurred even where no deposit is involved.
Skill: Applied
171) Discuss how and why promissory estoppel might come into play when a contract is being
discharged or changed by agreement.
Answer: Sometimes parties agree to changes to modify or end a contract that benefit only one
side. In this situation, the party benefited must agree to do something extra for the changes to be
binding. This is the process of accord and satisfaction. In the absence of such an arrangement,
the person benefitting from the gratuitous promise cannot enforce it. Still, where the person
making the gratuitous change to the agreement changes his or her mind and then brings an action
to enforce that original provision, the other party (who has relied on the change) may be able to
raise promissory estoppel as a defence.
Skill: Applied
172) What are liquidated damages?

Answer: Parties in a contract can agree to limit the amount of damages to be paid in the event of
a breach of contract.
Skill: Recall
51
173) With respect to breached contract damages awarded, discuss the meaning of duty to
mitigate.
Answer: The victim of a breached contract must demonstrate to the court that he or she has
taken all reasonable steps to minimize the losses he or she faces (or faced) as a result of the
contract breach. Failure to adequately demonstrate this effort will result in a lesser amount
awarded in damages.
Skill: Recall
174) Explain what is meant by the term remote with respect to damages awarded in contract
disputes.
Answer: The victim of a breach can only receive compensation in an amount that was
reasonably foreseeable by the breaching party at the time they entered into the agreement.
Skill: Recall
175) Indicate any limitations on the availability of specific performance and injunctions.
Answer: These are equitable remedies, and therefore they will not be available where monetary
compensation would have proved an adequate remedy. They will also not be available if they
cause difficulty to a third party, or where the person seeking the remedy is also guilty of some
wrongdoing.
Skill: Recall
176) What is an injunction?

Answer: This is an equitable remedy available for the aggrieved party to a contract dispute. An
injunction is a court order that requires the end of conduct that is breaching a contract.
Skill: Recall
177) One of the remedies available to a victim of a contract dispute is that of an accounting.
Define this.
Answer: This is an equitable remedy. An accounting is available to the breached party when
profits have been diverted by the other party and it is difficult to determine the financial injury
that has taken place. Here, the court can order the breaching party to disclose financial records
and dealings, and to pay any profits obtained through wrongdoing to the other party.
Skill: Applied
178) Define the term quantum meruit.

Answer: Quantum meruit is the court requirement for a reasonable amount of money to be paid
for work that has been done when no specific consideration has been agreed upon before services
have been rendered in a contract that has been breached.
Skill: Recall
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Test Bank for Legal Fundamentals for Canadian

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Legal Fundamentals for Canadian Business, 4e (Yates)

1) Which one of the following mistakes voids a contract?

21) Which of the following is an example of an exemption or limitation of liability clause?

25) Which of the following is false with regard to misrepresentation?

28) With regard to damages, which of the following is false?

52) Privity of contract applies in which of the following situations?

80) A contract is terminated by agreement in which of the following situations:

102) For a misrepresentation to be actionable, it must become a term of the contract.

106) Fraudulent misrepresentation is intentionally misleading another person into a contract.

107) The threat of violence makes a contract voidable.

113) An assignee is in no better position than the original contractor.

119) A breach of warranty will bring the contract to an end.

122) For a contract to be frustrated, performance must be impossible.

126) A condition subsequent is an example of a contract being ended by agreement.

130) Damages are an example of an equitable remedy.

131) Injunction is an example of an equitable remedy.

145) What is rescission?

148) Distinguish between duress and undue influence.

152) Discuss unconscionability with respect to contract law.

153) Explain the impact of the principle of privity on contracts.

155) Explain what is meant by a novation.

157) What is the significance of an assignment qualifying as a statutory assignment?

160) Distinguish between a cheque and a bill of exchange.

172) What are liquidated damages?

176) What is an injunction?

178) Define the term quantum meruit.

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