Ch.8 Business Law Test Banks

Business Law in Canada, 12e (Yates/Bereznicki-Korol/Clarke)
Chapter 8 Factors Affecting the Contractual Relationship
1) With regard to the law concerning misrepresentation, which of the following is true?
A) The case law provides a remedy for a wildly exaggerated claim, such as "This is the best car
ever built."
B) A statement of opinion can be a one-sided mistake.
C) 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.
D) For fraudulent misrepresentation, the buyer could ask only for the equitable remedy of
rescission.
E) A buyer could not be awarded the equitable remedy of rescission if the seller honestly
believed that the misrepresentation was true.
Answer: C
Diff: 2 Type: MC Page Ref: 235
Topic: Ch. 8 - Misrepresentation
Skill: Applied
Objective: Chapter 8: 1. Distinguish innocent, fraudulent, and negligent misrepresentation.
Bloom's Taxonomy: Knowledge
2) A fraudulent misrepresentation which induces another person to enter into a contract can
result in which of the following remedies?
A) Rescission and/or damages
B) Rescission only
C) Damages only
D) Rectification
E) There is no remedy available for fraudulent misrepresentation.
Answer: A
Topic: Ch. 8 - Fraudulent Misrepresentation
Skill: Recall
Objective: Chapter 8: 2. Identify the remedies available for each type of misrepresentation.
3) Damages as a remedy will not be available in which of the following situations?

A) Jones, although being careful, makes an innocent misrepresentation persuading Smith to enter
a contract with him.
B) Jones makes a fraudulent misrepresentation, persuading Smith to enter a contract with him.
C) Jones makes a negligent misstatement, persuading Smith to enter a contract with him.
D) A false statement made by Jones becomes a term of the contract.
E) Jones makes an intentional misrepresentation of fact in order to get Smith to sign the
agreement.
Answer: A
Topic: Ch. 8 - Innocent Misrepresentation
Skill: Recall
4) Often a party to a contract wants to avoid his obligations by arguing that the contract was
entered into because of a mistake, misrepresentation, undue influence, or duress. Which of the
following is false 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 misrepresentation, which persuaded the buyer to buy, was true.
B) If a seller persuades a person to buy something by a fraudulent misrepresentation, the buyer
could ask for rescission and/or damages for the tort of deceit.
C) A person can successfully argue non est factum and avoid his obligations under a contract
only if he was misled about the very nature of the document and was not careless.
D) Independent legal advice given to a person who wants to give a gift to a dominant person
(e.g., his doctor) is good evidence to rebut a presumption of undue influence.
E) Where, because of a mistake, a written document does not embody the unchanged term of the
original oral agreement, a party to the contract could ask the court for the equitable remedy of
rectification.
Answer: A
Skill: Recall
5) 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 "ten 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 old model. Which of the following is
true?
A) The agency would have to keep the machine, but could sue the seller for damages for the tort
of deceit.
B) This is a "buyer beware" situation and the buyer has no remedy.
C) The agency would have a remedy for breach of contract, but no remedy for other statements
that merely persuaded it to enter the contract.
D) The agency could have returned the machine even if it had been sent the right model, since
the remedy of rescission was available to it for misrepresentations made.
E) Had the office supply store sent the right machine, the agency would have had no remedy.
Answer: D
Skill: Applied
6) Jenny went to the store and asked to see a Bluetooth headset. The salesman brought out a set
that he said had all the features that she wanted. After looking at the price tag and little else, she
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 the
statements made to her by the salesman were false, including the statement that the headset had
all the features that she wanted, because it did not have noise suppression. Which of the
following is true?
A) Jenny could obtain the remedy of rescission only if the statements made to induce her to
contract were fraudulent.
B) The statements of the salesman are fraudulent only if the salesman knew they were false.
C) Jenny would only have a remedy for breach of contract.
D) The equitable remedy of rescission is available only if Jenny were able to restore the headset
to the seller.
E) Jenny could return this headset to the seller only if she could prove undue influence.
Answer: D
Skill: Applied
7) A salesman innocently misrepresented a fact to a customer about a new printer. He honestly

believed 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) An award of damages
B) The buyer's case dismissed
C) An order of specific performance
D) An order of rescission
E) An injunction
Answer: D
Skill: Applied
8) 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 StarSystem Inc. He
was fascinated by its performance. The salesman, Ross, told Gary that he should have this
machine; that "it was the last computer, no other will ever be better"; that "UBC, Simon Fraser
University, 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 1 terabyte of hard drive space, Ross said this model had 2.5
terabytes. Gary was persuaded and contracted for it. Later Gary learned that every statement
made by the salesman Ross was untrue, including the statement about the memory capacity. The
model only had 400 gigabytes. On these facts, which of the following is true?
A) Gary could be awarded the equitable remedy of rescission even if Ross, the salesman,
honestly believed everything he said was true.
B) Only if Ross, the salesman, knew that all the statements he made were false could Gary get a
remedy.
C) Merely the exaggerated claim "it was the last computer, no other will ever be better" is
enough, according to the case law, to allow Gary to get out of the contract.
D) 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.
E) Such misrepresentations could only result in contractual remedies, legal or equitable, but not
in tort remedies.
Answer: A
Skill: Applied
9) The contract for an Oakville property had been signed by both parties. Which of the following
is necessary for the contract to be set aside on the grounds of misrepresentation?
A) The misrepresentation must have been a false statement of a fact; false statements of opinion
are never misrepresentations.
B) The misrepresentation must have been a term of the contract.
C) The misrepresentation must have induced the party to enter the contract.
D) The misrepresentation must have been in writing.
E) The misrepresentation must have been made recklessly or wilfully.
Answer: C
Skill: Recall
10) 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 salesman who came to her place. On these facts, which of the following laws is
the most likely to help her?
A) Undue influence only
B) Unconscionability only
C) Misrepresentation only
D) Non est factum
E) Both unconscionability and misrepresentation
Answer: E
Skill: Applied
11) 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 cause of action could be for the tort of deceit, if there was evidence that Mrs. Sharp
intended to deceive them.
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 award the equitable remedy of rescission if the evidence showed she had
fraudulently misrepresented the costs.
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 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.
Answer: B
Skill: Applied
12) The major problem with ________ is the need to establish that the person being sued
knowingly misled the victim.
A) fraudulent misrepresentation
B) innocent misrepresentation
C) negligent misrepresentation
D) undue influence
E) deceit
Answer: A
Skill: Recall
13) 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 was persuaded to buy the car by a misrepresentation that it had the fewest repairs of
any car of its class. After the buyer learned of the truth, he kept the car for three weeks to get
some benefit from it before taking it back.
D) The seller persuaded the buyer to buy the car by misrepresenting it as having just been
serviced and passing emissions tests. Neither had been done, but the seller honestly believed both
had been done.
E) None of the above.
Answer: C
Skill: Recall
14) A computer salesman innocently misrepresented a fact about a StarSystem 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 refuses to take it back, the customer would ask the court for which equitable remedy?
A) Damages
B) Rescission
C) Rectification
D) Restitution
E) Injunction
Answer: B
Skill: Applied
15) 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) There are several remedies available in case law for an exaggerated claim made by Mary.
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) A misrepresentation can be made about a term of a contract and result in an award of
rescission and/or damages.
D) In some types of misrepresentation there are no remedies available.
E) For fraudulent misrepresentation, the buyer can be granted the equitable remedy of only
rescission.
Answer: C
Skill: Applied
16) With regard to the law concerning misrepresentation, which of the following is true?
A) The case law allows a remedy for an opinion given by a non-expert.
B) A misrepresentation can be a true assertion of fact that induces (persuades) the party to
contract.
C) 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").
D) Damages as a remedy are not available where the misrepresentation becomes part of the
contract.
E) Rescission is available as a remedy for misrepresentation only if it is innocent
misrepresentation.
Answer: C
Skill: Recall
17) 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 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 iMac. Paul paid
$400 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–the printer didn't work with Paul's computer and the store was doing nothing for the
student–and that the seller didn't believe that either statement was true when he made them. On
these facts, which of the following is true?
A) Keri could sue for damages due to a misunderstanding.
B) Paul could sue for damages due to an innocent misrepresentation.
C) Paul could sue for rescission because of the misrepresentation.
D) The court would rescind Paul's contract only with proof that the seller knew his statement was
false.
E) Only Keri has a remedy because she had been fraudulently misrepresented.
Answer: C
Skill: Applied
18) If Mills agreed to sell Boothe a used Nissan automobile, which in the contract was described
as a 2012 Nissan Murano with a rebuilt transmission, Boothe could sue for ________ if the
vehicle turned out to be a 2010 Murano and the transmission was used, not rebuilt.
A) rescission
B) compensation
C) breach of contract
D) damages
E) the tort of deceit
Answer: C
Skill: Applied
19) Damages are available as a remedy where the misrepresentation has become a term of the
contract that is breached, where the misrepresentation is ________, and where there is
negligence.
A) innocent
B) fraudulent
C) negligent
D) material
E) actionable
Answer: B
Skill: Recall
20) Victims of misrepresentation who have affirmed the contract are bound by the affirmation
and cannot later insist on
A) rescission.
B) remedies.
C) breach.
D) original positions.
E) quantum meruit.
Answer: A
Skill: Recall
21) The victim of ________ can seek monetary compensation as well as rescission for any loss
incurred.
A) innocent misrepresentation
B) negligent misrepresentation
C) fraudulent misrepresentation
D) misrepresentation
E) deceit
Answer: C
Skill: Recall
22) ________ attempts to return both parties to their original positions. The subject matter of the
contract must be returned to the original owner, and any monies paid under the contract must
also be returned.
A) Damages
B) Remedies
C) Recession
D) Compensation
E) Avoidance
Answer: C
Skill: Recall
23) Which of the following is an example of duress?

A) Joe refuses to sell Harry his car unless Harry offers him more money.
B) Joe, knowing of Harry's financial situation, refuses to sell him his car.
C) Joe counteroffers Harry's original offer.
D) Joe wants to purchase Smith's car from him, and Smith sells it to someone else.
E) Joe threatens to smash Harry's car if Harry won't sell it to him.
Answer: E
Topic: Ch. 8 - Duress
Skill: Applied
Objective: Chapter 8: 3. Examine duress, undue influence and unconscionable transactions.
24) 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 there is evidence that she was careless
when she signed the document.
B) She can successfully use the plea of non est factum if she was not misled about the very
nature of the document.
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) If the lawyer were the daughter's husband, his advice would be seen as independent legal
advice.
E) 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.
Answer: E
Topic: Ch. 8 - Undue Influence
Skill: Applied
25) If a lawyer persuades a client to guarantee a loan, the relationship of solicitor/client leads to a
presumption of
A) duress.
B) mental incapacity.
C) lack of intention.
D) unconscionability.
E) undue influence.
Answer: E
Skill: Recall
26) When parties enters into a contract where a claim is made that a bargain is unconscionable,
which of the following is correct?
A) There is an automatic presumption of undue influence due to the relationship of the parties.
B) A close relationship between business associates prevents a finding of unconscionability.
C) When one party lacks the intellect to enter into a contract, the contract continues to be binding
on both parties.
D) A presumption of fraud is raised when there is an inequality in the position of the parties due
to the ignorance of the weaker party.
E) Because a party to the contract is an uneducated immigrant, the contract is voidable.
Answer: D
Topic: Ch. 8 - Duress, Undue Influence and Unconscionable Transactions
Skill: Recall
27) When the courts find that undue influence is present, the resulting contract is
A) voidable.
B) void.
C) unenforceable.
D) binding.
E) illegal.
Answer: A
Skill: Recall
28) Randal embezzled $6000 of his employer's money and then disappeared. The employer's
accountant called at Randal's residence and found out that his wife had a $3500 term deposit.
When the accountant threatened to have her husband arrested and imprisoned if she did not
agree, 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
ground for avoiding the assignment?
A) Undue influence
B) Duress
C) Mistake of law
D) Fraudulent misrepresentation
E) Non est factum
Answer: B
Skill: Applied
29) With respect to having the court set aside a contract on the basis of undue influence, which
of the following is false?
A) 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.
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) Where undue influence is established, the resulting contract is voidable, not void.
Answer: B
Skill: Applied
30) 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
him the oil paintings and sold him the farm. On these facts, which of the following is false?
A) 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.
B) In a court action, if she 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.
C) A presumption of undue influence doesn't mean the weaker party will automatically get her
property back.
D) 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.
E) It would be easier for her to argue duress than undue influence.
Answer: E
Topic: Ch. 8 - Duress, Undue Influence and Unconscionable Transactions
Skill: Applied
31) 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 she were influenced to sign the mortgage by her doctor and the mortgage benefited the
doctor, the court would presume undue influence.
B) 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.
C) If she failed to read the mortgage agreement, the mortgage would be void on the basis of non
est factum.
D) 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.
E) 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.
Answer: A
Skill: Applied
32) The law attempts to help persons who may feel forced to enter contracts. Which of the
following is false with regard to the law of undue influence, duress, etc.?
A) An unconscionable transaction is one in which one party has been seriously taken advantage
of, and the courts, in their equitable jurisdiction, can set such a contract aside.
B) If a contract favours the stronger party in a relationship (e.g., if a lawyer bought property from
a client at far below the market value), the court would presume undue influence (i.e., that the
stronger party abused his dominant position).
C) If the court presumes the existence of undue influence, the person asking for the return of the
property will automatically get it back.
D) A contract entered into because of a threat of violence is voidable at the option of the victim.
E) Independent legal advice given to a person who wants to give a gift to a dominant person
(e.g., his doctor) is good evidence to rebut a presumption of undue influence.
Answer: C
Skill: Recall
33) A real-estate agent, Jones, was owed a $17,000 commission, having sold property for Mr.
Quick. Mr. Quick couldn't be found, but Jones did find his wife and learned that she had over
$20,000 in treasury bills. Mr. Jones told her that if she didn't assign to him $17,000 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 $17,000 but later tried to
void the agreement, she would argue which of the following?
A) Statutory assignment
B) Mistake
C) Non est factum
D) Duress
E) Privity
Answer: D
Skill: Applied
34) 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) This assignment was not a statutory assignment; i.e., it failed to satisfy the statutory
requirements for enforcement by the assignee against the debtor.
B) Because the assignment was made by Beeton to his bank in good faith, Cairns must pay the
bank $4000.
C) The assignee would receive whatever the assignor had assigned to him, namely, the $4000.
D) Because the goods bargained for had perished before the parties had contracted for them, the
court would hold the contract void.
E) The time for determining the "equities between the parties" is always the time that notice of
the assignment is given.
Answer: D
Topic: Ch. 8 - Mistake
Skill: Applied
Objective: Chapter 8: 4. Identify three types of mistake.
35) Jones offers to sell Smith his car. Smith thinks Jones is selling his 2015 Toyota, and Jones
thinks he is selling his 2014 Buick. This is an example of which of the following?
A) Misunderstanding
B) Common mistake or shared mistake
C) Unilateral mistake or one-sided mistake
D) Fraudulent misrepresentation
E) Non est factum
Answer: A
Topic: Ch. 8 - Misunderstanding
Skill: Applied
36) Mr. Copperfield, a collector of movie memorabilia, bid $250,000 on the Batmobile. After
taking delivery, he discovered the car was not the car 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. In which
of the following cases would Mr. Copperfield not be entitled to a remedy? (Assume that in each
case the facts could be proven.)
A) Fraudulent misrepresentation by Mr. Eisenberg
B) Innocent misrepresentation by Mr. Eisenberg
C) Breach of contract by Mr. Eisenberg
D) Negligent misrepresentation by Mr. Eisenberg
E) Unilateral mistake by Mr. Copperfield
Answer: E
Skill: Applied
37) When two parties are involved in a mutual mistake (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) Caveat emptor
D) The reasonable person test
E) The equitable remedy of rectification
Answer: D
Skill: Recall
38) Which one of the following mistakes voids a contract?

A) Two parties contract 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) Sally and Wacky had a serious misunderstanding about a term in the contract; the court found
that the more reasonable interpretation was Sally's.
C) 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.
D) Sam bought three gallons of paint, but found he had made a mistake; two would have been
sufficient.
E) When Mr. and Mrs. Houston put their property up for sale, Sam without speaking to the
Houstons or 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.
Answer: A
Skill: Applied
39) Which of the following will have the likely consequence of the court finding the contract
void on the grounds of mistake?
A) 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.
B) 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.
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, although using due care, signed a cheque for $100 in favour of his secretary, who
had told him it was a receipt for money received.
E) Mr. Jones, without reliance on a salesperson, purchased an HTC smartphone, thinking it was
actually a Samsung smartphone.
Answer: D
Skill: Applied
Objective: Chapter 8: 5. Describe the effect of mistake upon the enforceability of a contract.
40) In which of the following instances would the court most likely hold the contract to be void
on the basis of a mistake?
A) 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.
B) 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.
C) Carson and Leno had a serious misunderstanding about a term in the contract and the court
found that the more reasonable interpretation was that of Leno.
D) Sarah bought three rolls of wallpaper, but found she had made a mistake, since two would
have been sufficient.
E) Although the seller said nothing to the buyer about the characteristics of the answering
machine, the buyer bought it, thinking that it would tell him the date and time of the call. Later,
he learned that it did not perform this function.
Answer: B
Topic: Ch. 8 - Shared Mistake
Skill: Applied
41) In which of the following would the court find that the contract is void (i.e., not a binding
agreement)?
A) 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.
B) 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 burned.
C) 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.
D) Joe bought pizzas, but after eating one he realized that purchasing them was a big mistake.
E) 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.
Answer: B
Skill: Applied
42) When you went home for Thanksgiving dinner, your great aunt, now 80 years old, seemed
very unhappy. You learned that she had just signed a contract to buy an expensive condominium
in a retirement community. She had attended a real estate "seminar" with her friend. In trying to
think of a way for her to get out from under this contract, you review mistake, duress, undue
influence, and unconscionability. Which of the following is false?
A) To avoid the contract on the basis of non est factum, she would have to prove, among other
things, that she did not understand the nature of the document signed.
B) To avoid the contract on the basis of undue influence, she would have to show that she was
improperly pressured by a trusted person in a dominant position.
C) To avoid the contract on the basis of duress, she would have to show that she was forced into
signing the contract against her will by serious threats.
D) To avoid the contract on the basis of unconscionability, she would have to have evidence that
the sellers of the property knowingly took advantage of their superior bargaining position and
that the consideration was grossly unfair.
E) To avoid the contract on the basis of mistake, there is a presumption of mistake and she will
automatically get out of the contract.
Answer: E
Skill: Applied
43) 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 or questioned it. When the payments were in arrears, the
mortgagee took an action for foreclosure (to take their home). Which of the following is correct
with respect to the legal position of the parties?
A) If the court finds that Johnston committed a fraudulent misrepresentation, Mr. and Mrs. H
will not have to honour the mortgage.
B) 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.
C) If the court finds that this is an example of duress by Johnston, Mr. and Mrs. H will not have
to honour the mortgage.
D) If Mr. and Mrs. H can show they didn't read the document, they will not have to honour the
mortgage contract.
E) Assuming there was consideration, they will likely have to honour the mortgage contract even
though they didn't read it.
Answer: E
Skill: Applied
44) Misgana ran into Tarja at their local gym. Tarja, it turns out, operated an art gallery that did
custom framing and mounting. Misgana had some beautiful prints she wanted to have put into
special frames and agreed to pay Tarja $400 to have this done. Tarja passed the task along to her
new assistant, Shandy. Shandy used the wrong adhesive when mounting the prints, which meant
they did not stick properly to the backing. Which of the following is true?
A) Misgana could successfully sue only Shandy or Tarja for breach of contract, whichever she
chooses, but not both.
B) Misgana could successfully sue only Tarja for breach of contract.
C) Misgana could only sue Shandy because she is the one who did a poor job of the framing.
D) Misgana could successfully sue Shandy and Tarja for breach of contract because both were
connected with the job.
E) If Tarja doesn't pay Shandy, Shandy could sue Misgana directly for her pay because she
worked on Misgana's prints.
Answer: B
Skill: Applied
45) Mike is given a bottle of wine as a gift. Josh, a neighbour, sees it and recognizes it as a very
rare bottle. Knowing that Mike doesn't drink, Josh offers him $300 for it, which he believes to be
a fair price. Mike happily agrees. Later, when Josh is looking up the price of the bottle on eBay,
he realizes that it is not a valuable bottle of wine at all. He had confused it with another vintage.
Josh, who is taking a law class, wonders whether or not he could have the contract set aside.
Which of the following statements is true?
A) It is unlikely to be set aside unless Josh could show that it would be unfair or unjust to
enforce it.
B) It will automatically be set aside on the basis of the doctrine of mistake.
C) It will only be set aside if Josh's mistake rendered the contract illegal.
D) A contract can never be set aside where a mistake has been made.
E) The contract will only be set aside if Josh's mistake was the result of willful blindness.
Answer: A
Skill: Applied
46) Al sells gravel to Bob on credit, and Bob sells it to Chuck, an innocent purchaser. Then Bob
runs away with the money, without paying Al. Who will get the gravel if the court holds that the
contract between Al and Bob was "void"?
A) Al
B) Bob
C) Chuck
D) Al and Bob
E) Bob and Chuck
Answer: A
Skill: Recall
47) A and B entered into a contract for the purchase and sale of three grams of cocaine. B
delivered the goods, but A didn't pay. If B sued for payment, the court would not enforce the
contract because of which of the following?
A) Mistake
B) Illegality of object
C) Rescission
D) Non est factum
E) Rectification
Answer: B
Skill: Recall
48) Gomer paid the seller of a car with a worthless cheque. He then sold the car to an innocent
person who paid him good consideration. Gomer took the money and left the country. The
original seller found out who had the car and wanted it back. Who is entitled to the car if the
court holds that the contract between the original seller and Gomer is voidable?
A) Original seller
B) Gomer
C) Innocent purchaser
D) The innocent purchaser, but he must pay damages to the original seller
E) The original seller, but he must pay compensation to the innocent party
Answer: C
Skill: Applied
49) Mr. Ho talked with Mr. Tarr, who ran a business called Roscali Roofing. Mr. 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, and during the next rain the roof leaked as before. Which of the following is true?
A) Ho could successfully sue only Tarr for breach of contract.
B) Ho could successfully sue only Fix or Tarr for breach of contract, whichever he chooses, but
not both.
C) Ho could successfully sue Fix and Tarr for breach of contract since they were both connected
with the job.
D) If Tarr doesn't pay Fix, Fix could sue Ho directly for his pay because he worked on Ho's roof.
E) Ho could only sue Tarr because he is the one who did a poor job of the roof.
Answer: A
Skill: Applied
50) Lars Jepsen, a fisherman from Tofino, regularly sells his catch to packing plants in
Steveston. His shipment had already left dock last Monday, but he didn't contract for its sale
until yesterday. He sold this shipment for $10,000 to B.C. Packers. Jepsen still owes Sam $3000,
part of his commission for having sold one of his waterfront properties. This morning he
assigned to Sam, in writing, $3000 of the $10,000 owed under the contract with B.C. Packers.
Unknown to Jepsen or B.C. Packers, at the time they made the contract, his transporter had gone
down in a storm and all the cargo was lost. Jepsen had no insurance for loss of his boat. Which of
the following is correct with respect to his legal position?
A) This is an example of a frustrated contract.
B) This is an example of a breach of contract by Jepson with B.C. Packers.
C) This is an example of a mistake causing the contract between Jepson and B.C. Packers to be
void.
D) Because of the frustration, Sam has no claim against either Jepson or B.C. Packers.
E) Despite the frustration, Sam can collect the $3000 from B.C. Packers.
Answer: C
Skill: Applied
51) Kassem was a real estate agent with his own firm. Because his agency was new in a
competitive field, he hired the company of Barrett and Barrett Ltd. to advise on an advertising
strategy and to design ads for the newspaper and for 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 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 can choose to sue either the company or its employee Armstrong for breach of
contract, but not both.
C) Kassem can sue both the company and its employee Armstrong for breach of contract, since
they were both connected with the job.
D) If the company did not pay Armstrong, Armstrong could sue Kassem for his pay because
Armstrong did do work for Kassem.
E) Kassem's only recourse is against Armstrong, the employee who made the mistake.
Answer: A
Skill: Applied
52) While selling the contents of his house in preparation for a move to a condominium, Mr.
Lotski sold an antique desk to a Mr. Rogers, who paid by a cheque that was later returned N.S.F.
(nonsufficient funds). Lotski later learned that Rogers had sold the desk to Mrs. Lee for cash,
which he took and then disappeared. Who is entitled to the desk if the court holds that the first
contract between Lotski and Rogers is voidable?
A) Lotski
B) Rogers
C) Lee
D) Lotski, but he must pay compensation to Lee
E) Lee but, she must pay compensation to Lotski
Answer: C
Skill: Applied
53) 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 $2800. 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, and the stairs were
not useable. On these facts, which of the following is true?
A) Mrs. Reid could successfully sue only Silversteps Ltd. for breach of contract.
B) Mrs. Reid could successfully sue Silversteps Ltd. for breach of contract or Warren for breach
of contract but not both.
C) Mrs. Reid could successfully sue both Silversteps Ltd. and Warren for breach of contract
because they were both connected with the job.
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 the manufacturer of the cement for breach of contract
because the cement was not fit for its purpose.
Answer: A
Skill: Applied
54) In Works v. Works, what was the result where one party was mistaken about something
significant in the contract?
A) The Court will exercise its discretion to set aside the contract only if satisfied that it would be
unfair or unjust to enforce it.
B) The Court will automatically set aside the contract on the basis of the doctrine of mistake.
C) The Court will only set aside the contract if the mistake renders the contract illegal.
D) The Court will never set aside a contract where a mistake has been made.
E) The Court will exercise its discretion to set aside the contract only if satisfied the mistake was
the result of willful blindness.
Answer: A
Skill: Recall
55) In Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., the defendant
attempted to take advantage of a mistake made by the plaintiff. What did the Court hold?
A) The defendant's conduct was sharp business, and the Court dismissed the plaintiff's claim.
B) The defendant's conduct was improper, but there is no remedy available to address such a
mistake.
C) The defendant's conduct was equivalent to a fraud or a misrepresentation amounting to fraud,
and the Court awarded damages in lieu of rectification.
D) The defendant's conduct was essentially a breach of a fiduciary duty and the Court ruled that
the entire contract was void as a result.
E) The defendant's conduct was admirable and the Court ordered the plaintiff to pay costs.
Answer: C
Skill: Recall
56) In AMJ Campbell v. Kord Products Inc., a comma was inserted into the contract with the
effect that both "freight" and "rebates" would be deducted from the sale price, rather than simply
"freight rebates." This resulted in a difference of price amounting to $759,000. What was the
result?
A) The Court denied a request for rectification because a Court will not rectify a contract that is
in writing.
B) The Court denied a request for rectification because it was not clear both parties had the same
intention.
C) The Court denied a request for rectification because the appropriate remedy was rescission.
D) The Court allowed the request for rectification because the price difference was significant.
E) The Court allowed the request for rectification because one party had obviously made a
mistake.
Answer: B
Skill: Recall
57) In Moss v. Chin, Chin's insurer, ICBC, made an offer to settle a claim that was accepted by
the public trustee representing Mrs. Moss. ICBC was not aware that Mrs. Moss had died in the
interim. ICBC made a unilateral mistake and yet the Court ordered that the contract be rescinded.
What was the rationale?
A) ICBC lacked capacity to make an offer, as only Chin had such a right.
B) The public trustee lacked capacity to accept an offer, as only Mrs. Moss could do so, and she
had died.
C) It is illegal to settle a claim when the claimant is no longer alive.
D) There was no consideration to support the claim, and therefore the contract was invalid.
E) ICBC had not misled itself, rather the public trustee had deliberately set out to keep ICBC
from discovering the truth.
Answer: E
Skill: Applied
58) In 978011 Ontario Ltd. v. Cornell Engineering Co., a businessman signed a contract without
reading it. He later discovered it contained a provision with which he did not agree. What did the
Court hold?
A) The Court refused to grant an equitable remedy to correct a mistake that the businessman
himself had allowed.
B) The Court held that the contract was void due to a lack of consensus.
C) The Court held that the contract was unenforceable due to a lack of consensus.
D) The Court ordered rectification to correct the mistake in the contract.
E) The Court ordered severance due to a lack of intention to be bound to the particular provision.
Answer: A
Skill: Recall
59) Which of the following situations gives rise to the application of the equitable remedy of
rectification?
A) 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.
B) 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.
C) The defendant has a justifiable defence of non est factum.
D) A written instrument, because of an obvious mistake, does not embody the unchanged terms
of an original oral agreement.
E) The contract is one requiring "utmost good faith."
Answer: D
Skill: Applied
60) The equitable remedy of rectification is granted by the courts in which of the following
situations?
A) The parties to a contract disagree as to the meaning of a term in their contract.
B) The seller made a fraudulent misrepresentation that induced the buyer to buy.
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
61) 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 an assistant to come in for four hours. He turned on his office TV. Just then
his assistant 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 assistant. The assistant 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 all a big mistake. On these
facts, which of the following is true?
A) Because Len did not know what he was signing, he cannot be held liable.
B) Len's carelessness in failing to read what he was signing will likely defeat any claim of non
est factum.
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) Undue influence would be his best defence on these facts.
Answer: B
Skill: Applied
62) In which scenario will the court likely find the contract void on the grounds of mistake?
A) 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.
B) 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.
C) 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.
D) Mr. Armstrong accepted an offer by Sidhu, who was selling a "computer program," but
learned that they had different understandings of what program was meant. The court cannot say
that one interpretation is better than the other.
E) Mary contracted to buy "the Acura car" from a collector of cars. He was selling his 2011
model but she thought she was buying the 2012 model. The court, looking at all the evidence,
found that his interpretation was the more reasonable.
Answer: D
Skill: Applied
63) A week after signing a contract, you became aware that you and the other party, Sheldon,
seemed to have a different understanding of one of the provisions of the contract. Before you
said anything to him, you reread it to see if your interpretation was valid. As you reread it, you
noticed that not only was that provision vague, but also other terms and provisions were
ambiguous or left out. Which of the following is false with regard to the methods used by the
courts to interpret contracts?
A) The court will do its best to give effect to the intention of the parties.
B) To interpret express terms, the courts will look first to the plain meaning of the term (e.g., the
dictionary meaning).
C) The parol evidence rule holds that when a contract is in writing, the court will not allow
evidence to contradict, vary, add to, or subtract from the written contract.
D) Evidence of a condition precedent agreed upon by the parties but not included in the written
contract is admissible despite the parol evidence rule.
E) Evidence of misrepresentation will not be admissible because of the parol evidence rule.
Answer: E
Topic: Ch. 8 - Rules of Interpretation
Skill: Applied
64) The longer Adolph stayed on his job, the more he hated it. He thought his 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 his boss for his signature. His 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. His boss was not
careless, but couldn't read the papers. What plea or argument, if any, could his boss use to avoid
paying on the promissory note?
A) Duress
B) Unconscionability
C) Shared mistake
D) Non est factum
E) Rectification
Answer: D
Skill: Applied
65) Which one of the following will be excluded by the parol evidence rule?
A) Express terms
B) Extrinsic evidence
C) Evidence of implied terms
D) A condition precedent
E) Evidence of a collateral agreement
Answer: B
Skill: Recall
66) Mr. Frank, a foreman supervising some 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 principle, if any,
would be used to defend against her action on the cheque?
A) Mistake
B) Illegality of object
C) Rescission
D) Non est factum
E) Rectification
Answer: D
Skill: Applied
67) Len's new secretary came in and asked him to sign four letters that he 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 his bank, and when his 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 may be able to avoid his obligation on the cheque on the basis of non est factum.
B) Len would be obligated to honour the cheque no matter how careful he was.
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) Even if he was careless, Len will not have to honour the cheque.
Answer: A
Skill: Applied
68) 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) Caveat emptor
D) The most reasonable interpretation of the terms
E) The equitable remedy of rectification
Answer: D
Skill: Recall
69) Often a party to a contract wants to avoid his 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 misrepresentation, which persuaded the buyer to buy, was true.
B) If a seller persuades a person to buy something via an innocent misrepresentation, the buyer
could ask for rescission and damages for the tort of deceit.
C) A person can successfully argue non est factum and avoid his obligations under a contract
only if he was misled about the very nature of the document and was not careless.
D) Independent legal advice given to a person is good evidence of undue influence.
E) Where a written document embodies the original oral agreement, a party to the contract could
ask the court for the equitable remedy of rectification.
Answer: C
Skill: Applied
70) 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) 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.
D) 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.
E) 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.
Answer: E
Topic: Ch. 8 - Privity of Contract and Assignment
Skill: Recall
Objective: Chapter 8: 6. Outline the rules governing privity and assignment.
71) Which of the following is true with regard to the law of contract?
A) Assignments are modifications of the privity of contract rule, since they do allow one person
to take over the obligations of another.
B) 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.
C) The assignor for value of a negotiable instrument may acquire better rights than the assignee
has.
D) A statutory assignment is easier to enforce than an equitable assignment.
E) A party to a contract for services can assign both his contractual obligations and his
contractual rights.
Answer: D
Topic: Ch. 8 - Assignment
Skill: Applied
is true?
A) Where the assignor assigns the same debt to two or more persons, if the promisor (debtor)
pays out in good faith to the first assignee to give him notice, he has no further obligation.
B) If a promisor (debtor) accidentally pays out to the assignor after receiving notice of the
assignment, he is free from any obligation to the assignee; the assignee must look to the assignor
for payment.
C) An equitable assignment is easier to enforce than a statutory assignment.
D) An exception to the doctrine of privity of contract is a contract selling a car.
E) Novation refers to the voiding of the original contract and substituting another.
Answer: A
Skill: Applied
is false?
A) Where the assignor assigns the same debt to two or more persons, if the promisor (debtor)
pays out in good faith to the first assignee to give him notice, he has no further obligation.
B) If a promisor (debtor) accidentally pays out to the assignor after receiving notice of the
assignment, he is free from any obligation to the assignee, and the assignee must look to the
assignor for payment.
C) A statutory assignment is easier to enforce than an equitable assignment.
D) An exception to the doctrine of privity of contract is a contract granting an interest in land.
E) Novation refers to the ending of the original contract and entering into a new contract with
changes in terms, such as substituting one party for another.
Answer: B
Skill: Recall
74) Able Company contracted to sell to Baker Company 400 barrels of chemical C for $12,000.
Able Company assigned the entire $12,000 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. Unknown 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) Mr. Long, the assignee, will receive $12,000 from Baker Company.
B) The assignment to Mr. Long would fail to be a statutory assignment.
C) Mr. Long will receive nothing from Baker Company because nothing is owed to Able
company.
D) Mr. Long will receive part payment.
E) Since Able Company has breached the contract, it must pay compensation for the damages of
both Baker Company and Mr. Long.
Answer: C
Skill: Applied
75) Tong hired Hocaloski to design an ad for her business. Hocaloski gave the job to Peppar, her
employee. After the ad was run, it was noticed that Peppar had made a serious error. He gave the
wrong address and phone number for the business. On these facts, which of the following is true?
A) For breach of contract, Tong could successfully sue only Hocaloski.
B) Tong can sue either Hocaloski or Peppar for breach of contract, but not both of them.
C) Tong can sue both Hocaloski and Peppar for breach of contract, since they are both connected
with the job.
D) If Hocaloski did not pay Peppar, Peppar could sue Tong for his pay because Peppar did do
work for Tong.
E) Only Peppar is liable since he made the mistake.
Answer: A
Skill: Applied
76) Privity of contract applies in which of the following situations?

A) Where an interest in land is involved
B) Where a trust is involved
C) Where an insurance contract is involved
D) Where goods are being sold
E) Where a trust has been created
Answer: D
Skill: Recall
77) 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, the assignee, will receive the $2000 because it could prove privity of
contract with Takemori.
B) The Royal Bank will receive part payment from Takemori.
C) The Royal Bank will receive nothing from Takemori because Takemori owes nothing to the
Co-op.
D) The Royal Bank will receive $2000 from Takemori because there was an assignment in
writing and that is the sole test for determining if the assignee will be paid the amount of the
assignment.
E) Because of the conductor's negligence, the railroad will have to honour Mr. Takemori's
contract with the Royal Bank.
Answer: C
Skill: Applied
78) 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 Signs Limited fails to pay Monet's salary, Monet is legally entitled to sue Jans for it
because Monet did work for Jans.
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 the sign were not done properly, Jans should sue Monet for breach of contract because
Monet, as the employee, did the work.
D) If the contract were completed satisfactorily, Franz could enforce the assignment, although it
is a partial assignment.
E) If the assignment is not honoured by Jans, Franz' only recourse is to sue Monet, the employee
who actually did the work.
Answer: D
Skill: Applied
79) Allen hired Beth to do a marketing survey. The contract provided that she would start the
work on January 15 and finish it by March 15, the date for completion being a condition on the
contract. She would be paid $2000. After one month of work, when the work was half
completed, Beth assigned the $2000 contract price to Charlie, from whom she had bought
computer hardware. Charlie gave written notice of the assignment to Allen on the same day. The
second month's work went badly. Information entered into the computer was lost and Beth could
not finish on time. She was five days late, and each day cost Allen $100. His total foreseeable
loss was $500 because of her breach. On these facts, which of the following is true?
A) Charlie could receive only $1000 from Allen because half of the $2000 project was finished
when he gave notice of the assignment to Allen.
B) Charlie could receive $2000 from Allen because that is the amount owed to Charlie and the
amount assigned by Beth.
C) Charlie could receive $1500, because when the contract was completed, that was all that was
legally owed to Beth.
D) Charlie could receive only $1000 from Allen because only half the work was done when the
assignment was made.
E) Charlie gets $0 from Allen because one can assign contractual obligations but not contractual
rights.
Answer: C
Skill: Applied
80) 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 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) The assignment fails to be an assignment at all because Adam failed to get the consent of Ms.
Bey.
B) This assignment is a statutory assignment.
C) Ms. Bey must honour the notice of assignment by paying out the $900 on the day the notice
was received.
D) Charlie, the assignee, would receive $800 from Ms. Bey and have to look to Adam for the
other $100 owed.
E) Charlie would get nothing because Ms. Bey owed less than the amount assigned.
Answer: D
Skill: Applied
81) 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 half 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) Mr. Zink must pay $2000 to Mr. Pressing on the day that notice was given, because at that
time Bruce had done half of the work on the $4000 contract.
B) This assignment is a statutory assignment, not an equitable assignment.
C) This type of assignment is not recognized by the courts because it is an assignment of
contractual obligations.
D) Mr. Pressing is entitled to $2000 from Mr. Zink when the contract is completed, if at least
that much is owed to Bruce by Zink at that time.
E) If Bruce bungled the assignment and the court determined that nothing was owed to him,
Pressing could still get $2000 from Zink.
Answer: D
Skill: Applied
is false?
A) A statutory assignment is easier 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) Novation refers to the ending of the original contract and entering into a new contract with
D) Assignments are modifications of the privity of contract rule since they do allow a stranger to
E) An employee sent by his employer to do a routine job for one of the employer's customers is
Answer: B
Skill: Recall
83) Although Zlotnic had been in business 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
the 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 Scott's
house, and assigned $50,000 to the 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. Johnson
verified the assignment and paid out the $200,000 to the Scotts. On March 2, the 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 the 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) The assignment to the bank is not enforceable because it was not in writing.
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 bank has no claim since the Johnsons didn't owe Zlotnic the specified $50,000 at the time
of the assignment.
Answer: C
Skill: Applied
84) Which of the following is false with regard to the law of contracts?
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) An employee sent by his employer to do a routine job for one of the employer's customers is
C) The assignee for value of a negotiable instrument may acquire better rights than the assignor
had.
D) A statutory assignment is easier to enforce than an equitable assignment.
E) A party to a contract for services can assign both his contractual obligations and his
contractual rights.
Answer: E
Skill: Recall
is false?
A) The privity of contract rule states that only the parties to the contract have rights and
obligations under the contract.
B) Assignments are modifications of the privity of contract rule since they do allow a stranger to
C) A statutory assignment is easier to enforce than an equitable assignment.
D) A party to a contract for services can assign both his contractual obligations and his
contractual rights.
E) Novation refers to the ending of the original contract and entering into a new contract with
Answer: D
Skill: Recall
86) The victim of intentional misrepresentation can sue for damages but cannot ask for
rescission.
Answer: FALSE
Diff: 2 Type: TF Page Ref: 241
Skill: Recall
87) Fraudulent misrepresentation is intentionally misleading another person into a contract.

Answer: TRUE
Skill: Recall
88) A misrepresentation must be a false statement of fact unless it is a statement by an expert.

Answer: TRUE
Skill: Recall
89) For a misrepresentation to be actionable, it must become a term of the contract.

Answer: FALSE
Skill: Recall
90) In order to succeed in suing for a misrepresentation, the misrepresentation must have been in
writing.
Answer: FALSE
Skill: Recall
91) The threat of violence makes a contract voidable.

Answer: TRUE
Skill: Recall
92) Fraud does not exist if the victim of the misrepresentation could have found out the truth, but
relied instead on the statement of the defendant.
Answer: FALSE
Skill: Recall
93) The major problem with fraudulent misrepresentation is the need to establish that the person
being sued knowingly misled the victim.
Answer: TRUE
Skill: Recall
94) Where the misleading statement being complained of was an expression of opinion rather
than fact, it is not actionable, even if the person making the statement was an expert.
Answer: FALSE
Topic: Ch. 8 - Allegation of Fact
Skill: Recall
95) Where a heavy-duty equipment supplier sells a truck claiming it can haul ten tonnes of gravel
but its actual capacity is only five tonnes, this is misrepresentation even where the seller believes
what he said was true.
Answer: TRUE
Topic: Ch. 8 - Negligent Misrepresentation
Skill: Recall
96) The remedy of rescission is not available if the parties cannot be returned to their original
positions because the subject matter of the contract has been destroyed or damaged.
Answer: TRUE
Skill: Recall
97) The victim of fraudulent misrepresentation retains the right to have the parties to the contract
returned to their original positions but not to be reimbursed for any out-of-pocket expenses.
Answer: FALSE
Skill: Recall
98) A victim of fraud cannot seek damages where rescission is not available.
Answer: FALSE
Skill: Recall
99) If the person making the misrepresentation is in no way at fault, the misrepresentation is
innocent, and the remedies are limited.
Answer: TRUE
Skill: Recall
100) Only when the misrepresentation is truly innocent and without fault is the victim restricted
to the remedy of rescission.
Answer: TRUE
Skill: Recall
101) The victim of a fraudulent misrepresentation can also seek punitive damages, that is,
damages intended to punish the wrongdoer rather than compensate the victim.
Answer: TRUE
Skill: Recall
102) Duress takes place when one person takes advantage of another's vulnerability because of a
special relationship with that person.
Answer: FALSE
Skill: Recall
103) Undue influence takes place when one person uses violence to force another to enter into a
contract.
Answer: FALSE
Skill: Recall
104) 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
105) For a contract to be unconscionable, it is necessary that the victim was particularly
vulnerable and that the bargain was unfair.
Answer: TRUE
Topic: Ch. 8 - Unconscionable Transactions
Skill: Recall
106) 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
107) The purpose of contract law is to give effect to the reasonable expectations of the parties to
an agreement.
Answer: TRUE
Skill: Recall
108) A unilateral mistake refers to a breach of a unilateral contract.

Answer: FALSE
Topic: Ch. 8 - One-Sided Mistake
Skill: Recall
109) 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
110) 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
111) 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 some aspect of it.
Answer: TRUE
Skill: Recall
112) 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
113) Rules of interpretation are guidelines used by the court to correct simple misunderstandings
in relation to the contract.
Answer: TRUE
Skill: Recall
114) Privity of contract is a principle that holds that a contract can only affect the immediate
parties to it.
Answer: TRUE
Topic: Ch. 8 - Privity
Skill: Recall
115) The original party cannot enforce a contract that bestows benefits on an outsider.
Answer: FALSE
Skill: Recall
116) Novation is the term used when a new party is substituted for an original party to the
contract.
Answer: TRUE
Skill: Recall
117) An assignee is in no better position than the original contractor.

Answer: TRUE
Skill: Recall
118) 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
Topic: Ch. 8 - Negotiable Instruments
Skill: Recall
119) An assignee is "subject to the equities," means that a negotiable instrument can never
convey more than existed between the original parties.
Answer: FALSE
Skill: Recall
120) The doctrine of privity of contract is unique in that is has no exceptions.

Answer: FALSE
Skill: Recall
121) An assignee can be in no better position than was the assignor.

Answer: TRUE
Skill: Recall
122) Negotiable instruments can sometimes convey better rights than existed between the
original parties.
Answer: TRUE
Skill: Recall
123) "A misrepresentation involves one person making a false statement of fact that misleads
another and induces that person to enter into the contract." Discuss the accuracy of this
statement.
Answer: The statement is accurate.
Diff: 1 Type: ES Page Ref: 235
Skill: Recall
124) "Misrepresentation involves a misleading statement of fact, not opinion." Discuss the
accuracy of that statement.
Answer: Misrepresentation can involve the statement of opinion when it comes from an expert.
Skill: Recall
125) 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 him about the mistake. Silence or
non-disclosure will not amount to a misrepresentation unless there is some sort of specialized
obligation or relationship existing between the parties, which was not the case here.
Skill: Applied
126) Explain what remedies are available to the victim where misrepresentation becomes a term
of the contract.
Answer: Normal contractual remedies, including damages, injunctions, and specific
performance are available.
Skill: Recall
127) 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
128) 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: Recall
129) "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 that statement.
Answer: This statement is incorrect. With innocent misrepresentation, the remedy is rescission,
not damages.
Skill: Applied
130) Indicate under which circumstances the remedy of rescission might not be available.
Answer: Rescission may not be available where the victim of the misrepresentation has affirmed
the contract, where it's impossible to restore the parties back to their original positions, or where
some third party is involved who might be harmed by the rescission.
Skill: Applied
131) 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: Applied
132) Rescission of contract citing innocent misrepresentation on behalf of one of the parties is
not available in four situations, list and describe these.
Answer:
1 - Affirmation. Victims of misrepresentation who have affirmed the contract are bound by the
affirmation and cannot later insist on rescission. Thus, where a person uses the proceeds of a
contract knowing of the misrepresentation, he has affirmed the contract.
2 - Impossibility of restoring. The remedy of rescission is not available if the parties cannot be
returned to their original positions because the subject matter of the contract has been destroyed
or damaged. Since neither party is at fault with innocent misrepresentation, the court will not
impose a burden on either one of them but will simply deny a remedy.
3 - Third-party involvement. Rescission will not be granted if it will adversely affect the position
of a third party. When the subject matter of the contract has been resold by the purchaser to a
third party who has no knowledge of the misrepresentation and otherwise comes to the
transaction with "clean hands," the courts will not interfere with that person's possession and title
to the goods.
4 - Failure on the part of the victim. Where the victim comes without clean hands, rescission will
not be available. Where the victim has also misled or cheated, rescission will be denied. Where
the victim has caused unreasonable delay, rescission will be denied.
Skill: Recall
133) Distinguish between duress and undue influence.

Answer: Duress involves controlling somebody's actions through threat of violence or
imprisonment. Undue influence involves controlling that person's actions through abuse of
position and influence.
Topic: Ch. 8 - Duress and Undue Influence
Skill: Applied
134) Indicate three situations where the courts will presume a relationship to involve undue
influence.
Answer: An adult with an infant child, the solicitor contracting with a client, a doctor
contracting with a patient, a religious advisor contracting with a parishioner, a trustee contracting
with a beneficiary, and a guardian contracting with a ward.
Skill: Recall
135) What's the effect of a court determining that undue influence has been present in a
contractual relationship?
Answer: That the contract is voidable.
Skill: Recall
136) 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 second substantial mortgage on their home. Neither
read the document or questioned it. When the payments were in arrears, the mortgagee took an
action for foreclosure (to take their home). Mr. and Mrs. H. pleaded non est factum. Would this
defence succeed? Why or why not?
Answer: The defence would not succeed as Mr. and Mrs H were careless and as a result cannot
claim non est factum.
Skill: Applied
137) Outline the restrictions on the ability of a person to claim non est factum.
Answer: It must be shown that the mistake about the document went to the very nature of the
document, not merely its terms. Negligence can defeat the defence.
Skill: Recall
138) What is meant by the term "non est factum"?

Answer: This means "it is not my act." It forms grounds for a court to declare a contract void
because a party is unaware of the nature of the contract.
Skill: Recall
139) What is the term used to describe a claim that results in a court declaring a contract void
because a party is unaware of the nature of the contract?
Answer: Non est factum
Skill: Recall
140) Explain what is meant by the parol evidence rule.

Answer: Parol is the principle that courts will not permit outside evidence to contradict clear
wording of a contract.
Skill: Recall
141) The principle that courts will not permit outside evidence to contradict clear wording of a
contract is known as ________.
Answer: The parol evidence rule
Skill: Recall
142) Explain what is meant by a collateral contract.

Answer: A separate contractual obligation that can stand alone, independent of the written
contract.
Skill: Recall
143) A separate contractual obligation that can stand alone, independent of the written contract,
is known as ________.
Answer: a collateral contract
Skill: Recall
144) Explain what is meant by rectification.

Answer: Rectification is a correction by the court of the wording of a mistake in the contract.
Skill: Recall
145) Correction by the court of the wording of a mistake in the contract is known as ________.
Answer: rectification
Skill: Recall
146) Explain what is meant by unjust enrichment.

Answer: A windfall that one party to a contract stands to make at the expense of the other.
Skill: Recall
147) A windfall that one party to a contract stands to make at the expense of the other is known
as ________.
Answer: unjust enrichment
Skill: Recall
148) Explain the impact of the principle of privity of contracts.

Answer: When two people enter into a contract, they bestow rights and benefits only on each
other. Third parties who are not party to the contract cannot enforce the contract.
Skill: Recall
149) 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
150) Joe, a student at the local college, had a one-year lease on a suite in a house owned by Sam.
Sam sold the house to Jones without telling Jones about the lease. When he 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
151) Explain why agency is not really an exception to the privity rule.
Answer: When an agent acts on behalf of a principal in creating a contractual relationship with a
third party, the contract is between the principal and the third party. The agent is merely a go-
between who is able to establish privity between the principal and the third party.
Skill: Applied
152) Joe owned an apartment building and entered into a contract with Sam whereby Sam would
operate that apartment building, but the proceeds from the rent and profits would be distributed
among Joe's children. This is an example of what kind of an agreement?
Answer: Trust
Skill: Applied
153) Joe owned an apartment building and entered into a contract with Sam whereby Sam would
operate the apartment building but the proceeds from the rent and profits would be distributed
among Joe's children. If Joe were to die and Sam were to refuse to pay out any profits to the
children, what could they do?
Answer: They could enforce the trust agreement. This is an exception to the privity of contract
rule and they, as beneficiaries, have the right to enforce the contract.
Skill: Applied
154) Where one person transfers his rights to benefits under a contractual relationship to a third
party, this is an example of ________.
Answer: assignment
Skill: Recall
155) What is the significance of an assignment being "statutory" rather than merely an
"equitable" assignment?
Answer: A statutory assignment allows the assignee to sue directly, whereas if the assignment is
equitable, the assignor must be joined in the action.
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 absolute 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 $4000. Joe then assigned the $4000 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 and therefore, Harry cannot collect. He must turn to Joe,
the assignor, for any redress.
Skill: Applied
159) "Joe received a cheque from Sam for work he had done painting Sam's house, and Joe
passed that cheque onto 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
where there is some problem like this to the original contract.
Skill: Applied
160) Explain what is meant by "privity of contract."

Answer: A principle that contract terms apply only to the actual parties to the contract.
Skill: Recall
161) The principle that contract terms apply only to the actual parties to the contract is known as
________.
Answer: privity of contract
Skill: Recall
162) Explain what is meant by a "trust."

Answer: It is a principle from the law of equity. Property is transferred from one person to
another, who is obligated to use the property for the benefit of a third person.
Skill: Recall
163) A provision in equity whereby one person transfers property to a second person obligated to
use it to the benefit of a third is known as ________.
Answer: a trust
Skill: Recall
164) Explain what is meant by a "constructive trust."

Answer: A trust inferred by the courts to benefit a third party to a contract.
Skill: Recall
165) A trust inferred by the courts to benefit a third party to a contract is known as ________.
Answer: a constructive trust
Skill: Recall
166) Explain what is meant by a "chose in action."

Answer: The thing or benefit that is transferred in an assignment, being intangible personal
property, such as a claim or the right to sue.
Skill: Recall
167) The thing or benefit (such as a claim or the right to sue) that is transferred in an assignment
is known as ________.
Answer: a chose in action
Skill: Recall
168) Explain what is meant by "vicarious performance."

Answer: Vicarious performance is performance by another qualified person of the obligations
under a contract.
Skill: Recall
169) Performance by another qualified person of the obligations under a contract is known as
________.
Answer: vicarious performance
Skill: Recall
170) Explain what is meant by a "statutory assignment."

Answer: A statutory assignment is an assignment that meets certain qualifications and under
which the assignee can enforce a claim directly without involving the assignor.
Skill: Recall
171) Explain what is meant by an "involuntary assignment."

Answer: An involuntary assignment is an assignment of rights that takes place involuntarily, as
in the cases of death and bankruptcy.
Skill: Recall
172) Explain what is meant by a "negotiable instrument."

Answer: A negotiable instrument is a substitute for money that bestows unique vehicles for
conveniently transferring funds or advancing credit.
Skill: Recall
173) What is the status of the doctrine of privity today?

Answer: The doctrine still applies, but there are signs that it is weakening. For example, if
something is not actionable because of a lack of privity of contract, tort law may provide a
remedy, such as with the tort of inducing breach of contract.
Skill: Recall
174) What does it mean that an assignee is "subject to the equities"?

Answer: This means that the assignee can be in no better position than was the assignor.
Skill: Recall
175) In what way is a trust an exception to the privity rule?

Answer: A third party beneficiary can enforce it even though he or she is not a party to the
original agreement.
Skill: Recall
176) 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 without fault (not intentional or
negligent), the remedy available is limited to the contract remedy of rescission, and they should
explain what that means. Where the misrepresentation has been intentional, this is fraud, and the
remedy available is the tort remedy of damages for deceit. 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 you are put into the position you would have been
in had the misrepresentation not taken place (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 where fraud or deceit are involved, punitive damages may also be
available.
Skill: Applied
177) 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 towards protecting disadvantaged parties to a contract. Historically,
rules relating to insanity and misrepresentation were all that were available to protect a person
from being taken advantage of by an unethical merchant. Recently, however, there has been a
great body of statute law introduced to protect consumers. These laws were necessary because
one of the basic assumptions in contract law–that both parties are in an equal bargaining
position–didn't really work when naïve consumers faced unscrupulous merchants. Consumers
needed more protection than found in the rules associated with misrepresentation and insanity.
The development of the concept of unconscionability is a reflection of the courts also reacting to
that need. Students must show a clear understanding that this is not simply a protection given to
all consumers who are taken advantage of by a merchant. Here there must be some special
vulnerability that creates an unequal bargaining position, and even that is not enough. It must be
made clear that the other party took advantage of this vulnerability to the extent that the bargain
that was been struck was grossly unfair. Students should give examples of what constitutes such
vulnerability. Some examples might be simple-mindedness (short of insanity), poverty, not
knowing the language, or some other physical or mental disability that interferes with the
victim's ability to bargain on an equal footing. 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 would 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.
Topic: Ch. 8 - Unconscionable Transactions
Skill: Applied
178) Discuss the principle of caveat emptor and how it relates to misrepresentation in contract
law.
Answer: The answer here will likely be shorter, but the principle is important. At the heart of
contract law is the principle of the bargain and the marketplace environment. Each party is in
theory left to their own wits to bargain for the best deal they can, the idea being that a fair price
will be determined best by both parties being in an equal bargaining position and trying for the
best deal possible. Caveat emptor is consistent with this principle. All parties must be vigilant
and take care to look after their own interests. This does not extend to the position of being the
victim of fraud or deceit, or even being innocently misled. Each party must be vigilant to protect
their own interests, but they cannot mislead the other party, since that would upset the balance.
The principles of caveat emptor are not inconsistent with the protection provided against
misrepresentation, but are really a manifestation of the more general principle of ensuring that
there is a level playing field and that both parties are in an equal bargaining position in order to
protect that balance. Students should appreciate this broader principle and how the law of
misrepresentation on the one hand and caveat emptor on the other create the necessary balance.
Skill: Applied
179) 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.
Skill: Applied
180) Discuss how privity of contract affects the position of people who are not parties to a
contract. In your discussion, include an examination of the Supreme Court decision in London
Drugs Ltd. v. Kuehne & Nagel International Ltd.
Answer: Privity of contract limits the rights and obligations under the contract to those who are
immediate parties to the contract. Only those who are parties to the contract can have rights and
obligations under it. The classic illustration is the Donoghue v. Stevenson case (snail in the
ginger beer case) discussed in Chapter 4, where Mrs. Donoghue could not sue the café that
served the contaminated ginger beer to her in contract because she did not buy it. Her friend
bought it for her. This question requires that students demonstrate a clear understanding of this
basic principle as demonstrated in this case. Students should then show that they have an
understanding of the number of exceptions, both apparent and real, set out in the chapter.
Examples are agency, trust, land, modification through agreement including novation, and
assignment. There should be some more lengthy discussion of assignment and why that does not
violate the rules of privity. Finally, students should show an understanding of how privity of
contract is breaking down. In the London Drugs Ltd. vs. Kuehne & Nagel International Ltd. case
specifically mentioned in the question, the Supreme Court of Canada extended the protection of
an exemption clause to employees of one of the parties, stretching the concept of privity even
further. This is only one example of how the courts and legislatures have shown a willingness to
abandon the principle of privity.
Skill: Applied
181) Discuss the signs that the doctrine of privity may be breaking down. In your discussion,
include a reference to the leading cases in this area.
Answer: Case law, especially some recent Supreme Court of Canada authority has begun to
erode the doctrine of privity. In London Drugs Ltd. vs. Kuehne & Nagel International Ltd., the
Supreme Court of Canada extended the protection of an exemption clause to employees of one of
the parties. In doing so, the Court created a "principled exception" to the common law doctrine
of privity. Privity of contract may also be weakening in the area of product liability. Good
students will note that in some jurisdictions, there have been law reform recommendations to
relax the application of the doctrine of privity to allow third party beneficiaries to enforce their
rights under contracts.
Skill: Applied
182) Discuss the concept of an assignment, including an explanation of its significance in the
modern business world.
Answer: A person who is entitled to receive a benefit under a contract has the ability to transfer
that benefit (chose in action) to some third party in what is referred to as an assignment of
contractual rights. The ability to make such assignments is critical to the functioning of our
modern-day commercial world. Students should note that only the benefits, not the obligations,
in a contract can be sold (assigned) to a third party. Those benefits are to be enforced through the
original contracting party (the one who assigned the agreement). In some cases, an assignment
will qualify as a statutory assignment. In cases such as this, the assignee is entitled to enforce the
assigned rights directly, in his or her own name. Good students will also recognize that some
rights (such as the right to collect support payments) cannot be assigned. In business, it is critical
that assignments be taken with care and that the debtor be immediately notified (in the case that
the assignor has fraudulently assigned the same claim to multiple parties). Students may also
mention the concept of an involuntary assignment arising in cases of death or bankruptcy. From
a practical standpoint, students should note that in business a notice of assignment should not be
ignored.
Skill: Applied

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Business Law in Canada, 12e (Yates/Bereznicki-Korol/Clarke)

Chapter 8 Factors Affecting the Contractual Relationship

3) Damages as a remedy will not be available in which of the following situations?

7) A salesman innocently misrepresented a fact to a customer about a new printer. He honestly

14) A computer salesman innocently misrepresented a fact about a StarSystem computer to a

23) Which of the following is an example of duress?

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

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

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

88) A misrepresentation must be a false statement of fact unless it is a statement by an expert.

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

91) The threat of violence makes a contract voidable.

108) A unilateral mistake refers to a breach of a unilateral contract.

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

120) The doctrine of privity of contract is unique in that is has no exceptions.

121) An assignee can be in no better position than was the assignor.

133) Distinguish between duress and undue influence.

138) What is meant by the term "non est factum"?

140) Explain what is meant by the parol evidence rule.

142) Explain what is meant by a collateral contract.

144) Explain what is meant by rectification.

146) Explain what is meant by unjust enrichment.

148) Explain the impact of the principle of privity of contracts.

149) Explain what is meant by a novation.

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

160) Explain what is meant by "privity of contract."

162) Explain what is meant by a "trust."

164) Explain what is meant by a "constructive trust."

166) Explain what is meant by a "chose in action."

168) Explain what is meant by "vicarious performance."

170) Explain what is meant by a "statutory assignment."

171) Explain what is meant by an "involuntary assignment."

172) Explain what is meant by a "negotiable instrument."

173) What is the status of the doctrine of privity today?

174) What does it mean that an assignee is "subject to the equities"?

175) In what way is a trust an exception to the privity rule?

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