Business Law In canada 11th Edition By Yates -Test Bank

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Business Law In canada 11th Edition By Yates -Test Bank

Business Law in Canada, 11e (Yates)

Chapter 6   The Elements of a Contract: Consensus and Consideration

 

1) Which of the following is an ingredient necessary to form a contract?

  1. A) Exemption clauses
  2. B) Assignment
  3. C) Capacity
  4. D) Moral
  5. E) Fairness

Answer:  C

Diff: 1      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

2) Berman made a documentary on the life of musician Artie Shaw. Shaw’s representative was cooperative and gave her permission to use certain songs if she received proper permission from the copyright holders. The cost of the film was funded by her own savings, a private investor, the Canada Council, the Ontario Arts Council, and deferred salaries and material costs. In March of 1987, the film won an Academy Award as the best feature documentary for 1986. In November of 1987, Shaw’s lawyer contacted Berman’s lawyer: “… This letter states that Artie Shaw has a 35% profit participation in the motion picture… .” Which of the following accurately sets out the legal position of the parties?

  1. A) Shaw has a right to this share because the movie is about him.
  2. B) The court will imply an agreement to this effect between the parties.
  3. C) Shaw has no claim since there was no such agreement.
  4. D) A public celebrity has the right to prevent this kind of exploitation if Berman refuses this demand.
  5. E) The court will award Shaw a reasonable profit because it is fair.

Answer:  C

Diff: 3      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Applied

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

 

3) Which of the following is not an example of a contract?

  1. A) A written promise to give your husband a ring for Christmas
  2. B) A verbal agreement to work for someone starting next week
  3. C) A verbal agreement for the sale of a car where neither the money or the car has yet changed hands
  4. D) An agreement not to sue someone for negligence in exchange for their promise to pay you a specified amount
  5. E) An implied promise to pay for a meal when you order it

Answer:  A

Diff: 1      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Applied

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

4) Which of the following is an example of a unilateral contract?

  1. A) Joe agrees to paint Sam’s house for $500.
  2. B) Joe pays $50 for groceries at a grocery store.
  3. C) C returns a lost dog and claims the $50 reward.
  4. D) Joe promises to give Harry his old boat when he gets his new one.
  5. E) Sam orders a meal in a restaurant.

Answer:  C

Diff: 1      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Applied

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

5) Sam placed an announcement in the newspaper as follows: “$200 reward for the return of two lost Siamese kittens.” Joe read the ad, found the kittens, and returned them. This is an example of which of the following?

  1. A) Invitation to treat
  2. B) Offer
  3. C) Gratuitous promise
  4. D) Bilateral contract
  5. E) Unilateral contract

Answer:  E

Diff: 1      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

 

6) Which one of the following is enforceable?

  1. A) Mr. Ho promised to give his needy friend Mr. Jahn $100.
  2. B) Ms. Jones promised to pay an additional $100 to Mr. Wood if Wood finished the existing contract on time, according to the terms of the contract.
  3. C) Mr. Baker was so sick of an old chair that, when Mr. Venson offered him $10 for it, he agreed (i.e., promised to sell it to him), although the market value of the chair was $80.
  4. D) Ms. Goode promised to send $10 to Mr. Paul, who kindly came and warned her when he saw a tow truck approach her car.
  5. E) An ad in the paper promises to pay $5 for the return of a lost ring, but the person who finds and returns the ring never saw the offer in the newspaper.

Answer:  C

Diff: 2      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Applied

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

7) When Mr. Adams tells the local Boys’ and Girls’ Club that he will give them $5,000 if they promise to use the funds for their summer camping program, this is an example of which one of the following?

  1. A) Gratuitous promise
  2. B) When accepted by the club, a bilateral contract
  3. C) When accepted by the club, a unilateral contract
  4. D) Promissory estoppel
  5. E) Inadequate consideration

Answer:  B

Diff: 1      Type: MC      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

8) An ad in the morning newspaper read “Absolutely the best offer anywhere in Calgary. We’ll give you a StarSystem tablet/laptop with a Roland PR-1011 wi-fi printer for only $1299!!! Pick it up today.” This is an example of which of the following?

  1. A) Offer
  2. B) Invitation to treat
  3. C) Gratuitous promise
  4. D) Bilateral contract
  5. E) Unilateral contract

Answer:  B

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

9) The owner of a new building wanted four maple trees, 6 metres tall, planted on the north side of the building. Lloyd Landscaper submitted his offer of four 6-metre maples planted for $800. The owner said he would pay $600 for that. Lloyd said, for $600 he would supply four smaller, 5-metre trees. The owner said, “$600 for 5-metre trees plus a Christmas tree for my kids.” Lloyd was disgusted and said, “Forget it. I don’t need this job.” As he was leaving the owner said, “All right, I’ll accept your offer of $600 for the 5-metre maples planted.” Lloyd kept on walking. Which of the following is true?

  1. A) There is no contract because Lloyd’s last offer was revoked.
  2. B) There is no contract because Lloyd’s last offer had been rejected by a counter-offer.
  3. C) There is no contract because Lloyd’s last offer had lapsed after a reasonable time.
  4. D) There is a contract because at one point in the conversation Lloyd was willing to sell and the owner was willing to buy four trees.
  5. E) There is no contract because there is a presumption in law in these circumstances that the parties did not intend to create a legal relationship.

Answer:  B

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

10) An ad in the morning paper read: “Brand new Spartan 6s smartphone $349. No payment until January. We make your first payment.” This is an example of which of the following?

  1. A) Invitation to treat
  2. B) Offer
  3. C) Gratuitous promise
  4. D) Bilateral contract
  5. E) Unilateral contract

Answer:  A

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

11) If an offeror makes an offer that states, “This offer to be open until noon tomorrow,” which of the following does not, in law, end the offer?

  1. A) An inquiry by the offeree if he can do any better
  2. B) The insanity of the offeror
  3. C) A counter-offer by the offeree
  4. D) Revocation of the offer by the offeror before the time specified (i.e., before “noon tomorrow”)
  5. E) Lapse of the offer at the time specified

Answer:  A

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

12) Jon was developing a computer program for use by owners of track clubs to aid them in keeping records of the members, their runs, times, injuries, etc. Eager to finish the program, Jon, in Edmonton, called his friend Sam, in Calgary, and offered him $4000 to help: five hours working per day, for five days week, for five weeks. Sam said that he would have to think about it. Jon told Sam that he was eager to get going, but that he would hold the offer open until Friday, February 6, at noon. Which of the following is true? (Read each separately.)

  1. A) If Sam accepts by phone within the time specified in the offer, the place of contract would be Calgary.
  2. B) If Jon goes ahead and hires Betsy from Edmonton at noon on February 3, it would be too late for Sam to accept.
  3. C) If Jon revokes his offer before Friday noon, Sam could sue him for breach of contract because he promised to hold it open.
  4. D) If the court held that acceptance by mail was reasonable in the circumstances, if Sam accepts by mail the place of contract is Edmonton.
  5. E) If Sam wants to ensure the promise to keep the offer open until noon, February 6, he should give Jon some consideration (that is, allow him to purchase an option).

Answer:  E

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

13) If you pay $1000 for a 90-day option on property offered to you at $200,000, which of the following is true?

  1. A) You have bought a 90-day period of time within which you may or may not accept the offer of the land.
  2. B) With the signing of the option agreement, you have entered into two contracts—a contract for time and another for land.
  3. C) You have agreed that you will accept the offer of land within the 90-day period.
  4. D) If you do not exercise the option, you can get your $1000 back.
  5. E) The seller of the land can revoke the offer of the land any time before acceptance.

Answer:  A

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

14) Which of the following is false with regard to contract law?

  1. A) A counter-offer ends an offer.
  2. B) A newspaper notice offering to pay a reward for the return of lost kittens is an invitation to treat.
  3. C) An important criterion for determining the place of the contract is the place where the acceptance is effective.
  4. D) An option is a contract in which one person is buying a period of time within which he may accept the offer contained within the option.
  5. E) A revocation is effective only when received.

Answer:  B

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

15) Roberts has the chance to buy three adjacent city lots zoned “duplex.” The most profitable return would be the building of four townhouses across the three lots, but that would necessitate getting permission from the city for the replotting, which would be a time-consuming process. If Roberts buys a 60-day option from the seller of the properties for $4000, which of the following would be true?

  1. A) The offer for the properties will expire before the end of the designated 60-day period if another person offers a higher price.
  2. B) If Roberts does not exercise the option during the option period, she can later force the seller to sell that property to her at that price.
  3. C) By buying the option, Roberts has bought a period of time during which she must accept the land offer.
  4. D) If Roberts does not exercise the option, she will get her $4000 back because she didn’t get what she was bargaining for.
  5. E) The seller is bound by contract neither to sell the property to any other party or to revoke the offer within the option period.

Answer:  E

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

16) Which of the following is an offer as opposed to an invitation to treat?

  1. A) An ad in a real-estate paper: “Best offer in Vancouver! 3-bedroom home in Kitsilano for only $850,000!”
  2. B) A sweater displayed in the window of a shop with the price tag attached and showing.
  3. C) A notice in the Toronto Star: “I will pay $100 to whoever finds and returns my lost female calico cat which answers to the name Marx.”
  4. D) The display of goods on the shelves of Costco.
  5. E) A notice in the catalogue from the gift shop of the Edmonton Aquarium: “15% off the price of all jewellery until January.”

Answer:  C

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

17) Which of the following would best satisfy the requirements for a good legal offer?

  1. A) “I’ll pay you at least $300 for your horse, Blackie, and even more if the horse is lucky.”
  2. B) “I’ll drive you to Seattle on Saturday.”
  3. C) “The purchaser will pay $1000 for one of the seller’s laser printers, the exact model to be determined at a later date.”
  4. D) “I’ll give you $1 for your new green bike.”
  5. E) On a flyer placed on your windshield):”We have the best offer in town! A mint 1956 Chevrolet for $20,000.”

Answer:  D

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

18) Sarah wanted an antique lamp for her bedroom. While in a second-hand shop, she saw a lamp that she really wanted marked $100. She offered the owner $75 for it. He said “I’ll take $95.” She answered “$80!” He said, “Lady, you’re pushing me a bit, aren’t you? I’ll take $90, that’s it.” She said “OK I’ll pay $90 if you throw in this old ‘Vote-for-Pearson’ button.” He said, “Forget it, lady, my shop is closed,” and asked her to leave. She said, “OK, I accept your offer of $95.” He made no response. If she sues for breach of contract, which of the following is true?

  1. A) There is no contract because his offer to sell for $95 lapsed after a reasonable time.
  2. B) There is a contract because at one time he offered to sell the lamp for $95 and she accepted it.
  3. C) There is a contract because he wanted to sell the lamp for $95 and she was willing to pay that much.
  4. D) There is no contract because his offer to sell the lamp for $95 was rejected by counter-offer, and her offer to buy it for $95 wasn’t accepted.
  5. E) There is no contract because his offers to sell the lamp for $95 and $90 were revoked and he didn’t accept her offers.

Answer:  D

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

19) Mary bought a new computer and advertised her old computer for $1500. Mr. Jones offered to pay $1000. Mary said no, she wanted $1500. Mr. Jones offered $1250. Mary rejected that and said she wanted $1500, but then said to him, “I withdraw my offer, I’ve decided to give it to a school and apply for the tax benefit.” Mr. Jones said, “All right, I’ll accept your offer of $1500.” Which of the following is true?

  1. A) There is a contract because at some point in time Mary was willing to sell and Mr. Jones was willing to buy the computer system for $1500.
  2. B) There is no contract because the last offer had lapsed.
  3. C) There is no contract because Mary revoked the offer before Mr. Jones attempted to accept it.
  4. D) There is a contract, because once a seller makes an offer she cannot change her mind; she is bound to receive an acceptance.
  5. E) There is a contract and Mr. Jones has to pay a reasonable price for Mary’s old computer.

Answer:  C

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

20) Why is the case of Dickinson v. Dodds important?

  1. A) It confirms that contracts must be in writing to be valid.
  2. B) It says that property can be sold to two different purchasers.
  3. C) It clarifies that when an offeror says an offer will remain open, it must remain open.
  4. D) It illustrates the nature of an offer.
  5. E) It determines that offers, once made, can never be revoked.

Answer:  D

Diff: 2      Type: MC      Page Ref: 192

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

21) In Martel Building Ltd. v. Canada, what did the Supreme Court of Canada decide?

  1. A) A call to tender is an offer to contract and a binding contract may arise when a bid is submitted.
  2. B) There is no requirement that bidders be treated fairly, as caveat emptor applies.
  3. C) In a call for tenders, there can be no discretion.
  4. D) A call for tenders is an invitation to treat which carries with it no legal status.
  5. E) In a call for tenders, standard form contracts must always be used.

Answer:  A

Diff: 2      Type: MC      Page Ref: 194

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

22) Four days ago, Pete was reading the newspaper and saw the following: “Best offer in town! Zenith XX Laser Printer – $400! When he went to the store this afternoon and said he wanted one, they replied that they didn’t have any left, nor could they get one. On these facts, which of the following is true?

  1. A) Pete could sue them for breach of contract because he was accepting the offer in the newspaper.
  2. B) The store had revoked the offer before he tried to accept.
  3. C) The offer by the store had lapsed before he tried to accept.
  4. D) The wording in the newspaper was merely an invitation to the public to do business, and no contract was formed.
  5. E) Pete could sue for breach of an option contract.

Answer:  D

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

23) Ann was offered a job that would pay $50,000, that would provide for 18 days of vacation after one year of employment, and that would begin one week after her graduation. She wrote back that she would accept the job, but that she would not begin until three weeks after graduation and needed at least 21 days of vacation after the first year of work. On these facts, which of the following is true?

  1. A) If she had not responded, there would have been a contract because silence is the standard form of acceptance.
  2. B) Since she accepted the offer, there is a contract.
  3. C) There is no contract because an acceptance must be unconditional, and her counteroffer has not been accepted.
  4. D) She is still free to reconsider and take the original offer even after the prospective employer received her letter.
  5. E) There is a contract as soon as she drops her letter in the mailbox.

Answer:  C

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

24) Sylvia had contracted with Produce Palace to sell her entire crop of elephant garlic (100 kilograms) and her entire crop of tomatoes (100 kilograms). On the day for delivery, Produce Palace took the garlic but not the tomatoes. In her effort to mitigate her loss, Sylvia called the owner of Val’s Veggies and offered her the tomatoes at a reduced price with the words, “Let me know quickly, because they are ripe and must be moved out today.” That afternoon, Val sent Sylvia a letter accepting the offer. On these facts, which is the most likely outcome?

  1. A) There is a contract between Sylvia and Val the moment Val dropped the letter of acceptance in the mailbox.
  2. B) There is a contract between Sylvia and Val the day the letter of acceptance is received by Sylvia.
  3. C) There is no contract between Sylvia and Val because Sylvia had revoked the offer.
  4. D) There is no contract between Sylvia and Val because the offer has probably lapsed before the acceptance was received by Sylvia.
  5. E) If the postbox rule does not apply, there would be a contract as soon as Val mailed the letter unless Sylvia had sold the tomatoes to someone else.

Answer:  D

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

25) Mr. Goode, a neighbour of your parents, offered to sell you his house for $400,000, a bit below market value. You are definitely interested but would like to see if your employment contract will be renewed and want to check about financing. Mr. Goode says that he’ll hold the offer open for you until May 1st. On these facts, which of the following is false?

  1. A) Mr. Goode will be bound to hold it open if you pay him and he accepts some money to hold it open until that date.
  2. B) Mr. Goode will be bound to hold it open if you offer and he accepts your offer to wash his car every Saturday morning for two months in exchange for his promise to hold it open.
  3. C) Mr. Goode will be bound to hold it open until that date if his promise to do so was written and under seal.
  4. D) Mr. Goode’s promise to hold it open is sufficient; the offer is safe until May 1st, when it will expire.
  5. E) If you buy an option to buy a house, you still don’t have to buy the house.

Answer:  D

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

26) The owner of a large restaurant wanted four large pots of flowers in front of the restaurant. Laura, a landscaper, submitted her offer: four large pots with flowers for $800. The owner said he would pay $600 for that. Laura said, “For $600, I’ll provide four smaller pots with flowers.” The owner said, “$600 for the smaller pots with flowers plus an arrangement for the front desk.” Laura said, “Forget it,” and started to leave. The owner said, “All right, I’ll accept your offer of $600 for the four smaller pots with flowers.” Laura didn’t answer and got into her truck and drove off. On these facts, which of following is true?

  1. A) There is no contract because Laura’s last offer was revoked.
  2. B) There is no contract because Laura’s last offer had been rejected by a counter-offer, and the owner’s offers had been rejected or were not accepted.
  3. C) There is no contract because Laura’s last offer had lapsed after a reasonable time.
  4. D) There is a contract because at one point in the conversation Laura was willing to sell and the owner was willing to buy four smaller pots with flowers for $600.
  5. E) There is no contract because there is a presumption in law in these circumstances that the parties did not intend to create a legal relationship.

Answer:  B

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

27) The ad in the Real Estate Weekly read: “Best offer in Toronto! 3-bedroom home in the Annex for only $700,000!” This is an example of which of the following?

  1. A) Invitation to treat
  2. B) Legal offer
  3. C) Gratuitous promise
  4. D) Bilateral contract
  5. E) Unilateral contract

Answer:  A

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

28) An agreement for the purchase and sale of property included the following words: “Subject to the purchaser obtaining satisfactory financing by 5 p.m. on Friday, February 22, 2016.” If the court held that this subject-to clause was so vague that “the entire contract was void for uncertainty,” this would mean that

  1. A) the contract was in existence but could not be enforced.
  2. B) the contract was in existence but one party has the right to repudiate the contract.
  3. C) the contract was never in existence.
  4. D) the contract is in existence but the court will not do anything to help the parties.
  5. E) the court will impose a reasonable alternative for the term in question.

Answer:  C

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

29) Martin offered to buy the property for $200,000, “offer to remain open until 5:00 p.m. on Thursday, January 21st.” Which one of the following situations will not cause the offer to end?

  1. A) Insanity of the offeror before the offer is accepted
  2. B) Martin sells the property to another party before the expiration of the period stipulated and before hearing from the offeree.
  3. C) A counter-offer from the offeree
  4. D) Death of offeror
  5. E) The offeree has not accepted and the stipulated time has expired.

Answer:  B

Diff: 2      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

30) Which one of the following will not end an offer?

  1. A) The offer is said to be open for 3 weeks and the 3 weeks expire.
  2. B) The offeror dies.
  3. C) The offeree makes a counter offer.
  4. D) The offeror communicates a revocation of the offer.
  5. E) The offeror sells the goods being offered to someone else.

Answer:  E

Diff: 1      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

31) Franz bought a round-trip ticket to Germany to visit relatives. Unfortunately, a week before flight time, he broke his leg. He offered his co-worker, Joe, the ticket for 80% of the full price, offer to remain open until 10:00 p.m. on December 15. Indicate to Joe which of the following is true with regard to the law of offer and acceptance.

  1. A) If Franz sells to someone else, it is too late for Joe to accept the original offer.
  2. B) Franz could revoke the offer any time before acceptance, even before 10:00 p.m. on December 15.
  3. C) To create a contract, an offer must be in writing.
  4. D) A letter of acceptance is always effective when it is dropped in the mailbox.
  5. E) If Joe makes a counteroffer of 50% of the full price, and Franz rejects the counteroffer, Joe can still accept the original offer.

Answer:  B

Diff: 3      Type: MC      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

32) Jed, who lived on Cape Breton Island, needed money for a trip to France. He decided to sell his electric guitar. On Monday, October 29, he called the owner of a music store in Halifax and offered to sell his Fender Stratocaster guitar for $1800, the offer to be open until Friday noon, November 2. Jed told the store owner to send a letter of acceptance since he (Jed) would be away for a few days. The store owner examined his inventory and mailed a letter of acceptance on Thursday, November 1. When Jed returned home on Saturday, November 3, the letter had not yet arrived, so that afternoon he sold the guitar to a music teacher in his town. The store owner in Halifax sued for breach of contract. Which of the following is true?

  1. A) Sending a letter by mail was not a reasonable method of acceptance.
  2. B) The offer lapsed before the store owner accepted.
  3. C) The offer was revoked before the store owner accepted.
  4. D) The letter of acceptance was effective when it was received, and by then Jed had sold the guitar, so there was no contract.
  5. E) The acceptance was effective before the offer lapsed, so there was a contract between Jed and the store owner.

Answer:  E

Diff: 2      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

 

33) Carlos visited Vancouver last summer and instead of going back to Ontario he stayed and enrolled at Simon Fraser University. He needed money but didn’t need things left in Ontario, including his car. In mid-December, he wrote a friend and offered to sell the car for $4000 and told him to send him a letter with his answer. His friend received the letter on January 2, checked his financial situation, and sent a letter of acceptance January 3. Meanwhile Carlos, short of cash and not having heard from his friend, sold the car to Mr. Reno on December 31. Carlos received his friend’s letter January 8. On these facts, which of the following is true?

  1. A) In order for there to be a binding contract, there must be an offer and receipt of the letter.
  2. B) All methods of acceptance are effective upon receipt by the offeror.
  3. C) Sending an acceptance by mail was not a reasonable method of acceptance in this situation.
  4. D) The letter of acceptance was effective when it was received, and by then Carlos had sold the car, so there was no contract.
  5. E) The acceptance was effective before it was received, so there was a contract between Carlos and his friend.

Answer:  E

Diff: 2      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

34) What was significant about the case of R. v. Commercial Credit Corp.?

  1. A) It abolished the postbox rule in Canada.
  2. B) It determined that the postbox rule should be extended to letters of revocation as well as letters of acceptance.
  3. C) It confirmed that acceptance by post is always appropriate.
  4. D) It determined that consideration is unnecessary in cases where consensus has been achieved in writing.
  5. E) It is one of the few cases where the postbox rule has been extended beyond communication by mail or telegram.

Answer:  E

Diff: 2      Type: MC      Page Ref: 199

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

 

35) What did the Court decide in Entores Ltd. v. Miles Far East Corp.?

  1. A) Because the postbox rule is archaic, it should be abolished in its entirety.
  2. B) Because mail is the most common form of communication, the postbox rule does not need to be extended to telegrams.
  3. C) Because of the postbox rule, there is no need to specify a method of acceptance in contractual negotiations.
  4. D) Because fax machines were becoming more popular, the Court created a new rule known as the fax rule exception.
  5. E) Because telex was instantaneous, there was no need to extend the postbox rule exception to that form of communication.

Answer:  E

Diff: 2      Type: MC      Page Ref: 200

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

36) If an offer is made by mail and an acceptance by mail is requested, when does a letter revoking the previous offer actually take effect?

  1. A) At the time that it is posted
  2. B) At the time that it is received, if before acceptance
  3. C) At any time before actual performance of the contract has begun
  4. D) At any time before a letter of acceptance is received by the offeror
  5. E) Never. A revocation must be done in person.

Answer:  B

Diff: 1      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

37) Bob in Burnaby called Ed in Toronto and offered to sell him 40 kilograms of smoked salmon at $15 per kilogram. He requested that Ed phone him back by noon the next day. That way, Bob could offer it to someone else if Ed wasn’t interested. Instead of phoning, Ed sent a letter of acceptance, in which he said that he would have his agent pick up the fish. On these facts, which of the following is false?

  1. A) If using the mail was unreasonable, the acceptance could not be effective until it was received.
  2. B) If using the mail was unreasonable, the acceptance was effective when it was mailed.
  3. C) The place of formation of the contract, if there was one, was Burnaby if the use of the mails was unreasonable.
  4. D) The place of formation of the contract, if there was one, was Toronto if the use of the mails was reasonable.
  5. E) Although a response by phone was requested, a response by mail would be effective if received before noon the next day.

Answer:  B

Diff: 2      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

38) Which of the following is correct with respect to the operation of the postbox rule?

  1. A) For the postbox rule to apply, the offer must be made by mail.
  2. B) If the postbox rule applies, an acceptance must be communicated and heard by the offeree before it is effective.
  3. C) If the postbox rule applies, the acceptance is effective at the time of mailing.
  4. D) If the postbox rule applies, the only way for an acceptance to be effective is if it is sent by mail.
  5. E) For the postbox rule to apply, the offeror must make that clear when the offer is made.

Answer:  C

Diff: 1      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

39) Jones was a caterer and Smith was a florist. Jones won a contract to provide a banquet for a convention of florists. He wanted to decorate the hall with flowers. He sent a letter to Smith describing what he wanted and asked for a price quote. Smith responded by a letter dated January 5, offering to supply the flowers for $5000. Jones received the letter on January 10 and responded on the same date saying his price was too high and that he would pay $4500. While that letter was in the mail but before it had been received by Smith, Jones learned that the convention was on artificial flowers and the organizers wanted no real flowers on display. On January 13, Jones quickly sent another letter telling Smith to ignore the letter of January 10 and that he wouldn’t need any flowers at this time. This letter of the 13th was received on the 18th. Smith had received the letter of January 10 on January 15 and sent his letter of acceptance on the same day, and he had placed orders to his suppliers for the flowers. The letter of acceptance was received by Jones on January 20. Which of the following is true?

  1. A) If the postbox rule applies, there is no contract because the letter of revocation was mailed before the letter of acceptance.
  2. B) Jones’s offer in the letter of January 10 lapsed before acceptance.
  3. C) If the postbox rule does not apply, there is a binding contract.
  4. D) If the postbox rule does apply, there is a binding contract.
  5. E) The postbox rule is irrelevant; there is no contract simply because Jones can’t use the fresh flowers.

Answer:  E

Diff: 3      Type: MC      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

40) Which of the following statements regarding online transactions is false?

  1. A) Conducting transactions online negates the need to satisfy the normal requirements of a contract.
  2. B) It is unlikely that the courts will extend the postbox rule to apply to online transactions.
  3. C) Legislation has been passed in some jurisdictions to make electronic documents equivalent to written ones.
  4. D) Reasonableness of terms can affect the enforceability of electronic contracts.
  5. E) Clicking an “I Accept” button may constitute valid acceptance of the terms of an agreement.

Answer:  A

Diff: 1      Type: MC      Page Ref: 201

Topic:  Ch. 6 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

41) Which of the following is true with respect to the application of contract law to the Internet?

  1. A) Even if the basic requirements of acceptance are met, an offer accepted by e-mail has been deemed legally ineffective.
  2. B) Clicking an “I Accept” button is used by some online vendors to make an Internet user believe that the terms presented are binding, however “click-wrap” cases have confirmed that this action has no legal effect.
  3. C) Online communications are governed by the postbox rule.
  4. D) Many jurisdictions have passed legislation making electronic communications the equivalent of written documents for legal purposes.
  5. E) Internet contracts are governed by the federal Uniform Electronic Commerce Act, in effect throughout Canada.

Answer:  D

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

42) Which of the following is true with respect to the application of contract law to the Internet?

  1. A) If the basic requirements of acceptance are not met, an offer accepted by e-mail is binding on both parties.
  2. B) Clicking an “I Accept” button on a website is considered the equivalent of achieving the consensus element of a binding contract.
  3. C) Online communications are governed by the postbox rule.
  4. D) No jurisdictions have passed any legislation making electronic communications the equivalent of written documents for legal purposes.
  5. E) Internet contracts are governed by the federal Uniform Electronic Commerce Act, in effect throughout Canada.

Answer:  B

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

43) Deceitful practices and fraud are ongoing concerns for those transacting business on the Internet. Pat has recently been the victim of such a scam. He gets into a heated discussion with his friend over the application of current consumer protection laws to online transactions. Which of the following statements is correct?

  1. A) While case law applies to online activities, statute law—such as sale of goods legislation—does not apply to such transactions.
  2. B) Although new legislation may be enacted in the future, general consumer protection legislation has yet to be extended to online transactions in any Canadian jurisdictions.
  3. C) Provinces are adopting federal Uniform Electronic Commerce Act
  4. D) Provincial consumer protection legislation has been ineffective in protecting consumers with respect to Internet transactions.
  5. E) Consumer protection law in respect of online transactions is governed by the federal Universal Internet Transactions Act (UITA).

Answer:  C

Diff: 3      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

44) Which of the following statements regarding online transactions is true?

  1. A) Conducting transactions online negates the need to satisfy the normal requirements of a contract.
  2. B) The postbox rule applies to both non-instantaneous and instantaneous methods of communication.
  3. C) Common law has established the equivalency of electronic documents to written ones.
  4. D) Electronic signatures are not effective in determining the capacity of the parties entering into a contract.
  5. E) Clicking an “I Accept” button may constitute valid acceptance of the terms of an agreement.

Answer:  E

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

 

45) The objective, in Canada, of the Uniform Electronic Commerce Act (UECA) is primarily

  1. A) to define what constitutes a violation of privacy.
  2. B) to restrict Internet gambling.
  3. C) to make electronic documents and signatures as binding on parties as written ones.
  4. D) to provide a series of remedies for Internet commerce retail abuses, primarily from “offshore” enterprises.
  5. E) to restrict Internet pornography.

Answer:  C

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

46) Electronic commerce (ecommerce) legislation specifies

  1. A) the laws regulating the Internet and Internet transactions.
  2. B) the digital communication between government agencies.
  3. C) the laws of what jurisdiction should apply to Internet transactions.
  4. D) the time and place of the formation of electronic contracts.
  5. E) the laws to restrict Internet gambling, pornography, and defamatory material.

Answer:  D

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

47) Which of the following statements correctly illustrates a legal signature for online commercial transactions?

  1. A) Clicking an “I Reject” dialogue box.
  2. B) Signing your name at the bottom of a standard form, and then not mailing it to the business.
  3. C) Opening an online shopping basket and adding several items to the basket.
  4. D) Attaching an electronic signature to an electronic document.
  5. E) Attaching a signature on your computer screen.

Answer:  D

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

 

48) Joe sends Sanjay an offer via email from his Toronto office. The offer contains a provision indicating the offer expires at 5:00 p.m. Toronto time. Sanjay, who lives in Vancouver, replies accepting Joe’s offer at 4:00 p.m. Vancouver time. Joe received Sanjay’s email acceptance at 9:00 a.m. the next day. Which of the following statements is true? (Note the three hour time difference between Toronto and Vancouver)

  1. A) Joe and Sanjay had a binding contract, since Sanjay had accepted by 4:00 p.m. Vancouver time.
  2. B) Once Sanjay had sent his email, a binding contract had been formed, regardless of what time Joe had received the email.
  3. C) Joe’s offer had expired.
  4. D) The contract became binding once Joe had made the offer.
  5. E) A binding contract was formed once Joe opened Sanjay’s email acceptance the next day.

Answer:  C

Diff: 3      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

49) Which of the following statements would be true with regards to the Uniform Electronic Commerce Act (UECA)?

  1. A) A password or encryption does not authenticate an electronic document.
  2. B) The use of electronic documents is not allowed with regards to online purchase of goods.
  3. C) The UECA changes the law with respect to the requirement of written documents and signatures.
  4. D) A signature equivalent may be a password or some other form of encryption.
  5. E) An offer will be accepted and a contract formed only when the offer is sent and accepted by snail mail, and not email.

Answer:  D

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

 

50) With respect to the online contracts, which of the following statements is true?

  1. A) The Uniform Electronic Commerce Act (UECA) clearly states that an invitation to treat in all cases qualifies as an offer.
  2. B) The Uniform Electronic Commerce Act (UECA) clearly states that an offer may be made and accepted electronically.
  3. C) The Uniform Electronic Commerce Act (UECA) clearly states that a contract is formed when the communication of an acceptance through instantaneous communication is sent.
  4. D) Online contracts do not require all the essential elements of a contract such as consensus, capacity, and legality.
  5. E) The legal status of online contracts is determined by common law.

Answer:  B

Diff: 2      Type: MC      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

51) Indicate the correct statement about consideration.

  1. A) In a bilateral contract, the exchange of promises does not provide consideration for both parties.
  2. B) The common law holds that consideration must be adequate to insure that contracts are fair bargains.
  3. C) Consideration is “the price for which the promise (or the act) of the other is bought.”
  4. D) An altered course of action, e.g., forbearance, is not good consideration.
  5. E) In a unilateral contract, the performance of the promisee provides no consideration to the promisor.

Answer:  C

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

52) The postbox rule applies when which of the following means of communication is used?

  1. A) Telephone
  2. B) Fax
  3. C) Electronic mail
  4. D) Mail
  5. E) Messenger

Answer:  D

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

53) X contracted with Z. X promised to pay $500 and Z promised to build a cabinet to hold X’s fine china. The essential terms included the type and quality of the wood, the dimensions, and the date of completion-February 13. The work went more easily than expected and Z said to X, “If you pay me another $85, I will have this finished and be out of here by February 10.” X agreed. If the cabinet was done to specifications by the 10th, but X refused to pay anything, Z would be entitled in law to

  1. A) nothing.
  2. B) $500.
  3. C) $585.
  4. D) only $85.
  5. E) a “fair price.”

Answer:  C

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

54) Joe contracted with Sam, agreeing to pay Sam $400 if Sam would build him a table. The essential terms included the type and quality of the wood, the dimensions, and the date of completion-February 14. The work went more easily than expected and Sam said to Joe, “If you pay me another $50, I will have this finished and be out of here by February 8.” Joe agreed. If the table were done to specifications by the 8th, but Joe refused to pay anything, Sam would be entitled in law to

  1. A) nothing.
  2. B) $400.
  3. C) $450.
  4. D) only $50.
  5. E) $400 plus damages.

Answer:  C

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

55) With regard only to the requirement of consideration, which one of the following would be a binding contract?

  1. A) A promise by Tom to drive a co-worker to Timmins, Ontario
  2. B) A promise to give $10 in exchange for a promise to give a can of pop
  3. C) A promise by Mr. Brent to pay $25 to John, who found and returned Brent’s wallet, which Brent didn’t even know he had lost until John delivered it
  4. D) An agreement between a contractor and a homeowner that the owner would pay an additional $1000 if the contractor would complete the existing contract according to all its terms
  5. E) A written promise, but not under seal, to give John $50 on Saturday

Answer:  B

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

56) In Gilbert Steel Ltd. v. University Construction Ltd., what did the Court find on the issue of consideration?

  1. A) Because the Court will not look into the adequacy of consideration, a one-sided agreement is enforceable.
  2. B) A one-sided agreement is, in law, a form of unilateral contract.
  3. C) A one-sided agreement is not enforceable.
  4. D) A one-sided agreement is only binding if its essential terms are reduced to writing.
  5. E) Because commercial parties dealing at arm’s length were involved, a one-sided agreement is valid.

Answer:  C

Diff: 2      Type: MC      Page Ref: 205

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

 

57) If a business promises to pay all of its employees $500 to quit smoking, such an arrangement is a(n)

  1. A) valid, binding contract.
  2. B) obligation.
  3. C) commitment.
  4. D) gratuitous promise.
  5. E) quantum meruit.

Answer:  A

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

58) Which of the following is correct with respect to consideration?

  1. A) It must be specific.
  2. B) It must be reasonable.
  3. C) It is binding even though a duty to so act already exists.
  4. D) It is to compensate for an act that happened in the past.
  5. E) At least some money must be involved.

Answer:  A

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

59) Read the following and indicate which agreement would not be a binding contract because of a problem with the requirement of consideration. Assume all the other requirements for a binding contract have been met.

  1. A) Mr. Kooner sold a farm valued at $190,000 to his nephew for only $50,000.
  2. B) Peter agreed to pay Ace Computers Ltd. $50 above the contract price if the company would have his new computer ready ten days earlier than the date specified in the original contract.
  3. C) John, late for work, found his car battery was dead. He flagged down a passing truck and told the driver he would pay him $8 if he would agree to do him the favour of jump-starting the car. The driver of the truck agreed.
  4. D) Len agreed to sell and Karen agreed to buy four of Len’s records for “some money.”
  5. E) Mary promised in writing and under seal to give Planned Parenthood a donation of $100.

Answer:  D

Diff: 3      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

60) In contract cases, the court generally

  1. A) does not look to see if the bargain is fair.
  2. B) attempts to punish the party in breach of the contract by imposing a sentence.
  3. C) will rewrite an agreement for the parties if their existing agreement did not include all the essential terms.
  4. D) will enforce all promises.
  5. E) will require the recipient of a service to pay a reasonable price where it is determined that the agreed-upon price was too low.

Answer:  A

Diff: 1      Type: MC      Page Ref: 204

Topic:  Ch. 6 – Adequacy of Consideration

Skill:  Recall

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

61) Which of the following is false with regard to contract law?

  1. A) An exchange of promises can be consideration adequate to form a contract.
  2. B) To form a contract, there must be an offer that is accepted unconditionally.
  3. C) A contract for a $50,000 boat does not have to be evidenced in writing to be a valid contract.
  4. D) A contract is unenforceable if it is required to be evidenced in writing under the Statute of Frauds and is not.
  5. E) The parties to a contract can always go to court and have the court declare a contract void if the consideration is not adequate (i.e. fair), even if there is no evidence of fraud, duress, undue influence, or mental incapacity.

Answer:  E

Diff: 2      Type: MC      Page Ref: 204

Topic:  Ch. 6 – Adequacy of Consideration

Skill:  Recall

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

 

62) Which of the following is not correct with respect to the adequacy of consideration?

  1. A) Must be of some value and love and affection are not enough
  2. B) Need not be present if the agreement is under seal
  3. C) Need not be fair, unless there are extenuating circumstances (i.e., insanity or fraud)
  4. D) Need not be legal if both parties clearly consent
  5. E) Existing duty: a change in the contract requires new consideration

Answer:  D

Diff: 2      Type: MC      Page Ref: 204

Topic:  Ch. 6 – Adequacy of Consideration

Skill:  Recall

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

 

 

63) XYZ company, a distributor of auto parts, is in debt to the bank for $35,000, due on February 25, 2017. The company is having difficulties and wants to negotiate with the bank to pay only $33,000 as payment in full. With these facts in mind, which of the following statements is false?

  1. A) If the bank agrees to accept the $33,000 as payment in full if paid early, by February 15, and the company does as requested, the bank could not later sue for the remainder because the company gave good consideration for the bank’s forgiveness of the debt.
  2. B) At common law, if the bank accepted the $33,000 as payment in full, even absent additional consideration, it could not later sue for the remainder because such promises are always binding.
  3. C) If the company obtained from the bank the bank’s promise to forgive the $2000 under seal, the bank could not later sue for the remainder.
  4. D) In some jurisdictions, a statutory provision provides that the creditor who accepts less than full payment as payment in full cannot later sue for the remainder.
  5. E) So long as they don’t take the money, the bank can still sue for the entire amount.

Answer:  B

Diff: 3      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

64) Sam owed Joe $6000 due January 12, 2017. On January 1st, Joe said he’d take $5000 in full satisfaction of the debt if Sam paid him $5000 on January 5th instead. Sam paid on January 5th. A week later, Joe wants to sue Sam for the $1000 he (Joe) was legally owed. Which of the following is true?

  1. A) Joe would win because his forgiveness of the loan was gratuitous, (i.e., unsupported by consideration).
  2. B) Joe would win because they cannot change the original deal.
  3. C) Joe would lose because of the doctrine of quantum meruit.
  4. D) Joe would lose because of the rule that past consideration is no consideration.
  5. E) Joe would lose because early repayment constituted consideration to support the new arrangement.

Answer:  E

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

 

65) Which of the following could not be used as consideration?

  1. A) A kilogram of green beans
  2. B) 50 cents
  3. C) A promise to deliver three tons of steel
  4. D) A promise to give up a legal right
  5. E) Work that was done in the past

Answer:  E

Diff: 1      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

66) If you owe Mr. Storr $900 for goods received and Mr. Storr agrees to take $800 in full satisfaction of the debt, which of the following is true?

  1. A) At common law, such a one-sided promise is always binding and Mr. Storr could sue for the remaining $100.
  2. B) Many jurisdictions have passed legislation preventing Mr. Storr from suing you for the difference if he actually takes the $800.
  3. C) The issue of consideration is irrelevant when dealing with satisfaction of a debt.
  4. D) Even if you take the $800 to him, Mr. Storr can later sue you for the $100 on the principle of quantum meruit.
  5. E) Under these circumstances, you only have to pay a reasonable price for the goods.

Answer:  B

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

67) George contracted with Bob to have a racing bike modified for him and delivered on February 20, for a race on February 22. A price of $100 for the modification was agreed on. On February 10, George became nervous about the bike being finished on time and went to see Bob. Bob said that he was very busy, but if he really wanted to be sure that it would be finished on time, George would have to pay him an extra $25 so he could pay his employees overtime. George agreed and Bob completed the modifications as requested, on time. How much does George legally owe?

  1. A) Only $100 because Bob had an existing duty to modify the bike and the price was settled.
  2. B) $125 because Bob gave consideration for George’s promise to pay the additional $25.
  3. C) $25 because past consideration is no consideration.
  4. D) A reasonable amount only.
  5. E) $100 plus whatever it cost for the overtime.

Answer:  A

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

68) You owe Mr. Store $900 for goods received and want him to take $800 in full satisfaction of the debt. Which of the following is false?

  1. A) If he agrees with you and does take the $800, even if it is paid early at his request, he can still later sue you for the $100 forgiven. His promise not to demand the $100 from you was a gratuitous promise and therefore not binding.
  2. B) If he actually takes the $800 in full satisfaction of the debt, statute law in many jurisdictions prohibits him from suing you for the $100.
  3. C) If you pay the $800 before the actual due date in consideration for his taking this as full payment, he cannot sue for the other $100.
  4. D) If Mr. Store agreed to take the $800 as full payment in exchange for your promise to sweep the floor of his store, he cannot sue for the $100.
  5. E) If Mr. Store agreed to take the $800 as full payment, but before taking it changed his mind, he would be entitled to the entire $900.

Answer:  A

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

69) Anmool verbally agreed to build a deck for Nikki for $1000 by the 15th of September, in time for a lavish backyard barbecue she was planning. On September 13th, Nikki became concerned at Anmool’s lack of progress. Anmool told Nikki he would complete the deck on time, for an additional $200. Nikki agreed and Anmool completed the deck on time. Which of the following is correct?

  1. A) Nikki owes Anmool $1000 and there is no binding obligation with respect to the additional $200 because Anmool had an existing duty to complete the deck on time.
  2. B) Nikki owes Anmool $1200, because that is what she agreed to, and such contracts are binding.
  3. C) Problems of consideration can be raised only in the commercial context, not when the parties involved are both individuals.
  4. D) Nikki does not owe Anmool anything because his lack of professionalism vitiated the contract.
  5. E) No legal obligations arise because the agreement is not in writing.

Answer:  A

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

70) “Quantum meruit” means

  1. A) “a shield but not a sword.”
  2. B) “a meeting of the minds.”
  3. C) “as much as deserved.”
  4. D) “the ultimate freedom to contract.”
  5. E) “to stand on decision.”

Answer:  C

Diff: 2      Type: MC      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 9. Present some examples of valid consideration.

Bloom’s Taxonomy:  Knowledge

 

 

71) Which of the following shows accurate use of the doctrine of promissory (equitable) estoppel?

  1. A) Ralph told Mary that he would give her his old boat. If he doesn’t, Mary could use the doctrine to force him to do so.
  2. B) If Nancy accidentally ran her car over her neighbour’s bushes, she could use the doctrine as a defence.
  3. C) This doctrine can be used by a plaintiff to enforce a written promise signed and sealed (i.e., a seal has been affixed next to the signature of the promisor).
  4. D) A defendant can use this doctrine as a defence against a plaintiff insisting on his full legal right when he had promised to forgive the defendant some of his obligation.
  5. E) If Ho requests services from Jones and there is no mention of price, if Ho doesn’t pay Jones, this doctrine can be used to force Ho to pay a reasonable amount.

Answer:  D

Diff: 3      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

72) Which of the following statements is correct with respect to the law of consideration?

  1. A) The amount of consideration to be paid in a contract must be reasonable (that is, fair) from the point of view of each party.
  2. B) Without consideration or a seal, there can be no contract.
  3. C) Consideration must have some value but need not be specific.
  4. D) For a contract to be binding, something valuable must have changed hands. This consideration may have been paid before the agreement (past consideration) or at the time of the agreement (present consideration), but future consideration is no consideration.
  5. E) Consideration need not be specific, just so both parties get something out of the deal.

Answer:  B

Diff: 1      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

 

73) Although the contract called for the delivery of three manuals, the writer had put so much effort into the first two that the buyer agreed to pay the whole contract price, $3000, for the two instead of the three manuals. Which of the following stops the buyer from later suing the writer for breach of contract and demanding the completion of the third manual?

  1. A) Doctrine of quantum meruit
  2. B) No consideration given by the writer
  3. C) Promissory (equitable) estoppel
  4. D) He only has to pay a reasonable price for the work done.
  5. E) He doesn’t have to pay anything because the job was not completed, and so he can even get back what he paid.

Answer:  C

Diff: 2      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

74) Indicate which of the following statements is correct about the effect of promissory estoppel on a promisor.

  1. A) Promissory estoppel has no effect on a promisor because it only relates to statements of fact, not promises.
  2. B) Promissory estoppel must be distinguished from equitable estoppel.
  3. C) Promissory estoppel can be used as a defence only against a promisor who reneges on his promise.
  4. D) Promissory estoppel is known as injurious reliance in the United States and has the same effect in both American and Canadian law.
  5. E) When a victim relies on the promise and suffers injury, he can sue the promisor for compensation even where no consideration has been given in return for that promise.

Answer:  C

Diff: 2      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

 

75) Which of the following shows accurate use of the doctrine of promissory (equitable) estoppel?

  1. A) George told Hans that he would give him his printer. If he doesn’t, Hans could use the doctrine to force him to do so.
  2. B) George wants to force Elaine to honour her promise to pay him $2. After he paid for a video they watched, she was so moved by the movie she said she would pay half the cost.
  3. C) This doctrine can be used by a plaintiff to endorse a written promise signed and sealed (i.e., a seal has been affixed next to the signature of the promisor).
  4. D) Lee, a defendant, can use this doctrine as a defence against a plaintiff insisting on his full legal right when he had promised to forgive Lee some of Lee’s legal obligation and Lee relied on that promise.
  5. E) If Lam requests services from Jones and there is no mention of price, if Lam doesn’t pay Jones, this doctrine can be used to force Lam to pay a reasonable amount.

Answer:  D

Diff: 3      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

76) Which of the following shows accurate use of the doctrine of promissory (equitable) estoppel?

  1. A) Val told Jim that she would give him her printer. If she doesn’t, Jim could use the doctrine to force her to do so.
  2. B) George rented a video and watched it with Elaine. She thought the movie was great and said she’d pay half the rental price. George could use the doctrine to force her to pay as she promised.
  3. C) This doctrine can be used by a plaintiff to enforce a written promise that has been signed and sealed (i.e., a seal has been affixed next to the signature of the promisor).
  4. D) Bruce, a defendant, can use this doctrine as a defence against a plaintiff insisting on his full legal right when he had promised to forgive Bruce some of Bruce’s legal obligation and Bruce relied on that promise.
  5. E) Lam contracted to supply Jones with steel. Before the steel was delivered, Lam’s supplier increased the price. Lam could use the doctrine to force Jones to pay more to Lam.

Answer:  D

Diff: 3      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

 

77) Which of the following statements is correct with respect to promissory estoppel (equitable estoppel)?

  1. A) Where Barbra relies on Raylene’s promise and suffers a loss, Barbra can sue Raylene for compensation even though the promise was gratuitous.
  2. B) Where Hank and Jim have a contract and Hank releases Jim from part of Jim’s obligation, Jim can use that release, even though it was given without consideration, as a defence if Hank sues for breach of contract.
  3. C) Promissory estoppel means that Donna cannot revoke her offer where she has promised to hold it open for a specific period of time.
  4. D) Where Able requests services from Cain, the doctrine of promissory estoppel requires a reasonable price to be paid even where no specific amount was agreed.
  5. E) Promissory estoppel refers to the principle that, where a document is in writing and under seal, it is enforceable even where there is no consideration.

Answer:  B

Diff: 2      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

78) As property manager of a 15-unit apartment block, you receive rent payments on the first of every month from each tenant. Mrs. Lone, in apartment 105, whose rent is $500 per month, lost her job and was in dire financial difficulties. You agreed to take only $400 per month. For the last ten months, she has paid only $400 a month, but you have learned that for 4 months she has had a new and even better-paying job. You are angry that she failed to tell you this and you want to sue her for the entire amount of back rent ($1000). Which of the following arguments could she use most effectively against you?

  1. A) Promissory estoppel
  2. B) Mistake
  3. C) Undue influence
  4. D) Breach of contract
  5. E) Duress

Answer:  A

Diff: 3      Type: MC      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

 

79) A contract is a single promise, made by one person to another, enforceable in court.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

80) All of the essential terms of a contract must be clearly specified.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

81) Even though a person promises to hold an offer open for a specified period of time, the offeror can revoke that offer before that time if he feels like it.

Answer:  TRUE

Diff: 3      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

82) A formal contract is one that is signed and sealed.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 2. Explain consensus and the significance of a “meeting of the minds.”

Bloom’s Taxonomy:  Knowledge

83) Only the person or group to whom an offer is made can accept it.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

84) An invitation to treat is an offer published in the newspaper.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

85) Once a person has promised to hold an offer open for a specified period of time, he cannot change his mind.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

86) A letter of revocation takes effect when received by the offeree.

Answer:  TRUE

Diff: 3      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

87) An ad in the newspaper providing for a reward for a lost dog is an example of an invitation to treat.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

88) If a person offers to hold his offer open for a period of time, he can still revoke it before that time if he changes his mind.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

89) When you pay for an option, this prevents a person from revoking his offer before the expiration of the specified time.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

90) A revocation of an offer is effective only when it has been communicated to the offeree.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

91) An offer will end when the subject matter of the offer is sold to someone else.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

92) An acceptance of an offer applies when and where it is received except when it is communicated by telephone.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

93) Generally, acceptance must be communicated to the offeror to be effective unless there has been a history of similar relations between the parties.

Answer:  TRUE

Diff: 3      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

 

94) Only the essential terms of a contract must be set out in the offer.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

95) The postbox rule makes it clear that, when people choose to communicate by mail, they take the risk of delay or loss, and the acceptance as a result will be binding only when or if received.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

96) For the postbox rule to apply, the offer must be made by mail.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

97) When the postbox rule applies, the place of mailing of the acceptance may determine the place of the contract.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

98) Traditional contract rules only apply to written contracts but not Internet transactions.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

 

99) Canada’s Uniform Electronic Commerce Act creates rights and obligations with respect to electronic commerce transactions within Canada.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

100) A signature equivalent for electronic documents might be a password or some other form of encryption.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

101) Whether a contract or another form of Internet communication, UECA provisions determine that a message is sent as soon as it is committed to the system, and it is received as soon as it arrives on the recipient’s computer, even if it is never read.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

102) With regards to Internet transactions, an offer will be accepted and a contract formed as soon as a message is sent, and it is received as soon as it arrives on the recipient’s computer, even if it is never read.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

103) Hitting the “I Accept” button on a website is equivalent to an acceptance of the seller’s offer.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

104) Electronic signatures provide a digital certificate that authenticates the identity of a party to the contract.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

105) If the postbox rule applies, a letter of revocation takes effect at the time of mailing.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

106) For the requirement of consideration to be satisfied, at least one of the parties must have performed what they promised.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

107) An employer’s promise to pay a bonus in recognition of good work already performed by the employee would be binding.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

108) When a person has agreed to paint a house and, before the job is finished and payment is due, the other party refuses to allow completion, the court will use the quantum meruit principle to require the breaching party to pay a reasonable price for the benefit he has received.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

109) The promise to make a charitable donation is not enforceable because it is a one-sided promise, even if the charity makes a commitment in return—such as a promise to name a building after the donor, or to use the money in a certain way—it has made a commitment.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

110) A contract is binding if the consideration involved is a commitment not to do something, as opposed to a promise to do something.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

111) If a person agrees to sell someone a brand new Cadillac for $100, this becomes a valid, binding contract.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

112) Many jurisdictions have passed legislation providing that when a creditor has agreed to take less in full satisfaction of a debt, and has actually received the lesser sum, the creditor is not bound by the agreement and can sue for the difference.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

 

113) If an agreement is one-sided, and only one of the parties is getting something from the deal, it is called a gratuitous promise and the courts will not enforce it.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

114) Consideration is restricted to the exchange of money.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

115) Quantum meruit is a benefit or a detriment flowing between the parties to an agreement as the result of the striking of a bargain.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

116) When the parties agree to pay the “market value” of an item, or when some other objective method or formula for pricing a product at some time in the future is used, the consideration is calculable and is thus sufficiently specific to be binding.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

117) Why is an understanding of contract law important for a business person?

Answer:  Most commercial transactions have contracts at their base.

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

118) Distinguish between a void and a voidable contract.

Answer:  A void contract never was a contract and the agreement is simply of no effect. A voidable contract is a binding contractual agreement, but one of the parties has the right to get out of it. Until that right is exercised, it is binding. This can have a significant effect on the position of a third party.

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

119) Distinguish between a bilateral and a unilateral contract.

Answer:  A unilateral contract is one where the acceptance is made by the performance of the consideration requested in the offer. A bilateral contract involves a separate offer and acceptance, independent of the actual performance of the agreement.

Diff: 2      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

120) Indicate how consumers are protected in standard form contract situations.

Answer:  These contractual terms are strictly interpreted and must be extremely clear where they bestow a benefit on the merchant at the expense of the consumer. Also, legislation has been passed, such as the Sale of Goods Act and various forms of consumer protection legislation, protecting the position of the consumer.

Diff: 2      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

121) List the five ingredients necessary to form a contract.

Answer:  Consensus (including offer and acceptance), consideration, capacity, legality and intention.

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 1. Discuss the fundamentals of the contractual relationship.

Bloom’s Taxonomy:  Knowledge

 

 

122) Distinguish between a formal and a simple contract.

Answer:  A formal contract is under seal. Simple contracts are either written and not under seal or oral agreements.

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 2. Explain consensus and the significance of a “meeting of the minds.”

Bloom’s Taxonomy:  Knowledge

123) “For a contract to be binding, both parties must have a clear understanding of all the terms of that agreement.” Discuss the accuracy of that statement.

Answer:  It’s only necessary that the terms of the agreement are clear and unambiguous. One party’s failure to read or understand the clear provisions of a contract will not affect the validity of that agreement.

Diff: 2      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 2. Explain consensus and the significance of a “meeting of the minds.”

Bloom’s Taxonomy:  Knowledge

 

124) Mo drove his car to a shopping mall and parked it there to attend a movie. The place where he parked was designated as a one-hour parking space on a sign at the entrance where Mo drove in. There were many similar signs around the shopping mall stating that people were parking their cars at their own risk. This particular sign said that the time limit for parking there was one hour, and as a term of the contract anyone parking over this one-hour limit would have to pay a fee of $60. When Mo got out of the movie, he found a ticket on his car (a demand for payment of the $60). He refused to pay and was sued. What would be Mo’s defence in these circumstances?

Answer:  Mo would either claim that there was no contract or that, if there was, these terms did not bind him, as they were not properly brought to his attention. The sign at the entrance to that area of the parking lot was too similar to the other signs, and he had no reason to suppose that what was set out on it was different. The owners should have known that he’d be driving past and couldn’t take the time to stop and look. Therefore, he’s not bound by the terms and doesn’t have to pay the $60.

Diff: 3      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Applied

Objective:  Chapter 6: 2. Explain consensus and the significance of a “meeting of the minds.”

Bloom’s Taxonomy:  Knowledge

 

 

125) Joe offered to sell Harry his car and agreed to hold the offer open for one week, expiring Saturday at noon. The Sunday after the offer was said to have expired, Harry phoned Joe to tell him that he decided to accept his offer and purchase his car. Joe said at that time that he had decided to keep the car and was just about to phone Harry to revoke the offer. Harry said, “Too bad,” and demanded performance of the contract. Explain the legal responsibilities of the parties.

Answer:  There is no contract. The offer expired at the end of a specific time (Saturday at noon) before there was an attempt to accept it.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

126) Joe offered to sell Harry his car for a specific price and Harry indicated that he needed some time to think about it. Two days later, Joe sold the car to a third party. That afternoon Harry phoned Joe and told Joe that he had decided to accept the offer and that he’d buy the car. Joe told him that it was too late; he had sold it to someone else. Harry said that it was offered to him first, and he insisted that he go through with the contract. Explain the legal liability of the parties.

Answer:  This is a binding contract, assuming that the offer had been accepted within a reasonable time. The fact that the car was sold to someone else does not automatically revoke the offer. Such a revocation by conduct must still be communicated to be effective.

Diff: 3      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

127) Joe offered to sell Harry his car for $500, but Harry said he needed some time to think about it. A couple of days later, Harry phoned back saying that he’d give Joe $450 for the car. Joe refused to take this. Then Harry said, “All right, I’ll accept your offer for $500.” Joe said that he’d changed his mind and refused to go through with the deal. Harry sued. Explain Joe’s legal liability.

Answer:  In this case, when Harry said he’d give Joe $450 it was a counter-offer, which wiped out the original offer. It was too late for Harry to accept the original $500 offer, since it had lapsed. At most, his supposed “acceptance” was another offer to purchase for $500, which was not accepted by Joe.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

128) Distinguish between an offer and an invitation to treat.

Answer:  An invitation to treat is an advertisement or other form of inducement to encourage someone to come and deal or negotiate and has no legal significance. An offer is a clear indication by one of the parties that they are willing to be bound by certain terms if the other party accepts. The offer is the first stage of the creation of the contract, whereas the invitation to treat is merely the communication process that takes place to bring the parties to the point where one makes the offer.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

129) What must be present in an offer before it qualifies as such?

Answer:  All of the important terms of the offer must be stated. The lesser terms can be implied, providing there is nothing in the offer indicating that something has been left out. Usually the important terms involve a description of the parties involved, the price involved, and the purpose or property.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

130) “A good example of an offer is goods placed on the shelves in a self-service merchandising situation, so long as they are clearly marked in price.” Explain the accuracy of that statement.

Answer:  This is inaccurate according to the case The Pharmaceutical Society of Great Britain vs. Boots Cash Chemists. Goods displayed in such a manner are invitations to treat, not offers.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

131) Sam had been a friend of Joe’s for a considerable period of time and had often accompanied him as he sailed his classic yacht. Sam had often communicated to Joe how much he would like to have the yacht. On Friday night, a friend told Sam that Joe had suffered some business reverses and was going to have to get rid of the yacht. Sam immediately wrote Joe a letter offering to purchase the yacht for $125,000. Unknown to Sam, Joe had written Sam a similar letter offering to sell the yacht for $125,000. These two letters passed in the mail. Sam received Joe’s letter at about 12 noon on Saturday, and Joe received Sam’s letter at about 2:30 p.m. on Saturday. Are these people bound in contract? Explain.

Answer:  No, they are not. There must be meeting of the minds. These letters merely indicate that one is willing to sell and the other willing to buy. There must be an indication that both understand that the deal has been made. There must be an offer and an acceptance. Here it’s just an exchange of offers.

Diff: 3      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

132) If the mail is a reasonable means for accepting an offer, is there a contract formed when the offeror drops a letter of revocation in the mailbox at the very same instant that the offeree drops a letter of acceptance in the mailbox? Explain.

Answer:  The revocation is effective only when received. However, the acceptance is effective when mailed because of the postbox rule. Therefore there would be a binding contract.

Diff: 1      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

133) Joe offered to sell Harry his car for $500. Harry responded by saying, “I accept, providing you install a new radio in that car.” Explain the legal relationship between the two parties.

Answer:  This is not a contract. The acceptance was qualified or conditional and therefore it was a counter-offer and not an acceptance. Joe is free to accept it or reject it.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

134) Is an “agreement to agree” binding?

Answer:  No. An offer must include all of the important terms and be accepted before a binding agreement will result.

Diff: 1      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

135) What are the ways in which an offer can come to an end prior to acceptance?

Answer:  (1) end of a specified time, (2) end of a reasonable time, (3) death or insanity of the offeror, (4) revocation of the offer, (5) rejection or counteroffer

Diff: 3      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

136) When is an offer incapable of being revoked?

Answer:  Where an option exists, where a subsidiary contract is implied, or where performance has begun in a situation involving a unilateral offer.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

137) To what does a “standard form contract” refer?

Answer:  To a contract with fixed terms prepared by a business.

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

138) What is an interim agreement?

Answer:  A binding contract that will subsequently be put into a more formal document.

Diff: 2      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

139) A contract with fixed terms prepared by a business is known as ________.

Answer:  a standard form contract

Diff: 1      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

140) A binding contract that will subsequently be put into a more formal document is known as ________.

Answer:  an interim agreement

Diff: 2      Type: ES      Page Ref: 185

Topic:  Ch. 6 – Elements of a Contract

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

141) A term making a contract conditional on future events is known as ________.

Answer:  a subject-to clause

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Recall

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

142) On Friday, Harlan offers to sell Lily his motorcycle for $1000. When Lily hesitates, Harlan tells her to take her time deciding, promising her he will give her the weekend to make up her mind. On Saturday, Harlan runs into Lily at the mall and informs her he has sold the bike to Angie instead. What recourse does Lily have?

Answer:  Lily is out of luck. Harlan’s promise to keep the offer open could be revoked and was not binding. If Lily had wanted Harlan to be legally bound to keep the offer open, she would have needed to give him something in return.

Diff: 1      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

143) What is a “subject-to clause”?

Answer:  A term making a contract conditional on future events.

Diff: 1      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

144) Mary received an unsolicited selection of CDs in the mail with a letter informing her that she was now a member of the CD of the Month Club. It also said that if she didn’t want these CDs, she could simply send them back. Otherwise, she would be billed $10 for each CD at the end of the month. She simply put them away, and did not respond. They continued to send her more CDs each month until she had received 100 of them over a period of 10 months. The club then sent her a letter demanding payment or they would take legal action. Explain her legal obligation in these circumstances.

Answer:  There is no contract under these circumstances. Her silence was not an acceptance so long as she did not use the CDs. Had she already joined the CD of the Month Club, however, and then failed to send back CDs she didn’t want, she would have likely been liable because of the ongoing relation she had established.

Diff: 3      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

145) Explain the nature of the postbox rule.

Answer:  When it is appropriate to respond by mail, the acceptance is effective when and where dropped in the mailbox.

Diff: 2      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Recall

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

146) Harry saw Joe in his classic Buick at a local drive-in restaurant and told Joe that he’d like to buy the car. He offered him $15,000. Joe said he had to think about it and that he’d let Harry know. Two days later, Joe decided that he needed the money and couldn’t afford to keep the car. He wrote Harry a letter accepting his offer and mailed it that afternoon. The next day, Harry phoned and told Joe he’d changed his mind and that he needed the money for something else. Joe told him about the letter, and in fact Harry received the letter that day after his phone conversation with Joe. Joe insisted on going through with the deal. Explain the legal liability of the parties.

Answer:  This could really go either way. If it was reasonable to respond by mail in these circumstances, then the postbox rule applies. The contract came into existence when the letter was posted, and there is a binding contract. If it wasn’t reasonable to respond by mail, then the acceptance must be communicated, and so the acceptance would not be effective until received, which was after the revocation. Therefore, there would be no contract.

Diff: 3      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

147) Harry saw Joe in his classic Buick at a local drive-in restaurant and talked about wanting to buy the car. Joe offered to sell it to him for $1500. Harry said he needed some time to think about it and that he would send him a letter. The next day, Joe changed his mind and mailed Harry a letter of revocation. The day after that, before Harry had received the letter of revocation, he sent a letter of acceptance to Joe. The next day the two letters arrived at their various destinations, Joe receiving Harry’s letter of acceptance just after Harry received Joe’s letter of revocation. Explain the legal liabilities of the parties.

Answer:  There is a legally binding contract here. Although the letter of revocation was sent before the letter of acceptance, the letter of revocation cannot be effective until received. Because the parties understood that they’d be communicating by mail, the letter of acceptance is effective when dropped in the mailbox because of the postbox rule. Therefore, the contract came into existence at that time, before any letter of revocation was received.

Diff: 3      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

148) Jones was a caterer and Smith was a florist. Jones won a contract to provide a banquet for a convention of florists. He wanted to decorate the hall with flowers. He sent a letter to Smith, describing what he wanted and asked for a price quote. Smith responded in a letter, dated January 5, offering to supply the flowers for $5000. Jones received the letter on January 10 and responded on the same date, saying his price was too high and that he would pay $4500. While that letter was in the mail, but before it had been received by Smith, Jones learned that the convention was on artificial flowers and the organizers wanted no real flowers on display. On January 13, Jones quickly sent another letter telling Smith to ignore the letter of January 10 and that he wouldn’t need any flowers at this time. This letter of the 13th was received on the 18th. Smith had received the letter of January 10 on January 15. Smith sent his letter of acceptance on the same day and placed orders to his suppliers for the flowers. The letter of acceptance was received by Jones on January 20. Is there a contract between Jones and Smith? Explain.

Answer:  Because the parties are communicating by mail, acceptance by this method is appropriate. The revocation sent January 13 was effective only when received on January 18. The acceptance of the counter-offer sent on January 15 was effective when mailed and a contract existed as of that time.

Diff: 3      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

 

 

149) Acceptance of an offer by email or web-based communication can create certain difficulties. What can be done to minimize the impact of such problems?

Answer:  Certain problems can be avoided by the businessperson specifying in a website advertisement or offer that acceptance is not effective until received, and also specifying which jurisdiction’s laws will apply.

Diff: 2      Type: ES      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Recall

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

150) Discuss the elements of a contract required for electronic commerce transactions.

Answer:  The legal status of an electronic commerce transaction is determined by contract law. Contract law specifies there must be five elements satisfied in order to form a binding contract. The elements include consensus, consideration, capacity, legality, and intention. Written evidence of a contract, while not generally required, is a sensible thing to have. In some cases, under the Statute of Frauds, writing and signatures are required for the transaction to be legally enforceable.

Diff: 2      Type: ES      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

151) Discuss the federal Uniform Electronic Commerce Act (UECA).

Answer:  The UECA has no legal standing but it serves as a model for the design of provincial legislation throughout Canada. The object is to make electronic documents and signatures as binding on parties as written ones. In general, the UECA recognizes electronic or digitally stored documents and signatures as satisfying those requirements. A signature equivalent may be a password or some other form of encryption that is controlled by the author of the document. The password or encryption would authenticate the document and give it the same status as one that was written and signed.

Diff: 2      Type: ES      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

152) Describe electronic signatures with respect to capacity.

Answer:  Electronic signatures are most effective in identifying people if used in conjunction with trusted third parties who provide a digital certificate that authenticates the identity of a party to the contract. It assists in determining a person’s age or mental capacity.

Diff: 2      Type: ES      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

153) What would be the result if a police officer arrived at the scene of crime in progress and demanded money from the victim to arrest the offender?

Answer:  Such a contract would be against public policy and void.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

154) From the point of view of consideration, would there be an issue if an off-duty police officer were hired to provide security services?

Answer:  Such a contract would likely be valid, as the officer is on his or her own time and not otherwise obligated to provide such services.

Diff: 3      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

155) The courts may enforce an unfair bargain.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 204

Topic:  Ch. 6 – Adequacy of Consideration

Skill:  Recall

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

 

156) A person is required to honour a gratuitous promise if made under seal.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

157) The promise of “love and affection” can constitute adequate consideration to support a contract.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

158) What is a “gratuitous promise”?

Answer:  A one-sided agreement the courts will not enforce.

Diff: 1      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

159) The requirement of consideration is satisfied if “some money” is promised in exchange for an act.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

160) There is a principle that says when a gratuitous promise to do something in the future causes someone to incur an expense, the promisor may be liable for failing to live up to that promise. What is this principle known as?

Answer:  Promissory estoppel

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

161) A one-sided promise the courts will not enforce is known as ________.

Answer:  a gratuitous promise

Diff: 1      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

162) Discuss the implications of a creditor agreeing to take less in full satisfaction of a debt.

Answer:  Under the common law, a gratuitous debt reduction is not enforceable; even if the partial payment is made, a creditor can still sue for the remainder. Many jurisdictions have passed legislation overruling this common law position if there is actual payment of the lesser sum.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

 

163) A reasonable price paid for requested services is referred to in law as ________.

Answer:  quantum meruit

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 9. Present some examples of valid consideration.

Bloom’s Taxonomy:  Knowledge

 

164) What is “quantum meruit“?

Answer:  The term means “as much as is deserved.” It is a reasonable price paid for requested services.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 9. Present some examples of valid consideration.

Bloom’s Taxonomy:  Knowledge

165) What is promissory estoppel?

Answer:  A principle that when a gratuitous promise to do something in the future causes someone to incur an expense, the promisor may be liable for failing to live up to that promise.

Diff: 2      Type: ES      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

166) The existence of a seal eliminates the need for the elements of a valid contract.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

167) The courts will use quantum meruit to determine what should be paid when a person providing services is not allowed to finish by a breaching party.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

168) Discuss the requirement of consensus in the formation of contract. In your answer, consider the role of offer and acceptance and also look at the degree of understanding required between the parties.

Answer:  Consensus is the first element discussed that must be present for a contract to exist. Usually most attention is focused on offer and acceptance, and to answer this question, students should show a good understanding of these requirements. This discussion should include the difference between an offer and an invitation to treat, as well as an understanding that it is the offer that contains the terms of the contract and that all major terms must be clear in that offer, although some minor ones can be implied. As far as acceptance is concerned, it should be clear that students know that consensus is not effective until communicated, thus completing the connection between the minds of the parties. They should also show an understanding of the operation of the postbox rule. But a vital component of the answer should relate to the concept of the meeting of the minds between the parties. It is not necessary that all parties understand the agreement, or even that they have read the agreement, only that the terms are clear and that, had they read it, they could have understood it. This is an objective rather than a subjective test. Students can also deal with the problems of mistake if they have read the relevant chapter. They then will discuss how the court deals with a mistake over the terms where both parties have a different understanding. Here the court will apply the principle that the reasonable expectations of the parties are to be enforced, and will apply whichever version is more reasonable. When both are equally reasonable, consensus is destroyed and there is no contract.

Diff: 1      Type: ES      Page Ref: 187

Topic:  Ch. 6 – Consensus

Skill:  Applied

Objective:  Chapter 6: 2. Explain consensus and the significance of a “meeting of the minds.”

Bloom’s Taxonomy:  Knowledge

 

169) In the Pharmaceutical case, it was decided that goods displayed on the shelf in a self-service merchandising situation were an invitation to treat rather than an offer. Discuss.

Answer:  This question gives students the opportunity to deal with the whole subject of offer and acceptance, including invitation to treat in the bargaining process. In fact, it is very difficult to determine at what point an invitation ends and an offer starts. It can be argued that the Pharmaceutical case goes too far and that these goods should have been an offer, not an invitation. In any case, students should distinguish between an invitation and an offer, clearly indicating that an invitation is just a method of encouraging the prospective customer to enter the bargaining process, bestowing no rights on the parties. The offer, on the other hand, is the first stage of the process bestowing on the offeree a legal power he didn’t have before—that is, the right to accept and create a binding contract. Students should indicate that they know what difference it makes if the goods on the shelf are an invitation or an offer. This essay question is less difficult, but it does give students an opportunity to demonstrate that they understand the essential elements of the bargaining process.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

170) Joe made an offer to sell his car to Harry, promising to keep the offer open for a week. However, he changed his mind, sold the car to someone else, and phoned Harry to inform him that he was withdrawing his offer because he had sold the car to someone else. Harry was angry and said that he wanted the car and was going to hold him to his promise to hold the offer open for a week. He sued for breach of contract. Will he win? Explain.

Answer:  No, he won’t. The offer was effectively revoked before the acceptance was made. The promise to hold the offer for a week is not binding unless there is some added consideration making it an option.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

171) Discuss the “freedom of contract,” explaining what the implications and limitations are in the context of contract law.

Answer:  Here students should first identify that what parties agree to in terms of contract law is generally unrestricted. It is important to note that this has implications in that the Courts do not look into the overall fairness or wisdom in a particular contract, but there are limits. As long as certain basic common law and statutory requirements have been met, parties are free to enter into whatever contractual arrangement suits them. The bargain struck does not need to be inherently “fair,” as long as it meets the fundamental requirements of consensus, consideration, capacity, legality and intent. It is also important to raise that the freedom of contract is restricted somewhat by legislation. Good students will note that sale of goods, consumer protection, employment, and other legislation do place limits on this freedom.

Diff: 1      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

 

 

172) Discuss the requirements for a valid offer, explaining both how an offer is to be communicated and how such an offer can be brought to an end.

Answer:  A valid offer must contain all of the essential terms to be included in the contract (although some insignificant terms can be implied). Offers must be distinguished from invitations to treat (which are part of the pre-negotiation process and without legal effect). An offer may be implied by conduct. Offers, however, must be communicated and can only be accepted by someone to whom the offer was made. Important terms, especially exemption clauses, must be disclosed. For an offer to be accepted, it must be in force at the time of acceptance. An offer can come to an end in a number of ways: end of a specified time, expiration of a reasonable time, death or insanity of the offeror, revocation of the offer, or rejection or counteroffer. Other factors can affect the existence of an offer as well, such as if an activity contemplated by the contract becomes illegal or if the subject matter of the contract is destroyed. Some offers cannot be revoked, such as where an option exists, where a subsidiary contract may be implied, or if performance has begun in respect of a unilateral offer.

Diff: 2      Type: ES      Page Ref: 188

Topic:  Ch. 6 – Offer

Skill:  Applied

Objective:  Chapter 6: 3. Describe a valid offer.

Bloom’s Taxonomy:  Knowledge

173) Explain the postbox rule and discuss its relevancy in the modern business world.

Answer:  This question requires students to demonstrate an understanding of the postbox rule and, in the process, also demonstrate a clear understanding of how the bargaining process works and the elements of offer and acceptance. Students should demonstrate an understanding of the rule itself: it only applies to an acceptance and, when applied, it makes the acceptance effective when and where sent, as opposed to the normal requirement that an acceptance is effective only where communicated to the offeror. It should also be clear that they understand that the rule can affect not only when a contract comes into existence (especially the problem of whether the offer was accepted before it expired) but also where the contract was made (which can determine what law applies and whether a court has jurisdiction). They must show an understanding that the postbox rule is an exception, and that it likely only applies to an acceptance. In any case, it clearly will not apply to other communication from the offeror, such as a revocation. Students should give an indication of how the rule arose—that it was simply to facilitate the needs of business when communicating at a distance, giving certainty to their dealing—and is not buried in some great principle of jurisprudence. Students should show that they understand that the rule only applies when it is appropriate to respond by mail, not every time the postal service is used. It is vital that students discuss the implications of the rule in our modern electronic society. They should indicate an understanding of the principle developed in the Entores case. That is, where instantaneous communications such as the telephone are in use, the rule will not apply. It is highly unlikely that the postbox rule will be applied to fax and email, even though it was extended to telegrams in the past.

Diff: 3      Type: ES      Page Ref: 196

Topic:  Ch. 6 – Acceptance

Skill:  Applied

Objective:  Chapter 6: 4. Describe an effective acceptance.

Bloom’s Taxonomy:  Knowledge

174) Discuss the validity of online transactions and the related issues that arise in transacting business over the Internet.

Answer:  Students should point out that online transactions often involve contracts and that the online environment does not undermine their validity. The elements required for a valid contract remain, although certain additional issues are raised. Offers accepted by email or through a website will be effective as long as the usual requirements are present. Good students will discuss “click-wrap” agreements. In particular, they will note that an Internet ad combined with “click-wrap” may constitute an offer, and that clicking “I Accept” (or the equivalent) can constitute valid acceptance. Buyers are well-advised to ensure that they carefully review license terms (and other provisions) prior to acceptance (as with any contract). Case law suggests that the form of the assent and the reasonableness of the terms will affect the enforceability of electronic contracts. It does not appear that the postbox rule will apply to online transactions, although this is not yet certain. Students should also point out that capacity issues are heightened in an online environment, as it difficult to know whether the person engaging in an online transaction is sufficiently old enough and possesses the mental faculties to enter into the transaction. Further issues arise when there is a requirement of writing. Many jurisdictions have passed legislation making electronic communication the equivalent to written documents. Provisions of the Uniform Electronic Commerce Act, for example, contain provisions validating electronic documents and signatures. Sale of goods law and consumer protection law remain relevant to this area.

Diff: 2      Type: ES      Page Ref: 201

Topic:  Ch. 5 – Electronic Transactions

Skill:  Applied

Objective:  Chapter 6: 5. Examine electronic transactions and the formation of contracts.

Bloom’s Taxonomy:  Knowledge

 

175) One of the requirements in a contract is that there be an exchange of consideration between the parties. Explain what is meant by consideration.

Answer:  Consideration is usually thought of as the price one pays for what has been bargained for in the contract. Both sides must pay a price and both sides must receive a benefit. But consideration is better thought of as the commitment of the parties to pay that price, whether it be in the form of money or some other benefit.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Recall

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

176) Discuss the requirement of consideration and its role and value in the formation of contracts. In your answer, be sure to deal with the issue of fairness in the bargaining process.

Answer:  Here students should deal with the nature of consideration. The essential nature of a bargain is that parties negotiate, eventually reaching a point where they are willing to exchange commitments that are to their mutual advantage. This is the heart of the marketplace, and contract law and the concept of consideration are key. A free bargaining process and the role of bargaining in the marketplace require that the courts don’t try to make bargains for the parties. The courts can’t interfere, or it would disrupt that market function. The courts, as a general rule, won’t concern themselves with whether a bargain was fair or not, or worry about the adequacy of the consideration given; that is the objective of bargaining. But if there is no consideration at all, it is clear there has been no bargain struck, and so the courts will find no contract. Students’ answers should show an understanding of this bargaining nature of contract law and also an understanding of why consideration is required but does not have to be fair. Students should also note that there are exceptions. Where there have been unconscionable contracts, the courts will look at the fairness of the bargain. Where there is a question of undue influence, insanity, or misrepresentation, the courts will look at the fairness of the consideration. But all of these relate to a breakdown in the market system, where the parties bargaining are not functioning at the same level, and so there is a consistency in the courts’ approach to the need for consideration even in these exceptions.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 6. Define “consideration” and the significance of “the price one is willing to pay.”

Bloom’s Taxonomy:  Knowledge

 

177) “One of the basic precepts in contract law is that any bargain struck must be fair to be enforceable.” Explain the accuracy of that statement.

Answer:  It’s only necessary that the consideration involved has some value. It’s not necessary that it be fair or reasonable.

Diff: 2      Type: ES      Page Ref: 204

Topic:  Ch. 6 – Adequacy of Consideration

Skill:  Recall

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

 

178) Joe owed Sam $500. Two days after the money was due, he came to Sam saying he couldn’t pay the $500, but if Sam would accept $300 as full payment, Joe would pay him right then and there. Sam agreed and the money was paid. Sam then sued for the other $200. Will he win?

Answer:  Probably not (depends on the jurisdiction). Most provinces have a statute in place which says that, if you agree to take less in full satisfaction of a debt and in fact take the money, you can’t sue for the difference.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 7. Discuss the irrelevance of the adequacy of consideration.

Bloom’s Taxonomy:  Knowledge

179) Joe, a university student, parked his car near Harry’s garage and went away to attend classes. Harry had noticed that there was glass on the street when he came to work that morning and was not surprised when he saw that several of the students’ cars parked in that location subsequently had flat tires. He went around when he had time during the day, to each of those cars, fixed the tires and put a bill on each vehicle charging $15 for the service. Joe had come back during the day and noticed his flat tire, and when he came back that evening was grateful that it had been fixed. He went over to the garage to thank Harry and told him that he would be happy to pay the $15, but he couldn’t do it until next week. In fact, he failed to pay the money, and Harry sued him for breach of contract. Explain the likely outcome.

Answer:  Harry would lose. This is an example of past consideration, and past consideration is no consideration. At the time the work was done, no bargain had been struck.

Diff: 3      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

180) Joe owed Sam $500. Two days before the money was due, he came to Sam and told him he couldn’t pay the $500, but if Sam would accept $300 right then, in full satisfaction of the debt, he would pay him that amount. Sam agreed, then later sued for the other $200. Will he win?

Answer:  Sam would lose. He received payment two days early and this is sufficient consideration to support the lower payment.

Diff: 2      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 8. Consider why gratuitous promises are not consideration.

Bloom’s Taxonomy:  Knowledge

 

181) Joe drove his car into Sam’s garage to have some repair work done. He told Sam to fix the carburetor. Sam worked on it most of the afternoon and found he had to rebuild the carburetor. He presented Joe with a bill for $250 when he returned. Joe refused to pay, saying that he had taken a law course and knew that, because they didn’t agree to a specific consideration ahead of time, he was not bound in contract. Was he correct? Explain.

Answer:  This is an example of a request for services, and in such circumstances, there is an obligation to pay a reasonable amount (quantum meruit). He could challenge the reasonableness of the charge, but he must pay a reasonable amount for the services requested and rendered.

Diff: 3      Type: ES      Page Ref: 203

Topic:  Ch. 6 – Consideration

Skill:  Applied

Objective:  Chapter 6: 9. Present some examples of valid consideration.

Bloom’s Taxonomy:  Knowledge

 

 

182) Explain any limitations on the availability of promissory estoppel.

Answer:  It can be used only as a defence, not as a cause of action (“as a shield but not a sword”).

Diff: 2      Type: ES      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Recall

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

183) Joe was a contractor and hired subtrades to help build his houses. Sam was a framer and had agreed to frame four houses for Joe for a set price. Joe was to supply the materials. After two houses were completed, Joe’s suppliers increased the cost of lumber and Joe told Sam that he could no longer pay him the amount that they’d agreed. Sam agreed to take 15% less for the other two jobs, which were then completed. During this time, regular payments were made from Joe to Sam, but the total amount received was 15% lower than the originally agreed on price for the last two jobs. Sam sued Joe for the original contract price, claiming that he’d received no consideration for his agreement to take less for the last two jobs. Explain what defences may be available to Joe under these circumstances and his likelihood of success.

Answer:  Joe could use promissory estoppel as his defence. Sam agreed to take less for the services that were performed on the last two jobs. This promise was relied on by Joe and therefore he can use Sam’s promise as a defence.

Diff: 3      Type: ES      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

 

 

184) Explain the principle of promissory estoppel and how it relates to the requirement of consideration in contract law. In your answer, explain any limitations on its availability.

Answer:  Here students are expected to show an understanding of the requirement of consideration in the law of contract. Consideration requires commitments or promises be made by both parties in order for there to be a binding contract. Where only one of the parties makes a commitment, this is a gratuitous promise and is not enforceable as a contract. Promissory estoppel, which is an equitable principle developed in the courts of England, provides that in some limited circumstances a person might be bound even by his gratuitous promise. Usually this is best illustrated by example. The vital point to make is that, in Canada at least, promissory estoppel can be used only as a defence, not as a cause of action. It is difficult to come up with a situation where it can be used because it requires that the person suing be the person who made the promise to be enforced. This can only happen where there is some prior legal obligation existing between the parties that was modified by the gratuitous promise and then the person making the promise ignores that promise and tries to sue to enforce the original right prior to the modification by the promise. Usually this is simply a situation where a prior contractual right is being discharged or modified by the gratuitous promise. It will take a bright student to explain this properly, but a very bright student should also indicate that promissory estoppel can only be used where the person using it relied on the promise in some way that they will suffer a detriment if it is not honoured. The essentials are that the student demonstrate that this principle will only be used where there is a one-sided promise and where it is being used as a defence, not as a cause of action.

Diff: 3      Type: ES      Page Ref: 209

Topic:  Ch. 6 – Promissory Estoppel

Skill:  Applied

Objective:  Chapter 6: 10. Outline two exceptions to the general rule that consideration is required if a promise is to be enforceable.

Bloom’s Taxonomy:  Knowledge

Business Law in Canada, 11e (Yates)

Chapter 7   The Elements of a Contract: Capacity, Legality, and Intention

 

1) Which one of the following is an example of a contract that is binding on an infant in jurisdictions other than British Columbia?

  1. A) A contract to purchase a new stereo
  2. B) A contract for a camera
  3. C) A contract for baseball tickets
  4. D) A contract for rent
  5. E) A contract for professional hairstyling

Answer:  D

Diff: 1      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

2) Which one of the following is an example of a contract that is binding on an infant in British Columbia?

  1. A) A contract to purchase a new stereo
  2. B) A contract for a camera
  3. C) A contract for baseball tickets
  4. D) A contract for a DVD purchase
  5. E) A contract for a student loan

Answer:  E

Diff: 3      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

 

3) When John bought a car from his father’s old classmate, Joe, he was only seventeen years old. The price of the car was $5000. He paid $1000 down and was to pay the remaining $4000 over time. With these facts in mind, which of the following statements is true? (Read each statement separately.)

  1. A) Even if the car is defective, John could not sue Joe.
  2. B) If John has an accident and refuses to pay the balance, Joe could successfully sue John for breach of contract.
  3. C) If John has an accident because of his negligent driving and he refuses to pay, Joe could successfully sue him in negligence to get around any difficulty in suing him in contract.
  4. D) If the car is defective, John could sue Joe for breach even though Joe could not sue him.
  5. E) If Joe didn’t realize John was only 17 years old, he can enforce the contract against him no matter what his age.

Answer:  D

Diff: 3      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

4) Requirements of a contract include capacity of the parties to contract, legality, and intention of the parties to be legally bound. Which of the following is false with regard to these elements?

  1. A) A restrictive covenant prohibiting one party to the contract from competing with the other is enforceable if it is reasonable between the parties and not contrary to public policy.
  2. B) The court can presume the intention of the parties to be legally bound, but a party to the contract can bring forward contrary evidence to rebut the presumption.
  3. C) If an adult cannot sue the other party to the contract because he is a minor, neither can the infant sue the adult.
  4. D) A seller that contracts with an infant cannot avoid the difficulties of enforcing the contract by suing him in tort instead of breach of contract.
  5. E) A person with mental incapacity might still be held to a contract even if, at the time of the contract, he didn’t understand the nature and quality of his act.

Answer:  C

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

 

5) What does the decision in Bayview Credit Union Ltd. v. Daigle illustrate?

  1. A) Businesspeople are at a risk when dealing with minors as if they are adults.
  2. B) Parents are responsible for contracts made by their children.
  3. C) Contracts made by children are void.
  4. D) When a minor enters into a contract, there is no consideration.
  5. E) A person under the age of majority cannot intend to enter into a contract.

Answer:  A

Diff: 2      Type: MC      Page Ref: 218

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

6) In Royal Bank of Canada v. Holoboff, the Bank sued Holoboff, a minor, who had sold his client card and personal identification number (PIN) to a third party who defrauded the bank. What was the result?

  1. A) Holoboff was found liable for the tort of conspiracy to commit fraud.
  2. B) Holoboff was found liable for breach of contract, despite being a minor.
  3. C) Holoboff was not liable for anything, as minors can never be liable.
  4. D) Holoboff’s parents were automatically liable for Holoboff’s tort.
  5. E) Holoboff’s parents were automatically liable for Holoboff’s breach of contract.

Answer:  A

Diff: 2      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

7) Randy, as his two older brothers before him, moved out of the house when he was quite young. When he was 17, he and his older brother, Ted, wanted to buy a condominium in Nelson. They both had jobs and the bank was willing to lend them money and take a mortgage on the condo. Which of the following is a correct statement about the law governing this situation?

  1. A) These contracts would be binding on Randy only if he disclosed the fact that he was a minor to the other parties.
  2. B) All contracts with infants are void.
  3. C) The mortgage agreement would be binding on Randy as an adult if he continued to make payments after reaching the age of majority.
  4. D) A mortgage granted by Randy to the bank is effective until a court orders otherwise.
  5. E) All infants’ contracts are enforceable as soon as they become adults.

Answer:  C

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

 

8) Ted, a seventeen-year-old high school student, was hired to perform in four episodes of Gossip Gidget. To keep up with his schoolwork and gaming, he contracted with Mr. Tech of Technoland for a $2000 laptop computer. He agreed to pay $500 down and the balance by monthly payments of $250. Read each of the following separately and indicate which is true.

  1. A) If Ted doesn’t make his payments, Tech can sue Ted’s parents because parents are liable for the debts of their minor children.
  2. B) This contract is void; therefore, Tech can repossess the laptop which is technically still his whether Ted makes the payments or not.
  3. C) If this contract is in writing and Ted doesn’t make his payments, Tech can sue Ted for breach of contract.
  4. D) This contract is a legal contract enforceable by Ted.
  5. E) This contract is a legal contract enforceable against Ted.

Answer:  D

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

9) In which of the following situations would an infant be bound by the contract he has entered into?

  1. A) A contract for the purchase of a bike with which to race.
  2. B) A government student loan.
  3. C) A contract for the purchase of a new leather jacket, where the merchant was not aware that he had several other jackets at home.
  4. D) A contract for the purchase of theatre tickets.
  5. E) A written contract for the purchase of a new stereo.

Answer:  B

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

10) Clem had wanted a piano for a long time. Although he was a minor, his mom gave him $300 and he took this with some savings and made a $500 down payment on a $3000 piano. The balance was to be paid over a three-year period. His mom signed the contract as a guarantor. Clem made the first three payments, but he damaged the piano trying to move it from the living room to his upstairs bedroom. He didn’t have the money to get it fixed. He quit playing, lost interest, and quit making his payments. On these facts, which of the following is false?

  1. A) Although the contract is unenforceable against Clem, if he affirms the contract after he reaches the age of majority, the seller will be able to sue him for breach of contract.
  2. B) Unless Clem affirms the contract or partly performs the contract after he reaches the age of majority, the seller cannot get any compensation from him.
  3. C) If Clem’s mother guaranteed the deal, she would be liable on her guarantee even if the contract were unenforceable against Clem.
  4. D) Because Clem is an infant, he cannot sue the seller, even if the piano is defective.
  5. E) Clem’s mother will be liable on the guarantee only if it is in writing.

Answer:  D

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Applied

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

11) Which one of the following correctly indicates the position of the parties in respect to contracts involving minors?

  1. A) All contracts with minors are void.
  2. B) Contracts with minors are unenforceable by the infant against the adult and by the adult against the infant.
  3. C) Contracts with minors are void, except beneficial contracts of service.
  4. D) An adult cannot sue the infant on the contract even if the infant affirms the contract after reaching the age of majority.
  5. E) An infant can enforce a contract made by an adult with him despite that fact that he is a minor.

Answer:  E

Diff: 2      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

 

12) Which of the following is incorrect with respect to the law of infants and their parents?

  1. A) As a general rule, parents are not responsible for the contracts of their children.
  2. B) As a general rule, parents are not responsible for the torts of their children.
  3. C) A parent is responsible for the debt of his child if that parent has guaranteed the loan.
  4. D) A parent can be liable for a tort committed by her child if it can be shown that the parent was negligent as well.
  5. E) A parent is responsible for the obligations of her children in both tort and contract law.

Answer:  E

Diff: 3      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

13) In jurisdictions other than British Columbia, which of the following is correct with respect to the law of infants?

  1. A) An adult cannot enforce any contract against an infant while the infant is still under age unless the contract is made binding by another statute (e.g., government student loans).
  2. B) An infant is bound by his contract for necessaries and beneficial contracts of service.
  3. C) An infant is not bound to repay his government student loan.
  4. D) A contract with an infant is “absolutely void” except those contracts for necessaries and beneficial contracts of service.
  5. E) If the adult did not know he was dealing with an infant, the adult is not bound by the contract.

Answer:  B

Diff: 1      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

14) Parents are responsible for their children’s actions in which of the following situations?

  1. A) Where the child enters into a contract for a new stereo
  2. B) Where the child carelessly breaks a window in a neighbour’s house
  3. C) Where a child purchases a needed new jacket
  4. D) Where an infant borrows money for college tuition
  5. E) Where an infant was acting as agent for the parents

Answer:  E

Diff: 1      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

 

15) Joe was in a bar and saw his friend Sam. Sam had had a considerable amount to drink. Sam offered to sell Joe his Porsche automobile for only $15,000. Joe made sure to have Sam sign a written agreement to that effect. The next day, Joe went to pick up the car, but Sam didn’t remember anything about it. Even when Joe showed him the written agreement signed by him, Sam refused to deliver the car. Joe sued. Which of the following correctly states the legal position of the parties?

  1. A) If Joe can show that there was no indication that Sam was drunk, even though Sam was completely incapacitated, he will be required to go through with the deal.
  2. B) Sam just has to show he was legally intoxicated, and he will not be bound.
  3. C) As long as Joe can produce the agreement in writing, there is nothing Sam can do to get out of the deal. Once Sam has signed the document, he is responsible for its contents.
  4. D) Sam will not have to go through with the deal because no money has yet changed hands.
  5. E) Being drunk is no excuse and the contract is binding.

Answer:  A

Diff: 3      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

16) The case of Canadian Imperial Bank of Commerce v. Milhomens examined the effect of one party’s insanity on a contract. What did the Court find?

  1. A) For a contract to be voidable because of insanity, one party must be insane and the other party must have known (or ought to have known) of the insanity.
  2. B) If a person has the mental faculties to sign a contract, that person cannot be insane.
  3. C) If an insane person enters into a contract, that contract is automatically void.
  4. D) Contracts are not enforceable by either party if one party can establish a mental defect.
  5. E) The relevant test for insanity is simply whether one party believed the other to be insane at the moment the offer was made.

Answer:  A

Diff: 3      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

 

 

17) A requirement for the existence of an enforceable contract is that the parties have the legal capacity to contract. Which of the following is incorrect with respect to the law of incapacity?

  1. A) If someone contracts with an insane person but there was no indication of mental illness, the contract can be binding.
  2. B) A contract by an insane person for necessities, such as food, is binding.
  3. C) The law governing contracts with persons intoxicated by alcohol or drugs is the same as the law governing contracts with the insane.
  4. D) If a mentally impaired person cannot avoid a contract on the basis of insanity, the court could still set the contract aside for being an “unconscionable” transaction.
  5. E) If you knew that you were negotiating a new lease, but that you weren’t being as effective as you wanted to be because you had been drinking, you can have the resulting contract set aside.

Answer:  E

Diff: 2      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

 

18) Which of the following is incorrect with respect to the law of incapacity?

  1. A) To escape a contract on the basis of insanity, the insane person need only show that he did not know what he was doing at the time the contract was formed.
  2. B) Even after the passage of the Charter of Rights and Freedoms, some contracts entered into with status Indians cannot be enforced.
  3. C) Married women are no longer incapacitated.
  4. D) Some Crown corporations have limited capacity to contract.
  5. E) Trade unions may have limited capacity to contract.

Answer:  A

Diff: 1      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Recall

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

 

19) One afternoon while Mr. Reston was going home on the bus, his neighbour, Mr. Outovit, offered to sell Reston his car for $4000, a bit below the market value. Reston said, “You might change your mind on that. Better not be too hasty with your offers.” Outovit answered, “I want to sell it quickly,” and wrote on the back of an envelope, “I hereby offer my neighbour, Reston, my 2011 Chevrolet for $4000 cash.” He signed his name. Reston wrote, “I accept.” The next day, Reston went to his neighbour’s house to pay the money and get the car. He learned that Outovit was in hospital, unconscious from a reaction to medicines given to him the day before. If Outovit (or his legal representative) refuses to honour the contract on the basis of mental incapacity, which of the following is true?

  1. A) If Reston can show the written contract, Outovit has no argument and will be bound to honour the contract.
  2. B) Outovit need only prove that he didn’t understand the nature and quality of his act to void the contract.
  3. C) Outovit won’t be bound by the contract because there hadn’t yet been the payment for, or delivery of, the car.
  4. D) If it is established that Reston didn’t know Outovit was incapacitated at the time of contract and that the deal was fair, Outovit will be bound by the contract even if he didn’t understand the nature and quality of his act.
  5. E) To get out of a contract on the basis of insanity you have to be institutionalized.

Answer:  D

Diff: 3      Type: MC      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

 

20) Which of the following are in no way incapacitated when entering into contracts?

  1. A) Mentally disabled
  2. B) Women
  3. C) Children
  4. D) Status Indians
  5. E) Trade unions

Answer:  B

Diff: 1      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

 

 

21) Which one of the following categories of persons do not have their capacity to enter into contracts limited?

  1. A) Married women
  2. B) Infants
  3. C) Status Indians
  4. D) Insane or intoxicated persons
  5. E) Bankrupts

Answer:  A

Diff: 1      Type: MC      Page Ref: 217

Topic:  Ch. 7 – Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

22) All of the following contracts would be illegal, and not binding on the parties, except

  1. A) a contract whereby one person agrees to spread false and damaging information about another.
  2. B) a contract whereby one person agrees to sell a banned substance (e.g., cocaine) to another.
  3. C) the act of paying for sexual favours (prostitution).
  4. D) a contract between camera dealers whereby they agree not to sell a specific model of camera below a specified price.
  5. E) a contract in which a lawyer agrees to represent an accused where the accused did commit the crime.

Answer:  E

Diff: 1      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

23) Which of the following statements is correct with respect to the legality of contracts?

  1. A) A judge can refuse to enforce a contract that involves conduct that is not prohibited by law but which court precedent considers morally unacceptable.
  2. B) When two merchants agree not to sell a certain product below an agreed price and the product is not readily available from others sources, this is legally permissible as long as they intend their promises to be legally binding.
  3. C) Insurance taken out on property you don’t own is valid as long as the insurance company has been informed that you have no interest in the property.
  4. D) An agreement that one merchant won’t open up a business in competition with another is enforceable as long as there is consideration on both sides.
  5. E) An agreement where one party agrees to pay another to sue a third for tort is legally enforceable.

Answer:  A

Diff: 2      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

24) Which of the following types of contracts would not be considered illegal?

  1. A) Contracts that reasonably restraint trade
  2. B) Contracts to commit a tort
  3. C) Contracts preventing someone from marrying
  4. D) Contracts that obstruct justice
  5. E) Contracts that promote litigation

Answer:  A

Diff: 1      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

25) A provision in a contract for the sale and purchase of a business read as follows: “The vendor (Jones) shall not, directly or indirectly, in any capacity whatsoever, carry on a similar business in any location for one year.” Six months later, Kates found that Jones was competing directly by opening up a similar business, contrary to the contract drafted by Kates. Kates sued Jones for breach of contract, namely, breach of the restrictive covenant. Which of the following best describes the legal position of the parties?

  1. A) This provision is in restraint of trade and causes the whole contract to be void.
  2. B) Although this type of provision is illegal, this particular one would be enforceable because it is reasonable between the parties and not contrary to public policy.
  3. C) Such provisions are always void, being an illegal restraint of trade.
  4. D) Although this provision would be void, the remainder of the contract for the sale of the business would be enforceable.
  5. E) Agreements such as these are always binding, being the result of a free bargain between the parties.

Answer:  D

Diff: 3      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

26) In Ascent Financial Services Ltd. v. Blythman, the Court decided

  1. A) that Anna and Art were in breach of both the sale of goodwill agreement and the non-competition agreement, as well as their fiduciary duty.
  2. B) that Carolyn and Don were in breach of both the sale of goodwill agreement and the non-competition agreement, as well as their fiduciary duty.
  3. C) that Carolyn and Don were in breach of only their fiduciary duty.
  4. D) that Anna and Art were in neither in breach of the sale of goodwill agreement nor the non-competition agreement.
  5. E) that Anna only and not Art was in breach of her fiduciary duty.

Answer:  A

Diff: 2      Type: MC      Page Ref: 230

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

27) In Transport North American Express Inc. v. New Solutions Financial Corp., various payments were found to be “interest” within the meaning of s. 347 of the Criminal Code. The interest rate applied was illegal. The Supreme Court applied “notional severance,” resulting in a reduction of the interest rate. The Supreme Court of Canada outlined four factors to consider when deciding whether to declare an illegal contract void, or to partially enforce it. Which of the following is not one of those factors?

  1. A) Whether the contract was a standard form agreement
  2. B) Whether the purpose or policy of s. 347 would be subverted by severance
  3. C) Whether the parties entered into the agreement for an illegal purpose or with an illegal intention
  4. D) The relative bargaining positions of the parties and their conduct in reaching the agreement
  5. E) Whether the debtor would be given an unjustified windfall

Answer:  A

Diff: 2      Type: MC      Page Ref: 227

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

28) A woman forged her husband’s signature on dozens of cheques. In an attempt to protect her from prosecution, the husband signed a letter prepared by the Bank agreeing to assume all liability for the forged cheques. What would the Court find in relation to this agreement?

  1. A) As an agreement to stifle a criminal prosecution, it was an illegal contract and therefore void.
  2. B) The agreement was unenforceable because the Bank lacked capacity to enter into such an agreement.
  3. C) The agreement was unenforceable because the husband was under duress at the time he signed it.
  4. D) While the Bank acted improperly, “freedom to contract” establishes that the agreement must be enforced.
  5. E) Because the husband acted improperly, the agreement was voidable by the Bank on the basis of illegality.

Answer:  A

Diff: 3      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

29) Lawer entered into a contract for the sale of his business, a barbershop, to Cutter. The contract provided that Lawer would not open up a similar business within 25 kilometres of the barbershop being sold. About two weeks after the sale, Cutter noticed a new barbershop opening across the street in brand-new facilities. When he learned that the owner of the new shop was the very Lawer who sold the business to him, he sued for breach of contract. Which of the following correctly indicates the legal position of the parties?

  1. A) The court needs to determine only that the distance of 25 kilometres is reasonable; if it does, the restriction is valid and Cutter will succeed.
  2. B) Any attempt to restrict competition is illegal, and no matter how reasonable the terms are, the provision will be void.
  3. C) The provision will be void as it is broader than necessary to protect the goodwill of the business.
  4. D) If the restriction is illegal, the whole contract for the sale and purchase of the business is necessarily void and Cutter can return the barbershop for the return of the purchase price.
  5. E) To determine whether or not the restriction is binding, the court asks only one question: does it reduce competition?

Answer:  C

Diff: 3      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

30) The court may hold that a contract is void, voidable, unenforceable, or illegal. Which of the following is true with regard to these terms and the court’s use of them?

  1. A) “Void” is the same as “unenforceable.”
  2. B) If a contract is held to be void, it is a contract, but for some reason, one party can end it.
  3. C) If a contract is held to be illegal, the plaintiff will get some help, because the court will try to put the parties back to their original position.
  4. D) If a contract is unenforceable, it means it doesn’t exist.
  5. E) If a contract is held to be void, it never was a contract.

Answer:  E

Diff: 3      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

31) A void contract means that

  1. A) there is no contract.
  2. B) the contract cannot be enforced.
  3. C) the infant can escape the contract.
  4. D) the adult can escape the contract.
  5. E) the contract is illegal.

Answer:  A

Diff: 1      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

32) Jones entered into a contract for the sale of his barber shop to Harry Cutter. One of the terms of the contract was that Jones would never open up a similar business within 50 kilometres of the location of the barber shop being sold. About two weeks after the sale, Cutter noticed a new barber shop opening across the street with brand-new facilities and equipment. When he learned that the owner of the new shop was the very Jones who sold the business to him, he sued for breach of contract. Which of the following correctly indicates the legal position of the parties?

  1. A) If the 50 kilometres is determined to be reasonable, this restriction will be valid and Harry Cutter will succeed.
  2. B) Any such attempt to restrict competition is illegal and, no matter how reasonable the terms are, the provision will be void.
  3. C) The time period of the restrictive covenant is too broad and would be found to be void or non-enforceable.
  4. D) The whole contract for the sale of the business is void because of the illegal term, and therefore Harry will be able to force Jones to take his barber shop back and return the purchase price.
  5. E) These terms are enforceable no matter how unreasonable because they are part of the bargain struck.

Answer:  C

Diff: 2      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

33) Which of the following attempts to form a contract would the court declare to be void?

  1. A) A contract in which one of the parties was an infant at the time the agreement was formed
  2. B) An oral agreement for the sale of land
  3. C) A written promise to guarantee the debt of another person
  4. D) An oral agreement for a lease of land for two years
  5. E) A promise by one person to pay another to defame a third

Answer:  E

Diff: 1      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

34) A provision that restricts the seller from competing with the buyer in a contract for the sale of a business is

  1. A) always enforceable because the parties to a contract have the freedom to contract as they see fit.
  2. B) always unenforceable because any attempt to restrict competition is an illegal restraint of trade.
  3. C) fatal to the whole contract (i.e., it causes the whole contract to fail).
  4. D) enforceable if it is reasonable between the parties, which means that it must be limited in time (e.g., one year) but need not be limited in area.
  5. E) enforceable if it is reasonable between the parties and not contrary to public policy.

Answer:  E

Diff: 2      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

35) Smith ran a software design business. He needed someone to handle some of the product demonstrations, so he hired Janet to do this work. In the employment contract, he insisted that Janet promise that if she left the firm, she would not work for Smith’s competitors within a stated period of time and within a stated geographical region. If Janet now wishes to leave the job, indicate the statement that accurately describes the likely effect of her promise.

  1. A) Such promises are in restraint of trade and thus the courts invariably hold them to be invalid.
  2. B) Such promises are invariably held to be valid when they are part of the terms of employment and thus are given in consideration for getting the job.
  3. C) Such promises are valid only if given under seal.
  4. D) If the court holds such a promise to be invalid, then the whole employment contract is necessarily void as well.
  5. E) If the court thinks that such a promise is reasonable between the employer and employee and that the public interest will not be damaged, then it will enforce it.

Answer:  E

Diff: 3      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

36) Assuming that all other elements of a contract are present, which of the following would most likely be held to be a binding contract, considering only the requirement that the object of a contract must be legal and not contrary to the public interest?

  1. A) An insurance policy paid by a shareholder to insure the business premises of a company he holds shares in
  2. B) A life insurance policy bought by Harvey insuring the life of his neighbour Kneival without Kneival’s consent
  3. C) An agreement to pay $500 to Mildred if Mildred spreads the false rumour that Helen, a nurse, has AIDS
  4. D) A provision in a contract of employment where the employee agrees that, upon leaving, he will not work in a similar business anywhere for 5 years
  5. E) An agreement in which Fred agrees not to bother his father anymore

Answer:  A

Diff: 2      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Applied

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

37) Which of the following best describes an illegal contract?

  1. A) A contract that is illegal at the time it is formed
  2. B) A contract that is illegal in the way in which it is performed
  3. C) A contract that has been breached by one of the parties
  4. D) A contract that lacks consensus, consideration, capacity, and intention
  5. E) A contract that results in civil litigation

Answer:  A

Diff: 1      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

38) Which of the following contracts is void?

  1. A) A contract with an insane person for a TV, where the insane person, or his legal representative, can prove that he was insane at the time of the contract but cannot prove anything else about the incident
  2. B) A contract with an insane person for necessaries such as food and shelter
  3. C) A contract containing an exculpatory clause limiting the liability of one of the parties
  4. D) Any contract with a status Indian
  5. E) A contract to sell a bag of cocaine

Answer:  E

Diff: 2      Type: MC      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

39) Which of the following is true with regard to the intention of the parties to an agreement to enter into a legal relationship? Where appropriate, assume that all the other elements necessary to form a contract are present.

  1. A) An intention to be legally bound is not a necessary element of a contract.
  2. B) Since family matters are private matters, an agreement between a husband and wife to transfer property from the husband to the wife could not be a contract even if all the other elements of a contract were present.
  3. C) The court will presume there is always an intent to be legally bound in family situations.
  4. D) The court makes presumptions about the intention of parties to be bound, whether that presumption may be rebutted by evidence to the contrary, makes no difference to the court.
  5. E) Parties may expressly state their intention to be legally bound, in which case the court need not rely on presumptions.

Answer:  E

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

40) Joe was unable to find work in the city where he lived and had to go to the mining camps up north to find work. When he left, he agreed to send his wife $2500 a month from his pay to support her and their children. In fact, he had some unexpected expenses and failed to send the promised funds for two months. Which of the following correctly states the legal position of the parties?

  1. A) Since this is a domestic relationship, there is a presumption that there is no contract.
  2. B) Since this is a domestic relationship, there is a presumption that there is a contract.
  3. C) Because of the marital obligation, there is always an enforceable contract in these circumstances.
  4. D) The court will make no presumptions in these circumstances because there is never a contract between husband and wife.
  5. E) The court will enforce the promise only if they determine it to be reasonable.

Answer:  A

Diff: 1      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

41) A necessary element of a contract is that the parties must have the intention to be legally bound. Which of the following is true with regard to this element of a contract?

  1. A) In contract cases, the court hears evidence as to what the parties actually had in their minds at the time of contract.
  2. B) If the parties fail to state expressly in their contract their intention to be legally bound, there is no contract.
  3. C) The court always presumes an intention to be legally bound, so this is never an issue in a contract case.
  4. D) The court can presume the intention to be legally bound, but a party to the contract can bring forward contrary evidence to rebut the presumption.
  5. E) Family members can never have the intent to be legally bound in their agreements because family matters are private matters.

Answer:  D

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

 

42) Which of the following is false with regard to the intention of the parties to an agreement to enter into a legal relationship? Where appropriate, assume that all the other elements necessary to form a contract are present.

  1. A) An intention to be legally bound is a necessary element of a contract; without it there is no contract.
  2. B) Since family matters are private matters, an agreement between a husband and wife to transfer property from the husband to the wife could not be a contract even if all the other elements of a contract were present.
  3. C) The court will presume there is no intent to be legally bound in social situations.
  4. D) Although the court makes presumptions about the intention of parties to be bound, the presumption may be rebutted by evidence to the contrary.
  5. E) Parties may expressly state their intention to be legally bound, in which case the court need not rely on presumptions.

Answer:  B

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Recall

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

43) Which of the following is correct with respect to the law of intention?

  1. A) Since domestic relationships are serious, there is a legal presumption that in such relationships there is an intention for the parties to be legally bound by their agreements.
  2. B) In commercial arrangements, there is always an intention to be bound by agreements no matter what the parties state to the contrary.
  3. C) In domestic agreements, there is a presumption that there is no intention to be legally bound.
  4. D) Where intention is the issue, there is never any presumption for or against intention; the courts will always apply the reasonable person test.
  5. E) Since domestic relationships are serious, the parties to such relationships are always bound by their contracts with each other.

Answer:  C

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Recall

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

 

44) Sue had a beautiful lakeside cottage that had been in her family for years. Times became a little tight, and Sue decided she had no choice but to sell the property. Sue agreed to sell the cottage property to her neighbour Bob for the sum of $250,000. Although Sue was ecstatic about the price early on, she soon changed her mind. There were too many memories for her to give the property up. Which of the following, by itself, would be the biggest barrier to Bob in enforcing the agreement?

  1. A) Unknown to Bob, at the time of the agreement Sue was mentally incapacitated.
  2. B) The $250,000 price was not adequate under the circumstances.
  3. C) Bob and Sue had an agreement that their contract was not to be enforceable.
  4. D) Although Sue had written a letter to Bob that discussed the essential terms of the agreement, Bob and Sue had not executed a written agreement.
  5. E) No money had yet exchanged hands.

Answer:  C

Diff: 3      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

45) Mrs. Johnson is thinking of selling some property to her son. Which of the following is correct with respect to intention when entering into such a contract?

  1. A) Since domestic relationships are serious, there is a legal presumption that in such relationships there is an intention for the parties to be legally bound by their agreements.
  2. B) In commercial arrangements, there is always an intention to be bound by agreements no matter what the parties state to the contrary.
  3. C) In domestic agreements, there is a presumption that there is no intention to be legally bound.
  4. D) When intention is the issue, there is never any presumption for or against intention; the courts will always apply the reasonable person test.
  5. E) Commercial contacts are always binding, no matter what the stated intention.

Answer:  C

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

 

46) In the classic case of Carlill v. Carbolic Smoke Ball Company, the defendants manufactured a product they claimed would protect against influenza. The company advertised that it would pay a specific sum of money to anyone who contracted influenza while using their product and put money on deposit to demonstrate their sincerity. When Mrs. Carlill claimed the money, the company argued that these statements were not intended to be taken seriously. What did the Court decide?

  1. A) There was intention because a reasonable person would have thought that the advertisement was serious.
  2. B) There was intention because Mrs. Carlill took the advertisement seriously.
  3. C) There was no intention because the claims made by the company were not put into a standard form agreement.
  4. D) There was no intention because the company did not intend for the statements to be taken seriously.
  5. E) Intention is irrelevant to whether or not a contract is valid.

Answer:  A

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

47) The contract signed by XYZ Ltd. and Charles provided that the company would receive a licence to use the computer program that Charles was creating, that Charles would complete the program by January 15, 2015, that Charles would retain copyright, and that Charles would receive $10,000 on completion of his work. Two weeks before the due date, Charles told the president of the company that he was not going to complete the program on time. The president said, “Don’t worry about it; get it done as soon as you can.” Charles was 10 days late in completing the work. The delay caused the company to lose money, so it sued Charles for damages. On these facts (which you should assume can be proved), which of the following is false?

  1. A) The company has the right to sue even though it is not a natural person.
  2. B) If this case were heard in the B.C. Supreme Court, the judge would have to follow a precedent on the point set by the B.C. Court of Appeal.
  3. C) Charles could enter his defence and could also enter a counterclaim if he felt he had an action against the company.
  4. D) Charles could use equitable (promissory) estoppel as a defence.
  5. E) The company doesn’t have the right to sue because the law would presume that the parties did not intend to be legally bound.

Answer:  E

Diff: 2      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

 

48) Mr. Buyer, the plaintiff in the action, is attempting to enforce a contract in which the defendant, Mr. Seller agreed to sell to Buyer his property, Blackacre, for $100,000. Which of the following, by itself, would be sufficient to allow Mr. Seller to get out of the contract?

  1. A) The $100,000 was not enough, so was not fair.
  2. B) At the time of the contract, unknown to Mr. Buyer, Mr. Seller did not understand the quality and nature of this act because of mental incapacity.
  3. C) Although there was a letter from Mr. Seller referring to its essential terms, the contract itself was not in writing.
  4. D) Although both parties agreed to this, there had not actually been any money paid on the contract, not even a deposit or a down payment.
  5. E) The parties clearly stated that they did not want the agreement to be legally binding.

Answer:  E

Diff: 3      Type: MC      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

49) Which one of the following is required to be evidenced in writing under the Statute of Frauds or its equivalent?

  1. A) A contract of employment
  2. B) A contract to incur debt
  3. C) A guarantee
  4. D) Any contract involving money over $1000
  5. E) Any contract involving goods

Answer:  C

Diff: 1      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

50) In which of the following situations would the contract relating to land not be enforceable?

  1. A) An unwritten agreement to have a garage built on the land
  2. B) An unwritten sale of land where the seller allowed the buyer to enter the property and commence construction thereon
  3. C) An unwritten lease for a term of five years
  4. D) An unwritten lease of a lawn mower used to maintain the land
  5. E) An unwritten sale of land where the sale was acknowledged in subsequent correspondence signed by the party denying the existence of the sale

Answer:  C

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

51) If the court classifies the nature of a third-party agreement as a(n) ________, there is no requirement of writing.

  1. A) guarantee
  2. B) obligation
  3. C) indemnity
  4. D) provision
  5. E) equity

Answer:  C

Diff: 1      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

52) When there is a(n) ________ (a right to seize property), or when there is a right to set off a debt against the obligations created by the contract, the parties themselves may be able to enforce the contract without the help of the courts.

  1. A) provision
  2. B) indemnity
  3. C) lien
  4. D) obligation
  5. E) court order

Answer:  C

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

53) A guarantor promises that if the ________ fails to pay the debt, he will assume responsibility and pay it.

  1. A) debtee
  2. B) court
  3. C) debtor
  4. D) offeror
  5. E) offeree

Answer:  C

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

 

54) A(n) ________ describes a relationship in which a third party assumes a primary obligation for the repayment of the debt along with the debtor.

  1. A) debtor
  2. B) binding agreement
  3. C) promise
  4. D) indemnity
  5. E) guarantor

Answer:  D

Diff: 1      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

55) The distinction between a guarantee and a(n) ________ is important, because in most provinces the Statute of Frauds requires that only a guarantee be in writing.

  1. A) obligation
  2. B) agreement
  3. C) promise
  4. D) indemnity
  5. E) interest

Answer:  D

Diff: 1      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

56) When a third party says, “I’ll see that you get paid,” there is an assumption of a primary obligation, and the promise is a(n)

  1. A) indemnity.
  2. B) guarantee.
  3. C) contract.
  4. D) obligation.
  5. E) interest.

Answer:  A

Diff: 3      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

 

57) If a third party incurs a secondary liability for a debt, he has given a(n)

  1. A) indemnity.
  2. B) guarantee.
  3. C) obligation.
  4. D) debt.
  5. E) easement.

Answer:  B

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

58) (Modify this question for your jurisdiction.) Bill, a college graduate, rented office space under a two-year lease. He needed the space because he contracted with the provincial government to create a program to integrate the various inventories of different government agencies. Bill hired Janet and Fred as full-time programmers for one year. He bought three desks for cash. He bought several laser printers, for which his dad signed as a guarantor. He bought computers from a different seller under a conditional sales contract. Which of these contracts should be evidenced in writing to be enforceable?

  1. A) The contract with the government, because it will take more than a year to complete
  2. B) The employment contracts
  3. C) The contracts for the desks
  4. D) The dad’s guarantee
  5. E) The lease

Answer:  D

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

 

59) Joe saw an ad in a paper for the sale of a house in a residential area of Victoria. He approached Sam, the owner, and after some negotiation Sam orally agreed to sell the house to Joe for $750,000. Joe gave Sam $100,000 cash as a partial payment, the rest to be given upon transfer of the house. Two days later, Sam changed his mind and sent Joe a letter referring to the deal and stating that he would not honour the agreement. Which of the following is correct with respect to the legal position of the parties? Assume all the facts can be proved.

  1. A) Sam is not bound by the agreement as the contract was not in writing.
  2. B) Sam will not be bound because no oral agreement is ever enforceable.
  3. C) Even if the letter gives evidence of the deal in writing, it cannot satisfy the requirement of writing. It is the whole contract that must be in writing.
  4. D) If the letter mentions the important terms (such as price) and identifies the specific property, Sam must go through with the contract.
  5. E) The contract is void unless it has been partially performed.

Answer:  D

Diff: 3      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

60) Given the provisions of the Statute of Frauds, which of the following contracts should be evidenced in writing?

  1. A) A sale of goods involving $4
  2. B) A retainer with a lawyer
  3. C) An employment contract
  4. D) A sale of land
  5. E) Domestic agreements

Answer:  D

Diff: 1      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

61) Which of the following agreements has to be in writing under the original Statute of Frauds in order to be enforceable?

  1. A) An agreement to sell a car on January 1 of the following year
  2. B) An agreement by a creditor to accept $800 in full satisfaction of a debt in the amount of $1000
  3. C) A lease of a vehicle for a term commencing on November 1, 2016, and expiring November 1, 2019
  4. D) An agreement for the sale of a farm animal
  5. E) An agreement for the sale of a building lot

Answer:  E

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

62) Mr. Buyer, the plaintiff in the action, is attempting to enforce a contract in which the defendant, Mr. Seller agreed to sell to Buyer his property, Blackacre, for $100,000. Which of the following, by itself, would be sufficient to allow Mr. Seller to get out of the contract?

  1. A) The $100,000 was not enough, so was not fair.
  2. B) At the time of the contract, unknown to Mr. Buyer, Mr. Seller did not understand the quality and nature of this act because of mental incapacity.
  3. C) Mr. Buyer referred to essential terms in a letter sent to Mr. Seller.
  4. D) Although both parties agreed to this, there had not actually been any money paid on the contract, not even a deposit or a down payment.
  5. E) There was only a verbal agreement between Mr. Seller and Mr. Buyer.

Answer:  E

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

 

63) Negotiations between Dave and Mary resulted in the following agreement: Dave would sell his property to Mary for the sum of $150,000 with the closing date to be August 10. When the two completed their discussion, Mary paid Dave $5000 as part payment of the purchase price and received a receipt. The contract was not in writing. On August 10, Mary tendered the remainder of the money, but Dave refused to convey the property. Mary sued Dave for breach of contract. On these facts, which of the following is true? (Assume all facts can be proved.)

  1. A) Mary cannot enforce this contract because the contract was not in writing.
  2. B) Mary cannot enforce this contract because the contract was not evidenced in writing.
  3. C) Mary can enforce this contract if the receipt specified the part payment was for the property in question.
  4. D) Mary cannot enforce the agreement because all of the consideration was not paid.
  5. E) Mary cannot enforce the agreement because she had not paid Dave all of the money.

Answer:  C

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 8. Explain the principle of part performance.

Bloom’s Taxonomy:  Knowledge

64) In which of the following situations would there be an enforceable contract despite the lack of a written contract?

  1. A) Jack agrees to build a garage for Sam after he finished the remainder of his 2-year army hitch (he has 14 months left).
  2. B) Jack leases a storage facility for duration of his 2-year army hitch.
  3. C) Contractor Joe agreed to build a $250,000 home for Sam on Sam’s land, to be completed no later than 9 months from the date of agreement.
  4. D) Sam agreed to trade his vacation cottage with Joe in exchange for Joe’s yacht.
  5. E) Sam agreed to guarantee a loan for his friend Joe.

Answer:  C

Diff: 2      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 8. Explain the principle of part performance.

Bloom’s Taxonomy:  Knowledge

 

 

65) Zlotnik incorporated a company shortly after graduation. The company bought a truck and a computer. The company was short of operating capital so, through its agent Zlotnik, borrowed $10,000 from the bank. In consideration for its loan, the bank took, in addition to the company’s promise to pay the bank both principal and interest, a security agreement on its truck and computer. The company made its payment each month without incident. Then the stock market took a tremendous fall, which caused the officer of the bank to call Zlotnik and ask him to guarantee the company’s debt. The company was doing very well, so Zlotnik agreed to be guarantor of the debt. On these facts, which of the following is true?

  1. A) Because Zlotnik’s promise is a guarantee and not an indemnity, he automatically becomes the legal person primarily liable on the debt; the company becomes secondarily liable.
  2. B) Zlotnik’s promise to guarantee the debt is unenforceable because it is not supported by any consideration flowing from the bank to Zlotnik.
  3. C) Zlotnik’s promise to guarantee the debt is ultra vires.
  4. D) Zlotnik’s promise to guarantee the debt is enforceable wholly on the grounds that the Statute of Frauds with its writing requirement has been repealed.
  5. E) All guarantees and indemnities must be in writing and under seal to be binding.

Answer:  B

Diff: 3      Type: MC      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Applied

Objective:  Chapter 7: 8. Explain the principle of part performance.

Bloom’s Taxonomy:  Knowledge

 

66) Whenever an adult enters into a contract with an infant, the adult is bound.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

67) Neither party is bound by a contract with an infant.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

68) When parents have led a merchant to believe that their infant child is acting as their agent, the parents are liable.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

69) An adult can’t sue an infant in tort to get around the infant’s contractual incapacity.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

70) Once infants become adults, they are liable for any contract they made while they were infants.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 217

Topic:  Ch. 7 – Minors/Infants

Skill:  Recall

Objective:  Chapter 7: 1. Explain the capacity of minors.

Bloom’s Taxonomy:  Knowledge

 

71) A person who has voluntarily become intoxicated by drugs or alcohol cannot escape a contract on the basis of his incapacity.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

 

72) An insane person can escape a contract on the basis of incapacity only if the other person knew or ought to have known of the insanity.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 221

Topic:  Ch. 7 – Insanity and Drunkenness

Skill:  Applied

Objective:  Chapter 7: 2. Compare the capacity of the insane and drunk.

Bloom’s Taxonomy:  Knowledge

73) The nature of the legislation governing incorporation in each jurisdiction determines whether a corporation has its capacity to contract limited or not.

Answer:  TRUE

Diff: 3      Type: TF      Page Ref: 222

Topic:  Ch. 7 – Others of Limited Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

 

 

74) Because of the Charter of Rights and Freedoms, status Indians no longer have their capacity to contract limited.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 222

Topic:  Ch. 7 – Others of Limited Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

 

75) Married women are no longer considered incapacitated in contract law.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 222

Topic:  Ch. 7 – Others of Limited Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

 

76) Corporate bodies created by special legislation invariably lack capacity to enter into binding agreements.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 222

Topic:  Ch. 7 – Others of Limited Capacity

Skill:  Recall

Objective:  Chapter 7: 3. Review the law for others of limited capacity.

Bloom’s Taxonomy:  Knowledge

 

77) All contracts to restrict competition are void.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

78) Contracts involving activities that, while not illegal, are considered immoral or contrary to public interest, may also be void.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

79) Contracts that unduly restrict competition are void.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

80) Contracts involving domestic relationships are presumed to be binding.

Answer:  FALSE

Diff: 3      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

81) Contracts to commit a crime or a tort are void.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

82) All contracts that have the effect of restricting competition are void.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 4. Discuss the law relating to contracts performed illegally.

Bloom’s Taxonomy:  Knowledge

 

83) Only contracts that involve the commission of a crime or tort are void on the basis of illegality.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 225

Topic:  Ch. 7 – Legality

Skill:  Recall

Objective:  Chapter 7: 5. Discuss the law relating to contracts formed illegally.

Bloom’s Taxonomy:  Knowledge

 

 

84) If a person says that he had not intended to be bound by an agreement when he entered it, there can be no contract.

Answer:  FALSE

Diff: 2      Type: TF      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

85) Even in commercial relationships, if the parties make it absolutely clear that they don’t intend the arrangement to be legally binding on them, the agreement will not be enforceable in court.

Answer:  TRUE

Diff: 3      Type: TF      Page Ref: 233

Topic:  Ch. 7 – Intention

Skill:  Applied

Objective:  Chapter 7: 6. Review the contractual element of intention.

Bloom’s Taxonomy:  Knowledge

 

86) An unwritten contract that the Statute of Frauds requires to be evidenced in writing is still valid and it is merely unenforceable by the courts.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

87) If a contract is not evidenced in writing this does not make it void, only unenforceable.

Answer:  TRUE

Diff: 2      Type: TF      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge

 

88) All contracts must be in writing to be enforceable.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 235

Topic:  Ch. 7 – Form of the Contract

Skill:  Recall

Objective:  Chapter 7: 7. Examine the requirement that contracts be in writing.

Bloom’s Taxonomy:  Knowledge