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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
True/False Questions
1) Across Canada, the age of majority is 19, which is a federal law.
a. True
b. False
2) The reason contracts for necessaries are enforceable is to ensure that minors do not avoid
contracts with suppliers for perishable goods.
a. True
b. False
3) Sina employs Joe, who is 16. The terms of the employment contract are to Joe’s benefit.
Still, Joe wants to walk away from his obligations. Joe can do so whenever he wants
because the contract was always void.
a. True
b. False
4) A minor’s contract for necessaries of life is not voidable on the grounds of capacity.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
5) The Statute of Frauds eliminates the writing requirements of the common law.
a. True
b. False
6) Sarah bought a stereo system in Vancouver under a payment plan that must be
completed within two years. Technically speaking, the contract is enforceable only if it is
evidenced in writing.
a. True
b. False
7) The form and content requirements of the Statute of Frauds requires a signature from
each of the parties.
a. True
b. False
8) Cy and Kelly negotiate the sale of “Indian art” over the internet. Cy thinks he is buying
art from Calcutta. But it turns out upon delivery that Kelly was selling Inuit art. Because
there was no misrepresentation, the sale is final and Cy has no remedy.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
9) Cy and Kelly negotiate the sale of “Indian art” over the internet. Because of an electronic
miscommunication, Cy thinks he is buying art from Calcutta. But it turns out upon delivery
that Kelly was selling Inuit art all along. Because the mistake was material and prevented
the creation of a shared contractual intent, Cy will be able to claim the contract was
defective and may have a remedy.
a. True
b. False
10) Svetlana paid an advance under a contract of sale for a unique antique in Ontario, but
the performance of the contract was rendered impossible because of a terrible accident that
happened during delivery. Because the seller incurred expenses while trying to deliver the
antique, the court is permitted to allow the seller to keep some of the advance towards those
expenses.
a. True
b. False
11) The plea of non est factum allows a person to avoid a signed contract whenever they are
mistaken about a key term or condition even if they do not bother to read the contract.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
12) The notion of public policy is somewhat vague as it is difficult for a judge to decide
what the public policy is in a democratic society.
a. True
b. False
13) Tandindar was holding a shipment of goods that belonged to Todd and threatened not
to release them unless he agreed to sign a contract to buy two more shipments over five
years. Todd did not need the goods, but he decided to go through with the contrat and agree
with Tandindar to Tandindar’s terms. This is an instance of economic duress.
a. True
b. False
14) Whenever parties of unequal bargaining powers transact, undue influence is always
presumed but can be rebutted.
a. True
b. False
15) Unconscionable transactions can be characterized as one-sided transactions obtained by
unfair use of power.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
Multiple Choice Questions
1) The concept of capacity
a. means the legal power that we all have just to walk away from any contractual
obligation on the basis that we did not understand the contract that we signed or otherwise
entered into.
b. means that the law requires parties who enter into contracts to have a legal capacity to
enter into contracts, and not everyone in society necessarily has that capacity.
c. refers to when one party is mistaken about the terms of a contract.
d. refers to pre-contractual statements.
e. requires all contracts to be in writing.
2) Which of the following contracts will be enforced whether or not the purchaser has
reached the age of majority?
a. purchase of groceries
b. retainer for legal services
c. registration for community college
d. purchase of a ski jacket
e. all of the above
3) Which of the following groups does not have contractual capacity?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
a. people who have had one or two glasses of wine or two beers but are not really
intoxicated but only slightly impaired
b. corporations
c. people under the age of 25
d. adults who have been declared mentally incompetent by the courts and thus lack mental
capacity
e. people over 80 years of age
4) Lawrence and Jane were hammering out a deal over cocktails. Jane thought that
Lawrence was totally plastered and was hoping to take advantage of this in their negotiation
of the terms. However, Lawrence knew exactly what he was doing and he knew exactly
what Jane was trying to do. Although quite tipsy, he pretended to be staggering drunk. His
plan was to make two deals: one deal that was good for him, the second deal a bad one for
him. This way he could complete the deal that was to his advantage and, later, walk away
from his obligations on the second deal. Which of the following is TRUE?
a. Both deals are enforceable since Lawrence was only pretending to be drunk. However,
the court will interpret the contract between the parties to give effect to their objective
intentions in all of the circumstances, notwithstanding that one agreement may contradict
the other agreement.
b. Neither deal is enforceable since Jane believed Lawrence to be intoxicated when she
entered into them.
c. Only the first deal is enforceable as the second contract must contradict the first contract.
d. Only the second contract is enforceable because it was the last contract between the
parties.
e. Neither contract is enforceable because even a person who pretends to be intoxicated
does not have contractual capacity.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
5) Which of the following distinguishes a chartered corporation from a statutory
corporation?
a. Chartered corporations have a limited contractual capacity, whereas statutory
corporations do not.
b. Statutory corporations are treated the same as individuals of a majority age, whereas
chartered corporations are not.
c. Statutory corporations cannot be said to act ultra vires, whereas chartered corporations
can.
d. Statutory corporations are indistinguishable from chartered corporations as both have the
same legal effect.
e. Chartered corporations are established by corporate law legislation and generally have
full capacity so that the rule of ultra vires does not apply to their acts, whereas corporations
created by special statute may be subject to the rule of ultra vires.
6) Unincorporated associations
a. are always treated the same way as corporations.
b. can be given the capacity to contract through the enactment of legislation but otherwise
do not have legal capacity as they are not legal entities.
c. generally have the capacity to contract.
d. are independent legal entities.
e. no longer exist in Canadian society.
7) Joe is an Aboriginal person, born and raised on a Native reserve. After reaching the age
of majority, Joe decides to move to Calgary to continue his work as an artist. After
abandoning the reserve and living in Calgary for several years, Joe is asked to participate in
a major art opening. Much of his art depicts life on his reserve. Which of the following is
TRUE?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
a. Joe is unable to sell his art anywhere other than the reserve.
b. The profits from Joe’s sales will be held by the Crown.
c. Joe’s art could be used as security for a credit transaction if the art is not on the reserve.
d. Joe has only a limited capacity to contract.
e. Joe lacks the capacity to contract.
8) Matt just made a fortune inventing a new piece of software and has generously agreed to
support his friend’s application for a bank loan. Matt tells his friend he is willing to cover
the debt no matter what happens. In order for this promise to be enforceable,
a. Matt’s friend needs to have the promise notarized and sent to the bank by registered mail.
b. Matt’s friend needs to get Matt to fax the bank.
c. Matt’s friend needs to get Matt to make that same promise to the bank, and in most
provinces in writing.
d. The bank needs to send Matt a letter confirming to him that they have heard a rumour
that he intends to guarantee his friend’s debts.
e. the bank needs do nothing.
9) The difference between a guarantee and an indemnity is that
a. indemnities need to be in writing to be enforceable.
b. a guarantee is a conditional promise whereas an indemnity is not.
c. a guarantee is a promise to assume another’s debt.
d. the Statute of Frauds applied only to indemnities.
e. a guarantee is given to a bank and an indemnity to a party that is not a bank.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
10) Which of the following is LEAST LIKELY to be understood by a court as a contract
for the sale of an interest in land?
a. the purchase of a home
b. the lease of a farm
c. the short-term lease of a residential apartment
d. the lease of mineral rights in an oilfield
e. the purchase of lakefront property
11) Which of the following is sufficient written evidence to satisfy the Statute of Frauds in
most Canadian jurisdictions?
a. a signed IOU written on a napkin
b. an unsigned letter confirming a severance arrangement
c. a notation on a cheque indicating what was purchased without any signatures
d. an unsigned standard form agreement
e. a document written in a person’s handwriting making a promise but not signed by that
person
12) Ariel pays Newton a $17 000 deposit as part performance of an oral contract for the
sale of land and that Ariel takes possession of the land at the time of possession. According
to the terms of their agreement, Ariel is to pay the balance 30 days after taking possession,
failing which Newton is allowed to keep the deposit and Ariel must vacate. Suppose that
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
the contract of sale does not complete as Newton fails to provide a transfer of title even
though Ariel tenders the whole amount on the thirtieth day after possession was taken by
Ariel. Which of the following is TRUE in most Canadian jurisdictions?
a. Ariel can enforce the contract of sale against Newton.
b. Newton has a defence to enforcement of the contract based on the Statute of Frauds.
c. Newton can refund the deposit and take the money back as the actions of the parties was
not part performance of a contract.
d. Ariel can only sue for return of the deposit.
e. Ariel will lose the deposit and must pay rent to Newton for the month of possession and
then must vacate the land.
13) For which of the following lists would the Statute of Frauds require ALL THREE
contracts to be evidenced in writing in most Canadian jurisdictions?
a. afive-year commercial property lease agreement; the sale of a house; a mortgage of a
condominium
b. a guarantee to assume someone’s debt upon default; an indemnity agreement; the sale of
a $2000 leather sofa
c. a four-year financing agreement secured by goods but not land; purchase of a $2000
leather sofa; the sale of a house
d. an agreement to rake your neighbour’s leaves; the sale of a house; an indemnity
agreement
e. a contract to buy a stereo; a contract to buy a car; and a contract to buy a new pair of blue
jeans
14) Raja set up a website selling T-shirts decorated with original artwork. The website was
marketed under a name very similar to a well-known professional basketball team. Raja had
never heard of the team, nor had he meant to fool anyone or to infringe anyone’s trademark.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
One day, Liz went to Raja’s site and bought a number of T-shirts with her credit card.
Thinking that she was getting fan apparel from her favourite ball team, Liz was quite
surprised and disappointed when she saw the merchandise that she received in the mail.
What should she claim in order to get her money back?
a. innocent mistake
b. non est factum
c. frustration
d. undue influence
e. duress
15) Which of the following mistakes is most likely to prevent the creation of a contract?
a. A stockbroker is mistaken about the future value of a technology company and buys
stock on that basis.
b. A house deal closes money and keys are exchanged, then both parties find out that the
house had been completely destroyed by fire between the time of the original contract and
the closing of the contract.
c. A grocery supplier fills an order for 5000 cans of beans but mistakenly sends only 500
cans.
d. A bean wholesaler ships 5000 cans of golden wax beans to a customer who thought that
he was ordering 5000 cans of corn.
e. A person agrees to a standard form contract on the internet by clicking the mouse on the
“I Agree” icon.
16) Which of the following mistakes will most likely render impossible the purpose of the
contract?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
a. buying a car, only to later find out that it was resold to you by some rogue who did not
have title to the car
b. both parties to the contract reasonably and innocently believing that the property sold to
a business is zoned commercial but it is, in fact, zoned residential
c. thinking that you ordered one copy of a software program when, in fact, you negligently
ordered 10 copies
d. buying a piece of art on the basis of its aesthetic appeal, only to later find out that it was
painted by a famous artist and is worth more than you paid for it
e. buying a home without inspecting it, and later finding out that the foundation requires
replacement
17) The doctrine of frustration applies when
a. the contracting parties are both mistaken about some future set of circumstances that are
beyond the power or control of either party, and those circumstances prevent them from
carrying out their obligations pursuant to their contract.
b. the contracting parties are both mistaken about some previously mutually assumed fact,
in a manner that prevents them from carrying out their obligations pursuant to the contract.
c. the contracting parties are unable to reach an agreement and are forced to abandon
negotiations.
d. the contracting parties agree on a purchase price for a particular good and the purchasing
party fails to pay.
e. both parties agree to not perform the contract.
18) When may the defence of non est factum be raised?
a. when a person signs a document but his attention has not been drawn to a particularly
onerous term
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
b. when there is a radical difference between what a person signed and what the person
thought he was signing, and the signatory was not careless in signing or in not reading the
documents
c. when a person signs a document but fails to read it first
d. when the defendant forgot to have the plaintiff sign the contract
e. when there is no written evidence of the contract
19) Common law illegality
a. is an attempt to regulate conduct through an administrative regime.
b. aims to punish individuals who make agreements contrary to public policy.
c. requires a determination of legislative intent.
d. renders unenforceable agreements that are contrary to public policy.
e. requires proof that one party is involved in an actual crime in entering into the contract.
20) Shelly hires James to steal her neighbour’s dog (because it barks a lot and the owners do
nothing about it). Shelley paid James according to the terms of the contract, but James did
not follow through with his end of the bargain. Can Shelly get her money back?
a. No. The contract is defective because it was not in writing.
b. No. The contract is defective because it is illegal.
c. No. The contract is defective because it is a restraint on trade.
d. Yes. The parties will be returned to their pre-contractual position.
e. Yes. The lawsuit can be brought in small claims court.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
21) Which of the following examples of a covenant in restraint of trade is most likely to be
against public policy?
a. A high-tech firm has its engineers sign a contract promising not to reveal any information
about patents to any other high-tech, communications, or pharmaceutical companies during
their employment tenure.
b. Partners in an advertising agency sign an agreement that they will engage in advertising
sales exclusively for the agency for the duration of their employment.
c. The sellers of a company sign an agreement that they will not compete directly with
their former company for a period of two years.
d. An entrepreneur sells his successful home baking business to a supermarket chain. He
signs an agreement that bars him from setting up a bakery business forever anywhere in the
world.
e. A franchisor requires a franchisee to conduct the franchise operations solely in
accordance with the written franchise agreement and not in any other manner.
22) How do courts regard restrictive covenants?
a. Courts will assume that unless there was unfairness during the bargaining process,
restrictive covenants should be upheld because the parties have freedom to contract.
b. Courts will find all restrictive covenants to be against public policy.
c. Courts will presume restrictive covenants to be against public policy unless the party
seeking to enforce the covenant demonstrates that the restriction is reasonable.
d. Courts will presume restrictive covenants to be reasonable unless the party seeking to
avoid the covenant demonstrates that the restriction is against public policy.
e. Courts will rewrite all restrictive covenants to make them reasonable and therefore
enforceable.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
23) Economic duress
a. results from any exertion of financial pressure.
b. occurs when the victim of duress could not reasonably resist.
c. is automatically proved as soon as the victim of duress commences legal proceedings
against the party exerting duress.
d. is impossible to prove unless the victim of duress protested at the time the duress was
exerted.
e. occurs when a victim of duress seeks independent legal advice and that advice is wrong.
24) Duress is distinguishable from undue influence in that
a. duress refers to the use of some kind of pressure, whereas undue influence does not.
b. duress is never defined in terms of the parties’ relationship, whereas undue influence
sometimes depends on the parties’ relationship.
c. duress is never defined in terms of the parties’ relationship, whereas undue influence
always is.
d. duress refers to the use of some kind of pressure, whereas undue influence involves
improvident bargains.
25) Constance and Rosemary are in a fiduciary relationship. This fact is relevant to a claim
of unfairness during bargaining because
a. it means that the two of them will never be allowed to contract with each other as a result
of the conflict of interest.
b. it means that Connie could never enforce her contract with Rosemary.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 10: Contractual Defects
c. the court will presume that a contract between them was founded on the basis of duress.
d. the court will presume that a contract between them was founded on the basis of undue
influence.
e. the court will presume that a contract between them was founded on the basis of an
unconscionable transaction.
26) Whether actual pressure has been exerted is
a. never relevant in a claim of unfairness during bargaining.
b. never relevant in a claim of undue influence.
c. relevant in a claim of undue influence only if there is a fiduciary relationship.
d. relevant in a claim of undue influence only if there is not a fiduciary relationship.
e. always relevant to determine if any contract exists.
27) A fiduciary relationship
a. is exclusive to the law of corporations.
b. is exclusive to the law of employment.
c. exists whenever there is an inequality in the bargaining power of contracting parties.
d. must be established in order to prove undue influence.
e. exists when one party is in a position of dominance over another, for example a trustee
and a beneficiary, a lawyer and a client, or a doctor and a patient.
28) An unconscionable transaction is
a. an agreement that is induced only by fraud.
b. an agreement that is induced only by pressure.
c. an agreement no fair-minded person would ever accept.
d. an agreement no right-minded person would ever offer.
e. unenforceable.
29) Which of the following is most likely an improvident bargain?
a. when Granny assigns all of her assets to a powerful business in exchange for the promise
to take care of her in the future
b. when Granny assigns all of her assets to a convicted fraudster in exchange for the
promise of the fraudster to take care of her grandson in the future
c. when Granny trades her farm for a condo in Florida
d. when Granny trades her farm for blue chip stocks
e. when Granny goes to play bingo for the third time in a week
30) Which of the following is TRUE?
a. A transaction can be unconscionable only if there is an inequality of bargaining power
between the parties and that inequality results in an improvident bargain for the weaker
party.
b. A transaction can be unconscionable only if the bargain is not improvident.
c. A transaction can be unconscionable only if the presumption of unconscionability is
rebutted.
d. A transaction can be unconscionable only if the contract is enforceable.
