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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
33) The phrase “nemo dat quod non habet “
a. applies to real property, but not to personal property.
b. is generally ineffective with respect to money.
c. applies only in equity.
d. is a concept that arises only in insurance law.
e. means that a person who has possession of property under a bailment must use
reasonable care.
34) Which of the following statements is TRUE with respect to insurance?
a. First party insurance and third party insurance may both apply to the same set of events.
b. The phrase “third party insurance” refers to the fact that an insurance company used an
agent to sell a policy to a customer.
c. The phrase “first party insurance” refers to the fact that the insured party must
immediately contact the insurance company after being sued for a type of loss that the
insurance policy covers.
d. Liability insurance imposes a duty of utmost good faith on the insured party, but property
insurance does not.
e. The phrase “self-insure” refers to the fact that a company has purchased an insurance
company that covers all of its employees, rather than requiring those employees to
individually insure themselves.
35) Alan purchased a piece of land from Zirka. He used a cheque to pay for the price.
Which of the following statements is TRUE?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
a. The piece of paper that Zirka received is a chose in action.
b. The land that Alan purchased is a type of chose in possession.
c. The rights represented by the cheque are a type of intangible property.
d. The rights represented by the cheque are a type of chattel.
e. The land is a chose in action.
36) Aziz abandoned a bicycle by the side of the road with the intention of never seeing it
again. Brian saw the bike a short time later and took possession of it with the intention of
keeping it. When he was not riding it, Brian regularly left the bike on the sidewalk in front
of his apartment building. One night while he slept, Celeste took the bike, with the
intention of keeping it for herself. A week later, however, Dharma grabbed the bike from
out of Celeste’s hands. When she complained, Dharma said that since she had stolen the
bike, she had no rights in it. Which of the following statements is TRUE?
a. The bike is still owned by Aziz.
b. Brian has the best right to the bike.
c. Dharma has a better right to the bike than does Celeste.
d. Aziz has a better right to the bike than does Celeste.
e. A court would resolve this case by relying upon the maxim of nemo dat quod non habet.
37) Melanie brought a box full of old clothes to Second Hand Duds (SHD). SHD agreed to
sell the clothes on consignment. This means that
a. SHD accepted the clothes as payment of a debt that Melanie owed to it.
b. SHD has become a bailor.
c. Melanie will own the clothes until they are sold by SHD to a customer.
d. Melanie must be an employee of SHD.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
e. SHD became an owner with a defeasible title.
38) Jermaine borrowed Lola’s boat for a week. Before handing over possession, Lola
stressed that she did not want anyone other than Jermaine to drive the boat. Jermaine agreed
to that condition. Shortly before the week was about to end, however, Jermaine allowed
Xavier to take the boat on a solo cruise around the lake. In doing so, Jermaine broke his
promise to Lola, but he did exercise every precaution. Before handing the boat over to
Xavier, Jermaine made sure that Xavier was experienced, competent, and careful.
Unfortunately, even though both Jermaine and Xavier exercised reasonable care, the boat
was badly damaged in a freak accident. Which of the following statements is TRUE?
a. Xavier is liable to Lola, but Jermaine is not.
b. In order to determine liability, a judge would consider, in part, whether there was a
licence or a bailment arrangement between Jermaine and Lola.
c. Like all sub-bailees, Xavier is strictly liable for any damage done to the property.
d. Xavier is entitled to use the defence of jus tertium.
e. Neither Jermaine or Xavier can be held liable if Lola was paid a price in exchange for
allowing Jermaine to use the boat.
39) Acme Moving Inc contractually agreed to move Jed’s property from Vancouver to
Halifax. When the property arrived in Halifax, it was badly damaged. Jed has sued Acme,
claiming compensation for his loss. Acme believes, however, that it has an effective
defence to that claim. Jed disagrees. Which of the following statements is TRUE?
a. The defence of “inherent vice” will apply only if Jed’s property was something like
heroin that is illegal to possess.
b. Because of the potential for abuse, Acme may rely upon a contractual clause that reduces
liability, but not a contractual clause that entirely eliminates liability
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
c. Acme may not be held liable Jed’s property was damaged by an “act of God” and Acme
was a common carrier.
d. The concept of “shipper’s fault” means that Acme cannot escape liability if it deliberately
damaged Jed’s property.
e. Acme cannot possibly avoid liability on the basis of a defence because, for policy
reasons, companies in its position are absolutely liable for any damage that they cause.
40) Solace Insurance Company (SIC) sold an insurance policy to Kelly. Because of the
occurrence of certain events, the concept of subrogation has become relevant. This most
likely means that
a. Kelly breached her obligation of utmost good faith.
b. although SIC is liable to pay for most of the loss, Kelly is required to pay for a small part
of that loss.
c. a tortfeasor damaged property that Kelly had insured.
d. Kelly purchased insurance policies, covering the same loss, from at least two different
insurance companies.
e. SIC has discovered that Kelly does not have an insurable interest in certain property.
41) A cat continually comes to Xavier’s back door, so he decides to keep it. Which of the
following is true?
a. If the cat belongs to someone else, Xavier has no property rights.
b. Xavier has property rights as long as the cat doesn’t have any tags.
c. If the cat belongs to someone else, Xavier has rights over the cat effective against
everyone but the original owner.
d. Xavier has rights over the cat under the rule of finders keepers, losers weepers.
e. Xavier cannot have property rights over a living thing.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
42) Pierce was looking at an open house with a pool. Quincy, the owner, makes the
statement, “Well, we’ll be taking the pool with us when we go,” and the two men laugh.
Pierce buys the house. When he moves in, he sees that the pool has been excavated. Which
of the following is true?
a. Pierce has rights to the pool because it is a fixture.
b. Quincy has rights to the pool as long as he removed it before he sold the house.
c. Quincy has rights to the pool as long as he reduced the price of the house accordingly.
d. Pierce has no way to recover damages because of the rule of caveat emptor.
e. Quincy did not give up rights to the pool because he did not abandon it.
43) Inez is going on a one-month trip to Europe. Because she generally parks her car on the
street, she asks her brother, Edgar, if she can park her car on his driveway. She gives him
her keys to store, but tells him under no circumstances is he to drive the car. She lets him
know that she will be there to pick it up as soon as she gets back. A judge would find that
Inez has most likely created
a. a bailment.
b. a consignment.
c. a contract.
d. a license.
e. a lease.
44) Aimee has just received a diamond ring from her husband as a gift. She is worried that
while she is at her cottage for the weekend, someone might steal it. She asks her friend,
Gladys, to put the ring in her safe, saying that she would give Gladys $100 to hold it for
three days. On the weekend, Gladys’ house is robbed and the ring is taken. Which of the
following is true?
a. Aimee must prove that Gladys was to blame for the loss.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
b. Gladys is liable because the bailment creates a guarantee.
c. Gladys will be treated as an insurer if the bailment was both gratuitous and for her
benefit.
d. Gladys had a low requirement for the level of care because the bailment was between
friends.
e. Gladys would most likely be able to prove that she provided ample care for the ring.
45) PUG Manufacturing needs to ship steel pipe valves from Regina to Montreal. They
contract a common railway carrier. When the goods arrive, half of the valves are damaged.
Which of the following is false?
a. The carrier is not liable if PUG did not mark the valves as fragile.
b. The carrier is not liable if the damage was caused by an act of God.
c. The carrier may have limited its liability with an exclusion clause.
d. It is possible that the carrier is fully liable.
e. PUG should have insurance to cover the loss.
46) Thekla’s tailor shop offers alterations to clothing that customers have already
purchased. During a busy season, without telling any of their customers, they begin sending
half of the work to Inga’s tailor shop in order to ensure they can complete the work. A
customer complains that his suit has been ruined because it was improperly altered. The
suit had been sent to Inga’s shop. Which of the following is true?
a. The customer can sue only Inga’s shop because the customer did not expressly consent to
the sub-bailment.
b. Thekla’s shop can sue Inga’s shop.
c. The sub-bailment is not valid because it violates the principle of privity. The customer
would have to sign a contract directly with the sub-bailee.
d. Thekla’s shop could be liable for conversion if the customer believed the work would be
done at Thekla’s.
e. A sub-bailee is always considered an insurer for the purposes of the standard of care.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
47) Hedda purchased a combine for her farm worth $80 000, but she could only afford to
insure it for $40 000. The insurance has a co-insurance clause requiring coverage for 80%
of the value, or $64 000 (meaning Hedda had only purchased 62.5% of the required
coverage). An accident causes damage to the combine worth $20,000. How much can
Hedda recover?
a. She can recover the full $20 000.
b. She can recover 80% of $20 000 ($16 000).
c. She can recover 62.5% of $20 000 ($12 500).
d. She cannot retrieve any compensation.
e. She can recover $40 000.
48) Kieran owns a factory that burns down because Jefferson is negligent. Kieran is fully
insured and is limited to indemnification. Which of the following is true?
a. Kieran can sue Jefferson for negligence.
b. Kieran is not covered because his factory burned down because of a negligent act.
c. Jefferson will not be liable to anyone because the insurance company covers the loss.
d. The insurance company may bring an action against Jefferson.
e. Kieran may be subject to a co-insurance clause.
Essay Questions
1) “The acquisition of personal property always involves the intention of at least two
people.” Is this statement true? Explain your answer by using examples.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
2) “Property law, like nature, abhors a vacuum. Consequently, property rights that are lost
by one party are always acquired by another party.” Is this statement true? Explain your
answer by using examples.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
3) Bonzi found a necklace while staying in a hotel that is owned by Alpha Corp. To whom
does the necklace belong? Explain your answer, and identify any additional facts that are
required before the issue can be fully resolved.
4) Pavel found a ring that Jacinta had lost. Does a true bailment exist while the ring is in
Pavel’s possession? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
5) Eleni owns and operates a restaurant. During the winter months, it is inappropriate for
diners to bring their coats with them to their table. Eleni therefore provides a place for coats
to be placed or hung. Does that arrangement necessarily involve a bailment? Is some other
arrangement possible? What is the significance of classifying the arrangement as a
bailment, rather than something else? Explain your answer, and identify any additional
facts that are required before the question can be conclusively answered.
6) Surinder rented a boat from Aqua Inc. Is the parties’ relationship better described as a
sale or as a bailment? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
7) Raja gave a widget to Northwest Storage. Under the terms of the parties’ contract,
Northwest Storage was required to safely store the widget from October to April, and to
then return it to Raja. The widget was in excellent condition when Raja delivered it to
Northwest Storage, but it was badly damaged upon its return. A court has held that, on the
facts, the burden of proof will be shifted. What does that mean? Which party will the
court’s decision favour? What is the policy justification for shifting the burden of proof?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
8) As a result of a bailment, Mitsu has possession of widget that belongs to Chuck. What
factors will a court consider in deciding the content of the standard of care that Mitsu must
meet while she has possession of the widget?
9) Katarina is interested in the possibility of establishing a business that delivers goods. She
has heard, however, that as a matter of risk management, she should avoid becoming a
“common carrier.” What is a common carrier? What special risks are associated with being
a common carrier? What is the policy justification for those risks?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
10) Explain the meaning and relevance of “inherent vice.”
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
11) Identify and briefly explain three reasons why property insurance very often does not
provide full indemnification, in the sense that it does not provide the insured with enough
money to buy a replacement for a lost or destroyed piece of property.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
12) Honoria recently tried to buy first party insurance with respect to a diamond ring she
did not own. The insurance company refused to sell a policy to her on the basis that she did
not have an insurable interest. Explain the insurance company’s decision in more detail and
identify the policy reason why a person who does not have an insurable interest cannot buy
a insurance policy.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
13) Thomas owns a manufacturing system worth $200 000. He purchased $90 000 worth of
property insurance from Prairie Insurance Co. That policy contains a co-insurance clause
that requires 90 percent coverage. A fire recently damaged Thomas’s manufacturing
system. How much is Prairie Insurance Co required to pay to him if the fire damage is
assessed at $100 000? What if it is assessed at $200 000?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
14) What is subrogation? What is indemnification? How are these two concepts related?
15) Erin owns and operates a computer design business that employs 20 people. She
recently purchased business interruption insurance and key person insurance. What was her
likely purpose in doing so?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
