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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
True/False Questions
1) The distinction between real property and personal property consists of the fact that real
property can never be physically picked up and moved from place to place, and personal
property can always be physically picked up and moved from place to place.
a. True
b. False
2) Boyd lost a diamond ring in the lobby of a hotel. Carmel, a guest at the hotel, found it.
Both Carmel and the hotel claim the right to possess the ring. If Boyd cannot be located, a
court would probably favour Carmel over the hotel.
a. True
b. False
3) Alameda owned a painting. The painting was totally destroyed in a fire. The law will say
that he lost his property rights in the painting even if he has first party insurance.
a. True
b. False
4) In determining whether or not a chattel has become affixed, a court is usually most
influenced by the value of the chattel.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
5) The word "bailment" is derived from words that mean "to pay for the release" in French.
a. True
b. False
6) Kalinda parked her car on Dev's land. In deciding whether the parties have created a
licence, rather than a bailment, a court would look exclusively at the price (if any) that Dev
charged Kalinda. If the price was above market value, a bailment was created. Otherwise, a
licence was created.
a. True
b. False
7) Taj borrowed a widget from Dhanna. Even though the relationship was a bailment, rather
than a sale, both Taj and Dhanna may be required to exercise "reasonable care" in some
sense.
a. True
b. False
8) A bailee is always entitled to exercise a right of sale if a bailor does not pay a price
associated with a bailment relationship.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
a. True
b. False
9) Kiran placed a widget with Laila under the terms of a bailment. The widget was lost
while it was in Laila's possession. The burden of proof may shift, so that Laila is required to
prove that the loss was not her fault, even if she was not a common carrier.
a. True
b. False
10) Trans-Geo Inc is a business that operates in a number of different ways. Most
commonly, however, it moves goods for customers from one part of the country to another.
It necessarily will be considered a common carrier whenever it does so.
a. True
b. False
11) A court has determined that Geo-Trans Ltd is a common carrier. Because of that special
status, the Canada Transport Commission will prevent Geo-Trans Ltd from inserting any
exclusion clauses into the contracts that it uses with its customers.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
12) Meena gave a widget to Speedy Fixit Inc for repairs. She assumed, without much
thought that the repairs would be done by Speedy itself. In fact, Speedy sent the widget to
Niagra Repairs Ltd to have the work done. The widget was lost while it was in the
possession of Niagra. If Meena agreed to a sub-bailment, she may be allowed to
subsequently sue Niagra for the loss.
a. True
b. False
13) Tara operates a small computer design business. Her primary asset is her computer
system, which she bought four years ago for $10 000. She bought property insurance with
respect to that machine. Tara's computer was recently stolen. Her insurance policy covers
loss by theft and the insurance company admits that it must pay a benefit to Tara. The
concept of indemnification necessarily means that Tara will receive either $10 000 or the
price of a new computer that is at least as good as her old computer was when it was new.
a. True
b. False
14) Veda owned a diamond necklace. She entered into an insurance contract for coverage
of the necklace. Under the terms of that contract, she was required to pay $500 per month.
After Veda paid the premium for two months, the necklace was stolen. Her insurance
policy covers loss by theft and the insurance company admits that it must pay a benefit to
her. That policy, however, contains a "deductible." This means that the benefit that Veda is
entitled to receive from the insurance company will be reduced by the amount that she
actually paid as premiums: $1000.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
15) A person may have an insurable interest in a piece of property even if they do not own
that property.
a. True
b. False
Multiple Choice Questions
1) Which of the following statements is TRUE?
a. Chattels are a type of real property.
b. Real property can be touched, while personal property consists of things, like debts, that
cannot be touched.
c. “Chose in possession” is another name for personal property, just as “chose in action” is
another name for real property.
d. All forms of property are tangible.
e. Real property is immoveable.
2) Chiko has possession of a ring. He is entitled to keep it if
a. he bought it from a thief in the honest belief that the thief was the true owner.
b. he found the ring while trespassing on private property.
c. he stole it.
d. he found it on public property and the true owner cannot be located.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
e. he received it as a gift, but only if the person who gave it to him had previously acquired
it by purchase.
3) Rose and Caradoc were romantically involved for several years. During that time, she
gave a necklace to him. The couple had a terrible fight and broke up. Because he no longer
wanted anything to do with Rose, Caradoc threw the necklace into a garbage can that was
located in the main hall of a railway station. That station is owned by the Regional
Transport Authority (RTA). Francis saw the necklace in the garbage and took it home with
him. All four parties now claim the right to possession of the necklace. Which of the
following statements is most likely TRUE?
a. Rose is entitled to the necklace as long as she paid for it initially.
b. Francis is entitled to the necklace as long as he intended to exercise control over it.
c. RTA is entitled to the necklace as long as the garbage can was located on its property.
d. Caradoc is entitled to the necklace as long as he has honestly changed his mind and truly
does want possession of it.
e. The necklace is co-owned by two of the parties.
4) Which of the following things does Hannah own?
a. A bicycle that she bought last year but abandoned by the side of a road yesterday.
b. A fox that runs wild on a piece of land that she owns.
c. A set of kitchen cupboards that she purchased and installed in an apartment that she
rents.
d. A litter of puppies that was created when her Great Dane, Jake, impregnated a poodle
who lives next door.
e. A coat that she received as a gift from her former friend, George, who now insists that,
since the friendship is over, ownership must return to him.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
5) What is the difference between a chose in action and a chose in possession?
a. A chose in action always pertains to land, but a chose in possession does not.
b. A chose in action is a living thing, such as a plant, whereas a chose in possession is a
non-living thing, like a diamond or a book.
c. A chose in action can only be enforced through legal proceedings, whereas a chose in
possession can be enforced by lawful physical force.
d. Canadian law recognizes choses in possession but not choses in action.
e. A chose in action is a thing that can be moved, while a chose in possession is a thing that
must remain in one place.
6) The word "chattel," as used in the text,
a. applies to tangible forms of real property.
b. refers to a thing that cannot be held under a bailment.
c. applies to the rights represented by the cheque but not to the cheque itself.
d. refers to things that are affixed to land and that consequently are owned by the person
who owns the land.
e. is derived from the root word for "cattle."
7) Tamika rented a warehouse from Lester. During the life of the lease, she attached
shelves along the interior walls. The lease has expired. Each party claims to own the
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
shelves, which are still in place. In deciding the case, a judge would be MOST influenced
by
a. the extent to which the shelves were attached to the walls (for instance, whether they
were merely resting against the walls or whether they were bolted in).
b. the fact that the terms of the lease gave ownership or rights to one party regarding trade
fixtures, even though the lease has expired in the sense that Tamika is no longer entitled to
possession of the premises.
c. the value of the shelves, as compared to the value of the land.
d. the fact that Tamika genuinely wants to use the shelves in another warehouse.
e. the fact that Lester's next tenant will want to use the shelves.
8) Chinthaka received a widget from Melissa. A true bailment was created if
a. he stole it from her.
b. he rented it from her.
c. he found it after she misplaced it.
d. she gave it to him as a gift.
e. she sold it to him.
9) The creation of a bailment depends upon proof that
a. the bailee delivered something to the bailor.
b. the bailor was in the business of dealing with the type of goods in question.
c. at least one of the parties owned the property at all times.
d. the parties intended to transfer ownership.
e. the bailor delivered something to the bailee.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
10) Chasya rented a widget from Alec. During the rental period, the widget was involved in
an accident. Which of the following statements is TRUE?
a. The parties' rights with respect to the accident are probably governed by the Sale of
Goods Act.
b. Since the transaction was not intended to transfer title, Alec could not have been required
to warn Chasya with respect to the use of the widget.
c. If the widget was damaged during the accident, Chasya necessarily will be treated as an
insurer.
d. If the accident was caused by the fact that the widget was defective, Chasya may be
entitled to recover damages for personal injuries that she suffered during the accident, but
only if Alec actually knew of the defect before providing Chasya with possession of the
widget.
e. If Alec sues for the damage done to the widget, the court may shift the burden of proof
by requiring Chaysa to prove that the damage was not her fault.
11) A bailment relationship was created between Vijay and Amanda. It was intended to last
for two weeks. That period has expired. Amanda now claims that she is entitled to exercise
a lien. Which of the following statements is TRUE?
a. Amanda was probably the bailor.
b. A lien can exist only if it was created by statute.
c. If Amanda is entitled to enforce a lien, she is also entitled to exercise a right of sale.
d. A lien does not exist if the goods were legitimately returned to their owner at the end of
the bailment.
e. Amanda must be a common carrier.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
12) A bailment was created between Owen and Padma. The bailment involved the storage
of a widget for 12 months. The price for storage was $1000 per month. At the end of the
year, only $5000 had been paid in total. The widget was worth $10 000. It was sold for that
amount under a lien and right of sale. Ignoring the costs associated with the enforcement of
the lien and the right of sale, when the sale proceeds are distributed, the bailor will be
entitled to receive
a. $1000.
b. $3000.
c. $7000.
d. $10 000.
e. $12 000.
13) Darcy received a widget from Rachel under a bailment. The widget was damaged while
it was in his possession. As a result, Rachel has sued Darcy. Which of the following
statements is TRUE with respect to Darcy's liability?
a. If the bailment was for Rachel's benefit, Darcy cannot be held liable.
b. Darcy will be treated as an insurer if the bailment was both gratuitous and for his benefit.
c. Once Rachel proves that the widget was damaged while in Darcy's possession, the
burden of proof necessarily will shift.
d. If the burden of proof shifts to Darcy, he cannot possibly avoid liability by merely
proving that he exercised reasonable care.
e. If Darcy is a common carrier, then he may be relieved of liability if the damage was
caused by an act of God.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
14) If property is lost or damaged during a bailment, the burden of proof may shift. Which
of the following statements is TRUE with respect to that rule?
a. If the burden of proof shifts, it moves from the bailor to the bailee.
b. The rule allowing the burden of proof to shift was originally based on the desire to
discourage unwarranted lawsuits.
c. The burden of proof shifts only if the bailment involved a common carrier.
d. The burden of proof shifts only if neither party can explain how the property became lost
or damaged during the bailment.
e. The usual effect of shifting the burden is to transform the transaction from a rental into a
sale.
15) Rohan created a bailment by providing goods to Hi-way Transport Co (HTC), which is
a common carrier. The goods were damaged during the bailment. Which of the following
statements is TRUE?
a. The bailor is treated as an insurer.
b. HTC may be held liable only if there is proof that it was at fault.
c. Given the nature of the parties' relationship, HTC cannot be protected by an exclusion
clause.
d. HTC cannot be considered a common carrier if it occasionally turns away business
because it lacks space.
e. If Rohan's goods are covered by first party insurance, his insurer may eventually be
entitled to receive money from HTC.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
16) Pan-Canada Delivery Inc is a common carrier. It accidentally damaged an expensive
shipment of goods. Nevertheless, it cannot possibly be held liable if
a. it exercised as much care as possible.
b. the damage was caused by a rainstorm.
c. the shipping contract contains a clause that says that "liability will not be imposed for
lost goods, whether or not the loss was caused by the carrier's carelessness or fault" and no
more.
d. the goods were damaged by an inherent vice.
e. the shipper provided consideration in exchange for Pan-Canada's services.
17) Which of the following statements is TRUE with respect to sub-bailments?
a. Because of the doctrine of privity, it is possible to have a sub-bailment, but not a sub-
sub-bailment.
b. A sub-bailment must be contractual in origin.
c. A sub-bailment can occur with the bailor's implied or express consent.
d. A sub-bailee is always considered an insurer for the purposes of the standard of care.
e. Every person who is a bailor must also be a bailee.
18) Anna wanted goods moved from Vancouver to Halifax. For that purpose, she gave
them to Boris, who operates an independent trucking business. When Boris reached
Winnipeg, his truck broke down. To fulfill his contract with Anna, he gave possession of
the goods to Carl, with instructions to deliver them to Halifax. The goods were destroyed
while they were in Carl's possession. Which of the following statements is TRUE?
a. If Anna did not consent to Carl's possession of the goods, Boris can successfully sue Carl
and retain the damages for himself.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
b. If Anna consented to Carl's possession of the goods, she can successfully sue him even if
he had no way of knowing that the goods belonged to someone other than Boris.
c. If Boris and Carl are both common carriers, Boris will be treated as an insurer, but Carl
will not, because only Boris dealt directly with Anna.
d. If the contract between Boris and Carl contained an exclusion clause, there is no way that
Anna can be bound by it.
e. Even though he did not own the property, Boris may sue Carl, but if the court awards
damages, then Boris must receive that money on behalf of Anna.
19) Adrienne wanted to place her jewels, which were valued at $100 000, in safe storage
while she was on vacation. For that purpose, she gave them to Saul, a jeweler. Since Saul
did not actually have safekeeping facilities, he gave Adrienne's jewels to Jeannie. Since
Jeannie did not have safekeeping facilities either, she simply placed the jewels in her desk
drawer. The jewels were stolen from that drawer by an unknown thief. The evidence
indicates that Saul knew that Jeannie did not have proper safekeeping facilities. Adrienne
had the jewels fully insured against loss or theft under a policy that she purchased from
Rideau Insurance Co. Saul has liability insurance that he bought from Wellington Insurance
Ltd, but Jeannie does not have any insurance. The evidence indicates that both Saul and
Jeannie acted carelessly. Which of the following statements is most likely TRUE?
a. Adrienne will likely receive $100 000 from Saul and $100 000 from Jeannie.
b. Adrienne will receive $300 000, consisting of $100 000 from Saul, $100 000 from
Jeannie, and $100 000 from Rideau Insurance Co.
c. If Saul and Jeannie are both successfully sued, Rideau Insurance Co will be entitled to
receive a total of $100 000, entirely from one, or part from each.
d. If Saul and Jeannie are both successfully sued, they both will be personally required to
pay $50 000 to Adrienne.
e. If Adrienne claims a benefit under her insurance policy, she will receive $100 000, plus
the amount that she paid to Rideau Insurance Co in premiums.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
20) Trans-Man Shipping, which is based in Winnipeg, offered to deliver "anything,
anywhere anytime." Rosie entered into a contract with Trans-Man Shipping to send an
antique phonograph from Portage La Prairie to Brockville. The phonograph was lost in
transit. Rosie claimed the value of the phonograph under a policy that she had purchased
from The Pas Insurance Co. Despite the loss, Trans-Man Shipping feels protected from the
effects of liability by a policy that it purchased from Brandon Insurance Co. Which of the
following statements is most likely TRUE?
a. Trans-Man Shipping can be held liable only if it deliberately or carelessly damages the
phonograph.
b. If one insurance company is compelled to pay a benefit, the other could not possibly be
compelled to pay a benefit.
c. Rosie purchased a third party insurance policy.
d. Trans-Man Shipping acted as a bailor.
e. The Pas Insurance Company sold a first part insurance policy.
21) Acme Corp owns an expensive widget. Which of the following statements is TRUE?
a. If Acme Corp intentionally abandons the widget, you will be entitled to keep it for
yourself only if you take possession of it without actual knowledge that it had been
abandoned.
b. If a thief steals the widget and sells it to you, Acme Corp can sue you for the tort of
conversion, unless you acted honestly.
c. If Acme Corp loses the widget, and you find it but are unable to determine its true owner,
you will be able to sue me for the tort of conversion if I forcibly take it from you.
d. If you take the widget in the reasonable belief that it belongs to you, Acme Corp will not
be able to sue you for the tort of conversion.
e. If Acme Corp created the widget, then the widget will not have an owner unless and until
someone buys it from the company.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
22) Which of the following statements is TRUE with respect to property insurance?
a. A benefit paid by an insurer to an insured is called a premium.
b. Property insurance is called third party coverage if one person buys insurance with
respect to property that is owned by another person.
c. Property insurance is called first party coverage only if the insurer sold the policy to a
human being, rather than a corporation.
d. A benefit may be paid under a property insurance policy even if the insured is entitled to
sue a third party for causing the loss or damage in question.
e. Property insurance is available for real property, but not personal property.
23) Sandor bought property insurance from Athena Insurance Corp five years ago. A
dispute has arisen between the parties regarding the duty of utmost good faith. That most
likely means that
a. the policy may be invalid if Sandor was not entirely candid with the insurer when he
bought the policy.
b. special rules apply because the policy was purchased with respect to sacred religious
objects.
c. Athena Insurance Corp denies that it received a cheque for the payment of Sandor's
annual premium.
d. Sandor is not entitled to receive a benefit for loss that did not occur.
e. Athena Insurance Corp is not really an insurance company.
24) The concept of indemnification
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
a. means that the benefit paid under a policy is always large enough to allow the insured to
buy a new piece of property as replacement for the one that was damaged or lost.
b. applies only if the premiums that the insured paid are equal to the value of the property
that was lost or damaged.
c. usually leaves the insured with a small profit.
d. is important to the concept of an insurable interest.
e. is relevant to third party coverage but not first party coverage.
25) Gamma Ltd owns a widget. It purchased property insurance from Atlantic Insurance
Co. The widget was recently destroyed by a fire. It was worth $75 000, and it will cost that
much to replace it. Both parties agree that that loss falls within the terms of the policy.
Nevertheless, a dispute has arisen regarding a $5000 deductible. That most likely means
that
a. Gamma Ltd failed to pay a premium worth $5000.
b. Atlantic Insurance Co claims that the fire was caused by a third party and that Gamma
Ltd must sue that third party in tort instead of claiming a benefit under the policy.
c. Atlantic Insurance Co claims that Gamma Ltd is entitled to receive $70 000.
d. if Atlantic Insurance Co sues a third party in tort for causing the fire that destroyed the
widget, the costs of that litigation will be deducted from the benefit that Gamma Ltd is
entitled to receive.
e. the benefit that Gamma Ltd is entitled to receive under the policy will be reduced to the
extent that the widget can be sold for scrap material.
26) The concept of an insurable interest
a. is aimed at avoiding moral hazards.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
b. prevents an insurance company from selling a policy to anyone other than the owner of a
piece of property.
c. creates an important general exception to the general rule of indemnification.
d. is relevant only in cases of co-insurance.
e. was abolished by the Supreme Court of Canada's decision in Kosmopoulos v Constitution
Insurance Co.
27) Theta Ltd owned a widget worth $50 000. It purchased "full coverage" property
insurance from Atlantic Insurance Co. It also bought "full coverage" property insurance
from Pacific Insurance Co. The widget was destroyed by a fire. Theta Ltd received a $50
000 benefit from Atlantic Insurance Co. Atlantic Insurance Co has now sued Pacific
Insurance Co. The best explanation for that action lies in the concept of
a. subrogation.
b. co-insurance.
c. contribution.
d. deductible.
e. fidelity.
28) Naomi owned an inventory of widgets worth $100 000. She purchased $40 000 worth
of property insurance from Huron Insurance Co. That policy contained a co-insurance
clause that required at least 80 percent coverage. A flood caused extensive damage to
Naomi's widgets. Naomi will be entitled to receive a benefit of $20 000 if the flood caused
damage worth
a. $20 000.
b. $30 000.
c. $40 000.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
d. $60 000.
e. $80 000.
29) Zelig owns a widget worth $25 000. He purchased property insurance from Superior
Insurance Co. The widget was irreparably damaged as a result of an accident that was
caused by Zoe. Zoe has a liability insurance policy from Erie Insurance Co. Which of the
following statements is TRUE?
a. Zelig cannot claim a benefit from Superior Insurance Co unless Zoe caused the accident
in a way that exposed her to liability in tort.
b. If it is required to pay a benefit of $25 000 to Zelig, Superior Insurance Co can claim the
same amount of money from Erie Insurance Co even if Zoe could not be held liable to
Zelig for damaging the widget.
c. If Superior Insurance Co sues Zoe, it will do so on the basis of the concept of
contribution.
d. The concept of subrogation means that if Zelig successfully sues Zoe in tort, she will be
able to claim a benefit from Superior Insurance Co.
e. If Superior Insurance Co pays a benefit to Zelig, it will be entitled to exercise subrogated
rights against Zoe.
30) Which of the following statements is TRUE?
a. Hacker insurance provides protection from losses that may be caused by computer
viruses.
b. Business interruption insurance is generally used to hire and train a replacement if a key
member of an organization dies unexpectedly.
c. A surety bond generally provides coverage if an employee steals something from a
business or its customer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 17: Personal Property: Bailment and Insurance
d. A fidelity bond is generally used to assure a customer that compensation will be
available if a project is not completed on schedule.
e. Key person insurance usually applies after the owner of a business or the director of a
company is convicted of a crime.
31) As defined in Chapter 17, a "licence" is
a. an obligation to act reasonably.
b. a right to inflict a financial loss upon another party.
c. always granted by a government official.
d. always applies with respect to an interest in land.
e. allows a person to act in a way that otherwise would be considered wrongful.
32) Which of the following statements is TRUE with respect to statutory liens that apply in
the context of bailments?
a. The legislation provides a lien to every type of bailee, as long as the bailment is not
gratuitous.
b. The statutory lien provides a right to retain possession, but not a right of sale.
c. Statutory liens are restricted to "common callings," such as innkeepers and common
carriers.
d. If goods are sold under a statutory lien, any money not required to discharge the debt is
paid to the bailor.
e. Statutory liens are effective regardless of who has possession of the relevant property.
