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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
31) Which of the following refers to a TRUE exception to the privity doctrine, in the sense
that a person is entitled to sue on a contract despite the fact that he or she is not a party to
that contract?
a. equitable assignment
b. legal assignment
c. contract of insurance
d. trust
e. Himalaya clause
32) The word "estop" means
a. "to prove."
b. "to deny."
c. "to prevent."
d. "to guess."
e. "to promise."
33) The traditional doctrine of estoppel, rather than promissory estoppel, requires proof
a. of either consideration or seals from both parties.
b. of a statement regarding a past or present fact.
c. of detrimental reliance by the representor.
d. that one of the parties acted inequitably.
e. of an intention to create a new contract.
34) The contractual rule that requires an exchange of value
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
a. is best explained through the doctrine of privity.
b. generally requires proof that each party provided sufficient consideration, but it does not
also require proof that each party provided adequate consideration.
c. can be satisfied by the use of a seal because a seal is itself a form of valuable
consideration.
d. is based on the need for clear evidence of an agreement and therefore does not apply if
the parties' agreement is written, rather than oral.
e. cannot be satisfied by the provision of love and affection because that rule requires each
party to provide a physical benefit, rather than services or actions.
35) Lewis is a wealthy entertainer. While watching a telethon that was aimed at raising
money for medical research, he was overwhelmed by a sense of grief and sorrow. He
consequently picked up the telephone, dialed the number on the screen, and promised to
donate $5 million within one month. The volunteer on the other end of the line thanked
Lewis and assured him that "the money will be put to good use." Two days later, before
Lewis had sent in a cheque, the telethon organizers announced that, because of the public's
overwhelmingly positive response, and in particular because of Lewis's generous promise,
their organization would be able to build a research facility that they previously believed
was beyond their budget. They also announced that they would name the facility the Jerry
Medical Research Park, after Thomas Jerry, a local surgeon who recently had died. Lewis
became very angry. He had long hated Jerry and he was horrified at the thought of paying
for a building named in his enemy's honour. He therefore informed the telethon organizers
that he had changed his mind and that he would not be sending any money. The telethon
organizers have now sued for breach of contract. Which of the following statements is
TRUE?
a. Lewis is contractually obliged to honour his promise if the telethon organizers can prove
that, in reliance upon his promise, they already have hired architects and contractors to
build the new facility.
b. Lewis is required to honour his promise as a result of the doctrine of promissory
estoppel.
c. There is no contract in this case because Lewis merely promised to pay, and did not
actually pay any money, and therefore did not provide consideration.
d. Lewis will be contractually obliged to honour his promise as long as the telethon
organizers agree to drop Thomas Jerry's name from the new research park.
e. Lewis is not required to pay because his promise was a gratuitous promise.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
36) As a result of her participation in a telemarketing scheme, Susan was charged with
several counts of fraud. Because she knew that the courts had recently started to take a
much harsher approach to such crimes, and because she already had been convicted for
similar offences in the past, she was anxious to "beat the rap." She therefore called
Anqwaan, her brother-in-law, who was also a lawyer, and begged for his help. Anqwaan
initially hesitated. Anqwaan already was very busy with his practice. Furthermore, although
they were related, Anqwaan had met Susan only a few times and he did not know her much
at all. He did, nevertheless, eventually agree to take on the case. As a result of his excellent
service, Susan was acquitted on all charges. A few days after the trial ended, Anqwaan sent
Susan a bill for his legal services: $15 000. As a family courtesy, Anqwaan had, in fact,
charged Susan only half of his usual hourly rate. Susan nevertheless was very upset. As she
correctly notes, she and Anqwaan had never discussed his fee and she had never actually
promised to pay him anything. Which of the following statements is TRUE?
a. Because the parties never discussed Anqwaan's fee, they could not have created a
contract
b. Even though the parties never discussed Anqwaan's fee, the court may find that Susan
implicitly promised to pay for Anqwaan's services and that, by taking the case, Anqwaan
implicitly accepted that offer.
c. If Susan had promised to pay $15 000 immediately after the trial ended, and before
Anqwaan raised the subject of his fee, Susan's promise necessarily would be seen by a
judge as past consideration.
d. There cannot be a contract on these facts because, given his relationship to Susan,
Anqwaan already had a moral, family obligation to act on her behalf.
e. Because Susan had requested Anqwaan's services, she would have to pay his entire bill
even if he doubled his hourly rate.
37) Laetitia agreed to provide certain services to Hans in exchange for a payment of $10
000. Although Laetitia fully performed her side of the agreement, Hans refuses to pay
anything. He insists that Laetitia does not have a right to sue for breach of contract because,
in performing the services, she was merely doing something that she had become obliged to
do even before she entered into her agreement with Hans. Hans's position is correct if
Laetitia's pre-existing obligation was
a. some type of public duty.
b. supported by a seal rather than by consideration.
c. a private obligation owed to a third party.
d. for some reason unenforceable.
e. for some reason enforceable.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
38) Gabriel entered into a contract with Paradise Equestrian Services (PES). The purpose of
the contract was to allow Gabriel's son, Archie, to learn to ride horses. The situation was
somewhat complicated by the fact that while Gabriel lived in Prince Edward Island, Archie
was starting college in British Columbia, where PES was also located. In an attempt to
make it easier for Archie to take action on the contract, if any problems arose, Gabriel made
sure that the agreement contained Paragraph 13, which says, "The promise given by PES is
hereby made to Gabriel by PES and the benefits of that promises are held in trust by PES
for the benefit of Archie." Which of the following statements is TRUE?
a. Archie is a party to the contract by virtue of an assignment.
b. The facts demonstrate the concept of vicarious performance.
c. The tactic that Gabriel tried to use in this case was abolished by the Privy Council in
Vandepitte v Preferred Accident Insurance Co.
d. Archie can sue on the contract only if he personally provided consideration.
e. As a result of Paragraph 13 of the contract, Archie can properly be classified as trust
beneficiary and can enforce the promise of PES.
39) Cookie entered into a contract with Muhammad. Muhammad was required to pay $25
000 to Cookie, and he was entitled to have an engine modified and installed in his
speedboat. Jane vicariously performed part of the contract. Which of the following
statements is TRUE?
a. Jane almost certainly vicariously performed on behalf of Cookie.
b. One of the parties undoubtedly breached the contract.
c. Vicarious performance occurs only under an assignment.
d. Vicarious performance will be recognized by a court of equity but not by a court of law.
e. If Jane performed carelessly and caused some sort of loss to the party on the other side of
the contract, then the party who suffered the loss must sue Jane rather than the other person
who actually signed the contract.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
40) Sid and Nancy entered into a contract. Part of that contract was subsequently assigned
to Johnny. Which of the following statements may be TRUE?
a. Johnny is now required to provide personal services to either Sid or Nancy.
b. One of the parties assigned the contract to Johnny even though the other party objected
to that development.
c. The assignment must have happened by operation of law, rather than in response to a
party's intention.
d. As a result of a statutory assignment, Johnny became entitled to receive half of the
money that Nancy owed to Sid under the contract.
e. Johnny may be able to collect the same debt twice if the debtor does not provide timely
notice of the assignment.
41) Benson tells his son, Charles, that he will sell him his Bentley for $200 when he turns
18. On his 18th birthday, Charles brings his father $200, but Benson refuses to hand over
the keys, arguing that, no matter what he said, a Bentley is worth more than $200. Which of
the following statements is true?
a. The contract was never made because there wasn’t adequate consideration.
b. The contract was never made because any agreement between relatives is just a
gratuitous promise.
c. The contract was created because the consideration is sufficient.
d. The peppercorn theory allows Benson to demand any amount for the Bentley even
though he offered it for $200.
e. The contract was never created because there was never an exchange of value.
42) Yusheng sends Pierre a cheque for $100 with a note saying she will buy his golf clubs
if he is willing. Pierre cashes the cheque, but never delivers the clubs. Which of the
following describes the situation?
a. The cheque is considered past consideration and Yusheng has no way to recoup the
money.
b. By cashing the cheque, Pierre has accepted the offer by performance.
c. The cheque is not sufficient consideration for the golf clubs and Yusheng has no way to
recoup the money.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
d. If Pierre put forth an invitation to treat, then he must give the clubs to Yusheng.
e. Yusheng cannot recoup her money because there was an implied forbearance to sue.
43) Khalid owes Jill $60 000 and he has to repay it by June 30. On May 10, he learns that
Jill is desperate for money. Khalid only has $30 000, but offers to pay that amount to her
the next day, May 11, in exchange for forgiveness of the debt. Which of the following is
true?
a. Even if she takes the money, Jill is still entitled to the full amount because there is no
new consideration.
b. If she takes the money, the debt is paid because Khalid offered new consideration.
c. Even if she takes the money, she is entitled to the full amount because of section 16 of
the Mercantile Law Amendment Act.
d. If she takes the money, despite the lack of new consideration, the debt is paid because of
section 16 of the Mercantile Law Amendment Act.
e. The debt will only be forgiven if Khalid changes the method of payment to cheque rather
than cash.
44) Jan’s aunt writes a letter to Jan, offering to give her a new car. Jan takes the car, but
after two months her aunt asks for the car back. Jan refuses and her aunt sues her, claiming
there was no contract and therefore it was still her property. Which of the following
statements is true?
a. Jan should write “seal” on the letter to substitute consideration.
b. Jan should argue a promissory estoppel because she had relied on the letter when
accepting the car.
c. Jan cannot argue a promissory estoppel because she did not share a legal relationship
with her aunt.
d. Jan could not have used a seal if her family did not have a crest.
e. Jan must return the car because she gave no consideration.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
45) Herman is owed money from Victoria and owes money to Lyndon. In order to satisfy
his contractual debt to Lyndon, he assigns the debt from Victoria to Lyndon. Lyndon
accepts, but does not tell Victoria, assuming Herman will. Which of the following is true?
a. Because this is an equitable assignment, it is Herman’s duty to inform Victoria of the
assignment.
b. If Victoria pays Herman, Lyndon has no way of recovering the debt.
c. If Lyndon breaks the contract, Victoria can sue both him and Herman.
d. If Victoria pays Herman, Lyndon must sue Herman to recover his money.
e. If Victoria pays Herman, Lyndon must sue Victoria to recover the money.
46) Stacy hires Youssef to build her home. Youssef gets five of his friends to build the
house, writing an agreement between them and him. He also sends a letter to Stacy
informing her of the situation. Which of the following is true?
a. This is a statutory assignment because Youssef wrote out the assignment and gave
written notice to Stacy.
b. This is an equitable assignment because it is conditional.
c. This is an assignment by law because it is a construction contract.
d. This is assignment by vicarious performance.
e. This is not a case of assignment.
47) Ash is moving from Canada to the UK, but before he goes he wants to buy his sister,
Sasha, a ring. He finds a custom jeweler, but the ring will not be ready until after he leaves
and he’s worried that something might happen with the jeweler. Ash should
a. assign the collection of the ring to his sister.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
b. have the ring delivered to his sister’s address.
c. buy the ring in trust for his sister.
d. create a contract with his sister promising the delivery of the ring.
e. ensure that the sales contract has a Himalaya clause to protect him from liability.
48) Alpha Manufacturing enters into a carriage contract with Bravo Shipping. During the
carriage, a mistake by a contracted stevedore caused Alpha’s goods to be damaged. Alpha
had property insurance on the goods. Which of the following describes the situation?
a. Alpha can only recover damages from the insurance company as long as there is a
Himalaya clause.
b. Alpha can recover damages from both the insurance company and Bravo.
c. Alpha can recover damages from both Bravo and the stevedore.
d. Alpha can only recover damages from the stevedore because this is a case of negligence.
e. Alpha can only recover $500 because of the hague rules.
Essay Questions
1) "The law of contract assumes that people are generally capable of looking after their own
interests. An agreement therefore may be enforceable even if the parties do not exchange
things of equal value." Discuss that statement. Illustrate your answer with three business
law examples.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
2) Explain the relationship between offer and acceptance on the one hand and consideration
on the other. Your answer should focus on the concepts of cross offers and mutuality of
consideration.
3) Sebastien Johan is a music critic known for his ill-tempered manners. In a recent
newspaper article, he harshly criticized a classical recording that was released shortly after
the death of Glenn Klavier, its featured performer. Johan's review attacked Klavier's music,
which was not unusual. However, the review also attacked Klavier personally. It unfairly
and inaccurately suggested that Klavier had intentionally stolen all of his ideas from
another pianist. Klavier's widow sued Johan under the tort of defamation on the basis that
the review tended to make people think less of her late husband. She threatened to sue for
$500 000 unless she immediately received payment of $100 000. Although Johan normally
would have simply ignored the matter, he recently had experienced a number of financial
setbacks. He therefore realized that while he would prefer to pay nothing, he could afford
$100 000, but would be ruined if he was ever required to pay $500 000. He therefore
promised to pay $100 000 within one year to Klavier's widow in exchange for her promise
to drop the lawsuit. Six months later, however, Klavier's widow was reliably informed that
her lawsuit certainly would have failed if it had been brought before a judge. The law of
defamation states that a person cannot be held liable for making derogatory comments
about a dead person. Johan therefore now refuses to fulfill his promise to pay $100 000. Is
he entitled to do so? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
4) "Depending upon the circumstances, a promise to pay a specific sum of money may or
may not be enforceable if that promise is given in response to services that have already
been received." Explain whether or not that statement is accurate.
5) Under the Electronic Home Business Administration Act, any citizen that pays a $50 fee
is entitled to receive a licence to operate a certain type of business from home. Donna, who
wished to operate such a business, sought information over the telephone from Duncan, a
government official who was responsible for issuing licences under the legislation. Duncan
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
agreed to provide a licence to Donna, but only if she promised to pay an additional fee of
$25 to him directly. Although Duncan was not actually entitled to demand that extra sum,
he honestly believed that he was acting within his rights. Because she was anxious to
receive the licence, Donna promised to pay $75. However, she now regrets her decision to
do so. How much must she pay Duncan in order to receive a licence? Explain your answer.
6) "A promise to perform a pre-existing contractual obligation cannot provide consideration
for a new contract. That rule is based on the fact that it would be undesirable if party A
could threaten to break an existing contract in order to get party B to enter into a second
agreement at a higher price." Is that statement true: (i) if the existing contract was created
between A and B, or (ii) if the existing contract was created between A and C? In each
instance, provide two reasons for your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
7) What is the essential purpose of a seal?
8) Briefly describe the requirements that must exist before a promissory estoppel will arise.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
9) Betta Corp, a manufacturer, sold widgets to Splendens Inc, a wholesaler. Under the
terms of that agreement, Splendens was entitled to resell the widgets to a retailer, but only
if its contract with the retailer (i) required the retailer to sell the widgets to its own
customers at a list price established by Betta, and (ii) required the retailer to pay $500 to
Betta for every widget that it sold to a customer at a price that was below the list price
established by Betta. Splendens in fact sold the widgets to Siamese Fish Ltd, a retailer.
Siamese then sold ten of the widgets to its own customers for less than Betta's list price. Is
Siamese required to pay $5000 to either Betta or Splendens? Explain your answer.
10) Paradise Publishing Inc entered into a contract with Carol Chambers, a successful
author, for the writing of two novels. Under the terms of that agreement, Carol was entitled
to payment of $50 000 six months after the submission of each novel. Carol submitted the
first novel on the first day of January. As she found the first phase of the contract to be
exhausting, she wanted to immediately take a vacation. She asked Paradise for payment of
$50 000, but it pointed to the terms of their contract and denied her request. Carol purported
to sell her contractual rights regarding the first novel to Nigel. Under that arrangement,
Nigel immediately paid $35 000 to Carol in exchange for her right to receive $50 000 from
Paradise on the first day of July. With the money that she received from Nigel, Carol took
an extended vacation to Costa Rica. While relaxing on the beach, she met Jose, an aspiring
author who explained that he was finding it difficult to break into the publishing world.
Carol then proposed an arrangement under which he would pay $10 000 to her in exchange
for the right to write her second contract for Paradise. Jose agreed. In the middle of May,
Paradise learned about Carol's agreements with Nigel and Jose. It insists that both of those
arrangements are invalid. Is it correct? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
11) Koln Enterprises Ltd is a music publisher that manufactures compact discs. In January,
it agreed to record a jazz concert for Jade Nagoya, a pianist, in exchange for payment of
$25 000. The recording was to take place in April. Under the terms of that agreement, Jade
would then be entitled to sell the CDs to her own customers for her own profit. As soon as
that contract was created, Koln orally assigned its rights to Bremen Collection Inc. In
February, Koln breached a separate contract that it had with Jade. As a result of that breach,
it became indebted to her for $5000. It has not yet paid that amount to her. In March,
Bremen notified Jade of the assignment that it had received from Koln. Koln recorded the
concert in April and pressed it onto a set of CDs. When Jade received those discs, however,
she noticed that while the sound quality was acceptable, the packaging did not satisfy the
terms of her January agreement with Koln. As a result of the shoddy packaging, Jade lost
$3000 on the re-sale of the CDs to her own customers. How much money is Bremen
entitled to collect from Jade? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
12) Dawn Sumi hosts a national call-in radio program. On a number of occasions, when the
on-air discussion concerned computers and electronic devices, she spoke very favourably
about the merchandise manufactured by Rabby Electronics Inc. As a result of those
compliments, Rabby's business increased dramatically. Rabby was both delighted and
surprised: delighted because it was making larger profits and surprised because it had never
asked Sumi for the endorsements. As a gesture of thanks, the president of Rabby wrote to
Sumi and promised to pay him $25 000 within six weeks. In reliance upon that promise,
Sumi immediately entered into a contract with a builder to add a sun deck to her home at a
cost of $25 000. Sumi never would have entered into that contract if she had not received
Rabby's promise. A week later, however, the president of Rabby changed his mind and told
Sumi that she would not be receiving the money after all. Is Rabby entitled to do so? Did a
contract exist between the parties? If no contract existed between the parties, is Rabby
nevertheless obliged to fulfill its promise? Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
13) "A trust provides am exception to the privity of contract doctrine. The contract is
enforced by the person to whom the contractual promise was intended to benefit." Explain
the meaning of that statement and indicate whether or not it is true.
14) Identify and explain two situations in which legislation allows a stranger to sue on a
contract that was made for its benefit.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
15) Identify the circumstances in which an employee can take advantage of an exclusion
clause that is contained in a contract that was created between an employer and a customer.
