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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
True/False Questions
1) A gratuitous promise is generally not enforceable.
a. True
b. False
2) Alpha Corp entered into an agreement with Beta Inc. Alpha promised to transfer certain
equipment to Beta and Beta promised to pay $50 000 to Gamma Ltd. Alpha has provided
sufficient consideration but Beta has not.
a. True
b. False
3) Epsilon Inc and Delta Ltd entered into an agreement. Epsilon promised to pay $10 000 to
Delta in March. Delta promised to deliver a piece of machinery to Epsilon in June. Epsilon
paid the money in March. It is now April. The parties do not yet have a contract because
while Delta has given a promise, it has not yet performed that promise.
a. True
b. False
4) Dina threatened to sue Chris for $25 000 unless he immediately paid her $10 000. Chris
paid $10 000. He will be entitled to recover that money as long as he later proves that Dina
honestly and mistakenly thought she had the right to sue Chris for $25 000.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
5) Luke threatened to sue Leia for $50 000 unless she immediately paid $30 000 to him.
Leia paid $30 000 as requested. Luke is entitled to keep that money even if Leia later
proves that he never honestly believed in the validity of the lawsuit that he threatened.
a. True
b. False
6) Past consideration does not satisfy the requirement of mutuality of consideration but can
satisfy an obligation in certain circumstances.
a. True
b. False
7) Tracey is a police officer. While she was on vacation, she agreed to act as a security
guard at a concert in exchange for payment of $500. She performed the work, but the
concert promoter refuses to pay her. He is entitled to do so because the law wants to
discourage public servants like Tracey from improperly taking advantage of their special
skills for private gains.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
8) A promise to perform a pre-existing contractual obligation cannot provide consideration
under a new contract with the same party. That rule always reflects commercial reality.
a. True
b. False
9) Zeta Corp was contractually obliged to pay $25 000 cash to Omega Inc on June 15. On
June 1st, Omega agreed to discharge the entire debt if Zeta immediately gave a cheque
worth $15 000. Zeta did so. Nevertheless, on June 15th, Omega demanded payment of
another $10 000. It is entitled to receive that amount.
a. True
b. False
10) The Canadian government announced its plan to create and circulate a new $100 bill.
Because Marta knew that Bernie was an avid collector of currency, she promised to give
him the first new $100 bill that she received from her work at a flea market. The agreement
was placed in writing and Bernie applied his seal to the document. Shortly after the
government released the new $100 bills, Marta received one from a customer at the flea
market. She is required to deliver it to Bernie.
a. True
b. False
11) Hofflehass Architectural Ltd was hoping to persuade the Town of Buchanan to create a
new beachfront resort. Buchanan said that it was not yet willing to commit itself to such a
project. However, it also said that it would likely agree to any proposal that met certain
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
specifications. On that basis, Hofflehass spent $150 000 in creating a proposal that met all
of the town’s specifications. It presented the proposal and further explained that it would
charge $2 million to actually undertake the construction project. The town’s officials,
however, said that they were no longer interested in a beachfront resort. Although
Hofflehass cannot force Buchanan to pay it $2 million to create the proposed resort, it can
use the doctrine of promissory estoppel to recover its expenses of $150 000.
a. True
b. False
12) The doctrine of promissory estoppel operates only if the representee relies upon a
statement made by the representor.
a. True
b. False
13) A statutory assignment involves three parties: the assignor, the assignee, and the debtor.
a. True
b. False
14) An assignment can only be created by an intentional act of the assignor.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
15) As a wedding anniversary present for himself and his wife, Louisa, Mario entered into
an agreement with Stanislaus, a world famous pianist. Under the terms of that agreement,
Mario promised to pay Stanislaus $52 000. Stanislaus promised that he would provide
weekly lessons for one year for both Mario and Louisa. After two weeks of lessons, Mario
completely lost interest, but Louisa is eager to continue. Stanislaus, however, refuses to go
on. Louisa has the right to demand the remainder of the lessons from Stanislaus because the
courts generally assume that if one party (such as Mario) enters into a contract for the
benefit of another person (such as Louisa), the promise provided by the other contractual
party (such as Stanislaus) is held on trust.
a. True
b. False
Multiple Choice Questions
1) Which of the following statements is TRUE?
a. Consideration must be adequate but it does not have to be sufficient.
b. A person can provide consideration by making a promise that will either create a benefit
for itself or impose a detriment upon the other party.
c. A party seeking to receive the benefit of a promise does not have to provide
consideration if it placed its seal upon a document in which the promise is contained.
d. Love and affection can serve as consideration if a contract is created between family
members.
e. To place a contract under seal, a person may either apply a seal or write the word “seal”
on a document.
2) A gratuitous promise
a. occurs when one party promises to provide two benefits in exchange for the receipt of
one benefit.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
b. is usually enforceable even though it is not given in exchange for consideration.
c. is not enforceable even if it is placed under seal.
d. is enforceable as long as it is supported by love and affection.
e. is a promise that is not given in exchange for consideration.
3) Patricia and Charlie entered into a written agreement. Patricia promised to pay $5000 to
Haden, who is Charlie’s brother. Charlie placed his seal on the document, but Patricia did
not do so. Three days later, Charlie promised that he would design a new computer
program for Bethany, Patricia’s sister, in exchange for Patricia’s promise. Which of the
following statements is the most accurate?
a. Patricia’s promise is not enforceable because each party to a contract must provide a
benefit to the other party.
b. Patricia’s promise is enforceable because Charlie placed his seal on his agreement with
her.
c. Charlie’s promise is enforceable because it was given in exchange for Patricia’s promise
to pay $5000.
d. Patricia’s promise is not enforceable because it was not given in exchange for
consideration.
e. Patricia must pay $5000 to Haden if Charlie actually does design a new computer
program for Bethany.
4) Because he was in love with her, Noriel promised to sell his car to Marina for $500 and
Marina agreed to pay $500 for the car. At the time of that agreement, Marina stressed that
the deal was purely commercial and made it clear that she did not share Noriel’s hopes for
an intimate relationship. Before the sale was performed, Noriel fell in love with another
woman, Valerie. He therefore now refuses to transfer the car to Marina. The actual market
value of the car is $7500. Which of the following statements is TRUE?
a. Marina cannot enforce Noriel’s promise because her promise did not provide adequate
consideration.
b. Marina cannot enforce Noriel’s promise to transfer the car because that promise was only
supported by past consideration-it was based on the fact that Noriel was previously in love
with Marina.
c. Marina cannot enforce Noriel’s promise because love and affection are not good
consideration.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
d. Marina can enforce Noriel’s promise to transfer the car, but only if she pays the actual
market value of the car.
e. Noriel and Marina exchanged consideration even though he has not transferred the car to
her and she has not paid the money to him as they exchanged mutual promises.
5) In exchange for Miles’s promise to pay $10 000 to the Society for Prevention of Cruelty
to Animals, Fran promised to give up eating meat for one year. Which of the following
statements is TRUE?
a. Fran’s promise is gratuitous because Miles does not receive anything of value from her.
b. Fran has not given consideration because she has only suffered a detriment.
c. because neither party will receive a direct benefit, a contract was created only if the
parties’ agreement was placed under seal
d. The facts demonstrate a mutual exchange of value.
e. The facts demonstrate the doctrine of promissory estoppel.
6) Which of the following statements is TRUE?
a. The courts generally do not require adequate consideration because they believe that each
person can look after their own interests by deciding how much to demand under a contract.
b. Promissory estoppel can be used as a sword but not as a shield.
c. Consideration is unnecessary as long as the word “seal” was printed on a form that a
contractual party read.
d. Because of the significance of the privity of contract doctrine, exceptions can only be
created by the legislature, and not by the courts
e. Consideration can never consist of a promise to perform a pre-existing obligation.
7) Mohana promised Ian that she would pay $10 000 to him on his birthday. Ian gave
nothing in exchange for that promise and neither party placed their seal on the document
containing Mohana’s promise. Ian demanded payment on his birthday. Mohana refused,
primarily on the basis that she had recently become quite annoyed with him. Ian then
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
threatened to start a lawsuit. However, he also offered to settle that lawsuit in exchange for
payment of $7500. Mohana accepted that offer in an attempt to avoid paying the full $10
000. Several weeks after paying $7500, however, she learned that her initial promise was
not actually legally enforceable. She also learned that Ian, who was a lawyer, was aware of
that fact all along and made the threat knowing that there was no meritorious lawsuit which
he could bring against Mohana. Which of the following statements is the most accurate?
a. Mohana cannot recover $7500 from Ian because she paid that money in exchange for his
forbearance to sue.
b. Mohana can recover her $7500 because Ian did not give consideration in exchange for
her initial promise to pay $10 000.
c. Mohana can recover $7500 from Ian because his threat to sue her for payment of $10 000
was not made honestly.
d. Mohana would have been required to pay $10 000 to Ian if he had placed his seal on the
document that contained her promise.
e. Mohana can recover only the difference between the sum that she paid ($7500) and the
sum that she originally promised to pay ($10 000).
8) Fred owed a debt of $10 000 to Regina. Because he had lost his job and was
experiencing financial difficulties, he hoped that she would take pity on him and would not
insist upon payment. Fred therefore said to Tyra, who was Regina’s colleague, “If you can
get her to drop the matter, I’ll make it worth your while.” Tyra felt sorry for Fred and said
that she would do her best. A week later, she called Fred and explained that Regina had
agreed under seal to forgive the $10 000 debt. Fred replied by saying, “Many thanks. Come
by my house and I’ll pay you $500 for your effort.” Which of the following statements is
TRUE?
a. Although Regina is no longer entitled to receive $10 000 from Fred, she can still recover
a reasonable amount from him.
b. Regina can still recover $10 000 from Fred because he did not use his own seal.
c. Tyra would not be entitled to any payment from Fred if he did not state the specific
amount of $500.
d. The agreement between Tyra and Fred is enforceable because Fred’s promise to pay $500
is past consideration.
e. Regina cannot sue under the agreement that was created between Tyra and Fred as she
was not privy to that agreement.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
9) Which of the following situations most likely illustrates the concept of pre-existing
public duty not constituting consideration?
a. Pam has threatened to sue Dave for $10 000. She is quite sure that she would win the
case in court. However, because she is very fond of him, she has also generously offered to
settle the matter for $6000.
b. Pam asked Dave, who is a real estate agent, to locate a house in which she could operate
a small accounting business. After he directed her attention to such a house, she promised
to pay $10 000 to him.
c. Pam placed an advertisement in a newspaper that promised to pay $10 000 to anyone
who returned her lost cat to her.
d. In exchange for his promise to pay $5, Pam promised Dave that she would guard a
parking lot in which his car was located during a sporting event. Several minutes later, she
promised Earl, who had also parked there, that she would guard the same parking lot during
the same sporting event if he promised to pay her $7.
e. Pam, who is a fire fighter employed by the city, agreed to extinguish a fire that was
destroying Dave’s house, which is located in the city, only after he promised to pay $10 000
to her in exchange for her services.
10) Parker Inc promised to pay $100 000 cash to Coltrane Ltd in exchange for a shipment
of widgets. The widgets were delivered on October 1st and the price was to be paid on
October 15. On October 13, Parker informed Coltrane that it would not be able to afford to
pay any more than $75 000. Which of the following statements is TRUE?
a. Coltrane will be able to recover the full contract price even if it promises under seal to
accept $75 000 in complete satisfaction of Parker’s debt.
b. Coltrane will not be able to recover the full contract price if it agrees to accept $75 000
from Parker to be paid on October 14 in complete satisfaction of the $100 000 debt, that
was to be paid on October 15.
c. If the parties are located in Alberta, Ontario, British Columbia, Manitoba, the Northwest
Territories, Nunavut, Saskatchewan, or the Yukon, Coltrane will be able to recover the full
contract price even if it has accepted Parker’s offer to pay $75 000 in complete satisfaction
of the $100 000 debt.
d. Coltrane will be able to recover the full contract price even if it accepts Parker’s offer to
satisfy the $100 000 debt by both paying $75 000 in cash and delivering a used truck to
Rollins Corp, which is another company with which Coltrane has close ties.
e. There is no mutuality of consideration, and therefore the contract is invalid, because
Coltrane actually delivered the widgets before Parker was required to pay the purchase
price.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
11) Sarah was an orphan. Her uncle Rocco agreed to act as her guardian until she became
an adult. In that role, he borrowed money to pay for her education. She promised to repay
him when she became an adult. Sarah later became an adult and married Stepan. Stepan
also promised to repay Rocco for the money that he had spent on Sarah’s education. Sarah
and Stepan, however, now refuse to pay the money. Rocco has sued Stepan on his promise.
Which of the following statements is most likely TRUE?
a. Sarah and Stepan and jointly and severally liable to Rocco.
b. Stepan has privity to the contract that was created between Sarah and Rocco.
c. Stepan is liable to Rocco.
d. Sarah became liable to Rocco only after Stepan made his promise to Rocco.
e. Stepan’s promise to Rocco involves the concept of past consideration and is likely
enforceable.
12) Maria went on vacation in May. She expected that her garden would be fine because
May is normally a very rainy month. In fact, it did not rain at all during May. Her
neighbour, Hector, therefore watered her garden because he knew that she would not want
her plants to die. When she returned from her vacation in early June, she thanked Hector
and promised to pay him $200 for his time and effort. Select the best answer.
a. Maria is contractually liable as long as a reasonable person in her circumstances would
have agreed to pay for Hector’s services.
b. Maria is contractually liable, but if the market value of her services is less than $200,
then Hector is entitled to collect only the lesser amount.
c. The concept of past consideration does not apply because Hector never gave any sort of
promise.
d. Maria’s promise would be unenforceable even if it was placed under seal.
e. Maria’s promise is unenforceable because the work she subsequently agreed to pay
consideration for, was not performed pursuant to a promise made by Hector to Maria, but
was performed gratuitously by Hector. There is no mutuality of consideration.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
13) Which of the following situations illustrates a contractually enforceable promise?
a. Suneeta promised to pay $5000 to a firefighter who responded to a routine call to
extinguish a fire at her house.
b. Suneeta promised to pay $500 to her father for a birthday present that she had received
from her parents two weeks earlier.
c. Suneeta had a contract with a construction company to build a deck in her backyard.
Halfway through the project, the cost of materials suddenly increased. Although the
original agreement did not require her to do so, Suneeta agreed to pay an additional $2000
to the construction company to off-set the additional expenses that it would encounter in the
remainder of the project.
d. Suneeta borrowed money from a bank. Under the terms of that agreement, she was
required to pay the bank $10 000 cash on June 1. On May 28, she explained to the bank that
she would not be able to pay the full amount on schedule. On the same day, she also
persuaded the bank to accept a cheque for $7500 in satisfaction of the full debt.
e. Suneeta owed $25 000 to Bryce as a result of committing a tort against him. Because she
did not want to pay the full amount, she persuaded Bryce to accept a document that had a
pre-printed seal on it that said “I agree that I will pay to Bryce $100 in full compensation
for my tort against him.”
14) Which of the following explains why the courts will not enforce an agreement that was
created on the basis of a pre-existing public duty?
a. The performance of a public duty does not confer a benefit upon anyone.
b. As a matter of public policy, it would be undesirable if a public official with a pre-
existing public duty was motivated to perform for wealthy citizens but not poor citizens.
c. Because public duties usually concern very serious matters, such as police investigations
and firefighting, there is nothing that a citizen could give that would provide adequate
consideration for a promise to perform a pre-existing public duty.
d. Citizens should not have to pay for services that public officials, like police officers and
firefighters, perform while they are off-duty.
e. A promise by a public official is binding only if it is placed under seal.
15) Rande promised to provide a series of lectures on tort law to a group of professional
athletes in exchange for payment of $10 000. Shortly before the lectures were scheduled to
take place, Rande promised to provide a publishing company with a recorded set of lectures
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
on tort law in exchange for $15 000. The publishing company agreed that Rande’s planned
lecture for the group of professional athletes would be the subject of the recording. Which
of the following statements is TRUE?
a. Rande does not have a contract with the publishing company because a pre-existing
contractual obligation cannot be re-used for the purpose of supporting a new contract.
b. If Rande fails to provide the lecture as promised, he may be held liable for breach of
contract to both the group of professional athletes and the publishing company.
c. Rande does not have a contract with the group of professional athletes because he reused
his promise to provide a lecture in order to support his contract with the publishing
company.
d. Rande’s promise to the publishing company would be enforceable only if it was made
under seal.
e. Although Rande has contracts with both the group of professional athletes and the
publishing company, he can only demand payment from one of them.
16) Which of the following statements is TRUE?
a. As a general rule, a promise to perform a pre-existing public duty can provide
consideration for a new contract.
b. As a general rule, a promise to perform a pre-existing contractual duty to one party
cannot provide consideration for a new contract with a different party.
c. As a general rule, a promise to perform a pre-existing contractual duty to one party can
provide the consideration for a new contract with that same party for a lesser contractual
duty.
d. As a general rule, a creditor’s promise to accept a lesser sum in complete discharge of a
larger debt is unenforceable.
e. As a general rule, a promise that is not supported by valuable consideration is
enforceable only if both parties have applied their ceremonial wax seals.
17) Which of the following propositions is TRUE in the context of the doctrine of
promissory estoppel?
a. The representee cannot rely on the representor’s gratuitous promise if the representor was
guilty of inequitable behaviour.
b. Once legal rights are affected by the doctrine of promissory estoppel, they can never be
revived.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
c. Promissory estoppel can only be based on representations of existing or past facts.
d. Promissory estoppel can be used as a sword but not as a shield.
e. The doctrine of promissory estoppel is effective only if the representee relied upon a
statement by the representor.
18) JB Inc sold a piece of equipment to SubSurf Ltd for a total price of $240 000. Under the
terms of their contract, SubSurf was required to pay $10 000 on the first day of each month
for 24 months. The contract also stated that if SubSurf was late on any single payment, JB
was entitled to demand immediate payment of the entire outstanding amount. SubSurf
made the first four payments on time. For the next six months, however, it was habitually
late by at least one week. JB did not object to receiving those late payments. However,
when SubSurf did not pay the eighth instalment on the first day of the next month, JB
demanded immediate payment of the entire outstanding amount. Which of the following
statements is TRUE?
a. SubSurf must immediately make a lump sum payment of $240 000 to JB.
b. The parties’ contract is invalid because SubSurf’s promise to immediately pay the entire
outstanding amount if it failed to perfectly comply with the repayment schedule was a
gratuitous promise.
c. The doctrine of promissory estoppel is inapplicable because JB did not make an effective
representation or statement.
d. The doctrine of promissory estoppel is inapplicable because it can only be used as a
sword.
e. JB is estopped from complaining about the late payments as long as SubSurf can prove
that it relied upon the fact that the first 10 payments were accepted without objection.
19) Deecey renovated Reece’s shop in exchange for the promise of $75 000. Reece had
enough money to pay the entire bill, but simply did not want to do so and Reece wanted to
cheat Deecey out of the contract price it had agreed to pay. Reece also knew that Deecey’s
financial situation was very weak and that it might be forced into bankruptcy if it did not
receive at least $25 000 for its work. Reece therefore offered to pay $25 000 in full
satisfaction of the outstanding debt. Because of the circumstances, Deecey accepted that
offer and promised that it would not demand payment of the additional $50 000. Reece paid
$25 000 to Deecey. However, Deecey now claims that it is entitled to the additional $50
000. Which of the following statements is TRUE?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
a. The doctrine of promissory estoppel is not applicable because Deecey is trying to use a
gratuitous promise as a sword, rather than a shield.
b. Deecey will want to rely on the principle of promissory estoppel because Reece’s
behaviour was inequitable.
c. The doctrine of promissory estoppel is inapplicable because Reece is trying to use a
gratuitous promise as a sword, rather than a shield.
d. Reece cannot rely on the principle of promissory estoppel because its own behaviour was
inequitable.
e. The doctrine of promissory estoppel is inapplicable because Deecey’s representation
concerned a past fact (the value of the work that it performed for Reece).
20) Bruce and Rosie entered into an agreement. He promised to transfer a necklace to her
mother and she promised to deliver a computer to his father. Which of the following
statements is most likely to be TRUE?
a. There is no contract between Rosie and Bruce because neither her mother nor his father
is a party to the agreement.
b. As long as Bruce’s father relies upon the terms of the existing contract, and as long as he
does not act inequitably, he can compel Rosie to transfer the computer to him on the basis
of the doctrine of promissory estoppel.
c. As long as Bruce transfers the necklace to Rosie’s mother, Bruce’s father can demand
delivery of the computer from Rosie.
d. There is no contract between Bruce and Rosie because there was no mutuality of
consideration.
e. Even if neither Bruce nor Rosie have yet performed, a valid contract exists on the basis
of their mutual exchange of promises to perform.
21) Dunlop sold tires to Mew. The parties’ contract prohibited Mew from reselling the tires
unless its sub-buyer agreed to abide by Dunlop’s list price for the tires. Mew resold the tires
to Selfridge. Under its contract with Mew, Selfridge agreed to (1) abide by Dunlop’s list
price, and (2) pay $50 to Dunlop for each tire that it sold in violation of that list price.
Selfridge resold 10 of the tires to its own customers for less than Dunlop’s list price. Which
of the following statements is most likely TRUE?
a. Selfridge is required to pay $500 to Dunlop only if Selfridge’s contract with Mew is
under seal.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
b. Selfridge is required to pay $500 to Mew.
c. Selfridge is required to pay $500 to Dunlop.
d. As a result of the contract between Mew and Selfridge, privity of contract exists between
Dunlop and Selfridge.
e. Even though it promised Mew to pay $50 to Dunlop for each tire sold in violation of the
list price, and even though it sold ten tires at less than the list price, Selfridge is not liable to
Dunlop as Dunlop is not privy to the contract with Selfridge.
22) Which of the following statements is TRUE?
a. An assignee under an equitable assignment acquires its rights “subject to the equities,”
but an assignee under a statutory assignment does not.
b. If the parties have tried, but failed, to create a statutory assignment, they cannot rely on
an equitable assignment.
c. An equitable assignment is valid only if it is unconditional and complete.
d. An assignment of contractual rights sometimes is created by operation of law and
without regard to the assignor’s intention.
e. The doctrine of vicarious performance is a type of assignment.
23) ABC Construction agreed to build a pool for Miranda in exchange for $100 000. The
pool was to be built during the month of May, but payment was not due until the end of
August. The pool was completed on schedule. However, because it was experiencing
financial difficulties, ABC orally assigned its contractual rights against Miranda to Mirth
Enterprises in early June. In July, Miranda discovered that the pool leaked. Because ABC
denied responsibility, Miranda had the problem fixed by another company at a cost of $20
000. The evidence now indicates that the problem was in fact caused by ABC’s breach of
contract. ABC failed to use appropriate materials when it constructed the pool. Which of
the following statements is TRUE?
a. The assignment may be statutory, but it cannot be equitable.
b. The assignment may be equitable, but it cannot be statutory based on the existing state of
the statute law.
c. ABC can collect $100 000 from Miranda regardless of when she received notice of the
assignment.
d. Mirth can collect $100 000 from Miranda only if it notified her of the assignment before
the pool began to leak in July.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
e. Because of the assignment, Miranda can sue Mirth on the basis of ABC’s breach of
contract.
24) Bentley Inc operates a sporting goods store. In January, it purchased a shipment of
baseball bats from Tadpole Manufacturing Ltd for $20 000. In February, Tadpole orally
assigned its rights under that contract to J&H Collections. In May, Bentley purchased a
shipment of footballs from Tadpole for $15 000 under a separate contract. Immediately
after delivery, Bentley discovered that the footballs were defective. They had been
improperly treated with a chemical that completely destroyed their leather exterior. The
footballs consequently are completely worthless. Both contracts between Bentley and
Tadpole required payment to be made by the end of June. Which of the following
statements is TRUE?
a. J&H can collect $20 000 from Bentley as long as it notified Bentley of its assignment
before the end of June.
b. Because the assignment is equitable, J&H can collect $20 000 from Bentley regardless of
when it notified Bentley of the assignment.
c. Because the assignment is statutory, J&H can sue Bentley without joining Tadpole as a
party to that action.
d. Even if Bentley paid for the baseball bats as soon as they were delivered (even though
payment was not required until the end of June), it will have to pay the price a second time
to J&H, if J&H provides written notice of the assignment before the end of June.
e. The assignment may be equitable, but it cannot be statutory as it is not in writing.
25) Which of the following rules applies to an equitable assignment?
a. The assignment must be written.
b. The assignment must be placed under seal.
c. The assignment must be unconditional.
d. The assignment is valid only once the debtor is given written notice.
e. The assignee takes the assignor’s rights subject to the equities.
26) Which of the following statements is TRUE?
a. As long as the required formalities are satisfied, any contractual obligation can be
assigned by using either a statutory assignment or an equitable assignment.
b. All common law provinces and territories allow statutory assignments, but only some of
them allow equitable assignments.
c. An assignee acquires rights against the debtor only if it provides new consideration to the
debtor.
d. If there are two assignees of the same debt, a court will always favour the assignee that
received its assignment first.
e. Even if the parties satisfy all of the usual requirements, rights under some types of
contracts cannot be assigned and parties may by their contract prohibit assignment of the
benefits of the contract.
27) Carlos entered into a contract with Keisha. He promised to design a computer system
for her business and she promised to pay $50 000 to his brother, Mikey. When that contract
was created, Keisha agreed that Carlos would receive her promise on trust for Mikey.
Which of the following statements is TRUE?
a. Carlos is the beneficiary of a trust.
b. Because Carlos and Keisha agreed to create a trust, their contract is valid even without
consideration
c. Keisha is the trustee of a trust.
d. The facts illustrate the concept of vicarious performance.
e. Mikey is entitled to enforce Keisha’s promise even though he did not provide any
consideration as he is the beneficiary of a trust.
28) The employment exception to the privity doctrine
a. was created by statute.
b. allows an employer to acquire rights in a contract that was created between a customer
and an employee.
c. may be applied in a case that involves vicarious performance.
d. is usually necessary because the employer did not provide consideration to the customer.
e. is a form of equitable assignment.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 8: Consideration and Privity
29) Sentinel Safety Inc entered into a contract with Glengarry Shopping Mall to provide
security. The parties’ contract contained a clause that said: “Neither Sentinel nor its
employees or agents shall be held liable in an amount that exceeds $10 000 for any loss or
damage that may be caused in the performance of this agreement.” Glengarry promised that
it would not sue the named parties for more than $10 000. Elaine works as a security guard
for Sentinel. As part of her job, she regularly patrols the Glengarry Shopping Mall. Which
of the following statements is TRUE?
a. Elaine could not be held liable for more than $10 000 if she caused property damage to
Glengarry Shopping while shopping there on her day off.
b. Because she was not a party to the contract between Sentinel and Glengarry, Elaine
would not be entitled to limited liability if she carelessly damaged part of the mall’s
property while on a regular patrol
c. If Elaine carelessly damaged part of the mall’s property while on patrol, she would be
protected by a statutory exception to the privity of contract doctrine.
d. The facts involve the contractual concepts of an employee who is not privy to a contract
being able to obtain the benefits of an exclusion clause in that contract because of the
manner in which the contract was drafted, and in accordance with the reasonable
expectations of the parties to the contract.
e. The facts involve the contractual concepts of privity of contract and promissory estoppel
and mutuality of consideration.
30) The decision in London Drugs Ltd v Kuehne & Nagel International Ltd is primarily
authority for which of the following propositions?
a. A trust can be used to avoid the consequences of the privity of contract doctrine only if
the parties actually intended to create a trust.
b. Forbearance to sue may be sufficient consideration even if the underlying claim was not
actually valid.
c. In certain circumstances, an employee is entitled to enforce an exclusion clause that is
contained in a contract that was created between an employer and a customer.
d. A promise to perform a pre-existing contractual obligation that is owed to one party may
provide consideration under a new contract with a different party.
e. Sufficient consideration may consist of either a benefit provided to another person or a
detriment to oneself.
