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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
a. frequently redesign the standard form agreement to ensure that customers must read
through the form each time they sign it.
b. teach employees the meaning of onerous and ambiguous contract terms.
c. require customers to clearly indicate their specific agreement to be bound by any onerous
or unusual terms.
d. conceal ambiguous language at the end of the agreement to avoid customer confusion.
e. draft the form in a manner which is ambiguous to your customers but could be literally
interpreted in your favour by a clever lawyer.
32) Which of the following statements is TRUE with respect to misrepresentations?
a. An innocent misrepresentation may trigger an award of damages.
b. A fraudulent misrepresentation may trigger rescission but not damages.
c. A negligent misrepresentation may trigger damages but not rescission.
d. An innocent misrepresentation may be rescinded.
e. A pre-contractual misrepresentation may trigger relief in contract but not relief in tort.
33) An exception to the parol evidence rule may arise if
a. both parties want to rescind the contract.
b. the plaintiff will not be able to successfully claim damages otherwise.
c. the judge is convinced that the contract would be more effective if it contained additional
terms.
d. Evidence of matter extrinsic to the written document required in order to rectify a
mistake made in the written document
e. the wording of the document is unfair to one of the parties.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
34) Which of the following statements is TRUE with respect to a contractual clause that
protects one party from the consequences of breach (exclusion or limitation of liability
clauses)?
a. Such clauses are enforced only if they are the product of equal bargaining power.
b. Such clauses may reduce or limit liability, but they cannot entirely exclude liability.
c. Such clauses are enforced only if they appear in written and signed contracts.
d. Depending upon the circumstances, such clauses may be enforced even if the party who
wants to sue for breach did not read the clause.
e. Such clauses are invalid if they are written in language that is difficult for a consumer to
understand.
35) Jacqui purchased a business from Dickie. During the pre-contractual negotiations,
Dickie said, based on past experience, he expected that the business would earn
approximately $1 million per year. After that statement was made, but before the contract
was signed, Dickie learned that the manufacturer that supplied his business with the
materials that it needed was going out of business. Dickie realized that, because of the need
to purchase materials from another manufacturer, his business could only be expected to
earn $700 000 per year, regardless of whether it was run by himself or by Jacqui. Afraid
that that news would scare off Jacqui, Dickie decided to keep the new information to
himself. Jacqui completed the purchase of Dickie’s business, but was very disappointed
when it earned only $700 000 in its first year. She now wants to sue Dickie. Which of the
following statements is TRUE?
a. While Jacqui probably is entitled to damages, she cannot possibly receive rescission
because the contract has already been completed.
b. Dickie cannot be held liable because his statement was an opinion about the future.
c. Dickie cannot be held liable because Jacqui ought to have independently confirmed his
statements.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
d. Jacqui cannot successfully sue unless she can prove that Dickie’s statements regarding
the business’s profits became a term of their contract.
e. Jacqui may be able to successfully sue Dickie for misrepresentation, on the legal theory
that Dickie made a statement of fact then by his silence distorted his previous assertion of
fact. However, Dickie may have a defence on the basis that he was not stating a fact about
the past but an opinion about the future.
36) Leilani purchased a business from Troy. She is now interested in the possibility of
taking legal action on the basis of an alleged misrepresentation that occurred during the
negotiations leading up to the contract. Which of the following statements is TRUE?
a. The contract can be rescinded only if Troy made a fraudulent misrepresentation.
b. If Troy made a negligent misrepresentation, and Troy owed a duty of care to Leilani in
making that representation, Leilani may choose to sue in tort rather than rescind the
contract.
c. Because the courts will not punish a person who did not breach an obligation, rescission
is not available if Troy merely made an innocent misrepresentation
d. Because the purpose of rescission is to reverse the effects of a transaction, Leilani will
not be able to receive court costs if she rescinds the agreement
e. Leilani cannot obtain rescission because she can only sue in tort.
37) Asif purchased a business from Olga. During negotiations leading up to the contract,
Olga made an innocent misrepresentation. As a result of that statement, Asif has discovered
that the business is far less valuable than he expected. Which of the following statements is
TRUE?
a. Asif is not entitled to rescind the contract if, before entering into the contract, he
carelessly failed to discover the error contained in Olga’s innocent misrepresentation.
b. Rescission is not available for an innocent misrepresentation.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
c. Asif is entitled to rescission even if, before entering into the contract, he investigated the
true state of affairs that Olga addressed in her innocent misrepresentation.
d. Asif is not entitled to rescission unless he can prove that Olga’s innocent
misrepresentation was the only, or at least the most important, reason for him entering into
the contract.
e. The only legal remedy available to Asif is rescission.
38) Ranjit purchased a complex computer system from Compu-Less. Although Compu-
Less had specially manufactured the computer to Ranjit’s personal specifications, the sale
was created on the basis of a standard form agreement that the company uses when
customers buy mass-produced computer units. A dispute has now arisen between Ranjit
and Compu-Less. Which of the following statements is TRUE?
a. The strict terms of the contract will not be enforced if, before Ranjit signed the
agreement, the company’s sales manager said, “Don’t worry about the legal mumbo-jumbo.
We stand behind our products.”
b. Because of the parol evidence rule, the parties’ contract will not include the warranties
contained in the Sale of Goods Act unless the contract either repeats those warranties or at
least refers to them.
c. As long as the language of the contract is sufficiently clear, the parties may have
excluded all possible statutory conditions and warranties.
d. The court may refuse to add an implied term to the contract even if that term would make
the contract, in the court’s opinion, fairer to Ranjit.
e. The golden rule of contract interpretation states that an ambiguous term must be
interpreted in the way that most benefits the party that did not draft the contract.
39) Preetpal purchased a ticket to ride on a train from Toronto to Ottawa. After she had
boarded the train, she was asked if she wished to place her outerwear and backpack into a
storage unit on the train. Because she did not want to be encumbered during her journey,
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
she accepted the offer. She was given a “small baggage claims” ticket before handing over
her coat and belongings. When the train arrived in Ottawa, and Preetpal tried to collect her
coat, she was told that it could not be found. When she threatened to sue, the person who
was representing the train told Preetpal that the back of the “small baggage claims” ticket
she received excluded liability for lost or stolen goods. Assuming these are the only
exclusions, Preetpal can be bound by the exclusion clause only if
a. she actually read it.
b. it was written in a font that was larger than the font that otherwise appeared on the ticket.
c. the clause was written in a language that she can read.
d. it was explained to her when she first bought her train ticket.
e. she was given reasonable notice of the terms on the back of the ticket before or at the
time that she received the ticket.
40) Justice Howe, a member of the Supreme Court of Canada, is deciding a case that deals
with a complicated commercial agreement between two sophisticated and experienced
companies. The resolution of the case depends upon the interpretation of several clauses in
that agreement. Which of the following statements is TRUE?
a. The general rules governing the interpretation of contracts do not apply in the Supreme
Court of Canada because that court is expected to arrive at the fairest result regardless of
the rules of law.
b. In order to decide the case, the judge may need to know which party drafted the
agreement.
c. The contextual approach to interpretation requires a particular clause to be interpreted
exclusively by reference to its own terms.
d. The golden rule of interpretation, which says “do unto others as you would have others
do unto you,” requires the judge to adopt whichever interpretation of the contract that
favours both parties equally.
e. Given the nature of the parties and the contract, Justice Howe cannot decide that their
agreement contains implied terms.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
41) Orson is looking to hedge his portfolio perfectly. He is deciding between entering the
futures markets and creating a forward contract. His broker says that he thinks he could get
him in a forward contract that would not only hedge his portfolio, but also make him a lot
of money. The forward contract does not perform and Orson loses everything. What should
Orson do?
a. Sue his broker for negligence
b. Sue his broker for misrepresentation
c. Sue his broker for deceit
d. Orson has no remedy; his broker was stating an opinion
e. Orson has no remedy; his broker was making a statement of future conduct
42) Tyra is looking to buy her first motorcycle. She sees one listed online and contacts
Graham, the owner. Graham knows that the transmission is faulty and the bike often
doesn’t shift properly. Because this doesn’t happen all the time, he doesn’t make note of it
in the listing. Furthermore, he schedules Tyra to come for a test drive when he isn’t present,
getting his brother to meet her, so that she can’t ask him any questions. Tyra buys the bike
for full price and doesn’t ask any questions. Which of the following statements is most
likely true?
a. Silence can never be misrepresentation.
b. Graham’s silence is misrepresentation because the contract required utmost good faith.
c. Graham’s actions constituted misrepresentation because he wasn’t present for the test
drive, actively concealing the damage.
d. Graham’s silence constituted a half-truth.
e. Graham is not required to disclose the problem in pre-contractual relations.
43) Victor has been found guilty of misrepresentation in a contract. Victor failed to tell a
handicapped person that the electric wheelchair he sold her had no brakes, though he did
not know this fact. The judge says that he is a disgusting person and should be punished to
the full extent of the law. This punishment would likely constitute
a. rescission and compensatory damages.
b. rescission and punitive damages.
c. rescission only.
d. restitution and compensatory damages.
e. restitution and punitive damages.
44) Logan would like to purchase Susanne’s car. He asks her two questions – if the car has
new tires and if there is any structural damage to the car. Susanne answers the first question
immediately and truthfully, but she is unsure of the second answer and tells Logan that she
will have it inspected to find out and will get back to him on Thursday. Susanne forgets to
get the car checked, so when Logan calls she lies and says the inspector told her the car was
in perfect condition. Logan buys the car. If it turns out there is something wrong with the
car, which of the following is true?
a. Susanne may only have to take the car back and return Logan’s money.
b. Logan is stuck with the car.
c. Susanne may try to get the car back even if Logan wants to keep it.
d. Susanne may be sued for damages.
e. Susanne has committed innocent misrepresentation.
45) Reeba is signing an employment contract that states she will perform the actions as
required of the job daily for 2 years or until she is terminated by management. Reeba asks if
this means she does not get weekends off and her manager verbally assures her that she will
not be asked to work weekends. Which of the following statements is most likely false?
a. As interpreted by the golden rule, Reeba may be asked to work weekends.
b. As per the parol evidence rule, the verbal assurance is not part of the contract.
c. The contra proferentem rule may apply if the judge thinks the term is unreasonable.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
d. If not working weekends is a term that induces Reeba to sign the contract, it may create a
collateral contract.
e. Having all weekends off is a term implied by statute.
46) Nate wanted to rent a car. The attendant gives him a standard form agreement to sign.
She tells him to sign three places, telling him these areas indicated exclusion clauses, but
not saying what the clauses were. He signs the agreement anyway. If Nate breeches one of
these exclusion clauses, which of the following is true?
a. Nate is bound by the clause’s terms simply because they were included.
b. Nate can argue he was not given reasonable notice.
c. Nate is bound only if the clause used unambiguous language.
d. Nate is bound by the terms because the attendant pointed out the clauses.
e. Nate is only free of the clause if it was written unreasonably small.
47) A standard form contract contains a term that reads, “Henceforth, all dealings between
the Purchaser and the Seller shall be conducted on the grounds of a working relationship
and, as such, shall be conducted with professionalism. Any conduct contrary to the
Agreement (as construed by one of either the management of the parties involved or the
lawyers of these parties) shall be met with termination of the contract and all sums
previously paid as liquidated damages and not as penalty shall be retained.” In plain
English, this means
a. If one of the parties acts fraudulently they must pay damages to the other party.
b. If one of the parties commits a tort against the other, the contract will be terminated.
c. If one of the parties acts without a duty of care to the working relationship, the other can
terminate the contract and keep all money already paid.
d. If one of the parties acts without a duty of care to its employees, the contract is
rescinded.
e. If both parties no longer want to work together, the contract is rescinded.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
48) Petros is the sole proprietor of a river rafting company in Banff. He is drafting a
standard form contract for his customers and is considering how to protect himself and his
company. He is worried about customers being injured while rafting, but doesn’t want it to
seem like he doesn’t care about their safety, so he wants to keep some responsibility. He
also wants to ensure the section of river he takes his clients down remains a secret so
people will continue to patronize him. Petros should include which of the following
clauses?
a. An exclusion clause that has customers accept all risk for injury
b. A confidentiality clause that prohibits customers from telling their friends about the
scenery
c. A force majeure clause that exempts him from superior or irresistible forces
d. An arbitration clause to resolve any disputes
e. An entire agreement clause ensuring there can be no agreements outside the contract
Essay Questions
1) What does it mean to say that a pre-contractual representation is NOT promissory in
nature?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
2) Personal opinions are not usually treated as misrepresentations. Very briefly explain why
they are not and describe a situation where it is risky to offer a personal opinion.
3) A purchaser explains to his real estate agent that he wants to buy a house containing a
suite that would generate rental income. The agent showed and sold to him a house with a
basement suite. After taking possession of the house, the purchaser discovered that the
previous owner had been renting the basement unlawfully. No permit to build the suite had
been obtained, nor could it have been obtained because the ceiling was too low and the lot
too small. It turned out that the agent knew about these legal requirements and knew that
they had not been met. She said nothing. Is the law of misrepresentation actionable?
Explain your reasoning.
4) Zhou listed a commercial lot for sale, describing the land as being zoned for
commercial/residential occupation. Dalvi, who was looking to build a funky billiards bar
with condos above, inquired about Zhou’s lot. Throughout their negotiations Zhou
maintained that the law would allow the purchaser to use the lot for both commercial and
residential purposes, and understood that the consequences of the zoning law were critical
to Dalvi’s business plan. Induced by this, Dalvi subsequently decided to buy the property.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
After buying the property, Dalvi learned that the land was not zoned as residential and that
he was not permitted to build condos above the billiards bar. He sued Zhou, arguing that the
inducing statement was actionable as misrepresentation. Will Dalvi succeed in his action?
Why?
5) Why do insurance contracts require a duty of utmost good faith?
6) A purchaser bought an oil painting from a private collector who promised that it was
painted by one of the members of the Group of Seven, a promise that was held to be one of
the terms of the contract. The painting quickly became the purchasers favourite. He took it
home and built a special room for its viewing, with an expensive lighting system. Five
years later, after having grown somewhat tired of the room, the purchaser decided to sell
the painting. In so doing, he discovered much to his chagrin that the painting was worth
much less than he had thought as it was, in fact, done by a less famous American painter,
who worked in a style similar to the Group of Seven. The purchaser decided to try to get his
money back. He sued the private collector who sold it to him, asking the court to rescind
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
the contract on the ground that there had been an innocent misrepresentation. What are the
most plausible grounds upon which the court might decide not to rescind?
7) “It is imperative that all business contracts be in writing.” Assess this statement. Is it
accurate from a legal perspective? It is accurate from the perspective of risk management?
Explain your reasoning.
8) Name a shortcoming of the literal approach to contractual interpretation. Provide an
example to illustrate your point. How might this difficulty be overcome?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
9) Can an express term ever be overridden by an implied term? Explain your reasoning and
provide an example.
10) In what sense might a standard form agreement be beneficial to consumers? Briefly
explain the downside of standard forms.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
11) What is an exclusion clause? Why would a business want one included in a contract?
12) What is meant by the contra proferentum rule?
13) What is the rationale for holding people to their signatures even when they have not
read or understood the contract?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
14) Jane was at the international terminal of the airport when she realized that she had
forgotten to purchase travel insurance for her trip. After checking-in early, Jane was
browsing at some of the shops and happened upon a vending machine selling travel
insurance. On the outside of the machine was a sign that indicated “Full coverage for $2 per
day.” Jane plugged in three toonies to cover herself for the weekend. Out from the machine
dropped a standard form agreement. After boarding the plane, Jane examined the fine print
and noticed that the coverage was limited to travel within Canada. Like every other
potential customer in the international terminal of the airport, Jane was not travelling within
Canada. Concerned that she would not be covered, as soon as the plane landed Jane used
her cellphone to dial the 1-800 number on the back of the printed form. All she got was a
recorded message. If Jane got injured while traveling in the United States, will the
exclusion clause prevent her from making a successful claim?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 9: Representations and Terms
15) Why are boilerplate provisions of potential value to businesses generating standard
form agreements?
