Deck 10: Contractual Defects

Question 1

Which of the following distinguishes a chartered corporation from a statutory corporation?

A) Statutory corporations are treated the same as individuals of a majority age whereas chartered corporations are not.
B) Statutory corporations cannot be said to act ultra vires whereas chartered corporations can.
C) Statutory corporations are indistinguishable from chartered corporations as both have the same legal effect.
D) Chartered corporations have a limited contractual capacity whereas statutory corporations do not.
E) none of the above

Answer 1

E

Question 2

Constance and Rosemary are in a fiduciary relationship. This fact is relevant to a claim of unfairness during bargaining because

A) it means that the two of them will never be allowed to contract with each other as a result of the conflict of interest.
B) it means that Connie could never enforce her contract with Rosemary.
C) the court will presume that a contract between them was founded on the basis of duress.
D) the court will presume that a contract between them was founded on the basis of an unconscionable transaction.
E) the court will presume that a contract between them was founded on the basis of undue influence.

Answer 2

E

Question 3

Which of the following is sufficient written evidence to satisfy the Statute of Frauds in most Canadian jurisdictions?

A) a signed standard form agreement
B) a signed IOU written on a napkin
C) a notation on a signed cheque indicating what was purchased
D) a signed letter confirming a severance arrangement
E) all of the above

Answer 3

E

Question 4

A fiduciary relationship

A) exists whenever there is an inequality in the bargaining power of contracting parties.
B) is exclusive to the law of corporations.
C) is exclusive to the law of employment.
D) must be established in order to prove undue influence.
E) none of the above

Question 5

Unincorporated associations

A) are independent legal entities.
B) are always treated the same way as corporations.
C) can be given the capacity to contract through the enactment of legislation.
D) generally have the capacity to contract.
E) all of the above.

Question 6

Ariel pays Newton a $17 000 deposit as part of an oral contract for the sale of land. According to the terms of their agreement, Ariel is to pay the balance on the day of the closing, failing which Newton is allowed to keep the deposit. Suppose that the deal never closes. Which of the following is TRUE?

A) Newton has a contractual defence if Ariel seeks to get her deposit back.
B) Ariel has a contractual defence if Newton seeks to enforce the contract of sale.
C) Newton can enforce the contract of sale against Ariel.
D) Newton does not have a contractual defence if Ariel seeks to get her deposit back.
E) Ariel can enforce the contract of sale against Newton.

Question 7

Joe is an aboriginal person, born and raised on a native reserve. After reaching the age of majority, Joe decides to move to Calgary to continue his work as an artist. After abandoning the reserve and living in Calgary for several years, Joe is asked to participate in a major art opening. Much of his art depicts life on his reserve. Which of the following is TRUE?

A) Joe is unable to sell his art anywhere other than the reserve.
B) The profits from Joe's sales will be held by the Crown.
C) Joe lacks the capacity to contract.
D) Joe has only a limited capacity to contract.
E) Joe's art could be used as security for a credit transaction.

Question 8

Which of the following is most likely an improvident bargain?

A) when granny assigns all of her assets to a powerful business in exchange for the promise to take care of her grandson in the future
B) when granny trades her farm for a condo in Florida
C) when granny assigns all of her assets to a powerful business in exchange for the promise to take care of her in the future
D) when granny trades her farm for blue chip stocks
E) none of the above

Question 9

Napolean wanted to borrow money from the Bank of Winnipeg. The bank was not, however, fully convinced that Napolean would be able to repay the debt. It therefore wanted some assurance from Napolean's mother, Josephine, that she would repay the loan if necessary. Which of the following statements is most likely to be TRUE?

A) If Josephine's promise is properly classified as an indemnity, then the bank cannot demand payment from her unless Napolean has first refused to pay.
B) If Josephine's promise is not evidenced in writing, and if such writing is required by statute, then neither Josephine nor Napolean needs to repay the loan.
C) If it was not evidenced in writing, Josephine's promise will certainly be enforceable if it was a guarantee, but it may not be enforceable if it was an indemnity.
D) If Josephine's promise must be evidenced in writing in order to be enforceable, than the contract will be unenforceable unless both Josephine and the bank sign the relevant document.
E) If Josephine's promise must be evidenced in writing in order to be enforceable, the bank may be able to satisfy that requirement by combining several documents even if those documents do not refer to each other.

Question 10

When may the defence of non est factum be raised?

A) when there is no written evidence of the contract
B) when there is a radical difference between what a person signed and what the person thought he was signing
C) when a person signs a document but his attention has not been drawn to a particularly onerous term
D) when the defendant forgot to have the plaintiff sign the contract
E) when a person signs a document but fails to read it first

Question 11

Which of the following agreements must be evidenced in writing in order to be enforceable?

A) guarantees and contracts that may require more than one year to perform
B) contracts with the government and contracts for the sale of interests in land
C) loans and guarantees
D) contracts of employment and contracts for the sale of interests in land
E) none of the above

Question 12

Economic duress

A) results from any exertion of financial pressure.
B) is automatically proved as soon as the victim of duress commences legal proceedings against the party exerting duress.
C) occurs when the victim of duress could not reasonably resist.
D) occurs when a victim of duress seeks independent legal advice.
E) is impossible to prove unless the victim of duress protested at the time the duress was exerted.

Question 13

Salvatore created a contract with Acme Corp. Although the parties initially performed their obligations without complaint or difficulty, a dispute has now arisen. Acme Corp claims the protection of a force majeure clause. Which of the following statements is most likely to be TRUE?

A) The company has discovered that Salvatore is under the age of majority.
B) The company wants to escape from the contract on the grounds of frustration.
C) Salvatore claims that he made some mistake when he entered into the agreement.
D) Salvatore has argued that the contract is unenforceable because it is not evidenced in writing.
E) Salvatore has argued that he entered into the contract as a result of undue influence.

Question 14

Which of the following examples of a covenant in restraint of trade is most likely to be against public policy?

A) The sellers of a dot.com sign an agreement that they will not compete directly with their former company for a period of two years.
B) A high- tech firm has its engineers sign a contract promising not to reveal any information about patents to any other high- tech, communications, or pharmaceutical companies during their employment tenure.
C) Partners in an advertising agency sign an agreement that they will engage in advertising sales exclusively for the agency for the duration of their employment.
D) An entrepreneur sells his successful home baking business to a supermarket chain. He signs an agreement that bars him from setting up a bakery business in the future.
E) all of the above

Question 15

Which of the following have limited capacity to contract for the necessities of life?

A) Aboriginals and the elderly
B) public authorities and Indian bands
C) minors and people who have been declared mentally incompetent by the courts
D) corporations and alcoholics
E) none of the above

Question 16

A force majeure clause

A) allows a contract that has been frustrated to be rescinded.
B) overrides the effect of an event that normally would constitute frustration.
C) means that if there is a dispute regarding the effect of a contract, and there are more than two parties to the contract, the majority view will prevail.
D) provides protection against the possibility of unconscionable conduct.
E) is important primarily because of the possibility of duress or undue influence.

Question 17

Shelly hires James to steal her neighbour's dog (because it barks a lot and the owners do nothing about it). Shelley paid James according to the terms of the contract, but James did not follow through with his end of the bargain. Can Shelly get her money back?

A) No. The contract is defective because it is a restraint on trade.
B) Yes. The lawsuit can be brought in Small Claims Court.
C) No. The contract is defective because it was not in writing.
D) No. The contract is defective because it is illegal.
E) Yes. The parties will be returned to their pre- contractual position.

Question 18

Which of the following contracts will be enforced whether or not the purchaser has reached the age of majority?

A) retainer for legal services
B) purchase of a ski jacket
C) purchase of groceries
D) registration for community college
E) all of the above

Question 19

Whether actual pressure has been exerted is

A) never relevant in a claim of unfairness during bargaining.
B) never relevant in a claim of undue influence.
C) relevant in a claim of undue influence only if there is not a fiduciary relationship.
D) relevant in a claim of undue influence only if there is a fiduciary relationship.
E) none of the above

Question 20

Tajeash and Faye entered into a contract. Before either party began to perform under that agreement, Tajesh successfully claimed that the contract is void. Which of the following statements is most likely to be TRUE?

A) Tajesh is a minor, and Faye sold shotguns even though she lacked the necessary licence to do so.
B) Tajesh is not a citizen of Canada, and the contract was made in this country.
C) Tajesh is the name of a chartered corporation, and the contract dealt with non- essential goods.
D) Tajesh, who is 82 years old, suffers from a mental incapacity, which Faye knew at the time of the contract.
E) Faye was drunk when the contract was created.

Question 21

Raja set up a web site selling tee shirts decorated with original artwork. The web site was marketed under a name very similar to a well- known professional basketball team. Raja had never heard of the team nor had he meant to fool anyone or to infringe anyone's trademark. One day, Liz went to Raja's site and bought a number of tee shirts with her credit card. Thinking that she was getting fan apparel from her favorite ball team, Liz was quite surprised and disappointed when she saw the merchandise that she received in the mail. What should she claim in order to get her money back?

A) undue influence
B) mistaken identity
C) frustration
D) duress
E) non est factum

Question 22

The difference between a guarantee and an indemnity is that

A) the Statute of Frauds applied only to indemnities.
B) indemnities need to be in writing to be enforceable.
C) a guarantee is a promise to assume another's debt.
D) a guarantee is a conditional promise whereas an indemnity is not.
E) none of the above

Question 23

Matt just made a fortune inventing a new piece of software and has generously agreed to support his friend's application for a bank loan. Matt tells his friend he is willing to cover the debt no matter what happens. In order for this promise to be enforceable,

A) Matt's friend needs to get Matt to make that same promise to the bank.
B) Matt's friend needs to get Matt to fax the bank.
C) the bank needs to get it in writing.
D) Matt's friend needs to have the promise notarized and sent to the bank by registered mail.
E) the bank needs do nothing.

Question 24

Adrian and Darah entered into a contract. After the agreement was partially performed, Adrian successfully claimed that the contract is voidable. Which of the following statements may be TRUE?

A) Adrian, who is an Aboriginal living on reserve land, had created a contract to sell that land to Darah.
B) Adrian, who is 17 years old, created a contract to obtain life- saving medical services from Darah.
C) Adrian, who is 17 years old, had created a contract to purchase a set of computer games from Darah.
D) Adrian, who has been declared mentally incompetent by a judge, created a contract to purchase food and shelter from Darah.
E) Adrian, who is an Aboriginal living in Toronto, created a contract to purchase recreational sporting goods from Darah.

Question 25

Which of the following mistakes will most likely render impossible the purpose of the contract?

A) buying a car, only to later find out that it was re- sold to you by some rogue
B) thinking that you ordered one copy of a software program when, in fact, you ordered ten copies
C) thinking that the property you bought for your business is zoned commercial but it is, in fact, residential
D) buying a piece of art on the basis of its aesthetic appeal, only to later find out that it was painted by a famous artiste
E) none of the above

Question 26

Which of the following lists would the Statute of Fraud require ALL THREE contracts to be evidenced in writing pursuant?

A) a guarantee to assume someone's debt upon default; an indemnity agreement; the sale of a $2000 leather sofa
B) a two- year commercial property lease agreement; the sale of a house; a two- year landscaping agreement
C) An agreement to rake a neighbour's leaves; the sale of a house; an indemnity agreement
D) A four- year financing agreement; purchase of a $2000 leather sofa; the sale of a house
E) none of the above

Question 27

Which of the following is TRUE?

A) A transaction can be unconscionable only if there is an inequality of bargaining power between the parties.
B) A transaction can be unconscionable only if the bargain is not improvident.
C) A transaction can be unconscionable only if the contract is enforceable.
D) A transaction can be unconscionable only if the presumption of unconscionability is rebutted.
E) all of the above

Question 28

The doctrine of frustration is invoked when

A) the court makes a declaration to that effect.
B) the contracting parties are unable to reach an agreement and are forced to abandon negotiations.
C) the contracting parties are both mistaken about some previously known fact in a manner that prevents them from carrying out their obligations pursuant to the contract.
D) the contracting parties are both mistaken about some future set of circumstances that prevents them from carrying out their obligations pursuant to their contract.
E) the contracting parties agree on a purchase price for a particular good and the purchasing party fails to pay.

Question 29

Which of the following mistakes is most likely to prevent the creation of a contract?

A) A bean wholesaler ships 5000 cans of golden wax beans to a customer who thought that he was ordering 5000 cans of corn.
B) A grocery supplier fills an order for 5000 cans of beans but mistakenly sends only 500 cans.
C) A house deal closes, money and keys are exchanged, then both parties find out that the house had been completely destroyed by fire.
D) A stockbroker is mistaken about the future value of a technology company and buys stock on that basis.
E) none of the above

Question 30

Which of the following contracts may be set aside for mistake or frustration?

A) Pam sold a computer for cash to a person she mistakenly thought she had known in high school.
B) Pam enters into a contract to sell a colt to Dave, but neither party realizes that Pam has already sold the same colt to Donna.
C) Pam rented a cottage to Dave for a summer for $5000, and Pam later learns that because of winter storms, it will unexpectedly cost her $30 000 to repair the cottage so that it meets the needs of the rental contract.
D) Pam said nothing about the quality and history of a painting that she sold to Dave, despite knowing that he incorrectly believed the painting was worth more than its purchase price.
E) none of the above

Question 31

Which of the following is LEAST LIKELY to be understood by a court as a contract for the sale of an interest in land?

A) the purchase of a home
B) the purchase of lakefront property
C) the lease of an apartment
D) the lease of mineral rights in an oilfield
E) the lease of a farm

Question 32

Malkit sold a house to Amanda. The evidence indicates that Amanda owed fiduciary obligations to Malkit both before and after the agreement was signed. Which of the following statements is TRUE?

A) In order to set aside the contract, Malkit must prove that the agreement is unfair to him.
B) Amanda has an absolute right to have the contract set aside.
C) Malkit is entitled to receive Amanda's performance even though he is not required to perform his obligations under the agreement.
D) The contract will be set aside unless Amanda proves that she was unaware of her fiduciary obligations.
E) The court will presume that Malkit entered into the contract as a result of Amanda's undue influence.

Question 33

The concept of capacity

A) can be used to protect those who are not capable of understanding the nature and consequences of their acts.
B) can be used to ensure equal bargaining power between parties.
C) applies to people and not to organizations.
D) means the legal power to avoid any contract.
E) all of the above

Question 34

Maeve entered into a contract with Tyler. Although she does not suffer from a mental illness or intellectual disability, and although she is an adult, Maeve is easily victimized in commercial dealings. She is naive, immature, and not very bright. As a recent immigrant to Canada, she speaks English reasonably well, but she cannot read or write it. She now wants to set aside her contract with Tyler on the basis that it is an unconscionable transaction. Which of the following statements is most likely to be TRUE?

A) A court will presume that the transaction is unconscionable as soon as it hears evidence of Maeve's disadvantages.
B) The contract will be set aside unless Tyler proves that the agreement actually favours Maeve over himself.
C) The contract will be set aside only if Maeve proves that Tyler exercised undue influence over her.
D) A judge may enforce the contract even if it does not provide any benefit to Maeve.
E) The contract cannot be enforced unless Maeve received independent legal advice.

Question 35

Lawrence and Jane were hammering out a deal over cocktails. Jane thought that Lawrence was totally plastered and was hoping to take advantage of this in their negotiation of the terms. However, Lawrence knew exactly what he was doing. Although quite tipsy, he pretended to be staggering drunk. His plan was to make two deals: one deal that was good for him, the other a bad one. This way he could complete the deal that was to his advantage and, later, walk away from his obligations on the second deal. Which of the following is TRUE?

A) Only the second deal is enforceable.
B) Neither deal is enforceable since Jane believed Lawrence to be intoxicated when she entered into them.
C) Both deals are enforceable since Lawrence was only pretending to be drunk.
D) Only the first deal is enforceable.
E) none of the above

Question 36

Common law illegality

A) is an attempt to regulate conduct through an administrative regime.
B) renders unenforceable agreements that are contrary to public policy.
C) requires a determination of legislative intent.
D) aims to punish individuals who make agreements contrary to public policy.
E) all of the above

Question 37

Duress is distinguishable from undue influence in that

A) duress is never defined in terms of the parties' relationship whereas undue influence sometimes is.
B) duress is never defined in terms of the parties' relationship whereas undue influence always is.
C) duress and undue influence are indistinguishable
D) duress refers to the use of some kind of pressure whereas undue influence involves improvident bargains.
E) duress refers to the use of some kind of pressure whereas undue influence does not.

Question 38

An unconscionable transaction is

A) an agreement no fair- minded person would ever accept.
B) an agreement no right- minded person would ever offer.
C) unenforceable.
D) an agreement that is induced only by fraud.
E) an agreement that is induced only by pressure.

Question 39

How do courts regard restrictive covenants?

A) Courts will find all restrictive covenants to be against public policy.
B) Courts will presume restrictive covenants to be against public policy unless the party seeking to enforce the covenant demonstrates that the restriction is reasonable.
C) Courts will presume restrictive covenants to be reasonable unless the party seeking to avoid the covenant demonstrates that the restriction is against public policy.
D) Courts will assume that unless there was unfairness during the bargaining process, restrictive covenants should be upheld because the parties have freedom to contract.
E) none of the above

Question 40

Which of the following groups is never able to avoid contractual liability?

A) minors
B) intoxicated persons
C) First Nations (Indian) Bands
D) adults who have been declared mentally incompetent by the courts
E) all of the above

Question 41

A minor's contract for necessities is never voidable on the grounds of capacity.

Question 42

As part of a large multi- national corporation, you are working on a deal to buy a small dot.com company from a group of young upstarts who will all benefit handsomely. It is your custom to include a restrictive covenant in such deals to prevent such young upstarts from directly competing with the company they just sold. Explain the approach taken by courts to covenants in restraint of trade and then provide an example of a restrictive covenant that is likely to be upheld if challenged in court, and an example of one that is likely to be struck down if challenged in court.

Question 43

Contracts are part of private law. A key concept of private law is that parties are at liberty to create and define the legal obligations they owe to one another. Discuss whether you agree that judges should be able to step in and set aside certain transactions on the basis that they think an agreement is unjust. Does this interfere with the core concept of private law? Explain your answer.

Question 44

Across Canada, the age of majority is 19.

Question 45

The notion of public policy is notoriously vague.

Question 46

The plea of non est factum allows a person to avoid a signed contract whenever they are mistaken by several degrees about a key term or condition.

Question 47

Tandindar was holding a shipment of goods that belonged to Todd and threatened not to release them unless he agreed to sign a contract to buy two more shipments over five years. This is an instance of economic duress.

Question 48

Sarah bought a stereo system in Vancouver under a payment plan that must be completed within two years. Technically speaking, the contract is enforceable only if it is evidenced in writing.

Question 49

Svetlana paid an advance under a contract of sale for a unique antique in Ontario, but the performance of the contract was rendered impossible because of a terrible accident that happened during delivery. Because the seller incurred expenses while trying to deliver the antique, the court is permitted to allow the seller to keep some of the advance.

Question 50

The reason contracts for necessaries are enforceable is to ensure that minors do not avoid contracts with suppliers for perishable goods.

Question 51

The form and content requirements of the Statute of Frauds requires a signature from each of the parties.

Question 52

The Statute of Frauds eliminates the writing requirements of the common law.

Question 53

Charlie has bi- polar disorder (also known as manic- depression). Usually, medication helps to control her disorder. Lately, Charlie stopped taking her medication and started drinking heavily. During a manic (up) phase, she dressed in an elegant suit, went to a BMW dealership and signed a contract for the purchase of a new sports car. She financed the transaction by putting a large deposit on her credit card, and drove the car off the lot that same day. Charlie's family became very concerned. Describe the law as it pertains to Charlie's capacity to contract. What should Charlie do? What should the car dealer do?

Question 54

Cy and Kelly negotiate the sale of "Indian Art" over the Internet. Because of an electronic miscommunication, Cy thinks he is buying art from Calcutta. But it turns out upon delivery that Kelly was selling Inuit art all along. Because the mistake was material and prevented the creation of a shared contractual intent, Cy will be able to claim the contract was defective.

Question 55

Whenever parties of unequal bargaining powers transact, undue influence is always presumed but can be rebutted.

Question 56

Unconscionable transactions can be characterized as one- sided.

Question 57

Cy and Kelly negotiate the sale of "Indian Art" over the Internet. Because of an electronic miscommunication, Cy thinks he is buying art from Calcutta. But it turns out upon delivery that Kelly was selling Inuit art all along. Because there was no misrepresentation, the sale is final.

Question 58

Sina employs Joe who is 16. The terms of the employment contract are to Joe's benefit. Still, Joe wants to walk away from his obligations. Joe can do so because the contract is voidable.

Question 59

Define "fiduciary relationship" and provide an example. How would a business person who has a fiduciary relationship best conduct a transaction so as to avoid legal problems?

Question 60

Rosa immigrated to Canada as a teenager. She worked her whole life to support her family and never received a formal education. While her spoken English is good, her ability to read English is limited. An elderly woman now, Rosa lives in a care facility. A representative of the facility presented her with several pieces of paper to sign. He said that they were simply standard forms that every resident had to sign. She took the forms and returned them signed the following week. Later, she mentioned to her son, Paulo, that she had signed some forms, but had been too ashamed to admit that she could not read them. The forms required Rosa to give permission to the facility, evidenced by her signature, to make automatic withdrawals from Rosa's bank accounts. Rosa is not comfortable with this. Will Rosa be bound to her signature? Why? Describe the defence she is most likely to raise and explain whether it is likely to succeed.

Question 61

Tinh agrees to purchase a block of land that Ed plans to sever from his property. Tinh pays a large cash deposit to Ed, the closing date is set for six months away, and they shake hands on the deal. Ed falls on hard times and he realizes he cannot subdivide his land since he cannot afford to lose any equity or the bank will foreclose on his mortgage. On the agreed closing date, he sends Tinh an email to back out of the deal. Worse still, Ed reallocated the cash deposit and cannot afford to pay Tinh back. Ed feels terrible and avoids Tinh's calls. Tinh sues Ed for breach of contract and specific performance. How will the Statute of Frauds be applied in this case? What is the legal effect of Tinh and Ed's deal?

Question 62

List three types of contracts that must be evidenced in writing. Provide one example of each.

Question 63

How should your business manage risk when contracting with an unincorporated association?

Question 64

Elsa is a member of an active neighbourhood association. The association runs frequent community events, issues a monthly newsletter to residents, lobbies municipal government, and engages in fundraising. Recently, they have decided to create a staff position to coordinate their efforts. Their advisory committee has been discussing whether or not to incorporate. Outline how the association's ability to enter contracts in conducting its activities might impact its decision about incorporation.

Question 65

From the perspective of risk management, what practices should be adopted by businesses transacting in jurisdictions that have a Statute of Frauds?

Question 66

Outline three situations where a court might set aside a contract because of unfairness during bargaining. What are the requirements to prove each, and who has the onus to prove what in court?

Question 67

Explain the distinction between the effects of a mistake that prevents the creation of a contract and a mistake that renders the purpose of a contract impossible. Provide an example of each.

Question 68

In 1824 Justice Burrough said, "Public policy ... is a very unruly horse and once you get astride it you never know where it will carry you." In 1971, Lord Denning MR said that with a good judge "in the saddle, the unruly horse can be kept in control. It can jump over obstacles. It can leap the fences put up by fictions and come up on the side of justice." Explain what each judge meant in the above quote. State which judge, in your opinion, is correct. Substantiate your answer with a brief discussion of the relevant concepts from the text.

Question 69

Ling is about to enter into a contract that will be carried out over the next year and a half. Is it safe for her to assume that the contract will not be enforced if it is not evidenced in writing in a jurisdiction where the Statute of Frauds applies?

Question 70

What is the difference between voidable and enforceable contracts? Provide an example of each in the context of whether a minor has the capacity to contract.