Deck 7: The Elements of a Contract: Capacity, Legality, and Intention

Question 1

The case of Canadian Imperial Bank of Commerce v. Milhomens examined the effect of one party's insanity on a contract. What did the Court find?

A) For a contract to be voidable because of insanity, one party must be insane and the other party must have known (or ought to have known) of the insanity.
B) If a person has the mental faculties to sign a contract, that person cannot be insane.
C) If an insane person enters into a contract, that contract is automatically void.
D) Contracts are not enforceable by either party if one party can establish a mental defect.
E) The relevant test for insanity is simply whether one party believed the other to be insane at the moment the offer was made.

Answer 1

A

Question 2

Ted, a seventeen-year-old high school student, was hired to perform in four episodes of Gossip Gidget. To keep up with his schoolwork and gaming, he contracted with Mr. Tech of Technoland for a $2000 laptop computer. He agreed to pay $500 down and the balance by monthly payments of $250. Read each of the following separately and indicate which is true.

A) If Ted doesn't make his payments, Tech can sue Ted's parents because parents are liable for the debts of their minor children.
B) This contract is void; therefore, Tech can repossess the laptop which is technically still his whether Ted makes the payments or not.
C) If this contract is in writing and Ted doesn't make his payments, Tech can sue Ted for breach of contract.
D) This contract is a legal contract enforceable by Ted.
E) This contract is a legal contract enforceable against Ted.

Answer 2

D

Question 3

Which one of the following correctly indicates the position of the parties in respect to contracts involving minors?

A) All contracts with minors are void.
B) Contracts with minors are unenforceable by the infant against the adult and by the adult against the infant.
C) Contracts with minors are void, except beneficial contracts of service.
D) An adult cannot sue the infant on the contract even if the infant affirms the contract after reaching the age of majority.
E) An infant can enforce a contract made by an adult with him despite that fact that he is a minor.

Answer 3

E

Question 4

In jurisdictions other than British Columbia, which of the following is correct with respect to the law of infants?

A) An adult cannot enforce any contract against an infant while the infant is still under age unless the contract is made binding by another statute (e.g., government student loans).
B) An infant is bound by his contract for necessaries and beneficial contracts of service.
C) An infant is not bound to repay his government student loan.
D) A contract with an infant is "absolutely void" except those contracts for necessaries and beneficial contracts of service.
E) If the adult did not know he was dealing with an infant, the adult is not bound by the contract.

Question 5

In Royal Bank of Canada v. Holoboff, the Bank sued Holoboff, a minor, who had sold his client card and personal identification number (PIN) to a third party who defrauded the bank. What was the result?

A) Holoboff was found liable for the tort of conspiracy to commit fraud.
B) Holoboff was found liable for breach of contract, despite being a minor.
C) Holoboff was not liable for anything, as minors can never be liable.
D) Holoboff's parents were automatically liable for Holoboff's tort.
E) Holoboff's parents were automatically liable for Holoboff's breach of contract.

Question 6

One afternoon while Mr. Reston was going home on the bus, his neighbour, Mr. Outovit, offered to sell Reston his car for $4000, a bit below the market value. Reston said, "You might change your mind on that. Better not be too hasty with your offers." Outovit answered, "I want to sell it quickly," and wrote on the back of an envelope, "I hereby offer my neighbour, Reston, my 2011 Chevrolet for $4000 cash." He signed his name. Reston wrote, "I accept." The next day, Reston went to his neighbour's house to pay the money and get the car. He learned that Outovit was in hospital, unconscious from a reaction to medicines given to him the day before. If Outovit (or his legal representative) refuses to honour the contract on the basis of mental incapacity, which of the following is true?

A) If Reston can show the written contract, Outovit has no argument and will be bound to honour the contract.
B) Outovit need only prove that he didn't understand the nature and quality of his act to void the contract.
C) Outovit won't be bound by the contract because there hadn't yet been the payment for, or delivery of, the car.
D) If it is established that Reston didn't know Outovit was incapacitated at the time of contract and that the deal was fair, Outovit will be bound by the contract even if he didn't understand the nature and quality of his act.
E) To get out of a contract on the basis of insanity you have to be institutionalized.

Question 7

Requirements of a contract include capacity of the parties to contract, legality, and intention of the parties to be legally bound. Which of the following is False with regard to these elements?

A) A restrictive covenant prohibiting one party to the contract from competing with the other is enforceable if it is reasonable between the parties and not contrary to public policy.
B) The court can presume the intention of the parties to be legally bound, but a party to the contract can bring forward contrary evidence to rebut the presumption.
C) If an adult cannot sue the other party to the contract because he is a minor, neither can the infant sue the adult.
D) A seller that contracts with an infant cannot avoid the difficulties of enforcing the contract by suing him in tort instead of breach of contract.
E) A person with mental incapacity might still be held to a contract even if, at the time of the contract, he didn't understand the nature and quality of his act.

Question 8

In which of the following situations would an infant be bound by the contract he has entered into?

A) A contract for the purchase of a bike with which to race.
B) A government student loan.
C) A contract for the purchase of a new leather jacket, where the merchant was not aware that he had several other jackets at home.
D) A contract for the purchase of theatre tickets.
E) A written contract for the purchase of a new stereo.

Question 9

Clem had wanted a piano for a long time. Although he was a minor, his mom gave him $300 and he took this with some savings and made a $500 down payment on a $3000 piano. The balance was to be paid over a three-year period. His mom signed the contract as a guarantor. Clem made the first three payments, but he damaged the piano trying to move it from the living room to his upstairs bedroom. He didn't have the money to get it fixed. He quit playing, lost interest, and quit making his payments. On these facts, which of the following is False?

A) Although the contract is unenforceable against Clem, if he affirms the contract after he reaches the age of majority, the seller will be able to sue him for breach of contract.
B) Unless Clem affirms the contract or partly performs the contract after he reaches the age of majority, the seller cannot get any compensation from him.
C) If Clem's mother guaranteed the deal, she would be liable on her guarantee even if the contract were unenforceable against Clem.
D) Because Clem is an infant, he cannot sue the seller, even if the piano is defective.
E) Clem's mother will be liable on the guarantee only if it is in writing.

Question 10

A requirement for the existence of an enforceable contract is that the parties have the legal capacity to contract. Which of the following is incorrect with respect to the law of incapacity?

A) If someone contracts with an insane person but there was no indication of mental illness, the contract can be binding.
B) A contract by an insane person for necessities, such as food, is binding.
C) The law governing contracts with persons intoxicated by alcohol or drugs is the same as the law governing contracts with the insane.
D) If a mentally impaired person cannot avoid a contract on the basis of insanity, the court could still set the contract aside for being an "unconscionable" transaction.
E) If you knew that you were negotiating a new lease, but that you weren't being as effective as you wanted to be because you had been drinking, you can have the resulting contract set aside.

Question 11

What does the decision in Bayview Credit Union Ltd. v. Daigle illustrate?

A) Businesspeople are at a risk when dealing with minors as if they are adults.
B) Parents are responsible for contracts made by their children.
C) Contracts made by children are void.
D) When a minor enters into a contract, there is no consideration.
E) A person under the age of majority cannot intend to enter into a contract.

Question 12

Joe was in a bar and saw his friend Sam. Sam had had a considerable amount to drink. Sam offered to sell Joe his Porsche automobile for only $15,000. Joe made sure to have Sam sign a written agreement to that effect. The next day, Joe went to pick up the car, but Sam didn't remember anything about it. Even when Joe showed him the written agreement signed by him, Sam refused to deliver the car. Joe sued. Which of the following correctly states the legal position of the parties?

A) If Joe can show that there was no indication that Sam was drunk, even though Sam was completely incapacitated, he will be required to go through with the deal.
B) Sam just has to show he was legally intoxicated, and he will not be bound.
C) As long as Joe can produce the agreement in writing, there is nothing Sam can do to get out of the deal. Once Sam has signed the document, he is responsible for its contents.
D) Sam will not have to go through with the deal because no money has yet changed hands.
E) Being drunk is no excuse and the contract is binding.

Question 13

Which of the following is incorrect with respect to the law of incapacity?

A) To escape a contract on the basis of insanity, the insane person need only show that he did not know what he was doing at the time the contract was formed.
B) Even after the passage of the Charter of Rights and Freedoms, some contracts entered into with status Indians cannot be enforced.
C) Married women are no longer incapacitated.
D) Some Crown corporations have limited capacity to contract.
E) Trade unions may have limited capacity to contract.

Question 14

Randy, as his two older brothers before him, moved out of the house when he was quite young. When he was 17, he and his older brother, Ted, wanted to buy a condominium in Nelson. They both had jobs and the bank was willing to lend them money and take a mortgage on the condo. Which of the following is a correct statement about the law governing this situation?

A) These contracts would be binding on Randy only if he disclosed the fact that he was a minor to the other parties.
B) All contracts with infants are void.
C) The mortgage agreement would be binding on Randy as an adult if he continued to make payments after reaching the age of majority.
D) A mortgage granted by Randy to the bank is effective until a court orders otherwise.
E) All infants' contracts are enforceable as soon as they become adults.

Question 15

Parents are responsible for their children's actions in which of the following situations?

A) Where the child enters into a contract for a new stereo
B) Where the child carelessly breaks a window in a neighbour's house
C) Where a child purchases a needed new jacket
D) Where an infant borrows money for college tuition
E) Where an infant was acting as agent for the parents

Question 16

Which of the following is incorrect with respect to the law of infants and their parents?

A) As a general rule, parents are not responsible for the contracts of their children.
B) As a general rule, parents are not responsible for the torts of their children.
C) A parent is responsible for the debt of his child if that parent has guaranteed the loan.
D) A parent can be liable for a tort committed by her child if it can be shown that the parent was negligent as well.
E) A parent is responsible for the obligations of her children in both tort and contract law.

Question 17

Which of the following are in no way incapacitated when entering into contracts?

A) Mentally disabled
B) Women
C) Children
D) Status Indians
E) Trade unions

Question 18

When John bought a car from his father's old classmate, Joe, he was only seventeen years old. The price of the car was $5000. He paid $1000 down and was to pay the remaining $4000 over time. With these facts in mind, which of the following statements is true? (Read each statement separately.)

A) Even if the car is defective, John could not sue Joe.
B) If John has an accident and refuses to pay the balance, Joe could successfully sue John for breach of contract.
C) If John has an accident because of his negligent driving and he refuses to pay, Joe could successfully sue him in negligence to get around any difficulty in suing him in contract.
D) If the car is defective, John could sue Joe for breach even though Joe could not sue him.
E) If Joe didn't realize John was only 17 years old, he can enforce the contract against him no matter what his age.

Question 19

Which one of the following is an example of a contract that is binding on an infant in jurisdictions other than British Columbia?

A) A contract to purchase a new stereo
B) A contract for a camera
C) A contract for baseball tickets
D) A contract for rent
E) A contract for professional hairstyling

Question 20

Which one of the following is an example of a contract that is binding on an infant in British Columbia?

A) A contract to purchase a new stereo
B) A contract for a camera
C) A contract for baseball tickets
D) A contract for a DVD purchase
E) A contract for a student loan

Question 21

Which of the following is true with regard to the intention of the parties to an agreement to enter into a legal relationship? Where appropriate, assume that all the other elements necessary to form a contract are present.

A) An intention to be legally bound is not a necessary element of a contract.
B) Since family matters are private matters, an agreement between a husband and wife to transfer property from the husband to the wife could not be a contract even if all the other elements of a contract were present.
C) The court will presume there is always an intent to be legally bound in family situations.
D) The court makes presumptions about the intention of parties to be bound, whether that presumption may be rebutted by evidence to the contrary, makes no difference to the court.
E) Parties may expressly state their intention to be legally bound, in which case the court need not rely on presumptions.

Question 22

The court may hold that a contract is void, voidable, unenforceable, or illegal. Which of the following is true with regard to these terms and the court's use of them?

A) "Void" is the same as "unenforceable."
B) If a contract is held to be void, it is a contract, but for some reason, one party can end it.
C) If a contract is held to be illegal, the plaintiff will get some help, because the court will try to put the parties back to their original position.
D) If a contract is unenforceable, it means it doesn't exist.
E) If a contract is held to be void, it never was a contract.

Question 23

Which of the following best describes an illegal contract?

A) A contract that is illegal at the time it is formed
B) A contract that is illegal in the way in which it is performed
C) A contract that has been breached by one of the parties
D) A contract that lacks consensus, consideration, capacity, and intention
E) A contract that results in civil litigation

Question 24

Which of the following attempts to form a contract would the court declare to be void?

A) A contract in which one of the parties was an infant at the time the agreement was formed
B) An oral agreement for the sale of land
C) A written promise to guarantee the debt of another person
D) An oral agreement for a lease of land for two years
E) A promise by one person to pay another to defame a third

Question 25

Jones entered into a contract for the sale of his barber shop to Harry Cutter. One of the terms of the contract was that Jones would never open up a similar business within 50 kilometres of the location of the barber shop being sold. About two weeks after the sale, Cutter noticed a new barber shop opening across the street with brand-new facilities and equipment. When he learned that the owner of the new shop was the very Jones who sold the business to him, he sued for breach of contract. Which of the following correctly indicates the legal position of the parties?

A) If the 50 kilometres is determined to be reasonable, this restriction will be valid and Harry Cutter will succeed.
B) Any such attempt to restrict competition is illegal and, no matter how reasonable the terms are, the provision will be void.
C) The time period of the restrictive covenant is too broad and would be found to be void or non-enforceable.
D) The whole contract for the sale of the business is void because of the illegal term, and therefore Harry will be able to force Jones to take his barber shop back and return the purchase price.
E) These terms are enforceable no matter how unreasonable because they are part of the bargain struck.

Question 26

A void contract means that

A) there is no contract.
B) the contract cannot be enforced.
C) the infant can escape the contract.
D) the adult can escape the contract.
E) the contract is illegal.

Question 27

Which of the following contracts is void?

A) A contract with an insane person for a TV, where the insane person, or his legal representative, can prove that he was insane at the time of the contract but cannot prove anything else about the incident
B) A contract with an insane person for necessaries such as food and shelter
C) A contract containing an exculpatory clause limiting the liability of one of the parties
D) Any contract with a status Indian
E) A contract to sell a bag of cocaine

Question 28

Smith ran a software design business. He needed someone to handle some of the product demonstrations, so he hired Janet to do this work. In the employment contract, he insisted that Janet promise that if she left the firm, she would not work for Smith's competitors within a stated period of time and within a stated geographical region. If Janet now wishes to leave the job, indicate the statement that accurately describes the likely effect of her promise.

A) Such promises are in restraint of trade and thus the courts invariably hold them to be invalid.
B) Such promises are invariably held to be valid when they are part of the terms of employment and thus are given in consideration for getting the job.
C) Such promises are valid only if given under seal.
D) If the court holds such a promise to be invalid, then the whole employment contract is necessarily void as well.
E) If the court thinks that such a promise is reasonable between the employer and employee and that the public interest will not be damaged, then it will enforce it.

Question 29

In Ascent Financial Services Ltd. v. Blythman, the Court decided

A) that Anna and Art were in breach of both the sale of goodwill agreement and the non-competition agreement, as well as their fiduciary duty.
B) that Carolyn and Don were in breach of both the sale of goodwill agreement and the non-competition agreement, as well as their fiduciary duty.
C) that Carolyn and Don were in breach of only their fiduciary duty.
D) that Anna and Art were in neither in breach of the sale of goodwill agreement nor the non-competition agreement.
E) that Anna only and not Art was in breach of her fiduciary duty.

Question 30

In Transport North American Express Inc. v. New Solutions Financial Corp., various payments were found to be "interest" within the meaning of s. 347 of the Criminal Code. The interest rate applied was illegal. The Supreme Court applied "notional severance," resulting in a reduction of the interest rate. The Supreme Court of Canada outlined four factors to consider when deciding whether to declare an illegal contract void, or to partially enforce it. Which of the following is not one of those factors?

A) Whether the contract was a standard form agreement
B) Whether the purpose or policy of s. 347 would be subverted by severance
C) Whether the parties entered into the agreement for an illegal purpose or with an illegal intention
D) The relative bargaining positions of the parties and their conduct in reaching the agreement
E) Whether the debtor would be given an unjustified windfall

Question 31

Which one of the following categories of persons do not have their capacity to enter into contracts limited?

A) Married women
B) Infants
C) Status Indians
D) Insane or intoxicated persons
E) Bankrupts

Question 32

Joe was unable to find work in the city where he lived and had to go to the mining camps up north to find work. When he left, he agreed to send his wife $2500 a month from his pay to support her and their children. In fact, he had some unexpected expenses and failed to send the promised funds for two months. Which of the following correctly states the legal position of the parties?

A) Since this is a domestic relationship, there is a presumption that there is no contract.
B) Since this is a domestic relationship, there is a presumption that there is a contract.
C) Because of the marital obligation, there is always an enforceable contract in these circumstances.
D) The court will make no presumptions in these circumstances because there is never a contract between husband and wife.
E) The court will enforce the promise only if they determine it to be reasonable.

Question 33

Which of the following statements is correct with respect to the legality of contracts?

A) A judge can refuse to enforce a contract that involves conduct that is not prohibited by law but which court precedent considers morally unacceptable.
B) When two merchants agree not to sell a certain product below an agreed price and the product is not readily available from others sources, this is legally permissible as long as they intend their promises to be legally binding.
C) Insurance taken out on property you don't own is valid as long as the insurance company has been informed that you have no interest in the property.
D) An agreement that one merchant won't open up a business in competition with another is enforceable as long as there is consideration on both sides.
E) An agreement where one party agrees to pay another to sue a third for tort is legally enforceable.

Question 34

All of the following contracts would be illegal, and not binding on the parties, except

A) a contract whereby one person agrees to spread False and damaging information about another.
B) a contract whereby one person agrees to sell a banned substance (e.g., cocaine) to another.
C) the act of paying for sexual favours (prostitution).
D) a contract between camera dealers whereby they agree not to sell a specific model of camera below a specified price.
E) a contract in which a lawyer agrees to represent an accused where the accused did commit the crime.

Question 35

A provision in a contract for the sale and purchase of a business read as follows: "The vendor (Jones) shall not, directly or indirectly, in any capacity whatsoever, carry on a similar business in any location for one year." Six months later, Kates found that Jones was competing directly by opening up a similar business, contrary to the contract drafted by Kates. Kates sued Jones for breach of contract, namely, breach of the restrictive covenant. Which of the following best describes the legal position of the parties?

A) This provision is in restraint of trade and causes the whole contract to be void.
B) Although this type of provision is illegal, this particular one would be enforceable because it is reasonable between the parties and not contrary to public policy.
C) Such provisions are always void, being an illegal restraint of trade.
D) Although this provision would be void, the remainder of the contract for the sale of the business would be enforceable.
E) Agreements such as these are always binding, being the result of a free bargain between the parties.

Question 36

Lawer entered into a contract for the sale of his business, a barbershop, to Cutter. The contract provided that Lawer would not open up a similar business within 25 kilometres of the barbershop being sold. About two weeks after the sale, Cutter noticed a new barbershop opening across the street in brand-new facilities. When he learned that the owner of the new shop was the very Lawer who sold the business to him, he sued for breach of contract. Which of the following correctly indicates the legal position of the parties?

A) The court needs to determine only that the distance of 25 kilometres is reasonable; if it does, the restriction is valid and Cutter will succeed.
B) Any attempt to restrict competition is illegal, and no matter how reasonable the terms are, the provision will be void.
C) The provision will be void as it is broader than necessary to protect the goodwill of the business.
D) If the restriction is illegal, the whole contract for the sale and purchase of the business is necessarily void and Cutter can return the barbershop for the return of the purchase price.
E) To determine whether or not the restriction is binding, the court asks only one question: does it reduce competition?

Question 37

A woman forged her husband's signature on dozens of cheques. In an attempt to protect her from prosecution, the husband signed a letter prepared by the Bank agreeing to assume all liability for the forged cheques. What would the Court find in relation to this agreement?

A) As an agreement to stifle a criminal prosecution, it was an illegal contract and therefore void.
B) The agreement was unenforceable because the Bank lacked capacity to enter into such an agreement.
C) The agreement was unenforceable because the husband was under duress at the time he signed it.
D) While the Bank acted improperly, "freedom to contract" establishes that the agreement must be enforced.
E) Because the husband acted improperly, the agreement was voidable by the Bank on the basis of illegality.

Question 38

A provision that restricts the seller from competing with the buyer in a contract for the sale of a business is

A) always enforceable because the parties to a contract have the freedom to contract as they see fit.
B) always unenforceable because any attempt to restrict competition is an illegal restraint of trade.
C) fatal to the whole contract (i.e., it causes the whole contract to fail).
D) enforceable if it is reasonable between the parties, which means that it must be limited in time (e.g., one year) but need not be limited in area.
E) enforceable if it is reasonable between the parties and not contrary to public policy.

Question 39

Assuming that all other elements of a contract are present, which of the following would most likely be held to be a binding contract, considering only the requirement that the object of a contract must be legal and not contrary to the public interest?

A) An insurance policy paid by a shareholder to insure the business premises of a company he holds shares in
B) A life insurance policy bought by Harvey insuring the life of his neighbour Kneival without Kneival's consent
C) An agreement to pay $500 to Mildred if Mildred spreads the False rumour that Helen, a nurse, has AIDS
D) A provision in a contract of employment where the employee agrees that, upon leaving, he will not work in a similar business anywhere for 5 years
E) An agreement in which Fred agrees not to bother his father anymore

Question 40

Which of the following types of contracts would not be considered illegal?

A) Contracts that reasonably restraint trade
B) Contracts to commit a tort
C) Contracts preventing someone from marrying
D) Contracts that obstruct justice
E) Contracts that promote litigation

Question 41

When a third party says, "I'll see that you get paid," there is an assumption of a primary obligation, and the promise is a(n)

A) indemnity.
B) guarantee.
C) contract.
D) obligation.
E) interest.

Question 42

When there is a(n) ________ (a right to seize property), or when there is a right to set off a debt against the obligations created by the contract, the parties themselves may be able to enforce the contract without the help of the courts.

A) provision
B) indemnity
C) lien
D) obligation
E) court order

Question 43

A guarantor promises that if the ________ fails to pay the debt, he will assume responsibility and pay it.

A) debtee
B) court
C) debtor
D) offeror
E) offeree

Question 44

Mrs. Johnson is thinking of selling some property to her son. Which of the following is correct with respect to intention when entering into such a contract?

A) Since domestic relationships are serious, there is a legal presumption that in such relationships there is an intention for the parties to be legally bound by their agreements.
B) In commercial arrangements, there is always an intention to be bound by agreements no matter what the parties state to the contrary.
C) In domestic agreements, there is a presumption that there is no intention to be legally bound.
D) When intention is the issue, there is never any presumption for or against intention; the courts will always apply the reasonable person test.
E) Commercial contacts are always binding, no matter what the stated intention.

Question 45

Sue had a beautiful lakeside cottage that had been in her family for years. Times became a little tight, and Sue decided she had no choice but to sell the property. Sue agreed to sell the cottage property to her neighbour Bob for the sum of $250,000. Although Sue was ecstatic about the price early on, she soon changed her mind. There were too many memories for her to give the property up. Which of the following, by itself, would be the biggest barrier to Bob in enforcing the agreement?

A) Unknown to Bob, at the time of the agreement Sue was mentally incapacitated.
B) The $250,000 price was not adequate under the circumstances.
C) Bob and Sue had an agreement that their contract was not to be enforceable.
D) Although Sue had written a letter to Bob that discussed the essential terms of the agreement, Bob and Sue had not executed a written agreement.
E) No money had yet exchanged hands.

Question 46

Mr. Buyer, the plaintiff in the action, is attempting to enforce a contract in which the defendant, Mr. Seller agreed to sell to Buyer his property, Blackacre, for $100,000. Which of the following, by itself, would be sufficient to allow Mr. Seller to get out of the contract?

A) The $100,000 was not enough, so was not fair.
B) At the time of the contract, unknown to Mr. Buyer, Mr. Seller did not understand the quality and nature of this act because of mental incapacity.
C) Although there was a letter from Mr. Seller referring to its essential terms, the contract itself was not in writing.
D) Although both parties agreed to this, there had not actually been any money paid on the contract, not even a deposit or a down payment.
E) The parties clearly stated that they did not want the agreement to be legally binding.

Question 47

If the court classifies the nature of a third-party agreement as a(n) ________, there is no requirement of writing.

A) guarantee
B) obligation
C) indemnity
D) provision
E) equity

Question 48

The contract signed by XYZ Ltd. and Charles provided that the company would receive a licence to use the computer program that Charles was creating, that Charles would complete the program by January 15, 2015, that Charles would retain copyright, and that Charles would receive $10,000 on completion of his work. Two weeks before the due date, Charles told the president of the company that he was not going to complete the program on time. The president said, "Don't worry about it; get it done as soon as you can." Charles was 10 days late in completing the work. The delay caused the company to lose money, so it sued Charles for damages. On these facts (which you should assume can be proved), which of the following is False?

A) The company has the right to sue even though it is not a natural person.
B) If this case were heard in the B.C. Supreme Court, the judge would have to follow a precedent on the point set by the B.C. Court of Appeal.
C) Charles could enter his defence and could also enter a counterclaim if he felt he had an action against the company.
D) Charles could use equitable (promissory) estoppel as a defence.
E) The company doesn't have the right to sue because the law would presume that the parties did not intend to be legally bound.

Question 49

Which one of the following is required to be evidenced in writing under the Statute of Frauds or its equivalent?

A) A contract of employment
B) A contract to incur debt
C) A guarantee
D) Any contract involving money over $1000
E) Any contract involving goods

Question 50

If a third party incurs a secondary liability for a debt, he has given a(n)

A) indemnity.
B) guarantee.
C) obligation.
D) debt.
E) easement.

Question 51

Which of the following is False with regard to the intention of the parties to an agreement to enter into a legal relationship? Where appropriate, assume that all the other elements necessary to form a contract are present.

A) An intention to be legally bound is a necessary element of a contract; without it there is no contract.
B) Since family matters are private matters, an agreement between a husband and wife to transfer property from the husband to the wife could not be a contract even if all the other elements of a contract were present.
C) The court will presume there is no intent to be legally bound in social situations.
D) Although the court makes presumptions about the intention of parties to be bound, the presumption may be rebutted by evidence to the contrary.
E) Parties may expressly state their intention to be legally bound, in which case the court need not rely on presumptions.

Question 52

Given the provisions of the Statute of Frauds, which of the following contracts should be evidenced in writing?

A) A sale of goods involving $4
B) A retainer with a lawyer
C) An employment contract
D) A sale of land
E) Domestic agreements

Question 53

Which of the following is correct with respect to the law of intention?

A) Since domestic relationships are serious, there is a legal presumption that in such relationships there is an intention for the parties to be legally bound by their agreements.
B) In commercial arrangements, there is always an intention to be bound by agreements no matter what the parties state to the contrary.
C) In domestic agreements, there is a presumption that there is no intention to be legally bound.
D) Where intention is the issue, there is never any presumption for or against intention; the courts will always apply the reasonable person test.
E) Since domestic relationships are serious, the parties to such relationships are always bound by their contracts with each other.

Question 54

In the classic case of Carlill v. Carbolic Smoke Ball Company, the defendants manufactured a product they claimed would protect against influenza. The company advertised that it would pay a specific sum of money to anyone who contracted influenza while using their product and put money on deposit to demonstrate their sincerity. When Mrs. Carlill claimed the money, the company argued that these statements were not intended to be taken seriously. What did the Court decide?

A) There was intention because a reasonable person would have thought that the advertisement was serious.
B) There was intention because Mrs. Carlill took the advertisement seriously.
C) There was no intention because the claims made by the company were not put into a standard form agreement.
D) There was no intention because the company did not intend for the statements to be taken seriously.
E) Intention is irrelevant to whether or not a contract is valid.

Question 55

The distinction between a guarantee and a(n) ________ is important, because in most provinces the Statute of Frauds requires that only a guarantee be in writing.

A) obligation
B) agreement
C) promise
D) indemnity
E) interest

Question 56

A(n) ________ describes a relationship in which a third party assumes a primary obligation for the repayment of the debt along with the debtor.

A) debtor
B) binding agreement
C) promise
D) indemnity
E) guarantor

Question 57

A necessary element of a contract is that the parties must have the intention to be legally bound. Which of the following is true with regard to this element of a contract?

A) In contract cases, the court hears evidence as to what the parties actually had in their minds at the time of contract.
B) If the parties fail to state expressly in their contract their intention to be legally bound, there is no contract.
C) The court always presumes an intention to be legally bound, so this is never an issue in a contract case.
D) The court can presume the intention to be legally bound, but a party to the contract can bring forward contrary evidence to rebut the presumption.
E) Family members can never have the intent to be legally bound in their agreements because family matters are private matters.

Question 58

In which of the following situations would the contract relating to land not be enforceable?

A) An unwritten agreement to have a garage built on the land
B) An unwritten sale of land where the seller allowed the buyer to enter the property and commence construction thereon
C) An unwritten lease for a term of five years
D) An unwritten lease of a lawn mower used to maintain the land
E) An unwritten sale of land where the sale was acknowledged in subsequent correspondence signed by the party denying the existence of the sale

Question 59

Joe saw an ad in a paper for the sale of a house in a residential area of Victoria. He approached Sam, the owner, and after some negotiation Sam orally agreed to sell the house to Joe for $750,000. Joe gave Sam $100,000 cash as a partial payment, the rest to be given upon transfer of the house. Two days later, Sam changed his mind and sent Joe a letter referring to the deal and stating that he would not honour the agreement. Which of the following is correct with respect to the legal position of the parties? Assume all the facts can be proved.

A) Sam is not bound by the agreement as the contract was not in writing.
B) Sam will not be bound because no oral agreement is ever enforceable.
C) Even if the letter gives evidence of the deal in writing, it cannot satisfy the requirement of writing. It is the whole contract that must be in writing.
D) If the letter mentions the important terms (such as price) and identifies the specific property, Sam must go through with the contract.
E) The contract is void unless it has been partially performed.

Question 60

(Modify this question for your jurisdiction.) Bill, a college graduate, rented office space under a two-year lease. He needed the space because he contracted with the provincial government to create a program to integrate the various inventories of different government agencies. Bill hired Janet and Fred as full-time programmers for one year. He bought three desks for cash. He bought several laser printers, for which his dad signed as a guarantor. He bought computers from a different seller under a conditional sales contract. Which of these contracts should be evidenced in writing to be enforceable?

A) The contract with the government, because it will take more than a year to complete
B) The employment contracts
C) The contracts for the desks
D) The dad's guarantee
E) The lease

Question 61

Married women are no longer considered incapacitated in contract law.

Question 62

A person who has voluntarily become intoxicated by drugs or alcohol cannot escape a contract on the basis of his incapacity.

Question 63

When parents have led a merchant to believe that their infant child is acting as their agent, the parents are liable.

Question 64

Contracts that unduly restrict competition are void.

Question 65

All contracts to restrict competition are void.

Question 66

Zlotnik incorporated a company shortly after graduation. The company bought a truck and a computer. The company was short of operating capital so, through its agent Zlotnik, borrowed $10,000 from the bank. In consideration for its loan, the bank took, in addition to the company's promise to pay the bank both principal and interest, a security agreement on its truck and computer. The company made its payment each month without incident. Then the stock market took a tremendous fall, which caused the officer of the bank to call Zlotnik and ask him to guarantee the company's debt. The company was doing very well, so Zlotnik agreed to be guarantor of the debt. On these facts, which of the following is true?

A) Because Zlotnik's promise is a guarantee and not an indemnity, he automatically becomes the legal person primarily liable on the debt; the company becomes secondarily liable.
B) Zlotnik's promise to guarantee the debt is unenforceable because it is not supported by any consideration flowing from the bank to Zlotnik.
C) Zlotnik's promise to guarantee the debt is ultra vires.
D) Zlotnik's promise to guarantee the debt is enforceable wholly on the grounds that the Statute of Frauds with its writing requirement has been repealed.
E) All guarantees and indemnities must be in writing and under seal to be binding.

Question 67

Contracts involving activities that, while not illegal, are considered immoral or contrary to public interest, may also be void.

Question 68

Neither party is bound by a contract with an infant.

Question 69

Mr. Buyer, the plaintiff in the action, is attempting to enforce a contract in which the defendant, Mr. Seller agreed to sell to Buyer his property, Blackacre, for $100,000. Which of the following, by itself, would be sufficient to allow Mr. Seller to get out of the contract?

A) The $100,000 was not enough, so was not fair.
B) At the time of the contract, unknown to Mr. Buyer, Mr. Seller did not understand the quality and nature of this act because of mental incapacity.
C) Mr. Buyer referred to essential terms in a letter sent to Mr. Seller.
D) Although both parties agreed to this, there had not actually been any money paid on the contract, not even a deposit or a down payment.
E) There was only a verbal agreement between Mr. Seller and Mr. Buyer.

Question 70

Corporate bodies created by special legislation invariably lack capacity to enter into binding agreements.

Question 71

An insane person can escape a contract on the basis of incapacity only if the other person knew or ought to have known of the insanity.

Question 72

An adult can't sue an infant in tort to get around the infant's contractual incapacity.

Question 73

The nature of the legislation governing incorporation in each jurisdiction determines whether a corporation has its capacity to contract limited or not.

Question 74

Because of the Charter of Rights and Freedoms, status Indians no longer have their capacity to contract limited.

Question 75

Whenever an adult enters into a contract with an infant, the adult is bound.

Question 76

Negotiations between Dave and Mary resulted in the following agreement: Dave would sell his property to Mary for the sum of $150,000 with the closing date to be August 10. When the two completed their discussion, Mary paid Dave $5000 as part payment of the purchase price and received a receipt. The contract was not in writing. On August 10, Mary tendered the remainder of the money, but Dave refused to convey the property. Mary sued Dave for breach of contract. On these facts, which of the following is true? (Assume all facts can be proved.)

A) Mary cannot enforce this contract because the contract was not in writing.
B) Mary cannot enforce this contract because the contract was not evidenced in writing.
C) Mary can enforce this contract if the receipt specified the part payment was for the property in question.
D) Mary cannot enforce the agreement because all of the consideration was not paid.
E) Mary cannot enforce the agreement because she had not paid Dave all of the money.

Question 77

In which of the following situations would there be an enforceable contract despite the lack of a written contract?

A) Jack agrees to build a garage for Sam after he finished the remainder of his 2-year army hitch (he has 14 months left).
B) Jack leases a storage facility for duration of his 2-year army hitch.
C) Contractor Joe agreed to build a $250,000 home for Sam on Sam's land, to be completed no later than 9 months from the date of agreement.
D) Sam agreed to trade his vacation cottage with Joe in exchange for Joe's yacht.
E) Sam agreed to guarantee a loan for his friend Joe.

Question 78

Which of the following agreements has to be in writing under the original Statute of Frauds in order to be enforceable?

A) An agreement to sell a car on January 1 of the following year
B) An agreement by a creditor to accept $800 in full satisfaction of a debt in the amount of $1000
C) A lease of a vehicle for a term commencing on November 1, 2016, and expiring November 1, 2019
D) An agreement for the sale of a farm animal
E) An agreement for the sale of a building lot

Question 79

Once infants become adults, they are liable for any contract they made while they were infants.

Question 80

Contracts involving domestic relationships are presumed to be binding.