EXERCISE (B) OF CHAPTER 3

1.Sherry just purchased an expensive second-hand stereo system from Jim for cash. Unknown to

Sherry, Jim had just bought it for a $100 down payment with the remainder of the price on credit from the original owner; in making the purchase, Jim represented himself to be another person with good credit standing. The negotiations with the original owner took place face-to-face. If the original owner does not get paid—that is, if Jim breaches his contract with the original owner—can Sherry keep the stereo system?

A.Yes, because there was nothing illegal about the contract involving Sherry.

B.Yes, because the contract between Jim and the original owner was only voidable.

C.No, because there was something illegal about the contract involving Sherry.

D.Yes, because Sherry is not connected in any way to the contract between Jim and the original owner.

E.No, because the contract between Jim and the original owner was void.

2.In reference to mistakes in performance, what concept(s) are embodied by the area of Quasi

Contract?

A. Unjust enrichment.

B. Non est factum.

C. Rescission.

D. Answers 1 and 4.

E. Answers 2 and 3.

3.Denzel writes a letter to Andy stating: "I will sell you my car for $2300 cash." Andy delivers

$2300 to Denzel at the appointed time set out in the letter, and obtains possession and a transfer of the registration on the car. Denzel immediately realizes that he had made an error in his note as he intended to write $3200 rather than $2300, having reversed the first two numerals. However, Andy was unaware of the error. He simply thought the price was an attractive one. Has there been a mistake according to the law?

A.No, because the error was entirely Denzel's doing and Andy reasonably relied on the statement.

B.No, because Andy should have known that the price was an error.

C.Yes, because Denzel mistakenly wrote the wrong number.

D.Yes, because a reasonable bystander would know that the price in the note was wrong.

E.Yes, because Denzel made an error in judgement in selling his car for $2 300.

4.Denzel and Andy have been negotiating through an exchange of letters for Andy to buy

Denzel's car. Through the series of letters, the price for the car ranged between $5600 and $6400.

Denzel then leaves a note for Andy stating: "I will sell you my car for $600 cash." Andy delivers $600 to Denzel at the appointed time determined in the letters and asks for the registration papers. Denzel immediately realizes that he had made an error in his last note as he intended to write “$6000” rather than “$600," having omitted one “0." Can Andy force Denzel to sell his car for $600?

A.Yes, because there has been an offer, acceptance and consideration.

B.No, because it would be clear to a reasonable bystander that the price was absurdly low.

C.No, because there has been no intention to create legal relations.

D.Yes, because it would be clear to a reasonable bystander that the price was reasonable.

E.Yes, because that was the price that Denzel stated in his note.

5.The President of ABC Inc. negotiated an important deal whereby ABC would sell half of its

fleet of 12 vans to XYZ Corp. at a price of $12 000 per van for a total sales price of $72 000. He quickly called a junior clerk in his office to type up a sales contract using the standard form contract th eir lawyer had given ABC to use. The clerk mistakenly types the total price as “$12 000” instead of$72 000. When the President receives the faxed draft of the agreement, he doesn’t notice the error and the contract is signed by officers of XYZ, who write a cheque for $12 000. Can ABC demand payment of the additional $60 000 it believes it is owed?

A.Yes, because a court will always attempt to achieve a fair result.

B.No, because there is no way for a court to know if the parties had not agreed to the change of price.

C.Yes, because the President could have prevented the mistake but did not.

D.Yes, because a court can rectify a typographical error where an unambiguous agreement can be

determined.

E.No, because the mistake was ABC’s fault so it cannot commence the lawsuit.

6.On the morning of June 4, Darlene enters into a written contract with Leonard, pursuant to

which Darlene agrees to purchase all of Leonard’s restaurant tables and chairs he has on the premises of the café he has just closed. Unbeknownst to both Darlene and Leonard, Leonard’s café premises had been broken into the night before and vandalized. When Leonard learns of this later that day, he calls Darlene to tell her that all of the tables and chairs have been destroyed. She wants to sue Leonard for breach of contract. Leonard’s defence to the lawsuit will be:

A.He has no defence, he is in breach of contract because he was responsible for delivering tables and

chairs to her and he cannot.

B.There is no consideration for the contract as he has no goods to deliver on closing.

C.He has breached the contract but she has no loss because she hasn’t paid any money to him.

D.She can’t sue him for breach of contract because it wasn’t his fault the contract cannot be fulfille d

E.The contract was void since the goods had been destroyed before the contract was concluded and

therefore was formed on a true mistaken assumption of both parties.

7.Jimmy is negotiating with Marnie to buy 10 000 shares of a company that trades oranges grown

in Colombia, at a price of $20 per share. These shares are traded on the Toronto and New York stock exchanges. Unbeknownst to either Jimmy or Marnie, before they conclude their contract there is a terrible storm in Colombia that has wiped out the entire orange crop and caused the company to suffer a large drop in share price. Jimmy pays the $200 000 to Marnie on the closing date and then learns that the storm destroyed the company’s entire crop. Can Jimmy successfully sue Marnie to get his money back?

A.Yes, because the contract was void since the stock price had changed.

B.No, because a contract for shares should contemplate that there is a risk of quick changes in value.

C.No, because it is not Marnie's fault that the storm destroyed the crop and affected the stock price.

D.No, because the contract was merely voidable since the stock price had changed.

E.Yes, because Marnie is in breach of contract for not telling Jimmy about the drop in stock price.

8.Amy buys a necklace as a present for her mother from a vendor at a stall in St. Lawrence Market

in Toronto. It turns out that the necklace had been stolen and then sold to the stall’s operator for cash. The original owner of the necklace has tracked it down to Amy’s mother and wants it back.

Amy protests. What is her strongest argument in order for her mother to keep the necklace?

A.This is a criminal matter and there is no way the original owner can recover the necklace through civil

law means.

B.The contract between the thief and the stall owner is void and any third party in possession of the

necklace is protected.

C.Amy could argue non est factum.

D.The contract between the thief and the stall owner is voidable and any third party in possession of

the necklace is protected.

E.Her mother is much too far removed from the mistaken contract to be affected by it.

9.What condition(s) must be met for rectification of a contract?

A.The Court is satisfied that there was a complete agreement between the parties, free from ambiguity

and not conditional on further adjustments.

B.The change in the written document appears to be an error in recording, and is most easily explained

as such.

C.The parties did not engage in further negotiations to amend the contract.

D.None of the above.

E.All of the above.

10.Smith told Green, a real estate agent, that he was looking for an income property. Green showed

Smith a small apartment block in which there were 16 units. What Green did not tell Smith was that the 4 basement level apartment units were in fact illegal, being contrary to existing municipal zoning laws. Smith signs an agreement to buy the building and one month later his lawyer tells him about the illegal units. Smith wants to void the contract on the basis of a mistaken assumption. Can he?

A.Yes, because the subject matter is radically different than he assumed.

B.Yes, because the value of the subject-matter is dramatically different than Smith expected.

C.No, because Smith took this risk by not investigating such a matter before signing the agreement.

D.No, but the courts will rectify the contract to reflect a more realistic price given the illegality of 4 of

the units.

E.No, because it would be unfair to the seller who never misled Smith.

11.In relation to unforeseen future events, a party to a contract may fail to foresee a crucial change

in conditions under which to perform because:

A.Performance may become physically impossible.

B.Performance may become pointless.

C.Performance may become legally impossible.

D.All of the above.

E.None of the above.

12.Eileen asked Jane, "What will you give me for 75 shares of General Manufacturing of Canada

Limited?" Jane said she would make inquiries and then make an offer. Later in the day, Jane replied, "I will give you $5 a share for your General Manufacturing shares." Eileen replied, "I accept your offer." Eileen delivered the shares for General Manufacturing of Canada Limited and received a cheque in full payment. Jane then realized that General Manufacturing Limited and General Manufacturing of Canada Limited were two different companies (the former operating out of the United States) and that she had the former company in mind when she made her offer to buy the shares. Jane stopped payment on the cheque. Can Eileen successfully sue Jane for breach of contract?

A.No, because there was a mistake about the subject matter of the contract.

B.No, because a court will not be able to determine whose interpretation of the contract is right.

C.No, because it was ambiguous which company Jane meant when she made her offer.

D.Yes, because there is no ambiguity about the company of which Eileen was trying to sell the shares.

E.Yes, because was a mistake about the subject matter of the contract.

13.Mary bought a stereo system from a local pawn shop for $500. Mary had an acquaintance named

Ben who was starting a disc jockey business and Mary knew she could resell the stereo system to Ben for $800. Shortly after the sale to Ben was completed, the police arrived at Ben’s premises to seize the stereo alleging that the stereo was stolen property. Can Ben keep the stereo system?

A.Yes, because the police will return it to her after their investigation is complete.

B.Yes, because Ben lawfully acquired the stereo from Mary.

C.Yes, because the contract between Mary and the pawn shop was merely voidable.

D.No, because the contract between Mary and the pawn shop was illegal and, therefore, void.

E.No, because the police are allowed to seize anything they believe is stolen.

14.Sandy owns a 1967 Corvette Stingray sports car. The body is fine, but mechanically the car needs

a lot of work. In need of money, Sandy contacts Louis who has always wanted to buy the car.

Sandy offers to sell the car to Louis for $7000 and intentionally says that the car is in excellent condition. Louis accepts Sandy’s offer. A few weeks later, after the sale has been complet ed, Sandy discovers she wants the car back and claims that there is no contract because of her fraudulent misrepresentation. Can Sandy successfully sue Louis for the return of the car?

A.No, because there is no remedy for innocent misrepresentations.

B.Yes, because any misrepresentation is a reason for rescission.

C.No, because a party cannot rely on their own misconduct to have a contract rescinded.

D.No, because there was no misrepresentation since the body of the car was in excellent condition.

E.Yes, because there was a fraudulent misrepresentation that induced Louis to enter into the contract.

15.George was the sales agent for ABC Roofing Products. He knocked on doors in a certain

neighbourhood, asking homeowners if they wanted their roofs reshingled with ABC’s revolutionary new shingles. He told the people he met that these shingles were the highest quality shingles on the market in Canada at that time. Those who did purchase ABC’s shingles are now disappointed to have to replace the shingles after 8 years. It seems that there were shingles on the market at the time of George’s call which last for 15 years. Is this an example of

a misrepresentation?

A.Yes, because George was an expert on shingles.

B.No, it was merely George’s opinion and not an assertion of fact.

C.No, because George did not mean to mislead anyone.

D.No, the consumer had a duty to verify such a claim for himself.

E.Yes, because George’s comment can be seen as a statement of fact if the quality of roofing shingles

is determined by longevity.

16.John, a car salesman, had the best sales record in his dealership. Penny was looking for an

affordable, reliable car that she could use to get to her new secretarial job. John showed her a used compact car that had a list price of $6000. Joe told her that the dealership had just picked up the car for $5700 so that is what he could sell it for. Also, John claimed that it was the best used car on the lot. In reality, the car had cost the dealership only $800 because of its bad condition. Relying on John's recommendation, Penny bought the car. Within six weeks the engine gave out and Penny was told by a mechanic that it could not be fixed. Can she successfully sue John and the dealership to get her money back?

A.Yes, because John made a fraudulent misrepresentation when he told her the dealership had

obtained the car for $5700 which was an incorrect statement of fact.

B.No, because John's statements about the car's price and it being the best car on the lot were just

statements of opinion.

C.No, because neither of John's statements could be considered material to Penny's decision to buy

the car.

D.Yes, because John's statements about the car's price and it being the best car on the lot were

statements of fact.

E.Yes, because John intentionally misrepresented that the car was the best on the lot and this is a

statement of fact.

17.Jake, a 16-year-old, has just bought a used car and needs to get insurance. The insurance

premium for a car owned by a 16-year-old is very high. As a result, Jake's father agreed to register the car in his name and take out the insurance so that the premium would be much

lower. However, only Jake drives the car. Jake has an accident while driving the car and the insurance company refuses to pay for the damages when they learn that Jake is the real owner of the car and is the primary driver. Can Jake or his father force the insurance company to pay the claim?

A.Yes, because there is a binding contract and the accident is within the coverage provided.

B.No, because Jake and his father have not provided the insurance company with all the pertinent

aspects of the risk.

C.Yes, because the insurance company must pay all claims that are made by the insured.

D.No, because the insurance contract is based on an innocent misrepresentation.

E.No, because the insurance contract only covered Jake's father.

18.Mike has inherited several thousands of dollars from the will of his late aunt and his father has

suggested that he invest the money in stocks. Mike goes to the offices of a broker, who shows him the prospectuses of two or three companies currently selling their shares to the public.

Mike chooses to buy the common shares of one of them, Acme Manufacturing Inc., because, from the prospectus, it looks like it has the best opportunity for growth. He also notes from the prospectus that Acme has no competitors. Mike invests $10 000 in Acme shares. One year later Mike receives a statement that his shares are worth $7500 and when he investigates why the shares have not appreciated as he expected, his research shows that Acme is struggling to maintain its market share with several competitors. Can Mike get his money back for his shares?

A.No, one year is too short a period of time to determine if the company will enjoy sustained growth.

B.Yes, if he acts immediately upon learning of the other competitors, he can sue Acme for a material

misrepresentation in the prospectus.

C.He could have sued for misrepresentation at the time he purchased the shares, but now it is too late.

D.No, Mike has received shares of Acme as he expected from the prospectus.

E.No, shares are never risk-free and investors should be prepared for a drop in the value of their

investments.

19.Kate ran her own retail store. In order to expand her premises and inventory, she approached the

DT Bank for a loan. DT was prepared to give her a loan on the condition that she guarantee the loan personally and give the bank a mortgage against her house. The manager at DT Bank told her that she would have to have her husband Pete sign the mortgage as well, and he gave her the documentation to take home. That night, Kate tells Pete that he must sign the mortgage or she will not be able to get her business l oan. When he hesitates, she says angrily: “You’re never supportive of my business!” Chastised, he signs the mortgage. Two years later, Pete and Kate are separated, and Kate has defaulted on the loan. DT Bank now wishes to foreclose on the house of which Pete now has sole possession. Can he stop the foreclosure?

A.Yes, he can have the mortgage set aside because he did not understand what he was signing.

B.Yes, because he can prove he did not think the loan transaction was a good idea when Kate

approached him with the mortgage.

C.No, he signed the mortgage and the DT Bank has the right to foreclose.

D.Yes, he can have the mortgage set aside on the grounds of undue influence as he did not have the

opportunity to seek independent legal advice.

E.No, because Kate did not make any misrepresentations when she discussed the mortgage with him.

20.Barry is a businessman who has been having difficulties lately in paying his creditors as their

debts become due. Barry approached a bank for a loan to pay off all his creditors and start up a new business. The bank agrees to the loan only if Barry's wife, Jasmine, agrees to sign a security agreement on her personal assets. Jasmine inherited several paintings from her mother

which are collectively worth in excess of $1 million. After having the transaction explained by the bank and her husband slowly and carefully, Jasmine signs the agreement. A few months later, Barry defaults on the loan and leaves the country, leaving his wife and debtors behind. The bank comes after Jasmine to pay back the loan and is threatening to sell her land for the money. Is there anything Jasmine can do to get out of the security agreement?

A.Yes, she can claim undue influence since she lacked independent legal advice.

B.No, a claim of undue influence between a husband and wife never works and the bank did not unduly

influence her.

C.Yes, locate her husband and force him to pay the bank.

D.Yes, she can claim duress since she lacked independent legal advice.

E.No, she signed a binding agreement with the bank which was explained to her carefully.

21.James wishes to sell his house because he has learned that a new commuter railway line will be

built to pass immediately behind his property. Perry is interested in the house, and notes that it is being offered by James at a comparatively good price, although he does not ask James why.

After a thorough inspection of the house and James's title, Perry agrees to buy the house and the two men sign an agreement of purchase and sale. One month after he takes possession of the property, Perry reads in the local newspaper that the municipality will begin construction of the railway line behind the property “that had been planned for over a year." Perry is furious and wants to sue James. Will he be successful?

A.Yes, because James had a duty to tell Perry about the railway line, information which Perry clearly

did not know.

B.No, because misrepresentation actions can only arise where there has been an incorrect assertion of

fact.

C.Yes, because James had a duty to explain why the price was lower than comparable properties.

D.No, James never said anything to mislead Perry.

E.No, because James had no duty to disclose the information about the railway line, which was

essentially public information.

22.Greg arranged to store his 1942 Rolls Royce at a garage for a month at a price of $150. He paid

that amount when the car was put in the garage. During the month that the car was in the garage, the owner sold the garage and failed to tell the new owner that Greg had prepaid the month’s storage fee. When Greg went to pick up his car, the new owner demanded a further payment of$150. After paying the $150 under protest, Greg obtained his car. Can Greg successfully sue the new owner for the second $150?

A.Yes, if he claims there was no contract between himself and the new owner.

B.Yes, if he claims dire circumstances.

C.Yes, if he claims undue influence.

D.No, he must sue the old owner for the $150.

E.Yes, if he claims fraudulent misrepresentation.

23.Christine is in dire financial straits and, having been unable to find any other lender prepared to

lend her money, is forced to borrow $10 000 from Matt at an annual interest rate of 70 percent.

Christine defaults on her second payment of interest and Matt sues. If Christine defends the lawsuit, how will the court respond?

A.The court will allow Matt to recover the interest at the given rate on the loan but not the principal.

B.The court will allow Matt to recover both the principal of the loan and the interest, but will set the

interest rate at the Bank of Canada prime rate.

C.The court will allow Matt to recover both the principal of the loan and the interest at the given rate.

D.The court will allow Matt to recover the principal of the loan but not the interest.

E.The court will allow Matt to recover neither the principal of the loan nor the interest at any rate.

24.An aggrieved party may claim that a misrepresentation became a term of the subsequent

contract, and if the Court agrees, the party is entitled to a remedy based on a breach of contract if:

A.There would otherwise be no remedy for an innocent misrepresentation because rescission is

unavailable in the circumstances—a Court is more willing to find that the statement had indeed become a term.

B.The aggrieved party has suffered a substantial loss.

C.The misrepresentation was made shortly before or after the time of entering into the agreement, it is

easier for the Court to conclude that it has become a term.

D.The statement was an important inducement to enter into the contract.

E.All of the above.

25.In terms of misrepresentation, when a party has relied upon an innocent misrepresentation and

learns the true facts, she/he must:

A.Accept his/her losses and move on.

B.Request that it be considered void for illegality.

C.Take as much time as necessary to figure out what she/he should do under the circumstances.

D.Take as many benefits from the contract as possible.

E.Renounce the agreement promptly.

26.Undue influence arises where the parties stand in a special relationship to each other. Which

one or more is an example(s) of this relationship?

A. Lawyer and client

B. Doctor and patient

C. Minister and parishioner.

D. Parent and child.

E. Parent

and child.

27.In contracts for the sale of land, the right to rescission for innocent misrepresentation is

generally lost once title to the property is transferred and the transaction is complete. What is/are the reason(s) for this rule?

A.Purchasers are expected to "search the title" and to satisfy themselves by inspection of the property

that it is as represented in the contract. If they are not satisfied, they are expected to exercise a right to rescind before the time for completion of the transaction.

B.This is not a rule.

C.There is the danger that an outstanding right to rescission would not be apparent to a third party

who investigated the ownership of the land and relied on the registered title.

D.Answers 1 and 3.

E.Answers 1 and 3.