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Business Law In Canada 11th Edition by Yates – Test Bank

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  • ISBN-10 ‏ : ‎ 0133847136
  • ISBN-13 ‏ : ‎ 978-0133847130

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Business Law In Canada 11th Edition by Yates – Test Bank

Business Law in Canada, 11e (Yates)

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

1) 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 Answer: D Diff: 1 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 2) 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 Answer: E Diff: 3 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 3) 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. Answer: D Diff: 3 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 4) 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. Answer: C Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 5) 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. Answer: A Diff: 2 Type: MC Page Ref: 218 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 6) 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. Answer: A Diff: 2 Type: MC Page Ref: 221 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 7) 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. Answer: C Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 8) 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: D Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 9) 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. Answer: B Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 10) 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. Answer: D Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Applied Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 11) 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: E Diff: 2 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 12) 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. Answer: E Diff: 3 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 13) 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. Answer: B Diff: 1 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 14) 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 Answer: E Diff: 1 Type: MC Page Ref: 217 Topic: Ch. 7 – Minors/Infants Skill: Recall Objective: Chapter 7: 1. Explain the capacity of minors. Bloom’s Taxonomy: Knowledge 15) 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. Answer: A Diff: 3 Type: MC Page Ref: 221 Topic: Ch. 7 – Insanity and Drunkenness Skill: Applied Objective: Chapter 7: 2. Compare the capacity of the insane and drunk. Bloom’s Taxonomy: Knowledge 16) 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: A Diff: 3 Type: MC Page Ref: 221 Topic: Ch. 7 – Insanity and Drunkenness Skill: Applied Objective: Chapter 7: 2. Compare the capacity of the insane and drunk. Bloom’s Taxonomy: Knowledge 17) 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. Answer: E Diff: 2 Type: MC Page Ref: 221 Topic: Ch. 7 – Insanity and Drunkenness Skill: Applied Objective: Chapter 7: 2. Compare the capacity of the insane and drunk. Bloom’s Taxonomy: Knowledge 18) 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. Answer: A Diff: 1 Type: MC Page Ref: 221 Topic: Ch. 7 – Insanity and Drunkenness Skill: Recall Objective: Chapter 7: 2. Compare the capacity of the insane and drunk. Bloom’s Taxonomy: Knowledge 19) 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. Answer: D Diff: 3 Type: MC Page Ref: 221 Topic: Ch. 7 – Insanity and Drunkenness Skill: Applied Objective: Chapter 7: 2. Compare the capacity of the insane and drunk. Bloom’s Taxonomy: Knowledge 20) 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 Answer: B Diff: 1 Type: MC Page Ref: 217 Topic: Ch. 7 – Capacity Skill: Recall Objective: Chapter 7: 3. Review the law for others of limited capacity. Bloom’s Taxonomy: Knowledge 21) 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 Answer: A Diff: 1 Type: MC Page Ref: 217 Topic: Ch. 7 – Capacity Skill: Recall Objective: Chapter 7: 3. Review the law for others of limited capacity. Bloom’s Taxonomy: Knowledge 22) 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. Answer: E Diff: 1 Type: MC Page Ref: 225 Topic: Ch. 7 – Legality Skill: Applied Objective: Chapter 7: 4. Discuss the law relating to contracts performed illegally. Bloom’s Taxonomy: Knowledge 23) 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. Answer: A Diff: 2 Type: MC Page Ref: 225 Topic: Ch. 7 – Legality Skill: Applied Objective: Chapter 7: 4. Discuss the law relating to contracts performed illegally. Bloom’s Taxonomy: Knowledge 24) 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 Answer: A Diff: 1 Type: MC Page Ref: 225 Topic: Ch. 7 – Legality Skill: Recall Objective: Chapter 7: 4. Discuss the law relating to contracts performed illegally. Bloom’s Taxonomy: Knowledge 25) 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. Answer: D Diff: 3 Type: MC Page Ref: 225 Topic: Ch. 7 – Legality Skill: Applied Objective: Chapter 7: 4. Discuss the law relating to contracts performed illegally. Bloom’s Taxonomy: Knowledge 26) 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. Answer: A Diff: 2 Type: MC Page Ref: 230 Topic: Ch. 7 – Legality Skill: Recall Objective: Chapter 7: 4. Discuss the law relating to contracts performed illegally. Bloom’s Taxonomy: Knowledge

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