Chapter 3: Contract Law

Question 1

Hugh submitted by mail an offer to buy Oswald’s house. The offer did not set out an expiry time, but required acceptance by mail. The next day, Oswald executed a formal acceptance letter but forgot to mail it. One week later Hugh decided to revoke his offer. In the meantime Oswald had just discovered the un-mailed acceptance letter on his desk. Oswald walked over to the post office. Just before Oswald placed the acceptance letter in the mailbox his cellular telephone rang - it was Hugh. “Hello,” said Oswald, “I’m just about to mail my letter of acceptance of your offer.” Hugh responded, “Oswald, I am calling to revoke my offer”. Oswald then placed the acceptance letter in the mailbox. Which of the following statements is TRUE?

1. Oswald properly communicated his acceptance to Hugh before Hugh revoked his offer. A binding contract formed.
2. The proper method of acceptance was by mail. The offer was properly cancelled because Hugh revoked the offer before Oswald mailed the acceptance. No contract was formed.
3. The proper method of acceptance was by mail. Hugh’s revocation was not effective because it was not in writing. A binding contract was formed.
4. None of the above is correct.

Answer 1

2. The proper method of acceptance was by mail. The offer was properly cancelled because Hugh revoked the offer before Oswald mailed the acceptance. No contract was formed.

Question 2

Assuming that the parties had legal and mental capacity to enter into a contract and there is a lawful objective or subject matter, in which of the following situations would Al and Peggy have a valid contract?

1. Al fixed Peggy’s barbecue and Peggy was so pleased not to have to take the BBQ to a repair shop that she promised to give Al a case of beer.
2. Peggy won a new barbecue in a raffle and offered to sell her old BBQ for $100 to Judy, the clerk in the food market. Al learned of Peggy’s offer and phoned Peggy to accept her offer.
3. Peggy offered to sell her boat trailer to Al for $1,000. He said that he would think about it. A few minutes after Al left, Peggy agreed to sell the trailer to Simon for the same price. An hour later, Al phoned Peggy and told her that he would buy the trailer for $1,000.
4. Peggy decided to sell her 1979 Dodge Hornet automobile and put a sign in the car window reading “For Sale $700”. Al phoned Peggy and offered her $500. Peggy said that she was not willing to sell the car to Al. Al then said he would pay $700.

Answer 2

3. Peggy offered to sell her boat trailer to Al for $1,000. He said that he would think about it. A few minutes after Al left, Peggy agreed to sell the trailer to Simon for the same price. An hour later, Al phoned Peggy and told her that he would buy the trailer for $1,000.

Question 3

Dagmar agreed to sell her house on the lakeside to Gemma. The sale price included an old 10 foot dinghy that Dagmar used for fishing on the lake. Gemma doesn’t like fishing. Neither Dagmar nor Gemma were aware that the dinghy had sunk the night before the entered into their contract. Which of the following statements is TRUE?

1. The sinking of the dinghy is an event which frustrates the contract and releases both parties from any obligations under the contract.
2. The sinking of the dinghy is an example of a unilateral mistake for which there is no remedy.
3. The sinking of the dinghy is an example of a common mistake which does not void the contract because it is not fundamental to the parties’ bargain.
4. The sinking of the dinghy is a fundamental mistake which frees the parties from any obligations under the contract, although they are free to contract again on any terms they wish.

Answer 3

3. The sinking of the dinghy is an example of a common mistake which does not void the contract because it is not fundamental to the parties’ bargain.

Question 4

A journalist visited the house of an art collector to study the collector’s various paintings. The journalist later published a book on the collection, praising the collection as truly one of a kind. Flattered by this review, the art collector phoned the journalist and said “In exchange for your kind words, I shall give you any piece from my collection that you wish”. When the journalist arrived at the collector’s house to claim the art promised to him, the art collector’s husband refused to let the journalist take anything from the collector’s collection. The journalist plans to sue the art collector the breach of contract. Which of the following statements is TRUE?

1. Where the parties have not set a monetary value to the consideration for a contract, a court will not enforce the contract.
2. The promise of art from the art collector’s collection was not given in exchange for the praise published within the journalist’s book. The praise occurred before the promise of artwork, and is thus considered past consideration; therefore, it cannot support a binding contract.
3. When the art collector told the journalist that he could have a piece of art in exchange for his publication of a book on the collection, those mutual promises formed a binding contract.
4. Because the art collector’s promise was made orally, she and the journalist have no entered into a legally binding contract.

Answer 4

2. The promise of art from the art collector’s collection was not given in exchange for the praise published within the journalist’s book. The praise occurred before the promise of artwork, and is thus considered past consideration; therefore, it cannot support a binding contract.

Question 5

Which of the following statements is False?

1. In most jurisdictions in Canada, if a debtor who owes $500 offers to pay $350 and the creditor agrees, the payment of $350 will extinguish the entire debt.
2. Where the relative values of consideration offered for a contract are grossly disproportionate, the courts will not enforce the contract.
3. Where a contracting party offers as consideration some act or payment made prior to the making of the contract, such act or payment will not satisfy the requirement of consideration for the formation of a valid contract.
4. Where a contract is correctly made under seal, there is no requirement for any additional consideration.

Answer 5

2. Where the relative values of consideration offered for a contract are grossly disproportionate, the courts will not enforce the contract.

Question 6

Helen was a shipping agent for a specialized Canadian publishing company. Janet worked for W. H. Jones Ltd., an international retail bookstore. Janet attended Helen’s office and they entered into a contract which provided that Helen’s company would deliver 5,000 copies of an anthology of Canadian poetry to W.H. Jones Ltd.’s London offices. Although Helen assumed that this meant London, Ontario, Janet was in fact the purchasing agent for the London, England office of the company. When Helen and Janet discovered the mistake they also discovered that the shipping costs between London, England and London, Ontario were three times the amount of the original contract.

Which of the following is TRUE?

1. The contract can not be enforced because neither Helen nor Janet had the necessary intention to create legal obligations in making the contract.
2. There never was a contract in this situation because there was no consideration given for the promises of either party.
3. This contract can not be enforced because section 59 of the Statute of Frauds requires the contract to be in writing.
4. This is a case of mutual mistake because both Helen and Janet had a different, reasonable belief when making the contract.

Answer 6

4. This is a case of mutual mistake because both Helen and Janet had a different, reasonable belief when making the contract

Question 7

In which of the following situations would the remedy of quantum meruit apply?

1. John is real estate agent. His neighbour, Bill, asks John to sell his house. They enter into a formal listing contract but do not include in it the actual amount of commission which is to be paid. John sells Bill’s home but Bill will not pay John’s commission.
2. Carey and Brett entered into a contract in which Brett agreed to build a house for Carey on a vacant lot she had purchase. Brett’s full price for building the home was $40,000. Brett did approximately $12,000 worth of work, but Carey refused to pay any instalments which were required under the contract. Brett is now suing Carey for breach of contract and has not done any more work on the house.
3. George performed $300 worth of services under a contract entered into between him and Shelagh, which is later discovered to be void due to the omission of an essential term from their written agreement.
4. Quantum Meruit would apply in all of the above situations.

Answer 7

4. Quantum Meruit would apply in all of the above situations.

Question 8

Ranjit and Ab enter onto a contract with Ivan, under which Ranjit and Ab agree to paint the exterior of Ivan’s house by October 31st for a price of $5,000. Which one of the following incidents would terminate the contract?

1. Ivan thinks the colour of the paint he agreed to looks too bright in such large quantities.
2. On October 14th, Ranjit and Ab ask Ivan if they can have an extension of 2 days beyond the completion date, which would enable them to enter into another contract with one of Ivan’s neighbours.
3. Ranjit and Ab complete the job on October 20th, and Ivan pays them the agreed price.
4. On October 18th, Ivan sells his house to Juan, agreeing to complete the sale on December 11th.

Answer 8

3. Ranjit and Ab complete the job on October 20th, and Ivan pays them the agreed price.

Question 9

David wrote a letter to Maxine in which he offered to sell Whiteacre to her for the price of $40,000. Maxine telephoned David and verbally accepted his offer. As agreed to during their telephone conversation, Maxine forwarded a cheque to David in the amount of $10,000. There was no indication on the cheque as to what the payment was for. David cashed the cheque. One or more of the following statements is true (assume that the transaction occurred in BC, and that section 59 of the Law and Equity Act of BC applies):

A. Because David cashed the cheque, this contract is probably enforceable against David.
B. If David can prove that the cheque formed part of the written contract, the contract will be enforceable against Maxine who signed it.
C. If the court finds that no enforceable contract exists, David might recover from Maxine the legal fees he incurred in preparing transfer documents.
D. The law requires David and Maxine to put their entire contract in writing to be enforceable against either party.

Which of the above statements is/are FALSE?

1. A, B, and D only
2. A, B, and C only
3. B and D only
4. A only

Answer 9

2. A, B, and C only

Question 10

On Monday, Mary Ann Brady was offered a job at Zap Systems as a computer programmer. Charlie O’Brien, who offered her the job, gave her until 10:00am Thursday to think it over. Charlie told Mary Ann to call him on the telephone and let him know by the deadline. Which of the following statements is TRUE?

1. If Charlie calls Mary Ann on Wednesday afternoon and revokes his offer, Mary Ann cannot thereafter accept the job offer.
2. If May Ann calls Charlie at 11:00am on Thursday to accept, Mary Ann has missed the time limit to accept the job offer.
3. If Mary Ann calls Charlie at 10:00 am Thursday, and the phone goes dead before she has a change to tell Charlie she accepts, the job offer will expire.
4. All of the above statements are true.

Answer 10

4. All of the above statements are true.

Question 11

Which one of the following is an example of duress?

1. Philippa moves out of her apartment because her landlord raised her rent to an amount she cannot afford.
2. Because John is in desperate need of money, he accepts a settlement from an insurance company for his injury sustained in an automobile accident. The settlement amount is far below what he expected to received in a court award.
3. Josephine enters into a contract to purchase clothing from Andre’s wholesale clothing company for her boutique in order to ensure Andre continues purchasing fabric from Josephine’s brother.
4. None of the above is an example of duress.

Answer 11

4. None of the above is an example of duress.

Question 12

Harry verbally offered to give Mary a one-hour piano lesson for $25. Which of the following statements is TRUE?

1. If Susan overhears Harry’s offer, and Mary is not interested in accepting, Susan can accept.
2. If May accepts, and Harry does not honour the contract, Mary cannot successfully sue Harry because the contract was not in writing.
3. If Harry did not specify a time limit for acceptance, Mary can accept at any future date.
4. None of the above is true.

Answer 12

4. None of the above is true.

Question 13

Melissa contracts to supply 1,000 maple trees to Bill’s landscaping company, and 800 to Mike’s landscaping company. Melissa’s inventory sheet shows that she has 2,000 trees, but in the tree yard there are only 1,500 trees. Melissa is unable to get any more trees in time to satisfy the contract. Assuming that Melissa completes the contract with Bill, but is unable to get any more trees for Mike, what legal remedies, if any, will be available to Mike?

1. Specific performance.
2. Quantum Meruit.
3. Damages.
4. All of the above are legal remedies available to Mike.

Answer 13

3. Damages.

Question 14

Petra, a known restaurant supplier, agreed to purchase 500 kilograms of beef from Vladimir, a meat wholesaler, at a cost of $5 per kilogram. Petra paid the sum of $2,500 to Vladimir who agreed to deliver the beef to Petra on Friday the 13th. Petra went to numerous restaurants and arranged to resell the beef at a price of $10 per kilogram, thereby earning a profit of $2,500. On Thursday the 12th, Vladimir informed Petra that he had delivered the beef to another purchaser who had paid a higher price for it. Petra immediately sued Vladimir for breach of contract.

A. Petra will succeed in an action against Vladimir for specific performance of this contract.
B. The restaurant owners will be successful in an action against Vladimir for breach of contract.
C. Petra will not be awarded specific performance because damages are an adequate remedy in this situation.
D. Vladimir will be required to repay Petra the price of $2,500 plus her expenses in arranging the resale but is not responsible to her for the $2,500 lost profit.

Which of the above statements is/are TRUE?

1. A and B only
2. B and C only
3. C and D only
4. C only

Answer 14

4. C only

Question 15

Vendor C accepted B’s written offer to purchase C’s house, which included a clause stipulating that the eight year old roof was in “good repair”. Shortly after B took possession of the house, the roof leaked badly during a rainstorm, causing extensive damage to B’s carpets and walls. Which of the following statements is TRUE?

1. The leaking roof is a substantial break of an important term or condition of the contract for which B is entitled to treat the contract as being at an end and sue C for damages.
2. This is a breach of warranted of the contract for which B is entitled to sue C for damages.
3. This is a classic example of frustration of a contract with the result that the parties are relieved of their obligations under the contract.
4. The contract is void because both C and B were mutually mistaken about the condition of the roof.

Answer 15

2. This is a breach of warranted of the contract for which B is entitled to sue C for damages.

Question 15

Which of the following statements regarding promissory estoppel is FALSE?

1. Promissory estoppel can only be used as a defense.
2. In order for promissory estoppel to apply there must be an existing legal relationship between the parties.
3. If a lessor does not renew a lease, after having said that notice to renew is not required, the lessee can bring an action claiming promissory estoppel.
4. Promissory estoppel is a doctrine developed by the courts of equity.

Answer 15

3. If a lessor does not renew a lease, after having said that notice to renew is not required, the lessee can bring an action claiming promissory estoppel.

Question 16

Which of the following statements regarding conditions in a contract of purchase and sale are TRUE?

1. A condition is a promise which is not fundamental to the contract.
2. In most cases, the breach of a condition permits the innocent party to terminate the contract.
3. A condition is normally considered to be of greater importance than a warranty.
4. If a term is not a condition, then a breach of that term will not result in any remedies for the innocent party.
5. A and C only
6. A and D only
7. C and D only
8. B and C only

Answer 16

4. B and C only

Question 17

Lance and Gwen entered into a contract of purchase and sale for Gwen’s house in the county. It had a wonderful unique conservatory wing that Lance thought ideal for opening a restaurant. Lance knew the restaurant would prosper because it was near a racecourse and all the bettors would come for dinner on their way home after the races. Prior to the completion date Glen told Lance she did not intent to go ahead with the sale. The next day Lance learned that she intended to demolish the conservatory because it was too expensive to heat. Which of the following remedies could Lance seek?

A. Lance could bring an action for specific performance of his contract with Gwen.
B. Lance’s only remedy is to seek damages for breach of contract if Gwen refuses to complete on the required date.
C. Lance could seek an injunction prohibiting Gwen from demolishing the conservatory.
D. Lance is entitled to sue Gwen for misrepresentation and rescind the contract.

1. B only
2. B and D only
3. A and C only
4. D only

Answer 17

3. A and C only

Question 18

Neil has arrived at Paul’s house, ready to paint, pursuant to a contract between them. Paul refuses to accept Neil’s tender of performance. In these circumstances:

1. Neil must remain ready, willing and able to perform the terms of the contract.
2. Paul can tell Neil to come back to do the job, within a reasonable time.
3. the courts can order specific performance from Paul.
4. Neil is under no obligation to re-tender, and will not be in breach of contract.

Answer 18

4. Neil is under no obligation to re-tender, and will not be in breach of contract.

Question 19

John sells a car to Jason, who was intoxicated at the time of purchase. In this situation, John:

1. has entered into a void contract.
2. can enforce the contractual terms, as long as he can show that he was not aware that Jason was intoxicated.
3. must act quickly if he wishes to void the contract.
4. can enforce the contract against Jason, providing that John was sober at the time the contract was entered into.

Answer 19

2. can enforce the contractual terms, as long as he can show that he was not aware that Jason was intoxicated.