Canadian Business and The Law 4th Edition by Dorothy DuPlessis Test Bank

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Canadian Business and The Law 4th Edition by Dorothy DuPlessis Test Bank

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Chapter 5 An Introduction to Contracts

MULTIPLE CHOICE

1. When asked to secure a supplier for your company, what is the one goal you should be focused on to ensure the task is completed correctly?

a.
to ensure there is evidence of a deliberate intention to create legal relations
b.
to select a reliable supplier, negotiate terms, and secure a written contract.
c.
to secure terms that will allow for the recovery of related financial losses
d.
to secure a commitment on price and the delivery date of the goods

ANS: B PTS: 1 DIF: Medium REF: 103
MSC: Analyze

2. Which of the following would a lawyer most likely say is the reason that contractual relationships are preferable over casual forms of business arrangements?

a.
They envision business commitments or promises.
b.
They solidly prove the parties relationship is voluntary.
c.
They readily provide the means for legal enforceability.
d.
They must be expressed in writing using legal terminology.

ANS: C PTS: 1 DIF: Medium REF: 104
MSC: Analyze

3. With respect to what the terms contained in a negotiated formal contract should ultimately be representative of, each parties reasonable expectations will most likely be founded on which of the following?

a.
that all of the parties to the contract have legal capacity to contract
b.
the time period within which all obligations must be performed
c.
that there has been a formal intention to create legal relations
d.
the binding commitments that form the essence of the contract

ANS: D PTS: 1 DIF: Medium REF: 104
MSC: Evaluate

4. Which of the following is a valid reason for a court to accept that there is a legally binding contract governing the actions of the parties named to it?

a.
Contract law ensures that each party gets what it bargained for.
b.
The parties to the contract are permitted to rely on the terms they negotiated.
c.
Only the parties to a contract can sue or be sued on it.
d.
The contract clearly contains an offer and acceptance of that offer.

ANS: D PTS: 1 DIF: Easy REF: 104
MSC: Understand

5. Juha agreed to hire Zen Home Builders Ltd. (Zen) to construct his new home. Juha, Zen, and their lawyers met to review and sign a contract that provided for specific types of environmentally safe construction materials to be used. In many instances, Zen failed to used the stipulated green construction materials. What would a court, faced with determining a resolution to the ensuing dispute, rely on the existence of to establish the existence of the contract?

a.
Juha is entitled to rescind the contract due to poor contractual performance.
b.
Parties are free to create a framework of rules judges automatically enforce.
c.
Every type of contract is subject to some set of mandatory legal rules.
d.
There was an intention between the parties to create a legal relationship.

ANS: D PTS: 1 DIF: Medium REF: 104
MSC: Understand

6. With respect to the relationship that exists between contractual parties, which of the following is synonymous with the term meeting of the minds?

a.
There is an agreement between two or more persons.
b.
The legal cornerstone of the commercial operation has been formed.
c.
There is an informing idea behind the contractual relationship.
d.
There is agreement upon the intrinsic responsibilities owed to each other.

ANS: D PTS: 1 DIF: Challenging REF: 104
MSC: Understand

7. Two accomplished software developers want to combine their talents on a lucrative project offered by a large document storage firm. The developers will have their agreed roles and responsibilities incorporated into a formal contract to be prepared by their respective lawyers. Which of the following is a valid representation of the legal significance of the relationship between the parties that will be evidenced by the contract?

a.
Each party will get exactly what it bargained for.
b.
There has been a deliberate meeting of the minds.
c.
Some of the parties to a contract can be sued under it.
d.
No element of coercion exists between the contracting parties.

ANS: B PTS: 1 DIF: Challenging REF: 104
MSC: Evaluate

8. Which of the following would lend undisputable support for the use of a contract as opposed to a casual understanding?

a.
Casual understandings require lengthy negotiations and time to perform.
b.
All contracts typically involve arrangements that are unlikely to be repeated.
c.
Casual understandings are casually conducted and completed instantly.
d.
All contracts are subject to the same set of compulsory legal rules.

ANS: D PTS: 1 DIF: Easy REF: 105
MSC: Evaluate

9. Mat purchased a car for his son from an auto dealership. A week later, his son discovered a defect that rendered the car unsafe. The defect is one that a court would consider to be a breach of contract. Which of the following represents the legal recourse available to remedy this problem?

a.
The courts resistance to imposing ethical business standards leaves no recourse.
b.
Mat may commence a lawsuit against the dealer for breach of contract.
c.
Mats son may file a law suit against the auto dealer for breach of contract.
d.
Mats son can sue the manufacturer of the car for breach of contract.

ANS: B PTS: 1 DIF: Medium REF: 104
MSC: Evaluate

10. Fatima needed to copy and bind five sets of legal submissions with beige covers, but none were left in the supply cabinet. The office manager offered to reimburse Fatima for the cost of the covers and buy her lunch from petty cash if she would dash to the nearby office supply store to buy them. Fatima agreed. What is the nature of the arrangement negotiated between Fatima and the office manager?

a.
a formal accord
b.
an informal bargain
c.
a haphazard promise
d.
a binding agreement

ANS: B PTS: 1 DIF: Challenging REF: 105|106
MSC: Analyze

11. A Canadian court hearing a disputed matter involving parties to a contract will rely on past decisions to determine a remedy for the dispute. Why is the courts reliance on past decisions considered to be an effective manner for it to determine an appropriate legal remedy?

a.
Precedents support the parties respective disputed positions.
b.
Precedents are derived from statue laws that guide the courts deliberations.
c.
Precedents contain legal principals determined from similar past litigation.
d.
Precedents provide supporting evidence of applicable common law rules of contract.

ANS: C PTS: 1 DIF: Easy REF: 105
MSC: Understand

12. If one of the parties to a contract fails to perform his obligations under that agreement, which of the following will be the most likely result?

a.
The offending party is legally obligated to renegotiate the terms of the contract.
b.
Both parties must adhere to a mandatory requirement to renegotiate their contract.
c.
A court will generally award damages to the innocent party to cover resulting losses.
d.
A court will order each party to return whatever consideration has been received.

ANS: C PTS: 1 DIF: Easy REF: 103|104
MSC: Remember

13. During contractual negotiations, which of the following would be considered to have the most influence on the negotiators statements made during those discussions?

a.
that the business game is not subject to ethical standards
b.
that their communications form legal obligations.
c.
using concealment of facts to negotiate an agreement
d.
the compulsion to practise deception when negotiating

ANS: B PTS: 1 DIF: Challenging REF: 107
MSC: Analyze

14. When asked to determine a matter involving a dispute between parties regarding the formation of a contract, a court will apply a specific test. Which of the following is the defining characteristic of that test?

a.
whether the contract is sufficiently complete to provide certainty to all parties
b.
whether the terms of the contract provide sufficient mutual consideration
c.
whether a reasonable person could conclude that an offer and acceptance occurred
d.
whether the parties to the agreement have legal capacity to enter into contracts

ANS: C PTS: 1 DIF: Challenging REF: 108
MSC: Remember

15. In a strictly legal sense, which of the following is synonymous with the reasonable person test?

a.
an objective standard
b.
degree of bargaining power
c.
a subjective standard
d.
agreement on essential terms

ANS: A PTS: 1 DIF: Easy REF: 108
MSC: Understand

16. With respect to disparity in the bargaining power between the parties to a contract, which of the following would exemplify the circumstances that will most likely lead a court to set a contract aside?

a.
a lack of sufficient equality of the benefits received by each party
b.
an attempt to take advantage of a handicapped, vulnerable person
c.
whether the contract was entered into after October 1, 2008
d.
whether the contract was entered into before October 1, 2008

ANS: B PTS: 1 DIF: Medium REF: 108
MSC: Understand

17. Which of the following is a defining characteristic of the principle of equality of bargaining power?

a.
Judicial assistance is readily available to all disadvantaged parties to a contract.
b.
It is applied to adjust the terms so that the contract is fair and then enforces it.
c.
It is applied to reject unfair contracts and return the parties to their prior positions.
d.
It generally applies regardless of some distinct advantage favouring one party.

ANS: D PTS: 1 DIF: Easy REF: 108
MSC: Remember

18. With respect to a contractual business relationship, why would a lawsuit be considered the least favourable choice of remedy for non-performance?

a.
The courts remedy will focus on the parties economic realities.
b.
The court will limit its remedy to focus on the specific disputed transaction.
c.
The court will direct its decision strictly to the finding of the correct answer.
d.
The courts decision will focus on the parties best business options

ANS: B PTS: 1 DIF: Medium REF: 109
MSC: Understand

19. When managing desirable long-term contractual business relationships, each partys insistence on strict adherence to their respective legal rights may not be a suitable option for the business. Which of the following is an example of an alternative method of dealing with a breach of contract?

a.
Treat the subject matter of the contract as a standard or ordinary commodity.
b.
Maintain the projects profitability by insisting on full compensation for any loss.
c.
Seek sufficient compensation for any resulting loss, but extend time for payment.
d.
Show respect for the other party while seeking a standard of reasonableness in return.

ANS: D PTS: 1 DIF: Challenging REF: 109
MSC: Understand

20. Which of the following has the greatest influence on creating the flexible relationship that exists between contract law and economic reality?

a.
Contractual obligations must be performed or compensation paid for non-performance.
b.
Courts assess the fairness of the contract terms chosen by the parties.
c.
A partys need for judicial assistance or judicial intervention must be justified.
d.
Parties must be responsible for themselves and work to maximize self-interest.

ANS: A PTS: 1 DIF: Medium REF: 110
MSC: Understand

21. With respect to a contractual business relationship, which of the following would most likely have the greatest influence in orchestrating the occurrence of an economic breach?

a.
seeking methods of maintaining profits when entering into new business relationships
b.
taking an intractable position and forcing an ultimate favourable settlement.
c.
finding practical ways of interpreting contracts to arrive at higher profit margins
d.
deciding to secure greater profits through non-performance of an existing contract

ANS: D PTS: 1 DIF: Challenging REF: 110
MSC: Analyze
22. A large greenhouse grower wanting to source a suitable organic liquid fertilizer contacted Organics. The grower is willing to pay a premium price for Organics product. Accepting the order would mean Organics could not completely fill existing orders to its current customers. Organics desires the new business but wants to maintain its existing customer base. Which of the following strategies would provide Organics with the best possible solution to this problem?

a.
Abandon all but the most important of the existing orders and fill the new order.
b.
Present an ultimatum on existing orders offering delivery on a later date or nothing at all.
c.
Comply with existing obligations, fill the orders, and offer the new business what is left.
d.
Offer a price break on existing orders in return for varying quantity and delivery date.

ANS: D PTS: 1 DIF: Medium REF: 110
MSC: Evaluate

23. With regard to matters concerning contractual business relationships, which of the following is applicable to an economic breach of contract?

a.
refusing to provide payment for services received in order to get a reduction in price
b.
existing legal obligations precluding a business from considering other opportunities
c.
electing to refuse performance of contractual obligations and pay damages for breach
d.
electing to avoid damages by completing performance of contractual obligations

ANS: C PTS: 1 DIF: Medium REF: 110
MSC: Analyze

24. Where a court is asked to resolve a dispute involving parties that have reached an incomplete agreement, which of the following could you most reasonably expect a judge to determine as the outcome?

a.
The court will decline jurisdiction to provide a remedy derived under contract law.
b.
The court will refer to statute law that will be applied to formulate a binding contract
c.
The court will lack jurisdiction to refer the issue to alternative dispute resolution.
d.
The court will apply the principles of the common law to constitute a binding contract

ANS: A PTS: 1 DIF: Challenging REF: 106
MSC: Analyze

25. Where a manufacturer has been discovered to have knowingly produced and sold a defective product to the public, which of the following would offer the most favourable remedy for salvaging that companys business reputation?

a.
Deny any wrongdoing and obtain top lawyers to defend against litigation.
b.
Take ownership for the problem and voluntarily compensate affected customers.
c.
Hire bloggers to create confusion of the facts on social networking websites.
d.
Have a top executive issue an official apology presented on national television.

ANS: B PTS: 1 DIF: Easy REF: 111
MSC: Evaluate
26. Which of the following factors would have the greatest degree of influence regarding a retailers decision concerning the commencement of a lawsuit against a supplier for breach of a business contract?

a.
the significance of the economic harm caused by the defaulting partys breach
b.
the ability to secure an adequate supply of the stock from another supplier
c.
the costs associated with obtaining the stock from a different supplier
d.
the impact of the lawsuit on the reputation of the defaulting company

ANS: A PTS: 1 DIF: Challenging REF: 110|111
MSC: Analyze

27. Rachel has been laid off from her job and will be unable to meet all of her financial obligations if a new job does not materialize in six months. She canvassed the possibility of selling her home with several agents. One agent offered a reduced commission rate and a guarantee her home will sell within three months without a price reduction. Why should Rachel secure a formal contract based on her negotiations with this agent?

a.
to ensure the arrangement meets the agents needs and protects the agents interests.
b.
to ensure the agent is motivated to avoid damaging his business reputation
c.
to obtain favourable terms that provide for no-fault cancellation of the contract
d.
to allow Rachel to exercise her right to sue if the agent fails to perform as promised

ANS: D PTS: 1 DIF: Medium REF: 111
MSC: Understand

28. Vivian is the head of the risk management division of a large retail company entering negotiations to hopefully establish a long-term business relationship with a successful importer. When choosing her negotiating team, which of the following recommendations could Vivian reasonably be expected to suggest as criteria for that selection?

a.
executives with a highly developed ability to deceive when necessary in order to secure a favourable agreement
b.
experienced individuals who want to win and are willing to bluff and bluff hard to have a successful career
c.
adequate legal knowledge for the negotiation of an enforceable contract that meets needs and protects interests
d.
individuals who know the game and are not shy in demonstrating a complete lack of ethical standards

ANS: C PTS: 1 DIF: Challenging REF: 111
MSC: Analyze

29. The purchase of stationery supplies from a retailer for cash, without an invoice or a receipt being provided in return, is an example of which of the following?

a.
an incomplete agreement
b.
a formal contract
c.
a standard form agreement
d.
an informal agreement

ANS: A PTS: 1 DIF: Easy REF: 105
MSC: Remember

30. A court has been asked to determine a matter involving a contractual dispute between two large corporations. Which of the following sequences of procedures will the judge apply to arrive at the courts decision?

a.
review the conduct of the parties, evaluate the relevant law and the contract terms, then reach a decision
b.
evaluate contract terms and conduct of the parties, then apply relevant law to arrive at a determination
c.
review the relevant law, evaluate conduct of parties, then apply the contract terms to arrive at a decision
d.
evaluate conduct of the parties, review contract terms, then apply rules of law to arrive at a decision

ANS: B PTS: 1 DIF: Challenging REF: 111
MSC: Analyze

31. The legal rules governing contracts are typically derived from the common law. Which of the following is an example of a contract that would be governed by legislation?

a.
A contract involving the sale of goods governed by the Sale of Goods Act.
b.
A contract involving the supply of services governed by the Employment Act.
c.
A contract retaining a lawyer to perform legal services on behalf of a client.
d.
A verbal contract involving an exchange of services for a set monetary price.

ANS: A PTS: 1 DIF: Medium REF: 105
MSC: Understand

TRUE/FALSE

1. Contract law principles will be applied by a judge to resolve disputes based on a contract, whether the parties were aware of those principles or not.

ANS: T PTS: 1 DIF: Easy REF: 105
MSC: Remember

2. In reaching his or her decision regarding a contractual dispute, a judge will always apply the objective standard test.

ANS: T PTS: 1 DIF: Easy REF: 108
MSC: Remember

3. Individuals who negotiate a contract on behalf of their employer are bound to the contract along with their employer.

ANS: F PTS: 1 DIF: Medium REF: 104
MSC: Remember

4. In most instances, the rules governing contractual disputes are based on the common law.

ANS: T PTS: 1 DIF: Easy REF: 104|105
MSC: Remember
5. If someone has suffered a legal wrong, he or she should automatically sue the wrongdoer.

ANS: F PTS: 1 DIF: Easy REF: 109
MSC: Remember

6. When hearing a case, the court will generally assume equality of bargaining power, even though it is not always a valid assumption.

ANS: T PTS: 1 DIF: Medium REF: 108|109
MSC: Remember

7. An incomplete agreement is not contractual because its content is not sufficiently comprehensive.

ANS: T PTS: 1 DIF: Easy REF: 105|106
MSC: Remember

8. Traditionally, contract law focuses its attention on the need to preserve long-term business relationships.

ANS: F PTS: 1 DIF: Easy REF: 109
MSC: Remember

9. Contract law ensures that all parties concerned may rely on the terms included in the contract.

ANS: T PTS: 1 DIF: Easy REF: 106
MSC: Remember

10. A business should always insist on strict observance and enforcement of its legal rights.

ANS: F PTS: 1 DIF: Easy REF: 111
MSC: Remember

11. Most Canadian jurisdictions require contracts regarding interests in land to be in written form.

ANS: T PTS: 1 DIF: Medium REF: 104
MSC: Remember

12. In order for a court to recognize a contract as a binding agreement between the contracting parties, there must be clear evidence of each party having given something of value in exchange for receiving something of value.

ANS: T PTS: 1 DIF: Easy REF: 104
MSC: Remember

13. Luna Quan has been directed to attend a meeting tomorrow for the purpose of negotiating a new supply contract. It is vitally important that Luna pay particular attention during those negotiations to when simple business communications transform into legal obligations.

ANS: T PTS: 1 DIF: Medium REF: 107
MSC: Remember
14. Most contractual business relationships are initiated through an offer and acceptance of that offer. Acceptance is typically followed by communications to fill in the details of the arrangement.

ANS: F PTS: 1 DIF: Easy REF: 107
MSC: Remember

15. In order for a court to be convinced that both parties deliberately entered into a contractual relationship there must be evidence of their intention to create legal relations.

ANS: T PTS: 1 DIF: Medium REF: 104
MSC: Remember

16. The object of creating contractual obligations is to reduce the risk of uncertainty in the business relationship.

ANS: T PTS: 1 DIF: Easy REF: 104
MSC: Remember

17. Alberta Carr, in his well-known article published in the Harvard Business Review, encouraged businesspeople to break the law to seek advantage in business negotiations.

ANS: F PTS: 1 DIF: Medium REF: 107
MSC: Remember

18. The principle of equality of bargaining power follows the rationale that parties should be able to rely on contractual commitments.

ANS: T PTS: 1 DIF: Medium REF: 108
MSC: Remember

19. Down the legal road, one faces an ultimate settlement based on a correct answer ultimately derived from the courts interpretation of the contract.

ANS: F PTS: 1 DIF: Medium REF: 109
MSC: Remember

20. Issues can arise in contractual relationships that will require owners and managers to be conscious of the fact that business relationships are long-term, and so is reputation.

ANS: T PTS: 1 DIF: Medium REF: 109
MSC: Remember
SHORT ANSWER

1. Identify and briefly describe the necessary elements that must be present in order for a court to recognize a contract as a legally binding agreement.

ANS:
For a court to recognize a contract as a legally binding agreement, it must consist of the following necessary elements:
i) an agreement composed of an offer and an acceptance of that offer,
ii) an element of completeness,
iii) an element of deliberateness formally known as an intention to create legal relations,
iv) an element of fairness and voluntary willingness of the parties to enter into the arrangement,
v) at least two parties having legal capacity to contract,
vi) mutual consideration, and
vii) preferably it is contained within a written document.

PTS: 1 DIF: Challenging REF: 104 MSC: Remember|Understand

2. Explain how the operation of contract law makes it possible for the wheels of commerce to turn efficiently and effectively.

ANS:
Contract law makes it possible for each party to actually rely on commitments made by the other. As a result, they can plan their business affairs. If either fails to honour its commitments, the court will order the payment of compensation in the amount that the innocent party has lost as a result. Hence, the innocent party has not exposed itself to the risk of loss by making the commitments that it made.

PTS: 1 DIF: Easy REF: 104 MSC: Understand

3. A year ago, you negotiated a contract with a supplier on behalf of your company. The contract was broken six months ago and the supplier is about to commence legal proceedings for the breach. Can you personally be held liable for the losses resulting from the breach? Explain.

ANS:

You cant be sued by the supplier for breach of the contract because you were acting on behalf of your employer, and the contract is actually between it and the supplier. However, you may be liable to your employer for the losses it sustains as a result of the lawsuit! If, for example, your employer had not given you authority to act for it for purposes of entering this contract, your employer could sue you for breaching the terms of your employment contract by binding it to the supplier contract: your employer sustained the loss as a result of your breach of the contract you have with it.

PTS: 1 DIF: Medium REF: 104 MSC: Analyze
4. Explain the notion of equality of bargaining power and its impact on the operation of contract law.

ANS:

Equality of bargaining power is the legal assumption that parties to a contract are able to look out for their own interests. In effect, it underscores a requirement that contracts should not be binding on individuals unless entered freely and voluntarily. In fact, the court will presume there is such equality unless there is good reason not to. Only in extreme circumstances, when one party has taken gross advantage of the others pronounced weakness to imposea contract, will the court refuse to enforce the contract.

PTS: 1 DIF: Medium REF: 108|109 MSC: Remember

5. Identify and briefly explain the circumstances where a party might opt to deliberately breach a contract by refusing to honour its promises to the other side? Provide an example and a possible alternative to an outright breach of existing contractual obligations.

ANS:
There may be situations in which the cost of paying compensation to the other party is less than the benefit to be gained by breaching an existing contract through non-performance of obligations. A business may be faced with circumstances where there may be a more profitable opportunity to sell a manufacturers production to a different buyer at a much higher price over a longer period of time. In that instance, it may be possible to offer a price reduction as an incentive under the existing contract that would allow for a lesser quantity to be supplied over a longer delivery period or later delivery of the quantity contracted for.

PTS: 1 DIF: Medium REF: 110 MSC: Understand|Analyze

6. Identify and briefly explain the legal rules that apply to a commercial relationship between a for-profit figure skating club and the skating instructors it has contractually hired for the current fiscal year. Identify the methods available to these parties for resolving disputes that may arise, including which method is the least expensive and which is recommended as a last resort and the procedure that method entails.

ANS:

The legal rules that apply to a commercial relationship between the for-profit figure skating club and its instructors are found in the common law. Should a dispute arise between the contracting parties, they could elect to attempt to find a resolution through negotiation, mediation, arbitration, or litigation. Negotiation offers the least expensive method to resolve the dispute. Litigation should be used only as a last resort owing to the length of time and the cost the procedure involves. Litigation brings the matter into the courts where a judge will evaluate the terms of the contracts, the conduct of the parties, apply the relevant law, and then come to a determination to remedy the situation.

PTS: 1 DIF: Challenging REF: 111 MSC: Understand|Analyze
7. Identify and briefly describe the objectives that owners and managers should keep in mind when dealing with a customer who is attempting to expand or restrict an existing contract.

ANS:
In circumstances where a customer is attempting to expand or restrict an existing contract, owners and managers can approach the issue with the following objectives in mind:
i) maintain the projects profitability
ii) treat the customer with respect while seeking a standard of reasonableness in return
iii) ensure the work is completed on a safe and timely basis without incident
iv) refrain from approaching the issue legalistically
v) understand that business relationships are long-term, and so is reputation.

PTS: 1 DIF: Medium REF: 109 MSC: Remember

8. Identify the role that a contract plays in any commercial operation. Provide several examples of what activities a business is able to do through a contract. Identify and briefly explain the role contract law plays with respect to contractual participants and their commercial operations.

ANS:
Contracts are the legal cornerstone of any commercial operation. Through a contract, the business enterprise can sell a product or service, hire employees, rent office space, borrow money, purchase supplies, and enter into any other kind of binding agreement it chooses. In this way, contract law is facilitative because it allows participants to create their own rights and duties within a framework of rules that a judge will later enforce, if called upon to do so.

PTS: 1 DIF: Medium REF: 105 MSC: Remember

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