Canadian Business and the Law 5th

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Chapter 8 Non-Enforcement of Contracts

MULTIPLE CHOICE

1. What exerts the greatest influence on the law’s focus on the enforcement of a contract after
negotiations are complete and the formal contract is executed?
a. the endeavour to achieve a good faith between two competing goals
b. the preservation of the integrity, predictability, and reliability of contractual
relationships
c. the endeavour to preserve the real agreement reached by the parties
d. the preservation of good faith, honesty, and diligent conduct in contractual
relationships
ANS: B PTS: 1 DIF: Medium REF: 167
BLM: Analyze

2. Which of the following would immediately let you know that a contract contains an element
that would cause a court to hold that the contract is unenforceable?
a. a desire to end a contract for economic benefit
b. a failure to diligently negotiate a good outcome
c. an auxiliary mistake concerning the contract
d. an inequitable relationship between the parties
ANS: D PTS: 1 DIF: Medium REF: 167
BLM: Evaluate

3. While negotiating a commercial agreement, Juan made a misrepresentation that goes to the
heart of the ensuing formal contract between the parties. How do you think the other party to
the contract will act, once it becomes aware of the misrepresentation?
a. The other party must seek a mediated remedy for the problem.
b. The other party may opt to enforce the contract or have it set aside.
c. The other party must seek legal advice to remedy the misrepresentation.
d. The other party may opt to reproach the contract and set it aside.
ANS: B PTS: 1 DIF: Challenging REF: 176
BLM: Evaluate

4. What is the definition of the legal term “voidable contract”?

a. a contract that cannot be enforced because it is contrary to legislation or public
policy
b. a contract that fails to meet the requirements imposed by the Statute of Frauds
c. a contract that fails to meet the requirements imposed by the Sale of Goods Act
d. a contract that allows an aggrieved party to choose to keep it in force or bring to an
end
ANS: D PTS: 1 DIF: Medium REF: 167
BLM: Understand

5. In what way is a void contract different from a voidable contract?

a. A void contract contains a defect so substantial that it is of no force or effect.
b. A void contract cannot be enforced because it is contrary to legislation or public
 policy.
c. A voidable contract fails to meet the requirements imposed by the Statute of
Frauds.
d. A voidable contract fails to meet the requirements imposed by the Sale of Goods
Act.
ANS: A PTS: 1 DIF: Easy REF: 167
BLM: Understand

6. Why is it necessary for Canadian law to grant children and mentally ill individuals special
legal protection?
a. Both groups lack the substantial mental capacity to make binding legal decisions.
b. Both groups lack the legal capacity to be able to enter into binding contracts.
c. Both groups lack the experience to make binding legal decisions.
d. Both groups lack the functional mental capacity to understand binding legal
commitments.
ANS: B PTS: 1 DIF: Medium REF: 167
BLM: Understand

7. What are the elements of importance emphasized by contract law as it pertains to the legal
capacity to form contracts?
a. offer and acceptance
b. essentials of a contract
c. immunity from liability
d. consent and voluntariness
ANS: D PTS: 1 DIF: Challenging REF: 168
BLM: Analyze

8. Which of the following would affect the status of a contract entered into by a minor upon that
individual attaining the age of majority?
a. The contract is ratified after attaining legal capacity.
b. The contract involves enforceability by some statute.
c. The contract involves a non-continuing interest.
d. The contract is of a permanent or continuous nature.
ANS: A PTS: 1 DIF: Medium REF: 168
BLM: Understand

9. Cory, aged 17, plays hockey under contract with the Northern Manitoba Huskies junior
hockey team. What is the legal term given to this particular type of contractual arrangement?
a. beneficial contract of training
b. beneficial development contract
c. beneficial contract of service
d. beneficial minor training contract
ANS: C PTS: 1 DIF: Easy REF: 168
BLM: Remember
10. A sales representative knowingly entered into a contract for an alarm system during a
door-to-door sales campaign with an obviously mentally ill individual. Why could the contract
be immediately rendered voidable at that individual customer’s request?
a. The contract is contrary to the culpable silence provisions contained in the
Vulnerable Persons Act.
b. The contract is unenforceable in accordance with the Unconscionable Transactions
Relief Act.
c. Establishing true consent is not possible due to the individual’s incapacity to grasp
the essence and effect of the contract.
d. The individual is lacking legal capacity and is unable to perform the contract in
whole or in part.
ANS: C PTS: 1 DIF: Challenging REF: 169
BLM: Analyze

11. Even though Dalbert knew Rahim had consumed copious amounts of alcohol during the
afternoon, both signed a contract written on a napkin whereby Rahim agreed to buy Dalbert’s
old car for top dollar. Upon regaining his legal capacity, if Rahim opts to repudiate the
contract on the basis of an improvident agreement, how must he proceed to void the contract?
a. He must claim relief due to the effects of duress.
b. He must claim relief due to economic duress.
c. He must claim relief due to undue influence.
d. He must claim relief due to unconscionability.
ANS: D PTS: 1 DIF: Easy REF: 169
BLM: Evaluate

12. In contract law, the presence of which of the following elements would immediately alert a
court to the possibility that an agreement may be voidable due to duress?
a. An error by one or both parties seriously undermines a contract.
b. The use of a threat of physical harm results in a contract.
c. Unfair manipulation compromises one party’s free will.
d. A false statement of fact causes someone to enter a contract.
ANS: B PTS: 1 DIF: Easy REF: 168
BLM: Evaluate

13. In the case of Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737 (C.A.), the court was
asked to consider whether a wife who had signed a guarantee on a loan for her husband’s
business was entitled to be released from the guarantee on the basis of undue influence
exerted by her husband. Why did the majority of the court find that the guarantee was
enforceable against the wife?
a. because the wife had received independent legal advice
b. because the wife was a real estate agent and presumably knowledgeable enough to
not be unduly influenced by her husband to sign the guarantee
c. because agreements between spouses are always enforceable
d. because there was no evidence that the guarantee was unconscionable
ANS: B PTS: 1 DIF: Medium REF: 171
BLM: Analyze
14. In the case of Atlas Supply Co of Canada v. Yarmouth Equipment (1991), 103 NSR (2d) 1
(CA), the court considered whether a franchise agreement was unconscionable and therefore
unenforceable because financial projections given by the franchisor were overly optimistic.
Why did the court find that the contract was unconscionable?
a. because the agreement was illegal
b. because the franchisee and franchisor were in a relationship of good faith
c. because the franchisee acted promptly in seeking to avoid the contract
d. because the franchisor gave misleading financial information and withheld
contrary information
ANS: D PTS: 1 DIF: Challenging REF: 174
BLM: Remember

15. What is the definition of “undue influence” with respect to contractual relationships?
a. a false statement of fact that causes someone to enter a contract
b. the threat of physical or economic harm that results in a contract
c. unfair manipulation that compromises someone’s free will
d. unfair criminal activity that seriously undermines a contract
ANS: C PTS: 1 DIF: Easy REF: 170
BLM: Understand

16. Holding a gun to someone’s head to induce them to enter a contract exemplifies which of the
following legally exceptional circumstances?
a. unconscionability resulting from presumed pressure
b. undue influence resulting from actual pressure
c. misrepresentation resulting from presumed pressure
d. undue inducement resulting from actual pressure
ANS: B PTS: 1 DIF: Medium REF: 170
BLM: Understand

17. How will a court that hears a matter involving one party allegedly taking advantage of another
party’s unsophistication in relation to commercial matters arrive at a determination as to
whether such an advantage actually existed?
a. The unsophisticated party must prove undue influence was present.
b. The unsophisticated party must prove the presence of the actual pressure.
c. The more powerful party must prove the absence of the actual pressure.
d. The more powerful party must prove the absence of the presumed pressure.
ANS: D PTS: 1 DIF: Medium REF: 170
BLM: Understand

18. Where circumstances surrounding a proposed commercial transaction involve an

unsophisticated party, what would a court most likely accept as undisputable evidence that
that party has proceeded with the transaction on a free and informed basis?
a. a certificate of individual legal advice
b. a certificate of independent legal advice
c. a certificate of indisputable legal advice
d. a certificate of indubitable legal advice
ANS: B PTS: 1 DIF: Medium REF: 171
 BLM: Analyze

19. The case of Atlas Supply Co. of Canada v.Yarmouth Equipment (1991), 103 N.S.R. (2d) 1
(N.S.C.A.) disallowed the reliance on the defendant’s exclusion clauses to prevent evidence of
the plaintiff’s reliance on misleading information provided by the defendant. The dissenting
appellant court judge cautioned against setting aside business deals such as this one. What was
the dissenting appellant court judge advocating by taking this position?
a. that a small businessperson needs protection from unconscionable big businesses
b. that the acceptance of bad faith misrepresentations is a legal commercial
negotiating practice
c. that the acceptance of unconscionable misrepresentations is grounds to set aside a
contract
d. that a small businessperson is disadvantaged when dealing with a multinational
business
ANS: B PTS: 1 DIF: Medium REF: 173
BLM: Understand

20. In recent Alberta and Ontario appellant court decisions, the courts have regarded
unconscionability as involving a four-step procedure. Which of the following will a judge
now recognize as an additional step to be considered over and above the traditional two-step
procedure?
a. proof of improvident bargain or proof of exploitation in a contractual deal
b. imbalance in bargaining power due to ignorance of the language of the bargain
c. a sufficient divergence from community standards of commercial morality
d. proof of inequality between the parties entering into a contractual bargain
ANS: B PTS: 1 DIF: Challenging REF: 172
BLM: Analyze

21. Most provincial jurisdictions in Canada have enacted legislation to provide a form of
protection to consumers by setting unconscionability as a standard for the assessment of
fairness of the bargain. What element of this legislation is most similar to elements addressed
in separate, related consumer loan protection legislation?
a. The price grossly exceeded the price for similar, readily available goods or
services.
b. Physical infirmity or ignorance prevent the consumer from reasonable
self-protection.
c. There was no reasonable probability of payment by the consumer of the obligation.
d. Illiteracy prevented the consumer from reasonably protecting his or her interests.
ANS: A PTS: 1 DIF: Medium REF: 174
BLM: Understand

22. How is a wilful omission with regard to relevant information during pre-contractual
negotiations regarded in law?
a. as a false statement of fact that causes someone to enter a contract
b. as permissible because each party must look out for their own interests
c. as an error made by one or both parties that seriously undermines a contract
d. as a breach of the duty to disclose information without being prompted
ANS: D PTS: 1 DIF: Medium REF: 176
 BLM: Evaluate

23. Johan is negotiating the possible sale of one of his company’s regional business operations to
Bill. In response to Bill’s inquiry regarding the duration remaining on the existing supply
contracts, Johan provided the end dates of the contracts themselves. Johan did not advise Bill
that two of the customers were on the brink of insolvency. If Bill relies on the information
Johan provided, what recourse will contract law allow him?
a. The contractual defect is so substantial that it is of no force or effect.
b. A misrepresentation must meet the requirements imposed by legislation.
c. An aggrieved party can choose to enforce the deal or bring it to an end.
d. Partial provision of information allows the contract to be rescinded.
ANS: D PTS: 1 DIF: Medium REF: 175
BLM: Understand

24. What criteria must be satisfied in order for a misrepresentation to be actionable?

a. the misrepresentation must be made to a minor
b. the misrepresentation must be material to the contract
c. the misrepresentation must be made in conjunction with a threat of harm
d. the misrepresentation must be intentional
ANS: B PTS: 1 DIF: Easy REF: 176
BLM: Remember

25. A seller unknowingly made a misrepresentation during negotiations to sell his car. Now that
the seller is aware of the misrepresentation and the prospective buyer is returning to make an
offer, what recourse is available to rectify the situation and accept the offer without risking an
ensuing lawsuit?
a. The seller has no recourse; once information is offered, it must be completely
accurate.
b. The seller can remain silent to secure the best price and plead mistake as a defence.
c. The seller should simply forego the deal with this buyer and look for a new buyer.
d. The seller must attend to the prompt disclosure of the correct facts to the
prospective buyer.
ANS: D PTS: 1 DIF: Medium REF: 175
BLM: Understand

26. What is the goal of the common law remedy of rescission?

a. It seeks to provide redress to the innocent party.
b. It seeks to provide monetary redress for harm incurred.
c. It seeks to return parties to their pre-contractual positions.
d. It seeks to enforce good faith in commercial transactions.
ANS: C PTS: 1 DIF: Easy REF: 175
BLM: Remember

27. What categories of actionable misrepresentations entitle an innocent party to a common law
remedy in damages?
a. fraudulent and negligent misrepresentation
b. fraudulent and innocent misrepresentation
c. innocent and negligent misrepresentation
 d. negligent and factual misrepresentation
ANS: A PTS: 1 DIF: Medium REF: 176
BLM: Understand

28. What is the legal definition of “mistake”?

a. the threat of physical or economic harm that results in a contract
b. an unfair manipulation that compromises someone’s free will
c. an error made by one or both parties that seriously undermines a contract
d. a false statement of fact that causes someone to enter a contract
ANS: C PTS: 1 DIF: Easy REF: 177
BLM: Analyze

29. How does the common law classify a situation in which both parties to an agreement have
shared the same fundamental mistake in order to provide a remedy?
a. as a mistake at law
b. as a shared mistake
c. as a common mistake
d. as a mutual mistake
ANS: C PTS: 1 DIF: Easy REF: 178
BLM: Evaluate

30. Which of the following forms the basis of a common argument for setting aside a contract
based on mistake that will rarely succeed in Canadian courts?
a. misunderstanding of the legal consequences of giving an oral guarantee
b. misunderstanding of the terms of an oral contract dealing with land
c. misunderstanding of the nature or type of contract signed by the party
d. misunderstanding that a contract is not to be performed within one year
ANS: C PTS: 1 DIF: Medium REF: 180
BLM: Analyze

31. Under the classic model of illegality, a freely chosen contract will be held unenforceable by a
court in which of the following circumstances?
a. if it is contrary to common law and/or violates public policy
b. if it is contrary to statue law and/or violates public policy
c. if it is contrary to public policy and/or the doctrine of good faith
d. if it is contrary to public policy and/or the doctrine of illegality
ANS: D PTS: 1 DIF: Medium REF: 180
BLM: Remember

32. A judge has determined that offending portions of a contract can be severed and the remaining
portions saved. What type of common law contractual infraction is this judge resolving?
a. a mistaken contract
b. a fraudulent contract
c. an illegal contract
d. a negligent contract
ANS: C PTS: 1 DIF: Medium REF: 180
BLM: Analyze
33. Why are contracts that unduly interfere with the ability to earn a livelihood or reduce
competition generally unenforceable in common law?
a. They contravene the rules of goodwill contained in the Competition Act.
b. They cannot be enforced because they are contrary to statues and public policy.
c. They contravene the rules of fairness contained in the Consumer Protection Act.
d. They are contrary to the community’s common sense and common conscience.
ANS: D PTS: 1 DIF: Easy REF: 181
BLM: Understand

34. Which of the following elements would a court consider when determining the enforceability
of a non-competition clause on the grounds of reasonableness?
a. contravention of the Real Estate and Business Brokers Act
b. the reasonableness of location and time restrictions
c. contravention of anti-price maintenance legislation
d. the need to maintain free and open competition
ANS: B PTS: 1 DIF: Challenging REF: 181 | 182
BLM: Analyze

35. Why did the Supreme Court of Canada, in 2009, expressly reaffirm that restrictive covenants
in the sale of a business are subject to less scrutiny than other applications of restrictive
covenants?
a. because the clauses are typically reasonably clear as stated
b. because there is typically a power balance in business transactions
c. because the clauses are typically time limited and less intrusive
d. because the vendor typically receives consideration for goodwill
ANS: D PTS: 1 DIF: Medium REF: 181
BLM: Understand

36. In a recent 2009 ruling, the Supreme Court of Canada found it necessary to direct that judges
in lower courts were prohibited from redrafting overly broad non-competition clauses to make
them legal and enforceable, stating that such clauses are simply and utterly unenforceable.
Why did the Supreme Court find it necessary to invoke this prohibition?
a. to restate policy that vague or ambiguous clauses are unenforceable
b. because such clauses improperly bind employees unable to afford litigation costs
c. because such clauses are difficult to prove when the meaning is in fact unclear
d. to restate a central policy objective to facilitate drafting of broad clauses
ANS: B PTS: 1 DIF: Challenging REF: 183
BLM: Understand

37. What was the intended purpose of the creation and enactment of the Statute of Frauds?
a. to require that commercial contractual relationships be stated in one document
b. to avoid the difficulty in proving the value of the goods or services exchanged
c. to allow performance to take the place of a written duly executed agreement
d. to impede perjury and fraud by documented evidence of specified types of
contracts
ANS: D PTS: 1 DIF: Medium REF: 184
 BLM: Understand

38. What is the legal definition of a “guarantee”?

a. a fair contract formed by one advantaged party over another
b. a pledge evidencing the capacity to enter into legally binding contracts
c. a pledge to pay another’s liability in the event of default of such duty
d. a contract made enforceable by performance over a period of time
ANS: C PTS: 1 DIF: Medium REF: 184
BLM: Analyze

39. What had the greatest influence on the early courts in Britain with respect to their inclusion of
a provision in the Statute of Frauds requiring contracts that were to be performed after the
passage of one year’s time to be evidenced in writing?
a. to maintain the integrity of the contractual language by all of the contractual
parties
b. to facilitate spreading writing skills amongst the early citizens of the British
kingdom
c. to avoid difficulties presented by the passage of time with proving past oral
promises
d. to safeguard the commercial viability of the business of practising contract law
ANS: C PTS: 1 DIF: Medium REF: 184
BLM: Analyze

40. Which of the following is a valid requirement under the federal Secure Electronic Signature
Regulations issued in 2005?
a. to facilitate the association of a person’s typewritten name with their unique
signature
b. to ensure that typewritten names bind electronic contractual obligations
c. to ensure documents and signatures are evidenced in written form.
d. to ensure alterations to a document after it was signed can be evidenced
ANS: D PTS: 1 DIF: Challenging REF: 185
BLM: Evaluate

41. Which of the following would be a valid provision under the various provincial acts dealing
with the sale of goods?
a. Contracts above $20 to $25 must be made in writing in order to be enforceable.
b. If partial payment or acceptance is made by the buyer, an oral contract is
enforceable.
c. Contracts above $15 to $20 must be made in writing in order to be enforceable.
d. If creation of a record of an agreement is evident, the court must make a prudent
ruling.
ANS: B PTS: 1 DIF: Medium REF: 186
BLM: Evaluate

TRUE/FALSE
1. The purpose of the Statute of Frauds is to prevent fraud and perjury regarding certain kinds of
contracts.

ANS: T PTS: 1 DIF: Easy REF: 184

BLM: Remember

2. In order for a contract to satisfy the requirement of being written, all of the requirements must
be met in one document called “the contract.”

ANS: F PTS: 1 DIF: Medium REF: 184

BLM: Remember

3. A simple oversight or error by one negotiating party does not constitute a legal mistake and
provides no basis for voiding a contract.

ANS: T PTS: 1 DIF: Medium REF: 178

BLM: Remember

4. Intoxication is regarded as a form of mental incapacity under the law.

ANS: T PTS: 1 DIF: Easy REF: 169

BLM: Remember

5. Minors have the option of fulfilling their contractual obligations and suing the other party to
enforce the contract.

ANS: T PTS: 1 DIF: Medium REF: 168

BLM: Remember

6. An employer can never be awarded damages for breach of a beneficial contract of service by a
minor.

ANS: F PTS: 1 DIF: Medium REF: 168

BLM: Remember

7. People seeking to avoid a contract owing to mental capacity, duress, undue influence, or
unconscionability must do so promptly.

ANS: T PTS: 1 DIF: Medium REF: 173

BLM: Remember

8. If possible, the courts will redraft an offending provision in a contract to make it legal.

ANS: F PTS: 1 DIF: Challenging REF: 183

BLM: Remember

9. The only basis for a contract being held to be illegal is if it is prohibited by the Criminal
Code.

ANS: F PTS: 1 DIF: Challenging REF: 180

BLM: Remember
10. A contract will be set aside for mistake only if one party realized the other party was mistaken
at the time of entering the contract.

ANS: F PTS: 1 DIF: Medium REF: 178

BLM: Remember

11. A beneficial service contract is enforceable as long as it was commercially viable for the
business owner employing a minor.

ANS: F PTS: 1 DIF: Medium REF: 168

BLM: Remember

12. In British Columbia, the interests of under-age-of-majority children are protected by the
Infants Act.

ANS: T PTS: 1 DIF: Easy REF: 169

BLM: Remember

13. Some Canadian common law courts have ruled that, where proper circumstances allow, a
party’s lack of a practical or realistic alternative can establish valid evidence of economic
duress.

ANS: T PTS: 1 DIF: Medium REF: 169

BLM: Remember

14. To establish undue influence, evidence of actual pressure requires the party seeking relief to
show, among other things, that the influence existed.

ANS: T PTS: 1 DIF: Easy REF: 170

BLM: Remember

15. When a relationship exists between a lawyer and a client, the court is entitled to assume
presumed pressure amounting to undue influence.

ANS: T PTS: 1 DIF: Medium REF: 170

BLM: Remember

16. In circumstances where one party provides only partial information to the other side during
negotiations to induce that party to enter into contractual obligations, the contract will likely
be enforced by the courts despite the misrepresentation of relevant facts.

ANS: F PTS: 1 DIF: Medium REF: 173

BLM: Remember

17. Sanjip has elected to build up the earth around the cracked foundation of his home prior to
listing the home for sale. Sanjip’s action will not amount to misrepresentation if he fails to
disclose the cracks to potential purchasers.

ANS: F PTS: 1 DIF: Medium REF: 175

BLM: Evaluate
 18. A lawyer selling his practice initially provided information regarding its value that his
accountant later informed him was inaccurate. The lawyer is not required to disclose this new
fact to the lawyer interested in purchasing the practice as both are commercially and legally
sophisticated players who are fully capable of watching out for their own interests.

ANS: F PTS: 1 DIF: Challenging REF: 175

BLM: Evaluate

19. When applying for life and disability insurance protection on her mortgage, Marabou
neglected to disclose that she had been diagnosed with type 2 diabetes. As players in the
commercial contractual area have a duty to look after their own interests, the insurance policy
will be enforced should she become disabled or die as a result of the undisclosed pre-existing
condition.

ANS: F PTS: 1 DIF: Medium REF: 175

BLM: Evaluate

20. Ranjit, Quan Lu, and Ng are all directors of BigSkyInvestments Inc. who have a beneficial
interest in a contract that BigSkyInvestments’ management is considering and each must
disclose their status to management in accordance with statute requirements.

ANS: T PTS: 1 DIF: Easy REF: 175

BLM: Evaluate

SHORT ANSWER

1. Identify and describe four classes of contracts that must be written in order to be enforceable
in most provinces.

ANS:
The classes are
a. guarantees
b. contracts not to be performed within one year
c. contracts dealing with land
d. contracts for the sale of goods

PTS: 1 DIF: Medium REF: 184 BLM: Remember

2. If a contract is one that the Statute of Frauds requires must be written in order to be
enforceable, what must appear in writing?

ANS:
Three things must appear in writing:
a. essential terms of the contract
b. identity of the parties
c. signature of the party against whom the contract is to be enforced

PTS: 1 DIF: Challenging REF: 184 BLM: Remember

3. What interests do the courts balance in deciding whether a noncompetition covenant,
preventing an employee from leaving and going into competition with her former employer, is
enforceable? What is the test applied by the courts?

ANS:
Factors considered are that it is in the public interest to discourage restraint of trade and
maintain free and open competition, versus a disinclination to restrict the rights of contract,
particularly when exercised by knowledgeable persons of equal bargaining power.

The test applied is whether the covenant is reasonable between the parties and with reference
to the public interest.

PTS: 1 DIF: Challenging REF: 183 BLM: Remember

4. What must be proven in order to have a contract set aside for misrepresentation?

ANS:
It must be shown that
a. there was a false statement
b. the misrepresentation was clear and unambiguous
c. the misrepresented fact was material to the contract
d. the misrepresentation actually induced the aggrieved party to enter the contract
e. the misrepresentation was one of fact and not opinion, unless given as an “expert
opinion”

PTS: 1 DIF: Challenging REF: 176 BLM: Remember

5. When is a contract considered to be contrary to public policy? Give an example.

ANS:
Contracts are “contrary to public policy” if they are “injurious to the public interest.” This
occurs when they offend the community’s common sense and common conscience. Examples
will vary.

PTS: 1 DIF: Medium REF: 181 BLM: Remember

6. What is an “electronic signature,” and is it legally valid?

ANS:
An electronic signature refers to the many different ways that a person may indicate personal
association with an electronic document. The actual signature can take many different forms,
including a digitized version of a handwritten signature, a unique password, or a code.
Various jurisdictions in Canada have passed legislation intending to legally validate electronic
signatures, although such legislation has not been the subject of established case law to date.

PTS: 1 DIF: Easy REF: 183 BLM: Remember

7. Johan is a director on the board of a corporation considering entering into a contract with a
company in which Johan holds a beneficial interest. Johan has decided it is in his best
economic interests not to disclose this fact to the board. Discuss the possible legal
consequences, if any, that may befall Johan as a result of his decision.
 ANS:
Failure on the part of Johan to disclose his beneficial interest in the contract to the other board
members qualifies as a misrepresentation of relevant facts because Johan is obligated by
statue to volunteer such information at the time the contract is being negotiated. As a result of
the non-disclosure, the parties relying on the misrepresentation at the time they negotiated and
then entered into the contract may have the contract rescinded.

PTS: 1 DIF: Challenging REF: 175 BLM: Understand

8. Identify and briefly explain the relevance of a misrepresentation of relevant facts with regard
to an insurance contract.

ANS:
A person applying for insurance coverage is entering into a relationship that the law considers
to require utmost good faith. The person applying therefore has a duty to disclose all relevant
information to the insurer in order for the insurer to assess the risk of accepting the
application.

PTS: 1 DIF: Easy REF: 175 BLM: Understand

9. Identify the circumstances where parties would be considered to have breached the
requirement to disclose information without the need to be prompted to provide it during
contractual negotiations.

ANS:
The circumstances where parties are required to disclose information voluntarily during
contractual negotiations are as follows:
i) where one party provides only partial information to the other side
ii) where one party conceals the truth
iii) where one party neglects to correct an earlier assertion that when stated was correct but
now is incorrect
iv) where the parties are in a relationship requiring utmost good faith
v) where a statute imposes a positive obligation to disclose information

PTS: 1 DIF: Challenging REF: 175 BLM: Remember

10. With respect to a contractual relationship, identify the types of remedies for misrepresentation
available to the affected parties and how they are applied.

ANS:
The types of remedies for misrepresentation available to the affected parties are as follows:
i) a court may rescind the contract
ii) a court may set the contract aside
iii) misrepresentations that are torts attract an award of damages from the courts

If the misrepresentation is fraudulent or negligent, damages in tort may be awarded by the

court in addition to the remedy of rescission provided by contract law.

PTS: 1 DIF: Challenging REF: 176 BLM: Understand