QUESTION 1

How does mistake, if proved, affect third parties (persons outside of the contract in which the mistake occurred)?
a. If mistake is proved, the contact is voidable and third parties are affected only if the they knew of the mistake.
b. If mistake is proved, the contract is illegal and therefore unenforceable against third parties.
c. If mistake is proved, there is no effect on third parties.
d. If mistake is proved, the contract is unenforceable as against third parties.
e. If mistake is proved, the contract is void and third parties who claim benefits from the void contract will be adversely affected.

QUESTION 2
The parol evidence rule says that a written contract must be interpreted on the clear and unambiguous words written in the contract subject to which one of the following correct combination of exceptions?
a. Fraud, duress, undue influence, condition precedent or collateral contract
b. Fraud only
c. Subsequent agreement entered into by the parties after the written agreement or absence of an intention that all of the contract would be embodied in the written document
d. A and C
e. There are no exceptions to the parol evidence rule.

QUESTION 3
The duty of utmost good faith in contract law applies in which of the following? (Choose the best answer.)
a. Insurance contracts
b. Contracts with a chartered accountant hired to provide business planning advice
c. A director's relations with a shareholder.
d. a and b
e. The insurer must deal with claims fairly but the insured need not disclose all material risks to the insurer at the relevant times.

QUESTION 4
Bert was forced to sell his $10 000 stereo system to Mabel, who threatened to release to the media embarrassing information about their affair. Mabel immediately sold the system to Celine for $8000. Mabel then left the country. When Bert found out that Mabel was gone, he located the stereo system and demanded that Celine hand it over because the contract with Mabel was voidable. Celine has to return the stereo to Bert.
a. True
b. False

QUESTION 5
Bob wrote a cheque payable to his plumber, Fred. Fred owed money to his ex-wife Frieda, so he signed the cheque over to her. Later, Frieda signed the cheque over to her children's daycare. Meanwhile Bob was unhappy with the plumbing job done by Fred. Fred would not answer his calls but Bob found out that the daycare had his cheque. Fred went to the daycare and demanded a refund. Which of the following is true?
a. None of the above is true.
b. The cheque was an equitable assignment.
c. The cheque does not satisfy the requirement of writing for assignments.
d. The daycare is holder of a negotiable instrument in due course and can ignore Bob.
e. This is an example where privity does not allow conferral of a benefit on the daycare, a third party to the contract between Bob and Fred.

QUESTION 6
If mistake is proved, the contract is:
a. Voidable
b. Unenforceable
c. Valid
d. Invalid
e. Void

QUESTION 7
It is up to the subservient contracting party to overcome the presumption of undue influence.
a. True
b. False

QUESTION 8
Joe, a management consultant, was desperate for money. He therefore assigned all of his accounts receivable to two different assignees. Both assignees gave notice of assignment to the debtors who owed Joe money. The debtors should pay the assignee who gave notice last.
a. True
b. False

QUESTION 9
If both parties to a contract have differing interpretations of the written contract, the court will apply a reasonable person test to determine which interpretation is more reasonable.
a. True
b. False

QUESTION 10
Melvin wanted to sell his house, but he knew the foundation had cracks that let water into the basement every time it rained. He therefore decided to sell the house in the winter, when it was unlikely to rain. He also put some heavy furniture in front of the basement wall so that no one could see the cracks. Betty bought the house in winter at a time when there was no rain. She will be able to prove misrepresentation if she can show that putting furniture in front of the basement wall was a material statement of fact that induced her to enter into the contract.
a. True
b. False