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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

1) Capacity to contract means a. the ability to make an offer or accept an offer. b. the competence to enter into a legally binding contract. c. the ability to pay damages in the event of a breach of contract. d. the ability to make a promise. e. the ability to comprehend the terms of a contract. Answer: b Diff: 1 Type: MC Topic: The Meaning of Capacity to Contract Skill: Recall 2) Although there has been an offer and acceptance and consideration, and the parties intended to enter into a contract, a court will set aside a contract as void because of a. the social standing of one of the parties. b. the lack of capacity of one of the parties. c. the wealth of one of the parties. d. the signature on the contract being unclear. e. the impecuniosity of one of the parties. Answer: b Diff: 1 Type: MC Topic: The Meaning of Capacity to Contract Skill: Recall 3) A minor is a. a person who is small in stature. b. a person who enters into an agreement to work in a coal mine. c. a person who performs minor tasks pursuant to a contract. d. a person who is small in stature but is able to enter into certain contract. e. a person who has not attained the age of majority. Answer: e Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Type: MC Topic: Minors (or Infants) Skill: Applied 4) Mary is 13 years old, and she enters into an agreement with a modelling agent pursuant to which the agent agrees to represent her. Which of the following is NOT true? a. The agent can only enforce a contract regarding necessaries against the minor. b. A minor may repudiate contracts for non-necessaries because he or she is not bound by them. c. The contract is enforceable against the agent. d. The contract is not enforceable by Mary against the agent. e. The agent cannot enforce the contract against Mary. Answer: d Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 5) A minor may repudiate all contracts entered into by her with the exception of a. contracts for necessaries. b. contracts entered into under duress. c. contracts that are beneficial to the minor. d. contracts pertaining to real estate. e. contracts entered into with relatives. Answer: a Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 6) Jack is 13 years old and a young musical legend. Jack enters into negotiations with a studio pertaining to a starring role in a series of movies. Prior to the negotiations, and as a condition to entering into the negotiations, Jack and the studios enter into an agreement under which the studio agrees to buy Jack a limousine for his personal use. The studio buys the limousine. A few months later Jack repudiates the contract and his chauffeur has an accident with the limousine. Which of the following is true? Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

a. Jack may sell the limousine and then pay the proceeds to the studio. b. Jack will have to return the limousine in the state it is in. c. The studio can sue Jack for breach of contract. d. Jack may keep the limousine but has to pay for it. e. Jack will have to repair the limousine and then return it. Answer: b Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall 7) On January 1, Jack, a minor, orders some computer software programs from a computer company. Jack needs the programs for school. The software programs cost $4000.00. On January 5, just before the computer company sends the software programs out, Jack has a change of heart. So he calls the computer company and tells them that he no longer wants the programs. In this situation, a. Jack cannot cancel the contract, because there has been offer and acceptance. b. Jack cannot cancel the contract, because the programs are necessaries. c. Jack cannot cancel the contract, because it is a beneficial contract of service. d. Jack can cancel the contract, because the software programs are non-necessaries and he has not taken delivery of them. e. Jack can cancel the contract, because minors do not have to pay large sums of money. Answer: d Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 8) When Mary was 17 years old, she was asked to become a partner in an clothing design shop because she created brilliant clothing designs. Mary liked the idea at the time and signed a partnership agreement/contract. However, after working for a month, she decided that it was not something she wanted to do. After Mary turned 18, she decided to stop being a partner in the clothing shop. In this situation, a. Mary can repudiate the partnership contract because it is not a beneficial contract of service. b. so long as Mary does not affirm or ratify the partnership contract, she can repudiate it. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

c. there is nothing that Mary can do because she is now 18 years of age. d. there is nothing that Mary can do because she is bound by a beneficial contract of service. e. there is nothing Mary can do because she signed the partnership agreement/contract. Answer: b Diff: 1 Type: MC Topic: Minors (or Infants) Skill: Recall/Applied 9) Upon attaining the age of majority, a minor may be bound by two kinds of voidable contracts, namely, a. contracts that create an interest of a continuous and permanent nature, and contracts that are ratified by the minor. b. contracts pertaining to real estate, and contracts pertaining to intellectual property. c. contracts of service and contracts of employment d. contracts of purchase, and contracts of sale. e. contracts that concern necessaries, and contracts that concern non-necessaries. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 10) Which of the following is NOT true? a. A corporation has no physical existence. b. A corporation is a legal fiction. c. A corporation is a creature of law. d. A corporation does not have the attributes of a natural person. e. A corporation has the same attributes as a natural person. Answer: d Diff: 2 Type: MC Topic: Corporations Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall 11) Minors will be liable for contracts a. if the contracts concern necessaries. b. if the minor completes a declaration stating that he or she has read and understood the terms of the contract. c. if they signed the contract. d. if the parent of the minor was present at the time the minor was signing the contract. e. if the minor is deemed to be of well-above-average intelligence. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 12) A minor's immunity from liability a. is limited to contracts. b. is determined by statute. c. is dependent on the age of the minor. d. extends to contracts and torts. e. extends to purchases and sale of real estate. Answer: a Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall 13) A year ago, James sold a motor bike to Jim, his best friend. At the time that the bike was sold, Jim was a minor. Jim is still making payments to James. Jim will be attaining the age of majority in a few months’ time. How should James protect himself? a. Have Jim transfer the bike to a third party. b. Get a witness to witness the next payment that Jim makes. c. Enter into another agreement with Jim. d. Get Jim to ratify the agreement. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

e. Provide Jim with a statement of account. Answer: d Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Recall/Applied 14) Happy Carrier Company (HCC) is in the business of shipping goods. Yesterday HCC agreed with John Smith to ship Mr. Smith's furniture from Toronto to Ottawa. Mr. Smith's furniture is worth $100 000.00. Just before loading the furniture onto its truck, HCC's driver had Mr. Smith sign a contract that contained a term that limited HCC's liability for destruction or damage to the furniture to $50.00 if it resulted from the negligence of HCC or its employees. On the way to Ottawa, HCC's driver lost control of the truck and Mr. Smith's furniture was destroyed by fire after the truck crashed into a brick wall. In this situation, a. the limitation of liability in the contract is effective only against HCC, but not its employee, so Mr. Smith can sue the employee for the value of his furniture. b. the limitation of liability in the contract is permitted by law and Mr. Smith will receive only $50.00. c. Mr. Smith's contract with HCC is illegal by common law, so Mr. Smith will recover the full value of his furniture from HCC. d. although the contract with HCC is legal, the limitation on liability contained in it is not, so Mr. Smith will recover the full value of his furniture from HCC. e. the limitation of liability in the contract is not effective, because Mr. Smith did not see it before he signed the contract, so Mr. Smith will recover the full value of his furniture from HCC. Answer: b Diff: 2 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Recall/Applied 15) In order for a person under mental incapacity to avoid a contract made while that person was incapacitated, the incapacitated person must show a. that neither party knew what was happening. b. that there was no intention to enter into a contract. c. that the contract was unfair. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

d. that the other party should have recognized the incapacity. e. all of the above Answer: d Diff: 2 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Recall 16) Jack and Jill agree to tell Michael that they will beat him up if he does not give them his valuable coin collection. According to the common law, this agreement between Jack and Jill is a. unenforceable. b. illegal. c. voidable. d. ineffective. e. void. Answer: b Diff: 1 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Recall 17) When a minor reaches the age of majority, a contract that was entered into earlier and was unenforceable remains unenforceable unless a. the parties execute an affidavit. b. it was ratified after the person attains the age of majority. c. it is repudiated after the person attains the age of majority. d. the subject matter is a non-necessary item. e. the subject matter is stolen before the person attains the age of majority. Answer: b Diff: 2 Type: MC Topic: Minors (or Infants) Skill: Applied Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

18) Michael is an Aboriginal person living on a reserve. Which of the following is true? a. Michael can use reserve land as security for a loan. b. Michael may manufacture and sell goods to outsiders. c. If Michael moves off the reserve, his capacity to contract would not change. d. Michael has the same capacity to contract as other Canadians. e. Michael's legal position to sell produce would not vary by province. Answer: b Diff: 2 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Applied 19) Native Canadians living on reserves are considered to be ________ of the Crown. a. wards b. children c. beneficiaries d. friends e. relatives Answer: a Diff: 1 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Recall 20) Which of the following is true? a. Where a portion of a contract is void, the whole contract is affected and a court will set aside the whole contract as being void. b. A contract that contemplates the commission of a tort is not legal unless the tort is committed and someone is injured. c. Where a portion of a contract is void, the remainder of the contract is not affected provided a court can sever the void parts without doing injustice to the parties. d. The common law supersedes statute law when determining the legality of contracts. e. A statute can only make a contract illegal; it cannot make a contract void. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Answer: c Diff: 2 Type: MC Topic: The Difference Between a Void and an Illegal Contract Skill: Recall 21) Business agreements are most often challenged as contrary to public policy because a. they may be in restraint of trade. b. the agreement may be intended to defraud others. c. one party may be more powerful than the other. d. one party may have been coerced into signing the agreement. e. the agreement may be contrary to statute. Answer: a Diff: 2 Type: MC Topic: Agreements in Restraint of Trade Skill: Recall 22) When a court strikes down an unreasonable agreement between an employer and employee that restricts the future economic freedom of the employee, the court serves two public interests, namely, protecting employees and a. maintaining peaceful workplaces. b. applying the law. c. protecting businesses. d. protecting the mobility of labour. e. protecting the management of businesses. Answer: d Diff: 1 Type: MC Topic: Agreements in Restraint of Trade Skill: Recall

Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

23) At common law, a clause in an agreement between a purchaser and vendor for the sale and purchase of a business that provides that the vendor will not carry on the same business within a radius of 1500 kilometres of the business being sold a. is void for public policy. b. is not reasonable and amounts to a restraint of trade. c. is perfectly reasonable and will be enforced by the court. d. is an illegal clause and therefore void. e. none of the above Answer: b Diff: 2 Type: MC Topic: Agreements in Restraint of Trade Skill: Applied 24) Which of the following is true regarding the legal capacity of the corporation? a. Agents can negotiate but not sign contracts on behalf of the corporation. b. All contracts need to be placed under the corporate seal. c. The corporation can show it is ultra vires to have contracts enforceable. d. Authorized officers of the corporation can sign most contracts. e. Neither statute nor incorporating documents can limit the capacity. Answer: d Diff: 2 Type: MC Topic: Corporations Skill: Recall 25) John is a member of a social club that does a great deal of charity work. Harry was once a member of the social club, but after an argument at one of the club meetings, Harry had his membership taken away. This made Harry very angry, and to get back at the club, Harry began to distribute flyers that told lies about the club's charity work and which caused people not to want to make any donations to the charities that the club sponsored. The club now wants to sue Harry for defamation. In this situation, a. the club is not a legal person in law and cannot sue Harry. b. the club is just like a labour union and will be able to sue Harry. c. the club is not a legal person in law, but it will still be able to sue Harry. Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

d. the club is just like a corporation and will be able to sue Harry. e. none of the above Answer: a Diff: 3 Type: MC Topic: Other Persons of Diminished Contractual Capacity Skill: Applied 26) Harvey is a teacher. He is also a member of a labour union that represents teachers. For the past month, the union has been negotiating a new agreement with the government of Ontario. Yesterday, the union executive authorized Harvey to bring a lawsuit against the government of Ontario for failure to bargain in good faith. In this situation, a. the labour union is just like a corporation and can bring a lawsuit against the government. b. only Harvey himself can bring a lawsuit against the government, not the union. c. just like a social club, the labour union cannot bring a lawsuit against the government. d. the labour union can appoint Harvey to bring a representative action on behalf of the union against the government. e. the law is uncertain as to the status of labour unions to bring a lawsuit against the government. Answer: d Diff: 2 Type: MC Topic: Labour Unions Skill: Recall/Applied 27) Mary, a prostitute, enters into a contract with a man to provide sexual services in return for an agreed-on amount of money. In this situation, a. no remedy is available to Mary if the man does not pay her. b. no remedy is available to the man if he pays the money and Mary refuses to provide her services. c. the contract is illegal and therefore unenforceable. d. there is a contract between Mary and the man. e. all of the above Answer: e Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Diff: 3 Type: MC Topic: Contracts Illegal by the Common Law and Public Policy Skill: Applied 28) A void contract is one that is deemed in law to have never been created. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 1 Type: TF Topic: The Difference Between a Void and an Illegal Contract Skill: Recall 29) Once a contract has been made, legal capacity will be presumed unless the defendant proves otherwise. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: The Burden of Proving Essential Elements of a Contract Skill: Recall 30) Legal capacity simply refers to the ability of a party to enter into a contract. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 1 Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Type: TF Topic: The Meaning of Capacity to Contract Skill: Recall 31) A contract that is void is also unenforceable. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 3 Type: TF Topic: The Meaning of Capacity to Contract Skill: Applied 32) Like a corporation, a social club has legal standing to commence and maintain an action at law. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff: 2 Type: TF Topic: Labour Unions Skill: Recall 33) Where a contract is illegal, the contract exists, but will not be enforced by the court. a. True Correct: Correct b. False Incorrect: Incorrect Answer: a Diff: 2 Type: TF Topic: Contracts Illegal by the Common Law and Public Policy Copyright © 2016 Pearson Canada Inc.

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TIF for Smyth: The Law and Business Administrations, Fourteenth Edition Chapter 8: Formation of a Contract: Capacity to Contract and Legality of Object

Skill: Recall/Applied 34) A contract made by a minor is enforceable against him or her, and unenforceable by him or her. a. True Incorrect: Incorrect b. False Correct: Correct Answer: b Diff...