Question 1

The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. Terry may only sue Rod, the mechanic that negligently performed the service.

Accepted Answer

Terry can sue both the garage (Four Guys Garage) and Rod, the mechanic, because the garage is responsible for the actions of its employees under the principle of vicarious liability.

Question 2

Kathy sells her business to Lucy for $40,000 including the stock, the goodwill, and the remainder of the lease. The landlord agrees that Kathy may end her involvement with the leased premises and that Lucy may take over the remainder of the lease on the same terms, and a new lease reflecting this is drawn up and signed by the landlord and Lucy. This new lease is an example of

Accepted Answer

This is an example of a novation, where a new contractual agreement is created, replacing an old one, with the consent of all parties involved. In this case, the original lease agreement between Kathy and the landlord is replaced by a new agreement between Lucy and the landlord.

Question 3

Sylvia obtained a full release from the payment of her car loan when she gave the car to her friend, Victoria, who agreed to make all the remaining payments. The arrangement was acceptable to the bank that had made the loan. The bank cancelled the loan and replaced it with one in Victoria's name. This is

Accepted Answer

This is a novation, where the original contract (Sylvia's obligation to the bank) is replaced with a new contract (Victoria's obligation to the bank), with the consent of all parties involved.

Question 4

Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. The assignment must be of the entire agreement between Chris and Kirk.

Accepted Answer

An assignment of a contract must involve the transfer of the entire interest in the agreement from the assignor to the assignee, ensuring that the assignee steps into the shoes of the assignor with respect to the obligations and rights under the contract.

Question 5

Mr. Black enters into a contract with Build-It Construction Ltd. for the construction of a house. The house is not built in accordance with the contract. Mr. Black sues Build-It Construction Ltd. seeking $200,000 in damages. He is successful, but discovers that Build-It Construction Ltd. has insufficient assets to satisfy the judgment as it regularly transfers its assets to its parent company Build-It Holding Company Inc. Can Mr. Black collect the $200,000 from Build-It Holding Company Inc.

Accepted Answer

The doctrine of privity of contract states that a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. Therefore, Mr. Black cannot collect the $200,000 from Build-It Holding Company Inc. because they were not a party to the original contract between Mr. Black and Build-It Construction Ltd.

Question 6

Chris was indebted to Kirk for a loan of $1,000. Kirk assigned Chris' promise to pay to Bryce. The assignment by Kirk to Bryce must be in writing to be an effective assignment.

Accepted Answer

An assignment of a debt must be in writing to be effective.

Question 7

The Block furniture store granted credit to many customers for the purchase of furniture and appliances. It had separate categories for furniture credit and appliance credit. It statutorily assigned its furniture credit to Prestige Financing Inc. and its appliance credit to Gold Stream Financing Ltd. Karim purchased a bed for $700 and a stove for $700 from The Block and received financing for both purchases on the same contract. When The Block's contracts were assigned, Karim's was assigned to both assignees. On Monday he received a notice of assignment from Prestige Financing Inc. and on Tuesday from Gold Stream Financing Ltd. To whom should Karim make his next payment?

Accepted Answer

Karim's furniture credit was assigned to Prestige Financing Inc., and his appliance credit was assigned to Gold Stream Financing Ltd. Since he purchased both a bed and a stove, his contract was assigned to both assignees. Therefore, he should make his next payment to Prestige Financing Inc.

Question 8

The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. The Four Guys Garage is liable to Terry under the vicarious performance rule for Rod's negligence.

Accepted Answer

The Four Guys Garage is liable for the actions of their employee, Rod, under the principle of vicarious liability, where an employer is held responsible for the negligent actions of its employees performed within the scope of their employment.

Question 9

On March 6^th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31^st. On March 29^th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The contract, by its nature, is not subject to vicarious performance.

Accepted Answer

The contract was specifically for the "Stumbling Stones" to perform, and such contracts are typically considered personal service contracts, which are not subject to vicarious performance by another party.

Question 10

Carten Printing receives an unexpectedly large order for shipping envelopes from one of its regular clients, a major Canadian CD-ROM retailer. In order to meet the order delivery date, Carten farms out part of the printing to another firm, Serger Printing. Serger, in an attempt to raise its own profit margin on the deal, uses lower grade adhesive and cuts corners on printing quality. The faulty shipping envelopes show up as returns made to the retailer from dissatisfied customers. The retailer takes action against Carten for damages. What is the most likely outcome?

Accepted Answer

The retailer's contract is with Carten, making Carten responsible for the quality of the product delivered, regardless of whether Carten subcontracted part of the work. Carten, in turn, can seek recovery from Serger for not meeting the agreed-upon standards, assuming there was an agreement on the quality of work between Carten and Serger.

Question 11

The party who holds property for the benefit of another under a trust agreement or arrangement is known as the

Accepted Answer

The trustee is the party in a trust agreement who holds property or assets for the benefit of another, known as the beneficiary.

Question 12

Transfer of rights can be accomplished through which of the following:

Accepted Answer

The answer of Transfer of rights can be accomplished through...

Question 13

On March 6^th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31^st. On March 29^th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The contract, by its nature, is not subject to assignment.

Accepted Answer

Contracts for personal services, such as a performance by a specific band, are typically not assignable because they rely on the unique skills and characteristics of the contracted party.

Question 14

The Four Guys Garage advertised automobile repairs by "Licensed Mechanics." Terry, a car owner, took his automobile to the Four Guys Garage for repairs. The garage owner, Todd, examined the car, and indicated that extensive repairs were required. Terry left his car with Todd, and the repairs were carried out by another licensed mechanic, Rod, an employee. Terry paid $150 for the repairs, but on his way home discovered that the repairs had been done negligently, and had ruined the engine. Money damages awarded by the court for the negligence would be approximately equal to Terry's loss.

Accepted Answer

In cases of negligence, courts typically award damages that are meant to compensate the plaintiff for their actual losses, which in this scenario would be the cost to repair or replace the engine damaged due to the negligent repairs.

Question 15

Luxury Homes Ltd. contracts with Eliza to build her house. The electrical work is completed by Firefly Electric Ltd. under a contract it entered into with Luxury Homes Ltd. The electrician was Wilbur, an employee of Firefly. Eliza moves into the house and three months later it burns to the ground as a result of faulty wiring. Who can Eliza sue for breach of contract?

Accepted Answer

Eliza can sue Luxury Homes Ltd. for breach of contract because her contract was directly with Luxury Homes Ltd., not with the subcontractor (Firefly Electric Ltd.) or the employee (Wilbur).

Question 16

On March 6^th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31^st. On March 29^th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The privity of contract rule would entitle the Limestone Students' Society to reject the substitute rock group and prevent them from performing.

Accepted Answer

The privity of contract rule states that only parties involved in the contract agreement have the rights or obligations under that contract. Since the Limestone Students' Society entered into a contract with the "Stumbling Stones" and not the substitute group, they are entitled to reject the substitute performance.

Question 17

Precision Engineering receives a contract to design and build a sewage treatment plant from the town of WaWa. It designs the project and assigns the construction to Dynamic Construction Ltd. The contract has no provisions regarding assignment. Can Precision make the assignment to Dynamic?

Accepted Answer

Precision can make the assignment to Dynamic because the contract has no provisions regarding assignment.

Question 18

A business may raise capital by assigning its existing accounts receivable to a collections company or bank in return for an immediate lump-sum percentage payment. What is this method of raising capital called?

Accepted Answer

Factoring involves a business selling its accounts receivable to a third party (the factor) at a discount, in exchange for immediate cash. This allows the business to raise capital quickly without waiting for the receivables to be paid.

Question 19

Hammond sells her house to Mendoza for $165,000 subject to a mortgage from Imperial Bank for $90,000. Hammond's mortgage had been arranged at a time when interest rates were low, and prevailing interest rates are now much higher. Mendoza would very much like to assume Hammond's obligation to pay under the existing mortgage, rather than arrange a more costly replacement from his own banker. Imperial Bank is indifferent as to who is repaying the debt as Mendoza is just as acceptable a credit risk as was Hammond. Mendoza pays Hammond the $75,000 difference and takes over both the house and her mortgage. This arrangement is an example of

Accepted Answer

This arrangement is an example of a novation, where a new contract replaces an old one, with the consent of all parties involved, including the bank. In this case, Mendoza assumes Hammond's mortgage obligations under a new agreement, with the bank's consent.

Question 20

On March 6^th, the Limestone Student Society entered into a contract with the "Stumbling Stones", a rock group, to give a performance at the Limestone University Students' Union on March 31^st. On March 29^th, the "Stumbling Stones" fell ill with the flu and were unable to travel to Limestone City. Another rock group was contacted by the Stumbling Stones to appear in their place and arrived at the Students' Union in time to perform. The Limestone Student Society must allow the substitute rock group to perform by virtue of the legal doctrine of vicarious performance.

Accepted Answer

The doctrine of vicarious performance typically applies when a party to a contract authorizes a third party to perform contractual duties on its behalf. However, unless the contract specifically allows for substitution or the parties agree to the substitution after the fact, the Limestone Student Society is not legally obligated to accept the substitute performance.

Quiz 12: The Extent of Contractual Rights