SAMPLE SECOND MIDTERM EXAM QUESTIONS – MOS 2275

1. Don is an employee of Acme Produce Inc. In the course of stocking the shelves at Acme,
Don negligently injured a customer, who was doing nothing out of the ordinary at the time. Which
of the following is true:
(a) Acme Produce Inc. will be liable for the customer’s injuries.
(b) Don will not be liable because of contributory negligence.
(c) Acme Produce Inc. will not be liable because of causation.
(d) Acme Produce Inc. will not be liable because it did not owe a duty of care.

2. Which of the following is not true:

(a) The liability of a professional to his or her client may arise through contract law.
(b) The liability of a professional to his or her client may arise through negligence.
(c) The liability of a professional to his or her client may arise through both contract
law and negligence.
(d) A professional may be liable to his or her client for a pure economic loss.
(e) A professional may be liable for negligence regardless of causation.

3. Jill, a sales clerk, believed that John was shoplifting, even though John did not actually
steal anything. Jill detained John until the police arrived. Which of the following is true:
(a) Jill has committed the tort of malicious prosecution.
(b) Jill has committed the tort of false imprisonment.
(c) Jill has committed the tort of defamation.
(d) Jill has conducted a lawful citizen’s arrest.

4. Alice drove through a stop sign without stopping and crashed into a car driven by Jill. Jill
has sued Alice for negligence, even though Jill was not wearing a seatbelt and the evidence has
shown that Jill would not have been injured had she been wearing a seatbelt. Using tort law
principles, what is Alice’s best defence to Jill’s claim:
(a) Alice did not owe a duty of care.
(b) Alice did not breach the required standard of care.
(c) Voluntary assumption of risk.
(d) Contributory negligence.
(e) Consent.

5. Alice and Sam want to be partners for the purposes of carrying on a business. Which of the
following is the least important in determining whether or not they are partners:
(a) Whether they have a written partnership agreement.
(b) Whether they share the profits and losses of the business.
(c) Whether they both participate in the management of the business.
(d) Whether they both invested in the business of the partnership.
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6. ABC Inc. is a corporation. Madge, Sally and Tim are directors of ABC Inc. Gonzo is the
President of ABC Inc. and Rubik is the Chief Financial Officer of ABC Inc. ABC Inc. is
owned equally by Dufus and Rubik. and Which of the following is not true:
(a) Madge is an agent of ABC Inc. review flow chart for agency
(b) Rubik is an agent of ABC Inc.
(c) Dufus is an agent of ABC Inc.
(d) Gonzo is an agent of ABC Inc.
(e) Sally is an agent of ABC Inc.

7. Bruce works as an investment analyst. In performing one of his analysis projects, Bruce
learned that Giant Corporation was about to merge with Small Company Limited. This
information was not generally available to the public. Bruce told his nephew Jack about
the information, and Jack told his mother, Janice. Janice bought 10,000 shares of Giant
Corporation, based on the information, and made a profit of $40,000. Bruce is guilty of:
(a) Insider trading.
(b) Tipping.
(c) Breach of fiduciary duty.
(d) Nothing.

8. Martha and Frank want to start up a business manufacturing and selling playground
equipment. They intend to finance the business with a loan from the bank and the issuance
of shares to Frank’s uncle. They are very concerned about liability because of the
possibility that they could be sued for playground injuries. Which form of business
organization is best for Martha and Frank?
(a) Corporation.
(b) Sole Proprietorship.
(c) Partnership.
(d) Limited Partnership.
(e) Limited Liability Partnership.

9. Sally and Susan are equal partners in a partnership. Their written partnership agreement
provides that each partner will only be liable for her share of the partnership debts. Sally
has entered into a contract with Smart Goods Inc. (“Smart”) which requires the partnership
to pay Smart $150,000. The partnership has not paid Smart as the contract requires. How
much can Smart collect from Susan?
(a) Nothing.
(b) $75,000.
(c) $150,000.
(d) $300,000.
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10. Bill appointed Alex as his agent and gave Alex authority to purchase a machine for up to
$100,000. Bill told Charlie that Alex was his agent for transactions up to $100,000. Alex
then entered into an agreement with Charlie to purchase a machine, on behalf of Bill, for
$200,000. Which is true:
(a) Bill may decide whether or not to buy the machine.
(b) Bill cannot buy the machine.
(c) Bill must buy the machine.
(d) Charlie can sue Alex for breach of contract.

11. Agency is an exception to which principle of contract law:

(a) Negligence.
(b) Contract.
(c) Privity.
(d) Partnership

12. Albert and Don have a partnership in which each has a 50% interest. The partnership has
been found liable for defaming Greg, and has been ordered to pay $400,000 in
compensation damages and $50,000 in punitive damages. How much can Greg try to
collect from Albert? read the question wrong, assume one partner was suing the other.
when it was third party suing the partners.
Joint and severally liable- one partner's problem is everyone's problem
so if one partner has to pay, everyone has to pay.
(a) $50,000.
(b) $200,000.
(c) $225,000.
(d) $400,000.
(e) $450,000.

13. Mia has acted as Tom's agent three times in negotiations with Marvin, each time reaching
a successful agreement with Marvin on behalf of Tom. After the three deals, Tom fired
Mia as his agent, but did not tell anyone. Mia has now negotiated another deal with Marvin,
on Tom's behalf, without any actual authority to do so from Tom. Which is true:
(a) Tom can sue Marvin for damages.
(b) Tom can sue Mia for damages.
(c) Marvin can sue Mia for damages.
(d) Mia can sue Tom for damages.
(e) Mia can sue Marvin for damages.

14. Bob was lost in the woods and ended up on Doug's property without knowing he was on
Doug's property. While he was standing on Doug's property, Bob stepped on, and crushed,
a valuable artifact. Which is true:
(a) Doug can successfully sue Bob for nuisance.
(b) Doug can successfully sue Bob for conversion.
(c) Doug can successfully sue Bob for trespass to property.
(d) Doug cannot successfully sue Bob for an intentional tort.
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15. Ethel was cycling with her friend Rick. Ethel stopped suddenly and, when she stopped, her
bike collided with Rick's bike, and Rick fell over and suffered serious injuries. Assume
that Ethel's s behaviour was not unreasonable in the circumstances. Which is true:
(a) Ethel will be liable to Rick in negligence if a reasonable person would have
foreseen the risk of harm to Rick.
(b) Ethel will be liable to Rick in negligence if Rick's damages are not too remote.
(c) Ethel will be liable to Rick in negligence if the type of injuries sustained by Rick
were reasonably foreseeable.
(d) Ethel will not be liable to Rick in negligence.\

16. Janice borrowed her employer's pump for the weekend to pump out her flooded basement
at home. While using the pump, Janice carelessly let the pump run dry, and as a result it
started a fire that caused $10,000 damage to her neighbour's house. Which is true:
(a) Janice's employer is liable to the neighbour, but Janice is not.
(b) Janice is liable to the neighbour, but Janice's employer is not.
(c) Both Janice and her employer are liable to the neighbour.
(d) There is no liability disclosed by these facts.

17. Joaquin started a fire to burn some leaves in his backyard, and carelessly allowed the fire
to spread. The resulting fire destroyed his neighbour's garage, his neighbour's barn, the
house next to the barn, and three other nearby houses. It was reasonably foreseeable that
the garage would catch fire, but the extent of the damage that actually resulted was not
reasonably foreseeable. What is Joaquin responsible for:
(a) Nothing.
(b) The garage only.
(c) The garage and the barn only.
(d) All of the damage that resulted.

18. Andre agreed to buy a vintage car on behalf of Bella, even though Andre had no actual or
apparent authority to do so. Bella knew that Andre had agreed to buy the car on her behalf,
without her authority, and so she intended to return the car to the seller. Prior to returning
it, however, Bella took the car for a drive, because Bella loves vintage cars. Which is true:
(a) Bella may decide whether or not she wishes to buy the car.
(b) Bella cannot buy the car. accepting
driving the car means accepting the benefit of the deal despite there being no authority
benefit means deal is adopted = ratified, so she must buy the car.
(c) Bella must buy the car.
(d) The seller of the car may sue Bella for negligence if Bella does not buy the car.

19. Doug and Susan are lawyers and they want to start a law practice together. They are
concerned about potential liability. The best form of business organization for Doug and
Susan would be:
(a) Sole proprietorship.
(b) Partnership.
(c) Limited partnership.
(d) Limited liability partnership.
(e) Corporation.
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20. Partnership is a form of business organization based on a foundation of:

(a) Contract.
(b) Agency.
(c) Limited liability.
(d) Separate legal existence.

21. The board of directors of XYZ Oil Inc. (XYZ) are considering a $5 million expenditure for
the company to sponsor a TV program on “The New Oil Economy”. Sam is the show’s
producer, and he is also married to Bernice, who is a director of XYZ. Which is true:
(a) Sam has breached his fiduciary duty to XYZ.
(b) Bernice has breached her duty of care to XYZ.
(c) Bernice cannot vote on the proposed expenditure by XYZ.
(d) Sam must disclose the existence of a conflict of interest to XZY.

22. Shareholder agreements are common in which type of corporation:

(a) Closely held corporations.
(b) Public corporations.
(c) Offering corporations.
(d) Not-for-profit corporations.

23. Which of the following is not true:

(a) Shareholders can insist on receiving dividends.
(b) Creditors are entitled to be repaid their investment.
(c) Holding debt is less risky for an investor than holding equity.
(d) Shareholders are entitled to receive financial statements.
(e) Debt may be secured by the assets of the borrower.

24. A, B, and C are equal shareholders, directors and officers of ABC Inc. (ABC). A and B
are concerned that C is breaching his fiduciary duties to ABC by running a side business
that competes with ABC. ABC is a viable company and A and B do not want to shut it
down. A and B are also not concerned at this point about the damages that have been caused
to ABC by C’s competitive behaviour. However, A and B would like to put a stop to what
C is doing. What is the best strategy for A and B:
(a) Apply to the court for an order winding up ABC.
(b) Apply to the court for permission to launch a derivative action on behalf of ABC.
(c) Apply to the court for an oppression remedy.
(d) Exercise their dissent and appraisal rights.
(e) Sue C under tort law.

25. In Ontario, which form of business organization is available for people who which to carry
on business with a view to maximizing benefits other than profits:
(a) Social benefit corporation.
(b) Flexible purpose corporation.
(c) Low profit limited liability corporation.
(d) Co-operative.
(e) Limited partnership.
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ANSWERS

1. A [The employer is vicariously liable for the actions of its employee.]

2. E [Causation is a necessary element in every negligence claim.]
3. B [No lawful arrest was made because no crime was committed.]
4. D [Jill was negligent in not wearing her seatbelt, contributing to her injuries.]
5. A [The other three are very important.]
6. C [Dufus is not an officer or director of ABC Inc.]
7. B [Bruce did not trade shares, so he is not liable for insider trading.]
8. A [The issuance of shares is only available to a corporation. Limited liability is desired.]
9. C [The contract between the partners does not bind an outside third party.]
10. A [The contract exceeds actual and apparent authority, so the principal may ratify.]
11. C [Agency results in a contract binding on one who was not involved in negotiations.]
12. E [Partners are jointly and severally liable for all debts of the partnership business.]
13. B [Mia has breached the agency contract by exceeding her actual authority.]
14. C [Bob’s actions were intentional even though he did not intend to trespass.]
15. D [Ethel did not breach the required standard of care; her behaviour was not unreasonable.]
16. B [Janice was not acting in the scope of her employment; no vicarious liability.]
17. D [The type of injury was reasonably foreseeable, so Joaquin is responsible for the extent.]
18. C [Bella ratified the contract by her conduct; she accepted a benefit under the contract.]
19. D [LLP is the best choice available.]
20. B [If you got this wrong, you need to come to class more often.]
21. C [There is no apparent breach of duty, but Bernice cannot vote because she has a conflict.]
22. A [Shareholder agreements are not used in public companies or not-for-profit companies.]
23. A [Shareholders do not have a right to receive dividends.]
24. C [The oppression remedy is the only remedy which will give A and B what they want.]
25. D [None of the first three are available in Ontario. LP is a profit maximizing form.]