NCA Contract Law 2

Question 1

What is the difference between a 'condition' and a 'warranty' in Canadian contract law?

Accepted Answer

A condition is a fundamental term whose breach entitles the innocent party to terminate the contract and claim damages, while a warranty is a less important term whose breach gives rise to damages only, not termination

Answer

They are the same thing

Answer

A warranty is more important than a condition

Answer

Conditions apply to goods and warranties apply to services

Question 2

What is the duty to 'mitigate damages' in Canadian contract law?

Accepted Answer

The innocent party has a duty to take reasonable steps to minimize their losses following a breach — damages will not be awarded for losses that could have been reasonably avoided

Answer

A duty to prevent the contract from being breached

Answer

A duty to accept the breaching party's apology

Answer

There is no duty to mitigate in Canadian law

Question 3

What is the test for remoteness of damages in contract law as established in Hadley v Baxendale?

Accepted Answer

Damages are recoverable only if they arise naturally from the breach (first limb) or were reasonably within the contemplation of both parties at the time of contracting as a probable result of the breach (second limb)

Answer

All losses caused by the breach are recoverable

Answer

Only direct damages are ever recoverable

Answer

There is no limit on recoverable damages in Canada

Question 4

What are 'implied terms' in a Canadian contract and how do they arise?

Accepted Answer

Terms not expressly stated but implied by statute (e.g., Sale of Goods Acts), by custom or trade usage, by the courts to give business efficacy to the contract, or on the basis of the 'officious bystander' test

Answer

Terms that are always implied into every contract regardless of context

Answer

Terms that are written in invisible ink

Answer

Terms that only apply after the contract is terminated

Question 5

What is the legal effect of an 'exclusion clause' or 'limitation of liability clause' in Canadian contract law?

Accepted Answer

They are enforceable if properly incorporated into the contract, brought to the other party's reasonable attention, and construed strictly against the party relying on them (contra proferentem), subject to unconscionability and statutory limitations

Answer

Such clauses are always void and unenforceable

Answer

They can limit liability for any type of harm without restriction

Answer

They only apply to commercial contracts between businesses

Question 6

How does the doctrine of 'privity of contract' apply in Canada, and what are the main exceptions?

Accepted Answer

Only parties to the contract can sue on it or be bound by it, but exceptions include agency, trust, assignment, statutory third-party beneficiary rights, and the principled exception from London Drugs

Answer

Anyone affected by a contract can enforce it

Answer

Privity has been abolished in Canada

Answer

Privity only applies to real estate contracts