Solicitor Mini-Exam B - Questions and Answers
Business Law
1. Owen is considering redeeming a preferred share for $100. The PUC of the share is $30, and his ACB is $20. He is concerned about the tax implications of this redemption. His accountant explains that he may be taxed on both a dividend and a capital gain. Owen wants to know how much of the redemption price will be treated as a dividend.
What portion of the $100 redemption price will be treated as a deemed dividend under the Income Tax Act?
A) The entire $100 redemption price will be included in dividend income.
B) Only the excess of the PUC over the ACB is treated as a deemed dividend.
C) The amount of the redemption price exceeding the PUC is treated as a deemed dividend.
D) A dividend arises only if the share includes a contractual liquidation preference.
Correct Answer: C
Explanation: Under s. 84(3) of the ITA, when a corporation redeems a share, the portion of the redemption price that exceeds the PUC is treated as a deemed dividend. In this case, $70 of the $100 is deemed a dividend. The remaining $10, representing the excess over the shareholder’s ACB, is a capital gain.
2. Sara is a landlord who receives a notice from a trustee disclaiming a commercial lease as part of a bankruptcy proceeding. She had previously been owed six months of rent, including some post-bankruptcy amounts. Sara wishes to file a proof of claim in the bankruptcy and is unsure what portion of the unpaid rent will qualify as a preferred claim.
What portion of Sara’s unpaid rent qualifies for preferred status under the Bankruptcy and Insolvency Act?
A) She may assert a preferred claim for all unpaid rent accrued before and after the bankruptcy as long as the lease was properly disclaimed.
B) She may claim for up to three months of arrears and up to three months of accelerated rent, subject to the asset value on the premises.
C) She is entitled to post-bankruptcy rent only, as pre-bankruptcy arrears rank as general unsecured claims.
D) She cannot claim any rent once the lease is disclaimed, even if arrears existed before the bankruptcy filing.
Correct Answer: B
Explanation: Under section 136(1)(f) of the BIA, landlords may claim a preferred unsecured claim for up to three months’ arrears and up to three months of accelerated rent following bankruptcy, subject to the terms of the lease and the value of assets on the premises. Once the lease is disclaimed, the landlord cannot claim for the full remaining lease term.
3. Martin receives a capital dividend from his CCPC in 2023. The dividend was based on the company’s capital dividend account (CDA), which reflected 50% of prior capital gains. However, the dividend paid slightly exceeded the CDA balance due to a miscalculation. CRA reassessed the corporation and imposed a penalty. Martin is told that although the CDA election was filed, the excess portion triggered tax consequences. He is unsure what penalty applies when a capital dividend exceeds the available CDA.
What is the tax consequence of overpaying a capital dividend?
A) The entire dividend becomes taxable to the shareholder.
B) A 60% penalty tax applies to the excess portion.
C) The excess is reclassified as an eligible dividend.
D) There is no penalty if the CDA election was filed on time.
Correct Answer: B
Explanation: If a capital dividend exceeds the balance in the CDA, the excess is subject to a penalty tax under s. 184(2) of the ITA at a rate of 60%. This rule ensures that corporations do not over-distribute tax-free capital dividends. The corporation may mitigate the penalty by electing to treat the excess as a taxable dividend within the prescribed time.
4. Lucia is appointed president of a CBCA corporation and is given broad authority in the by-laws to manage day-to-day operations. She negotiates and signs a major supply contract without explicit board approval. After a dispute arises, the supplier questions whether Lucia had actual authority. The supplier had no knowledge of the internal by-laws or resolutions limiting her role. Lucia argues she was acting within her usual business scope.
How should the enforceability of the supply contract be assessed in light of Lucia’s authority?
A) The indoor management rule protects third parties relying on apparent authority of officers acting within ordinary business scope.
B) Contracts signed by corporate officers must receive prior shareholder approval to be enforceable against the corporation.
C) A by-law restricting officer authority automatically binds all counterparties, even if they have no notice.
D) Corporate officers may sign contracts only if their names appear in the articles of incorporation.
Correct Answer: A
Explanation: The indoor management rule, codified in s. 128 of the OBCA and s. 116 of the CBCA, protects third parties dealing with officers who appear to act within their usual authority. External parties are not expected to investigate internal governance documents. As long as the transaction is within the ordinary course of business, the contract is likely enforceable.
5. Caroline takes possession of collateral that secures her loan after the debtor defaults. She hires a bailiff and sells the collateral privately. A dispute arises when the debtor claims the sale price was far below market value. Caroline argues she acted reasonably and in good faith. The debtor challenges the process under the PPSA.
What obligations does Caroline have when disposing of the collateral under the PPSA?
A) Caroline must sell the collateral in a commercially reasonable manner and may be liable if she fails to meet that standard.
B) A private sale of collateral is exempt from statutory duties if conducted by a licensed bailiff.
C) If the security agreement authorizes private sale, Caroline is not subject to PPSA sale requirements.
D) Caroline’s belief that the price was fair is enough to satisfy her legal obligations.
Correct Answer: A
Explanation: PPSA s. 63 requires that every aspect of the sale, including method, marketing, and price, be commercially reasonable. Courts assess whether a fair price was obtained and whether the sale was properly advertised or appraised. Good faith alone does not exempt the secured party from these obligations.
6. Emily is preparing an enforceability opinion for a secured loan agreement governed by Ontario law. Her client also has a promissory note governed by Quebec law related to the same transaction. Emily is called to the bar in Ontario but not Quebec. The lender insists on receiving a single enforceability opinion covering all documents. Emily raises concerns about the scope of her legal qualifications.
How should Emily respond to the lender’s request for a unified legal opinion?
A) She may give an opinion on both documents as long as she includes a disclaimer about her lack of Quebec bar status.
B) She may review the Quebec Civil Code and provide an opinion if she discloses the limits of her training.
C) She should limit her opinion to Ontario law and advise the lender to obtain Quebec counsel for the other document.
D) She may rely on the client’s internal lawyers to confirm enforceability of the Quebec document on her behalf.
Correct Answer: C
Explanation: A lawyer may only provide legal opinions on jurisdictions in which they are qualified to practise. For agreements governed by laws of another province, counsel must either exclude those agreements from the opinion or recommend that local counsel provide an opinion. This maintains professional competence and mitigates liability.
7. Omar is a tax lawyer representing a client whose office was recently searched by CRA officials under a warrant. Several boxes of documents were seized, including materials marked as subject to solicitor–client privilege. Omar is concerned that privileged communications have been improperly accessed. He demands that CRA return the documents and challenges the validity of the seizure under the ITA and the Charter.
How should solicitor–client privilege be protected when CRA seizes materials under a warrant?
A) Solicitor–client privilege is lost once the documents are stored at the client’s premises rather than the lawyer’s office.
CRA must follow special procedures under s. 232 to handle documents claimed to be privileged.
B) CRA is entitled to retain and review all seized materials once a valid search warrant has been executed.
C) CRA may disregard privilege claims if doing so is necessary to enforce the Income Tax Act.
D) CRA must follow special procedures under s. 232 to handle documents claimed to be privileged.
Correct Answer: D
Explanation: Under s. 232 of the ITA, special procedures apply when documents are claimed to be subject to solicitor–client privilege. CRA must seal the documents and bring them before a judge for determination. The privilege belongs to the client and cannot be unilaterally waived or disregarded by CRA.
8. Farah, a Canadian buyer, refuses to accept delivery of goods she ordered from a U.S. supplier. The goods matched the contract description but arrived three days late. The contract did not specify whether time was of the essence. Farah insists the delay entitles her to repudiate the contract under the perfect tender rule. The seller demands payment and points to the CISG as governing the contract.
How should the buyer’s right to reject delivery be assessed under the CISG?
A) The Ontario Sale of Goods Act applies automatically to contracts involving Canadian purchasers unless expressly excluded.
B) The CISG permits termination only for fundamental breaches, and a brief delay is unlikely to meet that standard.
C) Any deviation from the contract terms, including a short delay, entitles the buyer to reject the goods under international sales law.
D) A buyer may repudiate the contract for late delivery, regardless of the governing law, unless the seller proves there was no harm caused.
Correct Answer: B
Explanation: The CISG softens the perfect tender rule and permits contract avoidance only for fundamental breaches. A short delay without contractual stipulation that time is of the essence is unlikely to be a fundamental breach. The buyer’s remedy may be price reduction or damages, not termination.
9. Olivia holds 25% of a corporation’s shares and learns that the majority shareholder has received an offer to purchase the company. A drag-along clause in the shareholder agreement requires all shareholders to vote in favour and sell their shares if a majority agree to the transaction. Olivia is reluctant but is told that she has no choice under the agreement. She questions whether such a clause is enforceable against minority shareholders.
How should the enforceability of the drag-along clause be assessed in this context?
A) Drag-along rights are enforceable only in public companies that have securities listed on a stock exchange.
B) A drag-along clause has no legal effect unless the transaction is approved by a special resolution under the corporate statute.
C) A drag-along clause can compel minority shareholders to vote for and sell their shares if the specified threshold is met.
D) Minority shareholders may avoid compliance with the clause by offering to buy out the majority’s interest on equivalent terms.
Correct Answer: C
Explanation: A properly drafted drag-along clause allows majority shareholders to force minority shareholders to sell their shares or vote in favour of a transaction if a certain threshold of support is met. This facilitates liquidity events and ensures that minority shareholders cannot block a sale approved by the majority.
10. Yara, a secured lender, takes a general security agreement (GSA) over all present and after-acquired personal property of a borrower. She registers a financing statement under the Ontario PPSA using the debtor’s legal corporate name but fails to include a specific description of the collateral. The borrower later grants a second GSA to another creditor who includes a detailed collateral description and registers properly. When the borrower defaults, a dispute arises over priority.
How should priority between the two secured creditors be resolved under the PPSA?
A) The first registrant takes priority regardless of whether the collateral was described or not.
B) The second registrant has priority because the description of the collateral was more specific and detailed.
C) The first registrant takes priority as long as the registration is valid and searchable under the correct debtor name.
D) Both registrations are ineffective since neither includes a full and detailed list of the collateral.
Correct Answer: C
Explanation: Under the PPSA, priority is generally determined by the order of registration, provided the financing statement is valid and searchable. A general collateral description is permitted and need not be exhaustive. As long as the first registration was properly indexed by debtor name, it maintains priority over subsequent registrations.
11. Marsha was dismissed from her job and given four weeks’ working notice. During the notice period, she began actively soliciting her employer’s clients in preparation for launching a competing business. Her employer learned of this and terminated her immediately, without further compensation. Marsha sued for the balance of her working notice.
How should the employer’s decision to terminate Marsha before the end of the notice period be assessed at law?
A) Marsha is entitled to the full notice period unless a written non-solicitation clause prohibits competition.
B) Employees are permitted to plan for post-employment competition during working notice if done discreetly.
C) The employer may only cut short the notice period if it suffered actual financial harm from Marsha’s conduct.
D) Marsha breached her ongoing duty of loyalty during the notice period and lost entitlement to further notice.
Correct Answer: D
Explanation: An employee’s duty of loyalty and fidelity remains in effect during working notice. Actively soliciting clients or competing during this period constitutes a breach of that duty and justifies immediate termination without further compensation.
12. Carla is asked to provide an opinion letter in connection with her client’s secured lending transaction. The lender is a Schedule I bank and requires confirmation that the security interest has been validly created and perfected. Carla confirms that the general security agreement is properly executed and that registration under the PPSA has been completed. However, she also notes that the collateral includes deposit accounts. The lender requests confirmation that its interest in those accounts is perfected by control, not just registration.
What method of perfection ensures priority over deposit accounts under the PPSA?
A) Perfection by control is necessary to obtain priority in deposit accounts; registration alone is not sufficient.
B) Registration is always sufficient to perfect and maintain priority over deposit accounts.
C) Control is an option only when the deposit account is maintained with the borrower’s main operating bank.
D) Control applies exclusively to investment securities and not to standard deposit accounts.
Correct Answer: A
Explanation: Under the PPSA and relevant jurisprudence, control provides superior perfection for certain forms of collateral, including deposit accounts and investment property. While registration is still valid, a party with control will take priority over a secured party with only a registered interest. Control typically involves having the account at the lender bank or a control agreement.
13. A Toronto accounting firm decides to restructure from a general partnership to a limited liability partnership (LLP). They file the appropriate paperwork and begin operating as “TaxBright LLP.” Six months later, a partner is sued for negligent advice given during a client audit. The client attempts to name the other partners personally in the lawsuit. The firm asserts that the non-negligent partners should not be personally liable.
How should the liability of the non-negligent partners be assessed under Ontario’s LLP rules?
A) Partners in an LLP are not personally liable for negligence committed by another partner acting in the firm’s business.
B) Partners remain jointly and severally liable unless they are explicitly indemnified in the LLP agreement.
C) The negligent partner is protected from personal liability, but the other partners may be named due to shared professional responsibility.
D) The LLP structure limits liability for business debts but does not affect exposure to claims arising from professional negligence.
Correct Answer: A
Explanation: Under s. 10(4) of the Partnerships Act, a partner in an LLP is not personally liable for the negligent acts of another partner or an employee, provided the LLP is properly registered and operated in accordance with legal requirements. The LLP structure protects non-negligent partners from personal exposure arising from others' professional errors.
14. Noah is preparing a horizontal short-form amalgamation between two wholly owned subsidiaries of the same parent corporation. He wants to proceed without obtaining shareholder approval to speed up the process. His accountant reminds him that while this is possible under the OBCA, certain formalities must still be observed. Noah seeks clarity on what documentation is required.
What documentation must be filed to properly complete the short-form amalgamation under the OBCA?
A) A shareholder meeting must be held and an amalgamation agreement approved by each corporation.
B) A court order approving the amalgamation is required before filing the articles.
C) A certificate of continuance must be issued before the amalgamation can take effect.
D) Directors’ resolutions from each subsidiary must authorize the amalgamation and accompany the articles.
Correct Answer: D
Explanation: OBCA s. 177 permits a horizontal short-form amalgamation without shareholder approval. Instead, the directors of each amalgamating subsidiary must pass resolutions authorizing the amalgamation. These resolutions must accompany the articles of amalgamation filed with the Director.
15. Caleb makes an access request to an e-commerce company, asking to review and correct all personal information the company holds about him. The company refuses, stating that some of the information is proprietary and cannot be shared. Caleb files a complaint with the Privacy Commissioner. The company argues that it is entitled to refuse disclosure without explanation. The Commissioner examines whether the denial fits one of the specific exceptions under PIPEDA.
How should the company’s refusal to disclose personal information be assessed under PIPEDA?
A) A company may refuse access if the data is held on servers located outside Canada.
B) Access may be denied only in narrowly defined cases, and the company must give reasons for refusal.
C) An individual must pay an administrative fee to access or amend their personal data.
D) Organizations are not required to disclose personal data unless they voluntarily agree to do so.
Correct Answer: B
Explanation: PIPEDA grants individuals the right to access personal information held by organizations and to request corrections. Refusal is permitted only in limited situations, such as solicitor–client privilege, security concerns, or information involving third parties. The organization must explain why access is denied.
16. Jared is retained to advise a debtor company that is a respondent in both a U.S. Chapter 11 proceeding and a Canadian CCAA recognition proceeding. The Canadian operations represent a significant portion of the business, but the company is seeking to have the U.S. proceeding recognized as the “foreign main proceeding” under Part IV of the CCAA. The recognition would provide a stay of proceedings in Canada and facilitate cross-border coordination. Some Canadian creditors oppose the application, arguing that the Canadian operations represent the debtor’s most significant assets.
What must the court determine in deciding whether to grant foreign main proceeding recognition under the CCAA?
A) The court must identify the debtor’s centre of main interests, typically based on the location of head office and key management functions.
B) The court must grant recognition if the debtor’s incorporation documents list the foreign jurisdiction as its registered office.
C) The court must find that a majority of the debtor’s business value or revenue is derived from the foreign jurisdiction before granting recognition.
D) The court may only recognize a foreign proceeding as “main” if the creditors in Canada unanimously support coordination and enforcement.
Correct Answer: A
Explanation: The CCAA adopts the UNCITRAL Model Law on Cross-Border Insolvency, under which recognition of a foreign main proceeding depends on whether the foreign jurisdiction is the debtor’s COMI. Factors include the location of the head office, main operations, and senior management functions.
Case 1
MosaicTech Inc. is a privately held Ontario corporation that designs specialized drone equipment for forestry. Its founders, Amir and Natalie, each hold common shares, while a third investor, Lin, holds redeemable preferred shares with cumulative dividends. The company recently entered into a secured loan agreement with Birch Capital, a private lender, granting a general security agreement (GSA) over all personal property. Birch Capital registered its interest under the PPSA. MosaicTech is now preparing to sell a batch of drones to a Chilean buyer under CIF Incoterms. The purchaser has not yet paid and now claims the shipment is delayed at the port of Valparaíso due to customs clearance issues. Meanwhile, a different creditor of MosaicTech has filed a repair lien under the RSLA against certain unsold drones that were serviced at a third-party facility. MosaicTech’s lawyer conducts corporate and PPSA searches, and prepares a legal opinion for a prospective investor who is considering buying newly created Class B non-voting shares with conversion rights.
Questions 17 to 20 refer to Case 1
17. How should MosaicTech’s legal counsel properly structure the legal opinion regarding the new Class B share issuance?
A) The opinion must confirm enforceability of the subscription agreement and corporate authority for the issuance.
B) The opinion may be limited to confirming title to the Class B shares.
C) The opinion must state that the shares are exempt from securities law.
D) The opinion must verify the adequacy of consideration under corporate law.
Correct Answer: A
Explanation: In Ontario, legal opinions concerning share issuance generally confirm the corporation’s power and capacity to issue the shares, the authorization of the issuance, and the enforceability of the related agreement. Counsel will review the corporation’s articles to ensure the share terms comply and verify that proper corporate approvals have been passed. The opinion does not verify title to personal property or adequacy of consideration, and securities law compliance typically falls outside a corporate opinion unless explicitly requested.
18. What is the proper legal analysis of the secured interest granted to Birch Capital under the general security agreement?
A) The GSA is enforceable without registration as long as the lender has possession of the drones.
B) The GSA must be registered under the PPSA to perfect the lender’s interest in personal property.
C) The GSA only covers accounts receivable, not inventory, unless separately listed.
D) The GSA is invalid unless MosaicTech granted it by unanimous shareholder resolution.
Correct Answer: B
Explanation: A general security agreement must be registered under the Personal Property Security Act (PPSA) to be perfected against third parties and competing interests. Possession is an alternative method of perfection only for certain types of collateral, and MosaicTech’s drones and receivables are not typically perfected by possession. The GSA can cover multiple classes of collateral, including inventory and accounts, as long as properly described in the registration.
19. What is the legal status of the Chilean purchaser’s delay under CIF terms?
A) MosaicTech retains title and risk of loss until the drones clear Chilean customs.
B) Risk of loss passed to the buyer upon shipment at the Canadian port.
C) Risk remains with MosaicTech until full payment is received.
D) MosaicTech may cancel the contract due to delay without liability.
Correct Answer: B
Explanation: Under CIF (Cost, Insurance, and Freight) Incoterms, the seller’s delivery obligation is fulfilled when goods pass the ship’s rail at the port of shipment. Risk of loss transfers to the buyer at that point, even if the seller arranges freight and insurance. Customs delays at the destination port are the buyer’s responsibility unless contractually shifted. Title may pass separately depending on the agreement, but risk allocation under CIF is clear.
20. How should the repair lien under the RSLA be treated during the secured lending analysis?
A) It is unenforceable without prior PPSA registration by the repair facility.
B) It has priority over Birch Capital’s GSA if perfected by possession or registration.
C) It is subordinate to all registered PPSA interests by statute.
D) It is invalid unless the repair facility was named in the borrower’s loan agreement.
Correct Answer: B
Explanation: Under the Repair and Storage Liens Act (RSLA), a non-possessory lien must be registered to be perfected, while a possessory lien is perfected by holding the goods. When perfected, RSLA liens can take priority over PPSA security interests, including those under a general security agreement. The lienholder does not need to be named in any loan agreement, and registration is key if possession is not maintained. Counsel must search and assess the status and perfection of such competing claims.
Estate Planning
21. A trustee sells trust property at a gain and reinvests the proceeds in long-term bonds. The trust deed specifies that the capital belongs to the remainder beneficiaries and that income is payable to the income beneficiaries annually. A dispute arises about whether the capital gain can be paid to the income beneficiary to reflect the trust’s overall return.
How should the trustee allocate the capital gain under trust law principles?
A) Capital gains must be withheld unless all beneficiaries, including future ones, agree to distribution.
B) Capital gains must be retained for capital unless the trust deed expressly treats them as income.
C) Trustees may allocate capital gains to income if the trust qualifies as a discretionary trust under CRA guidelines.
D) Capital gains are income under the Income Tax Act and must be included in annual trust distributions.
Correct Answer: B
Explanation: For trust law purposes, capital gains are considered capital, not income. Without a provision in the trust deed to re-characterize capital gains as income, trustees must allocate them to capital and retain them for the remainder beneficiaries.
22. Melissa died in June, leaving a large RRSP in which she had named her husband as the direct beneficiary. The RRSP was redeemed by her husband in October, but no steps were taken immediately to transfer the proceeds into a new RRSP. Melissa’s executor was unsure about the correct timeline for filing Melissa’s final return. She also worried about penalties if they missed the deadline.
What is the correct due date for Melissa’s terminal return?
A) The following April 30, consistent with the usual personal tax deadline.
B) Six months from the date of death because the death occurred after October 31.
C) The following June 15, because Melissa had business income.
D) Eighteen months from death if a qualifying spousal trust was created.
Correct Answer: A
Explanation: Since Melissa died before November, her terminal return is due on the normal individual tax filing deadline of April 30 of the following year, according to s. 150(1) of the ITA. The six-month extension only applies if death occurs in November or December.
23. Victor is drafting a guardianship application on behalf of a client under the standard procedure. The client wishes to be appointed guardian of property and guardian of the person for their aging parent. Victor prepares a single affidavit covering both aspects but only includes a management plan. He submits the application record accordingly.
What required element has Victor failed to include in the guardianship application record?
A) An affidavit from the Public Guardian and Trustee confirming no objection to the application as submitted.
B) A guardianship plan specific to personal care decisions, as required when seeking authority over the person.
C) A separate proceeding before the Substitute Decisions Tribunal to confirm the parent’s incapacity.
D) A certificate of divorce for the parent, showing no spousal conflict of interest in the application.
Correct Answer: B
Explanation: For guardianship of the person, s. 70(2)(b) of the SDA and General Form 3 require a guardianship plan to be included in the application record. A management plan pertains to property only. Both plans are essential when seeking dual appointments.
24. Victor is asked by his client, a 68-year-old widower, to draft both a continuing power of attorney for property and a power of attorney for personal care. The client wants to include both in a single document to keep things simple. Victor explains that while not prohibited, this is discouraged due to risks associated with capacity assessments and document distribution.
Why is the use of a combined power of attorney for property and personal care generally discouraged in Ontario?
A) Banks typically reject combined forms as invalid and require two separate documents to ensure compliance.
B) The capacity tests differ for property and personal care, and the recipients of each document are distinct, creating legal and practical complications.
C) Combined documents require approval from the court where property and care terms appear to conflict or affect legal decision-making.
D) The Substitute Decisions Act prohibits combining powers of attorney into a single instrument due to legislative separation of their legal functions.
Correct Answer: B
Explanation: The test for capacity to make a continuing power of attorney for property is more robust than that for personal care. Since different third parties (e.g., banks vs. hospitals) rely on different documents, combined forms may lead to confusion, misuse, or inadvertent disclosure of sensitive instructions.
25. Renee and Chloe were in a common-law relationship for eight years. Chloe dies leaving a will that names her brother as sole beneficiary and executor. Renee is devastated and believes she was financially and emotionally dependent on Chloe. The estate is modest but includes Chloe’s car and investment account. Renee considers acting as estate trustee.
What are Renee’s rights with respect to Chloe’s estate under Ontario law?
A) Renee has a statutory right to inherit under s. 43 of the SLRA, as her long-term relationship with Chloe qualifies her as a spouse in the eyes of the law.
B) Renee may be appointed as estate trustee based on her relationship and dependency, which entitles her to override the terms of the will and receive the residue.
C) Renee’s common-law status nullifies Chloe’s will under Ontario law and entitles her to administer and inherit the estate on intestacy.
D) Renee may apply for dependant’s support and seek appointment as estate trustee, but she has no inheritance rights under the SLRA or the will.
Correct Answer: D
Explanation: Common-law spouses are excluded from SLRA intestacy rights and are not entitled to inherit unless named in a will. However, they may apply for support and seek appointment as estate trustee under s. 29 of the Estates Act if they lived in a conjugal relationship with the deceased.
26. Amanda died intestate, owning a family farm that she had operated actively for many years. Her executor intends to transfer the farm property to Amanda’s son, who has lived on the farm and worked it with her. Amanda’s son is a Canadian resident and wishes to continue farming the property. The executor hopes to avoid any immediate capital gains tax on the transfer.
What is the condition that must be satisfied for the farm property to qualify for a rollover?
A) The farm must be transferred within one taxation year of Amanda’s death.
B) The farm must be indefeasibly vested in the child within 36 months of death.
C) The child must sign an agreement to operate the farm for at least five years.
D) The executor must obtain an appraisal confirming ongoing agricultural use.
Correct Answer: B
Explanation: For a farm rollover under s. 70(9.1) of the ITA, the property must become vested indefeasibly in a child who is a resident of Canada within 36 months of the taxpayer’s death. No sale or new use commitment is required.
27. Ava is named as a trustee of a discretionary family trust established by her father. Ava’s brother, Sam, is a discretionary beneficiary. Ava is also a full-time employee of Sam’s company. During trust administration, Ava consistently approved distributions favouring Sam over other beneficiaries. A disgruntled cousin who was also a beneficiary threatened legal action.
Which fiduciary principle did Ava breach?
A) The duty of care by not keeping detailed accounts.
B) The duty to act personally by delegating decisions to a co-trustee.
C) The duty to act impartially and avoid favouring one beneficiary over others.
D) The duty to avoid personally profiting from the trust.
Correct Answer: C
Explanation: Trustees must maintain the "even hand" principle, treating all beneficiaries fairly without favouring one class or individual over others unless expressly authorized otherwise by the trust document.
28. Michelle prepares a will naming her brother as guardian of her child's property if she passes away. She does not specify that the appointment covers property received from a life insurance policy. After her death, the insurance company refuses to release the funds directly to the brother.
What mistake did Michelle’s lawyer most likely make?
A) Failing to clarify that guardianship of property requires a court order.
B) Failing to obtain the insurance company's approval.
C) Failing to name the brother as estate trustee.
D) Failing to draft a survivorship clause.
Correct Answer: A
Explanation: Testamentary appointments for guardianship of property are temporary and do not automatically authorize control over assets like insurance proceeds. A court order under s. 47 of the CLRA is necessary for a person to act as guardian of property.
29. Paul died intestate in Ontario, leaving a spouse and a modest estate. His executor sought to create a trust to hold Paul’s RRSP assets for the surviving spouse's lifetime, after which the assets would pass to Paul’s children. The executor was advised that special rollover treatment could apply.
What condition must be met for the trust to qualify as a testamentary spousal trust under the Income Tax Act?
A) The spouse must receive at least half of the annual income generated by the trust and be consulted on capital decisions.
B) The spouse must be entitled to all income for life, and no other person may benefit from trust property during that time.
C) The spouse must be given the right to convert the trust into a lump-sum payment or purchase the assets outright.
D) The spouse must be named sole trustee, with discretion to distribute income and capital according to their own needs and any specified instructions in the trust.
Correct Answer: B
Explanation: Under s. 70(6) of the ITA, to qualify for rollover, the surviving spouse must be entitled to all income arising during their lifetime and no other person may use or benefit from any income or capital during that period.
30. Liam drafts a continuing power of attorney for property for a client who owns a small business. The client wishes for the attorney to manage business assets if he becomes incapable. Liam prepares a standard form without modifying it to address the complexity of business operations. After the client’s incapacity, the attorney struggles to manage the company’s affairs, causing financial losses.
What important drafting step did Liam omit in preparing the power of attorney?
A) Tailoring the scope of authority to include the management of business property and affairs.
B) Naming the Public Guardian and Trustee as a fallback attorney in case of incapacity-related conflicts.
C) Inserting a requirement that all significant financial decisions receive prior court approval.
D) Requiring that corporate actions be approved by all shareholders before the attorney may proceed.
Correct Answer: A
Explanation: Where clients have business interests, the power of attorney must specifically authorize the management of business affairs. Failing to tailor the document appropriately limits the attorney’s ability to act and may expose the estate to losses.
31. Jordan, a member of a First Nation, lived his entire life on reserve land. Upon his death, his daughter Sarah discovered that Jordan had written a simple will on a piece of paper, signed by him but with no witnesses. She was concerned that the will might not meet Ontario’s strict requirements for valid execution. Sarah contacted Indigenous Services Canada to inquire about next steps.
What is the status of Jordan’s will?
A) The will is automatically invalid because it lacks two witnesses.
B) The will is valid if it is in writing, signed by Jordan, and expresses his intentions.
C) The will is valid only if it is handwritten entirely by Jordan (holograph will).
D) The will must be probated in the Ontario Superior Court of Justice first.
Correct Answer: B
Explanation: Under s. 45(2) of the Indian Act and s. 15 of the Indian Estates Regulations, a will need only be in writing, signed by the testator, and indicate the testator’s intentions. Provincial formalities such as witnessing are not required.
32. Natalie is representing a client in an uncontested guardianship of property application. The judge grants the order but omits any reference to the applicant’s management plan. Later, disputes arise about how the attorney is managing the incapable person’s investments.
What would have been the most effective way to prevent this issue from arising?
A) Add a clause to the judgment incorporating the management plan by reference or as an attached schedule.
B) Ensure the order is filed with the Land Titles Office to trigger automatic recognition by third parties.
C) Obtain an estate trustee certificate confirming authority to manage financial matters under the SDA.
D) Request that the court appoint the Public Guardian and Trustee as a co-guardian solely for investment decisions.
Correct Answer: A
Explanation: Although the SDA requires guardians to act according to the management plan, best practice is to expressly reference or attach the plan to the judgment. This avoids future disputes over the scope of authority.
33. During an estate planning meeting, Francis suggests to his client that a power of attorney for property and a power of attorney for personal care can be combined into a single document for convenience. The client agrees. After the client’s incapacity, confusion arises among third parties, causing administrative delays in both financial and health care decisions.
What key drafting error led to the confusion and delay after the client’s incapacity?
A) Combining both types of powers of attorney into one document, which blurred the scope and function of each.
B) Failing to include a clause outlining the precise method by which attorney compensation should be calculated or paid.
C) Allowing the client to appoint joint attorneys with individual signing authority, which led to inconsistent decision-making.
D) Relying on witnesses who were not licensed commissioners or notaries, making third parties reluctant to accept the documents.
Correct Answer: A
Explanation: Combining powers of attorney for property and personal care is discouraged because the triggers for each differ, and different third parties need to rely on the documents. Separate documents ensure clarity and protect the grantor’s intentions.
34. Sophie died without a surviving named estate trustee willing to act under her will. Her nephew, Daniel, found the original will among her belongings and wanted to apply for a certificate of appointment of estate trustee with a will. The lawyer holding Sophie’s earlier will was hesitant to release the document without a court order.
What is the lawyer’s proper course of action?
A) The lawyer must refuse to release the will unless the court issues an order authorizing disclosure to Daniel.
B) The lawyer may release the will to Daniel if Daniel is seeking to apply for a certificate of appointment.
C) The lawyer must submit the will directly to the court registrar and await further instructions.
D) The lawyer should send the will to the Public Guardian and Trustee, who will determine next steps.
Correct Answer: B
Explanation: In Hope v. Martin, the court held that a lawyer may release a will to a person intending to apply for a certificate of appointment without breaching solicitor-client privilege, as the deceased’s consent is implied for the purpose of estate administration.
35. Marco applies to be appointed guardian of property for his father. He seeks to avoid posting a bond. In his affidavit, Marco describes his long-standing relationship with his father and offers to provide annual financial statements to the family. He does not include any evidence of consent from other relatives.
What should Marco have included to strengthen his request to dispense with security?
A) Letters from the incapable person’s physicians.
B) A prior court order appointing a temporary guardian.
C) A valuation of the father’s entire property portfolio.
D) The consent of specified relatives waiving the need for security.
Correct Answer: D
Explanation: When seeking to dispense with a security requirement, obtaining consents from the incapable person's relatives strengthens the application. Courts are more likely to waive the bond requirement where interested family members consent.
36. Jacob and Laura lived together in Ontario in a conjugal relationship for seven years but never formally married. When Jacob died intestate, Laura applied for a share of his estate, believing she was entitled as his common-law spouse. She learned that Jacob had two surviving siblings but no surviving parents or children. Laura was shocked to find her claim disputed by the siblings.
How should Laura’s entitlement to Jacob’s estate be determined under Ontario’s intestacy rules?
A) Laura is entitled to the estate based on her status as a long-term common-law spouse and should share equally with Jacob’s siblings.
B) Laura may claim the entire estate as Jacob’s spouse since they cohabited in a conjugal relationship for over three years.
C) Laura has no entitlement under intestacy law and must pursue a claim as a dependant or seek equitable relief.
D) Laura may claim the preferential share but must prove financial dependency to succeed.
Correct Answer: C
Explanation: Under s. 1 and ss. 43–49 of the SLRA, a common-law spouse has no statutory entitlement on intestacy. Laura must seek relief through a dependant's support application or assert common law claims such as unjust enrichment.
Case 2
Margaret Wong, age 84, lives alone in Oakville. She suffers from early-stage dementia and recently appointed her niece, Cheryl, as her continuing attorney for property under a power of attorney executed in 2022 with independent legal advice. Cheryl has since sold Margaret’s secondary residence, claiming it was uninhabited and too costly to maintain. Margaret’s son, Henry, who resides in Vancouver, suspects Cheryl of using the sale proceeds to fund personal business expenses. Margaret’s will, prepared in 2017, leaves her entire estate to Henry and appoints Cheryl as estate trustee. The will also includes a testamentary trust for Henry’s children. Upon Margaret’s passing in March 2025, Cheryl arranges the funeral but does not apply for probate. She immediately begins distributing personal property. Henry retains counsel, who discovers that Cheryl has not filed the T1 terminal return or applied for a tax clearance certificate. The estate includes a significant RRSP and a principal residence with large accrued gains.
Questions 37 to 40 refer to Case 2
37. How should the sale of Margaret’s secondary residence by Cheryl be evaluated under Ontario’s law of substitute decision-making?
A) Cheryl was permitted to sell the home only if it was necessary to pay Margaret’s living expenses or debts.
B) Cheryl had full discretion to sell any property as attorney for property, regardless of purpose.
C) Cheryl could sell the property only if Margaret lacked capacity and the transaction was approved by a guardian.
D) Cheryl was entitled to sell the property because it was excluded from the will and trust scheme.
Correct Answer: A
Explanation: A continuing power of attorney for property authorizes the attorney to manage the donor’s property, but not without limits. Under Ontario law, the attorney must act in the incapable person's best interests and may dispose of real property only where doing so is necessary to meet the person's financial needs, including care, debt, or tax obligations. Using the proceeds for personal benefit is a breach of fiduciary duty and potentially actionable. Cheryl’s conduct raises concerns under the Substitute Decisions Act.
38. What are the consequences of Cheryl failing to file Margaret’s T1 terminal return and obtain a tax clearance certificate?
A) Cheryl is personally liable for estate taxes if she distributes property without a clearance certificate.
B) Cheryl is not required to file a return if the estate is modest and no income was earned.
C) Cheryl can defer filing the terminal return until probate is granted by the court.
D) Cheryl may distribute all estate property immediately if no capital gains are realized.
Correct Answer: A
Explanation: Under the Income Tax Act, a personal representative who distributes property before obtaining a clearance certificate becomes personally liable for taxes, interest, and penalties owing by the deceased. The T1 terminal return must be filed in respect of all income earned or deemed earned up to the date of death. Cheryl’s failure to file and distribute without securing a clearance certificate exposes her to liability for unpaid taxes, even if she did not intend to defraud the CRA.
39. How does the testamentary trust for Henry’s children affect Cheryl’s obligations as estate trustee?
A) Cheryl must distribute the trust assets equally to Henry’s children once they reach age 18.
B) Cheryl may disregard the trust if the beneficiaries are minors and not immediate dependants.
C) Cheryl may combine trust assets with the residue for ease of administration.
D) Cheryl must segregate and administer the trust property separately, subject to trust accounting rules.
Correct Answer: D
Explanation: Testamentary trusts impose enforceable duties on the trustee to hold and administer assets for the benefit of the named beneficiaries. Cheryl must separate these assets from the general estate and maintain distinct records. The trustee must comply with fiduciary standards, provide periodic accounts, and administer the trust in accordance with the terms of the will and Ontario trust law. Failure to do so may trigger a passing of accounts or even removal as trustee.
40. What is the appropriate tax treatment of the RRSP included in Margaret’s estate?
A) The RRSP can be transferred tax-free to any beneficiary regardless of relationship.
B) The RRSP is deemed disposed of at death, and its value is included in Margaret’s terminal return unless rolled over.
C) The RRSP is only taxable if Cheryl withdraws the funds within twelve months.
D) The RRSP is excluded from taxation if no income was generated in the year of death.
Correct Answer: B
Explanation: Upon death, the full value of an RRSP is generally included as income on the deceased’s terminal return unless it qualifies for a spousal or dependent child rollover. Since Margaret’s will leaves the residue to her son Henry, with no evidence of a direct beneficiary designation, the RRSP value is taxed to the estate. Cheryl, as personal representative, must ensure this income is reported and taxes paid prior to any distribution. Mishandling RRSP taxation can lead to double taxation or personal liability.
Real Estate
41. Hannah conducts a Planning Act search for a property outside a registered plan of subdivision. She compares names in the chain of title from 1967 to present and notes that a transfer in 1984 involved a party who owned both the subject lands and abutting lands on the same PIN. The transfer split the property and created two new lots. No consent from the Committee of Adjustment or evidence of a severance appears on title. Hannah is concerned the transfer may have violated s. 50 of the Planning Act.
How should Hannah assess the legal effect of the 1984 transfer under the Planning Act?
A) The issue is cured by the time that has passed since 1984, so the transfer remains valid and enforceable.
B) A Planning Act breach by a prior owner can render the transfer void and may break the chain of title.
C) Compliance with the Planning Act is only required for transfers that occurred after the 1991 amendments came into force.
D) The defect must be corrected by obtaining a retroactive severance or validation order from the Ontario Land Tribunal.
Correct Answer: B
Explanation: A violation of the Planning Act, even by a prior owner, can render a transfer void. Conveyancers must check for unlawful severances by reviewing ownership and legal descriptions of adjoining parcels going back to at least 1967, unless the land is a full lot on a registered plan.
42. Marcus is reviewing the title to a farm property his client intends to purchase for recreational use. The abstract reveals the original Crown patent from 1859 includes a reservation of timber and a right of passage over navigable waters. Marcus's client is concerned that this may interfere with development plans for a cabin near the river. Marcus reviews the Conveyancing and Law of Property Act and associated regulations.
What should Marcus advise his client regarding the enforceability of the Crown patent reservations?
A) Timber reservations in historical Crown patents remain fully enforceable and must be addressed before any development.
B) The passage rights over navigable waters are enforceable only for commercial boating and do not affect recreational or private uses.
C) Timber reservations may be void by statute, but navigation rights over water may still apply and limit development near the shoreline.
D) Timber and water passage rights must be released by the Crown before the landowner can proceed with construction near a water boundary.
Correct Answer: C
Explanation: While some reservations in Crown patents (e.g., timber rights) are now void by statute, others, such as navigation rights, remain enforceable. The Beds of Navigable Waters Act and the Public Lands Act confirm that public rights of navigation continue despite private ownership of adjoining lands.
43. Noah acts for a buyer of a resale condo unit in a building undergoing major repairs. The status certificate is dated two months before closing. On closing day, Noah contacts the corporation and learns that a new $18,000 special assessment has been passed against the unit. The seller denies knowledge of the new assessment and refuses to reduce the price or amend the closing documents. Noah’s client still wishes to close.
How should Noah protect the client’s interest?
A) Delay the closing until the seller pays the assessment.
B) Obtain a statutory declaration from the seller and pursue post-closing indemnification.
C) Amend the agreement of purchase and sale or adjust the price on closing.
D) Rely on the title insurer to cover the special assessment.
Correct Answer: C
Explanation: If a new special assessment has been passed after the date of the status certificate, the buyer’s lawyer should insist on a price adjustment or amendment to allocate liability. Title insurance typically does not cover known special assessments.
44. Tessa is acting for beneficiaries of an estate that has vested in them under s. 9 of the EAA. They now wish to sell the property. Tessa prepares the transfer documents, but the buyer’s lawyer insists on confirmation that the beneficiaries' title is free of the deceased’s debts. No cautions or claims have been registered, and three years have passed since the death.
How should the buyer’s concern about estate debts affecting title be addressed?
A) The beneficiaries’ title remains subject to estate debts for up to ten years unless released by the court.
B) The purchaser takes clear title under s. 23 of the EAA because three years have passed with no registered claims.
C) The beneficiaries must apply for a court order confirming that no enforceable estate claims remain.
D) Title must be formally reconveyed by the estate trustee before the beneficiaries may sell to a third party.
Correct Answer: B
Explanation: Under s. 23 of the EAA, where beneficiaries sell real property that has vested in them under s. 9 and no certificate of pending litigation or caution has been registered within three years of death, a purchaser for value takes title free of debts.
45. Monica’s mortgage contains a due-on-sale clause. She sells the property to Raymond without notifying the chargee or seeking consent. Raymond assumes the mortgage without signing an assumption agreement. When Raymond defaults, the chargee sues Monica. Monica argues she should be released from liability.
How should Monica’s continuing liability under the mortgage be assessed?
A) Monica is discharged from liability because title transferred to Raymond after the sale.
B) Monica remains liable on the covenant unless the lender expressly or implicitly agreed to release her.
C) The mortgage obligation passed to Raymond upon sale, ending Monica’s liability even without lender involvement.
D) The due-on-sale clause renders the entire mortgage void following an unauthorized transfer of the property.
Correct Answer: B
Explanation: Under s. 20 of the Mortgages Act and common law, an original mortgagor remains liable unless released by the lender, either expressly or by conduct (e.g., entering into a new agreement with the purchaser). Selling the property alone does not discharge the original covenantor’s liability.
46. Abigail searches a rural parcel in Teraview and notes that it is a registry “non-convert” property with a PIN ending in “R.” She is puzzled because the client intends to mortgage the property and the lender expects land titles registration. Abigail contacts the Registration Division and learns that the property has issues preventing conversion, specifically an outdated legal description and possible water boundary uncertainty. The lender is unwilling to proceed unless the parcel is brought into land titles. Abigail must now advise the client whether and how conversion can be pursued.
What advice should Abigail give regarding conversion of the registry parcel?
A) The parcel may be converted to LTCQ by following the Ministry’s bulletin process, but a first application might be needed if the defects remain unresolved.
B) Conversion is not permitted unless the local municipality provides a compliance certificate confirming zoning and use conformity.
C) The Teraview PIN must be deleted and reissued manually as a land titles record before the mortgage can be registered electronically.
D) Since it is a non-convert registry parcel, it is permanently ineligible for electronic transactions and must remain in the paper registry system.
Correct Answer: A
Explanation: Registry non-converts may be brought into land titles through administrative conversion (LTCQ) or, if issues persist, through a first application. Boundary or description defects may require a more rigorous process involving a survey and notice.
47. Jordan is acting for a purchaser of a mixed-use property that includes a restaurant and medical office. His client waives the right to conduct environmental due diligence to expedite closing. After completion, the Ministry of the Environment issues an order relating to a past underground fuel leak affecting adjacent lands. Jordan’s client claims that Jordan should have ordered a Phase I ESA.
How should Jordan’s professional responsibility be evaluated in light of the environmental order?
A) Jordan is not liable if the client gave informed written instructions acknowledging the risks of waiver.
B) Jordan was required to order a Phase I ESA because commercial properties pose automatic environmental risks.
C) The Ministry’s order cannot affect the purchaser unless ongoing contamination is proven on the purchased land.
D) The seller remains liable for contamination regardless of environmental clauses or closing conditions in the agreement.
Correct Answer: A
Explanation: Lawyers must advise clients of the risks of waiving environmental due diligence in commercial deals. If the lawyer advised accordingly and obtained written, informed instructions from the client, they are generally not liable for the consequences of the waiver.
48. Leo is acting for a client purchasing a home with a TitlePLUS policy. After closing, a boundary dispute arises due to a missing fence, and the buyer discovers that part of the driveway crosses into the neighbour’s lot. Leo is relieved when TitlePLUS pays the claim, including legal fees and damages. The client asks whether this would have been covered under another insurer.
How does TitlePLUS differ from other title insurance providers in handling this type of situation?
A) All title insurers offer equal protection for title issues and automatically include legal error coverage.
B) TitlePLUS is distinct in that it includes coverage for lawyer negligence directly within the title policy.
C) A lawyer would be liable for boundary defects under other policies regardless of client instructions or disclaimers.
D) Boundary disputes are excluded from all title insurance policies except those obtained by lenders.
Correct Answer: B
Explanation: TitlePLUS offers integrated coverage for legal errors and omissions in addition to standard title risks. This avoids the need for the client to pursue a separate negligence claim against the lawyer and provides seamless compensation where legal error contributes to the loss.
49. Gina is representing a tenant who will operate a daycare in a newly built strip plaza. The lease includes a clause that allows the landlord to relocate the tenant on 60 days’ notice to “comparable premises” within the plaza. Gina’s client is concerned that moving the daycare would violate licensing laws and disrupt their operations.
How should Gina respond?
A) Recommend accepting the clause and relying on common law protections.
B) Insist on deleting the relocation clause or severely restricting its application.
C) Request a personal indemnity from the landlord in case of relocation.
D) Add a clause requiring relocation only during renewal periods.
Correct Answer: B
Explanation: Tenants with specialized or regulated operations should resist relocation rights. Even if allowed in principle, the clause should be narrowed or conditioned upon tenant consent, detailed criteria for comparability, and compensation for disruption.
50. Ravi is acting for a purchaser and has received a signed Acknowledgment and Direction authorizing him to use electronic registration and to enter into a Document Registration Agreement (DRA). On the closing day, the vendor’s solicitor delivers closing documents, including the Transfer and keys, and advises that the Transfer has been released for registration. Ravi conducts a final subsearch and discovers a judgment registered the previous day against a person with a similar name to the vendor. Ravi is unable to conclusively determine whether the judgment affects title. The vendor’s solicitor refuses to postpone closing.
What should Ravi do in this situation?
A) Close the transaction and rely on title insurance to protect the client.
B) Proceed to register and hold back funds until the execution issue is resolved.
C) Refuse to close and request clarification or a statutory declaration from the vendor.
D) Complete the registration with a law statement overriding the writ.
Correct Answer: C
Explanation: Where there is an unresolved execution against a person with a similar name, the solicitor must confirm that the writ does not bind the vendor before proceeding. This can be done via statutory declaration and written confirmation from the execution creditor. Closing without clarification risks passing defective title.
51. A commercial property subject to a power of sale was sold for $1.1 million. The mortgage debt was $980,000, and the appraised value was $1.45 million. The mortgagor later learns that the mortgagee accepted the offer after listing the property for only 10 days, placing a single ad in a local newspaper. The mortgagor sues, alleging that the sale was improvident and that the mortgagee breached its duties. The mortgagee responds that it acted in good faith and obtained a fair price. No “for sale” signs or multiple appraisals were obtained.
What duty governs the mortgagee’s conduct in this sale, and was that duty breached?
A) The mortgagee discharged its duty by ensuring the sale price exceeded the outstanding mortgage balance.
B) The mortgagee likely failed to meet its obligation to obtain fair market value through reasonable marketing efforts.
C) The mortgagor’s claim cannot succeed without proof of actual fraud or dishonesty by the mortgagee.
D) The buyer’s good faith purchase protects the transaction from any claims by the mortgagor regarding price.
Correct Answer: B
Explanation: A mortgagee exercising power of sale must act in good faith and take reasonable steps to obtain fair market value. A short listing period, lack of marketing, and accepting a price well below appraised value may amount to a breach of this duty.
52. Ella is purchasing a condominium unit with 5% down and obtains a mortgage from a chartered bank. The loan exceeds 80% of the unit’s value. To comply with federal banking laws, the bank requires an additional contract.
What additional condition must be satisfied for the bank to lawfully issue the high-ratio mortgage?
A) Ella must obtain a co-signor agreement from a financially qualified third party to reduce lending risk.
B) Ella must sign a waiver of prepayment protections to satisfy Interest Act lending conditions.
C) Ella must secure mortgage insurance under the National Housing Act through CMHC or another approved insurer.
D) Ella must obtain an assumption agreement from the condominium corporation acknowledging mortgage liability.
Correct Answer: C
Explanation: Under s. 418 of the Bank Act, banks cannot lend more than 80% of the home’s value unless the mortgage is insured under the National Housing Act. CMHC or an equivalent insurer provides that coverage, enabling the high-ratio mortgage.
53. Lena is a vendor who accepted an offer conditional on the purchaser selling their home within 30 days. The agreement is silent on whether the condition may be waived. The purchaser fails to sell their home and attempts to waive the condition unilaterally. Lena refuses to proceed and sells to another buyer. The original purchaser sues for specific performance, arguing that the condition was for their sole benefit.
Can the purchaser unilaterally waive the home sale condition and compel Lena to complete the transaction?
A) Yes, because the condition benefits only the purchaser and is presumed waivable without the vendor’s consent.
B) No, because Lena is entitled to damages due to the purchaser’s failure to complete on time, regardless of waiver.
C) Yes, unless the vendor can show prejudice from the purchaser’s failure to satisfy the condition in the time allotted.
D) No, because a condition requiring a third-party sale is a true condition precedent that cannot be waived without express contractual language.
Correct Answer: D
Explanation: A true condition precedent, such as a third-party sale contingency, cannot be waived unilaterally unless the agreement explicitly permits it. The condition depends on an external event, not solely on the purchaser’s discretion.
54. Jade’s client is buying a rural property with an old barn built near the lot line. The lawyer waives a zoning search, relying on the title insurer’s standard off-title coverage. After closing, a municipal bylaw officer issues an order to remove the barn, citing non-compliance with current zoning setbacks. Jade’s client demands compensation. The title insurer agrees to indemnify, but Jade is worried about whether her advice was appropriate.
How should Jade’s legal responsibility be assessed in light of her decision to waive the zoning search?
A) Jade met the standard of care by relying on title insurance to cover any zoning-related losses.
B) Jade was obligated to waive the search because the policy included standard zoning setback protections.
C) Jade cannot be liable because the title insurer’s indemnity fully compensates the client for their loss.
D) Jade may be professionally negligent for waiving the zoning search without considering whether the barn's location warranted further inquiry.
Correct Answer: D
Explanation: Lawyers must independently assess whether off-title searches are advisable, especially for rural or older properties. Even if title insurance offers some coverage, relying solely on it without recommending a zoning search may breach the standard of care. The client may recover from the insurer but still hold the lawyer accountable.
55. A detached home is sold “as is” with no representations or warranties. After closing, the buyer discovers extensive structural issues behind the finished basement walls, including rot and foundation cracks. The buyer sues, alleging that the seller concealed the defects by painting and installing drywall. The seller responds that the defects were not known and that the buyer agreed to purchase at their own risk.
What legal basis supports the buyer’s claim despite the “as is” clause?
A) The seller is protected from liability by the “as is” clause covering all visible and hidden defects.
B) The buyer may rely on statutory warranty protections under the Tarion regime even in resale transactions.
C) The seller’s active concealment of latent defects may amount to fraudulent misrepresentation and override the “as is” clause.
D) By accepting title and closing the deal, the buyer waived all legal claims related to the property’s condition.
Correct Answer: C
Explanation: While “as is” clauses protect sellers from liability for known defects, they do not shield fraudulent concealment of latent defects. If the seller actively concealed serious issues, the buyer may succeed despite the disclaimer.
56. Anita is acting for both the purchaser and the purchaser’s lender in a condominium transaction. She receives the mortgage instructions and learns that the lender requires confirmation of title, tax payments, and condominium status certificate review. On the day before closing, Anita realizes she overlooked conducting an execution search against the borrower. She obtains the execution certificate and discovers a writ of seizure and sale against someone with the same name. The lender’s funds have not yet been advanced. Anita is unsure how to proceed with closing the mortgage.
What is Anita’s most appropriate course of action before proceeding to close?
A) Finalize the transaction and notify the lender after closing to avoid delays in funding.
B) Immediately inform the lender about the writ and confirm whether the execution applies to the borrower.
C) Proceed to close the deal relying on title insurance coverage for any execution-related risks.
D) Delay closing and forward the mortgage funds to the vendor’s solicitor in trust pending lender instructions.
Correct Answer: B
Explanation: A solicitor acting for a lender has an obligation to report material title issues, including executions against the borrower, before closing. The solicitor must confirm whether the writ affects the borrower and notify the lender before advancing mortgage funds.
Case 3
David Chow is acting for a private developer, Blackstone Projects Inc., in the acquisition of a commercial retail plaza located adjacent to reserve land in northwestern Ontario. The property is subject to multiple tenancies and ongoing façade renovations by an unpaid subcontractor. The agreement of purchase and sale is conditional on financing and title searches, with closing scheduled in 45 days. David performs a commercial title search, municipal enquiry, and execution certificate request, and discovers that the adjoining road was once used as a logging trail through land subject to an unresolved Indigenous land claim. Meanwhile, the seller’s lawyer refuses to provide any estoppel certificates, stating that tenant leases are in good standing. Two days later, a construction lien is registered by the subcontractor. During his search of the parcel register, David notes a vague reference to a 1968 federal easement agreement marked “non-registrable under Ontario law.”
Questions 57 to 60 refer to Case 3
57. What is the appropriate response to the seller’s refusal to provide estoppel certificates for existing tenants?
A) The purchaser cannot insist on estoppel certificates unless required by the agreement.
B) The seller must provide estoppel certificates for all tenants before closing.
C) The seller may withhold estoppel certificates if municipal zoning is unchanged.
D) The buyer is entitled to terminate the agreement upon refusal to provide estoppel certificates.
Correct Answer: A
Explanation: In a commercial transaction, the seller is not legally obligated to provide estoppel certificates unless the agreement of purchase and sale specifically requires them. In their absence, a statutory declaration by the vendor or review of leases is often used to confirm tenancy terms. Estoppel certificates are useful to prevent post-closing surprises but are not implied obligations. Termination rights are governed strictly by contractual terms.
58. What are David’s obligations upon discovering the construction lien?
A) He must requisition discharge or bonding off of the lien before closing.
B) He must accept the lien as a post-closing risk unless it is over $10,000.
C) He may disregard the lien if the seller claims it is invalid.
D) He must advise the buyer to register a caution and delay closing unilaterally.
Correct Answer: A
Explanation: Under the Construction Act, a lien registered before closing is a title defect. The purchaser’s lawyer must requisition that it be discharged, bonded off, or otherwise resolved before closing. It is not sufficient for the seller to dismiss the lien’s validity, and a lien of any amount must be addressed. Title insurance may cover unresolved issues, but standard practice requires clear title at closing.
59. What is the significance of the 1968 federal easement described as “non-registrable under Ontario law”?
A) It only applies to Crown lands and has no effect on private property.
B) It is void unless registered under the Land Titles Act.
C) It may still bind the land if validly executed and enforceable under federal law.
D) It can be ignored as it pre-dates electronic registration systems.
Correct Answer: C
Explanation: Federal instruments, including easements or rights-of-way affecting lands near reserves or involving federal undertakings, may still be enforceable even if not registered under provincial land registry statutes. Their existence should trigger further enquiries to determine their legal status, enforceability, and impact on title. Lawyers must advise purchasers of the risk that such easements could limit land use, even if not listed in the parcel register.
60. How should David advise his client regarding the nearby Indigenous land claim?
A) The claim does not affect registered title but may pose business and development risks.
B) The claim is enforceable as a title defect and requires surrender or extinguishment.
C) The claim prevents closing until the federal government issues a clearance certificate.
D) The claim entitles the purchaser to damages under the standard title insurance policy.
Correct Answer: A
Explanation: Indigenous land claims adjacent to or overlapping commercial land may not affect legal title but can pose practical and financial risks, including protest, development delays, or future legal obligations. Title insurance typically excludes coverage for claims arising out of Aboriginal rights or unresolved land claims. Lawyers must assess whether the claim could materially affect the use or value of the property, even if no caveat or encumbrance appears on title.
Professional Responsibility
61. Jin represents both lender and borrower in a mortgage refinancing. The lender is an institutional client with extensive experience; the borrower is a first-time homeowner. Jin explains the nature of the transaction but fails to inform the borrower of the increased default penalties in the amended loan. The borrower later defaults and claims they were misled.
What duty did Jin most clearly fail to discharge in this transaction?
A) The duty to re-register the mortgage with updated loan terms.
B) The duty to recommend title insurance to both parties involved.
C) The duty to confirm the lender’s tax registration with the CRA.
D) The duty to advise the borrower to obtain independent legal advice on key changes.
Correct Answer: D
Explanation: In joint mortgage transactions, lawyers must identify and manage power imbalances. When one party is significantly less sophisticated, the lawyer must advise them of their right to independent legal advice, especially when material changes to contract terms are involved.
62. During a real estate transaction, a lawyer learns from a prior mortgagee’s discharge statement that the seller may have underreported rental income. The lawyer mentions this casually to another lawyer over coffee, believing it’s not significant. The other lawyer happens to represent the buyer in a future transaction involving the same seller.
Which professional obligation did the lawyer most likely fail to uphold?
A) The rule regarding misleading advertising.
B) The rule requiring client approval before holding joint meetings or collaborative discussions.
C) The rule prohibiting informal disclosure of confidential information.
D) The rule requiring verification of identity when acting for clients in financial transactions.
Correct Answer: C
Explanation: Discussing identifiable details of a client file, even casually or without revealing a name, can breach confidentiality. Lawyers must avoid situations where even seemingly minor disclosures could result in a client being identified or harmed.
63. Chris receives $25,000 in trust from a corporate client for disbursements and future legal services. After several months, he realizes that $700 remains unspent, and the client has stopped responding. He reviews his ledger and confirms the amount is untouched for over two years.
What must Chris do?
A) Donate the remaining funds to a registered charity after documenting the client’s lack of response.
B) Transfer the money to his general account after confirming the file has been inactive for two years.
C) Apply to the Law Society to transfer the unclaimed funds to the Unclaimed Trust Fund.
D) Disburse the funds as part of the firm’s reconciliation process at year-end to avoid audit concerns.
Correct Answer: C
Explanation: Where client funds remain unclaimed in trust for more than two years despite reasonable efforts to contact the client, lawyers must apply to transfer the funds to the Law Society’s Unclaimed Trust Fund. This preserves integrity in trust fund handling.
64. Marlene is acting for a condominium developer. During a tense negotiation, she sends a series of sarcastic and insulting emails to the opposing lawyer, suggesting incompetence and threatening to “see them in court.” The emails are later submitted to the Law Society.
Which professional obligation did Marlene breach through her conduct?
A) She failed to obtain permission before making submissions to the tribunal.
B) She failed to maintain a respectful and professional tone in communications with opposing counsel.
C) She failed to submit a formal letter of undertaking to the appropriate regulatory body.
D) She failed to properly redact sensitive information from her outgoing correspondence.
Correct Answer: B
Explanation: Lawyers must always communicate in a tone that reflects professionalism and courtesy. Abusive or disrespectful communications, even if provoked, violate the Rules and may erode confidence in the legal profession.
65. Michael markets his real estate services as “the lowest flat fee in town, guaranteed.” His standard package excludes title insurance, registration fees, and deed couriering. These additional items routinely add over $500 to every transaction. The exclusions are disclosed only in a footnote on his website.
What advertising rule does Michael’s fee disclosure breach?
A) Lawyers must submit flat-fee advertisements to the Law Society before publishing them.
B) Lawyers must clearly distinguish between legal fees and disbursements in client marketing.
C) Lawyers must not advertise flat fees in a way that misleads the public about the total cost of services.
D) Lawyers must list excluded disbursements separately but need not reference them in promotional materials.
Correct Answer: C
Explanation: Fee transparency extends to marketing. A lawyer cannot promote low or fixed fees in a way that conceals substantial additional costs. Footnotes or unclear disclosures are insufficient; marketing must reflect the full cost the client is reasonably expected to pay.
66. Darius has a long-standing business law practice but rarely updates his software or attends CPD courses. He recently began representing clients in the sale of cannabis dispensaries, but he continues to rely on outdated asset sale precedents. He misses key regulatory filings with the Alcohol and Gaming Commission of Ontario (AGCO) and fails to inform the buyer that licensing transfers require special approval.
Which professional obligation did Darius fail to fulfill in these circumstances?
A) The duty to refer clients to specialized regulatory counsel for matters involving provincial licensing authorities such as the AGCO.
B) The duty to outline the scope of legal fees and obtain client confirmation before commencing work on the transaction.
C) The duty to stay informed of current legal developments and maintain competence when advising in a regulated industry.
D) The duty to decline acting for both parties in a commercial transaction unless expressly permitted under a joint retainer agreement.
Correct Answer: C
Explanation: Lawyers must ensure they are up to date with developments in their area of practice. Representing clients in a new or rapidly evolving sector, such as cannabis retail, without current knowledge or professional development risks regulatory non-compliance and breaches the standard of competence.
67. A business client discloses to her lawyer that she is uncomfortable attending networking events where alcohol is served for religious reasons. The firm routinely hosts such events and uses them to assign bonus points in annual evaluations. The client is never invited to these events, and is unaware that participation affects her file access and visibility.
What systemic professionalism concern does this practice most clearly raise?
A) The firm violated CPD credit rules by failing to monitor and record all event attendance consistently.
B) The firm breached financial disclosure rules that govern transparency in client development initiatives.
C) The firm should have provided alternative logistical arrangements to address religious accommodation needs.
D) The practice model disproportionately disadvantages some clients and undermines equal access.
Correct Answer: D
Explanation: Inclusive legal practice requires firms to consider whether seemingly neutral systems may exclude certain groups. Relying on events that not all clients can attend, particularly where they affect access to opportunities or influence, undermines the fairness and inclusivity of legal service delivery.
68. While acting in the sale of a cottage property, Fiona discovers a title defect that may delay closing. She notifies the client and opposing counsel but forgets to update her own internal tickler system. When a deadline to request an extension passes unnoticed, the client suffers a financial penalty. Fiona later admits she relies solely on her memory and daily to-do lists.
What error did Fiona commit?
A) She failed to notify the title insurer of the potential delay and confirm coverage.
B) She failed to submit a revised requisition to protect her client’s interest in closing extensions.
C) She failed to use an effective reminder system to track critical file dates.
D) She failed to confirm that the closing letter was sent to the client after the transaction concluded.
Correct Answer: C
Explanation: A lawyer must use reliable reminder systems, manual or electronic, to track limitation periods, deadlines, and time-sensitive tasks. Relying solely on memory or informal notes is insufficient, especially in complex transactions like real estate closings.
69. Daniel represents a client involved in a boundary dispute with a neighbouring Indigenous community. During a strategy meeting, the client refers to the community as “those people who always want something for nothing.” Daniel does not correct the comment or explain the potential impact of such rhetoric.
What should Daniel have done in response to the client’s remark?
A) Ignored the statement to preserve the working relationship and avoid escalating tension.
B) Reported the comment to the Law Society as potential misconduct under reconciliation protocols.
C) Addressed the comment and explained the need for respectful engagement in legal matters.
D) Referred the client to the Human Rights Tribunal for guidance on reconciliation policy.
Correct Answer: C
Explanation: Lawyers must address racist or discriminatory statements made in the course of legal work. Remaining silent condones the comment and erodes the profession’s commitment to reconciliation. Educating clients on respectful engagement with Indigenous communities is part of a culturally competent practice.
70. Jon acts for a developer in several ongoing subdivision applications. Without warning, Jon’s firm dissolves. He does not notify the client and assumes someone else at the firm will handle it. Several weeks pass before the client learns of the change and requests their file.
What professional obligation did Jon fail to fulfill when his firm dissolved?
A) He failed to transfer development permits to the new firm taking over the client’s projects.
B) He failed to provide timely notice of the dissolution and ensure the client’s file was properly transferred.
C) He failed to amend the original retainer agreement in light of the firm’s dissolution.
D) He failed to secure a lien on the developer’s property to preserve legal fees owed.
Correct Answer: B
Explanation: When a firm dissolves, lawyers must proactively notify clients whose matters are ongoing and provide options to continue service. Failing to do so risks leaving the client without representation during critical stages, which may lead to delay or prejudice.
71. Samantha is retained by both a parent and adult child in a property refinancing matter. The child intends to gift the parent a 50% interest in the home. After closing, the child confides that they are considering revoking the gift but asks Samantha not to inform the parent. Samantha continues to act for both.
What should Samantha have done?
A) Ceased acting for both clients once confidential instructions from one created a conflict that could not be resolved.
B) Suggested that the parties enter into a binding agreement setting out their respective interests and future intentions for the property.
C) Commissioned an independent valuation of the property to assist in clarifying the fairness of the transaction.
D) Filed an interpleader application to allow a judge to resolve the dispute and protect her professional obligations.
Correct Answer: A
Explanation: In joint retainers, a lawyer cannot keep information confidential from one client that materially affects the interests of the other. Where conflicting instructions arise, and the parties do not permit shared disclosure, the lawyer must withdraw from acting for both clients.
72. Tracy is a sole practitioner in estate planning and often works with older clients. During a client meeting, a caregiver repeatedly interrupts and answers questions on behalf of the client. Tracy proceeds to finalize the will without speaking to the client alone or verifying the client’s instructions directly. After the client dies, another relative challenges the will.
What professional obligation did Tracy fail to fulfill during the client meeting?
A) Tracy failed to notarize the will, which may affect its admissibility in court.
B) Tracy improperly filed the will using the procedure under Rule 60.09 of the Rules of Civil Procedure.
C) Tracy failed to confirm that the client’s instructions were independent and free from undue influence.
D) Tracy failed to collect the probate filing fees in advance, causing unnecessary administrative delay.
Correct Answer: C
Explanation: Lawyers must be alert to signs of diminished capacity or undue influence, particularly in estate planning for vulnerable clients. Where another person speaks for the client, the lawyer must insist on private communication and take steps to confirm that instructions are voluntary and informed.
73. A new client contacts Lionel to incorporate a family trust. During the intake call, the client discloses sensitive financial information. Lionel doesn’t open a file because the client hasn't retained him formally, and he fails to record the conversation. When the client later denies making certain disclosures, Lionel has no documentation to support his recollection.
What best practice should Lionel have followed in handling this intake call?
A) Filed the trust documentation under a temporary business number before proceeding with legal advice.
B) Opened a conflict file and made a written record of the intake conversation.
C) Delivered a written summary of the client’s objectives and a final opinion letter before being retained.
D) Notified the Ministry of Finance of the potential trust to preserve regulatory compliance.
Correct Answer: B
Explanation: Even before formal retainer, if confidential information is disclosed, a lawyer must open a file and document the interaction. This supports conflict checks and ensures there is a record of sensitive disclosures that may later become relevant.
74. A corporate client instructs Lara to issue a $300,000 wire transfer to a related company as part of an intercompany loan. The president gives verbal instructions but refuses to sign a confirming resolution or provide any documentation. Lara, concerned about delays, processes the wire anyway. The company’s board later questions her authority and files a complaint.
What critical step did Lara skip?
A) She failed to verify the client’s source of funds.
B) She failed to confirm the president’s identity under By-Law 7.1.
C) She failed to file a beneficial ownership declaration.
D) She failed to determine who was authorized to provide instructions.
Correct Answer: D
Explanation: Lawyers must confirm who within an organization has the legal authority to instruct them, especially in financial transactions. Verbal instructions are not enough where corporate governance requires resolutions or formal documentation. Acting on insufficient authority puts the lawyer at risk of professional scrutiny.
75. Joanna is managing a business purchase transaction on behalf of a client who is acquiring shares of a holding company. She receives instructions to wire $800,000 to a third-party consultant without any invoice or formal escrow arrangement. Joanna complies without asking further questions. The client later alleges the funds were misappropriated and Joanna failed to safeguard trust property.
How is the Law Society most likely to respond to Joanna’s handling of the trust funds?
A) Request a voluntary reimbursement from Joanna to resolve the client’s complaint without formal proceedings.
B) Direct Joanna to initiate a professional liability claim under her malpractice insurance coverage.
C) Launch a trust audit and review her file handling and practice management procedures.
D) Require the client to commence a civil suit before any regulatory investigation can proceed.
Correct Answer: C
Explanation: When trust funds are handled in a manner that raises red flags, especially large transfers without documentation, the Law Society may audit the lawyer’s trust accounts and broader file management practices. Lawyers must ensure that client property is safeguarded and managed in accordance with all regulatory requirements.
76. During a hearing before the Ontario Municipal Board, Krista allows her assistant to attend in her place for the morning session while she is delayed. The assistant, not a licensee, introduces preliminary submissions and responds to basic procedural questions. No objections are raised.
What professional rule did Krista breach by allowing her assistant to speak at the hearing?
A) She failed to file Form A-33 as required by the tribunal’s procedural rules.
B) She improperly delegated advocacy responsibilities to an individual without a legal licence.
C) She failed to designate the assistant as a licensed paralegal for the purpose of the appearance.
D) She submitted materials without confirming proper service on all parties in advance.
Correct Answer: B
Explanation: Lawyers must not delegate tribunal advocacy roles to non-licensees. Only authorized persons may make submissions or appear before a tribunal. Even absent objection, this conduct compromises procedural integrity and risks disciplinary consequences.
77. A junior associate is asked to handle a multi-million-dollar share sale of a complex corporate group. The associate has never managed a transaction of this scale but assures the client they can deliver. They do not consult a senior lawyer or review relevant securities regulations. Key disclosures are missed, resulting in regulatory penalties for the client.
How should the associate have responded?
A) Delegated closing responsibilities to law clerks with experience in similar commercial matters.
B) Asked the client to acknowledge the risks and waive any claim for liability.
C) Declined the file or obtained help from a lawyer with experience in the field.
D) Filed a late registration and sought to resolve the matter through corrective litigation.
Correct Answer: C
Explanation: A lawyer must recognize when a matter exceeds their skill and experience. If they cannot become competent without undue risk, delay, or expense to the client, they must consult, refer, or decline the file. Proceeding alone in a complex, unfamiliar area is a breach of competence.
78. Alex is retained by a client with limited English proficiency to review a business purchase agreement. The client brings her cousin to interpret. The cousin often paraphrases Alex’s legal explanations, and Alex notices the client nodding without asking questions. Believing it’s not his role to interfere, Alex proceeds with the closing.
What duty did Alex fail to discharge?
A) The duty to notarize all translated documents.
B) The duty to ensure the interpreter was neutral and accurate.
C) The duty to verify the cousin’s citizenship status.
D) The duty to file a conflict waiver for the cousin.
Correct Answer: B
Explanation: Lawyers must ensure that any interpreter is qualified, neutral, and capable of conveying information accurately. Relying on a family member, especially without confirming consent, accuracy, or neutrality, can undermine informed consent and affect the reliability of the client’s instructions.
79. Amira is retained to incorporate a holding company for a new property venture. She meets the client in person once and later emails the signed articles to the client’s accountant. The accountant is not a party to the retainer and later uses the documents to file inconsistent tax information. The CRA begins a review and contacts Amira for clarification.
Which element of Amira’s conduct constitutes a breach of client confidentiality?
A) She invoiced the accountant rather than the client, creating ambiguity in the billing arrangement and client identification.
B) She failed to proactively notify the CRA about the inaccurate tax filing, potentially exposing her client to regulatory penalties.
C) She sent confidential legal documents to a third party without receiving express or implied consent from her client.
D) She neglected to keep a secondary copy of the accountant’s tax filings to support future Law Society compliance audits.
Correct Answer: C
Explanation: A lawyer may only share client information with third parties when authorized, either expressly or by clear implication. Sending incorporation documents to a non-client without understanding the legal consequences of that action may compromise both confidentiality and the client’s position.
80. A real estate lawyer represents a builder selling units in a new subdivision. A buyer’s elderly parent attends all meetings and even signs the agreement of purchase and sale on the buyer’s behalf. The lawyer does not question the arrangement or confirm the buyer’s instructions directly. Months later, the buyer alleges that they never agreed to the purchase and files a complaint.
What professional obligation was breached by the lawyer in this scenario?
A) The lawyer failed to confirm that the individual giving instructions was the client or had authority to act on the client’s behalf.
B) The lawyer improperly assumed that execution of the agreement met legal requirements without conducting a full formal compliance review under conveyancing practice rules.
C) The lawyer neglected to review the financial source of the purchase funds or assess whether the transaction required a suspicious activity report under money laundering guidelines.
D) The lawyer failed to protect the purchaser’s interest by placing a caution on title to prevent subsequent dealings until the beneficial owner could be confirmed.
Correct Answer: A
Explanation: Lawyers must be clear about who the client is and confirm that the individual providing instructions is authorized to do so. When dealing with non-clients, such as relatives or representatives, the lawyer must verify the scope of authority and the identity of the true client.